Chapter 8: Law of Agency: Baeb 301: Basic Law For E-Business

BAEB 301: BASIC LAW FOR E-BUSINESS
CHAPTER 8: LAW OF AGENCY

Chapter 8: Law of Agency
Topic Outlines
8.0 Introduction
8.1 Principal and Agent
8.1.1 The Agent
8.1.2 The Principal
8.2 Creation of Agency
8.1.1 Express Appointment

8.1.2 Implied Appointment
8.1.3 By Ratification
8.1.4 By Necessity
8.1.5 By Estoppel
8.3 Duties of a Principal to his Agent
Slide 2 of 31
Topic Outlines
8.4 Rights of the Agent
8.5 Duties of an Agent to his Principal
8.6 Rights of the Principal
8.7 The Authority of the Agent
8.7.1 Actual Authority

8.7.2 Apparent/Ostensible Authority
8.8 Agent who acts for a Disclosed/Undisclosed Principal
8.9 Termination of Agency
Slide 3 of 31
Topic Outlines
8.10 Impact of Virtual Agents For Online Transactions
8.10.1 Definition of a Virtual Agent

8.10.2 Advantages of Using a Virtual Agent
8.10.3 Unanswered Questions
Slide 4 of 31
Learning Outcomes
At the end of this chapter, students should be able to:

 Understand the role of the Agent in bringing a conventional contract into
effect on behalf of the principal
 Understand the role of the Virtual Agents For Online Transactions.
 Understand the Duties and Rights of the Agent and the Principal and how
an agency can be terminated.
Slide 5 of 31 Topics
8.0 Introduction
 It is normal in running a small business

businessmen employ agents to handle
contracts with third parties including
customers.
 The agents act as the 3rd party to bring into
effect a contract between the businessman
and his customer including negotiating with
the customers on the principal’s behalf.
 The agents are not the parties to the
contract between the principal and the
customer.
8.1 The Principal and the Agent

8.1.1 The Agent
 An agent is defined as 'a person

employed to do any act for another
or to represent another in dealings
with third persons' S.135 Contracts
Act.
 Any person may become an agent;
but persons of unsound mind and
who are below eighteen years of age
are not liable towards their principals
for acts done by them as agents -
s137
8.1 The Principal and the Agent

8.1.2 The Principal
 Principal: The person for whom

such act is done, or who is so
represented, by the Agent.
 A Principal must be at least eighteen
years old or above and of sound mind
- S136 Contracts Act
 Generally, an agency can be created in 5

ways:
i. by express appointment by the principal
ii. by implied appointment by the principal
iii. by ratification by the principal
iv. by necessity, i.e. by operation of law in
certain circumstances
v. by the doctrine of estoppel or 'holding out'.

8.2.1 Express Appointment
 Express appointment may be in a written or

oral form. E.g. a letter of power of attorney
or words spoken.

8.2.2 Implied Appointment
 Implied appointment of an agent occurs

when a person by his words or conduct holds
out another person as having authority to act
for him.
 E.g. Ali allows Ismail to book a room on his
behalf and habitually pays for the room,
Ismail is therefore Ali’s agent by implied
appointment

8.2.3 Appointment by Ratification
 Ratification occurs where:

 (i) an agent who was duly appointed has
exceeded his authority,
 (ii) Person who has no authority to act for the
principal has acted as if he has the
authority.
 In any of the above situations the principal
can either reject or accept the contract made
by this agent. Acceptance of this contract is
called ratification.

8.2.4 Appointment by Necessity
Agent by necessity arises in the following situations:
1. It is impossible for the agent to get the
principal's instruction.
2. The agent's action is necessary, in the
circumstances, in order to prevent loss to the
principal. E.g. agent sells perishable goods before
they rot.
3. The agent of necessity must have acted in good
faith.
4. In an emergency, an agent has authority to do all
such acts for the purpose of protecting his principal
from loss.

8.2.5 Appointment by Estoppel
Agent by estoppel arises where:
1. If the principal by his words and conduct

allows third parties to believe that a particular
person is his agent when he is not, and
2. If the third party relies on it to his detriment,

the principal will be estopped from denying
the existence of that person’ s authority to
act on his behalf.

8.2.5 Appointment by Estoppel
e.g. Agent by estoppel :
If Mahmud tells Samy in Tay’s presence that

Mahmud is Tay’s agent and Tay does not
deny this statement, Tay cannot later deny
that Mahmud is his agent if Samy has
provided a room for Mahmud in his hotel for
business purpose and when he later
demands payment from Tay.
8.3 Duties of a Principal to his Agent
1. To pay the agent the commission or other

remuneration agreed unless the agency
relationship is gratuitous.
2. Not to willfully prevent or hinder the agent
from earning his commission.
3. To indemnify the agent for acts done in the
exercise of his authority
8.4 Rights of the Agent
1. Agent’s right to get paid once his job is

completed satisfactorily.
2. Agent has a right to impose a lien on
Principal’s property until he gets paid.
3. Agent is to be compensated for injury
suffered caused by the principal’s neglect.
4. Agent is to be indemnified against
consequences of lawful acts.
5. Agent is to be indemnified against
consequences of acts done in good faith.
8.5 Duties of an Agent to his Principal
1. To obey the principal's instructions

2. To exercise skill and diligence when carrying
our duties
3. To render proper accounts to his principal
4. To communicate with the principal.
5. To pay sums received for principal.
6. Not to let his personal interest conflict with
his duty. (This is called the agent’s fiduciary’s
duty).
8.6 Rights of the Principal
1. To ask the agent to account for any secret

profits earned by him while acting on his
behalf
2. Not liable for any criminal act committed by
the agent.
3. To terminate the agency.
8.7 Authority of the Agent
 An agent's acts are binding on the

principal if they are done within the
agent's authority.
 If an agent does an act which exceeds
that authority so given, the principal is
not bound unless he adopts and ratifies
the unauthorized act.
 An agent’s authority can be:
i. Actual or implied
ii. Ostensible/apparent

8.7.1 Actual/Implied Authority of the Agent
Actual authority is
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.
8.7.2 Apparent/Ostensible Authority of the Agent
 An agent is treated by the law as having

apparent or ostensible authority to bind his
principal if he enters into an
UNAUTHORISED transaction which is related
to the principal’s business.
 It is irrelevant that the Principal did not know
about the transaction nor did he give any
consent to the agent.
 An innocent third party who did not know of
the agent’s lack of authority at the time of the
contract has the right to assume the agent
has authority to enter into the transaction to
bind his principal.
8.8 Enforceability of Contract Made by Agent
 If the Agent is acting for :-

1. Named principal – then agent incurs no
liability
2. Disclosed principal (not named) – then
Agent personally liable
3. Undisclosed Principal – then the agent will
be liable and he can sue on the contract.
4. Third party can sue choose either to sue
agent or principal
8.9 Termination of an Agency
 An agency may be terminated by:

 1. The act of the parties, or
 2. By operation of law e.g. death of either
party; bankruptcy
8.10 Impact of Virtual Agents
 In the business world a virtual agent can be two

types:
1. an automated representative, called an
intelligent virtual agent, virtual rep or v-rep and
it is a chatterbot program that serves as an
online customer service representative for an
organization.
2. a human agent who works over the Internet at
some distance from the employer's
organization.
 Virtual agents are increasingly used in CRM to

help people perform tasks such as locating
information or placing orders and making
reservations.
 In the case of an automated virtual agent, he
has a human appearance and responds
appropriately to customer questions and he
lends automated interactions a semblance of
personal service.
 Virtual agents are usually scripted to respond to
a wide variety of questions and remarks
 Virtual agents are usually scripted to respond to

a wide variety of routine questions and they are
programmed to issue scripted remarks to such
questions if asked.
 Virtual agents would not be able to answer
complex questions.
8.10.2 Advantages of Using a Virtual Agent to provide Online Customer Service
A virtual agent will be able to :

1. Provide immediate responses to client
questions
2. Provide consistent responses
3. Provide ability to escalate unanswered
questions to e-mail or phone if needed, and
integrate with other customer service
knowledge bases
4. Increase clients’ service options
5. Reduce service cost over time

1. Provide immediate responses to client
questions and encourage self service
2. Provide consistent responses and encourage
customer loyalty
3. Provide ability to escalate unanswered
questions to e-mail or phone if needed, and
integrate with other customer service
knowledge bases
4. Increase clients’ service options

5. deliver information to customers on their
mobile phones while the principal will then
build a mobile lead base that will serve as a
foundation for a new way of prospecting.
6. reduce the time which human agents spend
on repetitive questions thereby freeing the
human agents to tend to higher duties and
thereby cost-effective.
8.10.3 Unanswered Questions
 Unanswered questions are reviewed daily.

 If appropriate, the answers are scripted.
 Questions that are answered incorrectly
usually result in reprogramming and
debugging.
 In this way the automated agent “learns” and
grows.

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Chapter 8: Law of Agency: Baeb 301: Basic Law For E-Business

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BAEB 301: BASIC LAW FOR E-BUSINESS

CHAPTER 8: LAW OF AGENCY

8.1 Principal and Agent

8.1.1 The Agent

8.1.2 The Principal

8.2 Creation of Agency

8.1.1 Express Appointment

8.3 Duties of a Principal to his Agent

8.4 Rights of the Agent

8.5 Duties of an Agent to his Principal

8.6 Rights of the Principal

8.7 The Authority of the Agent

8.7.1 Actual Authority

8.8 Agent who acts for a Disclosed/Undisclosed Principal

8.9 Termination of Agency

8.10 Impact of Virtual Agents For Online Transactions

8.10.1 Definition of a Virtual Agent

At the end of this chapter, students should be able to:

 It is normal in running a small business

8.1 The Principal and the Agent

 An agent is defined as 'a person

8.1 The Principal and the Agent

 Principal: The person for whom

8.2 Creation of Agency

 Generally, an agency can be created in 5

8.2 Creation of Agency

 Express appointment may be in a written or

8.2 Creation of Agency

 Implied appointment of an agent occurs

8.2 Creation of Agency

 Ratification occurs where:

8.2 Creation of Agency

8.2 Creation of Agency

Agent by estoppel arises where:

1. If the principal by his words and conduct

2. If the third party relies on it to his detriment,

8.2 Creation of Agency

e.g. Agent by estoppel :

If Mahmud tells Samy in Tay’s presence that

8.3 Duties of a Principal to his Agent

1. To pay the agent the commission or other

8.4 Rights of the Agent

1. Agent’s right to get paid once his job is

8.5 Duties of an Agent to his Principal

1. To obey the principal's instructions

8.6 Rights of the Principal

1. To ask the agent to account for any secret

8.7 Authority of the Agent

 An agent's acts are binding on the

8.7 Authority of the Agent

 An agent is treated by the law as having

 If the Agent is acting for :-

 An agency may be terminated by:

 In the business world a virtual agent can be two

 Virtual agents are increasingly used in CRM to

 Virtual agents are usually scripted to respond to

A virtual agent will be able to :

A virtual agent will be able to :

A virtual agent will be able to :

 Unanswered questions are reviewed daily.

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