Вы находитесь на странице: 1из 22

Topic

9
LEARNING OUTCOMES
1. 2. 3. 4.

Law of Agency (Part II)

By the end of this topic, you should be able to: List the duties of agents and principals; Describe the rights of agents and principals; Discuss the effect of agency contract; and Explain the rules of termination of agency contract.

INTRODUCTION

An agency relationship arises out of an agreement between the principal and the agent. The agreement confers the rights and duties to the principal and agent, whether express or implied. However, if the contract does not specify the rights and duties of the parties, the provisions in Sections 164 to 178 of the Contracts Act, 1950 will be applicable. The provisions in Section 164 to 174 govern the duties of an agent to his principal and the provisions in Section 175 to 178 deals with the principals duties to his agent.

9.1

DUTIES OF AGENT TO PRINCIPAL

As far as the duty of an agent to his principal is concerned, the agent is obliged to do the following for the principal: 1. Obey the principals instructions. According to Section 164 of the Contracts Act 1950, "an agent is bound to conduct the business of his principal according to the directions given by the principal....Where the agent acts otherwise, if any

138 TOPIC 9 LAW OF AGENCY (PART II)

loss sustained, he must make it good to his principal, and if any profit accrues, he must account for it. The provision provides that an agent who fails to carry out his principals instructions will result in breach of contract and consequently, the agent will be liable for any loss sustained by the principal. For example, the principal instructed his agent to purchase certain goods at a certain price. However, the agent purchased at more than the authorised price and as a result, the agent was to be personally liable for the payment of the price of the goods. If the principals order is clearly illegal, the agent has no obligation to obey the order.

In the case of Turpin v. Bilton (1843) 5 Man & G 455, an agent failed to insure his principals ship although he had been ordered to do so. When the ships lost, the court decided that the agent was liable for the losses.

2.

Act according to the customs prevailing if there is no instruction from the principal. According to Section 164 of the Contracts Act 1950, "an agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts the business. Therefore, the provision requires the agent to act according to the customs which prevail in doing business of the same kind if there is no clear instruction from the principal. Otherwise, he has to make good any loss sustained by the principal.

TOPIC 9

LAW OF AGENCY (PART II)

139

Illustration (a)
A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to time, at interest, the moneys which may be in hand, omits to make the investment. A must make good to B the interest usually obtained by such investments.

Illustration (b)
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.

Exercise care and diligence in carrying out his work and to use skill as he possesses. Section 165 of the Contracts Act 1950 provides that an agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business, unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill or misconduct. The following case and illustrations explain the provision above. It means if an agent failed to carry out his duty diligently, skilfully and with due care, the agent must make good any loss sustained by the principal as result of his act.

140 TOPIC 9 LAW OF AGENCY (PART II)

In the case of Keppel v Wheeler [1927] 1 KB 577, the plaintiff employed the defendant to sell his house. The plaintiff received an offer and accepted it subject to contract. A few days later, X made a higher offer for the property but the defendant did not communicate this offer to the plaintiff. As a result, the first offer was signed. The court held that the defendant was liable to the plaintiff for the difference between the two offers.

Illustration (a)
A, a merchant in Kuala Lumpur, has an agent, B, in London, to whom a sum of money is paid on As account, with orders to remit. B retains the money for a considerable time. A, in consequence of not receiving the money, becomes insolvent. B is liable for the money and interest from the day on which it ought to have been paid, according to the usual rate, and for any further direct loss (e.g., by variation of rate of exchange), but not further.

Illustration (b)
A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making proper and usual enquiries as to the solvency of B. B, at the time of the sale, is insolvent. A must make compensation to his principal in respect of any loss sustained.

Illustration (c)
A, an insurance-broker employed by B to effect an insurance on a ship, omits to see that the usual clauses are inserted in the policy. The ship is afterwards lost. In consequence of the omission of the clauses, nothing can be recovered from the underwriters. A is bound to make good the loss to B.

TOPIC 9

LAW OF AGENCY (PART II)

141

Illustration (d)
A, a merchant in England, directs B, his agent at Kelang, who accepts the agency, to send him 100 bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship arrives safely in England. Soon after her arrival, the price of cotton rises. B is bound to make good to A the profit which he might have made by the 100 bales of cotton at the time the ship arrived, but not any profit he might have made by the subsequent rise. 4. Render proper accounts when required. According to Section 166 of the Contracts Act 1950, an agent is bound to render proper accounts to his principal on demand. This means the agents duty is to account for all monies and the property handled by him as agent for the principal and to produce such accounts when demanded by the principal. 5. Pay the principal all sums received on his behalf. Section 171 of the Contracts Act 1950 provides that the agent is bound to pay to his principal all sums received on his account (subject to the deductions in Section 170). According to Section 170, an agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business, and also such remuneration as may be payable to him for acting as agent. Section 174 of the Contracts Act 1950 also gives the agent the right to retain his principals property in his possession until his remuneration is paid. According to Section 174, in the absence of any contract to the contrary, an agent is entitled to retain goods, papers and other properties, whether movable or immovable, of the principal received by him, until the amount due to himself for commission,

142 TOPIC 9 LAW OF AGENCY (PART II)

disbursements and services in respect of the same has been paid or accounted for to him. 6. Communicate with the principal. It is the duty of an agent to communicate with his principal. As provided in Section 167 of the Contracts Act 1950, it is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions. 7. Avoid conflict of interest with own duty. It is the agents duty not to let his personal interest conflict with his duty. Obviously, an agent must not become a party in a transaction and he must act solely for the benefit of the principal. For instance, A directs B to sell As estate, but B buys the estate for himself in the name of C. Thus, if the principal discovers the truth, he has the right to repudiate the transaction. For the example above, A on discovering that B has bought the estate for himself, may repudiate the sale if he can show that B has dishonestly concealed any material fact, or the sale has been disadvantageous to the principal. According to Section 168 of the Contracts Act 1950, if an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him. Consequently, the principal has the right to claim any benefit gained by the agent from the transaction. As laid down in Section 169 of the Contracts Act 1950, if an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

TOPIC 9

LAW OF AGENCY (PART II)

143

For instance, A directs B to buy a certain house for him. B tells A it cannot be brought, and buys the house for himself. On discovering this, A may compel B to sell it to him at the price he gave for it. 8. Not to make any secret profit out of the performance of his duty. An agent is also under a duty not to make secret profit out of the performance of his duty. Secret profit may include payment of a secret commission or any financial advantage received by the agent, above the commission or remuneration agreed by the parties. An agent can only keep the profit if the principal consents to it. Otherwise, the principal may take the following actions: (a) Repudiate the contract if it is disadvantages to him (Section 168 of the Contracts Act 1950). Recover the amount of the secret commission from the agent (Section 169 of the Contracts Act 1950). Refuse to pay the agent his commission or other remuneration as illustrated in the following case:

(b)

(c)

In the case of Andrews v Ramsay & Co [1903] 2 KB 635, the plaintiff instructed the defendant to sell property and agreed to pay him 50 pounds as commission. The defendant received 100 pounds from a purchaser as deposits for the property. The defendant paid 50 pounds to the plaintiff and kept the other 50 pounds in payment of his commission with the plaintiffs consent. Later, the plaintiff discovered that the defendant received 20 pounds as commission from the purchaser. The plaintiff sued to recover the 20 pounds and also the 50 pounds he had paid the defendant. It was held that he could recover both sums.

(d) (e)

Dismiss the agent for breach of duty. Sue the agent and third party giving the secret commission, for damages for any loss he may have sustained through entering into the contract.

144 TOPIC 9 LAW OF AGENCY (PART II)

In Mahesan v. Malaysia Govt. Officers Co-operative Housing Society Ltd. [1978] 1 MLJ 149, the respondent society bought land at a price of $944,000 from the vendor who had paid earlier $456,000 for it. The appellant knew of this fact but failed to inform the society. After the sale was completed, the society discovered the fact that the appellant had received $122,000 as a bribe or secret commission from the vendor for the sale of the said land. The Privy Council held that the Housing Society could recover either the bribe or the amount of the actual loss suffered by it as a result of entering into the contract.

In the case of Boardman v. Phipps [1966] 3 All ER 721, Lord Denning said: Once it is found that the agent has used his principals property or his position so as to make money for himself, it matters not that the principal lost no profit or suffered no damage.the reason is simply because it is money which the agent ought not to be allowed to keep. He gained unjust benefit by the use of his principals property or his position and must account for it.

9.

Not to disclose confidential information or documents entrusted to him by his principal. As an agent for the principal, he is usually entrusted with the principals confidential information or documents. Thus, an agent must not disclose or reveal this information to other persons.

TOPIC 9

LAW OF AGENCY (PART II)

145

In the case of L.S Harris Trustee Ltd v. Power Packing Services (Hermit Road) Ltd (1970) 2 Lloyds Rep 65, the court held that the agents action revealing the information about the defendants fire insurance policy had given right to the defendant to terminate the contract and sued for damages. 10. Not to delegate his authority. An agent must not delegate his authority to another person because an agency relationship is personal in nature and involves trust and confidence, placed by the principal on his agent. This principle is in line with the maxim "delegatus non potest delegare" which means "a delegate cannot delegate. It is also provided in Section 143 of the Contracts Act 1950 that, "an agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must, be employed. However, to this rule there are exceptions. Thus, an agent may delegate his authority or appoint a sub agent under the following circumstances: (a) (b) (c) (d) (e) (f) Where the principal approves of the delegation of authority; Where it is presumed from the conduct of the parties that the agent shall have power to delegate his authority; Where the customs of the trade or business permits delegation; Where the nature of the agency is such that delegation of the authority to another person is necessary to complete the business; In cases of necessity or unforeseen emergency (for instance, due to sickness of agent); or Where the act to be done is purely ministerial or clerical and does not involve the exercise of discretion.

146 TOPIC 9 LAW OF AGENCY (PART II)

9.2

DUTIES OF PRINCIPAL TO AGENT

As far as the duty of a principal to his agent is concerned, the principal is obliged to do the followings in carrying out his duties under the agency contract: 1. Pay the agent any commission or other remuneration unless the agency relationship is gratuitous. The amount of commission to be payable to an agent depends on the terms of the contract of agency. Generally, the right to receive commission or other remuneration arises when the agent has done all that he had agreed to do. Where no amount is agreed, the agent is entitled to reasonable remuneration. However, an agent loses his right to remuneration if there is misconduct (wrongful or improper conduct) in the business of the agency. Section 173 of the Contracts Act 1950 provides that, "an agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted. For example, A employs B to recover $100,000 from C and to invest in good securities. B recovers the $100,000 and invests $90,000 in good securities and the other $10,000 in securities which he ought to have known to be bad. As a result, A loses $2000. B is entitled to the remuneration for recovering the $100,000 and for investing the $90,000. But he is not entitled to any remuneration for investing the $10,000 and he must make good the $2000 loss to A. Another example, A employs B to recover $1,000 from C. Through Bs misconduct, the money is not recovered. B is entitled to no remuneration for his services, and must make good the loss. 2. Not to wilfully prevent or hinder the agent from earning his commission A principal cannot employ another agent if an agent has already been appointed to carry out certain duties. Particularly, if the appointed agent is already in the midst of negotiations and the act of appointing another agent is to deprive the original agent from earning his commission. Indemnify the agent for acts done in the exercise of his duties According to Section 175 of the Contracts Act 1950,

3.

TOPIC 9

LAW OF AGENCY (PART II)

147

the employer of an agent is bound to indemnify him against the consequences of all lawful acts done by the agent in exercise of the authority conferred upon him. It means the principal must indemnify the agent when he incurred loss or liability in exercising his authority. For example:

Illustration (a)
B, at Kelang, under instructions from A, in Taiping, contracts with C to deliver certain goods to him. A does not send the goods to B, and C sues B for breach of contract. B informs A of the suit, and A authorises him to defend the suit. B defends the suit, and is compelled to pay damages and costs, and incurs expenses. A is liable to B for such damages, costs and expenses.

Illustration (b)
B, a broker at Taiping, by the orders of A, a merchant there, contracts with C for the purchase of 10 casks of oil for A. Afterwards, A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends but is unsuccessful, and has to pay damages and costs, and incurs expenses. A is liable to B for such damages, costs and expenses. Subsequently, Section 176 of the Contracts Act 1950 provides that, where one person employs another to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it cause an injury to the rights of third person. It means the agent has the right to be indemnified by his principal for any expenses incurred and consequences of any act, while the agent is acting in good faith in the execution of his authority, even if it causes injury to third person.

148 TOPIC 9 LAW OF AGENCY (PART II)

For example:

Illustration (a)
A, a decree-holder and entitled to execution of Bs goods, requires the officer of the court to seize certain goods, representing them to be the goods of B. The officer seizes the goods, and is sued by C, the true owner of the goods. A is liable to indemnify the officer for the sum which he is compelled to pay to C, in consequence of obeying As directions.

Illustration (b)
B, at the request of A, sells goods in the possession of A, but which A had no right to dispose of. B does not know this, and hands over the proceeds of the sale to A. Afterwards C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is liable to indemnify B for what he has been compelled to pay to C and for Bs own expenses. However, if the agent is employed to do a criminal act, the principal is not bound to indemnify the agent against the consequences of the act. This is provided in Section 177 of the Contracts Act 1950, where one person employs another to do an act which is criminal, the employer is not liable to the agent, either upon an express or an implied promise, to indemnify him against the consequences of that act. For example:

Illustration (b)
B, the proprietor of a newspaper, publishes, at As request, a libel upon C in the paper, and A agrees to indemnify B against the consequences of the publication, and all costs and damages of any action in respect thereof. B is sued by C and has to pay damages, and also incurs expenses. A is not liable to B upon the indemnity.

Consequently, if the agent suffers injury during the course of his duty due to his principals neglect or want of skill, Section 178 of the Contracts Act 1950 provides that,

TOPIC 9

LAW OF AGENCY (PART II)

149

the principal must make compensation to his agent in respect of injury caused to the agent by the principals neglect or want of skill. For example, A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The scaffolding is unskilfully put up, and B is, in consequence, hurt. A must make compensation to B. An agent loses his right to an indemnity if he acts beyond his authority or negligently performs his duty. This can be seen in following case of:

Davison v. Fernandes (1889) 6 TLR 73. The defendant in this case asked
the plaintiff to quote the price of some stock ex dividend, but the plaintiff quoted the price cum dividend. Due to plaintiffs negligence, he failed to inform the defendant accordingly. The defendant then authorised the plaintiff to sell the stock. The plaintiff sold and had to pay the dividend to the purchaser (under the rules of the London Stock Exchange).

The Court held that: The plaintiff was not entitled to be indemnified by
the defendant.

In case of Solloway and Anor. v. McLaughlin [1938] MLJ 23, the Privy Council held that agents who engaged in a fraudulent scheme to defraud their principals, will forfeit their right to an indemnity in respect of transactions which form part of the fraud.

150 TOPIC 9 LAW OF AGENCY (PART II)

SELF-CHECK 9.1
1. 2. 3. 4. 5. 6. 7. 8. What are the agents duties towards his principal under the law? What is the liability of an agent who breaches the duty? What actions can be taken by a principal who discovers his agent making a secret profit? Can an agent delegate his authority to another person? Why? Under what circumstance can an agent appoint a sub-agent? Give at least one example. What are the legal duties of a principal to his agent? Under what situations will an agent lose his right to remuneration? What are the conditions under which a principal is not bound to indemnify his agent?

ACTIVITY 9.1
Discuss the following questions: (a) Hasnan employed Lenny, an auctioneer, to sell certain property for him and agreed to pay Lenny a commission on the sale and other miscellaneous expenses including printing and advertising costs. From the contract, Lenny received discounts from the printers and advertisers but charge Hasnan the full amount of the contract price and kept the discounts for himself. Decide whether Lenny is bound to account Hasnan for the discounts that he received.

TOPIC 9

LAW OF AGENCY (PART II)

151

(b)

Mr Kim employed a firm of estate agents to sell his bungalow for him. Goh, a member of the firm, represented to Mrs Irene that the property was of considerable value that any financier would easily provide financial assistance to the purchaser of the bungalow. In actual fact, this was quite untrue because the bungalow had been underpinned several times to prevent it from falling down. Mr Kim knew that the bungalow was in poor condition but did not authorise Goh to make the representation. Goh himself had no knowledge of the underpinning. Mrs Irene bought the bungalow on the faith of the representation and on discovering the underpinning, sued Mr Kim for damages for fraud. Advise Mrs Irene whether her action would succeed. Mr Kim employed a firm of estate agents to sell his bungalow for him. Goh, a member of the firm, represented to Mrs Irene that the property was of considerable value that any financier would easily provide financial assistance to the purchaser of the bungalow. In actual fact, this was quite untrue because the bungalow had been underpinned several times to prevent it from falling down. Mr Kim knew that the bungalow was in poor condition but did not authorise Goh to make the representation. Goh himself had no knowledge of the underpinning. Mrs Irene bought the bungalow on the faith of the representation and on discovering the underpinning, sued Mr Kim for damages for fraud. Advise Mrs Irene whether her action would succeed. Ramoo and Santhi employed Ryder and Co, a firm of merchants to buy goods for them. Ryder & Co bought the goods in their own names from Mr Kye. Mr Kye did not inquire whether they were acting as agents or principals, and supplied the goods on credit. Ramoo and Santhi paid Ryder & Co for the goods in the ordinary course of business. A fortnight later, Ryder & Co stopped payment and did not settle the payment to Mr Kye. Upon discovering the agency, Mr Kye sued Ramoo and Santhi for the price. Can Mr Kye succeed?

(c)

(d)

152 TOPIC 9 LAW OF AGENCY (PART II)

(e)

Mr Kim employed a firm of estate agents to sell his bungalow for him. Goh, a member of the firm, represented to Mrs Irene that the property was of considerable value that any financier would easily provide financial assistance to the purchaser of the bungalow. In actual fact, this was quite untrue because the bungalow had been underpinned several times to prevent it from falling down. Mr Kim knew that the bungalow was in poor condition but did not authorise Goh to make the representation. Goh himself had no knowledge of the underpinning. Mrs Irene bought the bungalow on the faith of the representation and on discovering the underpinning, sued Mr Kim for damages for fraud. Advise Mrs Irene whether her action would succeed. Ramoo and Santhi employed Ryder and Co, a firm of merchants to buy goods for them. Ryder & Co bought the goods in their own names from Mr Kye. Mr Kye did not inquire whether they were acting as agents or principals, and supplied the goods on credit. Ramoo and Santhi paid Ryder & Co for the goods in the ordinary course of business. A fortnight later, Ryder & Co stopped payment and did not settle the payment to Mr Kye. Upon discovering the agency, Mr Kye sued Ramoo and Santhi for the price. Can Mr Kye succeed?

(f)

9.3

EFFECTS OF CONTRACTS MADE BY AGENTS

The effect of contracts made by agents will be discussed in relation to the categories of principal. The kinds of principals include: A named principal; A disclosed principal but not the name; and An undisclosed principal.

9.3.1

A Named Principal

A named principal is a principal whose name has been revealed to the third party by the agent. The third party knows that the agent is contracting as an agent and knows the principal for whom the agent is acting. Thus, the agent is not liable for the contract and the contract is binding on the principal. However,

TOPIC 9

LAW OF AGENCY (PART II)

153

there are exceptions under Section 183 of the Contracts Act 1950, where an agent would be personally liable for the contract as follows: (a) (b) (c) (d) Where the agent agrees to accept personal liability; Where the agent executes a deed in his own name; Where the agent signs a negotiable instrument in his own name; and/or Where the agent exceeds his authority and the principal does not ratify the contract.

9.3.2

An Undisclosed Principal

An undisclosed principal is the principal whose identity and existence is not disclosed by the agent to the third party at the time of contract. The third party who enters into a contract with the agent of undisclosed principal is bound by it if he discovers that the contract is actually made on behalf of undisclosed principal. If the third party does not know that a person he deals with is acting as an agent, he has the right to sue the agent or the principal or both. Section 186 of the Contracts Act 1950 says, "in cases where an agent is personally liable, a person dealing with him may hold either him or his principal, or both of them, liable.

Illustration
A enters into a contract with B to sell him 100 bales of cotton, and afterwards discovers that B was acting as agent for C. A may sue either B or C, or both, for the price of the cotton.

The agent may be held personally liable on the contract because the third party does not know that the agent is acting for someone. In the case of Pernas Trading Sdn Bhd v. Persatuan Peladang Bakti Melaka [1979] 2 MLJ 124, the respondents ordered chemicals and fertilisers for themselves (rather than on behalf of the principal), but they denied liability when the appellants sued for the balance of the price. The Federal Court held that although the respondents were agents for a principal, they had contracted for themselves. Therefore, they were personally liable.

154 TOPIC 9 LAW OF AGENCY (PART II)

According to Section 183(b) of the Contracts Act 1950, if the agent does not disclose the name of the principal, the agent is presumed to be personally liable.

9.4

TERMINATION OF AGENCY

Termination of agency is dealt with under Sections 154 to 163 of the Contracts Act 1950. Generally, agency contract may be terminated in the following ways: (a) (b) Act of the parties; or Operation of law.

9.4.1
(a) (b) (c)

Termination by the Act of the Parties

The termination by the act of the parties may be made in the following ways: By mutual agreement of both principal and agent By revocation of authority by the principal By renunciation of the agency by the agent

According to Section 154 of the Contracts Act 1950, an agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated or declared a bankrupt or an insolvent. (i) Termination of agency, where agent has an interest in subject matter. Section 155 of the Contracts Act 1950 states: Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. For example, A gives authority to B to sell As land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, nor can it be terminated by his unsoundness of mind or death.

TOPIC 9

LAW OF AGENCY (PART II)

155

(ii)

When principal may revoke agents authority. Section 156 of the Contracts Act 1950 states: The principal may, save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal.

(iii) Revocation where authority has been partly exercised. Section 157 of the Contracts Act 1950 stipulates: The principal cannot revoke the authority given to his agent after the authority has been partly exercised; so far as regards such acts and obligations as arise from acts already done in the agency. For example, A authorises B to buy 1,000 bales of cotton on account of A, and to pay for it out of As money remaining in Bs hands. B buys 1,000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke Bs authority so far as regards payment for the cotton. (iv) Compensation for revocation by principal or renunciation by agent. Section 158 of the Contracts Act 1950 stipulates: Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause. (v) Notice of revocation or renunciation. Section 159 of the Contracts Act 1950 states: Reasonable notice must be given of such revocation or renunciation; otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other.

156 TOPIC 9 LAW OF AGENCY (PART II)

(vi) Revocation and renunciation may be expressed or implied. Section 160 of the Contracts Act 1950 states: Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent, respectively. For example, A empowers B to let As house. Afterwards, A lets it himself. This is an implied revocation of Bs authority.

9.4.2

Termination by Operation of Law

Termination by operation of law is also provided in Section 154 of the Contracts Act 1950, an agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated or declared a bankrupt or an insolvent. Thus, termination by operation of law may be made in the following ways: (a) (b) (c) (d) (e) (f) By the performance of the contract of agency; By the expiration of the period fixed in the contract of agency; By the death of the principal or agent; By the insanity of the principal or agent; By the principal becoming insolvent or being made a bankrupt; or By the happening of an event which renders the agency unlawful (for example, in cases of frustration).

TOPIC 9

LAW OF AGENCY (PART II)

157

SELF-CHECK 9.2
1. 2. 3. 4. 5. What is the effect of contract made by an agent who named his principal to the third party? Under what circumstance will an agent be personally liable for a contract? How can an agency contract be terminated? Is there any situation under which a principal cannot revoke the authority of his agent? Describe the ways of termination of agency by way of operation of law.

An agency contract confers rights and duties to the principal and agent. An agent is bound to conduct the business of his principal according to the principals instruction. An agent must act according to the customs prevailent in the absence of instruction from the principal. An agent must exercise care and diligence, and use his skill in carrying out his work. An agents duty is to render proper accounts to his principal. An agent must communicate with his principal to get further instructions. It is an agents duty not to let his personal interest conflict with his own duty. An agent must not make any secret profit out of the performance of his duty. An agent must not disclose confidential information or documents entrusted to him by his principal. An agent cannot delegate his authority to another person without permission or approval from the principal. A principals duty is to pay the agent his commission or remuneration. A principal must not wilfully prevent his agent from earning his commission. A principal is bound to indemnify his agent for acts done within his scope of authority.

158 TOPIC 9 LAW OF AGENCY (PART II)

An agent is not liable for contracts done for a named principal. An agency contract may be terminated by the act of the parties or by operation of law.

Duties Named principal Notice Mutual agreement

Termination Renunciation Revocation Undisclosed principal

Text Books Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd. Wu. M.A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.). Selangor: Pearson and Longman. Cases

Andrews v Ramsay & Co [1903] 2 KB 635. Boardman v. Phipps [1966] 3 All ER 721. Davison v. Fernandes (1889) 6 TLR 73. Keppel v Wheeler [1927] 1 KB 577. L.S Harris Trustee Ltd v. Power Packing Services (Hermit Road) Ltd (1970) 2 Lloyds Rep 65. Mahesan v. Malaysia Govt. Officers Co-operative Housing Society Ltd. [1978] 1 MLJ 149. Pernas Trading Sdn Bhd v. Persatuan Peladang Bakti Melaka [1979] 2 MLJ 124. Solloway and Anor. v. McLaughlin [1938] MLJ 23. Turpin v. Bilton (1843) 5 Man & G 455.