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Bcom Accounting - Intro to commercial law
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CommercialLaw
, Chapter 1: The Law of Agency
Agency agreement: contract where one person (the principal) authorizes another person (the agent) to
contract or negotiate a contract with a third party on behalf of the principle. (Scott and Cornelius (217:25))
Principal
Agent Third Party
Example: Principle gives the agent a mandate and they contact a third party. Like if we are selling a home,
the principle would be us
and we contact someone to sell our home on our behalf, they’re the agent. The person the agent gets into
contact with to sell the house to would be the third party.
Undisclosed principal: Someone who wants to remain anonymous, an agent can still act on their behalf
Present obligation: Which the principal will have when selling the house and finalizing the contract to the
third party with the agent
Special types of agents
Brokers: an independent person/company that organizes and executed financial transaction on behalf of
another party. example: real estate broker who facilitates the sale of a property or medical aid brokers/
insurance brokers etc.
Estate Agents: An agent who’s job is selling and renting out buildings and land for clients
Factors: Guven general discretion in respect of price warranties and terms of contracts and they sell goods as
if they belong to him/her. Example; herbal life, Tupperware agents.
Del credere Agents: Agent that sells goods at a price they can guarantee the principal will receive. Their
commission is generally higher than other agents. There’s a guaranteed price.
Auctioneers: example; on tv shows/ those who auction things like garages that are abandoned and repossessed
and wait for the highest bid.
Agents can overlap. There can also be 2+ an
General power of attorney:
When your parent dies, and you want to go to the bank to get money, you’d need an attorney.
It creates an agency agreement and creates a mandate between a principal and an agent
Written authority that gives one the right to act.
Example; You need to get a document from the bank for a client, you’d need this power of attorney to have
permission to get such thing you’re looking for from the client.
Example; getting trademarks for your client using General power of attorney, “I Allison of such law firm, is
hereby authorized to launch trademarks on my behalf as if I were doing it myself”.
General power of attorney has more than one acts they can do example; John has been given permission by
Mary to act out and renovate a whole bunch of items in her house.
Special power of attorney:
Limited to a single act stipulated in the special power of attorney documents
Example; Jamie signs a special power of attorney to attend an auction and conclude a contract of sale, at Two
Rodeo Drive in Beverly
hills for not more than 2.5 million Rands. This is all Jamey HAS to do for the principal
,How to test for Agency?
1) Formalities: It’s written clear, it’s valid & a clear mandate (authoritative command)
2) Capacity: Legal capacity to be in a binding contract example; be of age, of sound mind, can’t be
insolvent and can’t be prodigal (someone declared by the court who wastes their money. As well as have the
ability to be sued and sue.
Note: Capacity for both Principal and Agent
Curator: A conservator or guardian, one appointed as an agent ot a manager of a minor who is mentally
incompetent. Example; I have a house for sale but I’ve recently had a car accident, I become mentally brain dead
in the hospital. I can’t comprehend what’s happening. The court will then call in a curator to take over my
affairs until I recover. They’ll make sure my agent can still sell my house
Formation of the contract of Agency:
Four types of authority created; (Scott and Cornelius (2017:254))
1) Express Authority: Expressing/ very clear that I’m giving authority. Verbal or written. “You’ll act as my
agent”
2) Implied Authority : Example; you’re a director and there’s no resolution to enter into contracts on behalf of
the company but you do it anyways and the other directors don’t object . Like hiring employees, sourcing
suppliers. “Just accepting”.
Example 2: Aunt leaves to SA, and you sell things on her behalf without telling her. She lets it be. This is
implied authority.
3) Authority by estoppel: When agent lacks actual authority from acting on the principals behalf but the
principal is estopped from denying the alleged agent had authority.
Example; Billy the home owner (principal) selling the house, he appoints Mary (the agent) to sell his house in
Durban on his behalf . Mary sells the wrong house, she sells Billy’s house in Cape Town and not in Durban.
But the problem is bob (the third party) already gave the money. Bob will be able to use authority by estoppel.
Billy can’t rely on the fact he didn’t give the agent proper authorization. He will be liable to sell Bob that house.
“Billy is estopped from denying that the agent had no authority.” It is protection to the third party as Bob
didn’t know about the discussion between the other two parties.
4) Ratification of authority: Where an agent does something without authority but later on you ratify it. You
say to the agent “It’s okay.”
Example; Aunt leaves her furniture with you and goes to the UK. You sell her stuff without telling her and
she’s annoyed at you but she says “you know what, I’m not actually coming back to SA so I’ll ratify your
authority.” She’ll allow you to sell that furniture
Case Study:
During an auction, A who was a farmer purchased (third party) tick oil from B the auctioneer (agent). B
represents C (the principal). The tick oil was in fact sheep dip. This was used on more than 100 cattle, which
subsequently died. A sues B for damages. B alleges he is an agent. Explain the rights and obligations of all
parties A, B and C in respect of agency.
A: Has the rights to sue, as he has been sold the incorrect product. But he also has an obligation to check the
product before he bought it.
B: Had an obligation to check if he was selling the right product to Farmer A. “He had an obligation to ensure
that he was acting properly in terms of his mandate by selling the correct product.” His rights in terms of the
agreement are to be remunerated or paid for selling the correct products. Mistakes like this and he may not get
remunerated.
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