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LAW OF AGENCY (Part X of the Contracts Act 1950) Prepared by: Siti Nur Samawati Binti Ahmad
At the end of this chapter, students will be able to:
– – – – – Explain how an agency relationship is created. Explain the authority of an agent. Explain the agent’s duty to the principal. Explain the agent’s right against the principal. Explain the liabilities of principals and agents to third parties. – Describe the termination of agency.
• For e.g.Introduction • Agency is the relationship which subsists between the principal and agent.Principal is the person to whom such act is done or who is so represented.Agent is a person employed to do any act for another in dealing with third person – S. . The seller of the goods is called as third person. If Ali appoints Muthu to buy some goods on his behalf. Ali is called the principal while Muthu is his agent.135 CA. – S.135 CA.
e. – Third party • Thus in agency. exist two contracts i. – the principal who passes the authority to act to the agent and – the agent who in turn with this authority affects the legal relations of the principal with a third party.Parties to Agency • The creation of agency involves three parties. between principal & agent and between principal and third person .
Two examples are cohabitation (husband & wife) and the holding either by words or conduct that another person has the authority to act for him. Section 139 CA – Creation by express appointment. .that is created by the authorization by the client given to the solicitor to act on his behalf. – Creation by implied appointment. S.140 CA • It can be in writing or oral.CREATION OF AGENCY • Agency can be created by: • Expressed or implied. S. • An example express appointment made in writing is a Power of Attorney.140 CA • may be implied from the conduct of the parties.
Good were supplied to Yong but were not paid for. were registered as partners. At a meeting with a representative of the respondent company.Example: • Illustration Section 140 • In a case of Chan Yin Tee v William Jack. A was liable for Yong Acts. the A held himself out to be Yong partners (impliedly). . the A and Yong a minor.
For e.Necessity or Emergency • An agency by necessity may be created if the following conditions are met. – the agent’s action is necessary to prevent loss to the principal. selling off perishable goods to prevent rotting and. Section142 CA. – the agent acted in good faith. – it is impossible for the agent to get the principal’s instruction. .Section 142 CA.g.
They did not communicate with P. The D decided to sell the tomatoes locally as they felt the tomatoes could not arrive Garden Market in a saleable condition. Some of the tomatoes were found to be bad. . Owing to bad weather. the bailee was liable for conversion because makes a sale where no urgency exist (Sale of Furniture). P was awarded with damages as D failed to communicate with P as he could have done so. the D agreed to carry P’s tomatoes from jersey to Covent Garden Market. • In Sachs v Miklos. the ship arrived late at Weymouth.Cases on Necessity • In Springer v Great Western Railway Company.
P later cannot deny that A is his agent if T sells goods to A. believing him to be P’s agent and later claim for the price. • Example: A tells T in the presence of P that A is P’s agent and P does not contradict this statement. is when a person who by conduct or words allows a third party to believe that the agent is acting on his behalf. is estopped or restrained from denying that the agent is working on his behalf. .Estopple • An agency by estoppel.
X can also reject the contract on 4 July since Y has exceeded his authority.000. then Y is said to be his agent through ratification. . the salesman delivered the car to X.000.Ratification • Creation of agency by ratification (the principal accepts & confirm the contract = the contract is binding). On 4 July. • Either an agent who was duly appointed has exceeded his authority or a person who has no authority to act for the principal has acted as if he has the authority. Y ordered a car costing RM 50. on 2 July. X appoints Y as his agent to buy a car not exceeding RM 40. telling the salesman that he was buying the car on X’s behalf. it dates back to the time when the original contract was made by the agent and not on the date of the principal’s ratification. If X adopts the contract on 4 July. Alternatively. – where the relationship of principal and agent is created retrospectively. one of two situations must exist. – For example. Before ratification can arise.
section 153. could not be ratified by the company since it did not exist at the time. – The ratification must not injure a third party’s right or interest. the principal’s ratification one week after the agent’s unauthorized purchase of eggs was held too late. Baxter. the principal was not liable for the act of an agent who did not profess to be an agent when he entered into the contract. Kingham and Sons. In Keighley Maxted v. a contract to buy a hotel by an agent on behalf of a company which was about to be formed. . at the time of the contract. In Metropolitan Asylum Board v.• A contract can only be ratified under the following conditions: – The act or contract must be authorized – The unauthorized act must be legal under the law – The agent must. have full knowledge of all material facts. Durant. In Kelner v.section 149. – The principal must ratify the whole act or contract – The ratification must be made within reasonable time. at the time of the ratification. when the contract is made. – The principal must have contractual capacity at the time of the contract – The principal must. – The principal must be in actual existence or capable of being ascertained. expressly act as agent for the principal. unless it can be proven that he intends to ratify the contract whatever the facts may be.
He can do all acts which a principal may personally do. – General agent.a general agent with extensive powers. .an agent who is employed to act on behalf of principal in particular goods or trade – Special agent.agent with limited power to do specific act or for specific purpose.KINDS OF AGENCY • According to authority are: – Universal agent.
the agent will be held liable – Factors. – Broker.an agent who is employed to sell goods at auctions.KINDS of AGENCY • According to functions are: – Del credere agents.a commercial agent who is entrusted with the goods of the principal for sale. He sells the god sin his own name without disclosing the principal’s identity.can either be an agent for customer or an employee as agent for banks.an agent who make contracts between his principal and third parties for a commission – Auctioneer. . – Bankers. If third party fails to perform.an agent who undertakes that a third party will perform his obligations.
In Keppel v Wheeler.section 164 – In the absence of instructions from the principal. the court held that the D liable to pay the differences between 1st offer and 2nd offer .A few days later a higher offer (2nd offer) was made by X but this does not communicated to P. The first offer was accepted by the P with a condition. to act accordingly.section 165.DUTIES OF AGENT to the PRINCIPALS • Duties of an agent to the principle (contained in section 164 to 178) are as follows: – To obey the principals instructions. the D was employed by the P to sell his house.section 164 – To exercise care and diligence in carrying out his work and to use such skill as he possesses.
• To render proper accounts when required. • To communicate with the principal.the agent must act solely for the benefit of his principal.section 166. In Wong Mun Wai v. the court found that the defendant failed in his duty as he sold the principal’s share of land below the market value and he sold the land to his own wife. Section 168 states that he cannot sell his own shares to the principal. – Illustration a) & b) of Section 168 . unless he has earlier informed the principal and obtained his consent.section 167 • Not to let his own interest conflict with his duty. Wong Tham Fatt.
Section 169.DUTIES OF AGENT to the PRINCIPALS • Not to make any secret profit out of the performance of his duty. . the agent is entitled to keep the profit. The P authorized the D as his agent to sell the flat for $45000. the P bought a flat from a company wc the D was the managing director. – Secret profits refer to a bribe such secret commission. – In Tan Kiong Hwa v Andrew. the court held that the P cannot recover the difference of $9000 as the D had breached his duty as an agent. When the principal knows of the extra profit and consents to it. The principal may in case of secret profit may • i) recover the amount of the bribe from the agent. the defendant sold the flat for 54000.section 168.
• ii) principal may refuse to pay agent commission. In a case of Mahesan v Malaysian Government Officers Cooperative . In a case of Andrew v Ramsay • iii) terminate the contract • iv) may sue the agent and the third party giving the bribes for damages for any loss he may sustained.
• Not to disclose confidential information or documents entrusted to him by his principal • Not to delegate his authority. . • To pay to his principal all sums received on his behalfsection 171.the relation between principal and agent is personal one and the agent cannot employ another person to do his duty.
section 145(2).Sub-Agents • Under section 144 where delegation of duties is authorized. . The principal cannot sue the sub-agent for monies received on the principal’s account and neither can the subagent claim remuneration from the principal. the person appointed to act on behalf and under the control of the agent is called a sub-agent. The agent is liable to the principal for the actions of the principal. The sub-agent is not under the principal’s control.
The main duties are as follows: • To pay agent the commission or other agreed remuneration unless the agency relationship is gratuitous • Not to willfully prevent or hinder the agent from earning his commission • To indemnify and reimburse the agents for acts done in the exercise of his duties. .Duties of PRINCIPAL to his AGENT • The duties of a principal to his agent are provided in sections 175 to 178.
but that authority was terminated by the principal without notice to the parties. by his word or conduct. .AR.KR. • Apparent authority may arise in two situations: whether a principal. the custom or usage of trade and. An agent’s act may be classified into actual and apparent authority.CT v.section 190 and. the court held that an agent who had authority to part with firm’s money had in the circumstances of that case.THE AUTHORITY OF AGENT • An agent’s act is binding on the principal if it is done within his authority. • Actual authority comes in the form of expressed authority is expressly given either orally or in writing. Implied authority may be assumed from the powers proper or necessary to execute the instructions. the situation and conduct of the parties. SV. In Firm of T. leads a third party to believe that his agent has authority to make contracts for him. Anything done in excess does not bind the principal unless he adopts or ratifies the unauthorized act. from the circumstances of the case. a necessary implied authority to receive repayment for the firm. where the agent previously had the authority to act.
where a third party is misled by the agent’s misrepresentation of authority. In Yonge v.section 180. however innocent. Where an agent acts in excess of his authority and that part which is excess of authority is separable from the rest. But if the acts are inseparable. An agent is not liable if his lack of authority is known to the third party or if he expressly disclaims authority or if the contract excludes his liability. the agent is personally liable.BREACH OF WARRANTY OF AUTHORITY • An agent who acts outside his authority or a person who acts as if he has the authority to act as an agent for another person is liable for breach of warranty of authority.181. Toynbee. then the principal is bound by those action within the agent’s authority but not the rest. In other words. But this does not affect the right of the third party to claim against the agent for breach of warranty of authority. the agents were held liable for damages even though they had acted in good faith. the whole transaction is not binding on the principal. .
– Where an agent signs in his own name without making it clear that he is signing it only as an agent. unless he has a Power of Attorney. It is the principal alone who can sue and be sued by the third party provided the agent acted within his authority in making the contract.section 179. – Where an agent exceeds his authority and the principal has not ratified the contract.section 183. – Where an agent executes a deed in his own name. he is personally liable.EFFECTS OF CONTRACTS MADE BY AGENTS • • • Where an agent contracts as an agent for a named principal. The agent incurs no right or liability under the contract. the relation of an agent lawfully exists. where he drops out and the principal is liable. However there are exceptions to this rule: – Where the agent agrees to accept personal liability or contracts in such a way to make himself personally liable. He drops out as soon as the contract is made. . – Where the custom of a trade makes the agent liable.
• Where an agent does not disclose the name of the principal. . This provision covers both situations where the agency is disclosed but not the name of the principal as well as the nondisclosure of the agency itself. the agent is presumed to be personally liable.section 183. The agent remains liable on the contract even after the discovery of the principal by the third party unless released by the latter.
.section 186. does not know that he is in fact an agent for someone. where it was held that the principal might nevertheless reveal himself as the true charterer of the vessel despite the fact that the contract between the agent and the third party described the agent as the’charterer’. The agent can be held personally liable simply because the third party. he has the right to sue either the agent or principal or both of them. By section 186(a) an undisclosed principal may ‘require the performance of the contract’ by the third party even though the latter neither knows nor suspects that there is a principal. In Pernas Trading Sdn Bhd v. the respondents denied liability on the ground that they were ordered for another party.• • Where the third party has no knowledge or reason to suspect that the person he is dealing with is acting as an agent. Persatuan Peladang Bakti Melaka. chemicals and fertilizers appeared to have been ordered by the respondents for themselves rather than on behalf of a principal. The respondents were liable as they contracted in such a form to make themselves personally liable. When the appellants sued for the balance of the price. In the case of Drughorn. when dealing with them.
TERMINATION OF AGENCY • An agency may be terminated in the following manner: – By the act of the parties a.section 160. . Unilateral revocation or renunciation is mentioned in section 154. By the act of the parties: An agency may be terminated by mutual consent or by unilateral revocation by the principal or unilateral renunciation by the agent at any time by giving notice. Revocation and renunciation may be expressed or implied in the conduct of the parties.
section 154.section 154 and. lapse of time. by the happening of an event which renders the agency unlawful. by the death of either the principal or agent.Termination of Agency – By operation of law • By operation of law: An agency may be legally terminated by the completion of the task undertaken to be performed by the agent-section 154. by the subsequent insanity of either the principal or agent. by the bankruptcy or insolvency of the principal. .section 151.
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