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Difficulty: HardLaw of Agency: Creation, Authority, and Types of Agents

A produce merchant in Kano consigned 500 bags of groundnuts to a commercial agent in Lagos, granting him physical possession of the goods to sell in his own name. To protect against potential buyer defaults, the merchant agreed to pay the agent an extra commission in return for the agent personally guaranteeing the solvency of all credit buyers. What legal classification best describes this agent, and what is the nature of his liability to the principal?

  1. He is a del credere agent acting as a factor, personally liable to pay the principal if a credit buyer defaults.Answer
  2. B
    He is a broker with apparent authority, liable only if the principal repudiates the contract due to breach of warranty.
  3. C
    He is a universal agent created by necessity, liable because physical possession of goods automatically transfers title and buyer credit risk to the agent as under a hire purchase agreement.
  4. D
    He is a general agent operating under estoppel, liable as a general partner with unlimited financial liability for all debts of the principal.

Answer

The agent is a del credere agent acting as a factor, making him personally liable to pay the principal if a buyer defaults.
The description combines two distinct agent attributes: having physical possession of goods to sell in his own name (defining a factor) and receiving a special additional commission to guarantee payment by buyers (defining a del credere agent). Thus, if a buyer fails to pay, the del credere factor must pay the principal.

Step-by-Step Solution

1
Analyze the agent's possession of goods and authority to sell.
Since the agent was given physical possession of the groundnuts to sell in his own name, he operates as a factor (mercantile agent).
A factor is a mercantile agent entrusted with the possession and control of goods with authority to sell them in his own name.
2
Analyze the financial guarantee and extra commission arrangement.
The agreement to receive an additional commission in return for guaranteeing buyer solvency creates a del credere agency.
A del credere agent assumes extra financial responsibility by guaranteeing that credit buyers will pay for goods purchased, in exchange for a del credere commission.
3
Determine the legal liability resulting from this classification.
If a credit buyer defaults on payment, the del credere agent becomes personally liable to compensate the principal.
The core legal obligation of a del credere agent is to act as a surety for the buyer's solvency to protect the principal against bad debts.

Key Concept

Types of Mercantile Agents: Factor and Del Credere Agent
Estimated Time:1m 30s
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Topics

Law of Agency: Creation, Authority, and Types of Agents

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