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Taylor's University Undergraduate Contents

• Creation
Business Programs ▫ express
▫ implied
Business Law (BUS2004/LAW60104) ▫ ratification
▫ necessity
▫ estoppel
• Authority
• Actual (expressed/implied)
Lecture 9: Agency • Apparent (ostensible)
• Liability of Agent/Principal to Third Parties
• Rights & Duties of principal & agent
• Termination
• Ss 135, 137, 139, 141, 142, 154, 156, 157, 159, 160, 161,
167, 183, 184, 185, 190 Contracts Act 1950

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Agency
Required Reading
• What is an agency?
1. Adnan Trakic, Nagiah Ramasamy, Cheah You Sum, et An agent is defined as a person employed to do any act
al, 2014 Law for Business Sweet & Maxwell. for another or to represent another in dealings with
third persons
2. Lee Mei Pheng & Ivan Jerone Detta, 2014, Business
Law, 2nd edition, Oxford University Press • Principal is bound by Agent’s contract with Third Party

• The law of agency is governed by Part X Section 135

3. Part X of Contracts Act 1950
to 191 of the Contracts Act 1950.
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The Law of Agency Principal-Agent relationship

third
principal agent
party

principal – the person for whom such act is done, or

who is so represented
agent – a person employed to do any act for another
or to represent another in dealings with third persons
the ‘third person/party’ – the person with whom the
agent brings the principal into a legal relationship

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Who Are Agents? Creation of Agency

• act as 3rd party to bring into effect contract between
businessman and his customer
• negotiate with customers on principal’s behalf.
• not parties to contract between principal and customer. Expressly Impliedly Necessity
• The extent they can act on principal’s behalf depends on
how much authority given to him.
• They must be distinguished from sole agent, sole
distributor, insurance agent, estate agent, etc. estoppel ratification
• Whether or not employee is employer’s agent depends
on circumstances of each case.
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Agency – Expressed or implied
Authority of an agent may be expressed or implied - s 139
It is expressed when spoken or written.
It is implied when inferred from circumstances of case – s 140
• A, living in KL owns shop in Kajang, and visits it occasionally.
Shop managed by B who usually orders goods for shop from C
in A’s name and pays for them from A’s funds with A’s
knowledge. B has implied authority from A to order goods
from C.
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Agency by ratification
- When an agent, without the knowledge or authority of the
principal, acts on behalf of the principal, the principal may
choose to accept or reject the acts - S 149
- Ratification may be expressed or implied - S 150
- There can be no ratification where the act of the agent causes
injury or damage to a 3rd party - s 153
- Once ratified, the contract between principal and 3rd party
relates back to date when it was entered into by agent.
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Agency - Expressed or implied
• An agent having authority to do an act, has also the authority
to do every lawful thing necessary to do that act – s 141(1)
ILLUSTRATIONS
(a) A is employed by B, who is residing in London, to recover a
debt due to B in M’sia. A may adopt any legal process
necessary to recover the debt.
(b) A appoints B his agent to carry on his business of a
shipbuilder. B may purchase timber and other materials, and
hire workmen, for purpose of carrying on the business.
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Ratification - S.R.M. Meyappa Chettiar v Lim Lian Koo
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[1954] 20 MLJ 246
• PC, the attorney of SC, entered into an agreement with the respondent
under which the PC handed over to the respondent a piece of land
belonging to his principal in consideration of RM 7,000/- and agreed ‘
upon the return of normal conditions, the vendor shall obtain a special
power of attorney from the said SC now in India and execute the true and
lawful transfer of the said land at the purchaser’s own expenses’. He
further agreed that if he was unable to obtain the necessary power from
his principal the RM7,000/- will be returned to the respondent. At the
trial, the learned judge held that the agreement had been satisfied by SC
and therefore dismissed a claim for recovery of possession of the land.
• Held: that the terms of the agreement showed that PC was acting in his
personal capacity and therefore the principle of ratification could not
apply to the agreement The principle only applies where the agent has
professed to contract for his principal who afterwards ratifies.
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Ratification
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• The act done for another, by a person, not assuming to act

for himself, but for such other person, tough without any
precedent authority whatever, becomes the act of the
VIDEO
principal, if subsequently ratified by him, is the known
and well established rule of law.
• In that case the principal is bound by the act, whether it
be for his detriment or his advantage, and whether it to
be founded on a tort or on a contract, to the same effects
as by, and with all the consequences which follow from
the same act done by his previous authority. The agent
must have a principal, who is in actual existence or
capable of being ascertained, when a contract is made.
No one can ratify a contract if he is not a party competent
to a contract at the date of the contract.

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Agency by necessity Agency - by estoppel

4. - Agent has authority, in emergency, to do all acts to protect
his principal from loss - s 142
Requirements:
• It must be an emergency
• Need to protect principal from loss
• it is impossible for agent to get principal's instruction.
S 167 - It is agent’s duty, to use all reasonable diligence to
communicate with principal, and obtain his instructions.
• The agent must have acted in good faith.
Avel Consultants Sdn Bhd v Mohd. Zain Yusof [1984] 1 CLJ 482
Where an agent, who has no authority, does acts to 3 rd persons
on behalf of principal, the principal is bound by those acts if
he has, by his words or conduct induced such 3 rd persons to
believe those acts are within the scope of the agent’s
authority – s 190
ILLUSTRATIONS
(a) A consigns goods to B for sale, and gives him instructions not
to sell under a fixed price. C, being ignorant of A’s instructions,
enters into a contract with B to buy the goods at a price lower
than the reserved price. A is bound by the contract.
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Agency - by estoppel
Yoong Sze Fatt v Pengkalen Securities Sdn Bhd [2010] 1 MLJ
85(CA)
Plaintiff was stock broking company. 1st defendant was their
client. All transactions between the plaintiff and the 1 st
defendant was through the 2nd defendant. Losses of RM2.9m
were incurred by the Plaintiff from share trading activities
conducted on behalf of 1st defendant. The plaintiff claimed this
from the 1st defendant who denied they gave the 2 nd defendant
authority to trade on their behalf.
Court: 1st defendant is stopped from denying losses because -
(a) statements sent to 1st defendant’s home address;
(b) 1st defendant remained silent & did not complaint to
plaintiff.
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Agents’ Duties
 Agent must act according to principal’s directions and if no such
directions, according to custom prevailing in a business of the
same kind. Otherwise he must compensate principal for any loss
& account for any profit - s 164
 Agent bound to act with reasonable diligence, & use such skill as
he possesses. If he fails to do so he must compensate the
principal for any loss resulting - s 165
ILLUSTRATIONS
An insurance broker employed by B to effect an insurance on a
ship, fails to see that the usual clauses are inserted in policy.
Ship is afterwards lost. Nothing can be recovered from the
underwriters. Broker bound to make good the loss to B.
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Misrepresentations and fraud by agent
Misrepresentations or frauds by agents acting in the course of their
business for their principals, binds the principal as if it was
committed by the principal – s 191
Negara Traders Ltd v Pesuruhjaya Ibu Kota, Kuala Lumpur [1969] 1
MLJ
Office boy of defendant fraudulently placed order with plaintiff
who without knowing that delivered the goods to the defendant
through the office boy. Defendants never received the goods. The
orders were on official forms of defendants, duly signed and
stamped. Plaintiffs sued for payment. Defendants had no previous
dealings with plaintiffs and it was not duty of the office boy to
issue orders.
Court: defendants not liable.
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Agents Duties
 Agent bound to render proper accounts to principal - S 166
 Agent’s must use all reasonable diligence in communicating
with principal, & seeking his instructions - s 167
 If agent, without principal’s knowledge, deals in the business
for his benefit instead of principal’s, the principal may claim
from agent any benefit resulting from the transaction - S 169
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Agent’s rights Agent’s rights

 To be paid for performance of any act upon its completion – s
172
 Right to retain from sums received on principal’s behalf, all
moneys due to him for advances made or expenses incurred
in conducting the business and for his remuneration - s 170
 Right to retain principal’s goods, papers, and other property
he receives until amount due to him is paid - s 174
 To be indemnified by principal for the consequences of all
lawful acts done by agent in exercise of authority conferred
upon him – s 175
 To be indemnified for consequences of act that
causes injury to 3rd party done in good faith on the
principal’s instructions – s 176
 To be compensated by principal for injury suffered by
principal’s neglect or want of skill. – s 178
ILLUSTRATION
P employs A as a bricklayer in building a house, and
puts up the scaffolding himself. The scaffolding falls
apart. A is injured. P must compensate A.

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Termination of Agency
1. by principal revoking his authority; or
2. renunciation by agent of his authority or
3. by performance – when agency created for a
specific purpose, the agency comes to an end when
the purpose is achieved/completed or
4. by the death/insanity/bankruptcy of agent or
principal
– s 154