LAW OF AGENCY

PRINCIPAL TRIANGULAR
AGENT RELATIONSHIP
BETWEEN
3rd PARTY
PARTIES
TABLE OF CONTENTS
01 Nature & Creation of Agency

02 Duties of an Agent to his Principal

03 Duties of Principal to his Agent

04 Authority of Agent

05 Termination of Agency Contract

 WHAT IS AN AGENCY?
 Sec. 135 of Contract Act:

“  Agency is the relationship which subsists between the principal and the
agent who has been authorized to act for him or represent him in dealings
with others.

 The person for whom such act is done, or who is so represented, is

called the “principal”.
 It is a contract in which one person (the principal) appoints another per-
“
son (the agent) to act on his behalf in effecting a legal transaction.

e.g. Ahmad appoints Man to sign the agreement on his behalf.

Ahmad is the principal, Man is the agent.
 Agent- is the one who has legal authority to act for prin-
cipal.

 Principal- is the one who give authority to agent to act

on behalf of him in dealing with 3rd party

Principal Agent 3rd party

Hotel Hilton Agoda Me (customer)

E.g
Insurance
Prudential The Client
Agent
Who can become a principal or agent?
Sec. 136 CA

 Any person who is 18 years old and above and who is of

sound mind may be a principal.

 As between the principal and third persons, any person

may become an agent,

 but persons of unsound mind and who are below 18 years

are not liable towards their principal for acts done by them
as agents.
 Thus in agency there are in effect two contracts:-

• i. the first made between the principal and the agent from which the
agent derives his authority to act for and on behalf of the principal; and

• ii. the second, made between the principal and the third party through
the work of the agent.
 1. CREATION OF AGENCY

Consent of both parties “No consideration

is necessary to
Consideration is not
necessary (section 138):
create an agency.”
 1. CREATION OF AGENCY
Agency can be created through:-

01 Express appointment 04 Necessity

02 Implied appointment by 05 Estoppel

principal

03 Ratification by principal
 I) EXPRESS APPOINTMENT

“  This happens when the principal expressly appoints a person to

be his agent. This can be done in 2 ways:

a) oral
b) in writing
“

E.g: Abu: “Ahmad, I want you to be my agent”.

II) IMPLIED APPOINTMENT

 This happens when a person, by his word or conduct

holds out another person as having authority to act for
him.

 E.g: If he allows another person to order goods on his

behalf and habitually pays for them, an agency may be
implied.
 E.g: A always ask B to order for him books from C.
 When C delivers the goods, A will pay for the goods.
Here, B is impliedly appointed as agent for A.
II) IMPLIED APPOINTMENT
 It may occur in following situations:
 Implied from the circumstances of the case or habit: By
words, conduct, regular conduct of the business be-
tween the parties
 Refer section 140 + Illustration
 “…An authority is said to be implied when it is to be in-
ferred (disimpulkan) from the circumstances of the
case; and things spoken or written, or the ordinary
course of dealing, may be accounted circumstances of
the case.”
III) RATIFICATION (APPROVAL)

Agency by ratification can happen only if it falls under these 2

situations:-

2. A person who has no

1. Agent who has been
authority to act for the
appointed but has ex-
principal but he acted as
ceeded his authority
if he has the authority to
when he entered into a
enter into a contract with
contract with a third party.
third party.
 According to Section 149 of Contract Act, if either one of
two situation happen, the principal has two choices i.e:
reject the contract or accept the contract.

 When he accept the contract, it is known as ‘ratification’.

 Condition of a valid ratification:

1) The contract done by agent

2) The contract recognized by 3) Agent acted as agent for the
was without authority or ex-
law. principal not in his own name
ceeding authority.

4) The principal must actually

5) The principal must have 6)The principal must have
exist when the contract was
contractual capacity-s 10, 11 knowledge of all material facts.
made.

8) Ratification must be made

within a reasonable time
Cases: 9) Ratification must not injure or
7) Principal must ratify the
1) Metropolitan Asylum affect the interest of a third per-
whole contract.
Board v Kingham & Sons son.
2) Grover & Grover v
Mathew
E.g. On 2/1/2011, A appointed B as his agent to buy a
car not exceeding RM100,000.

On 5/1/2011, B went to Honda Motors and ordered a

car that costs RM135,000, telling Honda Motor’s
salesman that he was buying the car on behalf of A.

On 12/1/2011, Honda Motors delivers the car to A.

If A confirms and adopts the contract on 12/1/2011,

then B is said to be an agent through ratification.

A can also reject the contract since B had exceeded

his authority.
 IV) AGENCY BY NECESSITY

“  Sec.142 - a person may become an agent although he was not appointed.

When this situation happen, that person is known as agent by necessity. If
an agent fail to communicate with principal, the agent can use his own
discretion to take the necessary steps.

 Sec.167 - it is a duty of an agent in the case of emergency to communicate

“
with principal to get some instructions.
 IV) AGENCY BY NECESSITY

“
 section 142+ Illustration
 a person who has no authority , may become an agent due to the necessity
or emergency circumstances, in order to protect the principal from any loss
 ILLUSTRATIONS
 (a) An agent for sale may have goods repaired if it be necessary.
 (b) A consigns provisions (bekalan) to B at Taiping, with directions to send
them immediately to C at Parit Buntar. B may sell the provisions at Taiping,
“
if they will not bear the journey to Parit Buntar without spoiling.
 There must be a real and actual emergency : Sachs v Miklos
1
Therefore, an
agency by It is impossible to get the principal’s instructions. Springer v
2 Great Easter Railway
necessity can be
created by The agent’s action is necessary to prevent loss to the principal.
fulfilling these 3 3 This happen when the principal put the agent to be in charge
of the goods: Jebarra v Ottoman Bank
conditions:-
The agent had acted in a good faith. And to the best interest of the
4 principal
Sachs v
Miklos The defendant had agreed to store the plaintiff's fur-
niture free of charge. After a considerable time the
plaintiff had not reclaimed the furniture and, since the
defendant wished to rent out the room where it was
stored, the defendant attempted to contact the plain-
tiff. Despite numerous attempts to make contact, the
defendant could not find the plaintiff and so he sold
the furniture.

The plaintiff then returned to claim his furniture

and, when he discovered that it had been sold,
he sued the defendant in conversion. The de-
fendant argued that he was an agent of neces-
sity but the Court of Appeal held that this had
not been established, simply because there
was no need for the furniture to be sold.
Springer v
Great
Easter
Railway
The plaintiff instructed the defendant railway company to
transport from Channel Island to London by ship to
Weymouth and by train to London. Due to bad weather
and subsequent strike by railway workers, the off loading
of the tomatoes delayed.
Worried that the tomatoes would go bad, the defendant
railway company sold the commodity without communi-
cating with the plaintiff as they would have done. .

The court held that for there to be an agency of

necessity, it must have been practically impossible
for the agent to obtain the owner’s instructions as
to what should be done. In this case, the df should
have obtained instructions from the pf before sell-
ing the tomatoes. There was no agency of neces-
sity in this case since communication was not im-
possible.
Jebarra v Ot-
toman Bank

Held: agency by necessity

only exists if the agent is
entrusted with the goods
to certain destination and
where at the time emer-
gency occurred while the
goods are under the re-
sponsibility of the agent.
 V) AGENCY BY ESTOPPEL

(1) It happens (3) When this

when the princi- happen, the
pal allows a third principal is
party to believe
that a person is Section 190 estopped from
refusing to accept
the agent of the that a person is
principal. his agent.

(2) The principal

can make a third
party to believe
so through his
conduct or word.
E.g. You (agent) tell Ali
(third party), in the
presence of Mina (prin-
cipal) that you are
Mina’s agent and Mina
does not deny this
statement.

Mina cannot later on

refuse to accept you as
her agent if Ali sells
goods to you believing
you to be her agent
and later claims price
from Mina.
2. DUTIES OF AN
AGENT TO HIS
PRINCIPAL
 The duties of an agent are governed by S164-178 Contract Act. Their
duties are:-

1. To obey the principal’s instruction: Sec 164

An agent must follow the instruction of the

principal.

If agent does not follow, it is a breach of

agency contract.
 To obey the principal’s instruction: Sec 164

The agent must bear any loss suffered by the prin-

cipal due to the agent’s disobedience.

An agent has to follow the instruction as long as it

is lawful.
Eg: The principal (A) instructed his agent
B had breached agent’s duty to obey the
(B) to sell his painting for RM100,000.00.
principal’s instruction. B is liable to bear
However, B sold A’s painting for
the loss of RM40,000.00 suffered by his
RN60,000.00. Here, B had breached Sec-
principal,A.
tion 164 of Contract Act
2. To act according to custom: Sec 164
When the principal
does not give any in-
struction, agent has to
act according to normal
standard in doing a
business.

3. To exercise care, skill and diligence: Sec 165

Agent must make sure

Agent must use his
that when he is acting
skill and exercise dili-
on behalf of the princi-
gence for the interest of
pal, it is important for
his principal.
him to be careful.
Keppel v Wheeler (1927) 1 KB 577

Court held: that the agent

was liable because he
must use his skill and
care for the benefit of his
Later, another offer was
principal. Since agents
made by B, but this time
failed to do so, he was li-
the offer is higher than the
able to pay the principal
first offer made by A. The
Fact: The Defendant was the difference between
agent did not inform the
an agent for Plaintiff. The the two offers.
principal about B’s offer.
agent was asked by the
Principal signed a con-
Plaintiff to sell a house.
tract with A. Principal took
One offer was made by A
an action against Agent.
through an agent and was
accepted by the principal
subject to a condition.
4. To render proper accounts when required by the
principal: Sec 166

The agent must give all account for all monies

and property that he is in charge when the
principal asked for it.
The principal’s property should not be mixed
up with the agent’s own property
Lyell v. Kennedy
5. To pay the principal all sums received on
behalf of the principal: Sec 171

Agent must give the principal the money he received on

behalf of the principal.

Agent may however, before giving all the monies

deduct the followings:-

(i) advances paid by the agent first, on behalf of the principal;

(ii) agent’s commissions;

(iii) agent’s remuneration (salary)

6. To communicate with the principal :Sec 167

Agent must try his best

to communicate with
the principal.

He must use all his

skill and diligence in
giving any information
to or getting any in-
struction from the prin-
cipal.

In the situation where it

is impossible e.g in
cases of emergencies,
the agent must use
his discretion to the
best interest of the
principal
7. Agent must not let his own interest to conflict with his duty.
Conflict of interest
 Agent must carry out duty for the interest of his principal. Agent must
not allow his interest to go against the interest of his principal.

Wong Mun Wai v Wong Tham Fatt and anor (1987) 2 MLJ 249

The Agent (Df) sold the principal’s (Pt) land below market value to his (Df) wife.

Held:
i) He sold the Plaintiff’s The
land agent
below thehas failed in ii)
market hisHe
duty
soldon two
it to hisgrounds:-
wife without telling it to the prin-
price, and cipal.

The court gave his decision based on the fact that the agent had a duty to act in a good faith to pro-
tect the interest of his principal and must not do any thing that would be conflicting with the interest
of the principal.
8. Not to make any secret profit out of the performance of his duty.

- Any financial ad-

vantage the agent
- This includes bribe
received by a third
or payment of a se-
party on top of
cret commission by
commission or
a third party to the
salary that has been
agent.
agreed by the agent
and principal.
8. Not to make any secret profit out of the performance of his duty.

- If there is a secret profit, these actions may be taken by

the principal. They are:-

• i) If the principal knows about it, and consent to it, the

agent can keep the profit. (Sec. 168)
• ii) If the principal does not like it, the principal may repu-
diate the contract that has been entered by the agent on
his behalf. (Sec. 168)
• iii) Principal may recover the secret profit from the agent
(Sec. 169)
8. Not to make any secret profit out of the performance of his duty.

Tan Kiong Hwa v

Andrew S.H
Chong (1974)
Pt (principal) bought a flat from the
Df’s company. Plaintiff then authorized
the Df as agent to sell his flat for
RM45,000.00.

However, Df sold the flat for

RM54,000.00. The difference of RM9000
was kept by the Df’s company.

Held: The Pt has the right to

recover the RM9000 (secret
profit) because the Df has
breached his duty as an agent.
 Andrew v Ramsay and Co (1903) 2KB 635
• The Plaintiff appoints the Defendant as his agent to sell
his property. The Plaintiff agreed to give the agent 50
pound as a commission.

• The agent sold the property to a purchaser and received

iv) The principal
100 pound as deposit of the property. The agent gave 50
may refuse to pound to the principal and with the consent of the principal
pay commission kept 50 pound as the commission due to him.
or remuneration
to the agent.
• Principal later found out that the purchaser has also gave
(Sec.173) if the
20 pound to the agent as a commission.
agent is guilty of
any misconduct
• Principal then sue the agent to recover the 20 pound
commission given by the purchaser and 50 pound com-
mission he has given to the agent.

• The court held that the principal can recover both the
sums.
v) The principal may dismiss the agent on the
ground of breach of duty.

vii) Principal may sue the agent and third party for
damages for any loss he had suffered.
9. Not to disclose confidential information or
documents entrusted to him by his principal.

Not to inform other parties about any information

or disclose documents entrusted to him by his
principal.
10. Not to delegate his authority (MEANS an agent cannot
employ others to do his job)

- Agent must not

- The relationship - Therefore, the
ask another person
between the princi- agent cannot shift
to perform his duty.
pal and the agent is the authority by
The agent must
personal where the employing another
perform the duty
principal has put his person to act on his
asked by the prin-
trust on the agent. behalf.
cipal on his own.
  However, there are exceptions to this rule.

 An agent may delegate his authority to another in the following circumstances:-

Where it is presumed from

the conduct of the parties that
Where the principal approves
the delegation of the agent would have power
authority A B to delegate his authority.

C D In case of necessity or un-

Where custom of the trade or forseen emergency eg: ill-
business permits ness of agent
delegation.
 Held: It was right
for the agent to do
so as he had al-
ready gotten the
The principal ap- principal’s express
pointed an agent in approval.
China to sell a ship
at certain price.
However, the agent
was unable to sell
De Bussche v the ship in China,
Alt (1878) so he sought the
principal’s approval
to appoint sub
agent to sell the
ship in Japan.
3. DUTIES OF PRINCIPAL
TO HIS AGENT
(Section 175-Section 178)
1) To pay commission or remuneration to the agent

The principal has The agent will lose

to pay the agent his right to remu-
his commission neration if the
agent is guilty of
or remuneration misconduct in the
as agreed in the business of
contract between agency. (Section
them. 173)
2) Not to willfully prevent or hinder the agent from earning his commis-
sion

When a principal has

appointed a person to be
his agent, he cannot em-
ploy a second agent to
do the same act as the
first agent.

This is to protect the first

agent from not getting
the commission that has
been promised to him
by the principal.
3) To indemnify and reimburse the agent
for acts done in the exercise of his duty

Sec 175 -176

The principal has the

duty to indemnify the
agent for all losses and
liabilities that the agent
incurred while he per-
forms his duty.

45
4. AUTHORITY OF AGENT

The agent’s action

binds the principal if it
is done within the au- If the agent acts outside
thority given by the of the authority given, the
principal. act will not bind the prin-
cipal unless the principal
ratifies it later.
 There are two types of authorities:

• Authority that is expressed to the agent by the principal through an agreement; writing or
orally.
• Authority impliedly expected from an agent
i) Actual
Authority :

• This authority is given by the law.

ii)This authority may arise under 2 situations:-

a) Sec.190- where a principal leads a third party to believe that his agent has the authority to
make contract for him. This can be done either by words or conduct of the principal. (Estoppel)

Ii) Appar- • If it is the person who says to a third party that he’s an agent to a principal without the knowl-
ent Author- edge or consent of the principal, than it is not an apparent authority.
ity/Osten-
sible Au- b) Where previously an agent had authority to act but the authority was terminated by the princi-
thority : pal and this was done without giving notice to the third parties.
5. TERMINATION OF AGENCY
(Section 154 to 163)

 An agency may be terminated in the following

situations:-

i) By act of the parties

ii) By operation of law
 I) TERMINATION BY ACT OF THE PAR-
TIES

a) An agency may be b) Termination by

terminated by mutual performance
consent or by uni- The contract of c) Termination upon
lateral revocation by agency comes to expiry of the period
the principal or uni- an end when the fixed in the contract
lateral renunciation agent has per- of Agency.
by the agent at any formed the con-
time by giving notice. tract.
 II) TERMINATION BY OPERATION OF LAW

An agency may be terminated by operation of law in any of the following

circumstances:-

1. Upon the death 2. When the prin- 3. The principal or

of the principal or cipal or agent be- agent became a 4. By frustration.
agent. came insane. bankrupt.

Stevenson v Aktienge-
An outbreak of war made It was held that the
sellschaf Fur Cartonna-
principal an enemy alien. agency was terminated.
gen Industrie [1918]
Thank you