Topic 3 Agency

TOPIC LAW OF AGENCY
3:
DR RAFIDAH@MALISSA BINTI SALLEH 1

Introduction
Creation of agency
Types of authority
Relationship between principal and agent
Termination of agency

1. INTRODUCTION
• The law on agency is governed by Part X of the Contracts

Act 1950.
• Section 135 to section 191
•What is an Agency?
It is a relationship which subsists between the principal and
the agent, who has been authorized to act for him or represent
him in dealings with others.

Time constraint
• To save time and energy
Convenience
Purpose • More practical to appoint someone to

do the job, especially if it is involves
geographical factor
of an Special skill and knowledge
agency • The principal may lack the expertise

needed for the job
Emergency
• The principal is permanently or

temporarily incapacitated

• Who is an Agent?
Section 135 Contracts Act 1950
An agent is defined as ‘a person employed to do an act for another
or to represent another in dealings with third persons’.
• Who is qualified to be an Agent?

Anyone who is appointed by the principal, including a minor. But if the
agent is a minor, he will not be liable for any loss caused by him to the
principal.
• Who is a Principal?
A principal is ‘The person for whom such act is done, or who is so
represented’.
• Who is qualified to be a Principal?

Section 136 Contracts Act 1950.
Any person who is of the age of majority and is of sound mind.
• In an agency, there are two contracts:
1. A contract between the principal and the agent. The

agent derives his authority from the principal and actsfor and
on behalf of the principal.
2. A contract between the principal and the third party

through the work of the agent.

Universal agent
• A general agent with extensive powers
• He can do all acts that a principal can
personally do
General agent
Types of • An agent who is hired to act for the
principal in a particular business
agent • He may do any act usually done in that

type of business
Special agent
• An agent who is employed for a
particular act only
• He may only represent the principal for
that single purpose

2. CREATION OF AGENCY
• Section 138 Contracts Act 1950

No consideration is necessary to create an agency.

by express appointment by the
principal
by implied appointment by the

Five principal
ways to by ratification by the principal
create an
agency: by necessity, i.e. by operation of
law in certain circumstances
by the doctrine of estoppel or

‘holding out’

i. Express Appointment
• The principal expressly or specifically appoint the agent to do a

particular act or to represent him in a particular transaction.
• Both parties know and agree that the agent has the power to represent
the principal.
• It can be oral or in writing.
• An example is Power of Attorney.

ii. Implied Appointment
• Section 140 Contracts Act 1950.
• Where a person (principal), by his words or conduct, holds out

another person (agent) as having the authority to act for him.
• The third party will believe that the agent has been lawfully appointed by the
principal and can represent the principal.
• For instance, a grocer who regularly sends his shop assistant

to buy goods for him. The third party would form the opinion
that the assistant had the authority to buy the goods on the
grocer’s behalf DR RAFIDAH@MALISSA BINTI SALLEH 14
ii. Implied Appointment
(a) Section 140 Contracts Act 1950.

• Ref to Illustration.
• 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.

CHAN YIN TEE v. WILLIAM JACKS & CO.
(MALAYA) LTD. [1964] M.L.J. 260.
Facts:
Yong was a minor. Appellant registered himself and Yong as partners.

At a meeting, the appellant and Yong met a representative of the
respondent company in which the appellant held himself out to be
Yong’s partner. Goods were supplied to Yong. Respondent sued for the
price.

CHAN YIN TEE v. WILLIAM JACKS & CO.
(MALAYA) LTD. [1964] M.L.J. 260.
Held:
• Irrespective of whether Yong was the appellant’s partner, the
appellant had held out Yong as his agent with authority to do
things on his behalf and for whose acts the appellant was
liable.
• Any person, irrespective of his competence to contract, may

become an agent, for whose acts the principal may be liable to
third parties.

(b) The relationship between principal and
agent may exist between husband and
wife.
• A wife has implied authority to contract on behalf of her husband
• The third party can sue the husband for a contract made by the wife
• The husband can deny liability if:

 the husband had expressly told the third party that his wife is not authorised
to act for him
 the wife had been given adequate provisions
 the wife has her own source of income
 the contract was not suitable to the husband’s condition in life e.g. too
expensive

(c) Partners are each other’s agents when contracting in the course
of the partnership business.
• Section 7 of the Partnership Act 1961 (Revised 1974)

iii. Agency by ratification
• Ratification means to accept or to confirm
• The basis of this relation is either;

a) an agent has been appointed but has exceeded his power, OR
b) the person has never been appointed as an agent but had acted as if
he had the authority to act as an agent.

Effect of ratification
• The principal has the option to either accept or reject the
transaction or contract made by the agent
• If he accepts, he shall be liable for it.
• If he rejects, the agent shall be personally liable for the contract.
• Section 149 – 153 of Contracts Act 1950
• Once ratified, the principal cannot change his mind.
• The ratification operate retrospectively i.e. back-dated to the

date the agent made the contract with the third party.

Conditions for a valid ratification
• If the conditions are not fulfilled, the ratification is not binding
on the principal even if he had previously agreed to make the
ratification
• There are 9 conditions namely:

1) The act or contract must be unauthorised
 The agent exceeded his power
 The person was never appointed as an agent
2) The agent must have acted on behalf of the principal

 The contract was made under the principal’s name
 The agent had informed the third party that the contract
was for the principal

3. The principal must exist or is capable of being ascertained at the time the act was
done
 If the principal is a company, the company must have been incorporated at
the time the contract was made
 Refer to the date of the company’s registration
 Kelner v Baxter (1866) LR 2 CP 174
It was held that a contract to buy a hotel made by an agent on behalf of a company –
which was about to be formed – could not be ratified by the company. This is because
the company did not exist at that time.
 Section 35 of the Companies Act 1965

In Malaysia, if there is a contract which has been entered into by a
company or its agent prior to its formation, the contract may be ratified
by the company after its formation. Once the company ratifies it, the
company is bound by the contract from the date the contract was made. Before
ratification by the company, the agent will be liable.
4. The principal must ratify the whole act

 Partial ratification is not acceptable
 the principal must either accept the entire contract or reject it
 Section 152 ContractsDR Act 1950.
RAFIDAH@MALISSA BINTI SALLEH 23
5. The principal must have full knowledge of all material facts
relating to the contract
 Section 151 Contracts Act 1950
 Relevant info such as price and quantity of goods, delivery
period, identity of third party
 Non-disclosure of material facts will render the ratification
invalid
6. The principal must have contractual capacity

 The principal is not a minor or unsound
7. The act must not be unlawful

 If the agent had done a criminal or illegal act, the
ratification is not binding on the principal
8. The ratification must be made within a reasonable time
 There should not be unreasonable delay to ratify
 It depends on the facts and circumstances
 Failure to accept goods in reasonable time signifies no ratification
 Failure to return goods within reasonable time implies ratification
 Metropolitan Asylum Board v. Kingham and Sons [1890] 6 TLR 217.
It was held that the principal’s purported ratification on the agent’s
contract to buy eggs without authority one week later was void as it was
made too late.
9. The ratification must not injure the rights of a third party

 For instance, the agent terminated a 6 month lease given to a third party
before the 6 months are over
 Section 153 Contracts Act 1950 (Ref. to Illustration)

iv. Agency by necessity (Emergency)
• Section 142 of the Contracts Act 1950
• There is an emergency where the agent has to act without the principal’s
instructions
• The agent could not reach the principal for instruction
• The agent could not wait for the principal’s
instructions
• For instance, a fire or flood where damage to property and/or loss of life
or injury to persons may occur

The rationale:
• The reasons or purpose of the agency is due to necessity or emergency
where the agent has to act quickly in order to protect the principal’s
interests/property or to prevent the principal from suffering losses
• He cannot wait for the principal’s instruction but must use his own
initiative

Three conditions to be met for the creation of
an agency by necessity:
(a) It is impossible for the agent to get instructions

from the principal.
(b) The agent’s action is necessary, 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.
• cannot sue the agent even if he suffers losses

(a) It is impossible for the agent to get instructions from the principal.

• Ref. to Illustrations.
• Springer v. Great Western Railway Company [1921] 1 KB 257.

Springer v Great Western Railway Co
The tomatoes were found to be

Facts: D agreed to carry the P’s
bad and hence, D decided to sell
tomatoes from Jersey to Covent
the tomatoes at Weymouth as D
Garden market. Owing to bad
felt that the tomatoes could not
weather, the ship arrived late at
arrive at Covent Garden market in
Weymouth. Meanwhile, the D’s
saleable condition.
workers were on strike.
However, D did not communicate

Held: P was entitled to damages
this to the P. P claimed for
because D were not agents by
damages.
necessity because they have
failed to communicate with P
when they could have done so.
(b) The agent’s action is necessary, in order to prevent loss to the
principal with respect to the interest committed to his charge.
• Great Northern Railway Co v. Swaffield [1874] LR 9 Ex 132.

Great Northern Railway v Swaffield
Facts: P had been entrusted to P had to look after the horse and
deliver a horse of D but when it then claimed from D the extra
reached the destination, nobody expenses incurred.
came to take the horse.
However, D refused to pay on the

Held: P was an agent by
ground that P was not authorized
necessity and therefore entitled
to do so.
to the claim.

v. Agency by estoppel
What is estoppel?
• Estoppel means a person is prevented from denying what he has said or

done.
• In other words, a person is estopped from denying his words or actions.
• The words or action can be used against him as evidence in court.

v. Agency by estoppel
• When the principal by his words or conduct, allows a third party to

believe that a particular person (A) is his agent
• Although A is not an agent, the third party believes that A is an agent
• Consequently, the third party will deal with A on the belief that A is
representing the principal
• The principal cannot later deny that A is his agent – estoppel applies
• The principal is thus bound by A’s action

Representation by principal
• There must be a representation by the principal to the third party
• The representation may be by;
 words
the principal tells the third party that A is his agent
 conduct
the principal allows A to act like an agent in the presence or knowledge of the third
party
 silence
A himself claimed to be an agent and the principal did not correct the false
information – this only applies if the principal knew about A’s false representation

Freeman & Lockeyer v Buckhurst Park
Properties Ltd (1964) 2 QB 480
Facts: The board of directors in a company allowed K to act as managing
director of the company even though he was never appointed as one. He
occupied an office on the company’s premise and the door bore the name
‘Managing Director’. K instructed the plaintiffs to do certain work for the
company. The company denied liability to pay the plaintiffs on the ground that
K was not a director and thus was authorised to contract for the company.
Held: The court held that although K had no actual authority to employ the
plaintiffs, the company is still bound by the contract as it had created an
impression that K is a director by allowing him to act as managing director.
Thus, the company was estopped from denying that K was a director and had
the authority to contract for the company.
Conclusion
• Agency is a relationship that involves three parties –
the principal, the agent and the third party.
• The agent act as a middle man to facilitate the

contract or transaction between his principal and the
third party.
• Consequently, an agent incurs no personal liability as

long as he acts within the scope of authority given to
him by the principal.
TOPIC 3:
LAW OF AGENCY
TYPES OF AUTHORITY
Introduction
• An agent is engaged to deal with third parties on behalf of his principal
• This authority can be given expressly by the principal or implied from

the course of the business
• Consequently, the principal will be bound by the act of the agent and
be liable for any breach or non-performance of the act or contract.
• An agent’s act is binding on the principal if it is done within his

authority.
• An agent’s act is not binding on the principal if it is done in excess of

his authority.

Actual Authority
Types of
authority Apparent/Ostensible
Authority

1. Actual Authority
• Actual authority is the authority that is given to the agent by the
principal through an agreement.
• Actual authority comprises of:-

a) Authority expressly given by the principal to the agent
orally or in writing
Example: You appoints Ali as your agent to sell your house for not less
than RM300,000.00. Ali’s actual authority is to sell your house for not less than
RM300,000.00. If Ali has acted in accordance with this authority, then you are
bound by the contract Ali made on your behalf.

b) Authority impliedly expected from an agent. May arise in following:
i. All such powers which are proper/necessary / usual to execute the
express authority.
ii. The circumstances of the case
iii. The customs/ usages of trade.
iv. The situation and conduct of the parties.
Chan Yin Tee v William Jacks

From the conduct of Chan telling WJ that Yong is
his partner, it shows that Yong has the implied usual
authority to act on behalf of Chan in buying goods.

Watteau v Fenwick [1893] 1 QB 346
Facts: The defendant appointed a manager to run a public

house. The defendant prohibited the manager from buying
cigars on credit but the manager bought some from the
plaintiff who claimed payment from the defendant.
Held: The court decided that the defendant was liable

because it is usual for the manager of a public house to
make that kind of purchases on credit. The plaintiff was
able to rely on implied authority of the agent to bind the
principal as long as he does not know of the prohibition.
2. Apparent/Ostensible Authority
• This type of authority arises where the principal had led a third party to
believe that an agent has authority to do a particular act on behalf of the
principal
• The principal has by words or conduct, created an impression that the

agent has authority to bind him even though such authority had not been
given
• The principal is estopped from denying his words or action in leading

the third party to contract with the agent

Apparent authority may arise in two
situations:
(a) Where a principal, by his words or conduct, leads a third party to
believe that his agent has authority to make contracts for him.
Section 190 Contracts Act 1950.
• The apparent authority is created by the conduct of the

principal. There is no apparent authority if a person holds
himself out to act on behalf of his principal without the
knowledge and consent of the latter.
(b) Where the agent previously had authority to act, but that authority
was terminated by the principal without notice to third parties.
Example: The principal gave the authority to his
agent to purchase stationary goods for the
company annually from the 3rd party. However, to
cut down the budget of the company for that
particular year, the principal instructed the agent
not to purchase any stationary goods but this
was not conveyed to the 3rd party who continued
to supply the stationary goods at the request of
the agent. The principal is bound to pay the 3 rd
party for the goods supplied.

Freeman & Lockeyer v Buckhurst Park
Properties Ltd (1964) 2 QB 480
Facts: The board of directors in a company allowed K to act as
managing director of the company even though he was never
appointed as one. K instructed the plaintiffs to do certain work for
the company. The company denied liability to pay the plaintiffs on
the ground that K was not authorised to contract for the company.
Held: The court held that although K had no authority to act for
the company, the company is still bound by the contract as it was
estopped from denying that K has authority to make a contract for
the company. The other directors had made a representation by
conduct and silence.
What is the difference between Implied
Authority and Apparent Authority?
• Implied authority is based on the inferences

drawn from an agreement between principal
and agent.
• Apparent authority is based on the

representation made by a principal to the third
party irrespective of any agreement between
principal and agent.

Graphic Lines Pte Ltd v Chai Chee Mein &
Ors (1987)
Facts: The general manager, who was one of the partners of the nightclub,
had represented to the plaintiffs that advertisements should be done
through the assistant manager.
Held: Since the general manager had actual authority to authorize the
assistant manager to place advertisements on behalf of the club, the
defendants were bound by his act. Thus, it was inferred that the assistant
manager had apparent authority.

What happens when an agent commits fraud or misrepresentation?
• The principal is liable if the agent is acting within his actual or

apparent authority. It does not matter whether such fraud or
misrepresentation was committed for the principal or the agent
himself.
• The agent is also personally liable for such fraud or

misrepresentation.

• As with implied authority, a third party cannot rely on apparent
authority if he knew or ought to have known that the agent did not
have the authority in question.
• Overbrook Estates Ltd. v. Glencombe Properties Ltd. [1974] 3

All ER 511
Facts: The purchaser tried to set aside the contract on the ground
that:
(i) the agent, i.e. the auctioneer, had apparent authority to make
representations on the property, and
(ii) the agent had in fact misrepresented the position.
Held: It was held that the purchaser was bound by the contract since
the catalogue had made it clear that the auctioneer had no such
authority.
Undisclosed principal
• Sometimes an agent might deal with a third party without informing
him that he is in fact acting for someone else
• He may pretend to be the principal
• The third party would assume that the agent is making the contract
for himself
• This is called an undisclosed principal
• The third party will be bound by the contract even if he later discovers
the existence of the real principal

• When the third party has no knowledge that the agent was acting for an
undisclosed principal, he has the right to take legal action against both the
agent and the principal
• Alternatively, he can treat the agent as the principal and deal with him
alone
• Section 186 of the Contracts Act
• The agent is estopped from denying that he had acted as a principal

Datuk Jagindar Singh v Tara Rajaratnam
[1983] 2 MLJ 196
Facts: The 1st and 2nd appellants conspired to obtain the

respondent’s property by fraud. The property was sold to
a third party and later transferred to a development
company wholly owned by the 1st appellant.
Held: The court held that the whole transaction was made
for and on behalf of the 1st appellant who was the
undisclosed principal of the third party. As a result, the 1 st
appellant was liable for fraud in the contract.
Rights of the third party
• Section 184(a) of the Contracts Act states that if the principal
require performance of the contract, the third party has against
the principal, the same rights as he would have had as against
the agent if the agent had been the principal
• This means that the contract between the principal and the third
party will be subject to any rights or obligations subsisting
between the third party and the agent
• Hence, the third party has the right to set-off or counter-claim

from the principal any payment between him and the agent
before the contract is performed
Right to reject the contract
• According to section 184(b), if the principal discloses his identity
before the contract is completed, the third party has the right to
refuse performance of the contract if he could show that the identity
of the principal or agent is essential to him
• The third party has to show that the identity of the principal is so
material to him
• If he had known about the principal’s existence, he probably would

not have entered into the contract

Right to reject the contract
• Alternatively, he could show that he only intended to contract with the

agent personally, that had he known that the agent was acting for the
principal, he would not have entered into the contract
• Identity of the agent is important to him
• This right can only be exercised before the contract is completed
• Once the contract had been completed, the third party cannot rescind the
contract

Rights of the agent
• If the agent had not disclosed the existence of the principal, he can
personally sue on the contract as the third party believes he is the party
to the contract
• As the third party does not know about the existence of the real
principal, he cannot refuse to perform the contract
• Section 189 provides that an agent can do so for an undisclosed principal

but not if the person is pretending to be an agent but is actually acting on
his own account

TOPIC 3:
LAW OF AGENCY
RELATIONSHIP OF AGENT &

PRINCIPAL (DUTIES)
Introduction
• Agency is a relationship based on mutual

trust and confidence
• The principal trusts the agent to carry out
his work
• The agent trusts the principal to pay his
remuneration
• Consequently, the law imposes duties and
rights on both parties

Duties of agent to principal
• Section 164 – 171 of Contracts Act 1950
1. To obey the principal’s instruction (Section 164)

• An agent must follow the instruction of the principal. If
agent does not follow, it is a breach of agency contract.
• An agent has to follow the instruction if it is lawful.
• Example: The principal (Encik Ahmad) instructed his agent
(Mr Naim) to sell his painting for RM100,000.00. However,
Mr Naim sell his painting for RN60,000.00. Here Mr Naim
has breached Section 164 of Contract Act i.e. agent’s duty
to obey the principal’s instruction. He is liable for the loss of
RM40,000.00 suffered by his principal.
Turpin v. Bilton [1843] 5 Man. & G. 455.
Agent held liable when he failed to insure a ship when instructed to do
so and the ship was lost.
Bostock v. Jardine 3 H. & C. 700.

The agent was held liable when he bought more than he was directed to
buy. However, an agent is under no duty to obey if the principal’s
instructions are unlawful.
Cohen v. Kittel [1889] 22 Q.B.D. 680.

The agent was held not liable for failing to place bets.

2. To act according to custom where instruction is
not given (Section 164)
• When the principal does not give any instruction,

agent has to act according to normal standard in
doing a business.
• Illustration (b) to S. 164

3. To exercise care, skill and diligence (Section
165)
• Agent must use his skill and be diligence about

the interest of his principal. Agent must make sure
that when he is acting on behalf of the principal, it
is important for him to be careful.

Keppel v Wheeler (1927) 1 KB 577
Facts: D was an agent for P. The Later, another offer was made by
agent was asked by the P to sell a B, but this time the offer is higher
house. One offer was made by A than the first offer made by A. The
through an agent and was accepted agent did not inform the principal
by the principal subject to a about B’s offer.
condition.
Held: The agent was liable

because he must use his skill and Principal signed a contract with A.
care for the benefit of his Principal took an action against
principal. Since agents failed to Agent.
do so, he was liable to pay the
principal the difference between
the two offers. DR RAFIDAH@MALISSA BINTI SALLEH 65
4. To render proper accounts when required by the
principal (Section 166)
• The agent must give all account for all monies and property that he is
in charge when the principal asked for it.
• The principal’s property should not be mixed up with the agent’s own
property.

5. To pay the principal all sums received on behalf of
the principal. (Section 171)
• Agent must give the principal the money he received on

behalf of the principal.
• Agent may however, before giving all the monies
deduct the followings:-
a) advances paid by the agent first, on behalf of the
principal;
b) agent’s commissions;
c) agent’s remuneration (salary)

• The agent also has the right to retain his
principal’s property in his possession until his
remuneration is paid. This right is called as ‘lien’.
(S. 174)
• However, the lien gives only a right to retain

possession and the agent has no power to sell the
goods except with the consent of the principal.

6. To communicate with the principal (Section
167)
• Agent must try his best to communicate with the

principal.
• He must use all his skill and diligence in giving
any information to or getting any instruction from
the principal. In the situation where it is
impossible e.g in cases of emergencies, the agent
must use his discretion to the best interest of the
principal

7. Agent must not let his own interest to conflict
with his duty
• Agent must do duty for the interest of his principal.

Agent must not allow his interest to go against the
interest of his principal.
• What is meant as acting in good faith is that:
(a) The agent cannot become a party to the
transaction with the principal.
(b) The agent cannot act on behalf of both parties to
a transaction at one time without their consent.

c) The agent must disclose everything that he knows
to the principal relating to all material facts of the
contract.
d) All monies & profits should be put into the
principal’s account.
• S. 169 – Principal has the right to recover from the

agent any benefit which he may have obtained
from the contract even though there is no loss on
the part of the principal.

Wong Mun Wai v Wong Tham Fatt & Anor
(1987) 2 MLJ 249
Fact: The Agent (Defendant) sold the principal’s land below the market
price to the agent’s wife.
Held: The agent has failed in his duty on two grounds:-
i. He sold the Plaintiff’s land below the market price

ii. He sold it to his wife without telling it to the principal.
The court gave his decision based on the fact that the agent had a duty
to act in a good faith to protect the interest of his principal and must not
do any thing that would be conflicting with the interest of the principal.
Fulwood v Hurley
Facts: The agent had acted on behalf of both parties;

the P and the 3rd party, by claiming commission from
both of them without their knowledge and consent.
Held: The agent has breached his duty towards the

principal for not acting in good faith.

8. Not to make any secret profit out of the
performance of his duty.
• What is secret profit? – It may mean:

i. bribe or payment of a secret commission by a
third party
ii. any financial advantage the agent receive by
third party on top of commission or salary that
has been agreed by the agent and principal.

• If there is a secret profit, there are actions can be
taken by the principal. They are:
a) If the principal knows about it, and consent to it,
the agent can keep the profit. (Section 168)
b) If the principal does not like it, the principal may
repudiate the contract that has been entered by the
agent on his behalf. (Section 168)
c) Principal may recover the bribe from the agent
(Section 169)

d) The principal may refuse to pay commission or
remuneration to the agent (Section 173)
e) The principal may dismiss the agent on the ground
of breach of duty
f) Principal may sue the agent and third party for
damages. This is for any loss he suffered due to
entering the contract.
• In addition to the civil remedies above, the agent and

the 3rd party may be charged under a criminal
offence i.e. under S. 4 of the Prevention of
Corruption Act 1961 (Revised 1971).
Tam Kong Hwa v Andrew S.H Chong
(1974) 2 MLJ 188
Facts: Plaintiff bought a flat from Defendant sold the flat for
the Defendant’s company. Plaintiff RM54,000.00. The difference
then authorized the Defendant as RM9000 was kept by the
the agent to sell the flat for Defendant’s company.
RM45,000.00.
Held: The Plaintiff has the right to

recover the RM9000 because the
Defendant has breached his duty
as an agent.

Andrew v Ramsay and Co (1903) 2KB 635
Facts: The Plaintiff appoints the Defendant

as his agent to sell his property and agreed to
give the agent 50 pound as a commission.
The agent sold the property to a purchaser

and P allowed D to kept 50 pound as a
commission. P later found out that the
purchaser has also gave 20 pound to the
agent as a commission. Principal then sue
the agent to recover the 20 pound
commission given by the purchaser and 50 Held: The principal can
pound commission he has given to the recover both the sums.
agent.
Mahesan v Malaysian Government Officers Co-
operative Housing Society.
Facts: Appellant (agent) was a The appellant knew of this fact but
director & secretary of the failed to inform the society
Respondent co-operative society (principal). It was only after the
(principal) which bought a land at a sale was completed that the society
price of $944,000 from a vendor discovered the fact and that the
who had earlier paid $456,000 for appellant had received $122,000 as
it. a bribe from the vendor.
Held: Respondent(principal) could

recover either the bribe or the
amount of the actual loss suffered
by the R as a consequence of
entering into the contract with the
vendor.
9. Not to disclose confidential information or
documents entrusted to him by his principal.
• Not to tell other parties about any information or

document entrusted to him by his principal.

10. Not to delegate his authority
• Agent must not ask another person to perform his duty

i.e. the agent must perform the duty asked by the
principal on his own.
• This is based on the maxim “Delegatus non potest

delegare” i.e. that an agent cannot employ another
person to do his duty. He must perform the duty by
himself.
• The relationship between the principal and the agent is

personal where the principal has put his trust in the
agent he selects. DR RAFIDAH@MALISSA BINTI SALLEH 81
• Therefore, the agent cannot shift the authority by employing
another person to act. However, there are exceptions to this rule.
• An agent may delegate his authority to another in the following
circumstances:-
1. Where the principal approves the delegation of authority

De Bussche v Alt (1878)
Facts: The principal appointed an agent in China to sell a ship at certain price. However,
the agent was unable to sell the ship so he sought the principal’s approval to appoint sub
agent to sell the ship in Japan.
Held: There was no breach of the agent’s duty in appointing a sub agent because there
was an express consent to such delegation

2. Where it is presumed from the conduct of the
parties that the agent would have power to
delegate his authority.
3. Where custom of the trade or business permits
delegation
4. In case of necessity or unforeseen emergency
eg: illness of agent
5. If the act to be done is purely ministerial or
clerical which does not involve any discretion
or professional skill of the agent.

Allam & Co v Europa Poster Services Ltd
Facts: The D carried on the business of outdoor advertising contractors. They

would obtain licenses or agreements from owners of sites which allowed them to
display advertisements on house sites. The D obtained some of the owners’
consent to use sites which were also used by the P who were their competitors in
the same business. They were also authorized by the site owners to give notice
terminating any existing licenses, including those of the Ps. The D’s solicitors
sent notices of termination to the P’s and one of the issues before the court was
whether the maxim of delegatus non protest delegare had been violated.
Held: The delegation to the solicitors was a purely ministerial act not involving
confidence or discretion there was no unauthorized delegation of duty.

Duties of Principal to his agent
• The duties of principal to agent is provided under section
175 – 178 of Contracts Act.
• The duties of a principal to his agent include:-
a) To pay commission or remuneration to the agent

• The principal has to pay the agent his commission or
remuneration as agreed in the contract between them.
• The agent will loose his right to remuneration if the
agent is guilty of misconduct in the business of
agency. (Section 173)
b) Not to willfully prevent or hinder the agent from
earning his commission
• When a principal has appointed a person to be his
agent, he cannot employ a second agent to do the
same act as the first agent. This is to protect the first
agent from not getting the commission that has been
promised to him by the principal.

• Some examples where the principal is said to have
willfully preventing or hinder the agent from
earning his commission:
(1) The principal refused to accept the contract

made by the agent.
(2) The principal appointed another agent to
carry on the same duty, to deprive the original
agent from earning his commission.

c) To indemnify and reimburse the agent for acts
done in the exercise of his duty.
• The principal has the duty to indemnify the agent
for all losses and liabilities that the agent incurred
while he performs his duty (S.175)

The duty to indemnify arises in the following circumstances:
(a) The agent has incurred losses or liabilities in performance of his duties.
Kyall & Evatt v Lim Kim Keat

Facts: An executrix of an estate (principal) had instructed the P (agent) who
were share brokers, to sell on her behalf, shares in a company registered in
England. This is in accordance with a will. The brokers then made a contract
to sell the shares to the 3rd party. Unfortunately, it was discovered that the
will had not been proved in England and therefore the shares cannot be
delivered. The brokers were then compelled to by other shares for
substitution and consequently suffered a loss in doing so. P sued the
executrix (principal) to secure an indemnify for loss.
Held: As the executrix (principal) knew that the will has not been proved in
England and failed to disclose that the fact to the P (agent), the P were
(b) The agent causes injury to 3rd party in the execution
of his authority.
• S. 176
• Illustration (b) to S. 176
(c) The agent suffers injury during the course of his duties
due to the principal’s negligence.
• S. 178

Effects of contracts made by agents
• A contract entered into by the agent on behalf of his principal is binding on

the principal and the effects of the contracts may depend on whether the
third party is aware of the existence of the principal.
• 3 categories of principal:
1. Named principal.
2. Disclosed principal.
3. Undisclosed principal.

1. NAMED PRINCIPAL
• The principal’s name has been disclosed to the 3 rd

party by the agent.
• The 3rd party knows the name and the identity of the
principal and knows that the agent is acting on behalf
of the principal.
• The agent does not incur rights/liabilities under the
contract.
• It is the principal alone who can sue/ be sued under
the contract, provided that the agent has acted within
his authority in making the contract.
• Exceptions:
a) The agent agrees to accept and make himself personally

liable or contracts in such a way as to make himself
personally liable.
b) The agent executes a deed/ agreement in his own name.
c) The agent signs a negotiable instrument in his own name
without making it clear that he is signing it only as an
agent.
d) The agent exceeds his authority and the contract has not
been ratified by the principal.
e) It is the custom/norm of a trade which makes the agent
liable. DR RAFIDAH@MALISSA BINTI SALLEH 93
2. DISCLOSED PRINCIPAL.
• The principal’s existence is disclosed to the 3 rd party

by the agent but the identity is unknown to the 3 rd
party.
• The 3rd party knows that the agent is contracting as
an agent but does not know the name and identity of
the principal.
• The agent has no right/liability under the contract.
• The principal has the right and liability over the
contract.

3. UNDISCLOSED PRINCIPAL
• The principal’s existence and identity is unknown to

the 3rd party at the time of the contract.
• The 3rd party acts under the impression that he is
contracting with the agent personally.
• Only after the contract has been concluded/signed, the
3rd party knows that the agent is acting on behalf of a
principal.
• The rights and liabilities of each party depend on the
fact whether the agent has ‘disclosed’ the principal
and the agency relationship to the 3rd party.
• This doctrine operates when an agent has authority
to bind the principal but neither the identity nor the
existence of the principal is disclosed.
• Rights of the parties:
a) Rights of the 3rd party.
• The 3rd party has the right to claim from/sue
either the agent or the principal or both.
• S. 186
• The agent can be held personally liable on the
contract simply because the 3rd party, when
dealing with him, does not know that he is in fact
an agent for someone else.
Pernas Trading Sdn Bhd v Persatuan Peladang
Bakti Melaka
Facts: The respondent ordered chemicals and fertilizers for

themselves and not on behalf of a principal. When the
appellant sued for the balance of the purchase price, the
respondent denied liability on the ground that the chemical
and fertilizers were ordered for the principal.
Held: The respondent had contracted for themselves. Even

if they were agents for a principal, they had contracted in
such a form as to make themselves personally liable.
b) Rights of the principal.
• An undisclosed principal may require the
performance of the contract by the 3 rd party even
though the 3rd party does not know that there is a
principal (S. 184 (a))
• However, the principal’s rights of the performance
of the contract is subject to the rights and liabilities
subsisting between the agent and the 3 rd party
(S. 185)
• The 3rd party, therefore can make use of any set-off
or counter-claims against the principal which he
would have against the agent.
• The principal who discloses himself before the contract
is completed cannot enforce the contract if the 3 rd party
can show that the identity of the principal was material/
important to the contract (i.e. the 3 rd party would not
have entered into the contract if he had known who was
the principal in the contract or that he had known that
the agent was not the principal) - S. 184(b)

c) Rights of the agent.
• The agent can claim his rights under the contract if
the contract is actually his contract and he has been
acting as if he was the contracting party with the 3 rd
party.
• However, the agent is not entitled to enforce the
contract if he falsely contract with the 3 rd party as
agent but in reality he is acting on his own account
– S. 189

TOPIC 3:
LAW OF AGENCY
TERMINATION OF AGENCY

Introduction
• Agency is a contract between a principal and an agent
• It may be terminated in the same way as a contract
• Once the contract is terminated, the relationship between the agent

and the principal comes to an end
• The agent will no longer have the power and authority to act for
and on behalf of the principal
• If there is any wrongful termination of the contract, the injured

party may sue in court for relief

The manners of termination
• An agency may be terminated by the following ways;

1. By the act of the parties
2. By operation of law
• If the parties did not make any arrangement to

terminate the agency, the agency may still be
terminated by the law
• The law refers to the Contracts Act 1950 as well as

case law

(1) By the Act of the parties.
The principal and the agent may terminate their
agency relationship in 3 ways:
(a) By mutual consent between them
(b) By unilateral revocation/termination by the
principal.
(c) By unilateral renunciation by the agent

a) By mutual consent between them
• Both parties (principal and agent) may
terminate their agency relationship by mutual
consent between them.
• Once they agreed to terminate the agency, the
agent has no longer any authority to act on
behalf of the principal, and the principal
would not be liable for any contract made by
the agent after that termination.
• S. 154
b) By unilateral revocation/termination by the principal.
• The agency may be terminated by the act of the
principal revoking the agent’s authority (S. 154).
• The principal may revoke the agent’s authority at any
time, before the agent has exercised the authority (S.
156)
• The revocation may be done either expressly or
impliedly from the conduct of the principal (S.
160)
• In order to revoke the agent’s authority, the principal
must give a reasonable notice to the agent. Otherwise,
the agent is entitled to damages (S. 159)
• What would be reasonable notice depends on the facts and
circumstances of each case.
• Sohrabji v Oriental Security Assurance Co. AIR 1946
Held: 3 and a half months notice was not
adequate to property terminate an agency which had
lasted nearly 50 years. In the circumstances, 2 years notice
would have been reasonable notice.
• Syarikat Jaya v Star Publication (M) Bhd [1990] 1 MLJ

31
Held: 6 months notice was reasonable in terminating a
sole agency agreement.

• If the principal failed to give a reasonable notice of termination to the
agent, the measure of damages that the agent would be entitled to, is the
amount that the agent might have earned under the contract of agency had
he not been prevented from continuing his duty as an agent.
• If the agency is for a fixed term, earlier termination might entitle the agent
to claim for damages (S. 158)

EXCEPTIONS:
• In certain situations, the principal is prevented from
revoking the agent’s authority. The situations are:
1. When the agent himself has an interest in the
property, which is the subject matter of the
agency (S. 155)
Smart v Sanders [1848] 5 CB 895
Facts: A factor (agent) was sent with goods, to be sold on
behalf of the principal. The factor made advances to the
principal for the security of the goods.
Held: The court held that the agency cannot be

terminated by the principal because the factor has an
interest in the goods, by paying the security of the goods.
Firth v Firth [1906] AC 254
Held: The general authority of a factor, in whose hands
goods were placed for sale, is to sell at the best price
which could reasonably be obtained. This authority
could not be revoked after the factor had made
advances for the security of the goods to the owner and
while these advances remained unpaid.

2. After the authority has been partly exercised by
the agent (S. 157)
Read v Anderson [1884] 13 QBD 779

Facts: A principal instructed a turf commission agent to place bets on his
behalf. The agent placed the bets and lost. By custom, a turf commission
agent always bets in his own name and becomes solely responsible to
person with whom the bet is made. If he failed to pay a lost bet, he is
subject to certain disqualification, which will have a serious impact on his
business.
Held: The principal could not revoke the turf commission agent’s authority
after losing the bet. The principal would have to indemnify the agent for
the amount, which the agent had paid to the person with whom he made
the bet.
• The notice of termination by the principal
would only be effective when it comes to the
knowledge of the agent and the 3 rd party
(S.161)
• If either the agent or the 3 rd party does not
know about the notice of termination, the
revocation is not effective.
Pichappa Chitty v Hj Jah [1897] 4 SSLR 125
Held: The P (3rd party) who advanced money to an
agent appointed, but whose authority had been
revoked without the agent’s and the P’s knowledge,
was entitled to recover the money from the principal.
Trueman v Loder [1840] 11 Ad & El 589
Held: A 3rd party who dealt with an agent whose

authority had been revoked, was able to claim from
the principal, the goods supplied because the 3 rd party
had no knowledge of the revocation.

c) By unilateral renunciation by the agent.
• Agency is also terminated by the act of the agent

renouncing the business or the relationship of the agency.
• S. 154 – “…or by the agent renouncing the business of the
agency…”
• The renunciation may be express or implied (S. 160)
• The agent must give a reasonable notice to the principal.
Otherwise the principal is entitled to damages (S. 159)
• If the agency is for a fixed term, the agent is liable to
compensate the principal for premature renunciation
without sufficient cause (S. 158).
(2) By Operation of Law
• The agency may terminated in:
(a) By the performance of the contract of agency (S. 154)
(b) By the expiration of the period fixed or implied in the contract
of agency.
• Once the agency is expired, the agency is terminated even
though the business has not been completed.
(c) By the death of either the principal or the agent (S. 154)

• Exceptions:
i. The death of the principal would not terminated

the agency if the agent has an interest in the
property, which is the subject matter of the
agency (S. 154).
ii. Termination by death of the principal is only
effective upon the agent having notice of the
principal’s death (S. 161).
iii. When the principal dies, the agent must take
reasonable steps to protect and preserve the
interest of the principal (S. 162).
(d)By the subsequent insanity of either the
principal or the agent (S. 154).
Yonge v Toynbee [1910] 1 KB 215
Held: The agent is liable to the 3rd party because he
acted without the authority due to the fact that the
principal become insane.
• On termination due to the insanity of the

principal, the agent is bound to take all
reasonable steps to protect and preserve the
principal’s interests.
(e) By the bankruptcy or insolvency of the principal (S.
154)
• On a principal being declared a bankrupt, his rights
and liabilities are vested in the official assignee.
(f) By the happening of an event which renders the

agency unlawful.
• This fall within the doctrine of frustration in
contract.
• E.g. Principal becomes enemy due to the outbreak
of war. A change in the law, which makes the
agency business becomes unlawful.
Termination by frustration
• Upon happening of an event which renders the agency unlawful,
the agency may be terminated
• Stevenson v Aktiengesellschaf Fur Cartonnagen Industrie

[1918] AC 239
An outbreak of war made principal an enemy
alien. It was held that the agency was terminated.

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TOPIC LAW OF AGENCY

DR RAFIDAH@MALISSA BINTI SALLEH 1

Relationship between principal and agent

DR RAFIDAH@MALISSA BINTI SALLEH 5

• The law on agency is governed by Part X of the Contracts

• Section 135 to section 191

DR RAFIDAH@MALISSA BINTI SALLEH 6

• To save time and energy

Purpose • More practical to appoint someone to

of an Special skill and knowledge

agency • The principal may lack the expertise

• The principal is permanently or

DR RAFIDAH@MALISSA BINTI SALLEH 7

• Who is qualified to be an Agent?

• Who is qualified to be a Principal?

1. A contract between the principal and the agent. The

2. A contract between the principal and the third party

DR RAFIDAH@MALISSA BINTI SALLEH 9

agent • He may do any act usually done in that

DR RAFIDAH@MALISSA BINTI SALLEH 10

• Section 138 Contracts Act 1950

DR RAFIDAH@MALISSA BINTI SALLEH 11

by implied appointment by the

by the doctrine of estoppel or

DR RAFIDAH@MALISSA BINTI SALLEH 12

• The principal expressly or specifically appoint the agent to do a

• It can be oral or in writing.

• An example is Power of Attorney.

DR RAFIDAH@MALISSA BINTI SALLEH 13

• Section 140 Contracts Act 1950.

• Where a person (principal), by his words or conduct, holds out

• For instance, a grocer who regularly sends his shop assistant

(a) Section 140 Contracts Act 1950.

• The law can infer the creation of an agency by implication when a

DR RAFIDAH@MALISSA BINTI SALLEH 15

Yong was a minor. Appellant registered himself and Yong as partners.

DR RAFIDAH@MALISSA BINTI SALLEH 16

• Any person, irrespective of his competence to contract, may

DR RAFIDAH@MALISSA BINTI SALLEH 17

• A wife has implied authority to contract on behalf of her husband

• The husband can deny liability if:

DR RAFIDAH@MALISSA BINTI SALLEH 18

• Section 7 of the Partnership Act 1961 (Revised 1974)

DR RAFIDAH@MALISSA BINTI SALLEH 19

• The basis of this relation is either;

DR RAFIDAH@MALISSA BINTI SALLEH 20

• If he accepts, he shall be liable for it.

• If he rejects, the agent shall be personally liable for the contract.

• Section 149 – 153 of Contracts Act 1950

• Once ratified, the principal cannot change his mind.

• The ratification operate retrospectively i.e. back-dated to the

DR RAFIDAH@MALISSA BINTI SALLEH 21

• There are 9 conditions namely:

2) The agent must have acted on behalf of the principal

DR RAFIDAH@MALISSA BINTI SALLEH 22

 Section 35 of the Companies Act 1965

4. The principal must ratify the whole act

6. The principal must have contractual capacity

7. The act must not be unlawful

9. The ratification must not injure the rights of a third party

DR RAFIDAH@MALISSA BINTI SALLEH 25

DR RAFIDAH@MALISSA BINTI SALLEH 26

DR RAFIDAH@MALISSA BINTI SALLEH 27

(a) It is impossible for the agent to get instructions