LAW OF AGENCY

Introduction

Agency: it is the relationship which subsists between a principal and agent, where the agent has been
authorized to act for the principal or represent him in dealing with others/ 3 rd party.

Definition: section 135 contract act 1950

Agent: a person employed to do any act for another or to represent another in dealings with third
person

Principal: a person for whom such act is done, or who is so represented.

Qualification/ capacity:

Principal: section 136 (adult and sane)

Agent: Section 137 (anybody may become an agent, including a minor and an unsound person.
HOWEVER, the principal must be responsible and take the risk of their act.

Chan Yin Tee v William Jacks & Co (Malaya Ltd)

Chan and Yong (a minor) were partners in a business. Chan told William Jacks that Yong is his partner.
WJ supplied goods to Yong but received no payment. He brought an action against Chan (Principal).

Held: Chan was responsible to Yong’s act as he was his partner.

FORMATION/ CREATION OF AGENCY

1. By express appointment.

S.140 CA1950 ~ by word or by writing

2. By implied appointment

It can occur in 3 circumstances :

i) Implied from the circumstances of the case.

A person by words or conduct holds out another person as having authority to act for him.

Chan Yin Tee case

Held: Once Chan told WJ that Yong is his partner, it shows that Yong has the implied authority to act on
behalf of Chan.

ii.) Implied from the relationship between husband and wife.

It is implied that the wife has authority to pledge the husband’s credit in a contract on condition that the
contracts are for necessaries and suited to their condition and style of living. Therefore, impliedly the
wife is an agent to the husband.

However, the husband can rebut this implied authority by:

- He expressly forbid his wife from pledging his credit

- He expressly warned the tradesman not to supply his wife with goods or credit, or
- His wife was sufficiently provided with the goods of the kind in question, or
- His wife was given sufficient allowance for buying goods without having to pledge her husband’s
credit, or
- The contract was unreasonable, taking into consideration her husband’s income at that time

iii. Relationship between partners

Section 7 Partnership Act 1961

Each partner is an implied agent to the firm, when contracting in the course of the partnership business.

3. By ratification

‘ratification’= acceptance by the principal for an act done without authority or exceeding the authority
given.

Agency by ratification may arise in these 2 situations:

A person who has no authority to

Agent has exceeded his
or act for the principal has acted as if
authority
he has the authority

According to S.149 CA1950, if one of the above situations happened,

the principal can either reject or accept the contract by way of
ratification.
Conditions for ratification:

1. The act must be unauthorized. The contract done by the agent was without authority or exceeding
the authority.
2. the unauthorized act must be legal/ lawful.

Brook v Hook

The principal may not ratify a contract in which his signature had been forged by the unauthorized
agent.

3. the agent must act as an agent, not as principal. He must not contract in his own name.

Keighly Maxted & Co v Durant (appeal case)

An agent was authorized by the (principal) to buy wheat at a certain price. The agent exceeded his
authority & bought it at a higher price. However, the agent contracted in his own name. Held: the
principal (appellant) was not liable to Durant (3 rd party) because the principal could not ratify the
contract since the contract was made in the agent’s own name.

4. when the contract was made, the principal must actually exist.

Kellner v Baxter

Held: A contract to buy a hotel made by an agent on behalf of a company which was not registered/
formed could not be ratified by the company because the company (principal) did not exist at that time.

5. The principal must have contractual capacity

6. the principal must have all the material facts regarding the contract.

The principal must have full knowledge of all material facts at the time of ratification S. 151= including
the name of parties, time, subject matter etc.

Marsh v Joseph

A principal had ratified a contract without the full knowledge of all material facts. Held: the principal was
not bound to such contract.

7. The principal must ratify the whole contract. He cannot accept which is advantageous to him and
reject the rest.

8. Ratification must be made within a reasonable time.

Metropolitan Asylum Board v Kingham & Son

The agent contracted to buy eggs without the authority. The principal tried to ratify the contract 1 week
after it was made. HELD: the ratification was too late.

9. Ratification must not injure or affect the interest of a 3 rd person.

4. Agency by Necessity

A commercial agency of necessity occurs when a person is entrusted with another’s property and it
becomes necessary to do so.
Section 142. A person who has no authority, may become an agent due to necessity or emergency
circumstances, in order to protect the principal from any loss.

Great Northern Railway Co. v Swaffield

The railway company (pf) had been entrusted to deliver a horse of the D to a destination. However,
when it reached the destination, nobody came to take the horse. The Pf had to look after the horse and
took several actions in order to preserve the safety of the horse (put into the stable). Pf then claimed
from the Df the extra expenses incurred in preserving the interest of the Df. However the Df refused to
pay on the ground that the Pf was not authorized to do so.

Held: The Pf was an agent by necessity and therefore entitled to the claim.

Condition for agency by necessity:

1. There must be a real and actual emergency.

Phelps James & Co v Hill

Held: What is meant by ‘emergency’ must be referred to the reasonable situations by looking into the
dangerousity, facilities available, cost, time distance etc.

2. The agent was entrusted with the principal’s property/ goods. (Jebarra v Ottoman Bank)

3. Impossible to get the principal’s instructions.

Springer v Great Western Railway Co.

The D agreed to carry the P’s tomatoes from Jersey to Covent Garden market. Owing to bad weather,
the ship arrived late at Weymouth. Meanwhile, the D’s workers were on strike. Therefore the tomatoes
were found to be in bad condition. The D decided to sell the tomatoes at Weymouth because the D felt
that the tomatoes could not arrive at the Covent Garden market in saleable condition. P claim for
damages. Held: The P was entitled to damages because the D were not agents by necessity because they
have failed to communicate with the P when they could have done so.

5. AGENCY BY ESTOPPEL

How it may happen?

Section 190

-it happens when the principal allows a third party to believe that a person is the agent of the principal.

- the principal can make the third party to believe so through his words or conducts.

-when this happens, the principal is stopped from refusing to accept that person is his agent.

Freeman & Lockyer v Buckhurst Park Properties Ltd

There were 4 directors in a company. One of them, A, contracted on behalf of the company with T (3 rd
party) without any authority. The other directors knew about the contract but did not inform T that A
actually had no authority to enter into a contract on behalf of the company.

Held: The company is estopped from denying that A is the company’s agent and from denying that A had
the authority to act on behalf of the company.

AUTHORITY OF AGENT

2 types. i. actual

ii. apparent/ ostensible

1. Actual Authority

It is given by agreement

a) expressly given, either by oral or writing

b) Impliedly

- look at the circumstances of the case.

Eg: P appoints A to sell his car and entrusts him with possession of it. A, by implication has the authority
to allow potential buyers to drive the car for the purpose of testing it.

- Custom or usage of trade

- situation and conduct of parties.

Chan Yin Tee v William Jacks

Held: The conduct of Chan telling WJ that Yong is his partner showed that Young has implied authority
to act on behalf of Chan in buying goods for the business.

2. Apparent/ Ostensible authority (given by law)

TWO circumstances:

i. where a principal by his words or conducts, leads a third party to believe that his agent has authority
to make contracts for him.

ii. where the agent previously had authority to act, but that authority was terminated by the principal
without notice to 3rd party.

Eg: P gave authority to A to buy goods not more than RM3000. When they went to the shop, A bought
goods RM4000. P has no objection. 3rd party believes agent has authority. P is liable.

DUTIES OF AN AGENT TO HIS PRINCIPAL

1. To obey the principal’s instruction

(Section 164)

If agent fails to follow, he will be liable for breach of contract and he will be liable for the loss.

Turpin v Bilton

The agent has been instructed by the principal to get the insurance for his vessel. However the agent
failed to do so. The vessel lost and as a result the principal has to bear some loss.

Held: The agent is liable for breach of duty, due to his failure to obey the principal’s instruction. The
agent is liable to pay compensation for the loss.

However, the agent does not have to obey instructions that are against the law.

2. To act according to custom, when the instruction are not given.

Illustration (b) to section 164:

“B a broker, in whose business it is not the custom to sell on credit, sells goods of A on credit to C,
whose credit at the time was very high. C, before payment, becomes insolvent. B must make good the
loss to A.

3. To exercise care, skill and diligence. (S.165)

If the agent is employed for his professional service, he must use all his skills & expertise as usually
required from a same professional man.

Keppel v Wheeler.

D (agent) was employed to sell the P’s (principal) house. An offer was received and accepted be the P’s
‘subject to contract’. A few days later a higher offer for the same house was made by X, but this offer
was not communicated to the P by the D. Then a written contract between the P and the 1 st offeror was
duly signed.

Held: The D was liable to the P for the difference between the two offers.

4. To render proper accounts when required by the principal. (Section 166)

Lyell v Kennedy

Held: An agent who has been entrusted with the principal’s money/ property is bound to keep the
money/ property separately from his own property.

5. To pay to his principal all sums received on behalf of the principal. (s.171)

Whatever amount received on behalf of the principal, must be paid to the principal. However this
subject to s.170, where the agent is entitled to deduct any sum from the principal’s money for the
payment made during the works done as an agent.

6. To communicate with the principal.

S.167 – in case of difficulty, to use all reasonable diligence in communicating with his principal and
obtain instruction.

If communication is impossible- agent may use his own discretion to safeguard the interest of the
principal. Section 142.

7. Must act in good faith/ bona fide and no conflict of interest.

Wong Mun Wai v Wong Tham Fatt.

Held: The D had breached his duty as agent to the P on 2 reasons:

1. He sold the P’s share of land below the market price.

2. He failed to inform the P that he had sold it to his wife.

The D is under a duty to act in good faith in protecting the interest of the P and could not use his
position as agent to gain profit at the P’s expense .

8. Not to make any secret profit out of the performance of his duty.

Secret profit: Bribe, secret commission, any financial advantage.

Remedies available to the principal:

i) repudiate the contract which was made on his behalf by the agent. (s.168)

ii). Recover the amount from the agent. (s.169)

Tan Kiong Hwa v Andrew S.H Chong

Principal bought a flat house from a company. The D (agent) was a director of that company. P ordered
the D to resell the flat house at the price of RM45,000. However the D managed to sell it at RM54,000
and the extra RM9000 was credited into the company’s account.

Held: The P is entitled to claim the extra Rm9000 from the D who has breached the duty of an agent .

iii) If the principal knows about it and consent to it , the agent can keep the profit.

iv) the principal may refuse to pay commission or remuneration to the agent.

Andrew v Ramsay and Co.

The P appoints the D as his agent to sell his property. The P agreed to give the agent 50 pound as a
commission. The agent sold the property to a purchaser and received 100 pound as deposit of the
property. The agent gave 50 pound to the principal and with the consent of the principal, kept as the
commission due to him.

Principal later found out that the purchaser has also gave 20 pound to the agent as a commission.

Principal then sue the agent to recover the 20 pound commission given by the purchaser and 50 pound
commission he has given to the agent.

Held: The principal can recover both the sums.

v) Principal may dismiss the agent on the ground of breach of duty.

vi) the principal may sue both the agent & third party who gave the bribe and may claim damages.

Case: Mahesan v Malaysian Govt. Officers Coop Housing Society.

9. Not to disclose confidential information or document entrusted to him by his principal.

10. Not to delegate his authority

‘delegates non potest delagare’ = a delegate cannot delegate.

Exceptions:

a) where the principal approves of the delegation.

De Bussche v Alt

The principal appoints an agent in China to sell the ship at a certain price. The agent cannot sell it and
ask the principal whether he can appoint a sub agent to sell the ship in Japan. The principal approves
this arrangement. Held: the agent did not breach his duty because the sub agent was appointed after
getting the consent from the principal.

b.) where it is presumed from the conduct of the parties that the agent have power to delegate his
authority.

c.) where the customs of the trade or business permits delegations.

d.) where the nature is such that delegation is necessary to complete the business.

e.) in case of necessity or unforeseen emergency eg: illness of agent.

f.) where the act to be done is purely ministerial or clerical and does not involve the exercise of
discretion.

Duties of Principal to His Agent.

Section 175 - S 178

1. To pay commission or remuneration as agreed in the contract.

If agent guilty of misconduct (S.173), he will loses his right to remuneration.

What is misconduct?

Misconduct refers to wrongful or improper conduct which results in a wrongful gain to the agent or a
wrongful loss to the principal.

2. Not to willfully prevent or hinder the agent from earning his commission eg: a principal cannot
employ a second agent in the midst of negotiations to deprive the original agent of his commission.

3. To indemnify and reimburse the agent for lawful acts done in the exercise of his duties (S.175)
Hichens, Harrison, Woolston & Co. v Jackson & Sons.

Held: The agent is entitled to damages for anything incurred in the performance of his duties and to be
reimbursed for whatever the agent had advanced or lost.

Types of Principal

I.) Named Principal

 One whose name has been disclosed to the third party by the agent.
 3rd party knows the name and the identity of the principal (identity known)

2.) Disclosed Principal

 One whose existence is disclosed to the third party but the identity is unknown.
 3rd party knows that A is contracting as an agent but does not know the name of the principal
(identity known)

3.) Undisclosed Principal

 One whose existence as well as identity is not known to the third party.
 3rd party thought he is contracting with the agent personally. After the contract has been
concluded, he knew that the person he is dealing with was actually acting on behalf of the
principal.

Types of Agency

Agency can be classified according to:

a) the extent of their authority.

b.) their function

a) the extent of their authority

i.) Universal Agent

 A general agent with extensive power. He can do all act which a principal may personally do. The
appointment need a formal form of a Power of Attorney.

ii) General Agent

 An agent who is employed to act on behalf of his principal relating to a particular trade or
business. The agent has power to do all usual in the ordinary course of principal’s business.

iii) Special Agent

 An agent appointed to do a specific act or for a specific purpose and his authority is limited to
that act or purpose.
b) Their function

 Del credere agents

 Factors ~ a commercial agent, sells goods in his own name.
 Brokers
 Auctioneers
 Bankers~ agent for customer.


TERMINATION OF AGENCY
Agency may be terminated by:

1. Act of parties

2. Operation of law

1. Termination by the act of parties.

Can be done in THREE ways:

a) by mutual consent between them.

b) by unilateral revocation/ termination by the principal

c) by unilateral renunciation by the agent.

 The agent must give a reasonable notice to the principal, otherwise the principal is entitled to
damages.
 The renunciation may be express or implied. S.160

Unilateral revocation

S. 154 “ an agency may be terminated by the principal revoking his authority”

S. 156 “ the principal may revoke the agent’s authority at any time before the agent has exercised the
authority.

S. 158 “compensation must be given to an agent who has been terminated without reasonable notice”

S. 159 “ in order to revoke the agent’s authority, the principal must give a reasonable notice to the
agent. Otherwise the agent is entitled to damages.

What would be reasonable notice depends on the facts and circumstances of each case.

Sohrabji v Oriental Security Assurance Co.

Held: 3 ½ months notice was not adequate to properly terminate an agency which has lasted nearly 50
years. In this circumstance, two years notice would have been reasonable notice.
Power to revoke agent’s authority by the principal is limited in certain circumstances:

1. Section 155, an agency cannot be terminated where the agent has himself an interest in the property
which forms the subject matter of the agency.

Section 155 illustration (a)=

A gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the debts due to him from
A. A cannot revoke his authority.

Smart v Sander

An agent who holds goods of his principal had made advances on the security of the goods. Held:
Agency could not be terminated until the advances were paid.

2. Section 157, the principal cannot revoke the agent’s authority after the authority has been partly
exercised.

Read v Anderson

A principal instructed a turf commission agent to place bets on his behalf. The agent placed the bets and
lost. By custom, a turf commission agent always bets in his own name and becomes solely responsible to
person with whom the bet is made. If he failed to pay a lost bet, he is subject to certain qualification,
which will have a serious impact on is business.

Held: The principal could not revoke the turf commission agent’s authority after losing the bet. The
principal would have to indemnify the agent for the amount, which the agent had paid to the person
with whom he made the bet.

3. section 161 – termination of the authority of an agent s effective if it becomes known to the agent
and the third party.

Pichappa Chitty v Hj Jah.

Held: The Plaintiiff (3rd party) who advanced money to an agent whose authority had been revoked
without agent’s knowledge, was entitled to recover the money from the principal.

Trueman v Loder

It was held that a third party who dealt with an agent whose authority had been revoked was able to
claim from the principal for goods supplied. This is because the agent had no notice of the revocation.

2. by operation of law

This may occur in the following circumstances:

1. By performance of the contract of agency. (section 154)

2. By the expiration of time of agency.

3. By death of either the principal or the agent. (Section 154)

Section 161 – termination of agency on death of the principal is only effective when the agent and third
party has notice of the principal’s death.

4. By insanity of either the principal or the agent. (section 154)

5. By the happening pf an event which renders the agency unlawful. Doctrine of frustration. Eg:
accident, fire, amendment of law.

6. By bankruptcy of the principal. Section 154. There is no provision in respect of bankruptcy of an agent.
However, in the case of Beckham v Drake, the court held that the agency will be terminated if the agent
was declared bankrupt.