Agency: Principles relating to

agency in Malaysia
Creation of agency
Rights & duties of agents
Agents and third parties
Termination of agency
Applicable law
 governed by Part X of the Contracts Act
1950 (CA 1950)
 Section 135 of the C A 1950 defines:
◦ an agent as “a person employed to do any act for
another or to represent another in dealings with
third persons.”
◦ The person for whom such act is done, or who is
represented, is called the ‘principal’;
 Third party: a party with whom the agent
deals with for and on behalf of the principal.
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What is an agency relationship and
who is involved?
 An agency relationship is formed between
two parties when one party (the agent)
agrees to represent another party (the
principal).

 A principal-agent relationship is fiduciary,

meaning it is based on trust.

 Normally, all employees who deal with third

parties are considered agents. As such, an
agency relationship is governed by
employment law.
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Agency is a relationship defined under
contract
 Agency (defn): the relationship which
subsists between the principal and the agent
who has been authorized to act for him or
represent him in dealings with others.
 It involves 2 contracts:
1.Btw the principal and the agent
2. Btw the principal and the third party (through
the medium of the agent)
 No consideration is necessary to create an
agency – section 138 CA 1950
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 Creation of agency
 A contract of agency (like any other contract) may be
◦ expressed where the authority is given by words spoken or
written OR
◦ implied from the circumstances and the conduct of the
parties where the authority is inferred from things spoken or
written or from the ordinary course of dealings.
 Kuchwar Lime & Stone Co. v Dehri Rohtas Light Railway
& Co. Ltd (A.I.R. 1969 S.C. 193) – appointment of agent
may be gathered from the facts and circumstances of a
case and from the conduct of the parties
 In KGN Jaya Sdn Bhd v Pan Reliance Sdn Bhd [1996] 1 MLJ
233 and EMS Bowe (M) Sdn Bhd v KFC Holdings(M) Bhd &
Anor.[1999] 6 CLJ 513 - It was held that agency
arrangements need not be in writing.
 Part X of CA 1950 also did not require the appointment
of agent or sub-agent to be in writing.
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Creation of agency
1. Agency by agreement (by express
appointment or by implied appointment);
2. Agency by Necessity i.e. by operation of law
in certain circumstances (emergency)
3. Agency through Ratification by the principal
(either where agent duly appointed has
exceeded his authority OR a person who
has no authority to act for the principle has
acted as if he has authority)
4. Agency by Estoppel (holding out)

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Agency by agreement: Either express
appointment or implied appointment
 A principal and an agent may
◦ expressly agree to enter into an agency
agreement (e.g. Power of Attorney) OR
◦ Law can infer creation of agency i.e. it can be
implied when a person by his words or conduct
holds out another person as having authority to
act for him: Section 140 CA 1950; See Kuchwar
Lime & Stone Co. v Dehri Rohtas Light Railway & Co.
Ltd (1969).
 In an agency created by agreement the agent
has authority to act on behalf of the
principal
 No special form is required
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 Chan Yin Tee v William Jacks & Co. (Malaya)
Ltd [1964] MLJ 290
 Case where one of the partners (Yong) of a hardware business is a
minor. He even held a joint (current) account with Chan.Yong
represented himself as a partner during a business transactions with
respondent company. Goods were then supplied to Yong . The
respondents sued for the price and obtained judgment against the
appellant and Yong.Yong appealed. But court held that 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
competency to contract, may become an agent, for whose acts the
principal may be liable to third parties.

◦ See also ss. 135, 136 (person who is of the age of majority and is of
sound mind can employ an agent), 137 (any person may become an agent
but those who are not of the age of majority and sound mind can be
held responsible to the principal with regards liabilities to third parties)

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 Agency by ratification: s.149, 150
 In situations where (i) agent was duly appointed has
exceeded his authority or (ii) where a person has no
authority to act for principal has acted as if he has the
authority. Principal has a choice – to accept the
contract or reject it.
 A contract can only be ratified if:
(i) act or contract is unauthorized;
(ii) agent at the time of the contract, expressly act as agent
for the principal (not that he is the principal) - s.149.
(iii) the agent must have a principal, who is in actual
existence or capable of being ascertained, when the
contract is made; See Kelner v Baxter [1866]
(iv) the principal must have a contractual capacity at the
time contract is made and at the time of ratification;
(v) the principal must ratify the whole act or contract;
(vi) the ratification must not injure third party
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Agency by ratification: s.149, 150
 When the principal accepts and confirms
such a contract, the acceptance is called
ratification, s.150.
 The agent free from any liability and the
principal is bound by the contract

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Keighley Maxted & Co v Durant
[1901] A.C. 240
 In this case an agent Robert was authorized
by the appellant to buy wheat at a certain
price. The agent exceeded his authority and
bought at a higher price in his own name but
intended it for Keighley. Keighley agreed to
take the wheat at that price but failed to
take delivery. The court held that Keighley
was not liable to Durant since Roberts at
the time of the contract did not profess to
act as an agent.
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 S.R.M. Meyappa Chettiar v Lim Lian
Koo [1954] 20 M.L.J. 246
 Palaniappa Chettiar, the attorney of Somasundram
entered into an agreement with the respondent
where the former handed over his principal’s
property for RM7,000 agreeing to obtain a special
power of attorney for the lawful transfer at a later
date upon principal’s return from India but if failed
to obtain power of attorney will return the amount
to respondent.
◦ At the trial, judge held agreement had been ratified by
principal and therefore claim for recovery of possession
of land by principal was dismissed.
◦ But upon appeal the Court of Appeal held that the
terms of agreement showed that Palaniappa Chettiar
was acting in his personal capacity and therefore the
principal of ratification could not apply.
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Kelner v Baxter [1866] L.R. 2 C.P.
174
 A Contract to buy a hotel entered into by
an agent on behalf of a company which
was about to be formed, could not be
ratified by the company since it did not
exist at that time.
◦ The agent was therefore held liable for the
contract unless the third party agreed to
release him

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Agency by necessity
 An agency of necessity is another
way in which an agency can arise
by operation of law.
◦ Its origins can be found in mercantile
law, and in shipping law in particular.
 A person become the agent of
another under circumstances
without being appointed as such.
 It may arise where a person is
faced with an emergency in
which the property or interests
of another person are in
imminent jeopardy and, in order
to preserve that property or
those interests, it becomes
necessary to act for that person
without his authority
 Conditions before agency by
necessity exist
◦ impossible to get principal’s
instructions, s.142
◦ the agent’s action is necessary
in order to prevent loss to the
principal with respect to the
interest committed to his
charge.
◦ agent acted in good faith.
 In an emergency, an agent has
authority to do all such acts
for the purpose of protecting
his principal from loss as
would be done by person of
ordinary prudence, in his own
case, under similar
circumstances, s.142.
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Agency by estoppel, s.190 CA
• A principal creates the appearance of an agency that
in actuality does not exist.
• The other party to contract believes that the agent
has authority to contract due to the words or
conduct of the principal.
• The third party relies on it to his detriment
Therefore principal will be estopped or precluded
from denying the existence of that person’s authority
to act on his behalf.
• The principal is thus bound by the contract by virtue
of the “ostensible authority” involving a
representation by the principal as to the extent of the
agent’s authority. He is thus bound by the
consequences in accordance to s. 190. See Cheng Keng
Hong v Govt of Fed. Of Malaya [1966] 2 M.L.J. 33.

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Agency by operation of law

In family relationship

or

In an emergency-the agent’s failure to act

outside the scope of his or her authority
would cause the principal substantial loss

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DUTIES OF AN AGENT TO THE PRINCIPAL

 The rights and duties of the principal and

agent depend on the express or implied
terms of the contract of agency.
 When there is no such contract of agency,
the rights and duties of an agent to his
principal and vice versa are laid down in
sections 164 to 178.
 Can be classified into following categories:
1. Loyalty
2. Performance
3. Notification (duty to inform)
4. Obedience
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 DUTIES OF AN AGENT TO THE PRINCIPAL
1. To obey all the lawful instructions of the principal and to act
according to the customs in the absence of instructions from his
principal.(S.164). Failure to do will result in breach of contract.
◦ See also Turpin v Bilton [1843] 5 Man. & G. 455 where the agent
was held liable when he failed to insure a ship when instructed to
do so and the ship was lost.
◦ In Bostock v Jardine [1865] 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 instructions of his
principal if the instructions are unlawful: In Cohen v Kittel [1889]
the agent was held not liable for failing to place bets.
2. In the absence of instruction from principal, to act according to
the customs that prevail, in doing business of the same kind, at
the place where he carries on his work. Otherwise has to
compensate for the loss sustained by the principal.
3. To exercise care & diligence in carrying out his work and to use
as much skill as is generally possessed by persons engaged in
similar business. (S.165)
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 DUTIES OF AN AGENT TO THE PRINCIPAL
4. To render proper accounts when required by principal (S.166);
5. To pay his principal all sums received on his behalf (S.171) but can
retain or deduct from such sums received advances made or
expenses incurred when undertaking duty as agent (s.174).
6. To use all reasonable diligence to communicate with the principal and
obtain the relevant instructions (s.167) but during emergency can use
discretion to safeguard interests of principal;
7. Not to let his interest conflict with his duty;
8. Not to make any secret profit out of the performance of his duty; See
Mahesan v Malaysian Government Officers Cooperative Housing Society Ltd
[1978] 1 MLJ 149.
9. Not to disclose confidential information or documents entrusted to
him by his principal;
10. Not to delegate his authority (application of the maxim delegatus non
potest delegare except in certain circumstances e.g. where the principal
has approved it; where it is presumed from the conduct of the parties;
where the custom r practice permits it; where it is necessary to
complete the business due to the nature of the agency; in the case of
necessity or an unforseen emergency; where the act done is purely
ministerail or clerical and does not involve exercise of discretion.
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 DUTIES OF AN AGENT TO THE PRINCIPAL
 If the secret dealings/profits are known to the
principal, the principal has rights to:
1. Repudiate the contract, s.168;
2. Recover the amount of secret profit from the
agent, s.169;
3. Refuse to pay the agent his commission or other
remuneration;
4. Dismiss the agent for breach of duty;
5. Sue the agent and the third party giving the bribe
for damages for any loss he may have sustained
through entering into the contract. See Mahesan v
Malaysian Government Officers Cooperative Housing
Society Ltd [1978] 1 MLJ 149.
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DUTIES OF AN AGENT TO THE PRINCIPAL
See Mahesan v M’sian Gov’t Officers Co-operative
Housing Society Ltd [1978] 1 MLJ 149:
• the appellant who was a director and secretary of the
respondent cooperative society bough land at the price of
RM944,000 on behalf of the respondent. The appellant knew
that the vendor earlier had paid RM 456,000 for it but did not
inform the respondent accordingly. It turned out that the
appellant had received RM122,000 as a bribe or secret
commission from the vendor.
• The court held that the respondent could recover either the
bribe or the amount of the actual loss suffered by it as a
result of entering into the contract.

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 Duties of a principal to his agent: ss 175-178
 Agent to be Summary of duties of principal:
indemnified against  To pay agent commission or other
consequences of remuneration agreed unless agency
lawful acts, s.175; relationship is gratuitous;
 Agent to be  Not to willfully prevent or hinder the
indemnified against agent from earning his commission;
consequences of acts  To indemnify the agent for acts done
done in good faith, in the exercise of his authority.
s.176;
Note : Agent’s right to be indemnified
 Non-liability of includes right to recover not only his
employer of agent to commission and remuneration but also
do a criminal act, money which he paid on principal’s behalf
s.177; and all losses suffered by him in carrying
 Compensation to out the directions of principal. But agent
loses this right if acts beyond his duty or
agent for injury caused performs duty negligently.
by principal’s neglect,
s.178

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THE AUTHORITY OF THE AGENT

The agent’s acts are binding on the

principal if only they are done within the
agent’s authority and not if they exceed it.
2 types of agent’s authority: actual or
apparent:
1. Actual authority
• expressly given by the principal orally or in
writing OR
• implied from the express authority given,
from the circumstances of the case, custom or
usage of trade, and the conduct of the parties

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THE AUTHORITY OF THE AGENT

2. Apparent authority (or Ostensible authority)

◦ Authority not expressly given by the principal but
which the law regards the agent as possessing
although the principal has not have consented to his
exercising such authority. In The Firm of T.A.R. CT. v The
Firm of SV. K.R. [1955], the Privy Council decided that
an agent who had authority to part with firm’s money
had, in the circumstances of the case, a necessary
implied authority to receive payment for the firm.
◦ Secret or private restrictions on the authority of the
agent do not affect a third party who does not know
about such restrictions and acted in good faith by
relying on the agent’s apparent authority.

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THE AUTHORITY OF THE AGENT

3. Implied authority
◦ considered held by the agent by virtue of
being reasonably necessary to carry out
express authority
4. Inherent authority
◦ is held by the agent who exceeds the scope of
express authority by a minimal amount and in
a manner that is inherently similar to the
action expressly authorized.

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LIABILITIES OF AN AGENT AND A PRINCIPAL

1. Liability of an agent to the third party

depends upon whether:
a) The agent has actual or apparent authority
b) The agent has no actual or apparent authority

2. Liability of an agent to the principal

◦ to indemnify the principal for any resulting
loss or damage.

3. Liability of a principal to his agent

◦ to indemnify the agent for payments made
during the course of the relationship

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Termination of an agency: ss 154-163 CA 1950:
May be proposed by principal or agent and can
occur in the following ways:
1. By the act of the parties (may be expressed
or implied)
◦ Mutual consent: parties to a contract mutually
agree to terminate the agreement;
◦ Authority revoked by the principal anytime before
it has been exercised to bind the principal, s.154;
◦ For agency with indefinite duration, by agent
giving reasonable notice of termination to the
principle, s.159. For agency of definite duration,
agent cannot terminate before expiry of the
period.

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Termination of an agency: ss 154-163 CA 1950:
2. By operation of law:
◦ When the contract of agency has been performed,
s.154;
◦ Upon the expiry of the period fixed in the contract of
agency;
◦ Upon death of the principal or agent, s.154. Agency
terminated by death of principal only effective when
agent has notice of death, s. 161.
◦ When the principal or agent becomes insane, s.154;
◦ When the principal or agent becomes insolvent or is
made bankrupt, s.154;
◦ Upon the happening of the event which renders the
agency unlawful. In Stevenson v Aktiengesellschaft Fur
Cartonnagen Industrie [1918] A.C. 239, where an
outbreak of war made the principal an enemy alien, it
was held that the agency was terminated.
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 Agency under Islamic Law (Al-
Wakalah)
 Definition of al-wakalah:
◦ literally means protection, delegation, or authorization.
◦ Legally refers to a contract where a person delegates his
business to another and substitutes the other in his place.
◦ Refers to a contract whereby a person who is fully
competent authorizes another person who is equally
competent to do certain transactions on his behalf.
 But your people (O Prophet) reject you though it is the Truth.
Say: "not mine is the responsibility for arranging your affairs“
– Surah Al-An’am:66
◦ The word wakil means a person responsible for arranging
one’s affairs.
 Surely I put my trust in Allah, my Lord and your Lord
(11:56) – the word ‘tawakkaltu’ occurring in this verse
means “I trusted in Him and entrusted my affairs to HIM.”
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Al-wakalah
 In accordance to Shariah, it means:
◦ to substitute an agent for the principal to perform a work
permitted by him OR
◦ it means to substitute by a person in his own place
another person to dispose of the things over which he has
power.
 The authorized person is called wakil : the one who
establishes contractual and commercial relations
betw a principal and a third party for which he is
entitled to receive commission even if not mentioned
in oral or written form. Can acquire rights for his
principal and he can be subject to liabilities during the
performance of work or representation on behalf of
his principal.
 The principal is called muwakkil

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Purpose of Al-Wakalah
 The principal has no ability or expertise
to perform a certain action;
 Time constraints;
 To conclude commercial transactions with
a third party or customers who are in
different locations

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Essential elements of Al-Wakalah
1. The contracting parties: parties involved are (i) the
principal (muwakkil) who delegates his power to
another and (ii) the agent (wakil) who gets the
authority to act on behalf of the principal.
2. The subject matter/object of agency: is the act of
performing for which an agent is appointed for the
tasks given by the principal i.e. acts or objects which
are lawful and legitimate according to Shariah.
3. The formula: contract is concluded by offer first
followed by acceptance at a later date by deed or
conduct. Contract of agency is made for a limited
period. Conditional contract of agency not
permitted.

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Conditions of Al-Wakalah
 The principal must have full contractual capacity
(must not be insane or a minor);
 An agent must be prudent and competent and also
have capacity;
 The authorized act must be lawful and permissible in
Islam;
 The authorized action must be specified to avoid
uncertainty or gharar which can lead to disputes later
on.
 Some of the action cannot be the subject matter of
Al-Wakalah e.g. to pray, fast, give evidence or take
oaths on behalf of principal. Also notpermitted to
appoint agent to gain ownership over common
properties like fruits or fish.

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Duties of a Wakil
 Must express clearly to third parties that he
is the representative of the principal when
the transaction is made; if not he will be in
breach of warranty;
 Must observe all instructions of principal;
 Must conform to current market price in
contracts of sale;
 Must obtain receipt for payment of
principal’s debt;
 Cannot buy property when authorized to
sell it.

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Types of Al-Wakalah
1. General Wakalah: general delegation of power
from principal to agent where agent owns all
power which principal has
2. Special Wakalah: made for specified transactions
only;
3. Restricted Wakalah: agent has to strictly act
within certain conditions imposed by the
principle otherwise not binding on the principal.
4. Absolute Wakalah: no conditions imposed as to
the performance of certain transactions.
 Wakalah in Sale – a type of agency
whereby principal appoints agent to sell
property on his behalf
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Termination of Al-Wakalah
1. When the agent discharges or withdraws
himself from the contract;
2. Whenever the principal terminates the services
of an agent;
3. When either the agent or principal loses the
capacity or is disqualified or does not have the
necessary competence;
4. When the object of the agency becomes non-
existent or destroyed.
5. When the principal already executes or
performs the transaction for which he has
appointed the agent. Agent is no longer
necessary for the completed work.

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