BUSINESS LAW

Chapter 6
LAW OF AGENCY
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LEARNING OUTCOME
• How to create an agency relationship?
• What are types of authority an agent may have?
• What are the duties and rights of agent as against the
principal and vice versa?
• In what situations will agency come to an end?
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Introduction
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INTRODUCTION
• Governed by Contracts Act 1950.
• “An “agent” is a person employed to do any act for
another or to represent another in dealings with third
persons (S135 Contracts Act 1950)
• The person for whom such act is done, or who is so
represented, is called the “principal” (s135 Contracts
Act 1950)
• There are two contracts i.e. P and A; P and 3rd P.
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Who is an agent?
• Who may be an agent?
• S137 Contracts Act 1950
• Any person but not a minor or unsound person
• Consideration not required – s138 Contracts Act 1950.
• The meaning of an agent in legal sense is different
from its commercial sense.
• To determine the existence of agency the court will
look at the authority given to the agent.
• S136 Contracts Act 1950 - a principal must
• Not be a minor
• Must be of sound mind
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Who is an agent?
• The agency contract can be made verbally
• There is no requirement that the agency contract has to
be in writing
• KGN Jaya Sdn. Bhd. v Pan Reliance Sdn. Bhd. [1996] 2
CLJ 611
• Held that the law does not require that an agency or sub-agency
agreement must be in writing
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CREATION OF AGENCY

Express appointment Ratification (s149 Estoppel / Holding

(s140 Contracts Act Contracts Act 1950) Out (s190 Contracts
1950) Act 1950)

Implied appointment Necessity (s142

(s140 Contracts Act Contracts Act 1950)
1950)
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By express appointment

No special Can be made orally If the authority is

form required or in writing under seal, need
to made under a
Power of
Attorney which
is registered at
High Court
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By implied appointment

S7 Partnership 1961
Relationship between
husband & wife.
A partner is a partner
to the other partner
when contracting in
It is presumed
the course of the
that a wife has the
partnership business
authority to
pledge her
husband’s credit.

This is still
rebuttable if the
husband prove
otherwise
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RATIFICATION

Can arise in the following If the P later on ratifies

situations either one of this act, the
contract is binding.

Agent who was Person has no

appointed authority, acted as
exceeded his if he has the
authority authority
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Conditions for Ratification (s149-s153 CA 1950)

A’s act is P must P must The

unauthorized exist, have ratify the ratification
contractual whole must not
capacity contract injure the 3rd
and full (s152 CA party (s153
It cannot be a
knowledge 1950) & illustration
criminal act
of material CA 1950)
facts
The
The agent The third
ratification
acted as an party knows
must be done
agent the agent is
within
an agent
reasonable
time
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Consequences of ratification

As if the contract The contract is Ratification is

was originally between the retroactive to
made on the principal and the the date on
principal’s third party. Thus, which the agent
authority (s149 CA one may sue and
did the act
1950) be sued by the
other
(Bolton &
Partners Ltd. v
Lambert [1889]
41 Ch D 295)
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AGENCY BY NECESSITY

• Under certain circumstances a person may become

the agent of another without having been appointed as
such.
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AGENCY BY NECESSITY

• Examples of agencies of necessities :

• A wife who is deserted or who is justified in leaving her
husband and has no means of support, can pledge her
husband’s credit for necessaries of life
• A commercial agency of necessity- when a person is entrusted
with another’s property and it becomes necessary to act to
preserve that property although he has no express authority to
do so.
Great Northern Railway Co v Swaffield
The plaintiff (a railway co) had contracted with B to deliver a
horse to a certain place. Upon arrival, nobody took the horse.
Thus the plaintiff stored the horse in a stable. Later the plaintiff
asked for the storage charge. The defendant denied.
Held: plaintiff acted as an agent of necessity in this matter to
preserve the horse
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Agency by Necessity (s142 CA 1950)

Could not contact P Prevent further loss to P

(s167 Contracts Act (s142 Contracts Act 1950)
1950)
Acted in good faith
(s142 Contracts Act
1950)
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LAPRAIK V BURROWS, “THE AUSTRALIA”

FACTS:
•1852 - SHIP ARRIVED IN HONG KONG IN NEED OF
URGENT REPAIRS.
•COST OF REPAIRS WOULD HAVE EXCEEDED VALUE OF
SHIP
• DEBTS FOR WAGES & EXPENSES WERE ACCRUING
• PERMISSION TO SELL SHIP WOULD HAVE TAKEN 4
MONTHS TO OBTAIN (OWNERS IN THE USA)
• NO FINANCE AVAILABLE TO SHIP’S MASTER.
•MASTER SOLD SHIP .

HELD: ACT OF MASTER NOT JUST A PRUDENT

ACT DONE TO THE ADVANTAGE OF THE
OWNERS BUT ONE OF ABSOLUTE NECESSITY.
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AGENCY BY ESTOPPEL
• S190 Contracts Act 1950
• Person not bound by contract on his behalf
without his authority.
• If by his words or conduct, P allows a 3rd party to
believe that A is his agent, when A is not, then P
will be estopped from denying the existence of
A’s authority.
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AUTHORITY OF THE AGENT

• If A acts within his authority, P is bound.
• If A acts beyond his authority, P is not bound unless P
ratifies.
• Thus, A is in breach of warranty of authority.
• Even if A act in good faith – Yonge v Toynbee [1910] 1
KB 215.
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Authority

Actual Ostensible
/ apparent

Express Implied
Estoppel

Orally
In order to
ensure that
In writing
the A can do
his work
effectively
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AUTHORITY OF THE AGENT

• Actual authority: conferred upon the agent by
agreement. It comprises:
• Authority expressly given by the principal to agent
orally or in writing
• Authority implied from the following
• express authority given
• the circumstances of the case
• the custom or trade usage
• the situation and conduct of the parties.
• Case on implied or usual authority: Watteau v
Fenwick / Panorama Development (Guilford) Ltd v
Fidelis Furnishing Fabrics Ltd
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AUTHORITY OF THE AGENT

• Apparent/Ostensible Authority
• May arise in two situations:
• Where a principal, by his word or conduct, leads a
third party to believe that his agent has authority to
make contracts for him (s190 Contracts Act 1950)
• Where the agent previously had authority to act,
but that authority was terminated by the principal
without notice to third parties.
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APPARENT/OSTENSIBLE AUTHORITY

APPARENT AUTHORITY
If appearance of
authority induces TP
to enter into a
contract - P is liable
to TP but may take
action against agent

ACTUAL
AUTHORITY

The authority agreed to by P & Agent. P:

• Bound by actions of Agent.
• Can not take action against Agent .
Authority may be express or implied.
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AUTHORITY OF THE AGENT

• Apparent/Ostensible Authority
• The agent is presumed to have the authority that the principal
causes him to appear to have, the element of estoppel applies as
the principal is precluded from denying that the agent had such
authority.
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AUTHORITY OF THE AGENT

• Case on apparent authority: Graphic Lines Pte Ltd v

Chai Chee Mein & Ors
• The distinction between implied actual authority and
apparent authority is that the former is based on
inferences drawn from an agreement between
principal and agent whereas the latter is based on a
representation made by a principal to the third party
irrespective of any agreement between principal and
agent.
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Soanes v London & SW Rly Co

CONTRACT

CY
EN
AG
LU OFF DUTY
PO GGA UNIFORMED
RT GE
ER H
WH AND PORTER - HELD
O E
IT ST D TO OUT AS HAVING
EA
LS AUTHORITY TO
ACT ON BEHALF
OF RAILWAY CO.
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TOOTH v LAWS

FACTS: Laws was the licensee of a hotel and

although he had sold the business he allowed
his name to continue to appear over the hotel
door. Laws was sued for the price of liquor
supplied to the hotel.
HELD: Laws was liable as he had held himself
out to be the licensee of the hotel and those
who actually owned the business were
deemed to be his agents by estoppel. (He was
estopped from denying the existence of an
agency relationship).
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Freeman & Lockyer v Buckhurst Park

Properties Ltd.

THREE CONDITIONS MUST BE SATISFIED FOR P TO BE

BOUND BY AN AGENT LACKING ACTUAL AUTHORITY:

• A HOLDING OUT (‘REPRESENTATION’) THAT THE AGENT

HAD AUTHORITY TO ACT FOR P MUST HAVE BEEN
MADE

• ACTUAL
REPRESENTATION MADE BY PERSON WHO HAD
AUTHORITY TO DO SO

• THIRD PARTY INDUCED TO ENTER INTO CONTRACT BY

REPRESENTATION (‘ENTERS INTO CONTRACT IN
RELIANCE ON REPRESENTATION’)
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NOTE: Ostensible authority

cannot exist were the Third-
party knew or ought to have
known the the agent had no
actual authority.
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OVERBROOKE ESTATES v GLENCOMBE

PROPERTIES

FACTS: OE appointed auctioneers to act on its

behalf. Catalogue clearly stated that
auctioneers were not authorised to make or
give any representation in relation to property
being sold. Auctioneers falsely stated that
local Council had no plans to compulsorily
acquire the property. GP stopped payment on
cheque.
HELD: GP knew that auctioneers had no
authority to make statement and was
therefore liable.
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Agent’s Duties

Follow P’s Render Pay sums Cannot

instructions proper received on disclose
(s164) accounts behalf of P confidential
(s166) (s171) information
Exercise
Communicate Avoid
proper care, Not to
with P (s167) conflict of
skill and delegate
diligence interest
(s165) (s169)
• Presumed
• Trade custom
Cannot • Nature of trade
make • Necessity
secret • Ministerial
profit
(s168)

Repudiate Recover Refuse to Dismiss Sue A and

contract with 3rd secret profit pay A 3rd P for
Party commission damages
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NO CONFLICT OF INTERESTS

McPHERSON v WATT

FACTS: A. SOLD P’s PROPERTY TO HIS BROTHER. IN FACT

THIS SALE COVERED UP A SALE TO A. HIMSELF

HELD: A. HAD ALLOWED A CONFLICT OF INTEREST TO ARISE

BETWEEN HIS INTERESTS AND THOSE OF P - THE SALE
SHOULD BE SET ASIDE
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NO SECRET PROFITS

Regier v Campbell-Stuart

FACTS: P INSTRUCTED AGENT TO FIND HER PROPERTY OF A

CERTAIN DESCRIPTION. A. BOUGHT THE PROPERTY IN HIS
BROTHER'S NAME AND LATER SOLD THE PROPERTY TO P AT
A PROFIT.

HELD: A. MUST PAY SECRET PROFIT TO P

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AGENT’S RIGHTS AGAINST PRINCIPAL

Retain out of Claim Lien on P’s Claim

sums received remuneration property compensation
on P’s account when act is until money for injury due
for money due completed (s172 due to A is to P’s neglect
to him (s170 Contracts Act paid (s174 (s178
Contracts Act 1950) Contracts Act Contracts Act
1950) 1950) 1950)
But no such
right for
misconduct Indemnified
(s173 Contracts for lawful
Act 1950) acts done in
good faith
(ss175 & 176
Contracts Act
1950)
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P’S DUTIES TOWARDS THE AGENT

To pay commission or To indemnify and

other remuneration reimburse the agent

Not willfully prevent the

agent from his earning
commission
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PRINCIPAL’S RIGHTS AGAINST AGENT

Repudiate transaction if A deals Claim any benefit if A deals on his

on his own account (s168 own account (s169 Contracts Act
Contracts Act 1950) 1950)
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TERMINATION OF AGENCY

P revokes Completion P/A died or Mutual Event which

authority/ A of agency became agreement makes
renounces (s154 unsound by P and A agency
agency provided Contracts Act mind (s154 unlawful
reasonable 1950) Contracts Act
notice given 1950)
(s154 CA 1950)

P declared Time period

If not, can be
bankrupt fixed has
liable to the
(s154 expired
other party
Contracts
(s159 Contracts
Act 1950
Act 1950)
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