SPECIFIC CONTRACTS

LAW OF AGENCY
 Nature of agency
• Agency is where one person, the agent concludes juristic act for or behalf of
another, who is called the principal with the result that a legal tie arises between
the principal and a third party.
• Golden rules
- agency is based upon tripartite relationship which means that there will always
be more than two parties.
- an agent must have the consent (authority/mandate) of his principal to act on
the latter’s behalf and must act strictly in accordance with such authority/ mandate.
- only the principal and the third party acquire rights and duties in terms of the
contract, even though the contract was concluded by the agent and third party.
 Basic Concepts
• Agency
- When one person, the agent concludes juristic act for or behalf of another, who is called the principal with the
result that a legal tie arises between the principal & a third party
- This agency can arise from – a contract of mandate, an employment contract, estoppel, ratification or by operation
of law
• Agent
- A person who possesses the power to perform any legal act, unless it is prohibited by law, on behalf of a principal
so that the later acquires the rights and/or duties that arise from such act.
• Principal
- A person who gives authority to an agent to perform certain legal acts with the effect that the principal acquires
the rights and/or duties that arise from the legal act
• Authority
- The power given by the principal to the agent in terms of which the agent may perform certain legal acts on behalf
of the principal so that the rights and duties accruing from the legal act accrue to the principal and the third party
 Aspects relating to the Act of agency
• Requirements
• The general requirements of a valid contract are applicable
• Further – the agent must have the necessary authority to conclude the
contract on behalf of his principal
• Acts susceptible to agency
• Generally, agency is possible in respect of any act which a principal can
lawfully perform unless;
– Act of a personal nature
– Statute compels person to personally act
 Sources of Authority
• The relationship can arise from various sources:
– Generally, a contract of mandate
– Employment contract
– Estoppel
– Ratification – requirements
– Unilateral declaration of ratification by principal
– Principal must have intention to ratify the unauthorised act
– Ratification must take place within fixed r reasonable time
– Agent must have had the intention to act in the name of the specific/ascertainable principal
– The act of agency must be valid
– By operation of law
 Scope of Authority
• Express agreement between principal and agent.
– Formal appointment eg written power of attorney.
• Tacit authority
• Ostensible authority – requirements
– there must have been a culpable representation by the principal
– the representation must have been of such a nature that it could reasonably have been
expected to mislead the third person
– the third party must have acted on the faith of the representation
– the third person must have acted to his prejudice on the representation
– Makate v Vodacom (Pty) Ltd 2016 (4) SA 121 (CC)
 Formalities in respect of Authority
• Authority need not always be in writing – verbal authority
could be sufficient
– Except for power of attorney
 Termination of authority
• Generally, authority is terminated by execution of mandate or
where execution becomes impossible to executive mandate
• Lapse of time
• If based on legal relationship, then upon termination of such a
relationship
• Change in status
• Revocation of authority by principal
• Renunciation of authority by agent
THE PRINCIPAL
 Relationship between Principal and Agent
• Usually, the relationship between principal and agent is
governed by either a contract of mandate or a contract of
employment
• The relationship between the principal and the third party is
determined by the extent and scope of the authority of the
agent I terms of which the principal and third party are entitled
and liable to each other.
 Different Types of Principals
• Non-existing principals
– One cannot act as an agent on behalf of a principal who does not exist at the time
of the so-called representative act, nor can such an act be ratified.
• Exceptions include pre-incorporation contracts in terms of the Companies Act 71 of 2011.
• Undisclosed principal
– Where a person concludes a contract in his own name with a third party while in
reality he is acting as the representative of an undisclosed principal, a contractual
relationship comes into being both as between the principal and the third party
and as between the agent and the third party.
– On becoming aware of the existence of the principal, third party may choose which
of the two contracts he intends to uphold.
 Duties of the Principal
• To compensate the agent
– Where multiple agents are involved in the same transaction, the court looks at whether an agent was an effective cause of the
transaction
– Where it is difficult to determine which agent was the most effective cause, principal will be liable for commission towards
both.
• To indemnify agent against loss
– The general principle is that an agent is 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 – Blumenthal v Bond 1916 AD 37
• To reimburse expenses
– Principal must reimburse the agent for all necessary and reasonable expenses incurred by him in the execution of his
assignment
– However the agent is not entitled to reimbursement where the expenses were do to his negligence or neglect of duty or if
reimbursement was excluded by agreement
• To account to the agent
– Principal is under a duty to give account to the representative as regards the compensation for commission to which the latter
is entitled.
 Agent’s lien and Set-off
• Agent’s lien
– Agent has a lien over his principal’s property which is in his
possession, in order to secure payment of compensation, commission
or expenses incurred by him in the execution of his authority
• Set-off
– an agent who is in possession of monies belonging to his principal
while his compensation is owing, may make use of set off.
 Liability of Principal and Third Party against Each other.
• Delicts in general
– Principal will be liable for delicts of his agent provided agent was employee acting in the execution of his duties
– if not employee provided principal granted his authority for the execution of the act in question or otherwise
had, or should have had, knowledge thereof
• Misrepresentation
– Principal is liable for damages suffered by a third party because of fraudulent misrepresentations made to him
by the agent
• Repayment of purchase price or deposit
– If agent does not repay deposit or purchase, principal is liable to repay
• Corruption
– If third party bribes agent, principal can cancel contract and claim damages
• Instances of rei vindicatio
– If agent transact in his name, principal can cancel contract provided he will reimburse third party
• THE AGENT
 Relationship between agent and principal
• Both parties must have the intention the a certain person will
act as the representative of another person, the principal
• The relationship between principal and agent is a governed by
the originating source of the representative’s authority.
 Types of Agents
• Estate agents
– The activities of Estate Agents are governed by the Estate Agency Affairs Act 112 of 1976.
– The Act provides for he establishment of an Estate Agents Board and Estate Agents Fidelity Fund as well as for the control of
certain activities of estate agents
• Brokers
– A broker is someone who by virtue of a contract of mandate and against remuneration assists another party with the conclusion
of a contract or concludes a contract on behalf of the other party with a third a person e,g property broker, insurance broker.
• Auctioneers
– An auctioneer is someone who in terms of a contract of mandate and against remuneration sells his principal’s property by public
auction.
• Company representatives
– Being the representative of the company, the board of directors has all the ordinary duties of an agent, the duty to act in good
faith, being of special importance
• Representatives of Close Corporations – in terms of the Act
• Intermediaries in terms of the Consumer Protection Act
 Duties of the agent
• To perform his mandate
• To act in good faith
• To keep principal’s property separate
• To account to the principal
• To return property
 Duties of agent cont…
• To perform his mandate
– Agent is obliged to perform his mandate or assignment, if he fails he forfeits
his compensation and is responsible for damages suffered by the principal
– He must act within execute his mandate at the time specified the limits or
extent of his authority
– Agent must act in his authority or as agreed.
– In general, an agent must personally execute his authority and may not
delegate it to someone else
– Agent must perform his duties with the necessary knowledge, care and skill.
 Duties of agents cont…
• To account to the principal
– Agent must record all transactions, payments, expenses and receipts
in connection with the execution of his authority to give a proper
account to the principal
 Duties of agents cont…
• To return property
– Upon completion of his duties the agent must return all goods and
monies to which the principal is entitled
 Duties of agents cont…
• To keep principal’s property separate
– The agent must keep principal’s property separate from his own
 Duties of agents cont…
• To act in good faith
– The agent must, while holding his own position of trust and confidence, prefer the
interest of his principal even to his own in a case of conflict, and to his skill, diligence
and zeal must be added the utmost good faith- Robinson v Randfontein Estates GMC
– Secret profits – all profits acquired by the agent in agency transactions is acquired for
the principal. Director must account for corporate opportunity. Robinson v
Randfontein Estates 1921 AD 168
– Conflicts of interest: There must be disclosed to the principal
– Abuse of confidential information: He may not misuse confidential information
obtained through fiduciary relationship with his principal.
– Bribery - Prevention and Combating of Corrupt Activities Act 12 of 2004 – s 6
 Personal Liability of the Agent
1. He can bind himself by way of agreement as against the third
party by warranting that he has necessary authority
2. A person who falsely represents that he has authority to
conclude juristic acts on behalf of another can be liable in
delict if the third person acts on his belief of this
misrepresentation.
3. The agent can also tacitly warrant he has acquired authority.
 Fiduciary Obligations
• General standards of loyalty, good faith & avoidance of conflict
of duty & interest.
• Director’s duty to exercise care & skill
• Duty to exercise independent discretion
• Duty to account for secret profits
Situations in which duty not usurp corporate opportunity

• If director has been given specific mandate to acquire a

particular opportunity.
• If director(s) is general mandate to acquire opportunities for
the Co
• If she usurps an opportunity which the Co is actively pursuing
 Conflict of interest
• Disclosure to the principal
• Read Volvo (SA) v Yssel
• Read UDM v Tlakula
 Disqualifying conflict of interest
• Netcare v KPMG- N sought interdict to prevent K from acting
as service provider for the Competition Commission on the
basis that it breach of fiduciary duty of loyalty & conflict of
interests disqualified.
• Former Auditor it was privy to confidential information
• Monsanto v Bowman – client sought disqualification of law
firm because of breach of confidentiality & conflict of interests
• Wishart v Blieden NO – disqualifying conflict of interest
 Defining Corporate Opportunity
• Business opportunity which a company has claim.
 Case on Misappropriation of corporate opportunities

• English approach: Menier v Hooper’s Telegraph Works (1874)

• Co obtained a licence to lay cables. One of the directors
obtained a licence in his own name & formed another Co to
exploit the contract.
• Minority shareholders sued for damages
 Cook v Deeks (1916)
• Four directors who had negotiated a contract on behalf of the
Co, later obtained contract in their own name.
• They called a gen meeting & passed a resolution that the Co
had no interest in the contract.
• Privy Council found that the directors in so doing
misappropriated a corporate opportunity.
Industrial Dev Consultants Ltd v Cooley (1972)
• MD attempted to negotiate contracts on behalf of his Co, was
unsuccessful because the third party disliked the corporate set-
up.
• He resigned & contracted personally with the third party.
• Held that he was accountable for breach of fiduciary duty
 Canadian Approach
• Canada Aero Services v O’Malley (1975) – the Co had
submitted tenders for aerial mapping project.
• Prior to tenders being considered defendant directors resigned
their position & formed their own Co.
 Canada Aero Services v O’Malley (1975
• They submitted almost identical tender as that was which they
had prepared for the former employer.
• Tender was awarded to their own Co.
• They found liable for depriving their former Co of the
corporate opportunity which it had been developing.
 South African Approach
• Robinson - Co was given an opportunity to acquire a farm, but
the chairperson acquired it and subsequently sold it to the Co
at higher price.
• Held fiduciary is prohibited from appropriating to himself
business opportunity which in fairness belong to the Co.
 The problem of corporate incapacity
• Financial inability and rejection of the opportunity by the
corporation
• Does a proof of commercial impossibility provide a defence to
directors who appropriate to their own use a maturing
corporate opportunity?
 Peso Siliver Mines v Cropper (1966) 58 DLR (2d) 1

• C & his associates purchased claims which were rejected by

Peso Co because of financial inability.
• Subsequent acquisition, albeit without seeking shareholder
approval was held to be proper because the Co’s interest in
them ceased.
 Ratification
• Gen meeting of shareholders may ratify wrongs committed by
a director after full disclosure provided the breach is ratifiable.
• Gen meeting cannot ratify breaches where the director didn’t
act in the best interest of the Co.
• The making of secret profit by a director can be condoned by
gen meeting
• Estate agents
 Estate Agents
• Estates Agency Affairs Act 112 of 1976 provides for
establishment of an Estate Agents Board & an Estate Agents
Fidelity Fund
 Who may act as an estate agent?
• Any person who holds himself out as person advertises on
behalf of someone else:
1. Sells or purchases property
2. Lets or hires such property
 Duties of estate agents
• To find a buyer or lessee.
 Compensation of estate agents
• Contentious issue.
• Issue is whether the E agent is the effective cause of the
contract of sale. If so his claim will be granted.
• Read Mano et Mano v Nationwide Airlines
• See also Gordon v Slater 1973 (3) SA 765 (A)
• In certain cases it may be impossible differentiate between the
efforts of one agent as against the another on the ground of
the degrees of causation.
• In such situation, it was held that the principal would be liable
for commission towards both agents & will have only himself to
blame for his indiscretion.
 Contract concluded without estate agent
Day Morris Associates v Voyce [2003] EWCA 189
• It was held that estate agent’s offer to market a property had
been accepted by the conduct of the client
• Client’s conduct was allowing the agent to advertise the
property & show large numbers of people around it.
Aida Real Estate v Lipchitz 1971 (3) SA 871 (W)
• P commissioned A to find a buyer for his house. During Nov
1968 the house was visited three times by prospective buyer D,
through the agency of A. Jan D told A that they were no longer
interested in the house.
• During April D again visited P & after the latter agreed to allow
a second bond on the property to be registered, a contract of
sale was concluded.
• A issued summons against P for commission in respect of the
sale of the house, which amount was granted by court.
 Negotiations or contract of sale fail
• John Pritchard v Thorny Park Estates
• Prospective buyer after signing contract of sale was financially
unable to perform & as result contract lapsed.
• Agent summoned P for payment of the commission in terms of
the undertaking in the contract to pay commission at the
signing of the contract.
• Held that when a principal gives a commission agent a
mandate to sell his property they both contemplate that the
agreed commission will be payable upon the conclusion of a
valid contract of sale between the principal & buyer,
introduced by the agent, who is ready, willing & able to buy on
the stipulated terms.