LAW OF AGENCY

DEFINITION
• “The relationship that exists between 2 persons
when one, called the agent, is considered in law
to represent the other, called the principal,
in such a way as to be able to affect the
principal’s legal position in respects of
strangers to the relationship by the making of
contracts or the disposition of property”.
• https://www.youtube.com/watch?v=YndtdFib3
LA&feature=youtu.be
• In Malaysia, the law of agency is mainly found in
Part X (s. 135 – 191 Contracts Act 1950).

• S. 135 defines Agent as “ a person employed to

do any act for another or to represent another in
dealings with 3rd persons”.

• The person for such act is done, or who is so

represented, is called the Principal.
• Example :
Ali appoints Muthu to buy some goods on his
behalf. Ali is called the ‘principal’ while Muthu is
his ‘agent’.

• Agent may be described as the person by whom

the principal acts or represented.

• The 3rd party is the person with whom the agent

brings the principal into a legal relationship.
• S.136 – Any person who is 18 yrs old/above &
sound mind may be a principal (can appoint an
agent).

• S.137 – As between the principal and 3rd

persons, any person may become an agent; but
persons of unsound mind & below 18 are not
liable towards their principals for acts done by
them as agent.
• Example :
Along employs Achik (16yrs) to buy some goods
from Daling on his behalf and Daling supplies
the goods. Along cannot alleged that he is not
liable to pay for the goods just because Achik is
not 18 yrs old yet. Along is still liable to pay for
the goods. However, if Daling had taken the
goods and sold them for his own benefit, Daling
is not liable to pay Along for those goods.
CREATION OF AGENCY
• Agency can be created in several ways. It can be
express or implied from the circumstances and
the conduct of the parties.
• In other words, the authority of an agent may be
expressed (i.e. given by words spoken or written)
or implied (i.e. inferred from things spoken or
written or from the ordinary course of dealings).
• In KGN Jaya Sdn Bhd v. Poan Reliance Sdn Bhd
[1996], it was held that agency arrangements
need not be in writing.

• S.138 – provides that no consideration is

necessary to create an agency.

• There is no requirement of the appointment of

agent or sub agent has to be in writing or be
evidenced in writing in Contracts Act.
1. Agency by express appointment
• Involves the actual consent of the principal and
the agent.
• S. 139 – states that the authority of an agent may
be expressed or implied.

• S. 140 – Defines the express and implied

authority, whereby it states that an authority is
said to be express when it is given by words
spoken or written.
2. Agency by implied appointment
• Implied authority is by way of the implied
consent of the principal and the agent.
• This derives from the words and conduct of the
parties in the way they have acted in connection
to one another.
• S. 140 – An authority is said to be implied when
it is to be inferred from the circumstances of the
case; and things spoken or written, or the
ordinary course of dealing, may be accounted
circumstances of the case.
• Example :
Ani lives in Shah Alam and owns a shop in KL.
The shop managed by Mona who normally
orders goods from Rita in Ani’s name for the
purpose of the shop and Mona then pays for the
goods out of Ani’s funds with Ani’s knowledge.
So, we can say that Mona has an implied
authority from Ani to act as her agent in the
purchase of the goods.
In partnership business

- A partner is considered as agent to another

partner. It means that a partner has an
authority to make contact on behalf of another
partner.
- Case : Chan Yin Tee v. William Jacks & Co
[1964] MLJ 290
Facts :
Chan & Yong (minor) were registered as partners.
At a meeting with representative of the R
company, Chan represented himself as Yong’s
partner. Goods were then supplied to Yong but
were not paid for. The legal action was taken
against both Chan & Yong.
Held : Since Chan had held Yong out as his agent
who had the authority to do things on his behalf,
Chan was therefore liable for Yong’s acts.
3. Agency by ratification
• Agency by ratification can arise in 2 situations :
1) If the agent who was appointed (and given
authority) had acted beyond (exceed) the
authority ; or
2) If a person, without an authority to act (never
been appointed as an agent) but has acted as if
he has the authority.
• If the above situation happen (either one), the
principal has 2 rights, according to s. 149 :
- he can reject / refuse to accept the contract ; or
- he can accept the contract

• If refused – the agent/person who does not have

the authority will be personally liable for the act
done.
• If accept – the principal is considered as “he has
ratified” the said act (which had been done
without his authority). So, he will be responsible
and liable for the act.
• S. 150 – The ratification may be expressed or
implied in the conduct of a person on whose
behalf the acts are done.

• However, before the principal ratifies the

contract, 8 conditions must be fulfilled :
1. The act must be an unauthorized
2. The unauthorized act must be recognized by
law
3. The agent acted on behalf of the principal,
must not allow 3rd party to think that he is the
principal.
4. The principal must be in existence and has
contractual capacity, when the contract is
made and at the time of the ratification.
5. The principal must have knowledge about the
material facts of the contract in order to ratify
it (s. 151).
6. The principal must ratify the whole contract (s.
152)
7. Ratification must be done within a reasonable
time.
8. Ratification must not cause injury to 3rd party
(s. 153)
4. Agency by necessity
• It can arises in the case of emergency (without
formal appointment). However, a contractual
relationship has already exist between them.

• S. 142 – An agent has an authority in emergency

cases, use his own discretion to safeguard the
interest of his principal.
• In order to create an agency by necessity, the
following conditions must be fulfilled :

1. It is impossible for the agent to get the

principal’s instruction.
2. The agent’s action is necessary to prevent loss
to the principal.
3. The agent must act in good faith (not for
personal interest).
Agency by Estoppel
• Agency by estoppel arises when a principal, by
his words or conduct, allows the 3rd party to
believe that a person as his agent (which is not
his agent), who then made a contract with the
person, acting so, believing that he is the agent
to the principal.
• So, here, the principal will be estopped from
denying the authority of the agent.
• Case : Freeman & Lockyer v. Burkhurst Park
Pty Ltd [1964]
Facts :
Mr Kapoor was an officer in a company. Even
though he had no authority to act, he acted like
the directors in the company. All directors did
not reject the contracts entered into by him. He
hired surveyors and architects to work for the
company. When they claimed the payment, the
company refused to pay and claimed that the
appointment made by Kapoor was not valid as
he did not have an authority to do so.
Held :
The company was estopped from denying
Kapoor’s authority to act for them. The company
was liable to pay because the 3rd party believed
that Kapoor had the authority to act on behalf of
the company.
DUTIES OF AGENT AND PRINCIPAL
• Since the relationship between the principal and
the agent is contractual relationship, there are
certain duties must be performed by both
parties.
Duties of Agent to Principal
1. Obey the principal’s instruction
- s.164 : “ An agent is bound to conduct the
business of his principal according to the
directions given by the principal…”
- The agent is considered as breach of contract if
he failed to follow his principal’s instruction.
• Case : Turpin v. Bulton[1843], the agent was
instructed by his principal to insure his ship. The
agent, however, did not follow the instruction of
his principal. The ship had loss. The principal
sued the agent for losses suffered by him. The Ct
held that failure on the part of the agent to obey
the principal’s instruction may be treated as
breach of contract and the agent liable for the
loss.
• In the case of Bostock v. Jardine, the principle
was “ the agent was liable for any loss if he does
more than he was directed to do”.

• It is important to note that, the agent is under no

duty to obey if his principal instructs him to do
unlawful act. Case : Cohen v. Kittel[1889]
2. Act according to the customs
• In the case where there is no instruction given,
the agent must follow the custom – means the
agent must do what he usually does.
• S. 164 – “….or, in the absence of any of such
directions, according to the custom which
prevails in doing business of the same kind…”
3. Exercise care and diligence in carrying
out his work and to use such skills he
possesses.
• If the agent has been appointed because of the
skill that he has, he must use his skill to give
max benefit to the principal.
• S. 165 – “The agent is bound to conduct the
business of the agency with as much skill as is
generally possessed by persons engaged in
similar business…”
• Case : Keppel v. Weller, the principal instructed
the agent to sell his house. There are 2 offers
given to the agent. However, the agent had
accepted the offer which is lower in price. The
principal, then, sued for the losses that he
suffered, if the better offer is accepted.
• The Ct held that the agent was liable because he
did not exercise care and due diligence in
carrying out his duty.
4. Render proper account when required
by the principal
• The agent must show and submit proper and
true account to the principal when he is
required to do so by his principal.
• In case of Foley v. Hill (1848), the Ct laid down
the principle that the agent is under a general
duty to account to the principal. The agent is
under a duty to keep accounts of all
transactions and to produce them to the
principal on demand.
• S. 166 – an agent is bound to render proper
account to his principal on demand.
5. Communicate with principal
• S. 167 – it is a duty of an agent, in cases of difficulty,
to use all reasonable diligence in communicating
with his principal, and seeking to obtain his
instruction.
• However, if he fails to get further instruction, then,
he is justified to use his own discretion to act, in
order to protect the interest of his principal.
• S.142 – an agent has authority, in an emergency, to
do all such acts for the purpose of protecting his
principal from loss as would be done by a person of
ordinary prudence, in his own case, under similar
circumstances.
6. Do not let his personal interest conflicts
with his duty
• An agent cannot enter into a contract for
himself while he is negotiating a contract for
his principal. The principal has several options
if the situations happens.
(a) Principal can cancel the contract (s. 168)
(b) Claim the benefit gained by the agent
according to s. 169
7. Do not make secret profit
• An agent cannot make secret profit, while
dealing with the transaction on behalf of his
principal.
• Secret profit means extra payment, secret
commission or financial advantage.
• If the agent had made secret profit and the
principal knows and consent – he can keep the
amount/benefit as it is no secret.
• However, if the principal does not agree, he can
take these actions :
- repudiate the contract between agent and
principal.
- recover the amount of secret profit.
- refuse to pay commission to the agent.
- dismiss the agent / terminate the contract of
agency on the reason of breach of duty.
- sue the agent and claim damages for the loss
suffered.
- initiate criminal action against the agent/3rd
party under Anti Corruption Act 1997.
7. Pay to his principal all sums received on
his behalf
• S.171 provides that it is a duty of an agent to
pay to his principal all sums received on his
account.
• However, s.170 allows the agent to retain or
deduct from the sum received for :
(a) any advances made
(b) expenses incurred
(c) commissions
(d) other remuneration
8. Do not disclose any confidential information
and documents entrusted to him by his
principal.

• The agent must keep all information or

documents entrusted to him secret. He cannot
disclose to other people those confidential
information.
9. Do not delegate his authority to another agent
(sub agent)
• A person who has been appointed as an agent
cannot further appoints another person to
become his agent (sub agent). This is according
to Latin maxim delegates non potest delagare.
• S.143 – an agent cannot lawfully employ
another to perform acts which he has expressly
or impliedly undertaken to perform personally.
• Exceptions :
(a) If the principal approves
(b) If there is an assumption from the conduct of
the parties that the agent has a power to
delegate his authority
(c) If the custom or trade allows the delegation
(d) If it is necessary to complete the business
(e) In emergency situation or necessity
(f) If it involves ministerial or clerical job or
administrative and does not involve the
exercise of any special discretion or skill.
Duties of Principal to his Agent
• Basically, there are 3 duties of a principal to his
agent :

1. To pay the agent commission and other

remuneration (s.172)
- The principal must pay the commission to
his agent according to what he has agreed to
pay . This principle was laid down in the case
of Luxor (Eastbourne) Ltd. V. Cooper[1941]
- s.172 – the payment for the remuneration due
when the act is completed.

- s. 173 – an agent who is guilty of misconduct is

not entitled to any remuneration.
2. Not to willfully prevent the agent from
earning his commission.
• The agent’s right to commission is not affected
even if the transaction has not been beneficial
to the principal, or if the transaction has
subsequently fallen through no fault of the
agent.
• The principal cannot hire another agent to
compete with the first agent.
3. To indemnify and reimburse the agent
• According to s.175, an agent is entitled to be
indemnified by the principal against any losses
and liabilities incurred in the performance of
his duty.
• In the case of Kyall & Evatt v. Lim Kim Keat,
the principal asked the agent to sell his shares.
The principal did not disclose important
information regarding the transaction. As a
result, the agent could not perform his duty
and he suffered losses.
• The Ct held that the agent was entitled to be
indemnified for the loss because the principal
failed to disclosed important information.
• S.176 – When exercising his authority, an agent
had caused an injury to the rights of the 3rd
party, the principal has to indemnify the agent if
the 3rd party sues the agent.
• S.178 – If an agent suffers injury due to
principal’s negligence or lack of skill, the
principal is bound to make compensation to his
agent in respect of that injury.
• However, according to s.177, the principal does
not need to indemnify the agent if he does an act
which is a crime.