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Difficulty: MediumLaw of Agency: Rights, Duties, Liabilities, and Termination

Emeka was appointed as a commercial agent by Chidi Trading Enterprises to sell a consignment of electronic goods strictly on a cash-only basis. Disregarding his principal's express written instruction, Emeka sold the consignment on credit to a customer who subsequently defaulted and became insolvent. What is the primary legal consequence of Emeka's action regarding his relationship with his principal?

  1. Emeka is personally liable to Chidi Trading Enterprises to make good the financial loss caused by breaching his duty of obedience.Answer
  2. B
    Chidi Trading Enterprises must absorb the entire financial loss because agents cannot be held accountable for third-party defaults.
  3. C
    Emeka is fully discharged from liability because he acted in good faith to expand the principal's customer base.
  4. D
    The agency contract is automatically terminated by operation of law on the grounds of contract frustration.

Answer

Emeka is personally liable to Chidi Trading Enterprises to make good the financial loss caused by breaching his duty of obedience.
Under the Law of Agency, one of the primary duties of an agent is the duty of obedience—the obligation to follow all lawful instructions given by the principal. When an agent expressly disobeys a directive (such as selling on credit instead of strictly for cash), the agent acts at their own risk and must personally indemnify the principal for any financial loss directly resulting from that breach.

Step-by-Step Solution

1
Identify the legal relationship and specific duties involved.
Emeka is an agent acting for Chidi Trading Enterprises (the principal) under defined terms.
Under the Law of Agency, an agent owes specific fundamental duties to the principal, including obedience, care, and loyalty.
2
Evaluate the agent's conduct against express contractual terms.
The principal gave an express written instruction to sell strictly for cash, which Emeka disobeyed by selling on credit.
An agent must strictly obey all lawful and reasonable instructions given by the principal regarding the performance of the agency.
3
Determine legal liability resulting from the breach of duty.
Emeka committed a breach of duty of obedience, making him personally liable for the direct financial loss incurred by the principal due to the customer's insolvency.
If an agent exceeds authority or disobeys instructions, any loss arising directly from that disobedience falls entirely upon the agent.

Key Concept

Agent's Duty of Obedience to the Principal
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Topics

Law of Agency: Rights, Duties, Liabilities, and Termination

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