Professional Documents
Culture Documents
In the
execution of duties and obligations arising from agency contracts, it is expected that the parties of the
contract conduct themselves in the highest degree of faithfulness, as dictated by the doctrine of ‘Uberrimae
Fidei’. It is the intention of the essay to show that an agency contract is a contract of Uberrimae fidei. The
writer will first define key terms and thereafter explore the contract of agency in relation to doctrine of
Uberrimae Fidei (utmost good faith), after which concluding thoughts will then be given to sum up the
discussion.
Definition of terms:
Contract - is an agreement between two or more people (parties), giving rise to rights and corresponding
duties (obligations), which are enforceable in a court of law. The essence of a contract is that the law will
compel a party who has seriously undertaken an obligation to perform what he has promised. For a contract
to be binding, it has to have certain elements, and these are; possibility of performance; legality
(lawfulness); contractual capacity; serious intent to contract (animos contrahendi) by all parties; union of
minds (consensus ad idem) of the parties concerned; it should not be vague; and the intention of both parties
should be communicated.
Agent- An agent is a person or entity authorised to act on behalf another (a principal), through employment,
by contract or apparent authority (Burton, 2007). The agent is bound by precise instructions or left to pursue
his own discretion. It has to be stated though that the agent is not an employee of the principal, but an
independent entity although his actions are for the benefit of another.
Uberrimae Fidei- a phrase literally translated as ‘most abundant good faith’. In Contract Law, it refers to a
class/group of contracts in which knowledge of the material facts lies with one party alone; that party is
under a fundamental duty to make a full disclosure of all these relevant and material facts to the other. The
doctrine of Uberrimae fidei, in contracts, calls for complete transparency and honesty in dealings between
parties to a contract.
Contract of Agency- defines the relationship between two parties, one a Principal and the other an Agent.
In this contract the agent assumes the obligation to promote, carry out or close commercial or non-
commercial transactions on behalf of the principal with a third party, receiving an agreed price or
commission (Burton, 2007). It is a continuous and stable relationship where the agent, whether an individual
or legal entity, is an independent intermediary with its own business structure and without subordination to
the principal. The essentials of agency are as follows; first, the relation is a consensual one, where, an agent
agrees, or consents to act under the direction or control of the principal. Secondly, the relationship is a
fiduciary one; an agent agrees to act for and on behalf of the principal. He is in no sense a proprietor entitled
to the gains of enterprise, nor is he expected to carry the risks; all risk is carried by the principal (Steffen &
Kerr, 1980).
An agency contract creates a fiduciary relationship between the principal and the agent. A fiduciary
relationship is a relationship of trust that must exist between the two parties. To that effect, the agent is
under obligation to accomplish the given mandate. The Principal gives authority to the Agent to act and
carry out business affairs and dealings on his behalf, this could be because the principal is not in a position
to carry out that particular duty on his own, or he does not have the expertise or is not well versed in the
field in question or he simply does not have the time to do so himself, and so he seeks the services of one
who can do for him what he cannot. This on its own signifies a great deal of trust. Since the principal
confers upon his agent authority, if the agent acts within the confines of his mandate, should any problems
arise, the principal will not hold the agent liable for any damages, unless they emanate from negligence and
delict on the part of the Agent. Also if the agent acts outside the confines of his mandate, the principal will
not be bound by these. However the principal may chose to rubber stamp (ratify/validate) the agent’s act if it
is in his best interest
Once a contract of agency is signed, it gives rise to duties of the agent and of the Principal. Both the
principal and the agent are bound by the contract and thus both should fulfil their duties when time comes. It
is required of both the agent and the principal to act in a manner that shows utmost good faith towards one
another.
In the case Frost vs. Bayer SA Pvt (Ltd), the parties agreed that the defendant (Bayer) would spray Frost’s
vine fields which also had wheat and onion. Bayer made assurances to Frost that as a result of the spraying,
the Wheat and Onions would not be affected. However, they were destroyed when the vine fields were
sprayed. Frost sued and it was discovered that Bayer had never before sprayed vineyards mingled with
wheat and onions using a helicopter before and also they had not taken any steps to find out if it was
possible to spray under such condition. The court held that Bayer acted negligently and held that negligence
was a delict and it attracted delictual damages.
If the agent is negligent, it is the principal that suffers the consequences. All contracts that the agent intends
to bind his principal to must and have to be well read, re-read, reviewed and double checked and no stone
should be left unturned, in order to check for any clauses, conditions and contractual provisions that would
potentially put the principal in an unfavourable position. Since the principal has entrusted his affairs to the
agent, he depends on the agent to exercise his skill and tact in his services. The agent therefore has to act to
the best of his abilities while carrying out his mandate. There is no room for recklessness, as this would
have calamitous consequences on the part of the principal. If the agent acts negligently, the courts will hold
him liable and will bear the damages arising from the reckless discharge of his mandate.
-Secret Profits
In acting in good faith, the agent is not to make any secret profits or rewards for himself at the expense of
the principal. In Levin v Levy (1917) the court held that ‘the mere fact of an agent receiving and retaining a
secret profit or commission arising out of and in connection with the performance of his duty constitutes
unfaithfulness and dishonesty towards his principal’. To that end, all profit acquired by the agent in his
agency duties are required for the principal. In the case of Volvo vs. Yssel (2009), the defendant, a senior
manager, during his employ with the Plaintiff had used his influence as a senior executive to secure
personnel through a certain labour broker. What his employer company was unaware of was that the
defendant had an arrangement with the labour broker and that the placement of the staff through the broker
had resulted in the defendant earning a healthy amount in commission, from that labour broker. When the
Plaintiff learnt of the arrangement, the executive resigned and the company sued the manager. It sought an
order declaring the executive liable to pay the secret commission to it.
The court of appeal held that the position of the executive was such that he was trusted and the Company
dealt with him as an insider. An American case was quoted by the Court, in which it was found that when a
firm lets its guard down and deals with a person as an insider, not as a stranger, the duty of that person is to
reciprocate the trust ideal. The defendant, as a senior manger had taken it upon himself to arrange the
employment through the labour broker. As he was trusted, he was able to do this even though human
resources was not part of his portfolio. In other words, the company let its guard down as far as he was
concerned. It expected that he would, as a senior executive, act in its best interests, not his own. The Appeal
Court upheld the Plaintiff’s argument. The defendant was ordered to repay the money that he had made, to
the plaintiff.
- conflict of interest
An agent whose interest’s conflict with the principal’s interests may be unable to represent his principal
effectively. Therefore, an agent may not acquire a material benefit from a third party in connection with an
agency transaction. When conducting the principal’s affairs, an agent may not deal with himself. For
example, an agent authorized to sell property cannot sell that property to himself. The courts usually extend
the rule to include transactions with the agent’s relatives or business associates or with business
organizations in which the agent has an interest.
However, an agent may engage in self-dealing transactions if the principal consents. For this consent to be
effective, the agent must disclose all relevant facts to the principal before dealing with the principal on his
own behalf. Unless the principal agrees otherwise, an agent also may not compete with the principal
regarding the agency business and not assist the principal’s competitors, as long as he remains an agent.
Thus, an agent employed to purchase specific property may not buy it himself if the principal desires it.
Furthermore, an agent ordinarily may not solicit customers for a planned competing business while still in
the employ of the principal.
Furthermore, an agent who is authorized to make a certain transaction may not act on behalf of the other
party to the transaction unless the principal knowingly consents. Thus, one generally may not act as agent
for both parties to a transaction without first disclosing the double role to, and obtaining the consent of, both
principals. Here, the agent must disclose to each principal all the factors reasonably affecting that principal’s
decision.
In Robinson v Randfontein Estates Gold Mining Company (1921), Robinson, a director at Randfontein
Gold mine, sought to benefit from a transaction he had entered into on behalf of his company. He acquired
some property in his personal capacity so as to sell it to his company at a higher price. The court held that he
was in breach of his duty of good faith. The transaction was in direct conflict with the company, as he
sought to make a profit out of it, whereas the company was in business to make a profit, and furthermore
was gaining at the expense of the company.
Conclusion
The writer has attempted to explain at length the contract of agency. The duties of both the agent and the
principal were discussed. Similarities can be drawn from both the contact of agency and the doctrine of
Uberrimae fidei. These include but are not limited to disclosure of information, acting within the confines of
the law and the authority, payment of dues to either party and of course acting in good faith of one another.
Of great importance is the relationship between the parties. It is that based on trust. The agent has a
fiduciary duty towards the principal. This is so because the principal places a great deal of trust on the agent
to carry out his affairs. Although the principal is no fiduciary of the agent, he has to reciprocate the duties of
the agent by sticking to his end of the bargain. The very acts of indemnity and reimbursement for losses, on
the part of the principal, is a show of good faith.
It can thus be concluded from the above discussion that a contract agency, as it requires both parties to hold
themselves to the highest standard of good faith and loyalty, embraces the doctrine of Uberrimae fidei, and
as such can be referred to as a contract of such.
REFERENCES:
Burton, W. C., (2007). Burton’s Legal Thesaurus, 4th Ed. New York: McGraw-Hill
Christie, R. H., (1993). The Law of Contract In South Africa. Durban: Butterworths
Kapoor, N. D., (1978). Elements of Business Law. New Delhi: Sultan Chand & Sons
Steffen, R. T., & Kerr, T. R., (1980). Cases and Materials on Agency-Partnership. West Group