CONTRACT OF AGENCY

origins
 Roman law contract of mandate= agreement whereby
one person entrusted a commission to execute
something to another.
 It was a gratuitous contract- any arrangement relating
to payment rendered it one of letting and hiring.
 Where a reward was offered, was only a ‘honararium.’
 Modern day agency =more than the mandate of
Roman law.
 Combines mandate and representation.
 AGENCY DEFINED
 It is a contract whereby one party ( the agent) is
authorised by another (the principal) to contract or to
negotiate on the latter’s behalf with a third party.
 The central feature of the contract is the authority
granted by the principal to the agent to represent him.
 Authority may be express or implied by law or facts.
 Agency may result where there is no authority eg
estoppel or by ratification.
 Relationship of agency can never arise in the absence
or express or implied authority, estoppel or ratification.
 1. Express authority
 No formalities required in appointment of an agent.
 Parties have to agree on scope of authority and
remuneration (commission) to be paid to agent.
 Remuneration can be fixed. If not, implied.
 Parties can agree on remuneration fixed by trade usage.
 absence of a trade usage, ‘reasonable remuneration’
(Barnabas Plein & Co v Sol Jacobson & Co 1928 AD 30).
 Express authority is frequently given in writing.
 Written authority may be formal or informal.
 A formal written authority= power of attorney.
 A power of attorney= a formal document in writing
setting out the scope of the agent’s authority and
signed by the principal.

2. Authority implied by law

 An agent might, in the absence of express
authority, have the authority to represent another.
 Law provides that certain persons who are considered
incapable of handling their own affairs should be
represented by others.
 Egs. A guardian to contract on behalf of a minor; a curator of
behalf of an insane

Negotiorum gestio- unauthorised agent for the benefit of

another.
 Negotiorum gestor no authority, express or implied , to
represent the principal, thus cannot create obligations
between principal and third parties.
 He is entitled only to his necessary or useful
expenses, provided that he has not spent more
than is appropriate to the occasion, nor more
than the owner himself would have spent.
 Is delictually liable if he causes loss to the
principal by negligence in his voluntary
administration ( Lawrie v Union Governmnet
(Minister of Justice) 1930 TPD 402).
3. Authority implied on the facts
 Authority may be inferred from he conduct of the
parties (Strachan v Blackbeard & Son 1910 AD 282).
 Karol v Fiddel 1948 (4) SA 466 (C)- where K had
allowed F to negotiate for the sale of a hotel to a potential
buyer and had sought his presence at the final negotiations
and offered him on numerous occasions various amounts of
money, the inference that F was acting as K’s agent became
inevitable. It was held, F was implied agent of K.
Ordinary rules as to agreement by conduct applies.
The conduct of the parties must be such that common sense will admits no
other interpretation but that the parties intended the relationship of principal
and agent to exist between them.
Where an agent has been authorized (expressly or implied) to do a particular
act, may have implied authority in addition to perform acts not strictly
authorized but necessary to execute the mandate so authorized.
Nel v SA Railways & Harbours 1924 AD 41- N bought a car for F in PE. Found
that it was an implied term of the contract of sale that the seller should act as
the agent of the buyer in consigning the car from PE to Potchefstroom. F’s duly
forwarded the car at ‘railway risk.’ HELD the usual and ordinary way of sending
cars from PE to Potch was at owner's risk, a cheaper rate. F’s implied authority,
did not extend beyond the power to contract at the cheaper rate.
4. Ostensible authority ( estoppel)
 No authority, express or implied.
 3rd part may hold principal liable on contracts entered into
by the 3rd party and the unauthorised agent , if P ‘s
conduct is such that it amounts to a representation that
the unauthorised agent had authority from P and the 3rd
party has been induced to contract with the agent on the
strength of such conduct.
 The principal is simply prevented ( estopped) from
denying that the agent had authority ( Strachan v
Blackbeard & Son 1910 AD 282).
 Ostensible authority gives rise to agency by
estoppel.
 Principles; (i) P sought to be bound must
represent by his own words or conduct that the
agent has authority to do so,
(ii) the 3rd party acts on the faith of the
representation to his prejudice.
 To rely on agency by estoppel, X must establish;
 (i) there was a representation by P,
 (ii) the representation was of such nature that
it could reasonably have been expected to
mislead him,
 (iii) he acted on the faith of the
representation, and
 (iv) he was prejudiced by doing so.
5. Ratification
 Where no authority exist, an act performed by Y
purporting as an agent on account of Z, may be
affirmed ( or ratified) by Z.
 Effect of ratification= provide the unathorised act
with authorised retrospective ( so that the position
would be the same as if the act had been authorized
originally (Dreyer v Sonop Bpk 1951 (2) SA (0) 397).
 Ratification= express or implied.
• Ratification possible if;
• (i) the person making the contract must profess at the
time of making it to be acting on behalf of a P ( Keystone
Trading Co v Die Vereenidge & Mij 1926 TPD 218),
• (ii) the professed P must be named or ascertainable and
act done in his name (Goldfoot v Myerson 1926 TPD
242),
• (iii)the act itself must have been illegal
• (d) the P must have been in existence at the date of the
transaction ( Kelner v Baxter LR 2 CP 174).
Effects of ratification= give legal effect to
something which before ratification, had no
legal foundation ( Edelstein v Edelstein NO
1952 (3) SA 1(A) 10).
 Authorizes previously unauthorized act
thereby conferring authority on the agent
( Fourie v Saayman 1950 OPD (1950 (2) PH A
67).
 Enrichment
 If a P is enriched as a result of a purported contract entered
into on his behalf by a person professing to have authority
to do so and he fails to ratify the unauthorized act, P will be
liable to the extent to which he has been enriched.
 He in not liable on the contract.
 Liable on terms of ordinary doctrine of unjust enrichment.
 Not on agency.
 Trahair v Webb & Co 1924 TPD 227 – T sued a partnership
for the return of money alleged to have been borrowed by
W on behalf of the partnership.
 W was the manager. But not partner. Found
that T intended too lend the partnership the
money but that W had no authority to
borrow. HELD , T could only recover an
amount which represented the extent to
which the partners had become enriched at
his expense.
 Duties of parties
1. Duties of agent
(a) To preform mandate
 Perform mandate fully and faithfully.
 Failure= forfeits commission and liable to P for damages ( Le Clus
(Pty) Ltd v Kearney 1946 CPD 389).
 Where performance made does not differ from authority given so
that a substantially transaction has resulted- mandate considered
‘substantially’ performed( Sammel v Jacobs & Co 19928 AD 356).
 In Metro-Goldwyn-Mayer (Pty) Ltd v Herman 1938 TPD 226 it was
held that where an agent substantially performed his mandate,
he was entitled to his commission.
 Facts- The M Co authorized agent H to negotiate a loan on
the security of a thereafter for a commission. H obtained
from L an offer to lend the amount on condition that the
Co should pay all legal charges in connection with the
business. H communicated the offer to the M Co and
informed them of the amount of the legal fees. The M Co
closed with L on terms which obliged them to pay all legal
fees. The figures for the legal fees varied. The M Co sought
to deduct the variance from the commission payable to H.
 An estate agent has no duty to perform except to bring
about a sale between P and 3rd party.
(b) To perform mandate honestly.
 Contract creates a fiduciary relationship between agent and
principal.
 Agent required to act in utmost good faith when dealing with
P (Transvaal Cold Storage Co Ltd v Palmer 1904 TS 4).
 Must conduct affairs of the P in the best interest of the P not
for own benefit ( R v Milne & Elreign (7) 1951 SA 791 @ 828.
 avoid conflict of interest( Robinson v Randfontein Estates
GM Co 1921 AD 178.
 Direct his zeal, skill and interest towards advancing the
interest of the P.
 Conflict of interest- Davies v Donald 1923 CPD 295- C was
authorized by X to sell a motor-car with the right to keep
any amount by which the purchase price exceeded a
certain amount. Y approached C and authorized him to
look out for a car. C negotiated a sale between X and Y
for an amount above the figure X had required.
 HELD- C’s duty as an agent of Y and his interest were in
conflict and his recommendation of the car was quite
valueless. X having knowingly placed C as agent of Y in a
position where his duty and interest were in conflict,
could not, thus enforce the contract.
 N secret profits- cannot retain any profits
acquired by him in transaction within scope of
agency.
 Can only do so with consent of P having full
knowledge of material facts and under
circumstances which rebut any presumption of
undue influence.
 P can insist of profits to be accounted for.
 Agent confined to his commission.
 Mallinson v Tanner 1947 (4) SA 681 (T) - T
engaged a firm of estate agents for which M was a
partner to sell a house for $x. A prospective buyer
informed the agent that he was willing to buy at that
price. Without informing T of the readiness of the
buyer to purchase at this figure, M offered to buy
the property himself at a lesser price and T accepted
the offer. M immediately resold the property to the
prospective byer for $x.
 HELD- M was ordered to pay the difference to T.
 No delegation of authority- the contract of
agency requires personal performance by the
agent.
 Agent may not sub-agent.
 ‘delegatus non potest delagare’= a person to
whom authority has been delegated may not
himself delegate authority.
 Exceptions=where delegation expressly/
impliedly authorised by P.
 Where performance of mandate necessitates
appointment of a sub-agent.
 No disclosure of information- A may not
disclose any info. Of his ‘s affairs, acquired in
course of agency, to detriment of P.
 * attorney- client relationship= A-P.
( Robinson v Van Hulsteyn, Feltham & Ford
1925 AD 12- attorney cannot divulge).
 Care, skill and diligence
 Duty to use such care, skill and diligence as is
reasonably necessary for due performance of
mandate.
 Act with such care as a prudent man would
show.
 Standard met? Case of evidence in particular
case.
 Duty of obedience to P’s intructions
 Mandate to be performed exactly in accordance with authority.
 Abide strictly to terms of instructions.
 Nel v South African Railways & Harbours 1924 AD 42 ( no
defence that he acted, or intended his act to be, for the benefit
of P).
 If A exceeds authority- P may repudiates the contract.
 A acts in own name and does not disclose existence of P= P
bound as long as A acted within authority.
 3rd party has option of holding either A or P liable.
 Once having elected to sue one, is debarred from subsequently
proceeding against the other.
• A enters into a void contract on behalf of P= contract
between P and 3rd party=void.
• If A authorised to induce contract through duress,
misrep or undue influence= voidable.
• If A is not authorised to misrepresent but does so, if
misrep. falls within scope of authority= misrep imputed
to P and contract= voidable.
• P is liable for delictual acts of A.
• P may be liable to 3rd party on doctrine of unjust
enrichment if enriched at expense of 3 rd party as a result
of unauthorized acts of person purporting to be his A.
 Duty to account to the P
 must give P full and accurate info. of what he has done
in executing mandate.
 And full and accurate info. of any contract concluded
by him on P’s behalf.
 Must render a full and true account of his dealings in
his capacity as A.
 Permit P to make an inspection of books and records
relating to A’s transactions on his behalf.
 Account for all moneys received and disbursements
made for and on behalf of P.
 2. DUTIES OF P
a. To pay remuneration.
b. To reimburse A for expenses properly
incurred.
c. Indemnify A for losses he had suffered as
a result of execution of mandate.
 Relationship of the parties
1. Relationship between A and a 3rd party
• If A acts within his authority and contracts with a 3rd party
on behalf of his P= no contractual liabilities attaches to A.
 A drops out of the transaction.
 Exceptions
 A liable where he acts without authority.
 A liable where he exceeds his authority.
 A can be liable where he acts within his authority and
discloses his P.
 Liable where he acts within authority but does not disclose
P.
i) A acts without authority or exceeds it.
 Where A contracts on behalf of P without authority or
exceeds authority, he warrants to the 3rd party that he
has authority to bind P.
 The 3rd party enters into the contract on the faith of the
warranty and the A intends that he should do so.
 There is an implied undertaking by A that his P shall be
bound by the contract.
 If P is not bound, the A had warranted that he (A) will
place the 3rd party in as good a position as if the P were
bound.
 If P does not ratify the unauthorized acts, the
A is not liable on the contract but on his
warranty of authorization.
 in cases of fraud, the 3rd party, may if so
wishes, hold A liable on warranty of
authority.
 He may also make use of ordinary delictual
remedies against A.
ii) A acts within authority and discloses P.
 Generally, A not liable to 3rd party.
 h/ver, liable if expressly/impliedly agrees with 3rd party that
he be liable.

iii) A acts within authority but does not disclose P.

 3rd party may hold A personally liable on contract (Natal
Trading & Milling Co Ltd v Inglis 1925 TPD 724).
 Lia of A and P is alternative. 3rd party has option of holding
either liable.
 Ether the undisclosed P or A can enforce the contract.
 Where A discloses that acting on behalf of a P
who he does not name=same rules.
 A personal liability is presumed though
presumption is rebuttable ( by evidence to
effect that A was not intended to be a party to
the contract).
 Relationship with a 3 party rd

The P and 3rd party.

 Where A had acted within the scope of his
duties, P liable to any 3rd party with whom A
has contracted.
 Co contractual liability attaches to A.
 P liable even if A acted fraudulently in the
furtherance of his own interest and not in the
interest of P ( Chappel v Gohl 1928 CPD 47).
 Termination of agency
 Mutual agreement.
 Unilateral action of a party= revocation by P or
renunciation by A.
 Performance of mandate.
 Expiry of period fixed for duration of authority.
 Death of either parties.