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AGENCY

Introduction:

  • The law is governed by Part X of the Contract Act

1950.

  • An ‘agent’ – ‘a person employed to do any act for another or to represent another in dealings with third persons’: s.135

  • The ‘principal’ – ‘the person for whom such act is done, or who is so represented’.

  • Agency is the relationship which subsists between the principal & the agent, who has been authorized to act for him / represent him in dealings with others.

2 contracts are in effect in

agency:-

  • 1. Contract made between principal & agent which the agent derives his authority to act & on behalf of the principal

  • 2. Contract made between the principal & the third party through the work of an agent

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  • Any person who is 18 years old / above & who is of sound mind may be a principal. :

s.136

  • Any person may become an agent BUT persons of unsound mind & who are below 18 years of age are not liable towards their principals for acts done by them as agents :

s.137

CREATION OF AGENCY

  • A contract of agency can be expressed / implied from the circumstances & the conduct of the parties:

KGN Jaya Sdn Bhd v. Reliance Sdn Bhd

  • Court of Appeal held : the law does not require that an agency /sub-agency agreement must be in writting

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An agency may arise in the following ways:

  • By express appointment by the principal

  • By implied appointment by the principal

  • By ratification by the principal

  • By necessity; i.e by operation of law

  • By the doctrine of estoppel / holding out’.

By express appointment : s.139

  • Express appointment by the principal

  • Authorization may be given by words spoken / written : s.140

By implied appointment: s.139

  • (i) Implied appointment when a person, by

his words / conduct, holds out another person as having authority to act for him:

i.e. it can be inferred from the

circumstances of the case : s. 140

Case: Chan Yin Tee v William Jacks @ Co. (Malaya) Ltd

Facts: App Chan, Yong a minor, were registered as partners in business.

At the meeting with resp co, Chan held himself out to be Yong’s partner.

Then supplied goods to Yong but the price was not paid.

Resp co obtained judgement against Chan & Yong.

Chan appealed.

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Held: Irrespective of whether Chan was a partner or not, Chan had the authority to do things on his behalf & and as such, liable

for Yong’s act.

(ii) Relationship between husband & wife

  • Presumption husband principal & wife agent, wife has an authority to pledge her husbands credit for necessaries suited to their style of living.

  • Can be rebutted:

  • (a) he has expressly forbade his wife to pledge his credit

  • (b) he expressly warned the tradesman not to supply his wife with goods or credit; or

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  • (c) his wife was sufficiently provided for with goods of the kind in questions; or

  • (d) his wife was given a sufficient allowance for buying the goods without

having to pledge her husband’s credit; or

  • (e) the order, though for necessaries, was

unreasonable, taking into consideration her

husband’s income at that time.

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  • (iii) By the Partnership Act 1961 S 7:

partners are each other’s agent when

contracting in the course of the partnership

business.

By ratification: s.149

  • Can be created by either an agent,

    • who duly appointed & has exceeded his authority,

    • or a person, who has no authority to act for the principal & has acted as if he had the authority.

      • When either one of the above happens, the principal can either:-

        • - reject or,

        • - accept the contract so made

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  • The effect of ratification is to render the contract binding on the principal as if the agent had been properly authorized beforehand: s.149

  • Ratification is retrospective: i.e. it dates back to the time when the original contract was made by the agent & NOT at the time of ratification.

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  • Ratification can only be done:

  • (I) The act or contract must be unauthorized

  • (2) The unauthorized act must be one which is recognized by law.

  • (3) the agent must, at the time of the

contract, expressly act as agent for the principal S 149.

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  • Must not allow 3 rd party to believe he is the principal.

  • CASE: KEIGHLEY MAXTED & CO V. DURANT [1901]

  • Facts: Roberts, was authorized by the Keighley to buy wheat at a certain price.

  • Robert exceeded his authority & bought at higher price from Durant & used his own name but intending it for Keighley.

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  • Keighley agreed o take the wheat at that price but failed to take delivery.

  • Held: Keighley was not liable to Durant, as he could not ratified Robert’s contract, since Robert did not profess to act as agent.

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  • (4) contract entered into by a company or its agent prior to its formation may be ratified by the co after its formation S35 Co Act

1965.

  • CASE: COSMIC INSURANCE V KHOO CHIANG POH

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  • (5)The principal must have contractual capacity at the time when the contract is made & at time of

ratification

  • (6) The principal must have full knowledge of the material facts at the time of ratification

  • (7) The principal must ratify the whole act or contract cannot accept only part which advantageous to him & reject the rest

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  • (8) the ratification must be made within a

reasonable time.

  • (9) the ratification must not injure a third party.

By necessity (in an emergency) :

s.142

  • It is created when a person is entrusted with another’s property & it becomes necessary to do something to preserve that property although he has no express authority to do so.

  • There must be already some existing contractual relationship between the principal & the person who acts on his behalf; e.g. between the owner & the master of a ship @ an owner & a carrier of goods.

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  • May be created if the following conditions are satisfied:-

i)it must be impossible for the agent to get the principal’s instruction

CASE: SPRINGER V GEAT WESTERN RAILWAY COMPANY [1921]

  • Def agreed to carry ptf’s tomatoes from Jersey to Covent Garden market.

  • Owing to bad weather, the ship arrived late at Weymouth.

  • Def’s employees were on strike, tomatoes were unloaded by casual labourers some of tomatoes were found to be bad.

  • Def decided to sell tomatoes as they felt that tomatoes could not arrive in Covent Garden market in a saleable condition.

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  • Ptf claimed damages.

  • Held: ptf was entitled to damages because defs were not agent s of necessity because they have failed to communicate with the ptf when they could have done so.

(ii) The agent’s action is necessary

  • I.e to prevent loss to the principal with respect to the goods

  • Eg: perishable goods

  • If no urgency exists goods are merely sold because of inconvenience agency of necessity does not arise.

  • (iii) agent of necessity has acted in good faith

By estoppel

  • Generally, a person CANNOT be bound by a contract made on his behalf without his authority.

  • BUT, if he, by his words & conduct, allows a third party to believe that X is his agent, when X is not, and the third party relies on it, he will be estopped / precluded from denying the existence of X’s authority.

Example

If X tells B in the presence of C that he (X)

is C’s agent and C does not contradict this

statement, C cannot later deny that X is his

agent if B sells goods to X believing him to

be C’s agent & later sues for the price.

Types of Agency

  • Agents may be classified according to:-

    • 1. the extent of their authority

  • 2. their functions

Classification according to the

extent of authority:-

  • A universal agent

  • A general agent

  • A special agent

Classification according to

functions:-

  • Del credere agents

  • Factors

  • Brokers

  • Auctioneers

  • Bankers

Duties of principal and agent:

s.164 178 C A 1950

Agent’s Duties:

  • To obey the principal’s instructions : s.164

  • Failure - will result in breach of contract & agent will be liable for any loss suffered by the principal.

  • Refer to illustrations in C A 1950.

  • Case: Turpin v Bilton [1843] 5 Man. & G. 455, held: the agent was liable when he failed to insure a ship when instructed to do so & the ship was lost.

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  • However, an agent is under NO duty to obey instructions of his principal if the instructions are unlawful.

  • Case: Cohen v Kittel [1889] 22 Q.B.D 680;

  • Held: the agent was not liable for failing to place bets.

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2. In the absence of instructions from the principal, to act according to the customs which prevail, in doing business of the same

kind, at the place where he carries on his

work.

  • Otherwise, he has to make good any loss sustained by the principal S 164.

Skill & diligence required from

agent : s.165

  • 3. An agent is bound to conduct the business as much skill as is generally possessed by

..

with

persons engaged in similar business, unless the principal has notice of his want of skill.

  • The agent is bound

    • to act with reasonable diligence,

    • to use such skill as he possesses; &

    • to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct…

CASE: KEPPEL V WHEELER

  • Facts: def - agent instructed by ptf -, principal, to

sell his house.

  • An offer was received & accepted by ptf ‘subject to contract’.

  • A few days later, a higher offer was made by X, but agent didn’t communicate this new offer to ptf.

  • A written contract of sale between ptf & 1 st oferee were duly signed.

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  • Held: def was liable to ptf for the difference between two offers, coz agent must disclose everything that coming to his knowledge which is likely to influence the principal in making the contract.

To render proper accounts when

required : s.166

4. An agent is under a duty to account for all

the monies & property handled by him as agent for the principal & to produce such

accounts when demanded by the principal.

To pay his principal all sums received on his behalf S 171

5. However, an agent may retain / deduct from such

sums received, advances made / expenses incurred by him in carrying out his duty, his commission & other remuneration payable to him for acting as

agent S 170

s.174 gives the agent the right to retain his principal’s property in his possession until his

remuneration is paid, unless his contract provides the contrary.

To communicate with the

principal

6. In cases of difficulty, an agent must use all

reasonable diligence in communicating

with & in seeking to obtain instructions

from the principal S167.

  • However, in emergencies, the agent may use his own discretion in adopting a course of action to safeguard the interest of the principal - 142.

Not to let his interest conflict

with his duty

7. The duty of an agent is to act solely for the

benefit of the principal & he cannot allow his own personal interest to conflict with

this duty : s.169

Not to make any secret profit out of

the performance of his duty (e.g. a bribe, secret commission / financial advantage): s.168

8. But if the principal knows about the secret profit

& consents to it, the agent is entitled to keep the

profit.

If however, the profits are secret, then the principal may:-

a) Repudiate the contract if it is disadvantageous to him

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  • b) Recover the amount of secret profit from the agent : s.169

  • c) Refuse to pay the agent his commission / other

remuneration

  • d) Dismiss the agent for breach of duty

  • e) Sue the agent & the third party giving the bribe, for damages for any loss he may have sustained through entering into the contract

Case: Mahesan v Malaysian Govt. Officers Co- operative Housing Society Ltd

Held: resp. could recover either the bribe / the amount of the actual loss suffered by it as a result

of entering into the contract.

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9. Not to disclose confidential information / documents entrusted to him by his principal 10. Not to delegate his authority Maxim: delegatus non potest delegate – ‘a delegate cannot delegate’. There are exceptions to this general rule ( please, refer on your own )

Duties of a principal to his agent:

s175 178 C A 1950

  • 1. Agent to be indemnified against consequences

of lawful acts : s.175

  • - to pay the agent the commission / other remuneration agreed, unless the agency

relationship is gratuitous.

  • 2. Agent to be indemnified against consequences of acts done in good faith. : s.176

  • - not to willfully prevent / hinder the agent from

earning his commission.

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3. Non-liability of employer of agent to do a criminal act : s.177

  • - to indemnify the agent for acts done in the exercise of his authority.

  • 4. Compensation to agent for injury caused by principal’s neglect : s.178

    • - the right to be indemnified entitles the agent to recover not only his commission / remuneration

but also money which he paid on the principal’s

behalf & all losses suffered by him in carrying out the directions of his principal.

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  • However, the agent loses his right to indemnified if he acts beyond his duty or if he has performed his duty negligently.

The Authority Of The Agent

General rule:

  • An agent’s acts are binding on the principal if they are done within the agent’s authority.

  • BUT if an agent does an act which exceeds that authority so given, the principal is not bound UNLESS he adopts & ratifies the authorized act.

An agent’s authority may be :-

  • Actual; or

  • Apparent (ostensible)

  • Actual authority is authority expressly given by the principal (orally / in writing);

or implied from the express authority given, from the circumstances of the case, custom /

usage of trade, & the conduct of parties.

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  • Apparent / ostensible authority is that which is not expressly given by the principal but which the law regards the agent as possessing although the principal has not consented to his exercising such authority.

  • Case: The Firm of T.AR. CT v The Firm of SV. K.R.

  • Held: that an agent who had authority to part with the firm’s money had, in the circumstances of the

case, a necessary implied authority to receive repayment for the firm.

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Note:-

  • Secret / private restrictions on the authority of the agent DO NOT affect a third party who does not know of such restrictions & who has acted in good faith in relying on the agent’s apparent authority.

Termination Of Agency

  • Agency may be terminated by:

  • 1. The act of the parties, or

  • 2. By operation of law

Termination by the act of the

parties

  • It means by the act of the principal / agent Example:-

  • by mutual consent,

  • by revocation by the principal, or

  • by renunciation of the agency by the agent

Note: Revocation / renunciation of the agency may be expressed / implied by the conduct of the principal / agent.

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  • The principal may revoke the authority at any time before it has been exercised to bind the principal.

  • Where the agency is for an indefinite duration, the agent can terminate the agency by giving reasonable notice of termination to the principal : s.159

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  • Where the agency is for a definite / fixed period of time, the agent CANNOT terminate the agency before the expiry of that period without just cause.

  • Otherwise, he’ll be liable to the principal for damages for any loss caused by the premature termination of the agency : s.158

Termination 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

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  • Upon the death of the principal or the agent: s.161, Illustration C

  • An exception to this general rule where the agent has an interest in the property which forms the subject-matter of the agency. In such case, when the principal dies, the agent may continue to

exercise authority; & if the agent dies, the

authority passes to the agent’s personal

representatives.: s.155, Illustration A

  • When principal dies, the agent must take all reasonable steps to protect & preserve the interests entrusted to him. : s.162

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  • When the principal or agent becomes insane

  • When the principal or agent becomes insolvent / is made bankrupt or by frustration when an

event happens which renders the agency unlawful.

  • Note: Upon insolvency, a person’s rights & liabilities are vested in the Official Assignee &, the agency relationship ceases.