BUSINESS LAW

LECTURE 5 & 6
LAW OF AGENCY
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LEARNING OUTCOME
• How to create an agency relationship?
• What are types of authority an agent may have?
• What are the duties and rights of agent as against the
principal and vice versa?
• In what situations will agency come to an end?
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Introduction
• An agency RELATIONSHIP exists when one person [the
AGENT] acts / has power to make contracts ON BEHALF
of another [the PRINCIPAL] with a third person [the
THIRD PARTY]
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INTRODUCTION
• Governed by Part X Contracts Act 1950.
• Definition of agent (A) - S.135.
• Definition of principal (P) – S.135.
• There are two contracts i.e. P and A; P and 3rd P.
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Who is an agent?

• Who may be an agent?S137- any person but not a

minor or unsound person
• Consideration not required – S.138.
• The meaning of an agent in legal sense is different
from its commercial sense.
• To determine the existence of agency the court will
look at the authority given to the agent.
• Sec 136-a P must
• not be a minor
• of sound mind
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Who is an agent?
• The agency contract can be made verbally
• There is no requirement that the agency contract has to
be in writing
• This was confirmed in the case of KGN Jaya Sdn. Bhd. v.
Pan Reliance Sdn. Bhd. [1996] 2 CLJ 611
• In this case, the court held that the law does not require
that an agency or sub-agency agreement must be in
writing
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CREATION OF AGENCY
• Express appointment – S.140.
• Implied appointment – S.140 [every partner is an
agent of another partner - S.7 PA 1961].
• Ratification – S.149.
• Necessity – S.142.
• Estoppel/holding out – S. 190.
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CREATION OF
AN AGENCY

IMPLIED EXPRESS
AGREEMENT AGREEMENT

HOLDING OUT/ OPERATION

ESTOPPEL OF LAW

RATIFICATION
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1-By express appointment

No special
If the
form required
authority is
under seal,
need to made
Can be made under a
orally or in Power of
writting Attorney
which is
registered at
High Court
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2.By implied appointment

When a person by
his word of
conduct hold out a Relationship
person to be his between husband Sec.7 of
agent (holding out) & wife. Partnership 1961-
-it is presumed a partner is a
Eg: A held out that
that wife has partner to the
he is B’s partner. C
authority to plegde other partner
believed it and
her husband’s when contracting
supplied good to B.
credit. in the course of
B did not pay. C
the partnership
has right to sue
-this is still business
both-see
rebuttable if the
Illustration to Sec
husband prove
140
otherwise
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3.RATIFICATION
• Two situations.
• Agent who was appointed exceeded his authority.
• Person has no authority, acted as if he has the authority.
• If the P later on ratifies either one of this act, the
contract is binding.
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3.RATIFICATION
• Conditions (s149-s153 CA 1950):
• A’s act or contract is unauthorised.
• The unauthorised act must be one recognised by law.
E.g : it cannot be a criminal act.
• The agent at the time acting for P and not for himself.
• P must exist, have contractual capacity and full
knowledge of material facts.
• The third party does not believe that he is a P.
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3.RATIFICATION
• Conditions (s149-s153 CA 1950):
• P must ratify the whole contract i.e cannot accept partly only.
(Sec 152)
• The ratification must be made within reasonable time
• The ratification must not injure the 3rd party.(Sec. 153 &
illustration)
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4.AGENCY BY NECESSITY- Sec. 142

• Under certain circumstances a person may become

the agent of another without having been appointed as
such.
• Examples of agencies of necessities :
• a. a wife who is deserted or who is justified in leaving
her husband and has no means of support, can pledge
her husband’s credit for necessaries of life
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4.AGENCY BY NECESSITY- Sec. 142

• b. a commercial agency of necessity- when a person

is entrusted with another’s property and it becomes
necessary to act to preserve that property although he
has no express authority to do so.
• Case: Great Northern Railway Co v Swaffield-The
plaintiff (a railway co) had contracted with B to deliver
a horse to a certain place. Upon arrival, nobody took
the horse. Thus the plaintiff stored the horse in a
stable. Later the plaintiff asked for the storage charge.
The defendant denied.
• Held : plaintiff acted as an agent of necessity in this
matter to preserve the horse
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4.AGENCY BY NECESSITY- Sec. 142

• Must satisfy conjunctive conditions.

• 1.Impossible to get P’s instruction.
• Case : Springer v Great Western Railway Company
• 2.Prevent further loss to P.
• If no urgency exists and the goods are sold merely
because they are inconvenience to the agent, agency
of necessity does not arise.
• .e.g sale of furniture in Sachs v Miklos. Or sale of car
in Munro v Wilmott and Co.
• 3.A acted in good faith.
• Applied in Great Northern Railway Co. v Swaffield
(1874) LR 9 Ex 132.
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4.AGENCY BY NECESSITY- Sec. 142

• Conditions 2 & 3 above are stated in s142 where “in an
emergency” and the need for the agent to act as “a
person of ordinary prudence”
• Condition (1) is stipulated in s167: -
“It is the duty of an agent, in cases of difficulty, to use all
reasonable diligence in communicating with his principal,
and in seeking to obtain his instructions”
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LAPRAIK V BURROWS, “THE AUSTRALIA”

FACTS:
•1852 - SHIP ARRIVED IN HONG KONG IN NEED OF
URGENT REPAIRS.
•COST OF REPAIRS WOULD HAVE EXCEEDED VALUE OF
SHIP
• DEBTS FOR WAGES & EXPENSES WERE ACCRUING
• PERMISSION TO SELL SHIP WOULD HAVE TAKEN 4
MONTHS TO OBTAIN (OWNERS IN THE USA)
• NO FINANCE AVAILABLE TO SHIP’S MASTER.
•MASTER SOLD SHIP .

HELD: ACT OF MASTER NOT JUST A PRUDENT

ACT DONE TO THE ADVANTAGE OF THE
OWNERS BUT ONE OF ABSOLUTE NECESSITY.
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5. AGENCY BY ESTOPPEL
• S. 190.
• Person not bound by contract on his behalf
without his authority.
• If by his words or conduct, P allows a 3rd
party to believe that A is his agent, when A
is not, that person will be estopped from
denying the existence of A’s authority.
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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.
• Thus, A is in breach of warranty of authority.
• Even if A act in good faith – Yonge v Toynbee [1910] 1
KB 215.
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AGENT’S DUTIES TO PRINCIPAL – (Sec 164-
178)
• Carry out P’s instructions – S.164
• If no instructions, act according to custom – S.164.
• Exercise proper care, skill and diligence – S.165.
Query? What should the standard be?
• Render proper accounts – S.166
• Communicate with P – S.167. (unless the case falls
under Sec 142)
Query? What if he could not do so?
• Pay sums received on behalf of P – S.171.(see also
Sec 170 & 174)
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AGENT’S DUTIES TO PRINCIPAL – (Sec 164-

178)
• Avoid conflict of interest – S.169.
• Applied in Wong Mun Wai v Wong Tham Fatt and
Anor [1987] 2 MLJ 249 [ A sold P’s shares to own
wife].
• Sec-168-Cannot make secret profit. If there is,
P can:
• Repudiate contract with 3rd Party;Sec- 168
• Recover secret profit – S.169. However if P know &
consent, the agent can keep the secret profit
• Refuse to pay commission
• Dismiss A
• Sue A and 3rd P for damages.
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AGENT’S DUTIES TO PRINCIPAL – (Sec 164-

178)

• Cannot disclose confidential information.

• Not to delegate because of delegatus non potest
delegare principle unless exceptions apply.
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P’S DUTIES TOWARDS THE AGENT

(SEC. 175-178)
• To pay commission or other renumeration
• Not willfully prevent the agent from his earning
commission
• To indemnify and reimburse the agent
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PRINCIPAL’S RIGHTS AGAINST

AGENT
• Repudiate transaction if A deals on his own account –
S.168.
• Claim any benefit if A deals on his own account – S.169.
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TERMINATION OF AGENCY

• P revokes authority/ A renounces agency

provided reasonable notice given – S.154. If
not, can be liable to the other party – S.159.
• Completion of agency – S.154.
• P/A died or became unsound mind – S.154.
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TERMINATION OF AGENCY

• P declared bankrupt - S.154.

• Mutual agreement by P and A.
• Time period fixed has expired.
• Event which makes agency unlawful.
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SUMMARY
• Rights of agent very much depends on terms set by
principal.
• Rights of third party is at the mercy of the principal and
agent.
Types of Agents
1. Types of Agents
Broker
• engaged to make contracts between two principals (as
counterparties) engaged in some aspect of trade,
commerce or navigation – see Fowler v Holling
• role is confined to the negotiation of contracts of sale and
purchase
• does not obtain possession of the goods from the
principal; whereas a factor does
• is generally taken to be acting for a principal (even if the
name of the principal is not disclosed) – see Baring v
Corrie
Types of Agents
Factor
• an agent who has more extensive powers to act for a
principal than a broker has
• at common law, the factor is an agent for sale who is
entrusted with possession of goods belonging to the
principal for sale and who sells the goods in the name
of the agent without disclosing the name or existence
of the principal – see Baring v Corrie
• in some cases termed as mercantile agent
• type of agent entrusted with the sale of goods is also
applicable in the context of sales of goods by a non-
owner
Types of Agents
Commission Agent (or Commission Merchant)
• appointed by a principal to sell goods (more commonly) or
to buy goods (less commonly) on behalf of the principal –
see Cassaboglou v Gibb

Del credere Agent

• an agent who assumes a super-added duty to ensure the
principal is paid by the third party – see Campbell v
Kitchen & Sons Ltd
• promises to pay the principal the price of the goods if the
third party defaults
Termination of Agency
• sections 154–163, Contracts Act 1950 deal with the manner in which an agent’s
authority may be terminated
• an agency may be terminated:
a) By agreement
• where both parties agree that the agency shall be terminated
b) By revocation
• where the principal revoke the authority of the agent
c) By renunciation
• where the agent surrenders his authority
Termination of Agency
d)By performance
– where the agent has performed the contract
e)By operation of law
– in any of the following circumstances:
• upon the death of the principal or the agent
• when the principal or agent becomes insane
• when the principal or agent becomes insolvent or is made bankrupt

f) By frustration
– upon the happening of an event which renders the agency unlawful