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0 INTRODUCTION Agency is a relationship created when one person cannot act by himself and has to appoint someone else to act for him. Law of Agency is governed by Part X, Contract Acts 1950. Agency is a relationship between a Principal and his Agent. Section 135 of Contract Acts 1950 defines Agent as person employed to do any act for another or to represent another in dealings with third persons. Whilst Principal is defines as a person to whom such act is done, or who; so represented, is called the principal. Example : A appointed B to be his agent to buy goods from C. A = Principal, B = The agent, C = Third party.
Agency relationship creates TWO contracts enforceable by law i.e. : A contract of agency between Principal and Agent and; A contract of sale between Principal and Third party. In a contract of agency, consideration is not important. Under Section 136 and 137 of Contract Acts 1950, capacity to be a Principal and Agent are as the capacity to contract i.e. of majority age and sound mind. If Principal appoints a minor to be his agent, Principal cannot claim if any loss incurred under Agent’s action. The contract between them is void contract. 2.0 CREATION OF AGENCY Generally, an agency may be created in the following ways : 2.1 By express appointment by the Principal By implied appointment by the Principal By ratification by the Principal By necessity By the doctrine of estoppels
Agency by Express Appointment by the Principal Creation can be through expressed in oral or writing or implied from words of conduct of both parties.
However. In this instance. Yong. Chan used to pay for the goods. The presumption that a wife is the Agent to her husband can be rebutted if the husband can prove: He expressly forbids his wife to pledge his credit. The wife will be personally liable. another person. he need not pay for the goods.2.2 Agency by Implied Appointment by the Principal 2. If a person allows another to order goods on his behalf and habitually pays for them. The order was unreasonable with her husband's income even though it was a necessity If the husband can prove any of this. he will be bound by the contracts as if he has expressly authorized.2 Agency relationship between husband and wife A wife can pledge her husband's credit. agency relationship exists between Chan and Yong by referring to their conducts and thus. Case : Facts : Chan Yin Tee v William Jack & Co.2. . A wife can use his husband's name to buy goods on credit if the goods is a necessity and suitable for their standard of living. Held : 2. In such a case. Chan refused to pay.2. His wife was sufficiently provided with the goods. Chan would have to pay for Yong's order. ordered goods for the business. His wife was given sufficient allowance to buy good without pledging husband's credit.3 By the Partnership Act 1961 Partners are each other's Agents when contracting in the course of the partnership business. He expressly warned the tradesman no to supply his wife with goods on credit.1 When a person by his words or conduct holds out another person as having authority to act for him. The court held that. an agency may be implied. who is a minor. 2.2.
or A person who had no authority to act but acted as if he has the authority. Husband action is ratification to his wife action. If the Principal is a minor. An Agent who was appointed exceeded his authority. ii. Her husband kept the good goods and refused to return the goods to the seller. Ratification will bind the Principal with the contract made by the agent at the moment of ratification. . However.e. it is up to the Principal whether or not to ratify the Agent's action. The Agent must expressly acts as an Agent for the Principal at the time of contract. The conditions are: i. It was held that his Principal could not ratify Robert's action so he would have to be personally responsible to pay for the flour. When the Agent use his own name and does not disclose that he is an Agent for a principal. When the Principal accepts and confirms.2. agency by ratification may arise. iii. the contract is known as ratification. The Principal must be in existence and have contractual capacity at the time when the Agent made the contract. iv. he would be personally liable. The act must be unauthorized or Agent has exceeded his authority. he cannot ratify a contract as he does not contractual capacity unless in a certain types of contract i. v. 1. If the ratifies or approves. Contract for Necessities. Durant Robert (an Agent) bought flour at a price higher than instructed by his Principal in his own name. 2. Case : Facts : Held : Waithman v Wakefield A wife bought goods that are not necessities. there are EIGHT conditions need to be fulfilled before the Principal ratifies. Case : Facts : Held : Keighley Maxted & Co.3 Agency by Ratification An agency by ratification may arise in TWO situations. Section 150 of Contract Acts 1950 provides that ratification may be made by express or implied. The unauthorized act must be recognized by the law (must not an unlawful act). Under Section 149 of Contract Acts 1950.
(Where a person can act as an Agent by necessity) (1) The Agent's action is necessary to prevent loss to the Principal. Ratification must not injure to third party 2. so the station master directed that the horse to be put in a stable.e. where the goods are sold merely because they were an inconvenience to the carrier.4 Agency by Necessity A person can become an Agent by necessity without formal appointment by Principal in emergency case. there was no one to take delivery. Agency by necessity does not arise if there is no real urgency i. The court held that the station master acted as an Agent of necessity in this matter so the Principal had to pay for the charges. the defendant (a railway company) who was supposed to carry the goods to its destination. vi. In Springer v Great Western Railway Co.. Held : Agency by necessity may be created if the following THREE conditions are met. This is known as agency of necessity as stated in Section 142 of Contract Acts 1950. viii. Ratification must be made within reasonable time. v. vii. not only the part at is beneficial to him. The railway company later claimed for the charges of the stable from the defendant but he refused pay. Case : Facts : Great Northern Railway Co. The Principal must have knowledge about the material facts of the contract in order to ratify it.v. The Principal if he chooses to ratify must ratify the whole contract. However some kind of contractual relationship must already exist between them. However on arrival. (2) It is impossible for the Agent to communicate and get further instruction from the Principal. sold the goods in the middle of the way without trying to communicate with the owner to get further instruction . He did not know the defendant or his agent's addresses and had no way of contacting them. An agent to the defendant should take delivery the destination. Case : Facts : Marsh v. Swaffield The railway company contracted to carry defendant's horse to a destination. Joseph The ratification was void because the Principal was not aware of the material facts of the contract at the time of ratification.
1 Duties of an Agent to his Principal 3. Held : . authority of the person. as it was not the Agent. agency created by an agreement between Principal and Agent. If the contract does not expressly provide rights and obligations of parties to the contract. by his word or conduct allows third party to believe that the person is his Agent. The Principal. Therefore. believing him to be B’s agent and later claims for the price. 3. The Principal claimed damages from the Agent. (3) The Agent of necessity must act in good faith and his action must be reasonable in the circumstances. But. the terms applies is as agreed expressly between parties and included in the contract document.1. The court held that failure to obey may be treated as breach of contract and the Agent was liable for the loss. act as an Agent.0 RIGHT AND DUTIES OF AN AGENT AND PRINCIPAL In general. Like other contract. B later cannot deny that A is his agent if C sells goods to A. he will be estopped from denying the agents authority. 2. It was held that there was no agency by necessity arose.5 Agency by Estoppels Section 190 of Contract Acts 1950 provides that it arise when a person who is without authority or when he is not formally appointed. Example: A tells C in the presence of B that A is B’s agent and B does not contradict this statement. Case : Facts : Turpin v. the rights and obligations as provided in Section 164 to 178 of Contract Acts 1950 applies. The owner can claim damages from the defendant. 3. Bilton The agent failed to insure a ship when instructed to do so and the ship was lost.1 Section 164 of Contract Acts 1950 To obey the principal's instruction Failure to do so will result in breach of contract and the agent will be liable for any loss suffered by the principal.when it was possible to do so. the Principal is aware of it but does not deny the.
an Agent is under no duty to obey instructions of his Principal if the instructions are unlawful. He supposed to get the best offer available. when requested by the principal.4 Section 166 of Contract Acts 1950 To render a proper account when required The account must include all monies.1. properties and goods handle by the agent. 3.1. Veller An Agent Sold a horse at a lower price when there was a higher offer. 3. 3.However. Valla Mall v.1. In Cohen v Kittel.5 Section 171 of Contract Acts 1950 To pay to the Principal all sums received on his behalf. Case : Facts : Held : Keppel v. Buddu Mall Court authorized an Agent to retain the property but he has no power to sell the goods unless if it is approved by the Principal.1.An Agent has the right to retain his Principal's property until his remuneration is paid unless there is a contract to the contrary. The Agent held to be liable because he did not exercise care and diligence in carrying out his duty. Case : Facts : . Section 165 of Contract Acts 1950 To exercise care and diligence in carrying out his work and to use such skill as he possesses. an Agent is under no duty to obey the unlawful instructions of his Principal.3 3.2 To act according to the customs If there are no instructions from the Principal he has to act in accordance to the trade customs. Case : Facts : Parker v Mason It is the duty of an agent to prepare and show a proper account which includes money received by him from illegal or void transaction. Exceptions are given under Section 171 where an Agent may retain or deduct from the sums received on behalf of his Principal for: (i) (ii) (iii) Any advances made or expenses incurred His commission and other remunerations Section 174 of Contract Acts 1950 .
Secret profit is a bribe. However. Case : Mahesan v. if the Principal knows and consent the Agent is entitles to keep the profit as it is no longer a secret.6 Section 167 of Contract Acts 1950 To communicate with the Principal. Repudiate the contract made by the Agent if it is disadvantageous to him. Malaysian Government Officers Co-Operative Housing Society Ltd. He sold the Principal's shares below then market price to his own wife.3.1. The Agent (first defendant) was in breach of Section 168. Dismiss the Agent for breach of duty. An Agent must use all reasonable diligence to communicate and to get the Principal's instruction. If Principal does not agree. Facts : . Wong Tham Fatt The first defendant is an Agent to the Plaintiff.1. secret commission or any financial advantage given by the third party to the Agent.7 Section 168 of Contract Acts 1950 An Agent must not let his personal interest conflicts with his duty He cannot become a party in a transaction which is against the Principal's interest. Sue the Agent and third party for any loss. he may use his own discretion to safeguard the interest of his Principal: (Springer v Great Western Railway) 3. iv. His primary duty is to act solely for the benefit of his Principal. the Principal may : i. Recover the secret profit from the Agent.1. Refuse to pay commission or other remuneration. any extra payment. iii. 3. Case : Facts : Held : Wong Mung Wai v. The court authorized respondent to choose either to recover the secret profit or the real loss because agent is in breach by taking secret commission from the broker. Exception is given in emergency case if Agent fails to communicate. ii. v.8 Not to make any secret profit out of the performance of his duty.
3. he is not bound to pay commission to his Agent. 3. The defendant (Principal) failed to disclose that certain shares cannot be obtained. It is known as maxim “delegates non protest delegare”.3 Held : .2 Not to willfully prevent the Agent from earning his commissions The Principal cannot hire another Agent to compete with the first Agent.e.10 Not to delegate his authority An Agent cannot employ another person to do his duty.1 To pay the Agent commission and other remuneration agreed Case : Facts : Tan Chiok Sing v Lian Fatt Sawmill Co. An agent is entitled to reasonable remuneration even though the contract between his Principal and third party fails. However.3. The Agent claimed from the Principal the loss. However. there are exceptions: i. When the Principal approves or consents to the delegation of the authority Where it is presumed from the conduct of the parties that the Agent would have power to delegate his authority Where the custom or trade or business permits delegation Where it is necessary to complete the business Where the act to be done is purely ministerial/clerical i.1. Case : Facts : Kyall & Evatt v.2 Duties of a Principal to His Agent 3. Lim Kim Keat The Agent was hired to sell shares. v. if it is agreed that the Principal himself may sell the properly and a sale completed by him. the Principal is legally bound to make compensation to his Agent in respect of 3. iii. It was held that Agent was entitled to be indemnified for the loss because the Principals neglect of skill. preparing document which does not involve the exercise of discretion 3. ii. To indemnify for acts done in the exercise of his authority An agent is entitled to be indemnified by the principal against all losses and liabilities incurred by him in the performance of his duty. It means that a delegate cannot delegate.9 Not to disclose any confidential information and documents entrusted to him by the Principal. iv.1. 3.2. Agent concluded a contract to sell shares but he could not deliver and suffered loss.2.
or the Agent acts beyond hid duty or he is negligent. Where the Agent causes injury to the third party in execution of his duty while carrying out his duty in good faith. 4. the Principal is required to indemnify the Agent against consequences of the act. Later. . 2. Express authority given by the Principal Custom and trade usage Circumstances of the case Conduct of the parties 4. the Principal must reimbursed the Agent of any legitimate expenses. he is entitled to be indemnified.However. the Principal is precluded from denying the agents authority.2 Apparent/Ostensible Authority Apparent authority is established when a person without actual authority acts as an Agent and contracts with a third party in the Principal’s knowledge.0 AGENT'S AUTHORITY Authority Actual Authority Apparent / Ostensible Authority 4. . 3. The Principal is aware of it but does not stop him. It may also be implied from the following : 1. Further. if there is fraud. The principle would be liable for the contract with the third party.1 Actual Authority Actual authority is an authority conferred expressly upon the Agent either by oral or written agreement.
Third party can claim that the Agent has apparent authority and binds the Principal to the contract 5. When the Principal by his words or conduct leads another party to believe that the Agent has authority to make contract on behalf of him.Apparent/ostensible authority may arise in TWO situations: 1. Kapoor even though without authority from the company hired a firm of architects and surveyors to do some work for the company. Case : Facts : Freemen & Lockleyer v. However. Where the Agent executes a deed and negotiable instrument in his own name.0 AGENT’S BREACH OF AUTHORITY 5. a clear agency relationship exists between Agent and Principal. Buckhurst Park Property Ltd. Where a Principal is named. The directors were aware of it but did nothing to stop him. They also failed to inform the third parties about Kapoor’s lack of authority. Where the Agent previously had authority to act but it has been terminated by the Principal without any notice to third party. Held : However. Whatever done by the Agent in the course of business will bind the Principal and he alone can sue and be sued by third party. Where the Agent exceeds authority and the Principal does not ratify. there is no apparent authority where the person makes a contract on behalf of a principal without his knowledge. 2. It was held by the court that the company was liable to pay the architect firm. 3. So. Agent incurs no right or liability under the contract. If the Agent agrees with third party to accept personal liability. . there are exceptions where the Agent may be liable: 1.1 Where Principal is named It is a situation when the Agent contracted as an Agent and the identity of the Principal is disclosed to the third party. Kapoor had apparent authority to act for the company. 2.
acting for undisclosed Principal may sue on the contract if there is a breach because he can treat it as his own name for the contract. [Section 184 (a) of Contract Acts 1950] However. the third party may sue the Agent if there is any breach of contract. The agent uses his own name in the contract and the third party is under the impression that he is contracting personally with the Agent. Where the custom of trade made the Agent liable. the third party has the right to sue the Agent or the Principal or both of them. Under Section 183 of Contract Acts 1950. . Third party knows that he is doing business with a Principal through an Agent. the third party may rescind the contract if he can prove that had he known the identity of the Principal or the Agent was acting for somebody else he would not have contracted. the principal cannot ratify the contract.2 Where there is a disclosed Principal It is a situation when an Agent acts as an Agent but the identity of the Principal remains unknown. He has no right and liability under the contract.3 Where there is undisclosed Principal The existence as well as identity of the Principal is not disclosed to third party at the time of the contract. It is because of difficulty to bring action against Principal.4. So the Agent may have to be personally liable.e. If the Principal discloses his identity before the completion of the contract. In these FOUR circumstances. it the Agent exceeds authority of acting outside authority and the existence of the Principal is not disclosed. 5. An Agent. An Agent also liable when the Principal's identity is disclosed cannot be sued i. an undisclosed principal has the right to enforce the contract against third party even though the third party does not know about the principal. Principal is not responsible to the contract. the merchant is making a contract with the Agent. This is because the contract is made for him. In the event of breach. When an Agent made contract for the sale or purchase of goods for a merchant resident abroad. a minor or a person of unsound mind. 5. As party to a valid contract.