AGENCY

It is a contract whereby one person (the principal) employs another (the agent) to act for him and
enter into contractual relationships binding between him and third parties. Any contract or act
which a person may validly make or do himself, may validly be made or done by an agent on his
behalf by an agent on his behalf. However, there is a common law exception where an agent cannot
act on behalf of another. This is in situations where an act may expressly or impliedly require
personal performance.

Formation

Generally, there is no formality required in the formation of a contract of agency, except that a
written power of attorney is necessary to enable a legal practitioner to represent a client in the High
Court but not the Magistrate’s Court. A written power of attorney is also necessary to enable a
conveyance to execute transfers and mortgages of immovable property on behalf of clients in the
Deeds Office.

Agent’s authority

For an agent to act on behalf of the principal, he must have authority from the principal. If the agent
acts without the principal’s authority, that act is said to be ultra vires and not binding on the
principal. Such an act will be binding on the agent himself, which is one of the exceptional
circumstances where an agent is liable on contracts he concludes on behalf of the principal. No
agent can have greater authority than the principal possesses, therefore the inability of a person
who lacks contractual capacity to appoint an agent.

General principles of contract apply in determining whether an agent has authority or not. Actual
authority may be conferred on the agent expressly, impliedly or tacitly, or the principal may be
estopped from denying that he has conferred a particular authority on the agent. An agent may also
rely on the doctrine of quasi-mutual assent in establishing the extent of his authority.

Implied authority is actual authority, meaning that it can be relied upon by the agent as well as by a
third party. Implication can either be by law or by trade usage or from the circumstances. The most
important authority implied by law is authority to an act incidental to the authorised act or authority
to include all the necessary and usual means of executing it.

Types of authority

a) Express authority- The parties have specifically agreed on what the agent is to do (mandate)
and what the gent is to get as his remuneration (commission). It must be established that
the agent will not be liable on the contract itself. If he is then there is no contract of agency.
This is so because the term agency is sometimes used in a very loose sense/form. An express
authority is unlikely to lead to a dispute. Karaolias v Sulam.
Karaolias owned a motor vehicle and he gave it to Sulam. When it was given to Sulam, they
agreed that Sulam sells the car for $ 2000 cash. Further it was agreed that if Sulam was able
to sell that car for above the $2000 he will get everything above the $2000. Sulam went to a
 second hand car dealer who found a buyer for $2080. The prospective buyer persuaded the
dealer to part with the car, who agreed without any payment having been made. The car
was involved in an accident. Karaolias sued Sulam for $2000. Sulam argued that the
relationship between him and Karaolias was one of agency and the moment the prospective
buyer came about, the relationship was therefore between Karaolias and the buyer and that
Sulam was not liable. Karaolias argued that there was no agency but an agreement to sell
and from him he expected payment. The court held that there was no contract of agency
and held Sulam liable for the $2000.

b) Apparent authority- This is implied authority to perform acts usually performed by agents
employed in that capacity unless this implied authority is expressly excluded. If a principal
employs a servant or agent in a particular capacity and it is generally recognised that
servants or agents employed in this capacity have authority to do certain acts then any of
those acts performed by such servant or agent will bind the principal because they are
within the scope of his apparent authority. The principal is bound even though he never
expressly or impliedly authorised the servant or agent to do those acts, nor had he by any
special act, other than the act of appointing him in this capacity, held the servant to or agent
out as having this authority. The agent’s authority flows from the fact that persons
employed in the capacity in which he is employed normally have authority to do what he
did.
Nel v S.A Rail & Harbour

It was a situation of the transportation of a car from the seller to the buyer. The seller was to
act as the agent of the buyer in having the car transported to the buyer. The seller consigned
the car with the railways. There were two forms of transportation, namely at owner’s risk
and at the railways’ risk which was more expensive. The seller consigned at the railway’s
risk. The general practice was that cars were being consigned at the railways’ risk. The buyer
refused to pay for the extra charge arguing that the seller had no authority to do what he
did. The court held that the seller had apparent authority in the circumstances.

c) Implied authority from conduct- Authority can be implied from the conduct of both the
agent and the principal.

Faure v Louw

Louw had a business run by his son who was in the habit of signing cheques and endorsing
promissory notes on behalf of the business. The father had not specifically authorised the
father to do so, neither had he prohibited him from doing so. One of the cheques issued by
the son was dishonoured by the bank and the father was sued on it. He denied liability on
the basis that the son had not been authorised to do what he did. The court held that
authority must be implied from the circumstances.

Agency by estoppel/ostensible authority-the most important aspect of this type of authority

is that actual authority does not exist but the principal conducted himself in such a manner
that a reasonable man is led to believe that the principal has conferred authority on the
agent. The principal is then estopped from denying that he has given authority.
 Requirements of estoppel.

1) There must be a representation by the principal. A representation is a statement of a

fact.

2) The representation must mislead a reasonable man into believing that the principal has
conferred authority.

3) The third party must rely on the representation in transacting with the agent.

4) The third party must act to his detriment/disadvantage.

Quinn & Co v Witwatersrand Military Institute

d) Agency by Ratification-It is the adoption by a principal of an act done on his behalf, either by
a person who was not his agent at the time or by a person though his agent did not have
authority to do the particular act at the time. Two situations therefore arise, namely where
one is not an agent and where one is an agent. It can therefore be used either to create a
contract of agency where no agent had been appointed before or to confer authority on an
existing agent.

Ratification acts retrospectively to the time the contract was concluded. It also be express or
implied even from mere acquiescence e.g. failure to repudiate a contract within a
reasonable time or acceptance of the benefit of a transaction. The effect of ratification is to
put all parties in the position they would have occupied/or would have been if the act had
been properly authorised. However ratification should not disturb or prejudice any rights
acquired by the other party to the transaction or any third party. Ratification does not
remove the agent from liability to his principal for having exceeded his authority. The
principal can therefore take action against the agent for breach of trust.

Requirements for ratification

a) The transaction must have been valid. It cannot be used to validate a transaction which
would not have been valid even if authority had been given before it was entered into.

b) The parties to the transaction must have contractual capacity.This is in line with the
previous requirement that the transaction must be valid. Refer to the requirements of a
valid contract.

c) The principal must be in existence. The general rule is that no principal can ratify a
transaction entered into on his behalf before he was in existence. Note that ratification
amounts to conferment of authority and no authority can be given in situations where
there is no principal. Kelner v Baxter

However the Companies Act permits companies to ratify pre-incorporation contracts

when a company gets registered. This is a statutory in-road into the provisions of the
common law rule.
 In order to go around the problems created by the Kelner v Baxter principle, the law
developed the stipulatio alteri contracts. These are also referred to as contracts for the
benefit of third parties. It is possible to contract as principals with a stipulation in the
contract that the benefits accruing to the contract will be enjoyed by a third party without
the third party incurring any obligations under it.

d) Ratification must be complete. Ratification must be with full knowledge of all material
circumstances or with the intention of validating the unauthorised act in all events.
Ratification should not be piece-meal. The principal should not ratify only the parts
which are beneficial to him and disregarding those which do not give him any benefits. A
principal who ratifies a part only of a complex transaction will be taken to have ratified
the whole transaction. A person should not blow “hot and cold”

e) Profession of authority. At the time of contracting the agent must have someone in mind
that is going to ratify or benefit from the transaction. Nobody can ratify an act unless it
was performed expressly on his behalf. Therefore the performer of the act cannot
“hawk” the transaction around in a bid to find someone to ratify the transaction.

f) Ratification should be within time. If a time limit is set for the performance of the
contract, then ratification should be before that time limit has expired. If it is ratified
after it expires then the ratification is ineffective and the contract out of time.
Ratification must be within a reasonable time of performance of the unauthorised act.

Ratification cannot retrospectively impose an obligation/duty on a third party. Also it does not
remove the agent from liability to his principal for having exceeded his authority.

Relation between the agent and the principal

Duties of the agent

a) Performance of mandate. An agent must discharge his duties fully and faithfully. In
performing his mandate he must obey his principal’s instructions. In the absence of express
instructions he must follow any trade usage that may prevail and generally use his judgment
for the sole benefit of his principal. If an agent has substantially performed he will be taken
to have performed. What amounts to substantial performance will depend on the
circumstances of each particular case.

Metro-Goldwyn-Meyer v Herman

Denys v Elvy

Umtali Farmers Co-op Ltd v Sunnyside Coffee Estates (Pvt) Ltd

b) Care skill and diligence. An agent must not be negligent. He must exercise skill and care in
the discharge of his principal’s affairs. The degree of skill and care that he is obliged to show
will depend on the circumstances. Less skill and care will be expected of a lay-man as
opposed to a professional. Therefore the degree expected is that of a reasonable and
 prudent agent in the position of the particular agent. See Herdley Byrne & Co Ltd V Heller
and Partners. This is one of the benchmark cases on negligence.

c) Duty to account. An agent handling money or other property on behalf of the principal is
under a duty to account to the principal. This duty entails the agent rendering accounts to
the principal and not simply making entries in his books. An agent must keep proper books
of account .The agent must keep his principal’s money and property separate from his own
and from that of other people. The principal’s money and property must be delivered to him
on demand.

d) Duty of utmost good faith (uberrimae fidei). An agent has a fiduciary relationship with his
principal.

1) Conflict of interest. An agent should not allow a situation to develop where his interest
conflicts with his duty to the principal. If such a situation develops or is likely to develop
he must disclose the nature and extent of that interest to the principal. Macaulay J in
the case Fox and Carney (Pvt) Ltd v Dilworth said that ” the essence of the agent’s
fiduciary duty is that he must not use his services to promote any interest other than his
principal’s; he must give the latter the full benefit of his services and any benefit or
advantage which arises in the course of executing the mandate”

2) Secret profits. An agent may not make any secret profits from his mandate other than
the commission which he is entitled to under the contract of agency. Any extra profit
becomes the property of the principal. Gubbay J in one of his judgments said “Of
course, where a profit is made by the agent on a transaction completely outside the
agency relationship, then the agent is not accountable to his principal………..The criterion
is whether the profit was directly or indirectly connected with the agency. It is
immaterial that the profit did not arise out of the transaction directly within the
mandate of the agent, provided it was acquired by means of the agency.” A buying agent
may not without express authority sell his own property to his principal, nor may a
selling agent buy his principal’s property. Note must be taken of the fact that such
transactions may be validated by the principal after full disclosure by the agent. The
necessity for agents to maintain the utmost good faith is so fundamental to the conduct
of business that collusion with a third party to commit a breach of the agent’s fiduciary
duty to his principal has been made a criminal offence. Refer to the Prevention of
Corruption Act. “…………….was framed against the backdrop of the law of agency and is
directed at ensuring…………that an agent does not breach the trust and confidence
reposed in him…………..his duty to show the utmost good faith, and to conduct the
principal’s affairs in the latter’s interests and not for his own benefit.” The issue of
bribery also falls under the ambit of secret profits.

3) Use of property. Property includes intellectual property. An agent is not permitted,

either during or after the agency, to make use of any of the principal’s property,
including information such as trade secrets, which he has acquired in the course of his
duty as agent.
 4) Disclosure of information. An agent should not disclose confidential information to third
parties without the principal’s authority.

An agent may become liable to his principal for breach of his various duties. The principal is entitled
to claim damages for breach of contract or for delict. A principal who discovers that his agent has
taken a bribe or made a secret profit may sue for the amount of the bribe or secret profit and for
damages. He can also instantly dismiss the agent and sue for the return of any remuneration paid for
that transaction

Duties of the principal

a) Remuneration. The amount of remuneration may be expressly agreed. However if the terms
of the contract are ambiguous, evidence of trade usage may be used to show that he and
the principal were at one on the terms of the contract. In the same vein, if the amount of
remuneration is not fixed, the amount of reasonable remuneration or quantum meriut will
be ascertained with reference to the usage of the trade or any other relevant circumstances.
An agent with instructions to sell for a minimum price who succeeds in selling at a higher
price must account for the difference, and cannot retain as his remuneration that portion of
the difference which exceeds his agreed remuneration. This is simply an application of the
general prohibition against secret profits. An agent is entitled to remuneration when he has
substantially performed his mandate. It does not matter whether the principal has benefited
from the performance of the contract or not. The question in each case is simply whether
the agent has done what he was directed to do. An agent has no right to remuneration for a
particular transaction if he has wilfully or negligently failed to perform his duty or performed
it in an improper manner.

b) Reimbursement and indemnity. An agent is entitled to claim all expenses properly incurred
in the performance of his duties. Similarly, the agent is entitled to indemnity against
liabilities properly incurred by him. Liabilities and expenses will be held properly incurred if
necessitated by the reasonable usage of a particular market

The relationship between the agent and third parties

Generally an agent is not liable on contracts he enters into on behalf of the principal. This is because
when acting as agent, he acts as a “conduit pipe” in creating legal relationships between the
principal and third parties. However the agent becomes liable to third parties in the following
circumstances:

a) Where the agent expressly or impliedly or by usage of trade accepts personal liability on the
contract. The agent will have indemnified the principal.

b) When an agent does not disclose the fact that he is contracting as agent. This is a situation of
undisclosed principals. This is based on the principle of quasi-mutual assent. A third party is
entitled to regard the agent as principal since he cannot continue contracting with someone
whom he does not know.
 c) Breach of warranty of authority: Where the agent is acting without authority. He is giving an
undertaking to a third party that he has authority, and if he does not have, the principal is
going to ratify the contract. If the principal does not ratify the contract, the agent becomes
personally liable on the basis of breach of warranty of authority.

TERMINATION

Generally agency comes to an end like any other contract. However it is terminated specifically in
the following ways:

a) Renunciation by the agent. However the principal can claim damages against the agent if
this has been done at an inopportune time.

b) Completion of mandate

c) Effluxion/passage of time. Agency comes to an end when the agency has been set to run for
specific period of time and that period has elapsed.

d) Revocation/withdrawal by the principal. The principal can withdraw his authority at any time
before performance of the mandate by the agent. However the principal may not revoke his
authority without incurring liability for damages if he has expressly or impliedly agreed not
to revoke. Agency cannot be revoked by the principal if authority is granted in protection of
or as security for some interest of the agent. Such is called procurator in rem suam or agency
coupled with an interest. This is where the agency itself creates a right or interest on the
part of the agent. Natal Bank v Natorp Natorp borrowed money from the bank which was
to be secured by a mortgage bond over certain of his property. He authorised the bank to
register the bond in its favour. Before settling his indebtedness, Natorp purported to
withdraw his authority for the registration of the bond. The court held that this was a
situation of irrevocable agency. Natorp could not revoke the agency before settling his
indebtedness to the bank.

Revocation may be implied from the circumstances. Failure to notify third parties of revocation
render the principal bound on the basis estoppel.