UNIVERSITI SAINS MALAYSIA

SCHOOL OF MANAGEMENT
ACADEMIC SESSION 2020/2021, SEMESTER 2

ATW103 BUSINESS LAW

DATE OF SUBMISSION:
6 JULY 2021

LECTURER:
ASSOCIATE PROFESSOR DR. HAZRIL IZWAR BIN IBRAHIM

PREPARED BY:

NAME MATRIC NO. Email Address

1. ZOE LOH ZHI XIN 152974 zoeloh@student.usm.my

2. NGA CHUN SHUEN 153851 chunshuen.nga@gmail.com

3. SONG YING XUE 151070 yingxue2000@gmail.com

4. TAN SUK YI 152324 tansukyi@icloud.com

5. TAN XUE ER 150436 xueertan00@gmail.com

6. TAN SEOK THENG 151311 seokthengtan@student.usm.my

 Table of Contents

Introduction ................................................................................................................................... 2

Question 1 ...................................................................................................................................... 3

Question 2 .................................................................................................................................... 10

Bibliography and Appendices .................................................................................................... 14

1
 Introduction

Law, a ruling system that was created for the society and will be enforced by government
institutions. Law is also known as “science of justice” and “art of justice”. Laws connect
relationships between people and shape country history, politics, economics and society. In every
country, law is the core value for them to ensure the strong existence of their country and prevent
their country from collapsing. Without law in a country, that particular country probably will ruin
in a short period. In a country, laws can be made by a legislator in group or single, resulting from
the executive in statutes or judges through precedent but mostly in common law jurisdictions.

Law can be divided into two parts, that is public law and private law. Public law relates
more to government and society, including administrative law and criminal law. Private law relates
more to individuals or organisations issues such as contracts and commercial law. Laws are very
important because they represent equality, fairness and justice. Private individuals may create legal
contracts among two sides.

So, there are two main statements that we are going to discuss. The first statement is about
Gan, an agent of Ram purchasing a car with a higher price and paid the deposit without informing
Ram. Besides, Gan received a commission from the car dealer and this purchase was rejected by
Ram. In this statement, we will discuss about whether Gan has the authority to become the agent
of Ram, whether Gan excess of agent’s authority that given by Ram, whether Gan's RM500
commission from Song is defined as "secret profit" from his duties and whether the deposit
received by Song, RM8,500 should be returned to Ram. For the second statement, we will discuss
in which situation, a principal cannot terminate the authority of his agent.

2
 Question 1
Ram has just sold his share in a company and decided to buy a new car for his wife. On 15
April 2019, Ram appointed Gan as his agent to buy a car at the price not exceeding RM
75,000. The next day, Gan went to see Song, a car dealer and booked a car at the price of
RM 85,000 and paid the deposit of RM 8,500. Gan told Song that the car was meant for
Ram’s personal use. Song gave Gan RM 500 as a commission for booking the car with him.
One month after the booking date, Song sent the car to Ram and claimed for the balance
purchase price of the car. Ram told Song that he has never authorized Gan to purchase the
car at that price and refused to accept the car.

Advise Ram with regards to his rights.

Based on Malaysia Contract law 1950, a person may employ an agent when reaches the
age of majority according to the law to which he is subject, and of sound mind. Besides, any person
can be an agent between a principal and a third person. Provided that no person under legal age
and of sound mind shall be an agent responsible to his principal on behalf of the provisions of the
company.

Based on the case above, Ram appointed Gan as his agent to buy a car at the price not
exceeding RM 75,000. Gan went to see Song, a car dealer and booked a car at the price of RM
85,000 and paid the deposit of RM 8,500. Gan told Song that the car was intended for Ram’s
personal use. Song paid Gan a commission of RM 500 for booking the car with him. Song sent the
car to Ram a month after the booking date and demanded the balance of the purchase payment.
Ram told Song that he had never allowed Gan to buy the car at that price and that he would not
accept it.

The first issue is whether Gan has the authority to become the agent of Ram.

Section 138 of the Contract Act 1950 states that no consideration is necessary to create
an agency. Section 140 of the Contract Act 1950 implies that an authority is said to be expressed
when it is given by words spoken or written. An authority is said to be implied when it is to be

3
inferred from the circumstances of the case and things spoken or written, or the ordinary course of
dealing, may be accounted for in the circumstances of the case.

In the case of KGN Jaya Sdn Bhd v Pan Reliance Sdn Bhd, the Court of Appeal held
that an agency or sub-agency agreement does not have to be in writing.

In the case of Kuchwar Lime and Stone Co. v. Dehri Rohtas Light Railway Co. Ltd.
and Anr, the East Keshalpur Colliery-hereinafter called the Colliery reserved a quantity of coal at
the Kusunda railway station on the Eastern Railway for transport by rail to the Banjari station on
the Dehri Rohtas Light Railway. The coal was delivered to the Kuchwar Lime and Stone Company
-hereinafter called 'the Company'- and the company was to pay the shipping fees. Three of the five
carts where the coal was carried arrived in Banjari and were handed to the Company. There is no
argument in these appeals about those three carts. The other two 60 tons carts were repacked into
six smaller carts and on the way to the Dehri Rohtas Light Railway (hence referred as "the
Railway"). Due to the poor quality of the coal, the Company refused to accept transportation of an
amount of the cargo that arrived in Banjari on November 12, 1954. After some communication
between the parties and with the Coal Controller, the Railway sold the coal on June 2, 1955, after
issuing the appellant with a notice. It then issued a suit to the Company, arguing unpaid shipping
and delay charges for 202 days in which six carts carrying coal were delayed, and requested a
decree for Rs. 17,625/14/- after deducting the amount received from the sale of the coal. The High
Court adjusted the decree passed by the Trial Court and decreed the claim of the Railway against
the Company in full.

By applying the Section 138 of the Contract Act 1950, no consideration is necessary to
create an agency and Section 140 of the Contract Act 1950, thus, we can conclude that Ram has
given the authority to Gan as his agent to buy a car at the price not exceeding RM 75,000 according
to the word “appointed” in the question above which is “Ram appointed Gan as his agent to buy a
car at the price not exceeding RM 75,000” . Besides, by referring to the case of KGN Jaya Sdn
Bhd v Pan Reliance Sdn Bhd as well as Kuchwar Lime and Stone Co. v. Dehri Rohtas Light
Railway Co. Ltd. and Anr, an agency agreement can be expressed by words spoken or written.
Therefore, Gan can be considered as the Ram’s agency no matter whether Ram has either verbally
or in writing to authorised Gan as his agent.

4
 In conclusion, Gan has the authority to become Ram's agent to purchase a car at the price
not exceeding RM 75,000 which was appointed by Ram.

The second issue is whether Gan excess of agent’s authority that given by Ram to purchase
a car at the price not exceeding RM 75,000 instead of buy a car at RM 85,000.

Section 149 of the Contract Act 1950 indicates that 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 effects will follow as if they had been performed by his authority.

In the case of Keighley Maxted & Co .v. Durant, an agent named Robert, was authorized
by the appellant, Keighley, to purchase wheat at a certain price. On 11 May 1898, Robert
contracted with Durant, on his own behalf and without authority of anybody else and exceeded his
authority to purchase the wheat at a higher price from Durant but intending it for Keighley.
Besides, Robert did not disclose the existence of principal with Durant. On 12 May 1898, Keighley
Maxted & Co represented by its manager, Wright, to inform Robert that they agreed to take the
consignment of the wheat regardless of the higher price of the wheat. Later, Robert and Keighley
Maxted failed to collect the wheat from Durrant which led to Durrant being forced to sell all the
wheat at a lower price that caused Durrant to face loss of profit. Hence, Durrant sued Keighley
Maxted and Robert for compensation. Last, the court held that the appellants, Keighley, was not
liable to Durant since there was no ratification in the law of contract because the contract was
made in the agent’s own name. Then, the court gave judgment against Roberts for the sum asserted.

Hence, in this case, Gan as an agent, on his own behalf and without authority and
knowledge from Ram, booked a car at the price of RM 85,000 from Song, a car dealer and paid
the deposit of RM 8,500. Besides, Gan has also told Song that the car was meant for Ram’s
personal use. Although Ram appointed Gan to purchase a car at the price not exceeding RM 75,000
rather than purchase a car at RM 85,000, Gan has made his own decision to book the car from
Song and paid the deposit RM 8,500 without informing Ram. By applying the case of Keighley
Maxted & Co .v. Durant, when the agent contracted with third parties in his own name without
authority from the principal, the principal is not liable to the third parties since there is no
ratification by the principal to enter the contract.

5
 Section 181 of the Contract Act 1950 stipulates that where an agent does more than he is
authorized to do, and what he does beyond the scope of his authority cannot be separated from
what is within it, the principal is not bound to recognise the transaction.

According to the illustration in Section 181 of the Contract Act 1950, A authorizes B to
buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of RM 6,000. A may repudiate
the whole transaction.

In this case, Gan has exceeded his authority given by Ram when Ram appointed Gan to
buy a car at the price not exceeding RM 75,000, yet Gan booked a car at the price of RM 85,000
from Song, a car dealer and paid the deposit of RM 8,500. As we can observe, Gan has already
gone beyond the scope of his authority. Thus, Ram as the principal is not bound to recognise the
transaction.

In conclusion, Gan exceeded the scope of his authority when he booked the car from Song
at RM 85,000 and paid the deposit RM 8,500 which was not appointed by Ram. Besides, what was
done by Gan was his own decision without authority from the principal, Ram. Hence, Ram has the
option either to ratify or disown the acts.

The third point to consider is whether Gan's RM 500 commission from Song is defined as
"secret profit" from his duties. An agent's responsibility is not to profit privately from the
accomplishment of his task. However, bribes, secret commissions, and other monetary preferences
are all examples of private profit.

Section 168 of the Contracts Act states that if an agent deals on his account in the business
of the agency, without first obtaining the consent of his principal and acquainting him with all
material circumstances which have come to his knowledge on the subject, the principal may
repudiate the transaction, if the case shows either that any material fact has been dishonestly
concealed from him by the agent, or that the dealings of the agent have been disadvantageous to
him.

Illustration (a) to Section 168 illustrates that A directs B to sell A's estate. B buys the estate
for himself in the name of C. A, on discovering that B has bought the estate for himself, may

6
repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the
sale has been disadvantageous to him. While (b) illustrates A directs B to sell A's estate. B, on
looking over the estate before selling it, finds a mine on the estate which is unknown to A. B
informs A that he wishes to buy the estate for himself, but conceals the discovery of the mine. A
allows B to buy, in ignorance of the existence of the mine. A, on discovering that B knew of the
mine at the time he bought the estate, may either repudiate or adopt the sale at his option.

Section 169 of the Contracts Act states that if an agent, without the knowledge of his
principal, deals in the business of the agency on his account instead of on account of his principal,
the principal is entitled to claim from the agent any benefit which may have resulted from the
transaction.

Illustration to Section 169 illustrates that A directs B, his agent, to buy a certain house for
him. B tells A it cannot be bought, and buys the house for himself. A may, on discovering that B
has bought the house, compel him to sell it to A at the price he gave for it.

In Tan Kiong Hwa V Andrew S.H Chong [1974] 2 MLJ 188, the appellant purchased a
house residence from an organization, and the defendant was a director of that organization. The
appellant instructed the defendant to sell the property again for RM 45,000. Nevertheless, the
defendant was able to sell it for RM 54,000, with the additional RM 9,000 being deposited to the
defendant's company account. The Federal Court held that the appellant was allowed to request
the excess RM 9,000 from the agent.

In Mahesan V Malaysian Government Officers Co-operative Housing Society Ltd

[1978] 1 MLJ 149, the appellant is not informed about price differences. Though, he is a director
and secretary of the defendant company. On behalf of the defendant, he purchased land for RM
944,000. The appellant was aware that the vendor had previously paid RM 456,000 for it but failed
to inform the defendant. The appellant was found to have received RM 122,000 from the vendor
as a bribe or covert commission. According to the court, the defendant might recover either the
bribe or the sum of the overall loss experienced by the appellant due to accepting the offer.

In Andrews v Ramsay [1903] 2 KB 635, the appellant instructed the defendant estate
agent to sell his property. The defendant found a buyer who had previously done business with the
defendant. The buyer had paid the commission for the transaction between the defendant and the

7
appellant. The court held that the appellant could claim for both amounts. Appellant can recover
the commission given by the purchaser to the defendant and the commission he has given to the
defendant.

When it is proven that an agent earned a commission without the ignorance of the principal
and causing a direct or indirect loss to the principal, below are the principal's actions.

Based on the S168 Contract Act 1950, Ram can repudiate the contract. It is because Gan
received the commission from Song and Ram was unaware of it. Otherwise, if Ram is aware of
the commission received by Gan and consents to it, then Gan can keep the profit. Furthermore,
related to Tan Kiong Hwa v. Andrew S.H. Chong [1974] 2 MLJ 188, if the agent received a
secret profit, the principal might recover the amount from the agent. Hence, Ram may ask for the
commission which was received privately by Gan. In addition, as stated in the S169 Contract Act
1950, the principal shall have the right to sell bribes or secret profits at a price higher than the one
agreed upon by him and have the right to recover the secret profits transferred by the agent to
others. For example, referring to Mahesan V Malaysian Government Officers Co-operative
Housing Society Ltd [1978] 1 MLJ 149 Ram may recover the bribe amount by suing the agent
and third party for damages for any loss he suffered due to entering the contract. Moreover,
according to Andrews v Ramsay [1903] 2 KB 635, the principal may refuse to pay the agent's
commission. Ram may refuse to pay the commission to Gan.

In conclusion, the commission RM 500 Gan received from Song is counted as a secret
profit out of the performance of his duty as Ram is not aware of it. Ram has the right to claim the
commission from Gan.

The fourth issue is whether the deposit received by Song, RM 8,500 should be returned to
Ram.

Section 157 of the Contract Act 1950 states that the principal cannot revoke the authority
given to his agent after the authority has been partly exercised, so far as regards such acts and
obligations as arise from acts already done in the agency.

8
 In the case of Read v Anderson, the defendant, who is the principal, gave the plaintiff, a
turf commission agent, instructions to take bets on his behalf. The plaintiff was the one who placed
the bet and lost. A turf commission agent is customarily required to bet in his personal identity and
is entirely responsible to the person with whom the bet is placed. If he is deemed as a "defaulter"
for failing to pay the lost bet, this will lead to a range of disqualifications that will have a significant
negative impact on his business. The Court held that the defendant was unable to withdraw the
plaintiff's authority after losing the bet. He has to repay the plaintiff for the money the plaintiff
paid to the individual with whom he made the bet.

By applying the Read v Anderson case, the principal has to pay to his agent although his
agent has placed the bet and lost. This is because the principal cannot revoke the authority given
to his agent after the authority has been partly exercised. Hence, in this case, the deposit RM 8,500
that Gan has paid to Song , the car dealer, to book a car at RM 85,000, cannot be returned back to
Ram.

In conclusion, the deposit received by Song RM 8,500 should not be returned to Ram as
Ram’s agent has partly exercised the transaction by giving the deposit RM 8,500 to Song to book
the car at RM 85,000.

To sum up, there is a contract between Ram and Gan when Ram appointed Gan to buy the
car at the price not exceeding RM 75,000, yet there is no contract between Ram and Gan when
Gan without Ram’s permission paid the car deposit at RM 8500, booked a car from Song at the
price RM 85,000 and told Song the car is for Ram’s personal use . Hence, when Gan has paid the
deposit RM 8,500 to book the car at the price of RM 85,000, the contract between Ram and Gan
can be void as Gan has already exceeded his authority given by Ram to buy a car at the price of
not exceeding RM 75,000. The commission of RM 500 which Gan received from Song is counted
as a secret profit because Ram is not aware of it. So, the RM 500 commission should return to
Ram as he has the right to claim the commission from Gan.

9
 Question 2
Describe the circumstances under which a principal cannot revoke/ terminate the authority
of his agent.

An agency is a contract which creates the legal relationship between principal and agent.
In some circumstances, the authority of an agent can be terminated at some situation. Basically, if
the trust had already break down between principal and agent, the principal are not necessary to
keep the authority of his agent. Besides, if the agent had done the task given by his principal or
accomplished what he need to do for, the agency will terminate. Moreover, an agency may
terminate automatically by law operation if either principal or agent dies, bankrupt or undergoes
insanity. However, there are some exceptions where a principal’s power to revoke the authority of
his agent is limited.

With reference to Section 155 of the Contract Act 1950, “Where the agent has himself
an interest in the property which forms the subject-matter of the agency, the agency cannot, in the
absence of an express contract, be terminated to the prejudice of such interest.” This law states that
an agency cannot be terminated when the agent has an authority coupled with interest. When an
agent has an authority coupled with interest, he has possession or control of the property of his
principal and possesses a legal right against interference by third parties. In order for this law to
take effect, there are a few conditions that are required to be fulfilled. First, the interest of the agent
must exist at the time of creation of the agency. If the interest was created subsequently afterwards,
the agency can be revoked. Secondly, the interest of the agent must be solid and measurable, for
example, money instead of happiness. Additional points to note, an interest could be inferred from
the language of the document and from the course of dealings between the parties. Furthermore,
an interest in the property would include interest by way of security, lien or any special right or
interest.

To help visualize, here are a few scenarios. The first scenario, Ahmad the principal gives
Bryan the agent the right to sell his house. With the money generated through the sale of the house,
Ahmad would pay off his debts due to Bryan. Ahmad cannot revoke this authority, even if he turns
insane or dies. Next scenario, Carmen owes Brenda money, while Brenda at the same time owes

10
Ashley money too. Brenda appoints Ashley to recover the money owed by Carmen, with the
recovered money Ashley will pay herself the money that Brenda owes her. With this, Ashley has
an interest in the subject matter of the agency, therefore Brenda would not be allowed to revoke
Ashley’s authority. Moving on to the third scenario, Alexander consigns 3000 pieces of clothing
to Beatrice, who has already made advances to him for such clothes. Alexander assigns Beatrice
to sell the clothes, and with the money earned she will repay herself out of her own advances.
Beatrice has an authority coupled with interest therefore it cannot be revoked by Alexander. The
final example will illustrate a scenario that fails to meet the conditions required for Section 155 of
the Contract Act 1950 to take effect. Amos gave Brollan 8 boxes of soda to sell on his behalf.
Subsequently, Brollan paid Amos some money as an advance. Afterwards, Amos told Brollan not
to sell the soda. However, Brollan was afraid that he would be unable to secure his advance and
still went ahead to sell it. Amos was angered and sued Brollan for selling the soda but Brollan
pleaded that the agency could not be revoked being coupled with interest. Since the interest of the
agent was not established during the creation of the agency, the court ruled that the agency in this
scenario was not coupled with interest.

Now with real life examples. The case Smart v Sandars (1848) 5 CB 895 illustrates the
application of Section 155 of the Contract Act 1950. In this case, the factor was sent goods to sell
on the behalf of the principal, as security for the goods, the factor made an advance to the principal.
Wilde CJ said: ‘where an agreement is entered into on a sufficient consideration, whereby an
authority is given for the purpose of securing some benefit to the donee (agent) of the authority,
such an authority is irrevocable. This is what is usually meant by an authority coupled with an
interest, and which is commonly said to be irrevocable.’ The court ruled that since the advance
was made as security for the goods, the agent has an interest in the product, hence the agency
cannot be terminated by the principal. The next case, Frith v Frith: PC 21 Mar 1906 acts as an
example that does not fulfil the requirements for Section 155 of the Contract Act 1950. A manager
was owed money by the owners of an estate in the Turks and Caicos Islands, he intends to pay
himself the debts due by the owners by renting out the estate. He claims that since he had separately
undertaken at their request to guarantee the payment of a debt secured by mortgage over the estate,
the power of attorney that allows him to possess the estate is irrevocable. The court rejected his
appeal and deemed that when the authority was granted, it had no connections nor intentions to
subserve the manager’s interest as guarantor.

11
 In Contract Act 1950, a principal cannot revoke or terminate the authority of his agent
when the authority has been partly exercised. According to Section 157, the principal cannot
revoke the authority given to his agent after the authority has been partly exercised, so far as
regards such acts and obligations as arise from acts already done in the agency. When the principal
gives instructions to the agent, and the agent has already fulfilled his duty with regards to the
instruction given by the principal, the principal cannot revoke the authority. The agent has done
according to what the principal has stated and the principal has to pay the commission to the agent.

Illustration (a) to Section 157 illustrates that ‘A authorizes B to buy 1000 bales of cotton
on Account A, and to pay for it out of A’s money remaining in B’s hands. B buys 1000 bales of
cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B’s
authority so far as regards payment for the cotton.’ Based on the explanation above, B, the agent
has purchased 1000 bales of cotton on his personal liability (his name) by following his principal’s
instructions and making himself liable for the price. Thus, A cannot revoke B's authority to pay
for the cotton with A’s money. While illustration (b) to Section 157 illustrates that ' A authorizes
B to buy 1000 bales of cotton on account of A, and to pay it out of A’s money remaining in B’s
hands. B buys 1000 bales of cotton in A’s name, and so as not to render himself personally liable
for the price. A can revoke B’s authority to pay for the cotton.’ Based on the explanation above, B
as the agent bought 1000 bales of cotton in the name of A, thus A, the principal is personally liable
for the price instead of B, the agent. Thus, A has the right to revoke B’s authority when it comes
to the payment of the cotton.

An example case in English law is the case of Read v Anderson. The principal who was
the defendant instructed the plaintiff who is a turf commission agent to place bets on his behalf.
The plaintiff placed the bet on his name and lost. Normally, a turf commission agent will place
bets with their own names and will be responsible to the person who made the bet. If the turf
commission agent is unable to pay the lost bet and is declared a ‘defaulter’, his business will be
drastically affected. It was held that the principal could not revoke his agent’s authority after losing
the bet, as the agent has partly exercised his authority. The principal need to compensate the agent
for the amount paid to make the bet.

12
 In conclusion, in some circumstances, an agency cannot be terminated. When the agent has
an authority coupled with interest, the agency cannot be terminated. Besides, when the authority
has been partly exercised, the principal cannot terminate the authority of his agent too.

13
 Bibliography and Appendices

Bibliography

1. [Example] Investopedia. (2019). Common Laws Are Unwritten Legal Precedents That
Guide Court Decisions.

Available at: https://www.investopedia.com/terms/c/common-law.asp

2. Sudhir Singh. Short notes on Irrevocable Agency.

Available at : https://www.preservearticles.com/notes/short-notes-on-irrevocable-
agency/19276

3. admin (2020)- Smart v Sandars (1848) [online]

Available at: https://swarb.co.uk/ smart-and-another-v-sandars-and-others-ccp-12-may-

1848

4. Turks and Caicos Islands Legal Information Institute- Reginald Charles Frith v Josiah
Alexander Frith (1906) [online]

Available at: https://tcilii.org/node/566

5. Lee Mei Pheng and Ivan Jeron Delta. (2018). Business Law. Third Edition ed. Oxford.
Termination by Revocation.

6. Contracts Act 1950

7. Bribery and the contract act 1950. (2019, August 19). Law Teacher | LawTeacher.net.

Available at: https://www.lawteacher.net/free-law-essays/contract-law/bribery-and-the-

contract-act-1950-contract-law-essay.php

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Appendices

Acts

Question Section

1 Section 138, 140 Contract Act 1950

Section 149, 181 Contract Act 1950
Section 168, 169 Contract Act 1950
Section 157 Contract Act 1950

2 Section 155, 157 Contract Act 1950

Cases References

Question Case

1 - Kuchwar Lime and Stone Co. v. Dehri Rohtas Light Railway Co. Ltd.
and Anr
- KGN Jaya Sdn Bhd v Pan Reliance Sdn Bhd
- Keighley Maxted & Co .v. Durant
- Tan Kiong Hwa V Andrew S.H Chong [1974] 2 MLJ 188
- Mahesan V Malaysian Government Officers Co-operative Housing
Society Ltd [1978] 1 MLJ 149
- Andrews v Ramsay [1903] 2 KB 635
- Read v Anderson [1884] 13 QBD 779

2 - Smart v Sanders (1848) 5 CB 895

- Frith v Frith: PC 21 Mar 1906
- Read v Anderson [1884] 13 QBD 779

15