THE LAW OF AGENCY

Issues to consider:

Agnes is an agent for Pepe maintaining Pepe’s antique car

collection, including the sale and purchase of antique cars.
Agnes has had this position for several years, but recently Agnes
has developed a cocaine habit. She recently sold one of Pepe’s
cars and kept some of the money herself to buy some cocaine.
Soon thereafter, Agnes was declared bankrupt. The state then
notified Agnes that she had sold the maximum allowable
number of cars in a year without getting a dealer’s license.
Shortly thereafter, Pepe was on a secluded island and died,
which no one knew about until two weeks later.

Discuss the effect of these events on the existence of the agency.

Reading:

 Part C, Law for Business. Trakic, A., et al

(2014) Sweet and Maxwell.
Who are agents?
Why are agents necessary in business?

 Part of useful sales distribution channel;

 Personal touch to product/ service sales; and
 Have access to market without high cost
Concepts
 An agency is where there is a relationship
between a principal and an agent where
the business of one party is entrusted with
another.
 Like any other contract, a contract of
agency can be expressed or implied from
the circumstances and the conduct of the
parties.
Concepts
 The law of agency in Malaysia is governed by
Part X of the Contracts Act 1950.

 S135 - An “agent” is 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”.
Principal-Agent Relationship

Principal Agent

Third Party
Concepts

 Who can be a principal?

 S136 - Any person who is of the age of

majority according to the law to which he is
subject, and who is of sound mind, may
employ an agent.
Concepts

 Who can be an agent?

 S137 -
any person may become an agent;
but must be of the age of majority and of
sound mind.
Categories of Agents
 Mercantile agents:  Non-mercantile agents
 Brokers  Wife
 Factors  Lawyers
 “Del Credere Agents”  Estate agents
 Bankers
 Auctioneers
Creation

1. by express appointment by the principal

2. by implied appointment by the principal
3. by ratification by the principal
4. by necessity, i.e. by operation of law in certain
circumstances
5. by the doctrine of estoppel or 'holding out'.
Creation: Express and Implied

1. By Express Appointment
 Express appointment may
be in a written or oral form.
2. By Implied Appointment
 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--Section 140
Creation: An illustration
 In Chan Yin Tee v. William Jacks and Co. (Malaya) Ltd.
[1964] MLJ 290 the appellant and Yong, a minor, were
registered as partners. At a meeting with a
representative of Williams Jacks, the appellant held
himself out to be Yong's partner. Goods were supplied
to Yong but were not paid for.
 The respondent company obtained judgment against
the appellant and Yong. The appellant appealed to the
Federal Court which held that since the appellant had
held Yong out as his agent who had the authority to do
things on his behalf, the appellant was liable for Yong's
acts even though Yong was a minor.
Creation: An illustration

 In KGN Jaya Sdn Bhd v Pan Reliance Sdn

Bhd [1996]1 MLJ 233, the court held that
such an appointment can be inferred from
the facts and circumstances of the case and
the conduct of the parties.
Creation: By Ratification
3. By Ratification
 Section 149 - 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.
 Agency by ratification can arise in any one of the following
situations:
a. An agent who was duly appointed has exceeded his
authority,
b. Person who has no authority to act for the principal has
acted as if he has the authority.
 Creation: By Ratification
 Ratification (continued)
 When any one of the abovementioned situations arise,
the principal can either reject the contract or accept the
contract so made - Section 149.
 When the principal accepts and confirms such a
contract, the acceptance is called ratification.
Ratification may be expressed or implied--Section 150.
 The effect of ratification is to cause the contract as
binding on the principal as if the agent had been
properly authorized beforehand - Section 149.
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 principal's ratification.
By ratification: An Illustration

 For example, on 2 July, X appoints Y as his agent

to buy a car not exceeding RM 40,000. Y ordered
a car costing RM 50,000, telling the salesman
that he was buying the car on X’s behalf. On 4
July, the salesman delivered the car to X.
 If X adopts the contract on 4 July, then Y is said
to be his agent through ratification.
Alternatively, X can also reject the contract on 4
July since Y has exceeded his authority
Forged signatures

 Brook v Hook (1871) LR 6 Ex 89

 “the Principal MAY NOT RATIFY a contract in

which his signature had been forged by the
unauthorized agent.”
Creation: By necessity
4. By Necessity
 An agency of necessity may be created if the following three
conditions are met:
 It is impossible for the agent to get the principal's instruction
Section 142.
 The agent's 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 (e.g. fish) goods belonging to his principal to
prevent them from rotting.
 The agent of necessity must have acted in good faith.
 Creation: Illustration
 Springer v Great Western Railway Company [1921] 1 KB
257

 the D (agent) agreed to carry P( Principal)’s tomatoes from Jersey

to the Covent Garden Market.
 Owing to bad weather, the ship arrived late at Weymouth. Some of
the tomatoes were found to be bad.
 The D decided to sell the tomatoes locally as they felt the tomatoes
could not arrive Garden Market in a saleable condition.
 They did not communicate with P.
 HELD: P was awarded with damages as D failed to communicate
with P as he could have done so.
Creation: By Estoppel
5. 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
that 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 person's authority to act
on his behalf.
 Note: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. (this will be considered below)
Creation: By Estoppel
 S190 - When an agent has, without
authority, done acts or incurred
obligations to third persons on behalf of
his principal, the principal is bound by
those acts or obligations if he has by his
words or conduct induced such third
persons to believe that those acts and
obligations were within the scope of the
agent’s authority.
Authority
 The authority of an agent may be expressed or
implied. An authority is said to be express when
it is given by words spoken or written. An
authority is said to be implied when it is to be
inferred from the circumstances of the case;
and things spoken or written, or the ordinary
course of dealing, may be accounted
circumstances of the case. See S139 and S140.
Actual Authority
 Actual authority:
 This arises where the principal's words or conduct
reasonably cause the agent to believe that he or she
has been authorized to act. This may be express in
the form of a contract or implied because what is
said or done make it reasonably necessary for the
person to assume the powers of an agent.
Apparent/Ostensible Authority
 Apparent or ostensible authority:
 If the principal's words or conduct would lead a
reasonable person in the third party’s position to
believe that the agent was authorized to act, say by
appointing the agent to a position which carries
with it agency-like powers, those who know of the
appointment are entitled to assume that there is
apparent authority to do the things ordinarily
entrusted to one occupying such a position.
Implied Authority

 Implied authority:
 This type of authority is considered held by
the agent by virtue of being reasonably
necessary to carry out his express authority.
As such, it can be inferred by virtue of a
position held by an agent, e.g. partners
Implied Authority

 Implied authority may also arise from:

 the circumstances of the case,
 the custom or usage of trade, or,
 the situation or conduct of the parties.
 The case of Watteau v Fenwick [1893] 1 QB
346, serves as an example.
Implied Authority: Illustration
 Watteau v Fenwick [1893] 1 QB 346.
 In this case, the defendant appointed a manager to run a
public house and the licence was taken out in the manager’s
name, which appeared over the door. The manager was
forbidden by the defendant to buy cigars on credit. In
disregard of this, the manager bought cigars from the
plaintiff who then sued for the price.
 It was held that the defendant as principal was liable because
a manager of a public house would usually have authority to
make purchases of that kind, and the plaintiff could rely on
such usual authority in the absence of express knowledge of
the restrictions imposed by the principal.
Duties of
the agent
 S164 - An agent is bound to conduct the
business of his principal according to the
directions given by the principal, or, in the
absence of any such directions, according to
the custom which prevails in doing business.
Duties of
the agent

 S165 - To conduct the business of the agency

with reasonable diligence, and to use such
skill as he possesses.
 S166 - An agent is bound to render proper
accounts to his principal on demand.
 S167 - To communicate with principal.
Duties of
the agent

 S168 – No secret profits.

 S169- No conflict of interests with duty.
 S171- It is the agent’s duty to pay sums
received for principal to the principal.
 Not to disclose confidential information
 S143 - Not to delegate
Duties of an agent: An illustration

 Turpin v Bilton (1843)5 Man & G 455

 The agent has been instructed by the Principal to

obtain insurance coverage for his vessel. However,
the agent failed to do so. The vessel was lost and as
a result the Principal bore losses.
 Held: the agent is LIABLE for breach of duty due to
his failure to obey the Principal’s instructions. Thus
the agent is LIABLE to pay compensation
Duties: Illustration

 Keppel v Wheeler [1927]1 KB 577

 the D (agent) was employed by the P (Principal) to sell

his house. The first offer was accepted by the P subject
to contract. A few days later a higher offer (2nd offer)
was made by X but this was not communicated to P.

 the court held that the D liable to pay the difference

between the 1st offer and the 2nd offer.
Duties: Illustration

 Wong Mun Wai v. Wong Tham Fatt & Anor

[1987] 2 MLJ 249

 the court found that the defendant failed in his duty

as he sold the principal’s share of land below market
value and further he sold the land to his own wife.
 The agent (D) is under duty to act in good faith and
cannot use his position as agent to gain profit at the
Plaintiff’s expense.
Duties: Illustration

 Fullwood v Hurley[1928] 1 KB 498

 The agent had acted on behalf of both parties; the

P and the 3rd party, by claiming commission from
both of them without their knowledge and
consent.
 Held: the agent had breached his duty towards
the Principal for not acting in good faith.
Duties: Illustration

 In Tan Kiong Hwa v Andrew S A

Chong[1974] 2 MLJ 188, the agent was
authorised by his principal to sell a flat for
RM45,000 but without the principal’s
knowledge, the agent sold it for RM54,000. It
was held by the court that the RM9,000
difference was the secret profit made by the
agent.
Rights of
the principal
 If agent deals, on his own account, in the
business of agency without principal’s consent,
then the principal has the right to repudiate the
contract.
 If an agent, without the knowledge of his
principal, deals in the business of the agency on
his own account, the principal has the right to
claim from the agent benefits obtained. See
S168 and S169.
Duties of
the principal
 To indemnify agent for lawful acts or those
done in good faith. See S175,S176 and the
Illustrations.
 To remunerate the agent.
 Not to willfully prevent the agent from
earning his commission.
 However note that the principal can refuse to
remunerate if the agent has breached his duty as an
agent.
Termination
 Principles of termination are found in Sections 154 –
163.
 S154 - An agency is terminated by the principal
revoking his authority; or by the agent renouncing the
business of the agency; or by the business of the
agency being completed; or by either the principal or
agent dying or becoming of unsound mind; or by the
principal being adjudicated or declared a bankrupt or
an insolvent.
*END*