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Chapter 20
The Law of Agency

20.1 Introduction
20.2 The contract of mandate
20.3 Agency

20.1 Introduction
The term ‘agency’ is used in a variety of contexts. One of the meanings in which the
expression is used is that of an agreement in terms of which one party undertakes to
perform a task or commission on behalf of another. In this context agency indicates that
the parties conclude a contract from which reciprocal rights and obligations flow. This
contract is known as a ‘contract of mandate’ and is governed by the law of contract in
general and by the rules applicable to contracts of mandate in particular.
‘Agency’ also occurs where one person (the agent) concludes a juristic act on behalf of
another (the principal). A juristic act is an act which creates, alters, or extinguishes legal
relationships through the expression of will of one or more persons (see also chapter 5).
Used in this sense, agency combines the principles of mandate and representation.
Although agency and the contract of mandate are often associated, they are, in fact,
two separate legal concepts. In the discussion that follows, the contract of mandate is
discussed first. The rest of this chapter deals with agency or representation.

20.2 The contract of mandate

A contract of mandate arises when one party, the mandator, concludes a contract with
another, the mandatary, in terms of which the mandatary undertakes to perform a
mandate (that is, a commission or a task) for the mandator. The commission need not
be undertaken gratuitously.
The mandatary may only perform juristic acts in the name of the mandator if
authorised to represent him or her. This authority will frequently be agreed upon in the
contract of mandate, or may be inferred from it.
The mandate may entail the performance of a single act, or be a general mandate to
conduct all the affairs of the mandator. It may also be a mandate to conduct all business
of a specified nature.
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20.2.1 The duties of the mandator

[Link] The duty to compensate the mandatary for expenses
Originally, the contract of mandate was a gratuitous undertaking by the mandatary to
perform a task. This is no longer so and the mandator must compensate the mandatary
for all expenses incurred, and indemnify him or her in respect of liability which may arise
from the execution of the mandate. Expenses include all sums paid on behalf of the
mandator and all expenses and losses incurred in connection with the performance of the
mandate, provided they were incurred in good faith. The mandatary is not entitled to
compensation for expenses and losses incurred as a result of his or her negligence, or
which were incurred unreasonably or unnecessarily.
The parties to a contract of mandate may agree that this duty of the mandator be
excluded. But the mandator cannot refuse to pay expenses incurred by the mandatary
merely because he or she would not personally have incurred them.
 The mandatary has a lien (right of retention) in respect of goods acquired or received
in the performance of his or her task, until he or she is compensated or indemnified by
the mandator. (Liens arise by operation of law and are discussed in chapter 23.)
[Link] The duty to pay the mandatary the agreed remuneration
The mandator must pay the mandatary the remuneration on which they have expressly
or tacitly agreed. The amount of the remuneration may be agreed, or may be determined
according to a formula (for example, a commission fixed as a percentage of a
determinable amount). When there is no agreement on the amount of remuneration, the
remuneration will be determined according to the customary or reasonable rate. If the
remuneration is for the completion of the mandate, it is to be paid out of the proceeds of
the successful completion of the mandate. The mandatary loses the right to claim
remuneration if he or she fails to execute the mandate, or if the object of the mandate is
not realised, unless the parties have agreed otherwise.
Parties sometimes dispute whether the mandate has, in fact, been carried out. It may,
for example, be argued that an estate agent who has been instructed to find a buyer for
the mandator’s house did not cause the prospective buyer to make the offer to purchase.
This issue requires that it be established whether the mandatary has rendered the
services that were required in the particular circumstances and in view of the nature of
the particular mandate.
20.2.2 The duties of the mandatary
[Link] The duty to carry out the mandate
The mandatary undertakes to carry out a particular mandate. It is his or her main
obligation to accomplish this task. Thus the mandatary must take reasonable steps to
execute the mandate within a reasonable time. If the mandate cannot be fulfilled

through no fault of the mandatary, he or she will not incur liability towards the
mandator. In certain circumstances the mandatary may renounce the mandate. If the
renunciation is legal, the obligation to carry out the undertaking comes to an end. If not,
the mandatary must compensate the mandator for any damage he or she has suffered
as a consequence of the unlawful renunciation.
[Link] The duty not to exceed the terms of the mandate
The exact scope of the mandate depends on the agreement between the parties.
Although the mandatary may have been granted some discretion in the execution of the
mandate, he or she may not act outside its ambit. The mandator is usually not bound by
an act outside the scope of the mandate. But the mandator may elect to ratify the
mandatary’s act and to claim damages from the mandatary for acting beyond the scope
of the mandate.
[Link] The duty to perform the mandate personally
The mandator selects the mandatary because of his or her specific skills, qualifications,
professional standing, reputation or other relevant considerations. Therefore the
mandatary must carry out the task personally, unless the parties have agreed otherwise.
In certain circumstances the mandatary may employ someone else to perform the
mandate. This may be the case where the mandate requires a service or the
performance of an act which the mandatary does not usually perform, or where the
mandator knows that the mandatary is not qualified to perform a specific act.
[Link] The duty to act with care and skill
A mandatary must act with reasonable care and skill in the execution of his or her
mandate. The determination of what is reasonable takes into account the general level of
skill and diligence possessed and exercised by members of the branch of the profession
to which the mandatary belongs.
 If the performance of the mandate requires any specific knowledge, skill
Page 307 or expertise, the mandatary warrants that he or she is suitably qualified or
competent when the mandate is accepted. If that is not the case, the
mandatary is liable for damages arising from the lack of the required skill.
The mandatary must not act negligently. If the mandator suffers damage as a result of
negligent carrying out of the mandate, or of the mandatary’s negligent failure to execute
it, he or she must be compensated by the mandatary.
[Link] The duty to act in good faith
The contract of mandate creates a fiduciary relationship (a relationship of trust) between
the mandator and the mandatary. Consequently, the mandatary must act in good faith
when executing the mandate. This entails that the mandatary should act honestly and
properly, in the interests of the mandator, and must not intentionally cause him or her
harm or injury. If the mandatary has, for example, been entrusted
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with the sale of an asset, he or she may not purchase the asset for himself or herself.
The mandatary may also not make a profit from the contract of mandate. Any benefit
made by the mandatary without the consent of the mandator must be accounted for and
handed to the mandator. The mandatary may, moreover, not use any confidential
information obtained during the execution of the mandate to the detriment of the
mandator.
[Link] The duty to render accounts
The mandator may request the mandatary to furnish information regarding the progress
of the mandate from time to time. The mandatary also has a general duty to render
proper accounts as required by the contract of mandate, by statute or by trade usage.
The mandatary’s statement should reflect all information to which the mandator is
entitled, including an inventory of acquisitions and money received and of things
transferred, alienated or paid for in the name of the mandator.
The form of and times for rendering accounts may be determined by agreement,
statute or trade usage. In the absence of any pre-determined times, the account should
be rendered on execution or termination of the mandate.
[Link] The duty to account
On completion of the mandate the mandatary is accountable to the mandator for
everything that fell within the ambit of his or her mandate. This usually entails the
transfer of assets or rights to the mandator.
20.2.3 Termination of the mandate
A contract of mandate is terminated in the same ways that other obligations are
extinguished (see chapter 12). The circumstances mentioned below are of particular
relevance with regard to contracts of mandate.
[Link] Death of the mandator or the mandatary
Since the mandatary must personally execute the mandate, the contract is terminated
when the mandatary dies. It also comes to an end on the death of the mandator. The
mandatary is entitled to compensation for expenses incurred after the mandator’s death,
if the mandate is completed in good faith and in ignorance of the mandator’s death.
[Link] Sequestration of the estate of the mandator or the mandatary
The contract will terminate if sequestration of the mandatary’s estate makes it impossible
for him or her to perform the mandate. If the mandator’s estate is sequestrated, the
authority of the mandatary to represent the mandator in the performance of a juristic act
is terminated. Sequestration of the mandator’s estate also curtails his or her ability to
incur expenses, and may therefore, also for this reason, terminate a contract of
mandate.

[Link] Insanity of the mandator or the mandatary

A mandator loses his or her contractual capacity on becoming insane. He or she is
therefore regarded as having terminated the mandate. As is the case when the mandator
dies, the mandatary is entitled to compensation for expenses incurred after the
mandator’s insanity, if the mandate is completed in good faith and in ignorance of the
mandator’s insanity.
The insanity of the mandatary renders him or her incapable of performing juristic acts
and brings the mandate to an end.
[Link] Revocation by the mandator
At common law the contract of mandate was a gratuitous undertaking which could be
revoked at any time. This is no longer the position and it seems that the contract may
only be revoked by the mandator for a legally acceptable reason. Should no such reason
exist, revocation may amount to a breach of contract, for which the usual remedies will
lie. The parties may, of course, agree under which circumstances the mandator may
revoke the mandate.
[Link] Renunciation by the mandatary
In the absence of an agreement between the parties, the common-law position that the
mandatary could freely renounce the mandate, but would then forfeit any compensation
for expenses, no longer seems appropriate in circumstances where the mandatary is
remunerated for his or her work. If there are no legally acceptable reasons for
renunciation, the mandator is entitled to the usual remedies for breach of contract if the
mandatary withdraws from his or her obligations under the contract of mandate.

20.3 Agency
A person who wishes to conclude a contract does not have to do so personally. He or she
may prefer, whether for the sake of convenience or for other purposes, to authorise
someone else to enter into the contract on his or her behalf or in his or her name.
Sometimes representation is essential. A legal entity such as a company or a close
corporation cannot, for example, itself conclude a contract. The enterprise must, of
necessity, be represented by a natural person or persons.
The concept of agency, or representation, arises when one person, the agent or
representative, concludes a juristic act for or on behalf of another, who is called the
principal, with the result that a legal tie arises between the principal and a third party or
third parties. Any rights acquired and duties assumed by the agent are for the principal
and not for the agent. Used in this sense, agency comprises the totality of juristic
relationships which arise among these three parties.
Agency serves various needs in modern society. In the first place, the interests of
those who have no capacity to act can be protected. Secondly, agency makes it possible
for juristic acts to be performed on behalf of persons who are absent. It also allows the
use of specialised services of specific agents: for example, for
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a power of attorney to be given to a conveyancer (the agent) to register property in the

name of someone else on behalf of the principal (the client, who would normally be the
seller). Agency in the context of the international sale of goods is regulated in the
Convention on Agency in the International Sale of Goods Act 4 of 1986. This aspect is
not dealt with here.
For a person to perform an act of representation, certain requirements must be met.
In the first instance, the principal must exist. Anyone with the capacity to perform juristic
 acts can appoint an agent to act on his or her behalf. Secondly, the agent
Page 309 must have authority to perform the act. This aspect is discussed below. The
agent must, in the third instance, make it clear to the third party that he or
she (the agent) is acting for someone else and not in a personal capacity. No specific
words to this effect are required. But the following expressions, words, or abbreviations
are frequently encountered in practice to indicate representation: ‘for’, ‘on behalf of’,
‘pp’, and ‘qq’. The agent need not identify the principal. The same person can act as
principal and agent simultaneously. For example, if Margaret and Karin wish to buy
something jointly, Margaret may act both in her personal capacity and as Karin’s agent in
concluding the contract of sale.
20.3.1 Authority
An agent has to have authority to conclude juristic acts on behalf of someone else. The
authority given by the principal to the agent to represent him or her may be express, or
it may be implied by the law or on the facts. Where such authority does not exist, the
lack of authority may sometimes be cured by ratification or estoppel, so that agency still
arises. Ratification and estoppel are discussed below.
The person relying on the authority has to prove that such authority existed at the
time when the juristic act was concluded.
[Link] Authorisation
The most common source of authority for concluding a juristic act on behalf of another is
express authorisation by that other person, in other words a manifestation by the
principal of his or her intention that the other party shall act on his or her behalf.
Normally no formal requirements are imposed for such authorisation. The authorisation
is a unilateral act, although it may be closely linked to a contract. In certain instances,
however, a formal appointment by means of a written power of attorney is required (for
example, to appoint a conveyancer to register an alienation of property).
Authorisation by way of agreement between the parties does not necessarily have to
be express, but can also arise by tacit (silent) agreement. The tacit agreement is
established by the fact that the principal’s conduct and attitude in respect of the agent is
such that the only reasonable inference which may be drawn is that the principal wishes
the agent to act on his or her behalf. If, for instance, a farmer were to send his or her
cattle to an auction, and the auctioneer sold the cattle to a purchaser, the farmer’s
conduct would indicate that he or she had given the auctioneer tacit authority to sell the
cattle.

[Link] Other sources of authority

In certain instances the authority is implied by law and does not come about by
agreement. In many of these instances the agent’s authority is derived from his or her
appointment to a particular office. The consent of the principal for such authorisation is
not required. For example, the guardian of a minor has the authority to conclude juristic
acts on behalf of the minor. Similarly, an insane person’s curator has authority to enter
into juristic acts on his or her behalf. The curator is appointed by the court. Usually the
extent of the curator’s authority is also determined by the court.
The authorisation of the directors, or of a particular director, to act on behalf of a
company, is normally regulated in the Memorandum of Incorporation of that company.
The Memorandum of Incorporation does not constitute a contract between the director(s)
and the company. Therefore, the authority of a director should be regarded as an
example of authority by operation of law (see chapter 21).
The Close Corporations Act 69 of 1984 provides that any member of a corporation
shall, in relation to a person who is not a member and is dealing with the corporation, be
an agent of the corporation. Any act of a member binds the corporation to such a third
party, whether or not the act is performed for the carrying on of the business of the
corporation, unless the member so acting has, in fact, no power to act for the
corporation in the particular matter, and the person with whom the member deals has,
or ought reasonably to have, knowledge of that fact (see chapter 21).
The contractual relationship between partners is the source of a partner’s authority to
conclude contracts. In terms of the principle of mutual mandate, every partner has the
power to bind the partnership (that is him- or herself together with the other partners) in
transactions falling within the normal partnership business.
Sometimes authority that has not been expressly given can be inferred from the
principal’s conduct. The conduct of the parties must not allow any other interpretation
but that they intended a relationship of principal and agent to exist between them. An
example from one of the decided cases is where one party allowed another to negotiate
for the sale of a hotel to a potential buyer, paid him various amounts of money on
several occasions, and wanted him be present at the final negotiations. The court held
that the inference of agency was inevitable in the circumstances.
[Link] Delegation of authority
An agent’s authority may include the authority to delegate, that is, to authorise a
subagent to perform a juristic act for the principal. The power to delegate may be given
expressly or tacitly. Whether the principal intended the agent to have the power to
delegate is a question of fact. An important consideration is whether performance of the
act requires particular skill or expertise, or whether the act can be performed by any
person (see also paragraph [Link]).

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[Link] Termination of authority

A person’s authority to conclude juristic acts on behalf of another can be terminated in a
number of ways. If the authority was given to conclude a specific juristic act, the
authority comes to an end once the agent performs that act, or lapses when the act can
no longer be concluded. Should the authority be given for a specified time, it lapses
when the time expires. No act is required by the principal to terminate the authority. If
the authority was derived from a special relationship, it is extinguished as soon as that
relationship ceases to exist. For instance, the authority of a guardian to act on behalf of a
minor is extinguished as soon as the minor ceases to be a minor. Authority also
terminates when the principal or the agent dies, or if there is any change to the status of
the principal which restricts his or her capacity to conclude juristic acts: for example, if
he or she becomes insane, or if the principal’s estate is sequestrated. The principal
cannot conclude acts through a representative if he or she is not able to do so in person.
But, since the representative acts on someone else’s behalf, the agent’s authority does
not come to an end when his or her estate is sequestrated.
The principal may revoke the agent’s authority if the authorised act has not yet been
concluded. It seems that a representative’s authority to conclude juristic acts cannot be
rendered irrevocable. But if a contract purports to grant irrevocable authority to an
agent, subsequent revocation of the authority by the principal may render him or her
liable on a claim for damages for breach of contract.
An agent may renounce his authority at any time on just grounds, for example bad
health. In the absence of such good cause, the agent may be liable to the principal for
damages based on the ordinary principles of breach of contract.
[Link] Estoppel
If the principal has culpably created the false impression that another person has the
authority to conclude certain juristic acts on his or her behalf, and the third party, to
whom this representation has been made, acts to his or her detriment on the strength of
that impression, the principal can be prohibited by law from denying the authorisation. If
the requirements for estoppel are met, the principal is estopped, or precluded, from
denying the authorisation and will be bound to the transaction as if the agent had indeed
 been authorised to conclude it. For example, someone who sends a
Page 311 domestic assistant to a shop to purchase goods on credit and regularly
pays the accounts will remain liable for purchases made by the employee
on the same account even after revocation of the employee’s authority (provided the
shop-owner is unaware of the revocation).
There are three requirements for estoppel. In the context of agency, the principal
must, in the first place, by his or her words or conduct, have represented to the third
party that the ‘agent’ had authority to contract on his or her behalf. The representation
of authority must be attributable to the principal, or to someone for whose conduct he or
she is responsible. In the second instance, although the representation need not have
been intended to mislead, it must have been of such a nature that it could reasonably
have been expected to mislead the third party.

A court will consider the circumstances of both the third party and the principal in this
regard. It must, therefore, be shown that a reasonable person in the position of the third
party would have inferred from the conduct or words of the principal that the purported
agent was authorised to conclude the particular contract, and also that a reasonable
person in the purported principal’s position would have expected the words or conduct to
induce this belief. Finally, the third party must have acted on the strength of the
representation to his or her detriment. The third party cannot rely on estoppel if he or
she was unaware of the representation, or if the third party knew that the agent was not
authorised, or if he or she is, by law, deemed to know the scope of the agent’s authority.
For example, the Supreme Court of Appeal held that it could not be assumed that a
branch manager of a bank had the authority to bind the bank to stand surety for a very
large amount. Failure to confirm the authority in this case led to the finding that the
representation had not reasonably been relied on.
A company may be estopped from denying the authority of an individual who
purported to act on its behalf.
[Link] Ratification
If a person purports to act on behalf of another without authority to do so, the ‘principal’
is not liable. But if the principal ratifies the particular transaction concluded by the
‘agent’, the principal becomes liable. Ratification is the validation ab initio (from the
beginning, that is, from the time when the particular transaction was concluded) by a
person of a juristic act concluded on his or her behalf by another who did not have the
authority to do so. The ratification can be express or tacit. The person who ratifies must,
however, have knowledge of the particular juristic act which is being ratified.
Ratification is a unilateral juristic act. Therefore, the person who seeks to ratify does
not require the consent of the other parties to the transaction, that is, the third party and
the person who concluded the transaction on the ratifier’s behalf.
Should the ‘agent’ not be authorised at the time when he or she concludes the juristic
act, and the person, on behalf of whom the ‘agent’ has concluded it, accepts and ratifies
the act at a later stage, the legal position is as it would have been had the ‘agent’ been
authorised from the outset. Ratification is retroactive from the moment when the juristic
act was concluded. Thus the transaction in question acquires the same legal force as if
the party who purported to conclude it as representative had authority to do so in the
first place. After ratification, the parties are treated as though a relationship of principal
and agent had already existed at the time when the juristic act was entered into. A direct
juristic tie comes into existence between the third party and the principal. They are liable
to each other and can claim performance from each other.
Certain requirements have to be met before ratification can have legal effect. The
‘principal’ must have been in existence when the ‘agent’ purported to act on its behalf. If
that is not the case, the contract cannot be validated retroactively. (The legislature has
created some exceptions to this rule, allowing companies and close
 Page 314

corporations to ratify pre-incorporation contracts, that is, contracts entered into by

agents on behalf of a company or a close corporation yet to be incorporated, after the
incorporation of the particular business entity.) Before ratification can have legal effect,
the ‘agent’ must also have made it clear that he or she was acting as representative of
another when the agreement was entered into with the third party. The ‘principal’ must
be named or ascertainable and must, moreover, both have the capacity to ratify and
actually ratify the unauthorised contract in its entirety. The ratification must take place
within a reasonable time after the act by the ‘agent’. An illegal act cannot be ratified.
Before ratification has occurred, the purported principal acquires no rights or
obligations in terms of the transaction. The third party is also entitled to undo his or her
act before ratification. Even without doing so, the third party can refuse to accept
ratification if it has not occurred within a reasonable time. If a specific act is not ratified,
the person whose affairs have been managed may incur liability based on unjustified
enrichment (see also paragraph [Link].4).
20.3.2 The duties of the agent The
agent has the following obligations:
[Link] The duty to follow instructions
Where the agent has acquired the capacity to act as agent in terms of a contract of
mandate, his or her conduct should fall within the parameters of this agreement. An
agent is bound to act in accordance with the principal’s instructions. Should an agent not
follow these instructions to the best of his or her ability, the principal has a right of
recourse against the agent.
[Link] The duty to exercise care and diligence
The agent must use such care, skill and diligence as is reasonably required for the due
performance of his or her mandate. The standard of care required of an agent is that of
the reasonably prudent person and may vary from case to case. If the business to be
conducted requires a high degree of care and skill, the principal is entitled to expect such
care and skill from the agent.
[Link] The duty of good faith
It is acknowledged in South African law that the agent occupies a position of trust and
confidence in relation to the principal. This fiduciary relationship requires the agent to
conduct those affairs of the principal to which the authority extends, in the interests of
the principal and not for his or her own benefit. Four instances can be distinguished:
(a) Secret profits. All profits acquired by the agent in agency transactions are
acquired for the principal. The agent may not make any secret profit from matters
conducted on behalf of the principal. All profit resulting from the relationship with
the principal must be disclosed to the principal. The principal

and agent may, however, expressly agree that the agent may personally acquire
certain benefits.
(b) Conflicts of interest. No agent may place him- or herself in a position where the
agent’s interests and those of the principal conflict. If such a conflict does, in fact,
arise, it must immediately be disclosed to the principal. For instance, should the
principal instruct the agent to sell a car belonging to the principal at the highest
possible price, the agent must disclose to the principal the fact that he or she
wishes to purchase the car for him- or herself. This is so because the principal’s
interest in a high price for the car is in conflict with the agent’s interest in acquiring
the car at a low price.
 (c) Disclosure of confidential information. The agent may not
Page 313 disclose confidential information regarding the principal’s affairs obtained
during the course of the agency. This duty continues even after termination
of the agency.
(d) Delegation of authority. Generally, an agent may not delegate his or her
authority to another agent, in accordance with the maxim ‘delegatus delegare non
potest’ (a person to whom authority has been delegated may not himself or herself
delegate that authority). But delegation is allowed if the principal has allowed it,
either expressly or impliedly.
[Link] The duty to account properly
An agent must at all times be able to account properly for all matters concerning the
agency. This involves that, amongst other things, the principal’s property must be kept
separate; all books and documents relating to the agency business must be kept up to
date; information must be disclosed to the principal when required, and everything
belonging to the principal must be handed over on termination of the agency.
20.3.3 The duties of the principal
[Link] Payment of remuneration
If the parties have agreed on the payment of remuneration and the agent has
substantially performed his mandate, the principal must pay him or her the
remuneration. The agent must prove that there was an undertaking to pay. The
undertaking may be apparent from the nature of the agent’s work, commercial usages
and so forth. If an agreement is silent on the subject of remuneration, it can be accepted
as custom or usage that commercial agency contracts normally imply remuneration. If it
has been proved that there was an undertaking to pay, it is presumed that the principal
will pay reasonable remuneration. In case of a dispute, the agent has to prove that the
remuneration claimed is reasonable. The agent must also prove that the task has been
properly completed.
Page 316

[Link] Reimbursement
The principal must reimburse the agent for all expenses necessarily incurred in the
execution of the mandate. Expenses incurred as a result of the agent’s own negligence,
default or breach of duty need not be reimbursed.
[Link] Indemnity
The agent must be indemnified by the principal for all loss or liability incurred in the
execution of the mandate, or which has been directly caused by such execution. The
right to indemnity applies only to losses incurred directly as a result of the authorised
acts. The agent has no right to be indemnified in respect of acts beyond the scope of his
or her authority.
20.3.4 Personal liability of the agent or purported agent
Since an agent merely creates the legal relationship between his or her principal and the
third party, there is normally no legal relationship between the agent and the third party.
Only the juristic act has taken place between them. The only obligations that are
created, altered or terminated are those between the principal and the third party. The
agent incurs no liability to, nor rights against, the third party, unless he or she has
agreed expressly or impliedly to do so. Whether such an agreement can be implied is a
matter of fact that will depend on, amongst other matters, the normal business dealings
between the parties and trade usage.
The identity of the principal need not necessarily be disclosed by the agent. If a third
party is aware that the agent is acting on behalf of a principal, but he or she does not
know the identity of the principal, the principal is known as an unnamed principal.
 In certain cases the agent, or purported agent, can, however, incur personal liability.
The ‘agent’ can always bind him- or herself by way of agreement in respect of a third
person, for example, by a specific (contractual) warranty of authority. The liability of the
‘agent’ will then depend on the particular agreement.
There can be no representation of a person who does not exist (the statutory
exceptions to this rule in respect of companies and close corporations were referred to
above). Where a person purports to conclude a juristic act on behalf of another person
who does not exist, no legal relationship comes into being. This is the position even when
the contemplated principal subsequently comes into being and purports to ratify the
representative’s act.
An agent who does not disclose to the third party with whom he or she is negotiating
that he or she is acting on behalf of a principal can incur personal liability to the third
party. The third party can elect to hold either the principal or the agent liable. Similarly,
either the principal or the agent can enforce the contract. The doctrine of the undisclosed
principal is discussed further below.
An ‘agent’ who contracts on behalf of the ‘principal’ without authority, or who exceeds
his or her authority, can also be liable on the basis of an implied warranty of authority. If
the principal does not ratify the unauthorised conduct, the agent is

liable, not on the contract, but on the basis of the guarantee that he or she had the
required authority. If the ‘agent’ acted fraudulently or negligently, the third party may
also claim damages by means of a delictual action.
[Link] The doctrine of the undisclosed principal
The situation may arise that, by a contract of mandate, an agent is authorised and
intends to contract on behalf of his or her principal, but fails to disclose his or her
representative capacity to the third party. No contract is then formed between the
principal and the third party. However, in terms of the doctrine of the undisclosed
principal, derived from English law, the principal is entitled, once the representative has
reached agreement (consensus) with the third party, to step into the agent’s shoes as
the real party to the contract. Similarly, the third party may hold the principal liable.
This doctrine has been criticised for being contrary to basic principles of both contract
and agency. For example, it is inconsistent with the principle that only parties to a
contract can enforce it and be made to perform it, and with the principle that an agent
should make it clear that another person is being represented. Our courts regard the
doctrine as too firmly entrenched in our law to be negated. But, because of its
anomalous nature, they hold the view that it should be limited in its application.
In order for the doctrine of the undisclosed principal to apply, the agent must be
authorised to contract on behalf of the principal. Subsequent ratification by the principal
does not suffice. The agent must also intend to act on behalf of the principal. Finally, the
agent must fail to disclose his or her representative capacity to the third party. The
doctrine does not apply if the agent discloses that he or she is acting for someone else,
but does not disclose the name of the principal (the so-called unnamed principal, who
was referred to in paragraph 20.3.4).
In instances where the doctrine applies, the undisclosed principal may elect to claim
the performance promised to the agent. If the principal does not make this claim, the
third party is liable to the agent, who may enforce the contract in his or her own name. If
the third party performs to the agent before the principal intervenes, the third party is
discharged and performance to the principal cannot be enforced.
The agent’s right to performance comes to an end when the principal comes forward
and claims performance. The principal acquires no greater rights than the agent, and the
third party can raise against the principal any defence which was available against the
agent.
 On discovery of the facts, the third party can hold either the principal or
Page 315 the agent liable. Once the third party has made this decision, he or she is
bound by it.
Where the agent is acting on behalf of more than one principal, the doctrine of the
undisclosed principal could expose the third party to a multiplicity of actions, since he or
she would be obliged to perform to more than one creditor. It, therefore, does not apply
in these circumstances. It also does not apply where the contract itself precludes it (for
example, by providing that the ‘agent’ is not acting as agent
Page 318

for any person), or where the third party wanted the contract to be concluded with the
agent specifically (for example, to perform personal services).

Further reading
BP Wanda ‘Agency and Representation’ in WA Joubert (ed) LAWSA vol 1
DH Joubert & DH van Zyl ‘Mandate and Negotiorum Gestio’ in WA Joubert (ed) LAWSA
vol
17
JTR Gibson South African Mercantile & Company Law 8 ed by Coenraad Visser (gen ed),
JT Pretorius, Robert Sharrock & Marlize van Jaarsveld (2003)
AJ Kerr The Law of Agency 4 ed (2006)