BUSINESS LAW

LAW OF AGENCY (Part X of the Contracts Act 1950) Prepared by: Siti Nur Samawati Binti Ahmad

LEARNING OUTCOME
At the end of this chapter, students will be able to:
Explain how an agency relationship is created. Explain the authority of an agent. Explain the agents duty to the principal. Explain the agents right against the principal. Explain the liabilities of principals and agents to third parties. Describe the termination of agency.

Introduction
Agency is the relationship which subsists between the principal and agent. S.135 CA- Agent is a person employed to do any act for another in dealing with third person S.135 CA- Principal is the person to whom such act is done or who is so represented.
For e.g. If Ali appoints Muthu to buy some goods on his behalf, Ali is called the principal while Muthu is his agent. The seller of the goods is called as third person.

Parties to Agency
The creation of agency involves three parties;
the principal who passes the authority to act to the agent and the agent who in turn with this authority affects the legal relations of the principal with a third party. Third party

Thus in agency, exist two contracts i.e. between principal & agent and between principal and third person

CREATION OF AGENCY
Agency can be created by: Expressed or implied. Section 139 CA
Creation by express appointment. S.140 CA
It can be in writing or oral. An example express appointment made in writing is a Power of Attorney- that is created by the authorization by the client given to the solicitor to act on his behalf.

Creation by implied appointment. S.140 CA

may be implied from the conduct of the parties. Two examples are cohabitation (husband & wife) and the holding either by words or conduct that another person has the authority to act for him.

Example:
Illustration Section 140 In a case of Chan Yin Tee v William Jack, the A and Yong a minor, were registered as partners. At a meeting with a representative of the respondent company, the A held himself out to be Yong partners (impliedly). Good were supplied to Yong but were not paid for. A was liable for Yong Acts.

Necessity or Emergency
An agency by necessity may be created if the following conditions are met;
it is impossible for the agent to get the principals instruction- Section 142 CA; the agents action is necessary to prevent loss to the principal, Section142 CA. For e.g. selling off perishable goods to prevent rotting and; the agent acted in good faith.

Cases on Necessity
In Springer v Great Western Railway Company, the D agreed to carry Ps tomatoes from jersey to Covent Garden Market. Owing to bad weather, the ship arrived late at Weymouth. Some of the tomatoes were found to be bad. The D decided to sell the tomatoes locally as they felt the tomatoes could not arrive Garden Market in a saleable condition. They did not communicate with P. P was awarded with damages as D failed to communicate with P as he could have done so. In Sachs v Miklos, the bailee was liable for conversion because makes a sale where no urgency exist (Sale of Furniture).

Estopple
An agency by estoppel, is when a person who by conduct or words allows a third party to believe that the agent is acting on his behalf, is estopped or restrained from denying that the agent is working on his behalf. Example: A tells T in the presence of P that A is Ps agent and P does not contradict this statement. P later cannot deny that A is his agent if T sells goods to A, believing him to be Ps agent and later claim for the price.

Ratification
Creation of agency by ratification (the principal accepts & confirm the contract = the contract is binding).
where the relationship of principal and agent is created retrospectively, it dates back to the time when the original contract was made by the agent and not on the date of the principals ratification. Before ratification can arise, one of two situations must exist.

Either an agent who was duly appointed has exceeded his authority or a person who has no authority to act for the principal has acted as if he has the authority. For example, on 2 July, X appoints Y as his agent to buy a car not exceeding RM 40,000. Y ordered a car costing RM 50,000, telling the salesman that he was buying the car on Xs behalf. On 4 July, the salesman delivered the car to X. If X adopts the contract on 4 July, then Y is said to be his agent through ratification. Alternatively, X can also reject the contract on 4 July since Y has exceeded his authority.

 A contract can only be ratified under the following conditions:

The act or contract must be authorized The unauthorized act must be legal under the law The agent must, at the time of the contract, expressly act as agent for the principal- section 149. In Keighley Maxted v. Durant, the principal was not liable for the act of an agent who did not profess to be an agent when he entered into the contract. The principal must be in actual existence or capable of being ascertained, when the contract is made. In Kelner v. Baxter, a contract to buy a hotel 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 the time. The principal must have contractual capacity at the time of the contract The principal must, at the time of the ratification, have full knowledge of all material facts, unless it can be proven that he intends to ratify the contract whatever the facts may be. The principal must ratify the whole act or contract The ratification must be made within reasonable time. In Metropolitan Asylum Board v. Kingham and Sons, the principals ratification one week after the agents unauthorized purchase of eggs was held too late. The ratification must not injure a third partys right or interest- section 153.

KINDS OF AGENCY
According to authority are:
Universal agent- a general agent with extensive powers. He can do all acts which a principal may personally do. General agent- an agent who is employed to act on behalf of principal in particular goods or trade Special agent- agent with limited power to do specific act or for specific purpose.

KINDS of AGENCY
According to functions are:
Del credere agents- an agent who undertakes that a third party will perform his obligations. If third party fails to perform, the agent will be held liable Factors- a commercial agent who is entrusted with the goods of the principal for sale. He sells the god sin his own name without disclosing the principals identity. Broker- an agent who make contracts between his principal and third parties for a commission Auctioneer- an agent who is employed to sell goods at auctions. Bankers- can either be an agent for customer or an employee as agent for banks.

DUTIES OF AGENT to the PRINCIPALS

Duties of an agent to the principle (contained in section 164 to 178) are as follows: To obey the principals instructions- section 164 In the absence of instructions from the principal, to act accordingly- section 164 To exercise care and diligence in carrying out his work and to use such skill as he possesses- section 165. In Keppel v Wheeler, the D was employed by the P to sell his house. The first offer was accepted by the P with a condition.A few days later a higher offer (2nd offer) was made by X but this does not communicated to P. the court held that the D liable to pay the differences between 1st offer and 2nd offer

 To render proper accounts when required- section 166. To communicate with the principal- section 167 Not to let his own interest conflict with his duty- the agent must act solely for the benefit of his principal. Section 168 states that he cannot sell his own shares to the principal, unless he has earlier informed the principal and obtained his consent. In Wong Mun Wai v. Wong Tham Fatt, the court found that the defendant failed in his duty as he sold the principals share of land below the market value and he sold the land to his own wife. Illustration a) & b) of Section 168

DUTIES OF AGENT to the PRINCIPALS

Not to make any secret profit out of the performance of his duty- section 168. Secret profits refer to a bribe such secret commission. When the principal knows of the extra profit and consents to it, the agent is entitled to keep the profit. The principal may in case of secret profit may i) recover the amount of the bribe from the agent. Section 169.
In Tan Kiong Hwa v Andrew, the P bought a flat from a company wc the D was the managing director. The P authorized the D as his agent to sell the flat for $45000. the defendant sold the flat for 54000. the court held that the P cannot recover the difference of $9000 as the D had breached his duty as an agent.

 ii) principal may refuse to pay agent commission. In a case of Andrew v Ramsay iii) terminate the contract iv) may sue the agent and the third party giving the bribes for damages for any loss he may sustained. In a case of Mahesan v Malaysian Government Officers Cooperative

 Not to disclose confidential information or documents entrusted to him by his principal Not to delegate his authority- the relation between principal and agent is personal one and the agent cannot employ another person to do his duty. To pay to his principal all sums received on his behalfsection 171.

Sub-Agents
Under section 144 where delegation of duties is authorized, the person appointed to act on behalf and under the control of the agent is called a sub-agent. The sub-agent is not under the principals control. The principal cannot sue the sub-agent for monies received on the principals account and neither can the subagent claim remuneration from the principal. The agent is liable to the principal for the actions of the principal- section 145(2).

Duties of PRINCIPAL to his AGENT

The duties of a principal to his agent are provided in sections 175 to 178. The main duties are as follows: To pay agent the commission or other agreed remuneration unless the agency relationship is gratuitous Not to willfully prevent or hinder the agent from earning his commission To indemnify and reimburse the agents for acts done in the exercise of his duties.

THE AUTHORITY OF AGENT

An agents act is binding on the principal if it is done within his authority. Anything done in excess does not bind the principal unless he adopts or ratifies the unauthorized act. An agents act may be classified into actual and apparent authority. Actual authority comes in the form of expressed authority is expressly given either orally or in writing. Implied authority may be assumed from the powers proper or necessary to execute the instructions; from the circumstances of the case; the custom or usage of trade and; the situation and conduct of the parties. In Firm of T.AR.CT v. SV.KR, the court held that an agent who had authority to part with firms money had in the circumstances of that case, a necessary implied authority to receive repayment for the firm. Apparent authority may arise in two situations: whether a principal, by his word or conduct, leads a third party to believe that his agent has authority to make contracts for him- section 190 and; where the agent previously had the authority to act, but that authority was terminated by the principal without notice to the parties.

BREACH OF WARRANTY OF AUTHORITY

An agent who acts outside his authority or a person who acts as if he has the authority to act as an agent for another person is liable for breach of warranty of authority. In other words, where a third party is misled by the agents misrepresentation of authority, however innocent, the agent is personally liable. In Yonge v. Toynbee, the agents were held liable for damages even though they had acted in good faith. Where an agent acts in excess of his authority and that part which is excess of authority is separable from the rest, then the principal is bound by those action within the agents authority but not the rest. But if the acts are inseparable, the whole transaction is not binding on the principal- section 180- 181. But this does not affect the right of the third party to claim against the agent for breach of warranty of authority. An agent is not liable if his lack of authority is known to the third party or if he expressly disclaims authority or if the contract excludes his liability.

EFFECTS OF CONTRACTS MADE BY AGENTS

Where an agent contracts as an agent for a named principal, the relation of an agent lawfully exists. The agent incurs no right or liability under the contract- section 183. He drops out as soon as the contract is made. It is the principal alone who can sue and be sued by the third party provided the agent acted within his authority in making the contract- section 179. However there are exceptions to this rule:
Where the agent agrees to accept personal liability or contracts in such a way to make himself personally liable. Where an agent executes a deed in his own name, he is personally liable, unless he has a Power of Attorney, where he drops out and the principal is liable. Where an agent signs in his own name without making it clear that he is signing it only as an agent. Where an agent exceeds his authority and the principal has not ratified the contract. Where the custom of a trade makes the agent liable.

 Where an agent does not disclose the name of the principal, the agent is presumed to be personally liable- section 183. This provision covers both situations where the agency is disclosed but not the name of the principal as well as the nondisclosure of the agency itself. The agent remains liable on the contract even after the discovery of the principal by the third party unless released by the latter.

Where the third party has no knowledge or reason to suspect that the person he is dealing with is acting as an agent, he has the right to sue either the agent or principal or both of them- section 186. The agent can be held personally liable simply because the third party, when dealing with them, does not know that he is in fact an agent for someone. In Pernas Trading Sdn Bhd v. Persatuan Peladang Bakti Melaka, chemicals and fertilizers appeared to have been ordered by the respondents for themselves rather than on behalf of a principal. When the appellants sued for the balance of the price, the respondents denied liability on the ground that they were ordered for another party. The respondents were liable as they contracted in such a form to make themselves personally liable. By section 186(a) an undisclosed principal may require the performance of the contract by the third party even though the latter neither knows nor suspects that there is a principal. In the case of Drughorn, where it was held that the principal might nevertheless reveal himself as the true charterer of the vessel despite the fact that the contract between the agent and the third party described the agent as thecharterer.

TERMINATION OF AGENCY
An agency may be terminated in the following manner:
By the act of the parties
a. By the act of the parties: An agency may be terminated by mutual consent or by unilateral revocation by the principal or unilateral renunciation by the agent at any time by giving notice. Unilateral revocation or renunciation is mentioned in section 154. Revocation and renunciation may be expressed or implied in the conduct of the parties- section 160.

Termination of Agency
By operation of law
By operation of law: An agency may be legally terminated by the completion of the task undertaken to be performed by the agent-section 154; lapse of time; by the death of either the principal or agent- section 154; by the subsequent insanity of either the principal or agent- section 151; by the bankruptcy or insolvency of the principal- section 154 and; by the happening of an event which renders the agency unlawful.