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The commercial world is littered with contracts of every kind. Among these, is the contract of agency.

In the
execution of duties and obligations arising from agency contracts, it is expected that the parties of the
contract conduct themselves in the highest degree of faithfulness, as dictated by the doctrine of ‘Uberrimae
Fidei’. It is the intention of the essay to show that an agency contract is a contract of Uberrimae fidei. The
writer will first define key terms and thereafter explore the contract of agency in relation to doctrine of
Uberrimae Fidei (utmost good faith), after which concluding thoughts will then be given to sum up the
discussion.

Definition of terms:
Contract - is an agreement between two or more people (parties), giving rise to rights and corresponding
duties (obligations), which are enforceable in a court of law. The essence of a contract is that the law will
compel a party who has seriously undertaken an obligation to perform what he has promised. For a contract
to be binding, it has to have certain elements, and these are; possibility of performance; legality
(lawfulness); contractual capacity; serious intent to contract (animos contrahendi) by all parties; union of
minds (consensus ad idem) of the parties concerned; it should not be vague; and the intention of both parties
should be communicated.

Agent- An agent is a person or entity authorised to act on behalf another (a principal), through employment,
by contract or apparent authority (Burton, 2007). The agent is bound by precise instructions or left to pursue
his own discretion. It has to be stated though that the agent is not an employee of the principal, but an
independent entity although his actions are for the benefit of another.

Uberrimae Fidei- a phrase literally translated as ‘most abundant good faith’. In Contract Law, it refers to a
class/group of contracts in which knowledge of the material facts lies with one party alone; that party is
under a fundamental duty to make a full disclosure of all these relevant and material facts to the other. The
doctrine of Uberrimae fidei, in contracts, calls for complete transparency and honesty in dealings between
parties to a contract.

Contract of Agency- defines the relationship between two parties, one a Principal and the other an Agent.
In this contract the agent assumes the obligation to promote, carry out or close commercial or non-
commercial transactions on behalf of the principal with a third party, receiving an agreed price or
commission (Burton, 2007). It is a continuous and stable relationship where the agent, whether an individual
or legal entity, is an independent intermediary with its own business structure and without subordination to
the principal. The essentials of agency are as follows; first, the relation is a consensual one, where, an agent
agrees, or consents to act under the direction or control of the principal. Secondly, the relationship is a
fiduciary one; an agent agrees to act for and on behalf of the principal. He is in no sense a proprietor entitled
to the gains of enterprise, nor is he expected to carry the risks; all risk is carried by the principal (Steffen &
Kerr, 1980).

An agency contract creates a fiduciary relationship between the principal and the agent. A fiduciary
relationship is a relationship of trust that must exist between the two parties. To that effect, the agent is
under obligation to accomplish the given mandate. The Principal gives authority to the Agent to act and
carry out business affairs and dealings on his behalf, this could be because the principal is not in a position
to carry out that particular duty on his own, or he does not have the expertise or is not well versed in the
field in question or he simply does not have the time to do so himself, and so he seeks the services of one
who can do for him what he cannot. This on its own signifies a great deal of trust. Since the principal
confers upon his agent authority, if the agent acts within the confines of his mandate, should any problems
arise, the principal will not hold the agent liable for any damages, unless they emanate from negligence and
delict on the part of the Agent. Also if the agent acts outside the confines of his mandate, the principal will
not be bound by these. However the principal may chose to rubber stamp (ratify/validate) the agent’s act if it
is in his best interest

Once a contract of agency is signed, it gives rise to duties of the agent and of the Principal. Both the
principal and the agent are bound by the contract and thus both should fulfil their duties when time comes. It
is required of both the agent and the principal to act in a manner that shows utmost good faith towards one
another.

DUTIES OF THE AGENT:


Performance of the Mandate
Of paramount importance, on the part of the agent, is the performance of the mandate. The agent is to act as
if the business and dealings he is carrying out are his won, thus discharging these fully and faithfully as unto
himself, holding himself to the highest degree of good faith. The agent must follow any trade usage that
prevails, adhere to the set rules and regulations and exercise his discretion and good judgement for the sole
benefit of his principal and avoiding any activities that are of questionable legality that would otherwise put
the principal in the crosshairs of the law. Also, since the agent acts on behalf of principal, it is the
principal’s reputation that is put on the line. The agent therefore should discharge his mandate such that he
does not bring into disrepute the name or trade-name of his principal.

Duty of Care, Skill and Diligence


Any activity, deal or contract that the agent enters into on behalf of the principal is binding on the principal
himself, and as such the agent should exercise reasonable and due care and skill and diligence in the
discharge of the principal’s affairs. The determination of what is reasonable takes into account the general
level of skill and diligence possessed and exercised by the member of the branch of the profession to which
the agent belongs. If performance of the mandate requires a particular set of skills or expertise, the agent
warrants that he is suitably qualified when he undertakes the mandate. If it is proven otherwise, the agent is
liable for damages emanating from lack of skill required.

In the case Frost vs. Bayer SA Pvt (Ltd), the parties agreed that the defendant (Bayer) would spray Frost’s
vine fields which also had wheat and onion. Bayer made assurances to Frost that as a result of the spraying,
the Wheat and Onions would not be affected. However, they were destroyed when the vine fields were
sprayed. Frost sued and it was discovered that Bayer had never before sprayed vineyards mingled with
wheat and onions using a helicopter before and also they had not taken any steps to find out if it was
possible to spray under such condition. The court held that Bayer acted negligently and held that negligence
was a delict and it attracted delictual damages.

If the agent is negligent, it is the principal that suffers the consequences. All contracts that the agent intends
to bind his principal to must and have to be well read, re-read, reviewed and double checked and no stone
should be left unturned, in order to check for any clauses, conditions and contractual provisions that would
potentially put the principal in an unfavourable position. Since the principal has entrusted his affairs to the
agent, he depends on the agent to exercise his skill and tact in his services. The agent therefore has to act to
the best of his abilities while carrying out his mandate. There is no room for recklessness, as this would
have calamitous consequences on the part of the principal. If the agent acts negligently, the courts will hold
him liable and will bear the damages arising from the reckless discharge of his mandate.

Duty to render an Account


An agent in his handling of the principal’s affairs, will, from time to time, handle money or other property
on behalf of the principal and it is, therefore, his duty to account for everything, to the last dot. In
connection with the agent's duty to account, it has been held that it is his duty to keep accurate accounts of
all his dealings on behalf of the principal. If he does not, everything which is consistent with the proved
facts is presumed against him. This duty also requires the agent to render the proper and properly updated
books of accounts to the principal upon request. These have to detail every transaction undertaken on of
behalf of the principal and if need be, further explanations should be given on demand should there be
situations that call for such. On completion if his mandate, the agent is accountable for everything that fell
within the scope of his or her mandate and as such he has to fully disclose of any transaction to his principal,
as dictated by the principle/doctrine of Uberrimae fidei.
An agent is obliged to pay over or otherwise account for all monies in his possession where such monies
have been received from the principal; that which he receives from a third party to hand over to the
principal, and that which he is deemed to receive on behalf of the principal.
Duty to Act in good faith
The duty to exhibit utmost good faith is arguably one of the most important and exacting duties owed by an
agent towards his principal. Agency creates a fiduciary relationship between agent and principal and thus
creates a fiduciary duty between the parties. The agent is therefore enjoined by the law to conduct the affairs
of his principal in the best interest of the principal and not for his own benefit. An agent holds a position of
trust and confidence and the nature of fiduciary obligations binds the agent to act in the interest of the
principal. At all times, the agent must hold himself to the highest degree of good faith in the execution of
his mandate. This means that the agent must act honestly and in line with good morals, for the benefit of his
Principal. He therefore must not intentionally cause harm or loss to the principal and since he is a steward of
the principal, he should handle the affairs of the principal as they were his own. In a nutshell, an agent
breaches the fiduciary relationship if he makes secret profits; if there is conflict of interest; if he abuses
confidential information and if he delegates the authority granted to him without prior authorization by the
principal.

-Secret Profits
In acting in good faith, the agent is not to make any secret profits or rewards for himself at the expense of
the principal. In Levin v Levy (1917) the court held that ‘the mere fact of an agent receiving and retaining a
secret profit or commission arising out of and in connection with the performance of his duty constitutes
unfaithfulness and dishonesty towards his principal’. To that end, all profit acquired by the agent in his
agency duties are required for the principal. In the case of Volvo vs. Yssel (2009), the defendant, a senior
manager, during his employ with the Plaintiff had used his influence as a senior executive to secure
personnel through a certain labour broker. What his employer company was unaware of was that the
defendant had an arrangement with the labour broker and that the placement of the staff through the broker
had resulted in the defendant earning a healthy amount in commission, from that labour broker. When the
Plaintiff learnt of the arrangement, the executive resigned and the company sued the manager. It sought an
order declaring the executive liable to pay the secret commission to it.

The court of appeal held that the position of the executive was such that he was trusted and the Company
dealt with him as an insider. An American case was quoted by the Court, in which it was found that when a
firm lets its guard down and deals with a person as an insider, not as a stranger, the duty of that person is to
reciprocate the trust ideal. The defendant, as a senior manger had taken it upon himself to arrange the
employment through the labour broker. As he was trusted, he was able to do this even though human
resources was not part of his portfolio. In other words, the company let its guard down as far as he was
concerned. It expected that he would, as a senior executive, act in its best interests, not his own. The Appeal
Court upheld the Plaintiff’s argument. The defendant was ordered to repay the money that he had made, to
the plaintiff.
- conflict of interest
An agent whose interest’s conflict with the principal’s interests may be unable to represent his principal
effectively. Therefore, an agent may not acquire a material benefit from a third party in connection with an
agency transaction. When conducting the principal’s affairs, an agent may not deal with himself. For
example, an agent authorized to sell property cannot sell that property to himself. The courts usually extend
the rule to include transactions with the agent’s relatives or business associates or with business
organizations in which the agent has an interest.

However, an agent may engage in self-dealing transactions if the principal consents. For this consent to be
effective, the agent must disclose all relevant facts to the principal before dealing with the principal on his
own behalf. Unless the principal agrees otherwise, an agent also may not compete with the principal
regarding the agency business and not assist the principal’s competitors, as long as he remains an agent.
Thus, an agent employed to purchase specific property may not buy it himself if the principal desires it.
Furthermore, an agent ordinarily may not solicit customers for a planned competing business while still in
the employ of the principal.

Furthermore, an agent who is authorized to make a certain transaction may not act on behalf of the other
party to the transaction unless the principal knowingly consents. Thus, one generally may not act as agent
for both parties to a transaction without first disclosing the double role to, and obtaining the consent of, both
principals. Here, the agent must disclose to each principal all the factors reasonably affecting that principal’s
decision.

In Robinson v Randfontein Estates Gold Mining Company (1921), Robinson, a director at Randfontein
Gold mine, sought to benefit from a transaction he had entered into on behalf of his company. He acquired
some property in his personal capacity so as to sell it to his company at a higher price. The court held that he
was in breach of his duty of good faith. The transaction was in direct conflict with the company, as he
sought to make a profit out of it, whereas the company was in business to make a profit, and furthermore
was gaining at the expense of the company.

- Preserve Confidential Information


To further his objectives, a principal will usually need to reveal a number of secrets and some other
sensitive information to his agent—how much he is willing to sell or pay for property, marketing strategies,
future plans, banking information, prospective deals and the like. Such information could easily be turned to
the disadvantage of the principal if the agent were to compete with the principal or were to sell the
information to those who would otherwise find it to their benefit to have that information. The law therefore
prohibits an agent from using, for his own purposes or in ways that would injure the interests of the
principal, information confidentially given or acquired. This prohibition extends to information gleaned
from the principal though unrelated to the agent’s assignment: An agent who is told by the principal of his
plans, or who secretly examines books or memoranda of the principal, is not privileged to use such
information at his principal’s expense, nor may the agent use confidential information after resigning his
agency. Though he is free, in the absence of contract, to compete with his former principal, he may not use
such information learned in the course of his agency, such as trade secrets and customer lists for his benefit.

Duties of the Principal


As the agency contract attaches obligations to the agent, it also likewise attaches obligations to the principal
as well. It has to be noted, however, that the fiduciary relationship of agent to principal does not run in
reverse, that is, the principal is not the agent’s fiduciary. Nevertheless, the principal has a number of
contractually related obligations toward his agent. It is the principal’s duty to act in good faith and deliver
his end of the bargain. The principal’s duties include payment of the agent’s commission, indemnifying the
agent of any damages arising during faithful discharge of his mandate and re-imbursement of any expenses
the agent might have incurred while he discharges his mandate.

Compensate the agent as agreed


The principal is obliged and bound, under the contract, to pay the agent his commission, as was agreed
before or at the time of contracting or as reasonably fit (quantum meruit), taking into consideration trade
usage and the circumstances of the mandate.. The agent is entitled to this remuneration as a rule if he has
completed the whole mandate or where the agent has substantially performed the mandate. By paying the
agent’s commission, the principal is acknowledging the services rendered to him by the agent and showing
satisfaction. If the mandate has not been performed to the principal’s satisfaction or it has not been carried
out as per the contract’s stipulations, the principal has a right under contract, to withhold that commission.

Reimbursement of Expenses and losses


The Principal must refund to the agent all the expenses reasonably and properly incurred by the agent in
carrying out the mandate. The agent, in the execution of his mandate, might incur personal expenses and
losses, for example, if during the execution of his mandate, an agent has to travel from Masvingo to
Bulawayo. He fills his personal vehicle with petrol and sets on his way. Along the way, he is involved in an
accident, but fortunately he escapes, but the vehicle is damaged badly. Upon completion of the agent’s
mandate, the agent will present to the principal an account. It is the duty of the principal to reimburse the
agent of his expenses (in this case for the fuel and other costs) and losses (damages to the agent’s vehicle).
In so doing, the principal is acting in good faith towards the agent by repaying for the agent’s losses that
would otherwise not have been incurred had it been not for the principal. If the expenses or losses were as a
result of the agent’s negligence, default or breach of contract, no compensation will be required.
Indemnity from damages and losses
It is the duty of the principal to indemnify (remove from liabilities) the agent for all losses he has properly
incurred as a result of performance of the mandate. By so doing, the principal will be acting in good faith
towards the agent and acknowledging that it is he (the principal) who had given the agent authority to act as
he had in the first place. When the principal indemnifies the agent, he is, in fact, bearing all the risk that is
attached to the acts and omissions of the agent during the discharge of his mandate. This gesture on its own
is a show of good faith on the part of the principal. However, the agent has no right to be indemnified in
respect of acts beyond the scope of his authority.

Conclusion
The writer has attempted to explain at length the contract of agency. The duties of both the agent and the
principal were discussed. Similarities can be drawn from both the contact of agency and the doctrine of
Uberrimae fidei. These include but are not limited to disclosure of information, acting within the confines of
the law and the authority, payment of dues to either party and of course acting in good faith of one another.
Of great importance is the relationship between the parties. It is that based on trust. The agent has a
fiduciary duty towards the principal. This is so because the principal places a great deal of trust on the agent
to carry out his affairs. Although the principal is no fiduciary of the agent, he has to reciprocate the duties of
the agent by sticking to his end of the bargain. The very acts of indemnity and reimbursement for losses, on
the part of the principal, is a show of good faith.

It can thus be concluded from the above discussion that a contract agency, as it requires both parties to hold
themselves to the highest standard of good faith and loyalty, embraces the doctrine of Uberrimae fidei, and
as such can be referred to as a contract of such.
REFERENCES:

Burton, W. C., (2007). Burton’s Legal Thesaurus, 4th Ed. New York: McGraw-Hill

Christie, R. H., (1993). The Law of Contract In South Africa. Durban: Butterworths

http://www.slideshare.net/nileshmishra12979/contract-of-agency.html Accessed 26.03.2016 @ 1700hrs

http://catalog.flatworldknowledge.com/bookhub/reader/6433?e=mayer_1.0-ch38_s02 Accessed 26.03.2016


@ 1715hrs

http://www.law.harvard.edu/programs/olin_center/papers/pdf/323.pdf Accessed 26.03.2016 @ 1800hrs

Kapoor, N. D., (1978). Elements of Business Law. New Delhi: Sultan Chand & Sons

Steffen, R. T., & Kerr, T. R., (1980). Cases and Materials on Agency-Partnership. West Group