CHAPTER 4

LAW OF AGENCY

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1
 Introduction
• Definition:
• GHL FRIDMAN : Agency as ‘the relationship that exists between two persons when one, called the agent, is considered in
law to represent the other, called the principal, in such a way as to be able to affect the principal’s legal position in respect
of strangers to the relationship by the making of contracts or the disposition of property’.

• Australian High Court : Agency as ‘ a word used in law to connote an authority or capacity in one person to create legal
relations in dealings with third persons’.

• Agency is a triangular relationship that allows or constructs the creation of a legal relationship between a person and a
third party via the intervention of the agent.

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• A person who represents and is required to act in the best interests of the principal.

• It appears in many areas of the law such as:

• the solicitor and client relationship
• employment law
• partnership law
• corporate law
• in the buying and selling of properties, land and goods.
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 Introduction
• Agency relationship can be categorized into 2:
• Contract between the principal and the agent in which the
agent is authorized to act on behalf of the principal;
• Contract between the principal and third party, in which the
agent stands as middle man.
• Basically, agency is a triangular relationship.

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• Definition of Principal and Agent:
• Agent - a person employed to do any act for another or to
represent another in dealings with third persons – s135
Contracts Act 1950.
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Formation of Agency

Express Appointment

Implied Appointment

Usual Appointment

Ratification

Necessity

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Estoppel (holding out)

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 Creation of Agency
1. Express Appointment – s140
– May be oral(words) or written. Involves actual consent
of the principal and the agent – Garnac Grain Co Inc v HMF
Faure & Fairclough Ltd
2. Implied Appointment – s140
– Inferred from things spoken or written or from
ordinary course of dealings/by way of implied consent
of the principal and the agent – Hely-Hutchinson v Brayhead
Ltd/Chan Yin Tee v William Jacks & Co (Malaya) Ltd
3. Usual Appointment
 by agent occupying a position which would normally carry with it

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authority to do an act of the kind in question - Watteau v Fenwick

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 Creation of Agency
4. Ratification
– Can arise in any one of the following situations:
 An agent duly appointed has exceeded his authority;
 A person who has no authority to act for the principal has acted as if he has
the authority.
– Section 149 – when abovementioned situation arise, the principal can
either reject the contract or accept the contract. The contract will be
binding on the principal as if the agent had been properly authorized.
– Section 150 – ratification may be expressed or implied.
 A contract can only be ratified under the following circumstances:
 The act or contract must be unauthorized;
 The agent, must be at the time of the contract, expressly act as agent for the
principal.

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 Keighley Maxsted v Durant (find the facts)

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 Creation of Agency
5. Necessity – s142
– Can be created if the following 3 conditions are met:
 It impossible for the agent to get the principal’s instruction;
 Agent’s action is necessary and reasonable to prevent loss to the principal – e.g if agent sells
perishable goods to avoid them from rotting;
 The agent must have acted in good faith and in the interests of the principal;

6. Estoppel/Holding Out– s190

There are 3 elements necessary to constitute estoppel:

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– A representation made by or on behalf of the principal to the third party concerning the authority of
the agent;
– Third party relied on the representation made by the principal to the third party;
 Example: Lily tells Bob, in the presence of Jack that she is Jack’s agent and is authorized to make contract
on behalf of Jack. Jack only kept quiet. Actually, Lily is not Jack’s agent. If Bob sold goods to Lily, Bob
may claim for payment for the goods from Jack., and Jack is estopped from denying Lily’s authority.
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 Exercise

• Identify the type of creation of agency below:

i. Bob(A) was instructed by his employer, Jack(p) to purchase 2 units of Dell PC

at RM2200 per unit. Instead, Bob purchased 2 units of HP PC at RM2500 per
unit. Jack has the option whether to accept or reject the contract.
ii. Jack instructed Bob to deliver 10 kg of fresh vegetables from Cameron
Highland to Rambo’s shop in Taiping by 7 am. On the way, Bob’s lorry broke
down and he couldn’t deliver the vegetables on time. To avoid further loss, Bob
sold the vegetables to Jenny.
iii. Mary tells Bob, in the presence of Jack that she is Jack’s agent and is authorized

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to make contract on behalf of Jack. Jack only kept quiet. Actually, Mary is not Jack’s
agent. If Bob sold goods to Mary, Bob may claim for payment for the goods from
Jack., and Jack is estopped from denying Mary’s authority.

• PROVISION-SECTION???
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Types of Agency (JOB SCOPE)

broker
factor

commission del credere

agent agent

Powers of

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attorney

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Types of Agent

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Types of Agent

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Types of Agent

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 POWER OF ATTORNEY (POA)
• A power of attorney (POA) is a legal document giving one
person (the agent or attorney-in-fact) the power to act for
another person (the principal).
• The agent can have broad legal authority or limited
authority to make legal decisions about the principal's
property, finances or medical care.
• The power of attorney is frequently used in the event of a
principal's illness or disability, or when the principal can't be
present to sign necessary legal documents for financial
transactions.

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 Authority of the Agent
Agent acts are binding on the principal if they
are done within the agent’s authority.

The principal is
Agent not bound
unless

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who exceeds the He adopts and
authority given by ratifies the
principal unauthorized act

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 Authority of the Agent
Expressly given by
the principle
(oral/written)

Actual
Implied from the
express authority
given

Agent Authority
Not expressly given
by the principal

Apparent

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which law regards the
agent as possessing
although the principal
has not consented his
exercising

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 ACTUAL AUTHORITY
Expressly given by the principal (orally or in writing) or implied from the
express authority given, from the circumstances of the case, custom and
the conduct of the parties.

Example:

Mr.Lee from WarnaWarni Tour Sdn Bhd is authorized by RockHard Hotel to make
reservations, submit deposits, and conduct his commissions from the funds paid by
the client and subsequently remitted to the hotel. In this situation, Mr.Lee would
also have implied authority to give the client a receipt, indicating the reservation
has been made and the deposit paid at the RockHard Hotel, if such authority was not
specifically stated in the principal/ agency agreement.

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 Apparent AUTHORITY
An authority that is not expressly given but which the law regards the agent as
possessing although the principal has not consented to his exercising such
authority.

Example:

Ben is present at a trade show with Emily of Youth Fun Group. Emily tells Ben that show
would organize the group’s annual trip through Ben. Until that moment, Ben has never
been an agent of the Youth Fun Group. If the group uses Ben’s services, Emily will be
bound to any arrangements made because she has indicated to the Youth Fun Group
that Ben is her agent.

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 Duties Of A Principal To His Agent
• These duties may be summarized as follows :

1) S172 - To pay the agent the commission or other remuneration

agreed unless if the relationship is gratuitous.
• The principal is only obliged to pay the agent if the agent complied with
the terms of the agency agreement and when the agent has earned the
payment.
• The agent right is not affected by the fact that the transaction has not
been beneficial to the principal or the fact the transaction or contract has
subsequently fallen through no fault of the agent.

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 Duties Of A Principal To His
Agent
2) s. 170 Not to willfully prevent or hinder the agent from earning his
commission. The agent's right to commission is not affected even if the
transaction has not been beneficial to the principal if the transaction has
subsequently fallen through no fault of the agent.

3) s174 - To respect any lien the agent has over the property of the principal in
the actual or constructive possession of the agent.

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4) s175 - To indemnify the agent for the lawful acts done in the exercise of
his authority.
• The principal is obliged to indemnify or reimburse the agent for cost incurred
in carrying out the agency relationship. This right is not available where the
loss is due to the agent’s own negligence, default or insolvency.
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 Duties Of A Principal To His Agent

5) s176 - To indemnify the agent against

consequences of acts done in the good faith.
6) s177 - Non-liability of principal for agent who
commit a criminal act.
7) s178 – To compensate agent for injury caused
by principal’s neglect.

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 Duties Of Agent To His
Principal
1) S164 - To obey the principal’s instructions. Failure to do so will result in
breach of contract and the agent will be liable for any loss suffered by the
principal.
• Case: Turpin v Bilton [ 1843 ] 5 Man & G 455
• Case: Bostok v Jardine 3 H & C 700
2) s164 - In the absence of instructions from the principal, to act according to
the customs which prevail, in doing business of the same kind, at the place
where he carries on his work.

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3) s165 - To exercise care and diligence in carrying out his work and to use
such skills as he possesses
• Case: Chaundhry v Prabhakar [ 1989 ] 1 WLR 29

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 Duties Of Agent To His
Principal
4) s166 (CA1950) - To render proper accounts when required. An agent is under
a duty to account for all monies and property handled by him as agent for the
principal and to produce such accounts when demanded by the principal.
Case - Foley v Hill

5) s171 - To pay to his principal all sums received on his behalf. Section 174
CA1950 gives the agent the right to retain his principal’s property in his possession
until his remuneration is paid, unless his contract provides to the contrary.

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6) s167 -To communicate with the principal in cases of difficulty.

7) s169 - The duty of an agent is to act solely for the benefit of the principal and he
cannot allow his own personal interest to conflict with this duty.
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 Duties Of Agent To His
Principal
8) Not to make any secret profit out of the performance of his duty.
• Case - Mahesan v Malaysian Government officers Co-operative Housing
Society Ltd [ 1978 ] 1 MLJ 149

9) Not to disclose confidential information or documents entrusted to him by

his principal.

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10) Avoid conflict of interest with own duty.

11) Not to delegate his authority unless consented by principal.

• Case De Bussche v Alt [ 1878 ] 8 CH D 286
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 Exercise

• 1) Man was ordered by his principal, Bob to transport 10 kg

of vegetables by lorry to Jimi. On the way to Jimi's shop, Man
met with an accident. All the vegetables were destroyed, and
Man also suffered broken arms and legs. Is Bob responsible
for Jimi’s losses and Man’s injury? Discuss.

• 2) As a waiter at Lotus Restaurant, Lily often received cash tips

from her regular customer. One day, Bob, her employer
demanded that she gave all the tips she had received for the

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day or she will be fired. Can Bob do so? Explain.

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 Termination of Agency

• S154 – s163
• Generally there are two ways:

Termination by Act
of Parties
Termination by
Operation of Law

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 Termination of Agency

By agreement
s154
By the principal
By frustration revoking the
agent’s authority
s156

Ways of
termination

By operation of By agent’s
law

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renunciation
s161-s162 s154

By performance
s154

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 Termination of Agency

Termination by Act of Parties

By mutual By By
agreement revocation of renunciation
of both authority by of agency by
principal and the principal the agent –

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agent – s154 s159

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 Termination by Act of Parties
Termination By Mutual
Agreement
May be terminated by the act of:

agree that the

Agency is
Both parties agency has
terminated
come to an end

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The agency relationship is a fiduciary one and so the courts are
reluctant to keep parties together if the sub-stratum of the
relationship (in particular, trust and confidence) has dissipated.

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 Termination by Act of Parties

Termination By Revocation – s154

The principal gives notice of
termination to the agent at
anytime before agent has
exercised the authority to bind
the principal – s156.
The agent is in default under
the agency, unless if the agent’s
authority is coupled with
interest (s155) or has been
partly exercised (s157)
Smart v Sandars

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 Termination by Act of Parties
Termination by Renunciation – s159

• Terminated when the agent relinquishes or

surrenders his or her authority as a agent.
is a unilateral act
Section If agency is for indefinite period, the agent
can terminate by giving reasonable notice of
159 termination and will not be liable for any loss
and can claim for reimbursement for all
services and expenses.

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If agency is for definite period, agent cannot
terminate the agency before the expiry of that
period without cause, or he will be liable for
any loss incurred by the principal.
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Termination by Operation of Law
By Death of
Principal or
Agent

When principal or By insanity

agent becomes By of the
insolvent(unable operation
to pay the debt) or
of law
principal or
made bankrupt
agent

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By expiration of
the period fixed
in the agency
contract

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 Termination by Performance – s154

 An agency is created for a single specific transaction

and transaction is completed.

 If created for a fixed period, the agency is

terminated at the expiry of that period whether or
not the business or transaction has been completed.

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 Termination by Frustration

• Upon the happening event which renders

the agency unlawful, the agency may be
terminated.

• An agency contract, like any other contract

may be discharged by frustration.

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Exercise
Based on the followings, identify types of
termination:
1. Ben, an employee at Untung Bank resigned from his
position by giving 1 month notice to his employer.
2. Lily, a clerk with Untung Bank was terminated due to
disciplinary problem.
3. Megatron Sdn Bhd, a sub-contractor had completed
building 4-storey hostel building for UITM within 1 year .
4. Lady Gaga, signed a 3 year contract with Sony Music to
record 10 songs.
5. Mimi was employed to work at Dr. Mike’s private clinic. A
year later, Dr. Mike passed away.

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6. Mr Oz, a director for a Malaysian company, agreed to
supply woods for a company in Thailand. Later, Malaysia
went into war with Thailand.

Law of Contract 34