Taylor's University Undergraduate

Business Programs
Business Law (LAW60104)

Lecture 11: Law of Agency

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 Agency
• What is an agency?
An agent is defined as a person employed to do
any act for another or to represent another in
dealings with third persons

• Principal is bound by Agent’s contract with Third

Party

• The law of agency is governed by Part X Section

135 to 191 of the Contracts Act 1950.

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 The Law of Agency

principal third
agent
party

❑principal – the person for whom such act is done,

or who is so represented
❑agent – a person employed to do any act for
another or to represent another in dealings with
third persons
❑the ‘third person/party’ – the person with whom
the agent brings the principal into a legal
relationship
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 Principal-Agent relationship

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 Who Are Agents?
• Act as 3rd party to bring into effect contract
between businessman and his customer
• negotiate with customers on principal’s behalf.
• not parties to contract between principal and
customer.
• The extent they can act on principal’s behalf
depends on how much authority given to him.
• They must be distinguished from sole agent,
sole distributor, insurance agent, estate agent,
etc.
• Whether or not employee is employer’s agent
depends on circumstances of each case.
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 Creation of Agency

Expressly Impliedly Necessity

estoppel ratification

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 Agency – Expressed or implied
Authority of an agent may be expressed or implied - s
139
It is expressed when spoken or written.
It is implied when inferred from circumstances of case
– s 140

• A, living in KL owns shop in Kajang, and visits it

occasionally. Shop managed by B who usually orders
goods for shop from C in A’s name and pays for
them from A’s funds with A’s knowledge. B has
implied authority from A to order goods from C.

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 Agency - Expressed or implied
• An agent having authority to do an act, has also the
authority to do every lawful thing necessary to do
that act – s 141(1)

ILLUSTRATIONS
(a) A is employed by B, who is residing in London,
to recover a debt due to B in M’sia. A may adopt
any legal process necessary to recover the debt.

(b) A appoints B his agent to carry on his business

of a shipbuilder. B may purchase timber and other
materials, and hire workmen, for purpose of
carrying on the business.

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 Agency by ratification
- When an agent, without the knowledge or authority of the
principal, acts on behalf of the principal, the principal may
choose to accept or reject the acts - S 149

- Ratification may be expressed or implied - S 150

- There can be no ratification where the act of the agent causes

injury or damage to a 3rd party - s 153

- Once ratified, the contract between principal and 3rd party

relates back to date when it was entered into by agent.

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 Ratification
• The act done for another, by a person, not assuming
to act for himself, but for such other person, though
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.

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 VIDEO

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 Agency by necessity
Agent has authority, in emergency, to do all acts to protect his
principal from loss - s 142
Requirements:
• It must be an emergency
• Need to protect principal from loss
• it is impossible for agent to get principal's instruction.
S 167 - It is agent’s duty, to use all reasonable diligence to
communicate with principal, and obtain his instructions.
• The agent must have acted in good faith.
Avel Consultants Sdn Bhd v Mohd. Zain Yusof [1984] 1 CLJ482

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 Agency - by estoppel
Where an agent, who has no authority, does acts to
3rd persons on behalf of principal, the principal is
bound by those acts if he has, by his words or
conduct induced such 3rd persons to believe those
acts are within the scope of the agent’s authority – s
190

ILLUSTRATIONS
(a) A consigns goods to B for sale, and gives him
instructions not to sell under a fixed price. C, being
ignorant of A’s instructions, enters into a contract
with B to buy the goods at a price lower than the
reserved price. A is bound by the contract.

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 Misrepresentations and fraud by agent
Misrepresentations or frauds by agents acting in the
course of their business for their principals, binds the
principal as if it was committed by the principal – s 191
Negara Traders Ltd v Pesuruhjaya Ibu Kota, Kuala
Lumpur [1969] 1 MLJ
Office boy of defendant fraudulently placed order with
plaintiff who without knowing that delivered the goods
to the defendant through the office boy. Defendants
never received the goods. The orders were on official
forms of defendants, duly signed and stamped. Plaintiffs
sued for payment. Defendants had no previous dealings
with plaintiffs and it was not duty of the office boy to
issue orders.
Court: defendants not liable.
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 Agents’ Duties
▪ Agent must act according to principal’s directions and if no
such directions, according to custom prevailing in a
business of the same kind. Otherwise he must compensate
principal for any loss & account for any profit - s 164
▪ Agent bound to act with reasonable diligence, & use such
skill as he possesses. If he fails to do so he must
compensate the principal for any loss resulting - s 165

ILLUSTRATIONS
An insurance broker employed by B to effect an insurance on
a ship, fails to see that the usual clauses are inserted in
policy. Ship is afterwards lost. Nothing can be recovered
from the underwriters. Broker bound to make good the loss
to B.

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 Agents Duties
▪ Agent bound to render proper accounts to principal
- S 166

▪ Agent’s must use all reasonable diligence in

communicating with principal, & seeking his
instructions - s 167

▪ If agent, without principal’s knowledge, deals in the

business for his benefit instead of principal’s, the
principal may claim from agent any benefit resulting
from the transaction - S 169

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 Agent’s rights
▪ To be paid for performance of any act upon its
completion – s 172

▪ Right to retain from sums received on principal’s

behalf, all moneys due to him for advances made or
expenses incurred in conducting the business and
for his remuneration - s 170

▪ Right to retain principal’s goods, papers, and other

property he receives until amount due to him is
paid - s 174

▪ To be indemnified by principal for the

consequences of all lawful acts done by agent in
exercise of authority conferred upon him – s 175

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 Agent’s rights
▪ To be indemnified for consequences of act
that causes injury to 3rd party done in good
faith on the principal’s instructions – s 176

▪ To be compensated by principal for injury

suffered by principal’s neglect or want of
skill. – s 178

ILLUSTRATION
P employs A as a bricklayer in building a
house, and puts up the scaffolding himself.
The scaffolding falls apart. A is injured. P
must compensate A.

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 Termination of Agency
1. by principal revoking his authority; or
2. renunciation by agent of his authority or
3. by performance – when agency created for
a specific purpose, the agency comes to
an end when the purpose is
achieved/completed or
4. by the death/insanity/bankruptcy of agent
or principal
– s 154

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