CONTRACT LAW II

LAW OF AGENCY

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 INTRODUCTION
Governed by Part X Contracts Act 1950.
Definition of agent (A) - S.135.
Definition of principal (P) – S.135.

S135 :
 An agent is a person employed to do any act for another or to

represent another in dealing with third persons. The person for

whom such, act is done or who is so represented, is called the
principal

Effect of agency:There are two contracts exist: i.e.

 P and A;

 P and 3rd P.
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 Effect of agency
There are in effect two contracts:

Between the principal and the agent from which the

agent derives his authority to act

Between the principal and the third party through

medium of an agent.

Agent has power to act on behalf of the principal

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 Sub agent
S.144 – sub agent : is a person employed by, and acting under the control of,
the original agent in the business of agency

S143 – agent cannot lawfully employ another to perform acts which he has
expressly or impliedly undertaken to perform personally – generally cannot
appoint sub agent.
(However, under certain circumstances, can appoint sub-agent)

Effect of appointing a sub agent

1. Principal will be bound – same as original agent

2. Original agent will be bound by sub agent’s act towards the principal
3. Sub agent only will be bound by any acts towards the original agent and not
to the principals.

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 Substituted agent
S.147 – where an agent, holding an express or implied
authority to name another person to act for the principal in the
business of the agency, has named another person accordingly
that person is not sub agent, but an agent to the principal for
such part of the business of the agency as is entrusted to him.

Effects of appointing substituted agent

- Will be bound directly to the principal for such part of the
business of the agency as is entrusted to him;
- Not a sub agent
- S.148 – agent’s duty in naming such person to become as sub
agent – original agent will be responsible/bound to the
principal.

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 Conditions as an agent and
principal
Principal - must be at the age of majority and sound mind-s.136
Agent – s137 : any person may become as an agent – but if an
unsound mind or a person below the age majority, the agent will
not responsible
 A minor can be appointed – hv it would be imprudent to

appoint a minor

Chan Yin Tee v William Jack

Yong (minor) was introduced by Chan as his partner. Yong had
entered into a contract but he (minor) failed to pay.
Therefore, Chan is responsible irrespective of his competency to
a contract for those acts the principal may be liable to third
party.

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 CREATION OF
CREATION OF AGENCY
AGENCY

EXPRESS APPOINTMENTS
EXPRESS APPOINTMENTS IMPLIED APPOINTMENTS
IMPLIED APPOINTMENTS
s140
s140 s140
s140

IMPLIEDLY THROUGH
IMPLIEDLY THROUGH
ESTOPPEL
ESTOPPEL
HUSBAND AND
HUSBAND AND WIFE
WIFE

IMPLIEDLY THROUGH
IMPLIEDLY THROUGH
RATIFICATION
RATIFICATION
PARTNERSHIP
PARTNERSHIP

NECESSITY
NECESSITY

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 Express appointments
Definition-S.140
No special form is required for the creation of agency by
express appointment
It may be in oral or writing
Can be made under a power of attorney or letter of mandate

 BBMB v Henry Ginai Anak Linggie

Agency appointed through appointment by power of
attorney
Agent cannot act beyond the power given by the
power of attorney

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 Implied appointments
Definition under s140
Under certain circumstances:
a) When a person by his words or conduct holds out another
person as having authority to act for him

Cases:
(a) Ryan v Pilkington

Although an agent has not given an express power to act

to accept a deposit, but in this condition, as banker, he is
acted within his express authority and the principal will
be bound by it.

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Chan Yin Tee v William- appointment of partner as agent

Summers v Solomon-
- When a person holds out another person as having authority
to act for him, he is responsible for the act of person that he
holds out as represents him.
 b) Impliedly through husband and wife

- General rule: wife has power to owe money by using

husband’s name for a necessaries – suitable for lifestyle and
conditions

- Exceptions (where the husband will not responsible):

1.Prohibits his wife form doing so
2.Warns the seller not to sell anything to his wife
3.Provides sufficient necessaries
4.Gives allowances
5.Unreasonable demand by the wife – unaffordable

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 Miss Gray lwn Catcard
- the husband was not bound to pay his wife’s debt
if he can proved sufficient allowances to his wife.
 c) Impliedly through partnership
- S. 7 – Partnership Act 1961
- all partners are an agent to their partnership and a partners.

- Any act or omission of each partners bound the other partners

- Mercantile Credit Co. Ltd lwn Garrod
- A and B were a partners doing a business of renting a garage and
repairing cars.
- A, without the knowledge of B had sold a car to one finance co. and the
money had been paid into the partnership’s account
- After the co realized that A had no power to sell a car, the co had taken
an action against B coz A had disappeared.
- Held: B is bound.

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Read Pathirana v Pathirana
 RATIFICATION
Two situations.
1. An agent duly appointed has exceeded his authority
2. A person who has no authority to act as agent of Principal
has but has acted as if has the authority –S.188

Meaning of ratification – P approves A’s act.

S149 – the principal may elect to ratify it or to disown the

act done by the agent that has exceeded his authority.

S150 – ratification may be implied or express

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 Conditions when a contract can only be ratified :
1. The act or contract must be unauthorized –S. 149 or person

has no authority but acted as if has the authority- S.188

2. The agent must at the time of the contract expressly act as

agent for the principal and not allow the third party to think
that he is a principal.

- Keighley Maxted & Co. vs Durant

- Agent has done something beyond the authority given
when he bought a flour expressly acted as himself.
(bought under his own name, not Principal)
- The principal will not be responsible if the agent in the
first place did not act as an agent.

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 3. P must exist, have contractual capacity and full
knowledge of material facts.
- Kelner lwn Baxter
- At the time the parties entered into the
contract to buy hotel, the company
(Principal) was yet to exist. No contract
bound, no ratification could be made.
- Boston Deep Sea Fishing v Farnham
- Ratification cannot be made if the principal
was an enemy at the time when the contract
was entered.

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4.Principal has the full knowledge of the important facts
regarding the matters to be ratified-s. 151

5.Must ratify the whole contract.-s.152

6.Must not injure third party. –s.153

7.Ratification made within reasonable time.

Metropolitan Asylum Board v Kingham & Sons

Ratification made a week after the contract of sale of eggs-late &
not within reasonable time.
Effect of ratification
Act becomes valid
Validate all the acts.
Retrospective effect – dates back to the time of the original
contract and not from the date of the principal’s ratification

- Case: Bolton Partners v Lambert

- 1 May – P (buyer) offered to buy a land from S (X’s
agent)
- 2 May - S accepted the offer – although he has no
authority to accept on behalf of X.
- 4 May – P revoked the offer to buy the land
- 10 May – X ratified S action.
- The ratification done by X on 10 May had ratified the
action by S on 2 May – therefore, P cannot revoked the
offer.
 AGENCY BY NECESSITY –
S142-
Under some circumstances, a person may become as an
agent to another without being appointed. In such urgent and
emergency situation – agent has authority to do all such part
for the purpose of protecting his principal as done by
prudent person.

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Applied in Great Northern Railway Co. v Swaffield (1874)
LR 9 Ex 132.
F-delivery of horse by train. Nobody accepted the horse
when it arrived. The railway company had to rent stable to
place the horse temporarily. Later claimed the rent from the
horse owner.
H: Agency by necessity had been created. The horse owner
should pay.
 S142 - Must satisfy 3 conjunctive conditions:

1. Impossible to get P’s instruction.

- Springer lwn G.W. Railway & Co
- Tomato delivery through sea voyage – owing to
bad weather, the ship failed to arrive on time –
the tomatoes were found bad
- Without trying to get principal’s instruction,
df had sold the tomatoes to local
buyers.Def(agent) was liable for P loss since not
trying to get P’s instruction.

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2. Emergency situation/urgency
- Phelps James & Co v Hill

Reasonable situation refers to dangerous

situation, facilities, time, budget and etc.
- Prager lwn Blatspiel Stamp & Heacock Ltd
- There was not under necessity coz leather
product was not a perishable goods (not easy to
rot)

3. Agent acted in good faith.

 AGENCY BY ESTOPPEL –
s190
S. 190 – doctrine of estoppel or ‘holding out’ and also known
as apparent or ostensible authority

A person is not bound by a contract made on his behalf by

another person without his authority

Hv – if a person by his words or conduct, allows a third party

to believe that A is his agent

Therefore, he (P) is estopped from denying it.

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 TYPES OF
AGENCY

Depends on the Depends on

power the
of agent duty
Del credere
Special
Universal factors
agent
agent broker
General
agent bankers
auctioners

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Universal Agent-
-wide power
-can act in all performance of duties empowered
- appointed by power of attorney

General Agent
-appointed for performance of general actions required in
a business or trade

Special Agent
Apppointed for specific task
According to Duties
- del credere
- liable to Principal if 3rd party does not pay
-received special additional commission for risking such task

Factor Agent
Trusted to sell Principal’s goods. Can sell under his own name
and has the right of lien.

Brockerage
-deals contract between Principal and 3rd party
Doesn’t have the right of lien. Cannot hold Principal’s goods
and sell under his own name.
Auctioneer- involved in the auction
process

Bank-
Banker as agent for customer, meanwhile
the staffs are the agents for the bank
 AUTHORITY OF THE AGENT
If A acts within his authority, P is bound.
If A acts beyond his authority, P is not bound unless P ratifies.
Query? What is the effect then?

Actual authority – authority conferred to A by agreement.

 Express actual authority – given orally or in writing.
 Implied actual authority – proper or necessary powers to carry out
express actual authority; implied from circumstances, custom and
conduct of parties.

Applied in Panorama Development (Guildford) Ltd v Fidelis Furnishing

Fabrics Ltd [1971] 3 All ER 16 [A’s authority to part firm’s money
includes authority to receive money].

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 Apparent/ostensible authority – 2 situations.
a. Authority which law regards A as possessing – S.190;
 Through the words/conduct by the principal, when the other party
believes that the agent has power to do so.

 Case: Chew Hock San & YL vs Connought Housing Development

Sdn Bhd
FC: The Def did not represent to the Pff that the clerk was
authorised to accept the booking fee, therefore not bound by the
clerk’s act.

b. A’s authority has been terminated but 3rd parties have not been notified.

 P is bound unless 3rd Party knows A has no authority

 Case: Graphics Line Pte Ltd vs Chai Chee Mein & YL
If the party acted after has been given by the superior – the agent is
said to have apparent authority to act.
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 AGENT’S DUTIES TO
PRINCIPAL
Carry out P’s instructions – If no instructions, act according
to custom – S.164.
Cases:
1.Turpin vs Bilton – failure to insure the principal’s ship
as entrusted.

2.Bostock vs Jardine – agent acted to make an order

beyond the authority given.

3.Cohen vs Kittel – agent has right not to follow the

principal instruction to involve in waging coz of
illegality.

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 Exercise proper care, skill and diligence – S.165.

Case: Keppel v Wheleer

 Agent had failed to inform the principal about the highest offer from
someone to buy his house.
 Principal knew about it after the agreement has been signed.
 Agent had failed to exercise proper care skill and diligence as agent.

Render proper accounts – S.166

Case: Parker (Harry) Ltd lwn Mason
 Any profits made due to illegal transaction also should be given to the
principal – as long as the original agreement is legal.

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 Communicate with P – S.167.
Query? What if he could not do so? He should take all the reasonable steps
to communicate with the P.

Look at s. 142 as we learn in previous lesson.(During emergency, what

agent can do?)

Avoid conflict of interest – S.169.

Case: Wong Mun Wai v Wong Tham Fatt and Anor [1987] 2 MLJ 249 [ A
sold P’s shares of the land to his own wife].
S. 168-also provides that if agent deals without P’s knowledge, P can reject
the transaction, if it shown that material facts had been closed dishonestly
or it causes loss.

Pay sums received on behalf of P to the P after deduction – S.170 - S.171.

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 Cannot make secret profit.
-If P know about SP, but allows, A can keep it-s.168
If there is, P can:
a. Repudiate contract with 3rd Party;
b. Recover secret profit – S.169
- Tan Kiong Hwa vs Andrew S.H. Chong
- P ordered to sell his flat for RM45,000 but the agent had sold
it for RM54,000.
- The differences of RM9.000 has be deposited to A’s account.
- After the co wound up – the P has right to claim for RM9,000

c. Refuse to pay commission;

- Andrews vs Ramsay & co.
- Agent that has been appointed to arrange land transaction has
been promised some commission.
- although he accepted a commission given by the P – he also
accepted commission by the buyer (another person)
- Ct held: P has right to claim.

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 d. Dismiss A;

e. Sue A and 3rd P for damages.

-Mahesan v. The Malaysian Government Officers Cooperative
Housing Society
-Agent got RM122,000 as a bribe from landlord who got a land for
RM456,000 but sold to Principal for RM944,000.Ct held that
Principal can claim the loss from agent and 3rd party who gave bribe.

Cannot disclose confidential information.

Case: L.S. Harris Trustees Ltd lwn Power Packing Services (Hermit
Road) Ltd
-Agent disclosed confidential documents of Principal.Principal could
dismiss Agent.

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 Not to delegate power to another because of maxim ‘delegatus
non potest delegare ‘–means delegate cannot delegate

Unless exceptions apply.-

 P allows it

Case: De Bussche v Alt

P gave permission to appoint sub agent in Japan to sell
a ships
There was an express consent delegated by the P to his
A to appoint sub agent

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 The contract needs to have another person to perform it
– usual or normal situation that the works need
delegation

 it is presumed from the conduct of the parties that the

agent would have power to delegate his authority

 The agents should have power to delegate by the P –

where the nature of the agency is such that the
delegation of the authority to another person is
necessary to complete the business

 Under emergency – eg: ilness of the agent

Where the act done must be pure ministerial / administrable / clerical and
does not involve the exercise of discretion

 In the case Allam & Co v Europa Poster Services Ltd

 Df carried on the business of outdoor advertising contractors

 They would obtain licences or agreement from the owner of

the sites which will allowed them to display advertisement on

those sites
 Then, df obtained some of the owner’s consent to use sites

which were used by the pf who were their competitors in the

same business – df were also authorised by the site owner to
give notice terminating any existing licences to the pf and
asked their solicitor to send the notice to the pf
 Issue: whether the maxim delegatus non potest delegare has

been violated
 Held: the delegation was purely ministrial act and not

involving confidence or discretion – authorised delegation of

duty
 In contrast , as illustrated inthe case of John Mc Cann
& C0 v Pow
An agent who sub delegated the sale of his principal’s
house to a sub agent was held not entitled for the
commission
The sub delegation was not purely a ministrial act but
required the exercise of personal abilities to obtain for
the best price
 PRINCIPAL’S DUTY TOWARDS
AGENTS
Rights and duties of principal towards his agent is stated in the contract of
agency expressly or impliedly – if not stated – S. 175 – S.178
Pay remuneration/commission when act is completed although the action
done by agent failed – unless it is for free as agreed – S.172.
 Pay based on the stated amount
 If not stated – quantum merit
P cannot retain other agent’s services in order to avoid paying commission
But no such right for misconduct – S.173.

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 Lien on P’s property until money due to A is paid – S.174.

Indemnified for lawful acts / acts done in good faith – S.175 &
176.
 P is bound towards all action done by their agents

 Hichen, Harrison, Woolston vs Jackson and Sons

Principal is bound to indemnify all expenses advanced

by the agent.

Claim compensation for injury due to P’s neglect – S.178.

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 Agent’s right to discharge
liabilities
Agent had advanced their money and suffered loss in completing the
legal instruction by the P
 Case: Soloway & SL vs Mc Laughlin

Held: agent had failed to claim for compensation coz of

agent’s intention to deceive the P.

1. Agent had caused the third party suffers loss (with no bad
intention of the A), P will be liable-s. 176

2. Agent can claim for compensation due loss suffered through

injuries caused by the negligence of the P and lack of expertise
 Effect of the contracts by
agents
1. Agent acted on behalf of the P and named the P (naming P)
 The third had knowledge with whom they are contracting with
 Agent would not be liable – P liable

2. Agent acted on behalf of the P without naming the P

 Agent disclosed the existence of the P without naming the P
 The third party had knowledge that they are having a contract with the agent
acted on behalf of the P
 Agent would not be liable – P liable
 Case: Universal Steam Navigation Co. Ltd v James Mc Elvie & Co
A ship has been hired under the transaction of the agent of the ship’s
owner (X) and J.M & Co (agent for a P that was not been named) . X knew
J.M & Co was an agent. The ship owner later claimed payment from J.M &
C0 which refused to pay.
Held: J.M & Co was not liable as agent (since only acted as an agent)
 M.A.A Holdings Sdn Bhd v Ng Siew Wah
The contract has been made with with the A (2nd pf) but
the case was brought to the ct by the 1st pf who was the
principal but not disclosed by the A (2nd pf) as P.
But it was held that the P could take action although
was not disclosed – third parties had knowledge about it
3. Agent had contracted on behalf of the P without
informing the existence of the P – seems as A acted
on his own personal capacity

 S186 – agent would be liable – depends on the third party

to hold either the P or the A would be liable
 TERMINATION OF AGENCY
Agency can be terminated :
• By the act of the parties
• By operation of laws

Sections 154 – 163 deals with the manner in which an

agency may be terminated.

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 1. By the act of the parties

S.154 – may be terminated by the principal revoking

his authority or by the agent renouncing the business of
the agency

S160 – revocation may be express or implied in the

conduct of the parties.

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 3 way of termination by the acts of the parties:

(a) By mutual consent of P and A

(b) Unilateral revocation by the P or the A
- If the P terminated the agency before the
expiration;
(i) A can ask for commission as for acts
done
(ii)Claim for any advance of money
(iii)Claim for any remedies available if the
termination without reasonable notice

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 (c) S159 – reasonable notice of revocation
reasonable notice must be given otherwise the
damage resulting to the P or the A, as the case may be
must be made good to the one by the other.
- Suffered party should be given compensation of
damages

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 S. 157
The principal cannot revoke the authority given to his
agent after the authority has been partly exercised, so
for as regards such acts and obligations as arise from
acts already done in the agency.

S. 158
Where there is an express or implied contract that the
agency should be continued for any period of time, the
principal must make compensation to the agent, or the
agent to the principal, as the case may be, for any
previous revocation or renunciation of the agency
without sufficient cause
 2. By operation of laws

Completion of agency – S.154.

P/A died or became unsound mind – S.154.
P declared bankrupt - S.154.
Time period fixed has expired.
Event which makes agency unlawful.

This also applies to all sub agents appointed by an agent

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