INTRODUCTION

Agency is a relationship that is pivotal to or relevant to so many business and commercial

transactions. Agency is a common, indeed vital, legal relationship. It appears interstitially in

many areas of the law, including the solicitor and client relationship, employment law,

partnership law, corporate law, buying and selling properties, land and goods.

Definition of ‘Agency’

The law of agency in Malaysia is mainly found in Part X (that is, sections 135 to 191) of the

Contracts Act 1950. An agent is defined as ‘a person employed to do any act for another or to

represent another in dealings with third persons’. The person for whom such act is done, or who

is so represented, is called the ‘principal’. The ‘agent’ may be described as the person whom the

principal acts or is represented. And, the ‘third person/party’ as the person by whom the agent

brings the principal into a legal relationship. In an agency, there are in effect two contracts. The

first, made between the principal and the agent from which the agent derives his authority to act

for and on behalf of the principal. The second, made between the principal and the third party

through the work of the agent

Any person who is eighteen years old or above and who is sound mind may be a principal. As

between the principal and third persons, any person may become an agent; but persons of

unsound mind and who are below eighteen years of age are not liable towards their principals for

acts done by them as agents.

Types of Agents
There are various classifications of agents. They may be classified according to the extent of

their authority, for example, Universal Agents, General Agents, and Special Agents or according

to their functions for example, into del credere agents, factors, brokers and auctioneers.

A. Classification According to the Extent of Authority

1. A universe agent. A universal agent is a general agent with extensive powers. He can

do all acts which a principal may personally do. This kind of agency though seldom

made is created by deed in the form of a General Power of Attorney. A principal

rarely grants such intensive powers to an agent unless there are compelling reasons.

2. A general agent. A general agent is an agent who employed to act on behalf of his

principal, generally, in transactions relating to a particular trade or business. A third

party, dealing with a general agent, can assume that the agent has power to do all that

is usual in the ordinary course of his business or trade. He is not affected by any

limitations on the agent’s usual authority unless he is aware of these limitations.

3. A special agent. A special agent is an agent appointed to do a specific act or for a

specific purpose and his authority is limited to act or purpose.

B. Classification According to Functions

1. Del Credere Agents. A del crede is an agent, who, in consideration of extra

commission undertakes that the third party, with whom he enters into a contract on

his principal’s behalf, will perform his obligations. If the third party fails to perform

the obligations of the contract, the del credere agent will be liable for it.
2. Factors. A factor is a commercial agent, who is the ordinary course of his business, is

entrusted with the goods of his principal for sale. He usually sells the goods in his

own name and without disclosing his principal. He has a lien over the goods in his

possession, as commission. The fact that the agent is under a restriction to sell at a

certain price or he is bound to disclose the name of the principal does not disqualify

him from being a factor provided he is in possession of goods to be sold.

3. Brokers. A broker is a commercial agent who is employed to make contracts between

his principal and third parties for a commission called a brokerage. He is different

from a factor, in that, he is not trusted with possession of the goods and cannot

contract in his own name. His job is to find purchasers for those who wish to sell and

sellers for those who wish to buy, and to negotiate and make contracts. Once a

contract between the principal and the third party is made, he receives his commission

and is no longer concerned with it. A broker has no lien on the goods as he has no

possession of them.

4. Auctioneers. An auctioneer is an agent who is employed to sell goods by auction. He

starts off as an agent for the buyer also. Ordinarily, he has discretion as to the price at

which the goods should be sold, but if the seller fixes a minimum or reserve price, the

auctioneer will be liable in damages to the seller if he sells the goods below the

reserve price. But the contract remains binding on the seller unless the buyer has prior

knowledge of the auctioneer’s restriction.

5. Bankers. The agency of bankers can be viewed from two perspectives. Banker as

agent for customer. The relation between a banker and a customer is contractual, in
 particular, it is that of a debtor and creditor or vice versa depending on the state of

accounts at a particular time. When a banker receives money for deposit from a

customer, he is regarded as a debtor to his customer, in the sense that he is treated as

having borrowed the money from the customer. Bank employees as agents for the

bank. In the operation of a bank, employees of the bank are agents for the bank. Their

duty is to their employer, the bank, which in turn, owes a duty to its customer. The

bank, as employer, is vicariously liable for torts committed by its employees in the

course of their business.

CREATION OF AGENCY

Agency can be created in a number of ways. Like any other contract, a contract of agency can be

expressed or implied from the circumstances and the conduct of the parties. In other words, the

authority of an agent may be expressed (i.e. given by words spoken or written) or implied (i.e.

inferred from things spoken or written or from the ordinary course of dealings). Section 138 of

the Contracts Act 1950 provides that no consideration is necessary to create an agency.

Generally, an agency may arise in the following ways:

1. By express appointment by the principal (actual express authority)

2. By implied appointment by the principal (actual implied authority)

3. By the agent occupying a position which would normally carry with it authority to do an

act of the kind in question (usual authority)

 4. By the principal adopting the act of an agent via the process of ratification when the agent

acted without the authority of the principal (agency by ratification)

5. By necessity, i.e. by the law constructing an agency between a putative principal and a

putative agent under the operation of law doctrine (agency by operation of law); by the

doctrine of estoppels or ‘holding out’, that is, by the principal representing to the third

party that the agent had authority to do the act in question when in fact there was no

underlying grant of authority for the agent so act (agency by representation)

DUTIES OF PRINCIPAL AND AGENT

The relationship between the agent and principal is generally accepted as a fiduciary relationship

its status as such automatically invokes equitable standards of conduct which the fiduciary must

observe in relation to the beneficiary. In Malaysia, these equitable standards of conduct are

codified as appears below. The rights and duties of the principal and agent depend on the express

or implied terms of the contracts of agency. Where there is no such contract of agency, the rights

and duties of an agent to his principal and vice versa are laid down in sections 164 to 178 of the

Contracts Act 1950. The duties of an agent are summarized as follows:

1 To obey the principal’s instructions – section 164, Contracts Act 1950.

2 In the absence of instructions from the principal, to act according to the customs which

prevail, in doing business of the same kind, at the place where he carries on his work.

Otherwise, he has to make good any loss sustained by the principal.

3 To exercise care and diligence in carrying out his work and to use such skill as he possess

– section 165, Contracts Act 1950.

 4 To render proper accounts when required.

An agent is under a duty to account for all monies and property handled by him as agent for the

principal and to produce such accounts when demanded by the principal – section 166, Contracts

Act 1950.

5 To pay to his principal all sums received on his behalf.

Sections 174 of the Contracts Act 1950 give the agent the right to retain his principal’s property

in his possession until his remuneration is paid, unless his contract provides to the country.

6 To communicate with the principal. In cases of difficulty, an agent must use all

reasonable diligence in communicating with and in seeking to obtain instruction from the

principal. However, in emergencies, the agent may use his own discretion in adopting a

course of action to safeguard the interest of the principal.

7 Not to let his interest conflict with his duty. The duty of an agent is to act solely for the

benefit of the principal and he cannot allow his own personal interest to conflict with this

duty – section 169, Contracts Act 1950. This is the so-called “self-dealing” rule,

reflecting the fiduciary character of the agency relationship.

8 Not to make any secret profit out the performance of his duty. Secret profit means a bribe

or payment of a secret commission or any financial advantage which an agent receives

over a above the commission or other remuneration agreed by the parties.

9 Not to disclose confidential information or documents entrusted to him by his principal.

 10 Not to delegate his authority. Unless the principal expressly or impliedly consents to an

agent delegating the duties assumed, an agent is not permitted to delegate to another

person any duties or powers which have been entrusted to the agent personally.

SUB-AGENTS

When the principal allows the agent to delegate duties to others, who are appointed by the agent

will be under the direction and control of agents to carry out tasks related to the agency business.

Section 144 of the Contracts Act states the person appointed by the agent referred to as small

agents or subagent.

SUBSTITUED AGENT

Sometimes an agent is authorized to name another person to act for the principal in the business

of the agency. According to section 147, if in pursuance of such an authority, expressed or

implied, he names another person, the person so named is deemed to be the agent of the principal

and not his sub-agent for that part that is entrusted to him.

DUTIES OF A PRINCIPAL TO HIS AGENT

Where an agent enjoys certain rights against the principal, it follows that these rights would

become the duties of the principal. These duties may be summarized as follows:

1 To pay the agent the commission or other remuneration agreed, unless the agency

relationship is gratuitous

2 Not to willfully prevent or hinder the agent from earning his commission.
 3 To indemnify the agent the agent for acts done in the exercise of his authority.

4 To respect any lien the agent has over the property of the principal in the actual or

constructive possession of the agent

THE AUTHORITY OF THE AGENT

An agent’s acts are binding on the principal if they are done within the agent’s authority. If

an agent does an act which exceeds that authority so given, the principal is not bound unless

he adopts and ratifies the unauthorized act.

An agent’s authority may be actual apparent. Actual authority is authority expressly given by

the principal (orally or in writing), or implied from the express authority given, from the

circumstances of the case, custom or usage of trade, and the conduct of parties.

On the other hand, apparent or ostensible authority is that which is not expressly given by the

principal but which the law regards the agent as possessing although the principal has not

consented to his exercising such authority. Secret or private restrictions on the authority of

the agent do not affect a third party who does not know of such restrictions and who has

acted in good faith in relying on the agent’s apparent authority.

TERMINATION OF AGENCY

Sections 154 to 163 of the Contracts Act 1950 deal with the manner in which an agent’s

authority may be terminated.

Termination by Agreement
The authority of an agent may be terminated by the act of the parties, by mutual agreement or

mutual consent or revocation by the principal. The agency may also be terminated by

renunciation of the agency by the agent. When both parties desire and agree that the agency shall

terminate, the agency is terminated.

Termination by Revocation

The principal may revoke the authority of the agent at any time before it has been exercised to

bind the principal. Generally, the principal an revoke the agent’s authority where the principal

gives notice of termination (a “reasonable” length of notice) to the agent; or the agent is in

default under agency.

Termination by Renunciation

Agency may be terminated when the agent relinquishes or surrenders his or her authority and by

doing so, ending the agent’s mandate. Renunciation is a unilateral act.

Termination by Performance

The contract of agency is brought to an end when the agent has performed the contract. This can

happen when an agency is created for a single specific transaction and the transaction is

completed – section 154, Contracts Act 1950.

Termination upon Expiry of the Period Fixed in the Contract of Agency

If an agency is created for a fixed period, the agency is terminated at the expiry of that period

whether or not the business or transaction has been completed.

Termination by Operation of Law

Upon the Death of the Principal or the Agent

The death either the agent or the principal terminates the agency. Thus, a general rule, agency

comes to an end when the principal or the agent dies. An agency which is terminated by the

death of the principal is effectively only when the agent has notice of the principal’s death –

section 161, Illustration (c), Contracts Act 1950.

When the Principal or Agent Becomes Insane

The insanity (or mental illness) of the agent or the principal also terminates the agency. Since an

insane is not capable to enter into a valid contract to appoint an agent or act as one, agency is

terminated by such insanity. When the principal becomes insane, the agent is bound to take all

reasonable steps to protect and preserve his principal’s interests.

When the Principal or Agent Becomes Insolvent or is Made a Bankrupt

Upon insolvency, a person’s rights and liabilities are vested in the Director General of

Insolvency (previously known as the Official Assignee) and, therefore, the agency relationship

ceases.

Termination by Frustration

Upon the happening of an agent which renders the agency unlawful, the agency may be

terminated. An agency contract, like any other contract, may be discharged by frustration.