Agency

11
Agency
OBJECTIVES
This chapter:
 covers the basic principles of agency which are
applicable to both our work as well as our personal lives
 outlines the way in which agency is created
 states and examines the duties and rights of the
principal, the agent and the third party, with whom the
agent might have cause to interact with on behalf of the
principal
 examines how the agency relationship comes to an end
or is ended
BUSINESS LAW (THIRD EDITION) All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2018 11–3
PREVIEW
 Introduction
 Creation of Agency
 Agency in Relation to Banking
 Bank as Agent for Customer
 Bank Employees as Agents for the Bank
 Duties of Principal and Agent
 Duties of a Principal to His Agent
 The Authority of the Agent
 Termination of Agency

INTRODUCTION
 definition of ‘agency’:
– the relationship that exists between two persons when
one, called the agent, is considered in law to represent
the other, called the principal, in such a way as to be able
to affect the principal’s legal position in respect of
strangers to the relationship by the making of contracts or
the disposition of property – GHL Fridman
– a word used in law to connote an authority or capacity in
one person to create legal relations between a person
occupying the position of principal and third parties –
International Harvester Co of Australia Pty Ltd v
Carrigan’s Hazeldene Pastoral Co

INTRODUCTION (cont.)
 law of agency – Part X, sections 135–191, Contracts Act 1950

 agent – a person employed to do any act for another or to
represent another in dealings with third persons
 principal – the person for whom such act is done, or who is so
represented
 the ‘third person/party’ – the person with whom the agent
brings the principal into a legal relationship
 agency – the relationship which subsists between the principal
and the agent, who has been authorized to act for him or
represent him in dealings with others

 in an agency, there are in effect two contracts:

1. The first, made between the principal and the 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
 any person who is 18 years old or above and who is of sound
mind may be a principal
 as between the principal and third persons, any person may
become an agent; but persons of unsound mind and who are
below 18 years of age are not liable towards their principals for
acts done by them as 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

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

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

 the nature of a del credere agent’s liability is that the

agent assumes a secondary liability that is only invoked if
the third party defaults in paying the unpaid price of the
goods (or whatever is payable by the third party under
the principal-third party contract)
 del credere liability is a tool that can be used by a
principal to minimize and spread the risk of non-payment
by the third party under the sale contract –see Societa
Industrie Zanussi v Guerrieri
 the del credere agent’s risk is matched by the del credere
commission

Powers of Attorney
 legal instruments under which principals (‘donors’)
confer authority on agents (‘attorneys’ or ‘donees’) to
perform certain acts for the principal – governed by the
Powers of Attorney Act 1949
 under section 5 of the Powers of Attorney Act 1949, a
power of attorney may be revoked under the following
circumstances:

a) the donor registers with the High Court, a written notice of

revocation
b) the donee registers with the High Court, a written notice of
renunciation
c) the donor or the donee has died
d) the donee has become of unsound mind
e) the donor has been adjudged to be of unsound mind
f) a receiving order has been made against the donor in
bankruptcy
 when construing a power of attorney, general words need to be
viewed in the light of the stated objects of the power of attorney

 a power of attorney is construed strictly by the courts

according to well-recognized rules. The powers of
attorney are interpreted as giving only such authority
as they confer expressly or by necessary implication
2. Authority and Power in the Law of Agency

 authority – the power, right or commission that an
agent has or appears to have to do acts or make
contracts with third parties on principal’s behalf
 power – strictly legal concept

3. Agency Compared to Other Legal Relationships

 see Brambles Security Service Ltd v Bi-Lo Pty
Ltd, International Harvester Co of Australia Pty
Ltd v Carrigan’s Hezeldene Pastoral Co
 agency and partnership – compare and contrast
 see Construction Engineering (Aust) Pty Ltd v
Hexyl Pty Ltd

CREATION OF AGENCY
 agency arrangements need not be in writing

 no consideration is necessary to create an agency –
section 138 of the Contracts Act 1950
 agency may arise:
a) By express appointment by the principal (actual
express authority)
b) By implied appointment by the principal (actual
implied authority)
c) By the agent occupying a position which would
normally carry with it authority to do an act of the
kind in question (usual authority)

CREATION OF AGENCY
(cont.)
d) By the principal adopting the act of an agent via the

process of ratification when the agent acted without
the authority of the principal (agency by ratification)
e) By necessity, i.e. by the law constructing an agency
between a putative principal and a putative agent
under the operation of law doctrine (agency by
operation of law); by the doctrine of estoppel or ‘holding
out’, that is, by the principal representing to the third
party that the agent had authority to do the act in
question when in fact there was no underlying grant of
authority for the agent so to act (agency by
representation)

CREATION OF AGENCY
(cont.)
 see Part X of the Contracts Act 1950, KGN Jaya Sdn Bhd v
Pan Reliance Sdn Bhd, Kuchwar Lime & Stone Co v Dehri
Rohtas Light Railway & Co Ltd
1. By Express Appointment
 actual consent of principal and agent
 see Garnac Grain Co Inc v HMF Faure & Fairclough Ltd Ex
parte Delhasse, Singham Sulaiman Sdn Bhd (t/a Jones
Lang Wootton) v Mega Palm Sdn Bhd
2. By Implied Appointment
 words and conduct of the parties involved that imply consent

CREATION OF AGENCY
(cont.)
 the law can infer the creation of an agency by
implication when a person by his words or conduct
holds out another person as having authority to act for
him – section 140 and Illustration, Contracts Act 1950
 see Hely-Hutchinson v Brayhead Ltd, Equiticorp
Finance Ltd v Bank of New Zealand, Brick & Pipe
Industries Ltd v Occidental Life Nominees Pty Ltd,
Chan Yin Tee v William Jacks & Co (Malaya) Ltd
 by virtue of section 7 of the Partnership Act 1961,
partners are each other’s agents when contracting in
the course of the partnership business

CREATION OF AGENCY
(cont.)
3. By Usual Authority
 usual authority of the agent is created by the agent
occupying a position which would normally carry with
it authority to do an act of the kind in question
 see Watteau v Fenwick

CREATION OF AGENCY
(cont.)
4. By Ratification
 agency by ratification can arise where:
a) An agent who was duly appointed has
exceeded his authority
b) A person who has no authority to act for the
principal has acted as if he has the authority
 when any one of the abovementioned situations arise,
the principal can either reject the contract or accept
the contract so made – section 149
 ratification may be expressed or implied – section
150, Contracts Act 1950

CREATION OF AGENCY
(cont.)
a contract can only be ratified under the following
circumstances:
a) the act or contract must be unauthorized
b) the agent must, at the time of the contract, expressly act
as agent for the principal – section 149, Contracts Act
1950
c) the agent must have a principal, who is in actual
existence or capable of being ascertained, when the
contract is made – Kelner v Baxter
d) the principal must have contractual capacity at the time
when the contract is being made and at the time of
ratification

CREATION OF AGENCY
(cont.)
e) the principal must, at the time of ratification, have full

knowledge of all material facts unless it can be shown
that he intends to ratify the contract whatever the facts
may be and assume responsibility for them – section
151
f) the principal must ratify the whole act or contract
g) the ratification must not injure a third party, i.e. it must
not subject the third party to damages or terminate his
right or interest – section153 and Illustration
 see Davison v Vickery’s Motors Ltd (In Liquidation)

CREATION OF AGENCY
(cont.)
5. By Necessity
 3 conditions must be met:
a) it is impossible for the agent to get the principal’s
instruction – section 142
b) the agent’s action is necessary, in the
circumstances, in order to prevent loss to the
principal with respect to the interest committed to
his charge
c) the agent of necessity must have acted in good
faith

CREATION OF AGENCY
(cont.)
 in an emergency, an agent has authority to do all such
acts for the purpose of protecting his principal from loss as
would be done by a person of ordinary prudence, in his
own case, under similar circumstances – section 142
 in other words, the elements of agency of necessity are:
a) there must be a situation of necessity
b) the agent cannot obtain instructions from the principal
c) the agent must act in good faith and in the interests of
the principal
d) the agent’s acts must be reasonable and prudent

CREATION OF AGENCY
(cont.)
6. By Estoppel
 3 elements necessary to constitute estoppel:
a) a representation made by or on behalf of the
principal to the third party concerning the authority
of the agent
b) reliance by the third party on the representation
made by the principal to the third party
c) the third party must rely on the principal’s
representation and alter his or her legal position
on the strength of the representation

AGENCY IN RELATION TO
BANKING
 the law on agency is relevant to bankers because the

relations between a banker and a customer are based
on agency
 furthermore, bank employees are agents of the bank
 sometimes, the customers’ agents act on the
customers’ behalf when transacting with the bank

BANK AS AGENT FOR
CUSTOMER
 relationship between banker and customer –

debtor and creditor or vice versa
 banker acts as his customer’s agent

BANK EMPLOYEES AS
AGENTS FOR THE BANK
 authorized employees may act on behalf of the bank

 the bank is liable for the torts committed by its
employees

DUTIES OF PRINCIPAL AND
AGENT
 relationship between agent and principal – fiduciary
relationship
 sections 164–178, Contracts Act 1950:
a) agent’s duty in conducting principal’s business – section
164
b) skill and diligence required from agent – section 165
c) agent’s accounts – section 166
d) agent’s duty to communicate with principal – section 167
e) right of principal when agent deals, on his own account, in
business of agency without principal’s consent – section
168

AGENT (cont.)
f) principal’s right to benefit gained by agent dealing on his own
account in business of agency – section 169
g) agent’s right of retainer out of sums received on principal’s
account – section 170
h) agent’s duty to pay sums received for principal – section 171
i) when agent’s remuneration becomes due – section 172
j) agent not entitled to remuneration for business misconducted
– section 173
k) agent’s lien on principal’s property – section 174
l) agent to be indemnified against consequences of lawful acts
– section 175

AGENT (cont.)
m)agent to be indemnified against consequences of acts done in
good faith section 176
n) non-liability of employer of agent to do a criminal act – section
177
o) compensation to agent for injury caused by principal’s neglect
– section 178
 duties of an agent:
a) to obey the principal’s instructions – section 164
b) in the absence of instructions from the principal, to act
according to the customs which prevail, in doing business of
the same kind, at the place where he carries on his work

AGENT (cont.)
d) to exercise care and diligence in carrying out his work and to
use such skill as he possesses – section 165
e) to render proper accounts when required – section 166
f) to pay to his principal all sums received on his behalf
g) to communicate with the principal
h) not to let his interest conflict with his duty – section 169
i) not to make any secret profit out of the performance of his
duty
j) not to disclose confidential information or documents
entrusted to him by his principal
k) not to delegate his authority – delegates non potest delegare

AGENT (cont.)
 the maxim delegatus non potest delegare applies to
principal–agent relationship
 exceptions to this general rule:
a) where the principal approves or consents to the
delegation of the authority – see De Busche v Alt
b) where it is presumed from the conduct of the parties
that the agent shall have power to delegate his
authority
c) where the custom, usage or practice of the trade or
business permits delegation – see WA Coombs Ltd v
Brown, De Busche v Alt

AGENT (cont.)
d) where the nature of the agency is such that

delegation of the authority to another person is
necessary to complete the business – see Quebec
and Richmond Railway Co v Quinn
e) in case of necessity or an unforeseen emergency –
see Gwilliam v Twist
f) where the act to be done is purely ministerial or
clerical or administrative and does not involve the
exercise of any special discretion or skill – see WA
Coombs Ltd v Brown, Allan & Co v Europa Poster
Services Ltd

DUTIES OF PRINCIPAL TO
HIS AGENT
 duties of a principal to his agent are:
a)to pay the agent the commission or other remuneration
agreed, unless the agency relationship is gratuitous –
see Dolphin v Harrison, San Miguel Pty Ltd
b)not to wilfully prevent or hinder the agent from earning
his commission
c) to indemnify the agent for acts done in the exercise of
his authority
d)to respect any lien the agent has over the property of
the principal in the actual or constructive possession of
the agent

THE AUTHORITY OF THE
AGENT
 agent’s acts are binding on the principal if done within

the agent’s authority
 authority may be actual (expressed) or apparent
(implied)
 see The Firm of T.A.R. CT. v The Firm of S.V.K.R

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
(cont.)
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

REVIEW
 Introduction
 Creation of Agency
 Agency in Relation to Banking
 Bank as Agent for Customer
 Bank Employees as Agents for the Bank
 Duties of Principal and Agent
 Duties of a Principal to His Agent
 The Authority of the Agent
 Termination of Agency


Agency

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Agency

Uploaded by

Copyright:

Available Formats

11

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 law of agency – Part X, sections 135–191, Contracts Act 1950

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 in an agency, there are in effect two contracts:

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

Commission Agent (or Commission Merchant)

Del credere Agent

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 the nature of a del credere agent’s liability is that the

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

a) the donor registers with the High Court, a written notice of

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 a power of attorney is construed strictly by the courts

2. Authority and Power in the Law of Agency

BUSINESS LAW (THIRD EDITION) All Rights Reserved

3. Agency Compared to Other Legal Relationships

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 agency arrangements need not be in writing

BUSINESS LAW (THIRD EDITION) All Rights Reserved

d) By the principal adopting the act of an agent via the

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

e) the principal must, at the time of ratification, have full

 see Davison v Vickery’s Motors Ltd (In Liquidation)

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 the law on agency is relevant to bankers because the

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 relationship between banker and customer –

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 authorized employees may act on behalf of the bank

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

d) where the nature of the agency is such that

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

 agent’s acts are binding on the principal if done within

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

BUSINESS LAW (THIRD EDITION) All Rights Reserved

You might also like