a) What are the agents duties towards his principal under the law?

The agent is required to fulfil the following duties to the principal:

i. Obey the principals instruction

Section 164 of the Contract Act 1950 has stated,

An agent is bound to conduct the business of his principal according to the directions
given by the principal, or, in the absence of any such directions, according to the custom
which prevails on doing business of the same kind at the place where the agent conducts
the business. When the agent acts otherwise, if any loss be sustained, he must make it
good to his principal, and, if any profit accrues, he must account for it.

Which means that an agents failure on carrying out his principals instruction will
result in breach of contract and therefore the agent must be liable for any loss suffered
by the principal.

Case reference:
Turpin v. Bilton (1843) 5 Man & G. 455
An agent failed to insure his principals ship even though he had been given order to
do so. When the ships lost, the court decided that the agent was liable for the losses.

ii. Act according to the customs which prevail, in the absence of instructions from the
principal

Section 164 of the Contract Act 1950 has stated,

An agent is bound to conduct the business of his principal according to the directions
given by the principal, or, in the absence of any such directions, according to the custom
which prevails on doing business of the same kind at the place where the agent conducts
the business.

This require the agent to act according to the customs prevailing in doing business of
the same kind if theres no clear instruction from the principal.

iii. Exercise care and diligence in carrying out his work and to use skill as he possesses

Section 165 of the Contract Act 1950 has stated,

An agent is bound to conduct the business of the agency with as much skill as if
generally possessed by persons engaged in similar business, unless the principal has
notice of his want of skill. The agent is always bound to act with reasonable diligence,
and to use such skill as he possesses; and to make compensation to his principal in
respect of the direct consequences of his own neglect, want of skill, or misconduct, but
not in respect of loss or damage which are indirectly or remotely caused by such neglect,
want of skill, or misconduct.

It means that if the agent failed to perform his duty diligently, skilfully and with care,
the agent must make good any loss suffered by the principal as the result of his act.
 Case reference:
Keppel v. Wheeler (1927) 1 KB 577
The plaintiff has hired the defendant to sell his property. The plaintiff received an offer
and accepted it subject to contract. A few days later, another potential buyer made a
higher for the property but the defendant did not communicate this offer to the plaintiff
which result in the first offer to be signed.

The court held that the defendant was liable to the plaintiff for the difference between
the two offers.

iv. Render proper accounts when required

Section 166 of the Contract Act 1950 has stated,

An agent is bound to render proper accounts to his principal on demand.

It means the agent duty is to account for all monies and properties handled by him as
an agent for the principal and to produce the accounts when demanded by the principal.

v. Pay the principal all sums received on his behalf

Section 171 of the Contract Act 1950 has stated,

The agent is bound to pay to his principal all sums received on his account (subject to
the deductions specified in section 170).

Section 170 of the Contract Act 1950 has stated,

An agent may retain, out of any sums received on account of the principal in the
business of the agency, all moneys due to himself in respect if advances made or
expenses properly incurred by him in conducting such business, and also such
remuneration as may be payable to him fir acting as agent.

Section 174 of the Contract Act 1950 also gives the agent the right to keep his
principals property in his possession until he has received his payment,

Section 174 of the Contract Act 1950 stated,

In the absence of any contract to the contrary, an agent is entitled to retain goods,
papers, and other property, whether movable or immovable, of the principal received
by him, until the amount due to himself for the commission, disbursements, and
services in respect of the same has been paid or accounted for to him.
 vi. Communicate with the principal

Section 170 of the Contract Act 1950 has stated,

It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in
communicating with his principal, and in seeking to obtain his instruction.

Which means that an agent should put all reasonable effort to communicate with his
principal to obtain instruction, in the event of facing difficulties. However, the agent
may use his own method to take an action that can safeguard the principals interest, in
case of emergencies.

vii. Avoid conflict of interest with own duty

The agent is responsible to avoid from having his interest conflicting with his duty, and
he must solely act for the benefit of the principal.

Section 168 of the Contract Act has stated,

If an agent deals on his own account tin the business of the agency, without first
obtaining the consent of his principal and acquainting him with all material
circumstances which have come to his own knowledge on the subject, the principal may
repudiate the transaction, if the case shows either that any material fact has been
dishonestly concealed from him by the agent, or that the dealings of the agent has been
disadvantageous to him.

Because of this, the principal has the authority to claim any benefit obtained by the
agent from the transaction. As it has been stated in Section 169 of the Contract Act,
If an agent, without the knowledge of his principal, deals in the business of the agency
on his own account instead of on account on his principal, the principal is entitled to
claim from the agent any benefit which may have resulted to him from the transaction.

viii. Not to make any secret profit out of the performance of his duty

An agent is responsible not to make any secret profit out of the performance of his duty.
Secret profit includes payment of a secret commission or any financial advantage
received by the agent, above the commission or remuneration agreed by the party. The
agent can only keep the profit if the principal allows him to. Otherwise, the principal
can take these actions:

I. repudiate the contract if it is disadvantages to him (Section 168 of the Contracts

Act 1950)
II. recover the amount of the secret commission from the agent (Section 169 of the
Contracts Act 1950)
III. refuse to pay the agent his commission or other remuneration
IV. dismiss the agent for breach of duty
 V. Sue the agent and third party giving the secret commission, for damages for any
loss he may have sustained through entering the contract as illustrated in the
case below:

Mahesan v. Malaysia Govt. Officers Co-operative Housing Society Ltd. (1978)

1 MLJ 149
The respondent society bought land at a price of RM944,000 from the vendor
who had paid earlier RM456,000 for it. The appellant knew of this fact but failed
to inform the society. After the sale was completed, the society discovered the
fact that the appellant had received RM122,000 as a bribe or secret commission
from the vendor for the sale of the said land.

The Privy Council held that the Housing Society could recover either the bribe
or the amount of the actual loss suffered by it because of entering into the
contract.

ix. Not to disclose confidential information or documents entrusted to him by his principal

An agent is usually entrusted with the principals confidential information or

documents. Therefore, the agent must not reveal that information to anybody else.

x. Not to delegate his authority

An agent must not delegate his authority to another person because an agency
relationship is personal in nature and involves trust and confidence, placed by the
principal on his agent. This principle is in line with Latin sayings delegates non potest
delegare which means a delegate cannot delegate. Its also been states in Section 143
of the Contracts Act 1950,

An agent cannot lawfully employ another to perform acts which he has expressly or
impliedly undertaken to perform personally, unless by the ordinary custom of trade a
sub-agent may, or, from the nature of the agency, a sub-agent must, be employed.

However, there are exception for this rule. Which means that an agent can appoint a
sub-agent or delegate his authority under following circumstances:

I. Where the principal approves of the delegation of authority

II. Where it is presumed from the conduct of the parties that the agent shall have
power to delegate his authority
III. Where the customs of the trade or business permits delegation
IV. Where the nature of the agency is such that delegation of the authority to another
person is necessary to complete the business
V. In cases of necessity or unforeseen emergency (for instance, due to sickness of
agent)
VI. Where the act to be done is purely ministerial or clerical and does not involve
the exercise of discretion
b) What is the liability of an agent who breaches the law?
In the case of breach, the agent is liable for any form of damage or loss suffered by the principal.
As it has been stated in Section 164 of the Contract Act 1950,
An agent is bound to conduct the business of his principal according to the directions given
by the principal, or, in the absence of any such directions, according to the custom which
prevails on doing business of the same kind at the place where the agent conducts the business.
When the agent acts otherwise, if any loss be sustained, he must make it good to his principal,
and, if any profit accrues, he must account for it.

c) What actions can be taken by a principal who discovers his agent making a secret
profit?
The principal can take these actions upon finding out his agent is making a secret profit:
I. repudiate the contract if it is disadvantages to him
II. recover the amount of the secret commission from the agent
III. refuse to pay the agent his commission or other remuneration
IV. dismiss the agent for breach of duty
V. Sue the agent and third party giving the secret commission, for damages for any loss he
may have sustained through entering the contract

d) Can an agent delegate his authority to another person?

As it has been stated in Section 143 of the Contracts Act 1950, an agent cannot delegate his
authority to another person, however he can appoint a sub-agent or delegate his authority under
following circumstances:
I. Where the principal approves of the delegation of authority
II. Where it is presumed from the conduct of the parties that the agent shall have power to
delegate his authority
III. Where the customs of the trade or business permits delegation
IV. Where the nature of the agency is such that delegation of the authority to another person
is necessary to complete the business
V. In cases of necessity or unforeseen emergency (for instance, due to sickness of agent)
VI. Where the act to be done is purely ministerial or clerical and does not involve the
exercise of discretion
e) What are the legal duties of a principal to his agent?
The principal is obliged to do the followings in carrying out his duties:
i. Pay the agent any commission or other remuneration unless the agency relationship is
gratuitous

The principal is responsible to pay the agent if the agent complied with the terms of the
agency agreement. However, an agent loses his right to remuneration if there is
misconduct in the business of the agency.

Section 173 of the Contracts Act 1950 stated,

An agent who is guilty of misconduct in the business of the agency is not entitled to
any remuneration in respect of that part of the business which he has misconducted.

ii. Not to wilfully prevent or hinder the agent from earning his commission

The agent right to commission is not affected even if the transaction has not been
profitable to the principal, or if the transaction has fallen through no fault of the agent.

iii. Indemnify the agent for acts done in the exercise of his duties

Section 175 of the Contracts Act 1950 stated,

The employer of an agent is bound to indemnify him against the consequences of al
lawful acts done by the agent in exercise of the authority conferred upon him.

This means that the principal must indemnify the agent when he incurred loss or
liability in exercising his authority.

Section 176 of the Contracts Act 1950 also stated,

Where one person employs another to do an act, and the agent does the act in good
faith, the employer is liable to indemnify the agent against the consequences of that act,
though it cause an injury to the rights of third persons.

This means the agent has the right to be indemnified by his principal for expenses and
consequences of any act, while the agent is acting in good faith in the execution of his
authority, even if it causes injury to third person.

However, the agent is not bound to be indemnified if the agent is employed to do a

criminal act, as it has been stated in Section 177 of the Contracts Act 1950,

Where one person employs another to do an act which is criminal, the employer is not
liable to the agent, either upon an express or an implied promise, to indemnify him
against the consequences of that act.
 For that, if the agent suffers injury during his duty due to his principals neglect or want
of skill, Section 178 of the Contracts Act 1950 stated,

The principal must make compensation to his agent in respect of injury caused to the
agent by the principals neglect or want of skill.

iv. To respect any lien the agent has over the property of the principal in the actual or
constructive possession of the agent

The lien is the authority that the agent holds which gives him the right to hold the
property of the principal. The agent can enforce lien if he has a strong claim against a
principal for remuneration or an indemnify.