HLB2013 SEM JULY-NOV20

LAW OF AGENCY

Introduction

-Law of Agency in Malaysia was found in PART X, Contract Act 1950.

-Agency: it is the relationship which subsists between a principal and agent,
where the agent has been authorized to act for the principal or represent him in
dealing with others/ 3rd party.

-Definition: Section 135, Contract Act 1950

-Agent: a person employed to do any act for another or to represent another in
dealings with third person.
-Principal: a person for whom such act is done, or who is so represented.

Qualification/ capacity
i- Principal: Section 136 (adult and sane)
ii- Agent: Section 137- anybody may become an agent, including a minor
and an unsound person. An agent no need to possess full contractual
capacity. HOWEVER, the principal must be responsible and take the risk
of minor’s agent act.

Chan Yin Tee v William Jacks & Co (Malaya Ltd)

FACT : Chan(adult) and Yong (a minor) were partners in a business. Yong ordered
for their business from William Jacks(3rd party). WJ supplied goods to Yong but
received no payment. Thus, he brought an action against Chan (Principal).

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HELD : Since the agent was a minor(Yong), the principal was responsible toward
agent’s action. So, Chan need to pay goods ordered by Yong..
# Partners in a partnership become a principal and agent among themselves & that
position will be switch according to the situation.

FORMATION/ CREATION OF AGENCY

-Agency can be create into FIVE(5) ways;

1. By express appointment.

-S.140 CA1950 ~ by word or by writing

2. By implied appointment.

-There is no evidence that the agent has been appointed by any writing or
verbally. But, there are facts and circumstances that can show that an agency has
been created. In other words, agency is implied from the special circumstances of
the case.

-Example : For several months, Jihah (the principal) has paid Emy (the third party)
for goods sold on credit by Emy to Milah (the agent) for Jihah’s business. Jihah
had never disputed Milah’s authority to receive the goods given to him by Emy.
Therefore, by conduct there is an implied agreement that Milah was acting as
Jihah’s agent when buying goods on credit from Emy.
-It can occur in 3 circumstances:
i) Implied from the circumstances of the case.
-A person by words or conduct holds out another person as having authority to
act for him.
Chan Yin Tee case

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Held: Once Chan told WJ that Yong is his partner, it shows that Yong has the
implied authority to act on behalf of Chan.

ii.) Implied from the relationship between husband and wife.

-It is implied that the wife has authority to pledge the husband’s credit in a
contract on condition that the contracts are for necessaries and suited to their
condition and style of living. Therefore, impliedly the wife is an agent to the
husband.
-However, the husband can rebut this implied authority by:
- He expressly forbid his wife from pledging his credit
- He expressly warned the tradesman not to supply his wife with goods or
credit, or
- His wife was sufficiently provided with the goods of the kind in question, or
- His wife was given sufficient allowance for buying goods without having to
pledge her husband’s credit, or
- The contract was unreasonable, taking into consideration her husband’s
income at that time

iii. Relationship between partners

-Section 7 Partnership Act 1961
-Each partner is an implied agent to the firm, when contracting in the course of
the partnership business.

3. By ratification

-Ratification means that the principal adopts or confirms an earlier act done by
the agent which was not binding on the principal. Ratification is treated as
equivalent to original authority and by ratification the relationship of principal
and agent is constituted retrospectively or retroactively.

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-‘ratification’= acceptance by the principal for an act done without authority or

exceeding the authority give.

-Example : Emma who is Pasha’s agent has on 10 January 2009 purchases goods
from Mira on credit without Pasha’s permission. After the purchase, on 20
January 2009, Pasha tells Mira that she will accept responsibility to pay for the
purchases although at the time of purchase the agent had no authority to buy on
credit. Pasha’s subsequent statement on 20 January 2009 amounts to a
ratification of the agent’s (Emma’s) purchase of goods on 10 January 2009.
-Agency by ratification may arise in these 2 situations:

A person who has no authority to

Agent has exceeded his
or act for the principal has acted as if
authority
he has the authority

-According to S.149 CA1950, if one of the above situations happened, the

principal can either reject or accept the contract by way of ratification.

Conditions for valid ratification (9 conditions):

1. The act must be unauthorized. The contract done by the agent was without
authority or exceeding the authority.
2. the unauthorized act must be legal/ lawful.
Brook v Hook
The principal may not ratify a contract in which his signature had been forged by
the unauthorized agent.

3. the agent must act as an agent, not as principal. He must not contract in his
own name.

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Keighly Maxted & Co v Durant (appeal case)

An agent was authorized by the (principal) to buy wheat at a certain price. The
agent exceeded his authority & bought it at a higher price. However, the agent
contracted in his own name. Held: the principal (appellant) was not liable to
Durant (3rd party) because the principal could not ratify the contract since the
contract was made in the agent’s own name.

4. when the contract was made, the principal must actually exist.
Kellner v Baxter
Held: A contract to buy a hotel made by an agent on behalf of a company which
was not registered/ formed could not be ratified by the company because the
company (principal) did not exist at that time.

5. The principal must have contractual capacity

6. the principal must have all the material facts regarding the contract.
The principal must have full knowledge of all material facts at the time of
ratification S. 151= including the name of parties, time, subject matter etc.
Marsh v Joseph
A principal had ratified a contract without the full knowledge of all material facts.
Held: the principal was not bound to such contract.

7. The principal must ratify the whole contract. He cannot accept which is
advantageous to him and reject the rest.
8. Ratification must be made within a reasonable time.
Metropolitan Asylum Board v Kingham & Son
The agent contracted to buy eggs without the authority. The principal tried to
ratify the contract 1 week after it was made. HELD: the ratification was too late.
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9. Ratification must not injure or affect the interest of a 3rd person.

4. Agency by Necessity

-A commercial agency of necessity occurs when a person is entrusted with

another’s property and it becomes necessary to do so.
-Section 142. A person who has no authority, may become an agent due to
necessity or emergency circumstances, in order to protect the principal from any
loss.
Great Northern Railway Co. v Swaffield
The railway company (pf) had been entrusted to deliver a horse of the D to a
destination. However, when it reached the destination, nobody came to take the
horse. The Pf had to look after the horse and took several actions in order to
preserve the safety of the horse (put into the stable). Pf then claimed from the Df
the extra expenses incurred in preserving the interest of the Df. However the Df
refused to pay on the ground that the Pf was not authorized to do so.
Held: The Pf was an agent by necessity and therefore entitled to the claim.

-Condition for agency by necessity:

1. There must be a real and actual emergency.

Phelps James & Co v Hill

Held: What is meant by ‘emergency’ must be referred to the reasonable
situations by looking into the dangerousity, facilities available, cost, time
distance etc.

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2. The agent was entrusted with the principal’s property/ goods. (Jebarra v
Ottoman Bank)
3. Impossible to get the principal’s instructions.
Springer v Great Western Railway Co.
The D agreed to carry the P’s tomatoes from Jersey to Covent Garden market.
Owing to bad weather, the ship arrived late at Weymouth. Meanwhile, the D’s
workers were on strike. Therefore the tomatoes were found to be in bad
condition. The D decided to sell the tomatoes at Weymouth because the D felt
that the tomatoes could not arrive at the Covent Garden market in saleable
condition. P claim for damages. Held: The P was entitled to damages because the
D were not agents by necessity because they have failed to communicate with
the P when they could have done so.

5. Agency By Estoppel.

-The term ‘estoppel’ is a legal term and means that a person who has let another
person believe that a certain state of affairs exists, is not later permitted to deny
that state of affairs if the other person has acted to his detriment in reliance of
that state of affairs. He is estopped or prevented from taking a different position.
-Therefore, in the law of agency if a person by words or by conduct represents to
the world that someone is his agent, he cannot later deny that agency if third
parties had dealt with that person as if he was the agent.
-Example : If Jimmy (the principal) has for several moths permitted Jane to buy
goods on credit from Mike and has paid for the goods bought by Jane, Jimmy
cannot later refuse to pay Mike who had supplied goods on credit to Jane in the
belief that she was Jimmy’s agent and was buying the goods on behalf of Jimmy.
-Jimmy is stopped from now asserting that Jane is not his agent because on
earlier occasions he permitted Mike to believe that Jane was his agent and Mike
had acted in that belief.

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Section 190
-it happens when the principal allows a third party to believe that a person is the
agent of the principal.
- the principal can make the third party to believe so through his words or
conducts.
-when this happens, the principal is stopped from refusing to accept that person
is his agent.
Freeman & Lockyer v Buckhurst Park Properties Ltd
There were 4 directors in a company. One of them, A, contracted on behalf of the
company with T (3rd party) without any authority. The other directors knew about
the contract but did not inform T that A actually had no authority to enter into a
contract on behalf of the company.
Held: The company is estopped from denying that A is the company’s agent and
from denying that A had the authority to act on behalf of the company.

AUTHORITY OF AGENT
-2 types. i. actual
ii. apparent/ ostensible
1. Actual Authority
It is given by agreement
a) expressly given, either by oral or writing
b) Impliedly
- look at the circumstances of the case.
Eg: P appoints A to sell his car and entrusts him with possession of it. A, by
implication has the authority to allow potential buyers to drive the car for the
purpose of testing it.
- Custom or usage of trade

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- situation and conduct of parties.

Chan Yin Tee v William Jacks
Held: The conduct of Chan telling WJ that Yong is his partner showed that Young
has implied authority to act on behalf of Chan in buying goods for the business.

2. Apparent/ Ostensible authority (given by law)

TWO circumstances:
i. where a principal by his words or conducts, leads a third party to believe that his
agent has authority to make contracts for him.
ii. where the agent previously had authority to act, but that authority was
terminated by the principal without notice to 3rd party.
Eg: P gave authority to A to buy goods not more than RM3000. When they went
to the shop, A bought goods RM4000. P has no objection. 3rd party believes agent
has authority. P is liable.

DUTIES OF AN AGENT TO HIS PRINCIPAL

1. To obey the principal’s instruction

(Section 164)
If agent fails to follow, he will be liable for breach of contract and he will be liable
for the loss.

Turpin v Bilton
The agent has been instructed by the principal to get the insurance for his vessel.
However the agent failed to do so. The vessel lost and as a result the principal has
to bear some loss.

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Held: The agent is liable for breach of duty, due to his failure to obey the
principal’s instruction. The agent is liable to pay compensation for the loss.
However, the agent does not have to obey instructions that are against the law.

2. To act according to custom, when the instruction are not given.

Illustration (b) to section 164:
“B a broker, in whose business it is not the custom to sell on credit, sells goods of
A on credit to C, whose credit at the time was very high. C, before payment,
becomes insolvent. B must make good the loss to A.

3. To exercise care, skill and diligence. (S.165)

If the agent is employed for his professional service, he must use all his skills &
expertise as usually required from a same professional man.

Keppel v Wheeler.
D (agent) was employed to sell the P’s (principal) house. An offer was received
and accepted be the P’s ‘subject to contract’. A few days later a higher offer for
the same house was made by X, but this offer was not communicated to the P by
the D. Then a written contract between the P and the 1st offeror was duly signed.
Held: The D was liable to the P for the difference between the two offers.

4. To render proper accounts when required by the principal. (Section 166)

Lyell v Kennedy
Held: An agent who has been entrusted with the principal’s money/ property is
bound to keep the money/ property separately from his own property.

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5. To pay to his principal all sums received on behalf of the principal. (s.171)
Whatever amount received on behalf of the principal, must be paid to the
principal. However this subject to s.170, where the agent is entitled to deduct any
sum from the principal’s money for the payment made during the works done as
an agent.

6. To communicate with the principal.

S.167 – in case of difficulty, to use all reasonable diligence in communicating with
his principal and obtain instruction.
If communication is impossible- agent may use his own discretion to safeguard
the interest of the principal. Section 142.

7. Must act in good faith/ bona fide and no conflict of interest.

Wong Mun Wai v Wong Tham Fatt.
Held: The D had breached his duty as agent to the P on 2 reasons:
1. He sold the P’s share of land below the market price.
2. He failed to inform the P that he had sold it to his wife.
The D is under a duty to act in good faith in protecting the interest of the P and
could not use his position as agent to gain profit at the P’s expense .

8. Not to make any secret profit out of the performance of his duty.
Secret profit: Bribe, secret commission, any financial advantage.
Remedies available to the principal:
i) repudiate the contract which was made on his behalf by the agent. (s.168)
ii). Recover the amount from the agent. (s.169)
Tan Kiong Hwa v Andrew S.H Chong

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Principal bought a flat house from a company. The D (agent) was a director of
that company. P ordered the D to resell the flat house at the price of RM45,000.
However the D managed to sell it at RM54,000 and the extra RM9000 was
credited into the company’s account.
Held: The P is entitled to claim the extra Rm9000 from the D who has breached
the duty of an agent .
iii) If the principal knows about it and consent to it , the agent can keep the profit.
iv) the principal may refuse to pay commission or remuneration to the agent.
Andrew v Ramsay and Co.
The P appoints the D as his agent to sell his property. The P agreed to give the
agent 50 pound as a commission. The agent sold the property to a purchaser and
received 100 pound as deposit of the property. The agent gave 50 pound to the
principal and with the consent of the principal, kept as the commission due to
him.
Principal 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 pound commission he has given to the agent.
Held: The principal can recover both the sums.
v) Principal may dismiss the agent on the ground of breach of duty.
vi) the principal may sue both the agent & third party who gave the bribe and
may claim damages.

Case: Mahesan v Malaysian Govt. Officers Coop Housing Society.

9. Not to disclose confidential information or document entrusted to him by his
principal.
10. Not to delegate his authority

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‘delegates non potest delagare’ = a delegate cannot delegate.

Exceptions:
a) where the principal approves of the delegation.
De Bussche v Alt
The principal appoints an agent in China to sell the ship at a certain price. The
agent cannot sell it and ask the principal whether he can appoint a sub agent to
sell the ship in Japan. The principal approves this arrangement. Held: the agent
did not breach his duty because the sub agent was appointed after getting the
consent from the principal.
b.) where it is presumed from the conduct of the parties that the agent have
power to delegate his authority.
c.) where the customs of the trade or business permits delegations.
d.) where the nature is such that delegation is necessary to complete the
business.
e.) in case of necessity or unforeseen emergency eg: illness of agent .
f.) where the act to be done is purely ministerial or clerical and does not involve
the exercise of discretion.

DUTIES OF PRINCIPAL TO HIS AGENT.

Section 175- S 178
1. To pay commission or remuneration as agreed in the contract.
If agent guilty of misconduct (S.173), he will loses his right to remuneration.
What is misconduct?
Misconduct refers to wrongful or improper conduct which results in a wrongful
gain to the agent or a wrongful loss to the principal.
2. Not to willfully prevent or hinder the agent from earning his commission eg: a
principal cannot employ a second agent in the midst of negotiations to deprive
the original agent of his commission.
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3. To indemnify and reimburse the agent for lawful acts done in the exercise of
his duties (S.175)
Hichens, Harrison, Woolston & Co. v Jackson & Sons.
Held: The agent is entitled to damages for anything incurred in the performance
of his duties and to be reimbursed for whatever the agent had advanced or lost.

TYPES OF PRINCIPAL
I.) Named Principal
 One whose name has been disclosed to the third party by the agent.
 3rd party knows the name and the identity of the principal (identity known)
2.) Disclosed Principal
 One whose existence is disclosed to the third party but the identity is
unknown.
 3rd party knows that A is contracting as an agent but does not know the
name of the principal (identity known)
3.) Undisclosed Principal
 One whose existence as well as identity is not known to the third party.
 3rd party thought he is contracting with the agent personally. After the
contract has been concluded, he knew that the person he is dealing with
was actually acting on behalf of the principal.

Types of Agency
Agency can be classified according to:
a) the extent of their authority.
b.) their function

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a) the extent of their authority

i.) Universal Agent
 A general agent with extensive power. He can do all act which a principal
may personally do. The appointment need a formal form of a Power of
Attorney.
ii) General Agent
 An agent who is employed to act on behalf of his principal relating to a
particular trade or business. The agent has power to do all usual in the
ordinary course of principal’s business.
iii) Special Agent
 An agent appointed to do a specific act or for a specific purpose and his
authority is limited to that act or purpose.
b) Their function
 Del credere agents
- This is an agent who in consideration of an extra commission, guarantees his principal that
the third persons with whom he enters into contracts on behalf of the principal shall
perform their financial obligations.
 Factors ~ a commercial agent, sells goods in his own name.
- A factor is a mercantile agent to whom goods are entrusted for sale. He enjoys wide
discretionary powers in relation to the sale of goods. He can sell the goods in his own name
upon such terms as he thinks fit. He may pledge the goods as well.
 Brokers
- This is an agent who is employed to make contracts for the purchase and sale of goods or
property. A broker is not entrusted with the possession of the goods. He only acts as a
connecting link and brings the buyer and seller together to the bargain and if the
transaction is successful, the broker becomes entitled to his commission which is called
brokerage. In many cases, brokers charge commission from both the buyer and seller
because they act as agent for both.
 Mercantile agent
- A Mercantile agent is one who has authority either to sell goods or buy goods or to raise
money on the security of goods.
 Bankers~ agent for customer.
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TERMINATION OF AGENCY
Agency may be terminated by:
1. Act of parties
2. Operation of law

1. Termination by the act of parties.

Can be done in THREE ways:
a) by mutual content between them.
b) by unilateral revocation/ termination by the principal
c) by unilateral renunciation by the agent.
 The agent must give a reasonable notice to the principal, otherwise the
principal is entitled to damages.
 The renunciation may be express or implied. S.160
Unilateral revocation
S. 154 “ an agency may be terminated by the principal revoking his authority”
S. 156 “ the principal may revoke the agent’s authority at any time before the
agent has exercised the authority.
S. 158 “compensation must be given to an agent who has been terminated
without reasonable notice”
S. 159 “ 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.
What would be reasonable notice depends on the facts and circumstances of
each case.
Sohrabji v Oriental Security Assurance Co.

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Held: 3 ½ months notice was not adequate to properly terminate an agency

which has lasted nearly 50 years. In this circumstance, two years notice would
have been reasonable notice.
Power to revoke agent’s authority by the principal is limited in certain
circumstances:
1. Section 155, an agency cannot be terminated where the agent has himself an
interest in the property which forms the subject matter of the agency.
Section 155 illustration (a)=
A gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the
debts due to him from A. A cannot revoke his authority.
Smart v Sander
An agent who holds goods of his principal had made advances on the security of
the goods. Held: Agency could not be terminated until the advances were paid.
2. Section 157, the principal cannot revoke the agent’s authority after the
authority has been partly exercised.
Read v Anderson
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 qualification, which will
have a serious impact on is 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.

3. section 161 – termination of the authority of an agent s effective if it becomes

known to the agent and the third party.
Pichappa Chitty v Hj Jah.

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Held: The Plaintiiff (3rd party) who advanced money to an agent whose authority
had been revoked without agent’s knowledge, was entitled to recover the money
from the principal.
Trueman v Loder
It was held that a third party who dealt with an agent whose authority had been
revoked was able to claim from the principal for goods supplied. This is because
the agent had no notice of the revocation.

2. by operation of law
This may occur in the following circumstances:
1. By performance of the contract of agency. (section 154)
2. By the expiration of time of agency.
3. By death of either the principal or the agent. (Section 154)
Section 161 – termination of agency on death of the principal is only effective
when the agent and third party has notice of the principal’s death.
4. By insanity of either the principal or the agent. (section 154)
5. By the happening pf an event which renders the agency unlawful. Doctrine of
frustration. Eg: accident, fire, amendment of law.
6. By bankruptcy of the principal. Section 154. There is no provision in respect of
bankruptcy of an agent. However, in the case of Beckham v Drake, the court
held that the agency will be terminated if the agent was declared bankrupt.

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