Christie: Some People Lack Time/Skill to Negotiate Or by Their Nature Are Incapable Of

AGENCY

AGENCY

Christie: Some people lack time/skill to negotiate or by their nature are incapable of negotiating and so engage an agent. Definition- “One person [the principal] employs another [the agent] to act for him and enter into contractual relationships binding between him and 3rd parties”. In general an agent has a duty to perform his mandate in person and cannot appoint a sub-agent to perform on his behalf unless the agreement allows this or it is implied or for acts of a purely formal/ministerial nature.

An agent is a person who has authority from another [the principal] to create contracts between his principal and a 3rd party/parties. A person who carries out the instructions of another may be an agent or an employee. Thus at times an employee may also be an agent. However an agent has authority to enter into contracts whereas an employee carries out his master's orders. In the case of delict, where an employer is sued for damages, then the test of control applies [as to the manner duties were carried out]. An agent thus has authority to enter into contracts but an employee carries out his employer’s orders. An employee may however be an agent.

An agent may be employed to perform in a specific transaction [special agent] or for acts in a designated class [general agent].

Agency is created through:

Express agreement. Like other contracts, agency is created by agreement. However in many cases the agreement may be tacit/implied. Moreover the contract may be retrospective through ratification. Express agreement is subject to the general rules of offer/acceptance in contracts. Agency may be created by conduct of the parties apart from estoppel: here agency exists; with estoppel no agency exists. One party’s conducts estops him from denying that one person is his agent. The principal must have contractual capacity. However the agent is a mere conduit-pipe: he falls away once the principal and the 3rd party agree. Thus an agent with no contractual capacity e.g. a minor can validly bring a principal into a binding relationship with 3rd parties. However the agent's contractual capacity will matter as follows:

• Between him and his principal. The principal cannot compel a minor to perform any mandate.
• Where the agent incurs personal liability e.g. if he warrants that he has authority when in fact he does not possess such.

For the principal there should be capacity to contract with the agent as well as capacity for that kind of contract. A principal can engage an agent for any act he himself can validly perform for himself except where personal performance is required expressly/impliedly or the law demands it [e.g. Marriages Act Sect 25 (3): No person shal, under this Act, be capable of contracting a valid mariage through any other person acting as his representative.].

Formalities are necessary only in special circumstances [e.g. where the parties so agree as for contracts in general] or where the law requires it for formal appointments:

Power of Attorney i.e. a written instrument which defines the authority conferred e.g. in order to institute legal action in the High Court; for transfer of land, registration of a mortgage bond etc. Such an instrument also assists the agent to prove to 3rd parties that he has the requisite authority and in limiting the principal’s liability.

In informal appointments a power of attorney may be desirable; affording the agent a means of assuring 3rd parties and for the principal in limiting the agent's authority.

An employee has implied authority in respect of transactions which fall within his scope of employment. Bakeberg v Clothier: A wagon driver was instructed not to repair a broken wagon with Clothier but did so regardless. The owner was held liable for the cost of repairs. [Implied authority is actual authority arising from the law or trade usage. It can be relied upon by 3rd parties. It is incidental to the authorised act.].

Reed v Sager's Motors [Pvt] Ltd RLR 1969: “If a principal employs a servant or agent in a certain capacity, and it is generally recognised that servants or agents employed in that capacity have authority to do certain acts, then any of those acts performed by such servant or agent will bind the principal because they are within the scope of his 'apparent' authority”.

Ostensible and apparent authority are synonymous. A delivery agent normally has no authority to receive payments unless held out. This authority may arise from a course of dealings.

Watteau v Fenwick & Co, 1893 QB: F bought a hotel and retained the seller as his manager. The licence continued to be held in the name of the seller [now the manager] and was displayed at the door. W supplied cigars to the manager on credit believing him to be the owner never having heard of the company. The manager was however forbidden from from buying cigars on credit. Upon discovering the new owners of the hotel the seller sued for payment. The court ruled in favour of Watteau.

In general, a wife has implied authority to bind her husband for household necessaries. A wife has implied authority to bind the husband's credit for household necessaries by virtue of agency or as an invariable incident of marriage. [Reloomel v Ramsay, 1920]. This also applies where the parties live together but are otherwise unmarried.

Agency By Estoppel. Where a person by his conduct, expressly/impliedly represents that a certain state of affairs exists, and so leads another person acting as a reasonable man, to be prejudiced; that person is prevented/precluded from denying such state of affairs. Thus if a principal, through his conduct represents another to have authority to act on his behalf, he is estopped from denying such representation – he grants such person authority to act on his behalf. His representation has misled the other as a reasonable person. The manager of a general dealership has ostensible authority to buy on credit unless public notice is given limiting such authority. Khan v Leslie & Son 1928: The manager of a general dealership has implied authority to buy goods on credit and bind his principal unless the seller knew that only cash purchases were permitted. Both representation by the principal and reliance to one's detriment are necessary.

Faure v Louw. For years a father allowed his son to manage his affairs, draw cheques, promissory notes etc. However there was no specific authority with the bank on this. Through the years the father never registered any objections. On one occasion, the son endorsed a promissory note and misappropriated the funds. The father raised as defence that his son lacked authority. The court held that the father’s conduct had established authority and he was estopped.

Estoppel does not create agency: it is used merely as defence. It has thus been described as a shield not a sword. The representation arises from the principal. Pretence by the agent that he has authority is not enough.

Requirements for estoppel:

Representations by one party through words or actions/conduct or even inaction that a certain state of affairs exists.

Such representation was of such a nature as to mislead a reasonable person who developed reliance on that representation.

The person who holds that reasonable reliance acted on the faith of that representation or was induced by it.

actual/potential prejudice was created and suffered by the party relying on it. The prejudice must have resulted from the reliance.

When these requirements occur the party responsible for them will not be allowed to deny their truth. He is precluded from denying that a contract was created. Thus estoppel is a form of defence.

Pieters & Co v Salomon, 1911.

Mr Burger, a businessman owed Mr. Salomon some money. Pieters & Co then bought the Burgers business and contracted with Salomon to pay what Burger owed. Salomon knew the amount but Pieters & Co thought it was much smaller. The court decided that they must pay the full amount because they had led Salomon to believe that they would do so.

“When a man makes an offer in plain and unambiguous language, which is understood in its ordinary sense by the the person to whom it is addressed, and accepted by him bona fide in that sense, then there is a concluded contract. Any unexpressed reservations hidden in the mind of the promissor are in the circumstances irrelevant. He cannot be heard to say that he meant his promise to be subject to a condition which he omitted to mention, and of which the other party was unaware”.

Agency By Ratification. Here a person professes to act as an agent for another but lacks authority. This act can be ratified in retrospect as if it had been authorised from the beginning provided:

• The person doing the act professed to act as agent. He must actually hold out to the 3rd party that he acts on behalf of the other.
• He must have had a particular principal in mind. He cannot hawk the act.
• The act must be capable of ratification thus excluding formal acts which require a power of attorney or those which are illegal, immoral or are contrary to public policy.
• The principal must have contractual capacity.

Even where the the transaction was tainted with the agent's breach of authority, ratification validates the act. But it must have been performed expressly for the principal. The performer cannot hawk it around. Ratification must be for the whole contract. You cannot “blow hot and cold”. Ratification puts all parties as if the act had been performed properly in the first place.

A person non-existent at the time of the contract cannot subsequently ratify it. This is illustrated in the English case Kelner v Baxter, 1866

Promoters of a company yet to be formed [Gravesend Royal Alexandra Hotel Co. Ltd] entered into a contract on its behalf. The company on its formation ratified the contract. It later failed to pay its debts and it was liquidated. The court held that the ratification was inoperative because the company was non-existent when the contract was concluded on the principle that an agent without authority attracts personal liability to the 3rd party. This English case expresses our own law but the Companies Act allows ratification of such contracts.

Note: Section 32 of the Companies Act on pre-incorporation contracts: a party may contract for a company in the process of formation as an agent without incurring liability even if the contract is not ratified provided:

Contract is in writing

The person must profess to act as agent/trustee of the unformed company

The memorandum on registration must allow for the adoption of the contract in one of its objects.

The contract [or a certified copy] must be lodged with the memorandum

The company after incorporation must adopt the contract.

However two persons can enter into a contract for the benefit of a 3rd party [e.g. a company not yet formed or an unborn child]. The two persons act as principals and there is no agency – the contract does not have to be in writing and no mention in the memorandum is necessary. Such acts are referred to as stipulatio alteri.

McCullough v Fernwood Estates, 1920. Aspey was to have a large interest in a company to be formed and he was anxious to secure Fernwood Estates for the company by a certain date and specific price. If the company failed to ratify, Aspey was to incur personal liability over what he considered a good bargain.

Only the person for whom the agent acted can ratify. This must be done with full knowledge of the facts; the whole transaction must be ratified. Ratification may be express or implied.

Agency through Implication of the Law arises without agreement but by the nature of one's office [ex officio]. No permission by the principal is necessary e.g.

• Guardian and Pupil [minor]- normally the father. [Wood v Davies]
• Trustee of an insolvent estate. Authority to bind the insolvent estate arises from the Insolvency Act.
• Curator and lunatic. The court appoints the curator and it determines his authority

Negotiorum Gestor [Adminstrator of Affairs] acts on his own accord without agreement/authority; express/implied in order to benefit another e.g. when a man quenches a fire at a neighbour’s house. This is a salvage case. The action must arise from a situation of urgency and there is no time to communicate with the principal.

Because it does not arise from agreement, it is not a contract; the relationship is sometimes referred to as a “quasi-contract”. However the rights and duties of a gestor are similar to an agent. He is however reimbursed for expenses only, no remuneration is paid. He must conclude what he has started and not leave an unfinished job and thus cause prejudice. He must render an account. He must exercise care in carrying out his mandate as a prudent man would do in the circumstances.

Companies. A company like other principals is only bound by the acts of its agents if those acts are within the scope of actual/apparent authority. Freeman & Lockyer v Buckhurst Park Properties Ltd. 1964: The Board of Directors was authorised by the articles to appoint a Managing Director. However they failed to do so but they allowed one of them to act as such in carrying out company business. It was held that they held him out as MD. apparent/ostensible authority is created by the principal to a 3rd party.

In the past when a company acted outside the objects in its memorandum of association such acts were ultra vires and thus void. Remedy could only occur by the doctrine of unjust enrichment. However the introduction of Sect 9Aof the Companies Act gives the company power and capacity “of a natural person of full capacity” even though it is itself an artificial person. Thus all its acts are intra vires and outsiders can now escape the consequences of the old doctrine of ultra vires rule which however still exists in respect of the members. Powers of directors are set out in the articles. In their dealings they have a fiduciary duty and must exercise their power bona fide because they hold a position of trust from the principles of agency. They must avoid conflict of interest and should not receive secret profits. They must act honestly for the benefit of the company.

By its nature a contract of agency creates two sets of legal relations: [between principal and agent; and the principal and 3rd parties]. The first is a direct result of the formation of the company and the second follows the formation of the contract.

Duties of Agent.

• Perform his mandate to the best of his ability within reasonable time or be liable for damages for non-performance – except if he makes a proper renunciation without causing prejudice to the principal.
• Conform to the authority given and obey all lawful instructions from the principal; in the absence of such, he must observe trade customs.
• Exercise care such as expected from a reasonably prudent man in the circumstances
• Keep proper accounts – keeping his property and money separately. If he cannot prove what is his, it is presumed that it belongs to the principal. All property received for the principal must be delivered. Unless he holds a lien [right to hold and retain property pending satisfaction of a claim] on it. The principal has a right to inspect the records.
• Show utmost good faith [uberrima fides]
• All profits in respect of the agency accrues to the principal and must be handed over unless the transaction was outside the scope of his agency or the principal waives his right to the profit or the profit was purely accidental.

Transvaal Cold Storage Co. Ltd v Palmer, 1904. P represented the company in Durban but was not required to devote all his time to the company’s business. He landed a meat contract for Imperial Cold Storage Co. and made a profit. This involved no loss whatsoever for his principal, TCS. Nevertheless, it was held that he had to account for the profits to his principal.

• Must not enter into any contract or transaction involving a conflict of interest with his principal except if he discloses this. So he cant buy his principal’s goods or sell his goods to him unless he discloses this. This principle applies even if no prejudice arises.

Robinson v Randfontein Estates Gold Mining Co. Ltd, 1921. The company wanted to acquire certain land but negotiations with the owner broke down. Robinson, [Chairman and Director of Randfontein] purchased the land for R120 000 for his own benefit. He then sold this property to the company for R550 000 making a profit in the process. Clearly he was benefiting in circumstance where his interests were in conflict with the company. He was ordered to pay the profit to the company. He had a duty to buy the property for the company not for himself. The director's position is similar to that of guardian/minor or solicitor/client. In such a case the company does not have to prove that it suffered any loss.

Hargreaves v Anderson. 1915 AD. An agent sold a hotel on behalf of his principal to a partnership of which he was a member [holding half the shares]: he was thus also a purchaser. He also claimed commission from the owner. It was held that he was not entitled to the commission.