7

Law of Agency
LEARNING OBJECTIVES

 LAW OF AGENCY :-
Upon completion of this chapter, students will be
able to :-
(i) Explain the definition of an agency relation
and the creation of an agency
(ii) Meaning of Section 140 Contract Act
(iii) Clarify the rights and obligations between
the principal and the agent
(iv) Authorities and termination of an agent
(v) Contrast between actual and apparent
authority
(vi) Classify modes of termination
Definition of Agency

 It is the relationship which subsists

between a principal & an agent where
the agent has been authorized to act
for the principal or represent him in
dealing with others/3 rd party.
 S135
Agent
A person who is employed by
the principal to do certain
act for him or to represent
him in dealings with 3 rd
party.
 S135
Principal

Aperson who
authorizes the agents
to acts on behalf of him
Contractual Relationship

 Contractual relationship
between the principal & the
agent
 Contractual relationship
between the principal & the
third party
CAPACITY
principal: S136

 Must be of the age of majority

 Sound mind
CAPACITY
agent: S137
 Any person may become an agent,
including minors & unsound mind
persons
 However, an agent who is a minor or
unsound mind is not responsible for his
act
 The principle must be responsible and
take risks of their act
 Chan Yin Tee v William Jacks & Co
Types of agents
 A broker: an agent who is engaged to make
contract between two principals
 A factors(mercantile agent): an agent who
has more extensive powers to act for principal
than a broker possesses.
 A commission agent: an agent appointed by a
principal to dsell goods on behalf of the
principal.
 A del credere agent: an agent who assumes a
super-added duty to ensure the principal is
paid by the third party
 Powers of attorney: legal instruments under
which principal confer authority on agent to
perform certain acts for the principal.
Formation/Creation of Agency

 There is no specific formality in order

to form a contract of agency
 Usually an agency is created or formed
by agreement/consent of both parties.
Formation/Creation of Agency

 By express appointment
 By implied appointment
 By ratification
 By Necessity
 By the doctrine of estoppel
Agency by Express Appointment

 S. 140
 The principal appoints the agent
expressly , either
 Orally or
 Writing
 Bank Bumiputra Malaysia Bhd v
Henry Ginal Anak Langgie
Agency by Implied Appointment

 Actual implied authority is by way of the

implied consent of the principal and the
agent.
 S140 and illustration, Contract Act 1950
 Occur in 3 situations;
 Implied From the relationship of
husband and wife
 Implied from the circumstances of the
case
 By the Partnership Act 1961
Implied From the relationship of
husband and wife

 Impliedly, the wife is an agent to the

husband.
 The wife has authority to pledge the
husband credit in a contract or has
authority to make contracts on behalf of
the husband.
 On condition that contracts are for
necessaries and suitable to their condition
and style of living.
 However, the husband can rebut this
implied authority by proving that:
Implied From the relationship of
husband and wife
 He expressly forbid his wife from pledging his
credit or
 He expressly warned the trademan not to supply
his wife with goods or credit or
 His wife was sufficiently provided with goods or
credit- Miss Gray v Catcard or
 His wife was given a sufficient allowance for
buying goods without having to pledge her
husband’s credit
 The contract was unreasonable, taking into
considerations her husband’s income at that
time.
Implied from the circumstances of
the case

 The creation of agency may be implied by

referring to the words, conduct or regular
conduct of business between the parties
 It appear to the public that certain person
is having authority to act on behalf of
another person
 Chan Yin Tee v William Jacks & Co.
By the Partnership Act 1961

 S7: Each partner in a partnership is an

agent to the firm or other partners in the
firm, when contracting in the course of the
partnership’s business.
 Each partner is an implied agent to the
firm
 Each partner has the implied authority to
act on behalf of the other partners
 The firm/other partners are the implied
principal to any one of the partners
 The firm/others partners are liable to
whatever contracts which had been entered
into by any of the partners.
Agency By Ratification

 Certification/acceptance by the principal

for an act done without authority or
exceeding the authority given.
 Can arise in any one of the following
situations:
1. An agent who was duty appointed has
exceeded his authority; or
2. A person who has no authority to act for
the principal has acted as if he has the
authority.
Agency By Ratification
 When any one of this situations arise, the
principal can either reject the contract or
accept the contract so made- S. 149,
Contract Act.
 Once there is ratification by principal, the
principal is bound to the contract.
 The principal is bound to the contract
retrospectively; the contract is effective
from the date when the original contract
was made by the agent not the date of the
ratification by principal.
 Bolton & Partners v Lambert
Agency By Ratification

 Conditions For Ratification

1. The contract done by agent was without
authority or exceeding the autority
2. The contract must be one, which is
recognized by law
3. The agent must act expressly as an agent
to the principal. He must not contract in
his own name.
Keighley Maxted & Co v Durant
Agency By Ratification

4. When the contract was made, the principal must

actually exist.
Kelner v Baxter
5. The principal must have contractual capacity
6. The principal must have full knowledge of all
material facts at the time of ratification- S151
Marsh v Joseph
7. The principal must ratify the whole contract.
He cannot accept only part of the contract.-
S152
Agency By Ratification

8. Ratification must be made within a

reasonable time.
Metropolitan Asylum Board v Kingham
& Sons
9.Ratification must not injure or affect the
interest of a 3 rd person- S153
Agency by Necessity/Emergency

 S142 Contract Act

 A person who has no authority,
may become an agent due to the
necessity or emergency
circumstances, in order to protect
the principle from any loss.
Agency by Necessity/Emergency

 May happen in 2 situations:

 When wife is deserted and has no means
of support
 When a person is entrusted with another
persons property, and it becomes
necessary for him due to the emergency
situation,to do something in order to
preserve & to protect that property
although he has no authority to do so.
Condition For Agency by Necessity

 There must be a real & actual emergency

Prager v Blatsplel Stamp & Heacock Ltd
 The agent was entrusted with the principal ‘s
property or goods.
Jebarra v Ottoman Bank
Condition For Agency by Necessity

 It is impossible for the agent to get

the principal’s instruction at that
time
Springer v Great Western Railway
Co.
Refer S167 & S142 Contract Act
 The agent of necessity has acted in
good faith
The effects of agency by necessity

 The agent will be protected from any claim

of the principal
 The agent will be entitled to the additional
payment for his effort to protect & to
preserve the safety and interest of the
principal
 A contract exists between the principal and
the 3 rd party.
Agency By Estoppel

 It may happen:
 When the principal himself induces the 3 rd
party to believe that a person has an
authority to act for him, as if that person
is his agent
 When a principal does not inform or
announce to the 3 rd party that his agent
has no authority or the agent authority
had been terminated, but the agent still
continues acting on behalf of that
principal.
Agency By Estoppel

 Only happen if the principal himself,

through his own words or conduct, induced
the 3 rd party to believe that a certain person
is having the authority to act on behalf of
the principal.
 It does not happen if the 3 rd party was
induced by the agent only.
Agency By Estoppel

 The principal is estopped by the

law from denying that ‘agent’s
authority
 The prinsipal cannot avoid the
liability upon the contract made by
that’agent’
 Freeman & Lockyer v Buckhurst
Park Properties Ltd.
The Authority of The Agent

 An agent’s act is binding upon the

principal if the act is done within the
authority of the agent.
 Classified into 2:
 Actual Authority
 Apparent / Ostensible Authority
Actual Authority

 Given to the agent through the agreement

between the principal and the agent
 Classified into 2: S140 Contract Act
 Express Authority
given by principal orally or in writing
 Implied Authority
when a person by his words or conduct
holds out another person as a having
authority to act for him
Apparent /Ostensible
Authority

The law presumes that the

agent possesses certain
authority, although the
principal may not have
consented to, or given such
authority to the agent
Apparent Authority

 Arise in 2 situation:
a) Where a principal, by his
words/conduct, leads the 3 rd party to
believe that his agent has authority to
make contract for him -S190
b) Where the agent previously had
authority to act, nut that authority was
terminated by principal without
notifying it to the third party
Duties of Principal and Agent

 The right and duties of the principal and

agent depend on the express or implied
terms of the contract of agency.
 Where there is no such contract of
agency, the rights and duties are laid
down in Section 164 to 178 of the
Contract Act 1950.
Duties of Agent towards the
Principal

• Obey the principal’s Instruction

S1 • Turpin v Bilton
64
• If there is no instruction,the agent must
S1 act according to the customs
64
• Skill and diligence required from the
S1 agent
65
Duties of Agent towards the
Principal

• Agent’s accounts to render proper accounts to hid

S1 principal on demand
66
• Agent’s duty to communicate with principal
S1 during emergency/difficulty
67
• Must Act in Good Faith & no conflict Interest
S1 • Armstrong v Jackson
68
Duties of Agent towards the
Principal

• Cannot Make any ‘secret profit’

S1 • Andrews v Ramsay & Co
68
• Principal’s right to benefit gained by agent
S1 dealing on his own account in business of
agency
69
• The agent cannot delegate his authority to
other person
Duties of Agent towards the
Principal

• Must pay his principal all sums received on his

S1 behalf
71
• the agent is entitled to deduct any sum from
S1 the principal’s money for the payment of
commission/advances made
70
• Not to disclose confidental information or
documents entrusted to him by his principal
To pay the agent the commission or
other remuneration agreed – S172 Not to willfully prevent or hinder the
However if the agent is guilty of agent from earning his commission
misconduct, he losses his right to
remuneration- S173

Duties of a Principal
to his Agent

However, if the agent is employed by

To indemnify the agent for acts done principal to do a criminal act, the
in the exercise of his authority principal is not liable to indemnify
S175, S176, S178 the agent for any consequences of
that criminal act –S177
Termination Of Agency

By the act of
the parties By operation of
law
By the act of the parties

By mutual consent
between them

By unilateral revocation
by the principal

By unilateral
renunciation by the
agent
By mutual consent between them

Once they
Both parties agreed to
may terminate
terminated the agency,
their agency the agent
relationship has no
by mutual longer any
consent authority to
between act on
them behalf
principle
By unilateral revocation by the
principal

Revoking the At any time,

By act of agent authority before the agent
principal has exercised the
S154 authority –S156

Must give a reasonable

May be done
notice to agent.
either expressly
or impliedly-S160 Otherwise the agent
entitle to damages –S159
By unilateral renunciation by the
agent

By the act of the Renouncing the May be express

agent business or implied
S154 S160

Otherwise the principal is

entitled to damages Must give a
reasonable notice
S159
By operation of law

By the performance of the By the expiration of the period

contract of agency fixed @implied in the contract
S154 of agency

By the death of either the

principal or agent By bankruptcy or insolvency of
S154 the principal
S154

By the subsequent Insanity of By the happening or an event

either the principal or agent which renders the agency
unlawful
S154