Politeknik Sultan Azlan Shah

Irwandy Johari

CHAPTER 4
AGENCY

DPB30073 Business Law

Course Learning Outcome

Apply the concepts and principles of

business law in Malaysia in related
business activities
CHAPTER OUTLINE
What is agency
Define law of agency
a. principal
b. agent
Formation of agency
Formation of agency by way of express
appointment implied appointment, ratification,
necessity and estoppel
Types of agency
types of agency by function: broker, factor commission
agent, del credere and powers of attorney
Types of agency by authority: actual and apparent

Relationship between principals and agents

Apply rights and duties of an agent toward his principal
and rights and duties of a principal toward his agent
Termination of agency
Termination of agency by agreement, principal’s
revoking agent’s authority, agent’s renunciation and by
performance
 WHAT
IS AN
AGENCY?
 WHAT IS AN AGENCY?
The law of agency is mainly found in Part X
(Section 135-191 Contract Act 1950)

There is no definition of agency in the act but the

meaning can be derived as the relationship
which subsists between principal and agent

Thus, in an agency, there are in effect two

contracts, i.e. :

1. The first, made between the principal and agent

from which the agent derives his authority to act
for and on behalf of the principal

2. The second, made between the principal and the

third party through the work of the agent
WHO IS
PRINCIPAL & AGENT?
WHO IS PRINCIPAL & AGENT
Section 135 CA 1950
Principal
The person for whom such act is
done, or who is so represented,
Agent
A person employed to do any act
for another or to represent
another in dealings with third
persons
Formation
of
AGENCY
FORMATION OF AN AGENCY
Like any other contract, a contract of agency
can be expressed or implied from the
circumstances and the conduct of the parties

Generally, an agency may arise in the

following ways

1. By actual express authority

2. By actual implied authority
3. By usual authority
4. By ratification
5. By estoppel
6. By necessity
 Formation of
AGENCY

By usual authority
By ratification
By actual implied
authority By estoppel
By actual express
authority

By necessity
BY ACTUAL EXPRESS
AUTHORITY
BY ACTUAL EXPRESS AUTHORITY
According to Section 140, an agent may be
authorized and raised by mouth or word to sign
a contract.

the express terms mean it was specifically

mentioned and agreed by both parties during
the contract

The contract can be either in oral or in writing

form.

an example of an express appointment is

Power of Attorney which allows and authorizes
an agent to manage his principal affairs when
he is unable do so
BY ACTUAL IMPLIED
AUTHORITY
BY ACTUAL IMPLIED AUTHORITY
According to section 140, an authority is said to
be implied by way of the implied consent of the
principal and the agent

it refers to a situation where a principal appoints

an agent through implication or conduct, rather
than through explicit written or verbal
agreement.

In other words, the authority of the agent is not

expressly stated but is inferred from the actions
and circumstances.
BY ACTUAL IMPLIED AUTHORITY
For example, if a principal has consistently
allowed an agent to negotiate contracts on their
behalf and has not objected to these actions, it
may be inferred that the agent has implied
authority to continue doing so.

Agency also can be inferred from the following

circumstances:

1. By Section 7 Partnership Act 1961, partners are

accounted as each other’s agents when they are
getting into a business partnership contract, so
the authority of agency for one another exists
between business partners.
2. Between husband and wife
 CHAN YIN TEE V. WILLIAM
JACKS AND CO. (MALAYA) LTD
[1964]
Fact :Chan, the appellant held himself out as Yong’s
partner in a meeting with respondent company. Yong
was a minor and they were registered as business
partner in a business. Business was conducted between
Yong and respondent company, but the price for the
goods was not being paid. Because of this, the
respondent company sued Chan and Yong.
 CHAN YIN TEE V. WILLIAM
JACKS AND CO. (MALAYA) LTD
[1964]
Held:Court held that since Chan had held Yong as his
agent, who has authority to do things on his behalf, so
Chan was liable for Yong’s acts.
BY USUAL AUTHORITY
BY USUAL AUTHORITY

Created by the agent occupying a position

which would normally carry with it authority to
do an act of the kind in question
 WATTEAU V. FENWICK(1893)
Fact : Defendant owned a hotel-pub that employed
Humble to manage the establishment. Humble was the
exclusive face of the business; Humble’s name was on
the bar and the license of the pub. Defendant
explicitly instructed Humble not to make any
purchases outside of bottled ales and mineral waters,
but Humble still entered into an agreement with
Plaintiff for the purchase of cigars. Plaintiff
discovered that Defendant was the actual owner and
brought an action to collect from Defendant. The
issue is whether Defendant is liable for damages
resulting from an agreement between Plaintiff and
Humble, who is knowingly acting outside his actual
authority as an agent for Defendant.
 WATTEAU V. FENWICK(1893)

Held: Defendant is liable for damages. Humble was acting

with an authority that was inherently reasonable for an
agent in that position. The situation is similar to a
partnership wherein one partner is silent but is still liable
for the actions of the partnership as a whole.
BY RATIFICATION
BY RATIFICATION
creation of an agency by ratification is a legal
principle in contract law that allows for the
retrospective approval or adoption of an
unauthorized act performed by an individual
on behalf of another party (the principal) who
did not originally authorize or appoint them as
an agent.

When a principal later approves or ratifies the

act, it essentially creates an agency
relationship that is treated as if it had existed
from the beginning.
BY RATIFICATION
may arise followed by one of two situations;

1. either an agent who was properly appointed

has exceeded his authority; or

2. a person who has no authority to act for the

principal has acted as if he had the authority.

When any of the above-mentioned situations

arises, the principal can either eject or accept
the contract so made

refer Section 149 & 150 Contract Act 1950

BY RATIFICATION

A contract can only be ratified under the

following circumstances:

1. The act or contract must be unauthorized.

2. The agent must profess himself as an agent to

principal to a third party during the time of the
contract. He must not allow the third party to
think that he is the principal
 KEIGHLEY MAXTED & CO. V.
DURANT(1901)
Fact : K & Co authorized Roberts, a corn merchant, to
buy wheat on a joint account for himself and them at
a certain price. Roberts, using his own name but
intending it for Keighley and without authority of
anybody else, bought wheat at a higher price than
the authorized one, from Durant . K & Co, however,
later agreed with Roberts to buy the wheat at that
(high) price but eventually failed to do so. Durant
resold it at a loss and sued them for loss.
 KEIGHLEY MAXTED & CO. V.
DURANT(1901)
Held: The court held that Keighley was not liable to
Durant since Roberts at the time of the contract did
not profess to act as an agent.
BY RATIFICATION
principal must be acknowledged; at the time
of ratification, of all the material facts related
to the contract unless it’s shown that he
intends to ratify without taking any facts into
consideration. - S152 CA 1950

The principal must also ratify the whole

contract and partial ratification is not allowed.

The ratification must be made within a

reasonable time.

any ratification made must not bring any

damages or termination of right or interest to
the third party. - S153 CA 1950
BY ESTOPPEL
BY ESTOPPEL
a situation where the principal is estopped
from denying the agent's authority, and the
contract or transaction between the third party
and the agent is considered valid and binding.

occurs when a person’s actions lead another to

believe that a third party has the authority to
act on their behalf and that other party enters
into a transaction with the third party.
BY ESTOPPEL
Three elements necessary to constitute
estoppel:
1. a representation made by or on behalf of the
principal to the third party concerning the
authority of the agent
2. reliance by the third party on the
representation made by the principal to the
third party
3. the third party must rely on the principal’s
representation and alter his or her legal
position on the strength of the representation
BY NECESSITY
BY NECESSITY
a situation where an agency relationship exists
because an agent has to act on behalf of the
principal, even without explicit authorization, to
protect the interests of the principal in an
emergency or urgent situation.

It is a specific type of agency relationship that

is based on the principle of necessity and the
agent's implied authority.
BY NECESSITY
An agency of necessity exists if the following
three conditions are met:

1. It is impossible for the agent to get the

principal's instruction - Section 142 CA 1950

2. The agent's action is necessary, in the

circumstances, in order to prevent loss to the
principal

3. The agent of necessity must have acted in

good faith.
 GREAT NORTHERN RAILWAY V.
SWAFFIELD (1874)
Fact: Swaffield arranged for a horse to be sent by
train. When it arrived at the destination, nobody
picked it up and the railway company felt obliged to
feed the horse and put it in a stable for the night as
they failed to contact Swaffield. Swaffield eventually
collected the horse but refused to reimburse the
railway on the claim that they were not authorized to
incur any expenses using his name as they were not
his agent.
 GREAT NORTHERN RAILWAY V.
SWAFFIELD (1874)

Held: The court held that the plaintiff acted as an

agent of necessity in this matter and Swaffield has to
reimburse their expenses.
 SPRINGER V. GREAT WESTERN
RAILWAY COMPANY [1921]
Fact: Great Western Railway Company as defendant
agreed to carry plaintiff’s tomatoes from Channels
Island to London, by ship to Weymouth and by train to
London. The ship was stopped at Channels Island for
three days due to bad weather. Eventually, when the
ship arrived at Weymouth, defendant’s employees were
on strike, tomatoes were unloaded by casual laborers
but it was delayed for two days. At that time, some of
the tomatoes were found to be bad. So, defendant
decided to sell the tomatoes as they felt that tomatoes
could not arrive in Covent Garden market in a good
and saleable condition. When plaintiff found out about
this, plaintiff wanted to claim damages from defendant
 SPRINGER V. GREAT WESTERN
RAILWAY COMPANY [1921]
Held: The court held that the plaintiff was entitled
to damages because the defendant ought to have
communicated with the plaintiff when the ship
arrived at Weymouth to get instructions. As the
defendant has failed to communicate with the
plaintiff when they could have done so, thus, there
was no agency of necessity.
 Types
of
AGENCY
Types of AGENCY
There are various classification of agents.

they may be classified according to the extent

of their authority, for example Universal Agent,
General Agent and Special Agent or;

according to their functions such as del

credere, factors brokers and auctioneers
 Types of
AGENTS BY AUTHORITY

Universal Agent General Agent Special Agent

Universal Agent
a general agent with extensive power

he/she can do all acts which a principal may

personally do

this kind of agency though seldom made is

created by deed in the form of General Power
of Attorney

A principal rarely grants such extensive

powers to agents unless there are compelling
reasons
General Agent
an agent who is employed to act on behalf of
his principal, generally, in transactions relating
to a particular trade or business.

a third party, dealing with general agent can

assume that the agent has the power to do all
that is usual in the ordinary course of his
business or trade.

he is not affected by any limitation in the

agent usual authority unless he is aware of
these limitation.
e.g. store manager
Special Agent
an agent appointed to do a specific act of for
a specific purpose

his authority is limited to that act act or

purpose

e.g. property agent

 Types of
AGENTS BY FUNCTION

Commission
Factor@Commercial agent Del Credere
agent Power of
Broker
attorney
 Broker
commercial agent who is employed to make
contracts between his principal and third
parties for a commission called a brokerage

He is not entrusted with possession of the

goods and cannot contract in his own name

His job is to find purchasers for those who wish

to sell and sellers who wish to buy and to
negotiate and make contracts.

e.g. Real Estate Broker, stock broker

Factor@Commercial agent
an agent who in the ordinary course of his
business, is entrusted with the goods of his
principal for sale.

he usually sells the goods in his own name

and without disclosing his principal

the fact that the agent is under restriction to

sell at certain price or he is bound to
disclose the name of the principal does not
disqualify him from being a factor, provided
he is in possession of the goods to be sold
 Commission agent
also known as a consignment agent or sales
agent, primarily focuses on selling products
on behalf of the principal.

They typically work on a commission basis,

earning a percentage of the sales they
generate.

The goods remain the property of the

principal until sold.
 Del credere
a type of agent who not only facilitates the
sale of goods on behalf of a principal but also
provides a guarantee to the principal that
they will be paid for the goods by the buyer,
even if the buyer defaults on the payment.

In other words, a del credere agent assumes

a financial risk for the transaction, essentially
acting as a guarantor of the buyer's payment
to the principal.

The term "del credere" is derived from Italian

and means "of credit" or "on trust."
 Power of attorney
a legal document the principal to grant legal
authority to an agent to act on their behalf in
various legal, financial, or personal matters.
The agent, appointed through a power of
attorney, can make decisions and perform
actions as if they were the principal.
For example, a person is traveling abroad and
needs someone to manage their financial
affairs, such as paying bills, managing
investments, or selling property, during their
absence can grant a general power of
attorney to a trusted friend or family member
to handle these financial matters.
Authority
of
AGENT
 Authority of
AGENT

Actual Apparent/
Ostensible
 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 or usage
of trade and the conduct of parties.

e.g. Watteau vs Fenwick where the principal is

liable for all the acts of the agent which are
within the authority usually confided to an
agent of that character.
Apparent/ Ostensible
authority which is not expressly given by the
principal but which the law regards the agent
as possessing although the principal has not
consented to his exercising such authority

May arise in two situations:

1. where the principal by his words or conduct

leads a third party to believe that his agent
has authority to make contract (S 190)
2. Where the agent previously had authority to
act, but that authority was terminated by the
principal without notice to their parties
Rights and
duties of
an agent
toward his
principal
 Rights and duties of an
agent toward his principal
An agency normally arises out of an
agreement and as such, their rights and
duties will depend on the terms of the
contract of agency.

However, if the contract of agency is silent on

the terms, the rights and duties of an agent
and vice versa are governed by Sections 164-
178 of Contract Act 1950.
 Duties of an agent toward
his principal

In the absence's of P To exercise care To render proper

instruction, act according and diligence account
to custom
To obey P's To pay P all sums
instruction received on his
behalf
 Duties of an agent toward
his principal

No conflict with own Not make secret Not to disclose

interest profit information

To communicate Not delegate his

with P authority