Law of
Agency
Topic 12
Contents
Defintions
Here, we look at the foundational aspects of the law of agnecy
Requirements
Here, we look at the requirements for valid agency
Authorisation
Here, we look at te various ways in which an agent is given authorisation to act
Duties of the Principle
Here, we look at what is required of the principal in agency agreements
Duties of the Agent
Here, we look at what is required of the agent in agency agreements
Unauthorised actions
Here, we look at what happens when the agent act without authority
01
Definitions
Definitions
01
What is Agency?
Agency occurs when
one person, the
AGENT, performs a
JURISTIC ACT for
another person, the
PRINCIPLE.
Definitions – Parties to the Contract
Definitions – Parties to the Contract
Definitions – Parties to the Contract
Defintions
01
What is Agency?
Agency occurs when
one person, the
AGENT, performs a
JURISTIC ACT for
another person, the
PRINCIPLE.
02
Who can be an
Agent?
Any person who has
LIMITED or FULL
Contractual Capacity
WHY???
03
Who can be a
Principal?
Any legal person that has
the necessary
contractual capacity to
perform a JURISTIC ACT
Agency vs Mandate
Defined as
Parties
Tasks
Example
Agency
Mandate
Agency occurs when one person, the
AGENT, performs a JURISTIC ACT
for another person, the PRINCIPLE.
An agreement where one party agrees to
perform A TASK for another party.
Principal
Agent
Juristic acts only
Directors of a Company
Mandatory
Mandator
Any acts
Real estate agents
02
Requirements
Requirements for Agency
Three requirements:
1.
●
●
Principal must exist
General rule: a person cannot act as an agent if the principle does not exist.
Exceptions:
○ s21 of the Companies Act, a person may act as an agent for a preincorporated company (PRE-INCORPORATION CONTRACT)
■ Board of Directors (BoD) can RATIFY the actions of the agent
■ If BoD does not ratify actions within 3 months = ratified
○ S53 of the Close Corporations Act has a similar provision
Requirements for Agency
Three requirements:
2. Agent must have the authority to act on behalf of the principal
● Agent must have been authorized by the principal.
●
Authorization can happen either expressly or tacitly /impliedly.
●
If no authority has been given or OSTENSIBLE AUTHORITY, the principal can
ratify agency.
Requirements for Agency
Three requirements:
3. Agent must make the third party aware of acting on behalf of the principal
● The agent has to disclose that they are acting on behalf of the principal.
●
Identity of the principal does not have to be revealed = unidentified.
●
People may contract for themselves or their nominees.
○ Nominee = reserves the right to transfer all rights and delegate all
obligations to another person at a future time.
●
Unidentified principal vs Undisclosed principal
Undisclosed Principal
Undisclosed Principal
Undisclosed Principal
Undisclosed Principal
Undisclosed Principal
THREE Conditions:
1. Agent must have authority.
2. Agent must intend to act on behalf of the principal.
3. Agent must not disclose.
Doctrine will NOT apply:
1. If there is more than one undisclosed principal.
2. The contract excludes the doctrine.
3. If the circumstances do not allow
Requirements for Agency
Three requirements:
3. Agent must make the third party aware of acting on behalf of the principal
● No specific way to inform the third party often words like:
○ “For”
○ “OBO” = On behalf of
○ “PP” = per procurationem = through the agency of
○ “QQ” = qualitate qua = in the capacity of
03
Authorisation
Authorisation
Authority is the power given to perform juristic acts on behalf of another
An agent can obtain authority/power by:
1. Being authorised
• One person gives another person the power to act on their behalf.
•
There has to be an agreement between the two parties (THINK OFFER
AND ACCEPTANCE).
•
Where the power is given expressly = GENERAL/SPECIAL power of
attorney.
•
Where the power is given tacitly = special attention is given to the
conduct of the principal.
Authorisation
2. Other Sources of Authority
01
02
Children’s Act 38 of
2005
Close Corporation
Act 69 of 1984
• s18 of the Children's
Act provides that a
guardian has the
authority in law to act
on behalf of a minor.
• s54 of the Close
Corporations Act
gives authority to
any of its members
to act as an agent.
• Guardians do not
need a child's
permission, they may
do so automatically
• The Act empowers
the members and
not the corporation
itself
03
Companies Act 71
of 2008
• The BoD will delegate authority
to directors or officers of the
company.
• Two requirements:
1. Necessary legal capacity
2. Must have the necessary
authority
•
Memorandum of
Incorporation
Authorisation
Authority is the power given to perform juristic acts on behalf of another
An agent can obtain authority/power by:
1. Delegating Authority
• General rule: the agent may not delegate their authority.
•
The principal and agent must agree that delegation is permitted.
•
If no express authority, it is a question of fact.
•
If it requires a special skill from the agent = no delegation
04
Duties of the
Principal
Duties of the Principal
Common Law duties of the principal
Paying the
Agent
Repaying Agent’s
Expenses
Indemnifying
the Agent
against
loss/damage
Duties of the Principal
1. Paying the Agent
● The principal will only remunerate the agent once the juristic act has been
performed.
●
Duty only exists if the parties agree to their being payment.
○ If not, the agent bears the ONUS OF PROVING that there was an undertaking
to pay, once complete.
●
In commercial contexts, payment is usually implied.
●
The parties must agree on a specified amount or percentage, or even a formula
can be used.
●
The agent bears the onus to show what a reasonable amount to be paid is
Duties of the Principal
2. Repaying Agent’s Expenses
●
The principal has a duty to reimburse the agent for all REASONABLE and
NECESSARY expenses and liabilities incurred while performing the juristic act.
●
Expenses can be EXPLAINED and claimed as soon as the expenses are incurred.
●
If the expenses were incurred due to the agent’s NEGLIGENCE = NO
reimbursement.
Duties of the Principal
3. Indemnifying the Agent against loss/damage
● The principal must indemnify the agent for all loss or damage brought about
within the scope of performing the juristic act.
●
The agent acted outside their authority = NO indemnification
●
Damage can result from TWO causes:
○ Performance and Intervention beyond the control.
●
To determine if the principal should indemnify the agent for loss, consider:
○ Do the terms of the contract provide for this?
○ If not, could the agent have avoided loss?
○ If not, ask whether performing the juristic act brought the agent closer to
danger than if the agent had not undertaken to perform.
○ If so, the agent is entitled to be indemnified, even if no agreement.
04
Duties of the
Agent
Duties of the Agent
●
The agent is in a FIDUCIARY RELATIONSHIP with the principle
○ Relationship of trust and confidence
○ Act in the best interest of the principal.
●
Acting in the BEST INTEREST of the principal entails several common law duties:
○ Follow instructions;
○ Exercise care and diligence;
○ Act in good faith; and
○ Account properly.
Duties of the Agent
1. Follow Lawful Instructions
•
The agent must act within the scope of the
principal's instructions.
•
If the agent acts outside the instructions,
the principal has a RIGHT TO RECOURSE.
•
The instructions must be lawful.
•
An agent cannot be appointed to perform:
• criminal
• prohibited by legislation
• against public policy.
•
The appointment of an agent for unlawful
purposes = agreement is NULL AND VOID
2. Care and Diligence
• The agent must perform the juristic act
with the same care and diligence as a
REASONABLE PERSON would.
• A reasonable person in the position of the
agent exercises a general level of skill and
care, as a member of the profession.
• The degree of skill and diligence will differ
from case to case.
• If the agent acts negligently, and the
principal suffers damage or loss = breach
of duty.
Duties of the Agent
3. Act in good faith
•
Means to act in the best interest of the
principal, and NOT PERSONAL interest.
•
This duty includes:
• to account for all profits to the
principal;
• to avoid conflict of interest;
• to keep all information about the
principal private and confidential.
4. Account properly
• The agent must ACCOUNT PROPERLY on all
matters of the agency agreement.
• The principal’s and agent's property must
be kept SEPARATE.
• All documentation needs to be kept up to
date and open for inspection.
• When the agency agreement ends, the
agent must RETURN ALL belongings.
• If the agent fails to do so, and the principal
is prejudiced = claim DAMAGES
05
Acting without
Authority
Acting without Auhtority
1. A person concludes a contract on behalf of someone without their authority
● Being a party to an unauthorised contract = NOT legally bound
●
EXCEPTIONS include:
○ Ratification
○ Ostensible authority
Acting without Auhtority
1. Ratification
● It makes an unauthorised act VALID by accepting/approving it AFTER the fact.
●
UNILATERAL act and RETROACTIVE
●
Places the parties in the position they would have been had the agent initially
had authority.
●
The principal is bound to the contract after ratification.
●
Ratification can be EXPRESS or TACIT.
○ Dreyer v Sonop Bpk 1951 (2) SA 392 (O)
Acting without Auhtority
1. Ratification
● Requirements for ratification to be VALID
○
1. Agent must have made it clear that they are acting on behalf of the
principal.
○
2. The principal must have existed when the concluded juristic act.
○
3. Principal must have capacity to ratify
○
4. The juristic act must be lawful.
Acting without Auhtority
2. Ostensible Authority
● Where a person CULPABLY CREATES A FALSE IMPRESSION that someone has the
AUTHORITY to perform an act on the former behalf, and if, BECAUSE of the false
impression, a THIRD-PARTY ACTS to that third party’s DISADVANTAGE, the
person CANNOT CLAIM that there was NO AUTHORISATION.
●
Agent did not have real or actual authority.
●
The principal is estopped from denying there was authorisation as the
impression created by the principal was that the agent did have authority.
●
Agent has ostensible authority
Acting without Auhtority
2. Ostensible Authority
● Third party has to prove the following requirements
○
1. A representation can be made expressly or tacitly.
○
2. The principal must have represented that the agent had the authority.
○
3. The principal should have reasonably foreseen that the third party would
have been misled.
○
4. Third party must have acted on the strength of the representation to his
detriment.
5. The third party’s reliance on the representation must have been
reasonable
NBS Bank Ltd v Cape Produce Co (Pty) Ltd and Others 2002 (1) SA 396 (SCA)
○
●
Acting without Auhtority
2. Ostensible Authority
● Relying on ostensible authority to bind a juristic person, the following principles
apply:
○
The person who made the representation that the agent did not have
authority must be one that has actual authority
○
Where the powers are imposed on the juristic person by law, they cannot
be held liable for the agent’s actions
○
If the company has drawn attention to its notice of incorporation where it
states, the limitations imposed on its representatives
Acting without Auhtority
2. Concluding a contract without authorisation
●
An agent can incur personal liability and be bound by the contract in certain
instances.
●
If the agent does not disclose that they are acting on behalf of a principal.
●
The third party can choose to hold either the agent or principal liable.
●
Agent can incur personal liability on one of two grounds:
○ Breached a warranty = liable for contractual damages.
○ Misrepresentation = claim for delictual damages.
●
Agent will not incur liability if the third party entered into the contract because
of factors other than the words or conduct of the agent.
Acting without Auhtority
3. Misrepresentation
●
The innocent party can set aside the contract and must prove the requirements
of misrepresentation (think back to topic 4).
●
The legal position is the same as is if the principal had made the
misrepresentation.
●
If the third party was induced into the contract by misrepresentation:
○ Contract set aside OR claim reduction in purchase price
●
Third party must prove:
○ Principal was a party to misrepresentation
○ Agent was acting in the scope of the agency agreement
06
Ending
Auhtority
Ending of Auhtority
01 Death, insanity or insolvency of principle
02 Death or insanity or insolvency of agent
03
Performance of the juristic act for which authority was given
04 Expiry of the period of authority
05 Revocation by the principle