Business Law

Chapter 9:
Law of Agency
(between Principal and Agent)
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TOPICS:
 1) Definition
 2) Types of Agents

 3) Formation of Agency

 4) Rights and Duties of Principal

 5) Rights and Duties of Agent

 6 ) Termination and Remedies

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DEFINITION OF AGENT

 Section 135, Contract Act 1950

 Agent:

-as a person employed to do any act for another or

-to represent another in dealings with third persons
 There are 2 contracts:

 a) made between the principal and the agent

from which the agents derives his authority to act for
and on behalf of the principal
 b) made between the principal and the third
party through the work of the agent
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DEFINITION OF AGENT

 Section 136, Contract Act 1950: a requirement of

principal:
a) a major, i.e 18 years old
b) of sound mind
 Section 137, Contract Act 1950: if he is a minor
sound mind or unsound mind, he would not be
liable towards his principal for acts as agent
 Section 138, Contract Act 1950: no consideration
is needed

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TYPES OF AGENT
 1) Broker
-initiating contract between two principals engaged in
aspect of trade, commerce or navigation
-case: Fowler V Holling,
 2) Factor

-has more extensive powers to act for principal than a

broker
-is entrusted with possession of goods belonging to the
principal for sale
-who sells the good in the name of the agent without
disclosing the name of existence of the principal.
-case: Baring V Corrie 5
TYPES OF AGENT
 3) A Commission Agent or Commission Merchant
- is an agent appointed by a principal to sells goods or to
buy goods
-mandate to transact with principal’s goods
-case: Cassaboglou V Gibb

 4) Del Credere
-is an agent who assumes a super added duty
-to ensure that third party will pay to the principal
-case: Campbell V Kitchen & Sons Ltd

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 TYPES OF AGENT

 5) Power of Attorney
- is governed under Powers of Attorney Act 1949
- is a legal instruments under which Principal (donors)
confer authority on Agents (attorneys or donees)
- -to perform certain act for the principal
- -case: Wan Salimah Bt Wan Jaffar V Mahmood B
Omar

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FORMATION OF AGENCY

Creation of Agency:
 -is governed by Part X of the Contracts Act 1950

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FORMATION OR CREATION OF AGENCY
words spoken
1.By express
appointment by
principal Written. Ex: airlines agency
5.By the
doctrine of 2.By implied
estoppel or appointment by
holding out principal
ordinary of
dealing
4. By circumstances
necessity
3.By ratification
by principal
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1. BY EXPRESS APPOINTMENT- SECTION 140
-TWO TYPES: WRITTEN OR ORAL
-IS A CONSENSUAL RELATIONSHIP

2. BY IMPLIED APPOINTMENT
-IS DERIVED FROM THE WORDS AND CONDUCT OF THE PARTIES
IN THE WAY THEY HAVE ACTED IN CONNECTION TO ONE
ANOTHER
-CASE: CHAN YIN TEE V WILLIAM JACKS & CO (MALAYA) LTD

A) WHEN A PERSON BY HIS WORDS OR CONDUCTS HOLDS OUT

ANOTHER PERSON AS HAVING AUTHORITY TO ACT FOR HIM-
SECTION 140

B)RELATIONSHIP OF PRINCIPAL AND AGENT MAY EXIST

BETWEEN HUSBAND AND WIFE

C) BY VIRTUE OF PARTNERSHIP ACT –SECTION 7 10

PARTNERS ARE EACH OTHER’S AGENT
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3. AGENCY BY RATIFICATION
-THE APPROVAL BY ACT, WORD, CONDUCT OF THAT WHICH WAS
ATTEMPTED BUT WAS IMPROPERLY OR UNAUTHORIZEDLY
PERFORMED IN THE FIRST INSTANCE

A)AN AGENT DULY APPOINTED BUT HAS EXCEEDED HIS

AUTHORITY

B)A PERSON WHO HAS NO AUTHORITY TO ACT FOR THE

PRINCIPAL BUT HAS ACTED AS IF HE HAS THE AUTHORITY

SECTION 149 CONTRACT ACT- THE PRINCIPAL MAY ACCEPT OR

REJECT THE CONTRACT MADE

SECTION 150 CONTRACT ACT- RATIFICATION MAY BE

EXPRESSED OR IMPLIED

-CASE: HATMAN V NORNSBY 11

RATIFICATION- ENDORSEMENT, AGREEMENT, CONSENT, PERSMISSION 3

A CONTRACT CAN ONLY BE RATIFIED UNDER THE
FOLLOWING CIRCUMSTANCES

A)THE ACT/CONTRACT MUST BE UNAUTHORIZED

B) AT TIME OF CONTRACT MUST EXPRESSLY ACT AS

AGENT FOR THE

C) PRINCIPAL MUST BE IN EXISTENCE AND CAPABLE OF

BEING ASCERTAINED, WHEN CONTRACT IS MADE

D)THE PRINCIPAL MUST HAVE CONTRACTUAL CAPACITY

AT THE TIME OF RATIFICATION
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A CONTRACT CAN ONLY BE RATIFIED UNDER THE
FOLLOWING CIRCUMSTANCES

F)THE PRINCIPAL MUST HAVE FULL KNOWLEDGE OF ALL

MATERIAL FACTS

G) THE PRINCIPAL MUST RATIFY THE WHOLE ACT OR

CONTRACT

H) THE RATIFICATION MUST NOT INJURE A THIRD PARTY

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4. AGENCY BY NECESSITY
-BY THREE CONDITIONS

A) IT IS IMPOSSIBLE FOR THE AGENT TO GET THE

PRINCIPAL INSTRUCTIONS

B) THE AGENT ACTION IS NECESSARY TO PREVENT

LOSS TO THE PRINCIPAL WITH RESPECT TO THE
INTEREST COMMITTED TO HIS CHARGE.

C) AGENT MUST HAVE ACTED IN GOOD FAITH

NECESSITY-REQUIREMENT, NEEDED, ESSENTIAL, OBLIGATION 14

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5. AGENCY BY ESTOPPEL

-AN AGENCY CAN COME INTO EXISTENSE BY MEANS

OF THE DOCTRINE OF ESTOPPEL
-A PERSON IS ESTOPPED/PRECLUDED FROM
DENYING THE EXISTENCE OF THE PERSON
AUTHORITY TO ACT ON HIS BEHALF

-3 MAJOR ELEMENTS:
A) A REPRESENTATION MADE BY OR ON BEHALF OF
PRINCIPAL TO THIRD PARTY CONCERNING THE
AUTHORITY OF THE AGENT

B) RELAINCE BY THE THIRD PARTY ON THE

REPRESENTATION OF THE PRINCIPAL

C) THE THIRD PARTY ALTER HIS LEGAL POSITION ON

THE STRENGTH OF REPRESENTATION 15

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DUTIES OF AN AGENT TO HIS PRINCIPAL:
SECTION 164-169

1.TO OBEY THE PRINCIPAL’S INSTRUCTION

2. EXERCISE SKILL AND DILIGENCE AND USE THE SKILL HE

POSSESSES

3. TO RENDER THE PROPER ACCOUNTS WHEN REQUIRED

4. TO COMMUNICATE WITH PRINCIPAL

5. TO RENDER ALL BENEFITS GAINED WHEN THE AGENTS DEALS

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DUTIES OF PRINCIPAL TO HIS AGENT:
SECTION 175-178

1. TO PAY THE COMMISSION OR OTHER

REMUNERATION AGREED

2. NOT TO PREVENT OR HINDER THE AGENT FROM

EARNING HIS COMMISSION

3. TO INDEMNIFY THE AGENT FOR ACTS DONE IN

EXERCISE OF HIS AUTHORITY
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RIGHTS OF PRINCIPAL

A) NON LIABILITY OF EMPLOYER OF AN AGENT TO DO A

CRIMINAL ACT: SECTION 177

B) RIGHTS OF PRINCIPAL OF BENEFIT GAINED BY AGENT

WHEN AGENT DEALS: SECTION 169

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RIGHTS OF AGENT: SECTION 169-178

A)RIGHT TO RETENDER OUT OF THE SUMS RECEIVED ON

PRINCIPAL ACCOUNT

B)DUTY TO PAY SUMS RECEIVED FOR PRINCIPAL

C)REMUNERATION ONLY BECOMES DUE DURING THE

COMPLETION OF THE ACT

D) IS NOT ENTITLED TO REMUNERATION FOR BUSINESS

MISCONDUCTED

E) LIEN ON PRINCIPAL PROPERTY UNTIL THE AMOUNT

DUE TO HIMSELF FOR COMMISSION, DISBURSEMENT HAS
BEEN PAID TO HIM 19

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RIGHTS OF AGENT: SECTION 169-178

F)TO BE INDEMNIFIED AGAINST CONSEQUENCES OF

LAWFUL ACTS

G)TO BE INDEMNIFIED AGAINST CONSEQUENCES OF ACTS

DONE IN GOOD FAITH

H)COMPENSATION MUST BE GIVEN TO AGENT FOR INJURY

CAUSED BY PRINCIPAL NEGLIGENT

I) NOT TO LET HIS INTEREST CONFLICTS WITH HIS DUTY

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TERMINATION OF AGENCY

1) BY AGREEMENT
2) BY THE PRINCIPAL REVOKING THE AGENT’S AUTHORITY
3) BY THE AGENT’S RENUNCIATION
4) BY PERFORMANCE, BY UPON EXPIRY OF THE PERIOD
FIXED IN THE CONTRACT OF AGENCY
5) BY OPERATION OF LAW
6) BY FRUSTRATION

RENUNCIATION- REJECTION, DENIAL

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