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"Agent" and "principal" defined An "agent" is a person employed to do any act for another, or to represent another in dealing with

third persons. The person for whom such act is done, or who is so represented, is called the "principal". Comments Principle of agency D.e.s.u. is not an insurance agent within the meanings of life Insurance Corporation Act, 1956 and the Life Insurance Corporation of India (Agents) Regulations, 1972 but D.E.S.U. is certainly an agent as defined in section 182 of the Act. When there is no insurance agent as defined in the Regulations and the Insurance Act, general principles of the law of agency as contained in the Contract Act are to be applied;D.E.S.U. v. Basanti Devi, AIR 2000 SC 43.

CREATION OF AGENCY

Like any other contracts, a contract of agency can be expressed or implied for the circumstances and the conduct of the parties. In other words, the authority of an agent may be expressed (given by words spoken or written) or implied (inferred from things spoken or written or from the ordinary course of dealings.)

eg. X lives in Ipoh and owns a shop in Kuantan. The shop is managed by Y who normally orders goods from Z in Xs name for the purpose of the shop and Y then pays for the goods out of Xs fund with Xs knowledge.

Section 138 CA provides that no consideration is necessary to create an agency.

By express appointment by the principal By implied appointment by the principal by ratification by the principal

by necessity i.e. operation of law by the doctrine of estoppel

KGN Jaya Sdn Bhd v Pan Reliance Sdn Bhd [1996] 1 MLJ 233

The Court of Appeal held that the law does not require that an agency or sub agency agreement must be in writing.

Further more, Part X of the Contracts Act 1950, which contains the relevant provisions on agency does not contain any requirement that the appointment of an agent or sub agent has to be in writing or be evidence in writing.

1. BY EXPRESS APPOINTMENT

Express appointment may be in written or oral form. An example of an express appointment made in writing is a Power of Attorney. Even a letter written or words spoken may be effective in appointing an agent.

2. BY IMPLIED AGREEMENT

The Law can infer the creation of an agency by implication when a person by his words or conduct holds out another person as having authority to act for him.[3]

e.g. If he allows another person to order goods on his behalf and habitually pays for them, an agency may be implied. In such terms he will be bound by the contracts as if he has expressly authorised them.

Chan Yin Tee v William Jacks & Co (Malaya) Ltd [1964] MLJ 290

The appellant and Yong (a minor), were registered as partners. At a meeting with a representative of the respondent company, the appellant held himself out to be Yongs partner. Goods were supplied to Yong but were not paid for. The respondent company obtained judgement against the appellant and Yong. The appellant appeal to FC which held that since the appellant had held Yong out of his agent who had the authority to do things on his behalf, the appellant was liable for Yongs act.

By virtue of Section 7 of the Partnership Act 1961, partners are each others agents when contracting in the course of the partnership business.

BY RATIFICATION

Agency by ratification can arise in any one of the following situations:-

i. An agent who was duly appointed has exceeded his authority or ii. A person who has no authority to act for the principal has acted as if he has the authority.

Section 149 CA 1950

Where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts. If he ratifies them, the same effect will follow as if they had been performed by his authority.

When the principal accepts and confirms such a contract, the acceptance is called ratification. ratification may be expressed or implied[4]

Ratification is retrospective i.e. it dates back to the time when the original contract was made by the agent and not from the date of the principals ratification.

e.g. On 2 January 1996, A appointed B as his agent to buy a car not exceeding RM100,000/-. On 5 January B went to GRG Motors and ordered a car costing RM135,000/-, telling GRG Motors salesman that he was buying the car on As behalf. On 12 January, GRG Motors deliver the car to A. If A confirms and adopts the contract on 12 January, then B is said to be an agent through ratification. A can also rejects the contract since B had exceeded his authority.

Contract can be ratified under the following circumstances:-

The act must be authorised The agent must, at the time of the contract, expressly act as an agent for the principal[5] i.e. he must not allow the third party to think that he is the principal.

Keighley Maxted & Co v Durant

An agent, R was authorised by the appellants to buy wheat at a certain price. The agent exceeded his authority and bought at a higher price in his own name but intending it for Keighley. Keighley agreed to take the wheat at that price but failed to take delivery. The court held that Keighley was liable to the Durant since R at the time of the contract did not profess to act as an agent.

SRM Meyappa Chettiar v Lim Lian Koo [1954] 20 MLJ 246

PC, the attorney of SC, entered into an agreement with the respondent under which the PC handed over to the respondent a piece of land belonging to his principal in consideration of RM 7,000/- and agreed upon the return of normal conditions, the vendor shall obtain a special power of attorney from the said SC now in India and execute the true and lawful transfer of the said land at the purchasers own expenses.

He further agreed that if he was unable to obtain the necessary power from his principal the RM7,000/- will be return to the respondent. At the trial, the learned judge held that the agreement had been satisfied by SC and therefore dismissed a claim for recovery of possession of the land. The Court of Appeal held that the terms of the agreement showed that PC was acting in his personal capacity and therefore the principal of ratification could not apply to the agreement

The principal only applies where the agent has professed to contract for his principal who afterwards ratifies.

The doctrine is thus stated by Tindal C.J in Wilson v Tumman [1843] 6 M&C 242 at page 242

The act done for another, by a person, not assuming to act for himself, but for such other person, tough without any precedent authority whatever, becomes the act of the principal, if subsequently ratified by him, is the known and well established rule of law. In that case the principal is bound by the act, whether it be for his detriment or his advantage, and whether it to be founded on a tort or on a contract, to the same effects as by, and with all the consequences which follow from the same act done by his previous authority.

The agent must have a principal, who is in actual existence or capable of being ascertained, when a contract is made. No one can ratify a contract if he is not a party competent to a contract at the date of the contract.

Kelner v Baxter [1866] LRE 2 CP 174

A contract to buy a hotel made by an agent on behalf of the company which is about to be formed, could not be ratified by the company since it did not exist at the time. The agent therefore held for the contract unless the third party agreed to release him.

The principal must have contractual capacity at the time when the contract is being made and at the time of ratification. The principal must at the time of ratification, have full knowledge of all material facts, unless it can be shown that he intended to ratify the contract whatever the facts may be and assume responsibility from them[6] The principal must ratify the whole act or contract The ratification must not injure the third party, i.e. it must not subject the third party to damages or terminated his right or interest[7]

BY NECESSITY
An agency by necessity may be created if the following three conditions are met:1. It is impossible for the agent to get the principals instruction[8] 2. The agents action is necessary, in the circumstances, in order to prevent loss to the principal with respect to the interest committed to his charge e.g. when an agent sells perishable goods belonging to his principal to prevent from rotting. 3. The agent of necessity must have acted in good faith. In an emergency an agent has authority to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, his own case, under similar circumstances[9]

BY ESTOPPEL

A person cannot be bound by a contract made on his behalf without his authority. However, if he by his words and conduct allows a third party to believe that the particular person is his agent even when he is not, and the third party relies on it to the detriment of the third party, he will be estopped or precluded from denying the existence of that persons authority to act on his behalf.

(3) Formation of agency


1. Agency by appointment

a. An agency is created by express appointment when the principal appoints the agent by express agreement with the agent. This express agreement may be an oral or written agreement between the principal and the agent.

b. Contract law principles apply to an agency agreement. An agent may agree to act in consideration for a reward. On the other hand, an agency is gratuitous if the agent agrees to act for no consideration.

c. The general rule is that agency may be created orally and there is no formality for the creation of agency by express agreement, except for one situation which is discussed below. This general rule applies even to cases of appointing agents for the signing of agreements for sale and purchase of immovable property, whether on behalf of the vendor or the purchaser. The one exception is where an agent is appointed to execute a deed on behalf of the principal. In this case, the agent will have to be appointed by deed, which is called a power of attorney.

2.

Agency by estoppel (implied appointment)

a. Agency by estoppel arises when A makes a representation to a third party, whether by words or conduct, that B is his agent, and subsequently that third party deals with B as A's agent in reliance on such representation. A will not be permitted (is estopped) to deny the existence of the agency if to do so would cause damage (usually financial loss) to that third party.

b. The person who makes such representation ("A" in paragraph (a) above) is treated as having created an agency relationship between himself as the principal and the other person ("B" in paragraph (a) above) as his agent, although there is in fact no agreement between the two parties ("A" and "B" in paragraph (a) above) as to the creation of the agency relationship. Agency by estoppel is sometimes called implied appointment of agent.

c. In agency by estoppel, the authority of the agent is described as only apparent or ostensible but not actual, as the principal has, in fact, not granted the agent such authority to act on the principal's behalf.

d. The extent of apparent or ostensible authority of the agent in an agency by estoppel depends largely upon the contents of the representation made by the principal to the third party who relies and acts on the representation. The principal is said to "hold out" a person as his agent with such authority as the principal may induce the third party to believe and is estopped from denying the existence of agency.

3.

Agency by ratification

a. Agency by ratification arises when a person (the principal) ratifies (that is, approves and adopts) an act which has already been done in his name and on his behalf by another person (the agent) who in fact, had no actual authority (whether express or implied) to act on his (the principal's) behalf when the act was done.

b. Ratification by itself only creates an agency relationship between the principal and the agent in respect of the act ratified by the principal, but not in respect of any other act, whether past or future.

c. The person who ratifies an act of another person must have been in existence and have the legal capacity to carry out that act himself both at the time when the act was done and at the time of ratification. A person may lack legal capacity on grounds of bankruptcy, infancy or mental incapacity.

4. Agency of necessity
a. Agency of necessity arises when a person ("A") is faced with an emergency in which the property of another person ("B") is in imminent jeopardy and it becomes necessary, in order to preserve the property for A to act for and on behalf of B. In this case, A acts as an agent of necessity of B.

b. Agency of necessity arises only when it is practically impossible for the agent to communicate with the principal before the agent acts on behalf of the principal. (This would be

difficult to establish with today's advanced communication systems and is the reason why agency of necessity does not often arise.)

c. Authority to act in case of emergencies cannot usually prevail over express instructions to the contrary given by the principal.