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Agent & principle
Sec.182 of ‘The Indian Contract Act, 1872’ defines “an agent” as a
person employed to do any act for another or to represent another in
dealings with third persons. The person for whom such act is done or who
is so represented is called “the Principal”. Thus an agent is a person, who
acts for and on behalf of the principal and under the latter’s express or
implied authority and the acts done within such authority are binding on
his principal and, the principal is liable to the party for the acts of the
agent. Banks collect cheques, bills, and makes payment to various
authorities viz., rent, telephone bills, insurance premium etc., on behalf of
customers. . Banks also abides by the standing instructions given by its
customers. In all such cases bank acts as an agent of its customer, and
charges for theses services. As per Indian contract Act agent is entitled to
charges. No charges are levied in collection of local cheques through
clearing house.
A lot of appraisal both legal and otherwise has been done on the relationship of the banker
and the customer. The law of banking is concerned not only with the legal framework of
banking business but also with the peculiar legal relationship which subsists between bankers
and their customer. One of the extended areas of contractual relationship which, exist is that
of banker and customer relationship. It shares a major characteristic of any contractual
transaction which exist between; principal and agent
3.2 PRINCIPAL – AGENT RELATIONSHIP
In a limited sense, a banker is an agent of the customer with regard to the banker’s
duty to pay money to the amounts specified by a customer of the bank in favour of third
parties. Agency relationship has been described as arising when one person performs certain
tasks on behalf of another person1. An agency has been defined as
1 Fayokun K.O (2011) “Commercial Law” Concise Law Series

The relationship that exists between two persons when one, called agent, is considered
in law to represent the other, called the principal in such a way as to be able to effect the
pricipal’s legal position in respect of strangers to the relationship by the making of contracts
on the disposition of property2. The basis of the agency relationship has also been said to be
the endowment by the principal on the agent with the power to act in place of the principal.
Usually this power arises by consent. Agency is most frequently a consensual relationship
arising from agreement between the principal and the agent.3
The banker acts as an agent of the customer (principal) by providing the following agency
services:
a. Buying and selling securities on his behalf.
b. Collection of cheques, dividends, bills or promissory notes on his behalf.4
c. Acting as a trustee, attorney, executor, correspondent or representative of a customer.
The banker as an agent performs many other functions such as payment of insurance
premium, electricity and gas bills, handling tax problems, etc.5 it has also been held that the
role or predominant business of bankers is the business of banking which consists mainly in
the receipt o monies on current deposit account and the payment of cheques issued by a
customer.6
A relationship of principal and agent has also been said to exist where the banker acts
as a collecting banker for cheques paid in by customers7. According to Ayoola, J.S.C in Bank
2Fridman (1971) The Law of Agency, London: Buttersworth Pg.8
3 Fayokun K.O op.cit
4 See Capital Counties Bank Ltd v. Gordon (1903) AC 243 HL
5See Afribank Nigeria Plc v. Aminu Ishola Investment Ltd. (2002) 7 NWLR pt. 765 40
6 id
7First Bank of Nigeria Ltd. V. African Petroleum Ltd (1996) 4. N.W.L.R. Pt.443,438

of the North v. Yau8. The collecting bank is an agent of the customer for the purpose of
receiving payment of…cheques from the banker on whom they are drawn
The analogy of the banker as the agent and the customer as principal is however
fraught with with so many problems due to the fudiciary relationship expected from an agent.
The agent in agency relationship is bound to account for profit, he must not make secret
profit. The question whether or not the banker as an agent to the customer is entitled to
renumeration would have arisen if the banker customer relationship is to be likened to the
agency relationship.9 all these characteristics of agency relationship would have impeded the
development of the banking system as known today.
It should also be noted that the scope of the agency relationship is measured by the
length of authority possessed by an agent to affect the legal position of his principal in
relation to a third party. In a banker customer relationship, the only authority the customer
that is, the principal possess is the authority to order for payments of cheques drawn on him
and by him. The authority of the principal in an agent principal relationship is to an extent
absolute. A principal in an agent principal relationship is also bound by the acts of his agent,
but in a banker customer relationship, the customer is in no way bound by the acts of his
banker on the money/valuable he deposited with him that is, his banker.
It is submitted from the foregoing that the relationship that exists between a banker
and his customer though shares some similarities with the principal agent relationship, it’s not
the same with the latter. This is so because the customer cannot dictate to the bank how the
bank will deal with the money he deposits in his account. Although the bank charges interest
for services rendered for the customers, this is not the same thing with remuneration such as
salary and wages as we have in an agency relationship.
8Op. cit pg 26
9 Okany M.C op cit pg 32

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