Agency Business Law

1
LAW OF AGENCY
BY
SALMIAH SALLEH
SalmiahNasreen Law 251/379/299-

Agency 12/13
Outline (lesson Outcomes)
2
Definition and nature

Creation of Agency
Relationship between P and A

Agency 12/13
Duties of A ->P
Duties of P ->A
Effects of Contract made by the Agent
Termination of Agency Relationship

Why do we need agency relationship?
3
Because sometimes a person may not be able

to act for himself. He may need the help of
another to do certain things for him.
AGENT the person employed to do an act
Agency 12/13
for another or to represent another in dealing

with third persons.
PRINCIPAL the person for whom such act is
done, or who is so represented.
What is Agency?
4
Is the relationship which subsists between

the P and the A who has been authorised

to act for him or represent him in dealing
with others.
Agency 12/13
P authorises A
Deal
with
3rd Party
2 contracts created in agency:
5
Contract between the P and A from which A

derives his authority to act for and on behalf

of P.
Contract between P and Third Party through
Agency 12/13
the act of the agent

AGENT
AGENT
6 REPRESENT
CONTRACT PRINCIPAL &
OF AGENCY DEALS WITH

3RD PARTY
Agency 12/13
PARTIES
TO THE
CONTRACT THIRD PARTY
PRINCIPAL
Capacity of the P and A
7
P must have contractual capacity to employ an A.

S 136.
An A is not necessary to have capacity S 137
Any person may become an A, but no person who is
Agency 12/13
not of the age of majority and of sound mind can

becomes an A so as to be responsible to his P
Chan Yin Tee v William Jack & Co
Held: Chan was responsible to Yongs act as Yong was
not an adult (minor).
HOW AN AGENCY CAN BE CREATED 5 modes
8
EXPRESS APPOINTMENT
IMPLIED APPOINTMENT
RATIFICATION
Agency 12/13
NECESSITY
ESTOPPEL
EXPRESS APPOINTMENT
9
Now I appoint you

to be my agent in Ok, no
dealing with a problem.
contract to buy a
house on my
Agency 12/13
behalf.
S140 An authority is said to be express when it is

given by words spoken or written
IMPLIED APPOINTMENT
10
CIRCUMSTANCES OF CASE. Illus. to s 40.

RELATIONSHIP OF HUSBAND & WIFE

- Unless :
Husband forbids wife to pledge his credit
Agency 12/13
a)
b) Husband warns tradesman not to let wife pledge his

credit
c) Husband has supplied necessary goods
d) Husband has given wife enough $$$ - Miss Grays
e) The contract was unreasonable with the Husbands
income.
PARTNERSHIP s 7 of PA, 1961

RATIFICATION
11
Section 149 2 situations :

a) Agent appointed by principal exceeded his

authority
b) Person never appointed as agent acts as if
Agency 12/13
he is an agent
When the P approves/accepts/ratifies

anyone of the above unauthorized actions
=> Agency by ratification is created
Definition of agency by ratification
12
Is it an agency relation which is created when the P

accepts or ratifies the act of either:

The agent who has exceeded his given authority or
A person who has no authority but has acted as if he
Agency 12/13
has the authority to act on behalf of the P.
S 150 ratification can be either expressed or

implied.
EXAMPLE 1 OF RATIFICATION
I SIGNED CONTRACT TO BUY ME A HOUSE.
BUY A HOUSE PRICE NOT MORE
Ok, Ill find FOR YOU. PRICE IS THAN RM250,000
one for you RM300,000.
OK
Agency by ratification is created as the man accepts the

contract made by the lady(agent) who has exceeded her
authority. Agency 12/13
13
EXAMPLE 2 OF RATIFICATION
14 Is it? Im looking
for a
(contact with
houselah
developer)Hello! I Want
to buy a house for my
friend. Ok(answered the
developer)
Agency 12/13
Johny, Ive already

bought a house for you.
The house is nice and
strategic somemore The Ok, ok. I
price is RM200,000.00 want the
only. house
Agency by ratification is created as the man accepts the contract made by

the lady( not an agent) but has acted as if she is the agent.
EFFECT OF RATIFICATION
15
BINDS PRINCIPAL RETROSPECTIVELY

For example :
1st December Agent contracted with 3rd party
on behalf of principal exceeding authority given
Agency 12/13
10th December Principal was informed of the

contract & he approves.
Principal is bound by the contract from 1st Dec
CONDITIONS FOR RATIFICATION
16
The act or contract of the A must be

unauthorized
Unauthorized act is not illegal (Brook v Hook)
Agent must expressly act as A & not use own
Agency 12/13
name to contract (Keighly Maxted Co v

Durant)
Principal must exist at the time the contract
was made (Kelner v Baxter)
S.35 Companies Act of Msia : pre Incorpn
contract (Cosmic Ins v Khoo Ching Poh)
CONDITIONS FOR RATIFICATION
17 Principal must have capacity at the time of
contract AND at the time of ratification.
Boston Deep Sea Fishing & Ice Co v Farnham)

Grover V Mathew
Principal must know all material facts

Agency 12/13
name of 3rd party, terms of contract, etc

(Marsh v Joseph) s151
P must ratify whole act or contract s 152
Ratify in reasonable time
Metropolitan Asylum Board v Kingham
Must not injure 3rd party s153
Brook v Hook contract must be legal
18
Held: the P may not ratify a contract in which his

signature had been forged by the unauthorised A.

Agency 12/13
Keighley Maxted & Co. v Durant
acted expressly as agent
19
Co (P) Authorises A to buy A

wheat at certain price
Bought at
higher
price in his
own name
Agency 12/13
Durant
(3rd Party)
At first P agreed to the contract but later refused to perform it. Durant sued the P
for breach of contract
Held: The P was held not liable to Durant. The ratification by the P was not valid
because the A had not acted expressly as an A to the P at the time of the
contract.
Kelner v Baxter
20
Contract to buy a hotel made on behalf of a

company before it was registered.

Held: the contract could not be ratified because the
Co(P) did not exist at that time.
Agency 12/13
However the position in Malaysia on this is

governed by s 135 of the CA. It allows the co to
ratify the contract made before it is incorporated.
Cosmics
Grover & Grover v Mathew must have
contractual capacity at the time of contract and ratification
21
P A
Made contract to
The P only ratified the contract 1 week insure against fire
after the factory was in fire. without being
Agency 12/13
authorised
Held: the contract of an insurance policy
which had been ratified after the Insurance
occurrence of the insured event was not co
effective. Because the P was not
competent to contract at the time of
ratification.
AGENCY BY NECESSITY s.142
22
A person may become an agent without being appointed due to the
necessity or emergency circumstances, in order to protect the P from

any loss.
Agency 12/13
Between H and W
WIFE PLEDGE HUSBANDS Commercial agency of necessity
CREDIT IN TIMES OF NECESSITY PERSON ENTRUSTED
EVEN AGAINST HIS WISHES WITH PROPERTY OF
(BECAUSE NO MEANS TO ANOTHER & HAS TO DO
SUPPORT HUSBAND LEFT HER SOMETHING TO PROTECT
OR SHE IS JUSTIFIED IN LEAVING THE PROPERTY FROM
HER H) LOSSES
Illust to s 142
23
An agent for sale may have goods repaired if it be

necessary.
A Ask B to send his B at B may sell the

goods to C at PB Taiping goods at Taiping
Agency 12/13
if they will not

bear the journey
to PB without
spoiling.
C at
Parit
Buntar
CONDITIONS FOR AGENCY BY NECESSITY
24
1) THERE MUST BE AREAL & ACTUAL

EMERGENCY
- PHELPS JAMES & CO v HILL
- FACTORS : DANGEROSITY, FACILITIES AVAILABLE,
Agency 12/13
COST, TIME, DISTANCE.

- GREAT NORTHERN RAILWAY v SWARFIELD
- IF MERE INCONVENIENCE, LIABLE IN TORT FOR

CONVERSION. NO AGENCY BY NECESSITY
- SACHS v MIKLOS sale of furniture at lower price.
The agent was liable as no agency by necessity.
GREAT NORTHERN RAILWAY v SWARFIELD
25
A was entrusted to deliver a A(railway

P horse to a destination. But

nobody came to take the co)
horse. Incurred cost when he
made contract to rent
a place to preserve
Agency 12/13
The A claimed from the P the extra the safety of the

expenses incurred. The P refused to pay horse
on the ground that the A was not
authorised to do so.
3rd party
Held: the Railway co was the agent by
necessity and therefore entitled to claim.
CONDITIONS FOR AGENCY BY NECESSITY
26
2) AGENT WAS ENTRUSTED WITH

PRINCIPALS PROPERTY.
JEBARRA v OTTOMAN BANK

Agency 12/13
Any person who is not entrusted with the

Ps property is not entitled to become an
A by necessity.
3) IMPOSSIBLE TO GET
PRINCIPALS INSTRUCTIONS
SPRINGER v GREAT WESTERN
RLY CO
4) AGENT ACTED IN GOOD FAITH

27
Agency 12/13
SPRINGER v GREAT WESTERN RLY CO
28
Springer To carry Ps tomatoes

GWR
(P) from Jersey to Covent
Garden market Co(A)
The P claimed damages for the Bad weather, arrived late at

Agency 12/13
loss. The A claimed that they are an Weymouth. And the As workers
agent by necessity. were on strike. The A sold the
tomatoes feeling that the
tomatoes could not arrive at the
Held: The P entitled to damages
market in saleable condition. The
becos the A were not agents by A did not communicate with the P
necessity as they have failed to even though they could do so.
communicate with the P when they
could have done so.
Effects of agency by necessity
29
Principal cannot sue agent for losses

Springers.
Principal must pay agent for expenses
Swafields.
Agency 12/13
Contract exists between principal & 3rd

party Swafields.
ESTOPPEL
30
S190 - When the P induces the
3rd party to believe that a person
is his agent and has an authority

to act on his behalf whereas in
fact he is not.
How it
may
Agency 12/13
happen? When the P does not inform or

announce to the 3rd party that his
agent has no authority or the
agents authority has been
terminated, but the A still continues
acting on behalf of that P.
ESTOPPEL
31
WANT TO BUY MY JOHN WAS NEVER APPOINTED

CAR? DISCUSS BY PRINCIPAL AS AGENT

WITH JOHN
Agency 12/13
PRINCIPAL
MEETS JOHN, DISCUSS &
BUYS CAR FROM JOHN
JOHN IS AN AGENT
BY ESTOPPEL.
PRINCIPAL IS ESTOPPED
FROM DENYING JOHNS
3RD PARTY AUTHORITY
ESTOPPEL
32
AGENT HAS BEEN ACTING
FOR PRINCIPAL IN MANY

CONTRACTS WITH 3RD PARTY
Agency 12/13
PRINCIPAL DID NOT INFORM 3RD PARTY

THAT HE HAS TERMINATED THE
AGENTS SERVICE
3RD PARTY CONTRACTED WITH AGENT

THINKING THAT AGENT STILL HAS AUTHORITY
PRINCIPAL IS ESTOPPED FROM DENYING
AGENTS AUTHORITY. THEREFORE HE IS LIABLE FOR
THE ACT OF THE AGENT
Freeman & Lockyer
33
A contracted on behalf of the co without authority.

The other Directors knew abt this but did not inform
T. This induced T to believe that A has the authority.
Held: the co was estopped from denying that A as
Agency 12/13
the cos agent. Hence the co was bound by the

contract with T.
Santapan Minda & Rohani
34
Sucikan 4 hal dengan 4 perkara:

1. Wajahmu dengan linangan air mata keinsafan

Lidahmu basahkan dengan berzikir kepada
Agency 12/13
2.
Penciptamu
3. Hatimu dengan takut dan gementar kepada
kehebatan Tuhanmu, dan dosa-dosa silam
4. Disulami dengan taubat kepada Dzat yang
memilikimu
35
Agency 12/13
36
Agency 12/13
UNIVERSAL A
ACC to
EXTENT of GENERAL A
AUTHORITY
SPECIAL A
CLASSIFICATION OF AGENT DEL CREDERE

A
Agency 12/13
FACTORS
ACC TO BROKERS
FUNCTION
AUCTIONEER
37 BANKER
AUTHORITY OF AGENT
38
ACTUAL AUTHORITY
Expressly given by the P

Implied. Not expressly given. Inferred fr the
circumstances of the case or ord course of dealing
Agency 12/13
APPARENT/OSTENSIBLE AUTHORITY
P by words or conduct leads a 3 rd party to believe his
A has authority. S190 Graphics Lines Pte Ltd v Chai
Chee Mein.
The authority of A has terminated without knowledge of
3rd party. Overbrook Estate Ltd v Glencombe
Properties Ltd
DUTIES OF AGENT TO PRINCIPAL
1) A must obey the Ps instructions. S164. If
Agency 12/13
not A liable for the Ps loss.

P vs A.
- TURPIN v BILTON
- The A instructed to insure vessel. But failed
to do so. The P sufferred loss as the vessel
was lost.
- Held: The A was liable to pay
compensation for the loss.
2) If no Ps instructions, A must follow

norm/custom. S164. if not A liable to Ps
loss. P Vs A. Illust (b) s 164 39
40
3) A must exercise care, skill, diligence s165.

if not A liable to P for his neglect, want of

skill or misconduct.
If the A is employed to sell goods, must
obtain the best price possible.
Agency 12/13
- Keppel v Wheeler. X
Employed to sell
P a house
A
The A did not inform the P of the 2nd offer. Y

So contract made with X.
Held: The A liable to the P for the difference
between the 2 offers.
41
4) A must give proper account when

required S 166
- Lyell v Kenedy
- Held : an agent who has been entrusted
with the Ps money /property is bound to
Agency 12/13
keep the money/property separately from

his own money.
5) A must communicate with P to get
instructions when emergency/difficulty
S167.
6) A must act in good faith & no conflict of
42 interest.
Must not be a party to contract with P
Armstrong v Jackson
An A been ordered to buy shares for P. A sold his own shares
without informing the P. Held A had not acted in good faith.
Wong Mun Wai v Wong Tham Fatt
Agency 12/13
Held: the A breached his duty on 2 reasons:

He sold the Ps land below the market value
He failed to inform the P that he sold it to his wife.
Must not act for both Principal & 3rd Party without
consent
Fulwood v Hurley the A has breached his duty.
Must disclose everything that he knows.
All monies and profits should be put into the Ps
account. Cannot mix with his own money.
7) A cannot make secret profit

- kickback, bribe, financial advantage out
of the performance of his duty.
- Any breach, Principal can :
a) End contract made by agent Shipway v
Broadwood.
b) Recover the SP (Tan Kiong Hwas case)
c) Refuse to pay commission(Andrews v
Ramsay)
d) Terminate agent (Boston Deep Sea
Fishings case)
e) Sue agent & 3rd Party for losses (Mahesans
case) SalmiahNasreen Law 251/379/299-
43
Agency 12/13
Shipway v Broadwood
44
B as the principal has the right to repudiate the

contract in consequence of the bribe given by S to

the agent.
Agency 12/13
Tan Kiong Hwas
45
Ordered the A to sell

P A
the house for M45K
Managed
to sell at
RM54K
Agency 12/13
3rd Party
Held: the P is entitled to claim the extra RM9K from the A

who has breached the duty of an agent
Andrew v Ramsay & Co
46
Employed to sell Ps
P house & agreed to A

pay him 50
Received 100. pay

Agency 12/13
50 and took 50
as his commission
Later discovered that A received
another 20. 3rd Party
Held: the P entitled to recover both

sums as the A breached his duty as
an agent.
Mahesans
47
Authorised A
P(Co) to buy a A(Mahesan)

piece of land
Pay
122K as
bribe
Agency 12/13
Manickam
Held: the P could recover either the bribe

or the amount of the actual loss from the A
landlord
as the A breach his duty as an agent.
48
8) Give all money received to principal - s171

- But can deduct (s 170):

a) Unpaid commission
b) Expenses incurred by agent
Agency 12/13
49
9) Cannot delegate authority except :

a) Principal approves ( De Bussche v

Alt)
b) Implied from conduct it is permissible
Agency 12/13
c) Emergency situation
d) Purely ministerial / clerical (Allam v

Europe poster Services Ltd & John
McCann v Pow)
e) Custom of biz approves delegation
f) Need to delegate to complete biz

DUTIES OF PRINCIPALTO AGENT
Pay agents commission /

remuneration as agreed (s172)
unless guilty of
misconduct(s173).
Cannot prevent agent from

earning commission by :
a) Refusing contracts made by agent
without reason
b) Assign same task to another agent

50
Agency 12/13
DUTIES OF PRINCIPALTO AGENT
51
Indemnify & reimburse agent

where :
a) Agent incurred losses / liability
when doing duties (Kyall & Evatt
Agency 12/13
v Lim Kim Keat)

b) Agent causes injury to 3rd party
by carrying out instructions (s
176) & illust (b).
c) Agent suffers injury by
carrying out instructions (s178)
Effects of contract made by the A
52
P A
authorises
Deal
Agency 12/13
with
3rd Party
Effects of contract made by the A
53
Depends on kinds of P : 3 kinds:

Named P the Ps name has been disclosed to the 3rd

party by the A. so the 3rd party knows the existence
and the identity of the P.
Agency 12/13
Disclosed P the Ps existence is disclosed to the 3rd

party by the A. so the 3rd party only knows the
exixtence of the P but does not know the identity.
Undisclosed P the Ps existence and identity is
unknown to the 3rd party at the time of contract.
Effect of contract made for a named P.
54
GR P alone bound by the contract. Not the A. only

P can sue and be sued. S 183 &179
Exceptions:
The A agrees to accept personal liability. Chin Yuen
Agency 12/13
Tung v Bep Aketik.

The A execute a contract in his own name
The A signs a negotiable instrument in his own name

without making it clear that he is signing it only as
agent. Kavena Said Meydin.
The A exceed his authority and not ratified by the P
The custom/norm of trade makes the A liable.

Effect of contract made for a disclosed P.
55
GR Only P liable and not the A.

Exceptions: (s183(a),(b) &(c)).

Where the contract is made by an agent for the sale or
purchase of goods for a merchant resident abroad.
Agency 12/13
Where the agent does not disclose the name of his P;

and
Where the P, though disclose, cannot be sued. E.g. P
unsoundmind.
Effect of contract made for an undisclosed P.
56
Right of the 3rd party right to sue either the A or

P. Pernas Trading v Persatuan Peladang Bakti

Melaka.
Rights of the P the undisclosed P may require the
Agency 12/13
performance of the contract by the 3rd party even

though the 3rd party does not know that there is a P.
s184(a). However, this is subject to the right and
obligation subsisting between the A and 3rd party.
Rights of the A s189- The A can claim his right
under the contract if the contract is actually his
contract.
HOW TO TERMINATE AGENCY
57
OPERATION
ACT OF PARTIES OF LAW
1) Performance of contract
Agency 12/13
2) Contract period expires

BOTH AGREE 3) Death of Principal or
AGENT QUITS
TO END Agent
4) Insanity of P or A
5) Principal becomes
PRINCIPAL REVOKES bankrupt /insolvency
AGENTS AUTHORITY 6) Frustration which causes
contract to be unlawful
Revocation by P
58
P may revoke the As authority at any time before

the A has exercised his authority so as to bind the P

s156
P must give reasonable notice to A. If not A entitled
Agency 12/13
to damages s159.
What is reasonable notice?
Sohrabjis & Syarikat Jayas
3 months notice was not adequate for 50 yrs service. 2 yrs
wld be reasonable
Syarikat jaya v Star Publication
6 months notice was reasonable for a sole agency agreement.
Revocation by P (cont)
59
Exceptions P is prevented from revoking the As

authority:
When A has an interest in the property, which is the
subject matter of the agency. S155 unless if there is
Agency 12/13
express contract to the contrary. Smart v Sanders & Firth

v Firth.
If the A has incurred personal liability as a result of
carrying out Ps instructions. Read v Anderson.
Smart v sanders
60
Was sent with goods to

be sold on behalf of the

P
P A
Advances money for
the security of the
Agency 12/13
goods
Held :the A cannot be terminated by the P

because the A has an interest in the goods, by
paying the security of the goods.
Firth v Firth
61
The authority could not be revoked after the factor

had made advances for the security of the goods to

the owner and while these advances remained
unpaid.
Agency 12/13
Read v Anderson
62
Held ; the P would not revoke the turf commission

agents authority after losing the bet. The P would

have to indemnify the agent for the amount, which
the agent had paid to the person with whom he
Agency 12/13
made the bet.

When revocation by P effective?
63
Only effective when it comes to the knowledge of

the A and the third party. S161.

Pichappa Chitty v Hj. Jah
Held: the 3rd party who advanced money to the A
Agency 12/13
appointed but whose authority had been revoked

without the A and the 3rd party knowledge, was entitled
to recover the money from the P.
Trueman v Loder
Held: the 3rd party who dealt with an agent whose
authority had been revoked, was able to claim from the
P the goods supplied because the 3rd party had no
knowledge of the revocation.
Renunciation by the Agent
64
S154 An agency is terminated by the A

renouncing the business of agency

160 may be express or impliedly
The A must give reasonable notice to the P.
Agency 12/13
otherwise the P entitled to damages s159

S158 if for a fixed term any premature
renunciation the A must pay compensation.
By Operation of law
65
By performance By expiration of By death of

s154 a fixed period either the A or P
s 154
Agency 12/13
By insanity of By bankruptcy or By happening of

either the P or A insolvency of the event renders the
P s154 agency unlawful.
Santapan Minda dan Rohani
66
Happiness keeps you sweets,

Trials keep you strong,

Sorrow keeps you human,
Failure keeps you humble and success keeps you
Agency 12/13
glowing,
But only Faith and Attitude keeps you going
67
Agency 12/13
68
Agency 12/13
69
Agency 12/13

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1

SalmiahNasreen Law 251/379/299-

Definition and nature

Relationship between P and A

Effects of Contract made by the Agent

Termination of Agency Relationship

Because sometimes a person may not be able

for another or to represent another in dealing

Is the relationship which subsists between

the P and the A who has been authorised

Contract between the P and A from which A

derives his authority to act for and on behalf

the act of the agent

OF AGENCY DEALS WITH

P must have contractual capacity to employ an A.

not of the age of majority and of sound mind can

Now I appoint you

S140 An authority is said to be express when it is

CIRCUMSTANCES OF CASE. Illus. to s 40.

RELATIONSHIP OF HUSBAND & WIFE

b) Husband warns tradesman not to let wife pledge his

PARTNERSHIP s 7 of PA, 1961

Section 149 2 situations :

a) Agent appointed by principal exceeded his

When the P approves/accepts/ratifies

Is it an agency relation which is created when the P

accepts or ratifies the act of either:

has the authority to act on behalf of the P.

S 150 ratification can be either expressed or

Agency by ratification is created as the man accepts the

Johny, Ive already

Agency by ratification is created as the man accepts the contract made by

BINDS PRINCIPAL RETROSPECTIVELY

10th December Principal was informed of the

The act or contract of the A must be

name to contract (Keighly Maxted Co v

Boston Deep Sea Fishing & Ice Co v Farnham)

Principal must know all material facts

name of 3rd party, terms of contract, etc

Held: the P may not ratify a contract in which his

signature had been forged by the unauthorised A.

Co (P) Authorises A to buy A

Contract to buy a hotel made on behalf of a

company before it was registered.

However the position in Malaysia on this is

necessity or emergency circumstances, in order to protect the P from

An agent for sale may have goods repaired if it be

A Ask B to send his B at B may sell the

if they will not

1) THERE MUST BE AREAL & ACTUAL

COST, TIME, DISTANCE.

- IF MERE INCONVENIENCE, LIABLE IN TORT FOR

A was entrusted to deliver a A(railway

P horse to a destination. But

The A claimed from the P the extra the safety of the

2) AGENT WAS ENTRUSTED WITH

JEBARRA v OTTOMAN BANK

Any person who is not entrusted with the

4) AGENT ACTED IN GOOD FAITH

SalmiahNasreen Law 251/379/299-

Springer To carry Ps tomatoes

The P claimed damages for the Bad weather, arrived late at

Principal cannot sue agent for losses