LAW OF AGENCY

INTRODUCTION

Definition
Agency Law is a contract in terms of which one person (the agent) is
authorized and usually required by another (the principal) to contract or to
negotiate a contract on the latter’s behalf with a third person.

The authority given by the principal to the agent to represent him is the
essence of Commercial Agency. This authority maybe expressly or implied
by law or on the facts. And in certain circumstances agency may arise where
the actually has been no authority, such as by estoppel or ratification. But in
the absence of such authority, however it arises, no relationship of Principal
and Agent can arise.

Authorities/Creation of Agency by the Principal

The authorities given by the principal are either:-
a) Express authority/Agreement
b) Authority implied by law/ Necessity
c) Ostensible Authority (Estoppel)
d) Ratification

a) Express Authority (Agreement)

Generally, no formality is required in the appointment of an agent.
(Formalities are in some cases required by statute, such as writing in the
case of contract governed by the Alienation of Land Act).

An implied term can fix the remuneration in a contract of agency only if the
ordinary principles relating to the implication of a term into a contract apply.
It must be necessary in a business sense to give efficacy to the contract.
Where the implied term is to pay “reasonable remuneration” the
remuneration is called Quantum Meruit.

The amount of commission for services rendered by an agent is assessable,

where the amount has not been agreed upon, on a basis of what is fair and

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reasonable. Not only the time and labour expended by the agent, but also the
value of the services rendered to the principal and the nature of the agent’s
occupation are particular factors which should be considered, together with
all the circumstances of the case.

Authority is often given in writing. Such written authority may be formal or

informal. A formal written authority is known as a “Power of Attorney”.

b. Authority Implied by law ( Necessity)

In certain circumstances, in the absence of agreement one person may have

authority by law to represent another. Example of such authority, implied
by law are the power of a guardian to contract on behalf of a minor and of a
curator for an insane person.

c. Ostensible Authority (Estoppel)

The principles that will guide the courts in deciding whether the agency by
estoppel exist were authoritatively (Monzali v/s Smith 1929 AD 382 at 385).

To establish agency by estoppel there are two requisites:-

- The principal sought to be bound must represent by his words or

conduct that the person professing to bind him has authority to do so.
- That the person to whom the profession is made acts on the faith of
the representation to his prejudice.

But the representation, whether by words or conduct, must be of such a

nature that it could reasonable have been expected to mislead.

A person who seeks to set up agency by estoppel must establish:-

(i) That there was a representation to the principal.

(ii) That the representation was of such a nature that it could
reasonably have been expected.
(iii) That he acted on the faith of the representation.

The presentation, by words or conduct must be made by the principal.

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e.g ‘A’ sends ‘B’ who is a domestic assistant to a shop to purchase goods on
credit and regularly pays the accounts. ‘A’ will remain liable for purchases
made by the employee ‘B’ on the same account even after revocation of the
employees authority (provided the shop-owner is unaware of the
revocation).
e. Ratification

Where no authority exists, an act performed by a person professedly as agent

on account of a principal may be affirmed (or ratified) by the latter. Such
ratification has the effect of professing the act with authority so that the
position is the same as if the act had been originally authorized. Such
ratification may itself be express or implied. For ratification to be possible:-

a. The person making the contract must profess at the time of making
it to be acting on behalf of a principal. (Keystone Trading Co v/s
Die Vereenigde & Mij 1926 TPD 218).

b. The professed principal must be named or ascertainable and the act

must have been done in his name (Caterers Ltd v/s Bell and
Anders 1915 AD 698).
c. The act itself must not have been illegal.

d. The principal must have been in existence at the date of the

transaction. (Kelner v/s Baxter LR 2 CP.174).

DIFFERENT KINDS OF AGENTS

1. AUCTIONEERS
An auctioneer is an agent authorized by a principal (the seller) to sell
property on his behalf at a sale by public auction. So he is the agent of
the seller, who has given him authority. Once the sale is concluded, he
may be the agent of the buyer to record the transaction in writing,
where this is necessary or by policy. The express authority of the
auctioneer is a matter between himself and the seller. But the sale is
usually subject to special terms known as “Condition of Sale” that
are read out at the time. And both seller and buyer are taken to have
assented to these terms.

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 (Mouton v/s Wessels 1951(3) SA 147(T) at 149).

In the absence of express authority it is the function of an auctioneer

to sell for cash, should he give credit without such authority, he does
so at his own risk.
(R v/s Visagie 1954 (4) SA SO (0)).

2. BROKERS
A Broker is an agent appointed by either the buyer or seller to
negotiate a contract of sale on his behalf. His ordinary function is
simply to negotiate. He has no plenary powers to bind the parties. He
is a middleman or intermediary whose office is to negotiate between
two parties until they are ad idem as regards the terms upon which
they are prepared to buy and sell. He is as it were, agent for both one
and the other to negotiate the commerce and affair in which he
concerns himself. The true contract entered into between the buyer
and the seller where a broker is employed, is the result of the
agreement between the buyer and the seller and the broker and the
buyer and in order to ascertain what this contract is we require the
evidence of broker, the seller and the buyer. If the broker draws up the
contract in writing and the parties sign it, then the document will
embody the contract. If however, the parties do not affix their
signatures to any document, the true contract must depend upon the
evidence of the three parties mentioned.

3. FACTORS
A Factor is an agent to who goods are consigned by the principal with
authority to sell on the principals behalf. The term comes from the
English law. Goods are sent “on consignment” to the factor, who
sells them in his own name.

The term “Factoor” is used in the Roman-Dutch law or as “institor”

was the manager of a shop or a business and the term is used in this
sense by the Roman Dutch writers.

Every person is a factor (institor) who has been put in charge of a

shop or of any other form of business dealing whatever, and thus with
a view to buying and selling even without a definite place or shop

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 being indicated. The power of a factor to bind his principal is simply
governed by the express authority given to him, together with such
authority as may be implied in the circumstances of each particular
case.

4. DEL CREDERE AGENTS

A Del Credere Agent is an agent authorized to sell goods on behalf of
a principal and who guarantees the payment of the purchase price by
the buyer. The agent may be an auctioneer, a factor or a broker
authorized to sell his principals goods (and not simply to negotiate a
sale). In return for his guarantee, he receives an additional
commission known as a del credere commission. A term of payment
of the del credere commission may be express implied.

5. ESTATE AGENTS
An Estate Agent is an agent authorized to negotiate the sale or
purchase of immovable property. The authority may be express or
implied, but a court will not bound to bind the existence of implied
authority where an agent approaches and solicits business from a
principal unless and until it is clear that the principal deliberately
employed the agent to act on his behalf.

In the field of immovable property an estate fulfills the same functions

as a broker, who normally negotiates the sale of movables. The estate
agent has no implied authority to conclude a contract of sale but
merely authority to negotiate, yet no obligation is imposed on the
agent to do anything.

The contract between principal and estate agent is a mere promise

binding on the principal to pay a commission upon the happening of a
specified event, the conclusion of a principal with a third party who is
in a position to carry out the terms of the contract.

The service expected of estate agent is the introduction of a person

who is able, both legally and financially, to purchase and who is
willing to purchase, such willingness being shown by the making of a
binding offer of purchase at not less than the price originally fixed or
subsequently reduced by the principal, the necessary negotiations

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 required to fix the various conditions of the contract, and the
execution of the written contract of sale, if any, are matters of the
principal. The commission should be paid upon the happiness of a
specified event.

RELATIONS OF PRINCIPAL AND AGENT

Duties of an Agent
The duties of an agent are;
i. To perform his mandate
ii. Honesty
iii. Careful
iv. In accordance with his principal instructions
v. To account to his principal.

i. Performance
It is an agent duty to perform his mandate fully and faithfully. If
does not do so, he forfeits his commission and becomes liable in
damages to his principals. (Le Clus (Pty) Ltd v/s Kearney 1946
CPD 385 at 389). But it is sufficient if there has been
“substantial” performance. If the performance made does not
differ from the authority given to such an extent, that a
substantially different transaction has resulted, the mandate will
be considered to have been “substantially” performed.

(Metro-Golden-Mayer (Pty) Ltd v/s Herman 1938 TDP 226).

In the case of an estate agent no duty of performance is placed

upon the agent at all. He tries to bring about a sale between his
principal and a third party. But he becomes entitled to
commission only upon the completion of the transaction as a
result of his introduction of a third party to his principal.

ii. Honesty
A contrast of agency creates fiduciary relationship between agent
and principal and the “utmost good faith” is required from an
agent in his dealings with his principal. It is the duty of all agents
to conduct the affairs of their principals in the interests of the
principals and not for their own benefit.

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 An agent cannot, without the consent of his principal, given with
full knowledge of the material facts and under circumstances that
rebut any presumption of undue influence, retain any profit
acquired by him in transactions within the scope of the agency.
The principal can always in such a case treat the profit as
acquired on his own behalf and insist on its being accounted for
to him. The agent is confined to his commission that is no secret
profits.

(iii) Care, skill and diligence

An agent must use care, skill and diligence as is reasonably

necessary, for the due performance of his mandate. He must act
with such care as a prudent person would show. It is a question of
evidence in each particular case whether the agent has met this
standard. If a person profess, to follow a particular trade or
profession and he is engaged by a principal to perform such a
mandate, he is required to show such care, skill and diligence as
are usual (reasonable) in the particular trade or profession.

(iv) Obedience to the principals instructions

An agent must perform his mandate exactly in accordance with

the authority express or implied, given to him by his principal.
An agent is strictly held to the terms of his instruction. It is no
answer or defense to say that he acted, or intended his act to be,
for the benefit of his principal. Any implied authority that may
exist on the facts of the case can extend only so far as it can be
taken to include all the usual means of performing the task that
the agent is authorized to do.

(v) The duty to account to the principal

An agent must give his principal full and accurate information of

what he has done in carrying out the mandate, and full and
accurate information of any contract concluded by him on the
principal’s behalf. To this end, he must:-

- Render full and true account of his dealings in his capacity as agent.

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 - Permit his principal to make an inspection of all books and records
relating to the agent transactions on his behalf.

On the conclusion of the agency the agent is obliged to account and to pay to
the principal the sum due. It is usual for the parties to agree expressly as to
the time for account and payment. But in the absence of such express
agreement the time to account and pay is determined by legal implication or
by trade usage in the particular type of business.

Duties of Principal

The duties of a principal are:-

- To pay the agent his remuneration
- To reimburse him for expenses properly incurred.
- To indemnify him for all losses he has suffered as a result of the
execution of his mandate.
(a) Payment of remuneration

Where the parties have expressly or impliedly agreed on the payment of

remunerations and the agent has substantially performed his mandate, the
principal is obliged to pay such remuneration.

The mere fact a broker was the effective means of a sale being concluded is
not sufficient to entitle him to claim commission. It is necessary to establish
a contract, express or implied, of employment and a promise express or
implied, to pay remuneration. If the agent fails to prove an express contract,
the burden of proof is upon him to justify on the evidence as a whole the
existence of an implied contract of agency and a promise to pay him
remuneration.

(b) Reimbursement

Generally, the principal is bound to reimburse the agent for all expenses
necessarily incurred by him in the execution of the mandate.

But an agent is not entitled to reimbursement of any expenses incurred by

him in consequence of his own negligence, default, or breach of duty.

(c) Indemnity

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In addition to his right to recover expenses incurred in performing the
authorized act, the agent is similarly entitled to be indemnified by his
principal for all loss or liability duly incurred by him in the execution of his
mandate or directly caused by such execution.

If the agent has money of his principal in his hands, and his commission is
due, set-off will operate and the agent is required to hand over to his
principal only the amount by which the money in his possession exceeds the
amount of his commission. (i.e. set off).

RELATIONS BETWEEN THE PRINCIPAL AND AGENT

AND THIRD PARTIES

The principal and third parties

The general rule is that where an agent has acted within the scope of his
authority (express, implied, or ostensible), or where his previously
unauthorized act has been ratified by the principal, the principal is liable to
any third party with whom the agent has contracted and no contractual
liability to the third party attaches to the agent.

Even if the agent acts in his own name and does not disclose the existence of
the principal, the principal will be bound, provided that the agent acts within
his authority. In such a case the third party has the option of holding either
the principal or the agent liable. Having elected to sue one, he is debarred
from later proceeding against the other.

If the agent is authorized to enter into an illegal contract or one that for any
other reason is void, the contract between principal and third party is void.
Similarly if the agent is authorized to misrepresent or to use duress or undue
influence, the contract between principal and third party is voidable.

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Also if the agent has been authorized to make representations that were
considered true by the principal and the agent later acquire knowledge of the
falsity of the representation but still makes them, knowledge of the falsity is
imputed to the principal, provided that the agent acquired the knowledge in
the course of his employment and there was a duty upon him to
communicate it to the principal.

The principal is liable for the fraud of his agent and can be sued for
damages. Such damages are delictual, but the principal is always liable for
the fraud of his agent provided it is attached to the very business the agent is
transacting.

Also the principal is liable for delictual act of his agent only if:-
- The delictual act was actually authorized by the principal or
- The agent is an employee (and not an independent contractor) and
the act is done in the course of any within the scope of his
employment.
TERMINATION OF AGENTS AUTHORITY

The relationship of principal and agent may be terminated by:-

(1) Mutual consent,
(2) By the unilateral action of either party
(3) Revocation by the principal
(4) Renunciation by the agent.

But usually the relationship comes to an end on due performance by the

agent and principal of their reciprocal obligations. Independently of an act of
the parties, the authority of the agent may come to an end on the expiry of
any period that may have been fixed for the duration of the authority and on
the death of either principal or agent.

An agent may renounce his authority at anytime provided that he does so, on
just grounds, e.g. health, absence in interest. In the absence of such good
cause, the agent is liable to the principal in such damages as the latter may
prove on the ordinary rules of breach of breach of contract.

Generally, a principal has the power and the right to revoke the agency
without incurring liability in damages to the agent. But where the agent has
commenced performance in terms of his authority, he is entitled to such
damages as he can prove on the principals revocation.

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