Topic Law of

Agency
9 (Part II)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Identify duties of agents and principals;
2. Describe the rights of agents and principals;
3. Discuss the effect of agency contract; and
4. Explain the rules of termination of agency contract.

INTRODUCTION
An agency relationship arises out of an agreement between the principal and the
agent. The agreement confers the rights and duties to the principal and agent,
whether express or implied. However, if the contract does not specify the rights
and duties of the parties, the provisions in Sections 164 to 178 of the Contracts
Act, 1950 will be applicable. The provisions in Section 164 to 174 govern the
duties of an agent to his principal and the provisions in Section 175 to 178 deals
with the principal's duties to his agent.

9.1 DUTIES OF AGENT TO PRINCIPAL

As far as the duty of an agent to his principal is concerned, the agent is obliged to
do the following for the principal:

1. Obey the principal's instructions

According to Section 164 of the Contracts Act 1950,

 TOPIC 9 LAW OF AGENCY (PART II) ! 137

"an agent is bound to conduct the business of his principal according to the
directions given by the principal....Where the agent acts otherwise, if any
loss sustained, he must make it good to his principal, and if any profit
accrues, he must account for it."

The provision provides that an agent who fails to carry out his principal's
instructions will result in breach of contract and consequently, the agent
will be liable for any loss sustained by the principal. For example, the
principal instructed his agent to purchase certain goods at certain price.
However, the agent purchased more than the authorised price and as a
result; the agent was to be personally liable for the payment of the price of
the goods. If the principal's order is clearly illegal, the agent has no
obligation to obey the order.

In the case of Turpin v. Bilton (1843) 5 Man & G 455, an agent failed to
insure his principal's ship although he had been ordered to do so.
When the ships lost, the court decided that the agent was liable for the
losses.

2. Act according to the customs prevail if there is no instruction from the

principal

According to Section 164 of the Contracts 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 in doing business of the same kind
at the place where the agent conducts the business."

Therefore, the provision requires the agent to act according to the customs
which prevail in doing business of the same kind if there is no clear
instruction from the principal. Otherwise he has to make good any loss
sustained by the principal.
138 TOPIC 9 LAW OF AGENCY (PART II)

Illustration (a)

A, an agent engaged in carrying on for B a business, in which it is the

custom to invest from time to time, at interest, the moneys which may
be in hand, omits to make the investment. A must make good to B the
interest usually obtained by such investments.

Illustration (b)

B, a broker, in whose business it is not the custom to sell on credit, sells

goods of A on credit to C, whose credit at the time was very high. C,
before payment, becomes insolvent. B must make good the loss to A.

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

Section 165 of the Contracts Act 1950 provides that

"an agent is bound to conduct the business of the agency with as much skill
as is 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."

The following case and illustrations explain the provision above. It means if
an agent failed to carry out his duty diligently, skilfully and with due care,
the agent must make good any loss sustained by the principal as result of
his act.
 TOPIC 9 LAW OF AGENCY (PART II) ! 139

In the case of Keppel v Wheeler [1927] 1 KB 577, the plaintiff employed the
defendant to sell his house. The plaintiff received an offer and accepted it
subject to contract. A few days later, X made a higher offer for the property
but the defendant did not communicate this offer to the plaintiff. As a result,
the first offer was signed.

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

Illustration (a)

A, a merchant in Kuala Lumpur, has an agent, B, in London, to whom a sum of

money is paid on As account, with orders to remit. B retains the money for a
considerable time. A, in consequence of not receiving the money, becomes
insolvent. B is liable for the money and interest from the day on which it ought
to have been paid, according to the usual rate, and for any further direct loss
(for e.g., by variation of rate of exchange), but not further.

Illustration (b)

A, an agent for the sale of goods, having authority to sell on credit, sells to B
on credit, without making proper and usual enquiries as to the solvency of B.
B, at the time of the sale, is insolvent. A must make compensation to his
principal in respect of any loss sustained.

Illustration (c)

A, an insurance-broker employed by B to effect an insurance on a ship, omits

to see that the usual clauses are inserted in the policy. The ship is afterwards
lost. In consequence of the omission of the clauses, nothing can be recovered
from the underwriters. A is bound to make good the loss to B.
140 TOPIC 9 LAW OF AGENCY (PART II)

Illustration (d)

A, a merchant in England, directs B, his agent at Kelang, who accepts the

agency, to send him 100 bales of cotton by a certain ship. B, having it in his
power to send the cotton, omits to do so. The ship arrives safely in England.
Soon after her arrival, the price of cotton rises. B is bound to make good to A
the profit which he might have made by the 100 bales of cotton at the time the
ship arrived, but not any profit he might have made by the subsequent rise.

4. Render proper accounts when required

According to Section 166 of the Contracts Act 1950,

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

This means the agents duty is to account for all monies and the property
handled by him as agent for the principal and to produce such accounts
when demanded by the principal.

5. Pay the principal all sums received on his behalf

Section 171 of the Contracts Act 1950 provides that

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

According to Section 170,

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 of
advances made or expenses properly incurred by him in conducting such
business, and also such remuneration as may be payable to him for acting
as agent.

Section 174 of the Contracts Act 1950 also gives the agent the right to retain
his principals property in his possession until his remuneration is paid.
According to Section 174,

in the absence of any contract to the contrary, an agent is entitled to retain

goods, papers and other properties, whether movable or immovable, of the
principal received by him, until the amount due to himself for commission,
disbursements and services in respect of the same has been paid or
accounted for to him.
 TOPIC 9 LAW OF AGENCY (PART II) ! 141

6. Communicate with the principal

It is the duty of an agent to communicate with his principal. As provided in

Section 167 of the Contracts Act 1950,

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
instructions.

7. Avoid conflict of interest with own duty

It is the agents duty not to let his personal interest conflict with his duty.
Obviously, an agent must not become a party in a transaction and he must
act solely for the benefit of the principal. For instance, A directs B to sell As
estate, but B buys the estate for himself in the name of C. Thus, if the
principal discovers the truth, he has the right to repudiate the transaction.
For the example above, A on discovering that B has bought the estate for
himself, may repudiate the sale if he can show that B has dishonestly
concealed any material fact, or the sale has been disadvantageous to the
principal.

According to Section 168 of the Contracts Act 1950,

if an agent deals on his own account in 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 have been disadvantageous to him.

Consequently, the principal has the right to claim any benefit gained by the
agent from the transaction. As laid down in Section 169 of the Contracts Act
1950,

if an agent, without the knowledge of his principal, deals in the business

of the agency on his own account instead of on account of his principal, the
principal is entitled to claim from the agent any benefit which may have
resulted to him from the transaction.

For instance, A directs B to buy certain house for him. B tells A it cannot be
brought, and buys the house for himself. On discovering this, A may
compel B to sell it to him at the price he gave for it.
142 TOPIC 9 LAW OF AGENCY (PART II)

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

An agent is also under a duty not to make secret profit out of the
performance of his duty. Secret profit may include payment of a secret
commission or any financial advantage received by the agent, above the
commission or remuneration agreed by the parties. An agent can only keep
the profit if the principal consents to it. Otherwise the principal may take
the following actions:

(a) Repudiate the contract if it is disadvantages to him (Section 168 of the

Contracts Act 1950).

(b) Recover the amount of the secret commission from the agent (Section
169 of the Contracts Act 1950).

(c) Refuse to pay the agent his commission or other remuneration as

illustrated in the following case:

In the case of Andrews v Ramsay & Co [1903] 2 KB 635, the plaintiff

instructed the defendant to sell property and agreed to pay him 50
pounds as commission. The defendant received 100 pounds from a
purchaser as deposits for the property. The defendant paid 50 pounds
to the plaintiff and kept the other 50 pounds in payment of his
commission with the plaintiffs consent. Later, the plaintiff discovered
that the defendant received 20 pounds as commission from the
purchaser. The plaintiff sued to recover the 20 pounds and also the 50
pounds he had paid the defendant. It was held that he could recover
both sums.

(d) Dismiss the agent for breach of duty.

(e) Sue the agent and third party giving the secret commission, for
damages for any loss he may have sustained through entering into the
contract.
 TOPIC 9 LAW OF AGENCY (PART II) ! 143

In Mahesan v. Malaysia Govt. Officers Co-operative Housing Society

Ltd. [1978] 1 MLJ 149, the respondent society bought land at a price of
$944,000 from the vendor who had paid earlier $456,000 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 $122,000 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 as a result of
entering into the contract.

In the case of Boardman v. Phipps [1966] 3 All ER 721, Lord Denning

said: Once it is found that the agent has used his principals property
or his position so as to make money for himself, it matters not that the
principal lost no profit or suffered no damage.the reason is simply
because it is money which the agent ought not to be allowed to keep.
He gained unjust benefit by the use of his principals property or his
position and must account for it."

9. Not to disclose confidential information or documents entrusted to him by

his principal

As an agent for the principal, he is usually entrusted with the principal's

confidential information or documents. Thus, an agent must not disclose or
reveal this information to other persons.
144 TOPIC 9 LAW OF AGENCY (PART II)

In the case of L.S Harris Trustee Ltd v. Power Packing Services (Hermit
Road) Ltd (1970) 2 Lloyd's Rep 65, the court held that the agent's action
revealing the information about the defendant's fire insurance policy
had given right to the defendant to terminate the contract and sued for
damages.

10. 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 the
maxim "delegatus non potest delegare" which means "a delegate cannot
delegate." It is also provided in Section 143 of the Contracts Act 1950 thats

"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, to this rule there are exceptions. Thus, an agent may delegate his
authority or appoint a sub agent under the following circumstances:

(a) Where the principal approves of the delegation of authority.

(b) Where it is presumed from the conduct of the parties that the agent
shall have power to delegate his authority.
(c) Where the customs of the trade or business permits delegation.
(d) Where the nature of the agency is such that delegation of the authority
to another person is necessary to complete the business.
(e) In cases of necessity or unforeseen emergency (for instance, due to
sickness of agent).
(f) Where the act to be done is purely ministerial or clerical and does not
involve the exercise of discretion.

9.2 DUTIES OF PRINCIPAL TO AGENT

As far as the duty of a principal to his agent is concerned, the principal is obliged
to do the followings in carrying out his duties under the agency contract:
 TOPIC 9 LAW OF AGENCY (PART II) ! 145

1. Pay the agent any commission or other remuneration unless the agency
relationship is gratuitous.
The amount of commission to be payable to an agent depends on the terms
of the contract of agency. Generally, the right to receive commission or
other remuneration arises when the agent has done all that he had agreed
to do. Where no amount is agreed, the agent is entitled to reasonable
remuneration.

However, an agent loses his right to remuneration if there is misconduct

(wrongful or improper conduct) in the business of the agency. Section 173
of the Contracts Act 1950 provides that,

"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."

For example, A employs B to recover $100,000 from C and to invest in

good securities. B recovers the $100,000 and invests $90,000 in good
securities and the other $10,000 in securities which he ought to have
known to be bad. As a result, A loses $2000. B is entitled to the
remuneration for recovering the $100,000 and for investing the $90,000.
But he is not entitled to any remuneration for investing the $10,000 and
he must make good the $2000 loss to A.

Another example, A employs B to recover $1,000 from C. Through B's

misconduct the money is not recovered. B is entitled to no remuneration
for his services, and must make good the loss.

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

A principal cannot employ another agent if an agent has already been

appointed to carry out certain duties. Particularly, if the appointed agent is
already in the midst of negotiations and the act of appointing another agent
is to deprive the original agent from earning his commission.

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

According to Section 175 of the Contracts Act 1950,

the employer of an agent is bound to indemnify him against the

consequences of all lawful acts done by the agent in exercise of the
authority conferred upon him. It means the principal must indemnify the
agent when he incurred loss or liability in exercising his authority.
146 TOPIC 9 LAW OF AGENCY (PART II)

For example:

Illustration (a)

B, at Kelang, under instructions from A, in Taiping, contracts with C to

deliver certain goods to him. A does not send the goods to B, and C
sues B for breach of contract. B informs A of the suit, and A authorises
him to defend the suit. B defends the suit, and is compelled to pay
damages and costs, and incurs expenses. A is liable to B for such
damages, costs and expenses.

Illustration (b)

B, a broker at Taiping, by the orders of A, a merchant there, contracts

with C for the purchase of 10 casks of oil for A. Afterwards A refuses to
receive the oil, and C sues B. B informs A, who repudiates the contract
altogether. B defends, but unsuccessful, and has to pay damages and
costs, and incurs expenses. A is liable to B for such damages, costs and
expenses.

Subsequently, Section 176 of the Contracts Act 1950 provides that,

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
person.

It means the agent has the right to be indemnified by his principal for any
expenses incurred 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.
 TOPIC 9 LAW OF AGENCY (PART II) ! 147

For example:

Illustration (a)

A, a decree-holder and entitled to execution of Bs goods, requires the

officer of the court to seize certain goods, representing them to be the
goods of B. The officer seizes the goods, and is sued by C, the true owner
of the goods. A is liable to indemnify the officer for the sum which he is
compelled to pay to C, in consequence of obeying As directions.

Illustration (b)

B, at the request of A, sells goods in the possession of A, but which A had

no right to dispose of. B does not know this, and hands over the proceeds
of the sale to A. Afterwards C, the true owner of the goods, sues B and
recovers the value of the goods and costs. A is liable to indemnify B for
what he has been compelled to pay to C and for Bs own expenses.

However, if the agent is employed to do a criminal act, the principal is not

bound to indemnify the agent against the consequences of the act. This is
provided 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 example:

Illustration (b)

B, the proprietor of a newspaper, publishes, at As request, a libel upon

C in the paper, and A agrees to indemnify B against the consequences of
the publication, and all costs and damages of any action in respect
thereof. B is sued by C and has to pay damages, and also incurs
expenses. A is not liable to B upon the indemnity.

Consequently, if the agent suffers injury during the course of his duty due
to his principals neglect or want of skill, Section 178 of the Contracts Act
1950 provides that,
148 TOPIC 9 LAW OF AGENCY (PART II)

the principal must make compensation to his agent in respect of injury

caused to the agent by the principals neglect or want of skill.

For example, A employs B as a bricklayer in building a house, and puts up

the scaffolding himself. The scaffolding is unskilfully put up, and B is in
consequence hurt. A must make compensation to B.

An agent loses his right to an indemnity if he acts beyond his authority or

negligently performs his duty. This can be seen in following case of:

Davison v. Fernandes (1889) 6 TLR 73. The defendant in this case asked
the plaintiff to quote the price of some stock ex dividend, but the
plaintiff quoted the price cum dividend. Due to plaintiffs negligence,
he failed to inform the defendant accordingly. The defendant then
authorised the plaintiff to sell the stock. The plaintiff sold and had to
pay the dividend to the purchaser (under the rules of the London Stock
Exchange).

The Court held that: The plaintiff was not entitled to be indemnified by
the defendant.

In case of Solloway and Anor. v. McLaughlin [1938] MLJ 23, the Privy
Council held that agents who engaged in a fraudulent scheme to
defraud their principals, will forfeit their right to an indemnity in
respect of transactions which form part of the fraud.
 TOPIC 9 LAW OF AGENCY (PART II) ! 149

SELF-CHECK 9.1

(a) What are the agents duties towards his principal under the
law?
(b) What is the liability of an agent who breaches the duty?
(c) What actions can be taken by a principal who discovers his
agent making a secret profit?
(d) Can an agent delegate his authority to another person? Why?
(e) Under what circumstance can an agent appoint a sub-agent?
Give at least one example.
(f) What are the legal duties of a principal to his agent?
(g) Under what situations will an agent lose his right to
remuneration?
(h) What are the conditions under which a principal is not bound
to indemnify his agent?
150 TOPIC 9 LAW OF AGENCY (PART II)

ACTIVITY 9.1
Discuss the following questions:
(a) Hasnan employed Lenny, an auctioneer, to sell certain property for
him and agreed to pay Lenny a commission on the sale and other
miscellaneous expenses including printing and advertising costs.
From the contract, Lenny received discounts from the printers and
advertisers but charge Hasnan with the full amount of the contract
price and kept the discounts for himself. Decide whether Lenny is
bound to account Hasnan for the discounts that he received.

(b) Mr Kim employed a firm of estate agents to sell his bungalow for
him. Goh, a member of the firm, represented to Mrs Irene that the
property was of considerable value that any financier would easily
provide financial assistance to the purchaser of the bungalow. In
actual fact, this was quite untrue because the bungalow had been
underpinned several times to prevent it from falling down. Mr Kim
knew that the bungalow was in poor condition but he did not
authorise Goh to make the representation. Goh himself had no
knowledge of the underpinning. Mrs Irene bought the bungalow
on the faith of the representation and on discovering the
underpinning, sued Mr Kim for damages for fraud. Advise Mrs
Irene whether her action would succeed.

(c) Ramoo and Santhi employed Ryder and Co., a firm of merchants to
buy goods for them. Ryder & Co. bought the goods in their own
names from Mr Kye. Mr Kye did not inquire whether they were
acting as agents or principals, and supplied the goods on credit.
Ramoo and Santhi paid Ryder & Co. for the goods in the ordinary
course of business. A fortnight later, Ryder & Co. stopped payment
and did not settle the payment to Mr Kye. Upon discovering the
agency, Mr Kye sued Ramoo and Santhi for the price. Could Mr
Kye succeed?
 TOPIC 9 LAW OF AGENCY (PART II) ! 151

9.3 EFFECTS OF CONTRACTS MADE BY

AGENTS
The effect of contracts made by agents will be discussed in relation to the
categories of principal. The kinds of principals include:
A named principal,
A disclosed principal but not the name; and
An undisclosed principal.

9.3.1 A Named Principal

A named principal is a principal whose name has been revealed to the third
party by the agent. The third party knows that the agent is contracting as an
agent and knows the principal for whom the agent is acting. Thus, the agent is
not liable for the contract and the contract is binding on the principal. However,
there are exceptions under Section 183 of the Contracts Act 1950, where an agent
would be personally liable for the contract as follows:
(a) Where the agent agrees to accept personal liability.
(b) Where the agent executes a deed in his own name.
(c) Where the agent signs a negotiable instrument in his own name.
(d) Where the agent exceeds his authority and the principal does not ratify the
contract.

9.3.2 An Undisclosed Principal

An undisclosed principal is the principal whose identity and existence is not
disclosed by the agent to the third party at the time of contract. The third party
who enters into a contract with the agent of undisclosed principal is bound by it
if he discovers that the contract is actually made on behalf of undisclosed
principal. If the third party does not know that a person he deals with is acting as
an agent, he has the right to sue the agent or the principal or both. Section 186 of
the Contracts Act 1950 says,

"in cases where an agent is personally liable, a person dealing with him may hold
either him or his principal, or both of them, liable."
152 TOPIC 9 LAW OF AGENCY (PART II)

Illustration
A enters into a contract with B to sell him 100 bales of cotton, and
afterwards discovers that B was acting as agent for C. A may sue either B or
C, or both, for the price of the cotton.

The agent may be held personally liable on the contract because the third party
does not know that the agent is acting for someone.

In the case of Pernas Trading Sdn Bhd v. Persatuan Peladang Bakti Melaka
[1979] 2 MLJ 124, the respondents ordered chemicals and fertilisers for
themselves (rather than on behalf of the principal), but they denied liability
when the appellants sued for the balance of the price.

The Federal Court held that: Although the respondents were agents for a
principal, they had contracted for themselves. Therefore, they were
personally liable.

According to Section 183(b) of the Contracts Act 1950, if the agent does not
disclose the name of the principal, the agent is presumed to be personally liable.

9.4 TERMINATION OF AGENCY

Termination of agency is dealt with under Sections 154 to 163 of the Contracts
Act 1950. Generally, agency contract may be terminated in the following ways:
(a) Act of the parties
(b) Operation of law

9.4.1 Termination by the Act of the Parties

The termination by the act of the parties may be made in the following ways:
(a) By mutual agreement of both principal and agent
(b) By revocation of authority by the principal
(c) By renunciation of the agency by the agent
 TOPIC 9 LAW OF AGENCY (PART II) ! 153

According to Section 154 of the Contracts Act 1950,

an agency is terminated by the principal revoking his authority; or by the agent

renouncing the business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming unsound mind;
or by the principal being adjudicated or declared a bankrupt or an insolvent.

(i) Termination of agency, where agent has an interest in subject matter.

Section 155 of the Contracts Act 1950 states:

Where the agent has himself an interest in the property which forms the
subject-matter of the agency, the agency cannot, in the absence of an
express contract, be terminated to the prejudice of such interest.
For example, A gives authority to B to sell As land, and to pay himself, out
of the proceeds, the debts due to him from A. A cannot revoke this
authority, nor can it be terminated by his unsoundness of mind or death.

(ii) When principal may revoke agent's authority.

Section 156 of the Contracts Act 1950 states:

The principal may, save as is otherwise provided by the last preceding

section, revoke the authority given to his agent at any time before the
authority has been exercised so as to bind the principal.

(iii) Revocation where authority has been partly exercised.

Section 157 of the Contracts Act 1950 stipulates:

The principal cannot revoke the authority given to his agent after the
authority has been partly exercised; so far as regards such acts and
obligations as arise from acts already done in the agency.

For example, A authorises B to buy 1,000 bales of cotton on account of A,

and to pay for it out of As money remaining in Bs hands. B buys 1,000
bales of cotton in his own name, so as to make himself personally liable for
the price. A cannot revoke Bs authority so far as regards payment for the
cotton.

(iv) Compensation for revocation by principal or renunciation by agent.

Section 158 of the Contracts Act 1950 stipulates:

154 TOPIC 9 LAW OF AGENCY (PART II)

Where there is an express or implied contract that the agency should be

continued for any period of time, the principal must make compensation to
the agent, or the agent to the principal, as the case may be, for any previous
revocation or renunciation of the agency without sufficient cause.

(v) Notice of revocation or renunciation.

Section 159 of the Contracts Act 1950 states:

Reasonable notice must be given of such revocation or renunciation;

otherwise the damage thereby resulting to the principal or the agent, as the
case may be, must be made good to the one by the other.

(vi) Revocation and renunciation may be expressed or implied.

Section 160 of the Contracts Act 1950 states:

Revocation and renunciation may be expressed or may be implied in the

conduct of the principal or agent, respectively.
For example, A empowers B to let As house. Afterwards A lets it himself.
This is an implied revocation of Bs authority.

9.4.2 Termination by Operation of Law

Termination by operation of law is also provided in Section 154 of the Contracts
Act 1950,

An agency is terminated by the principal revoking his authority; or by the agent

renouncing the business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming unsound mind;
or by the principal being adjudicated or declared a bankrupt or an insolvent.

Thus, termination by operation of law may be made in the following ways:

(a) By the performance of the contract of agency.
(b) By the expiration of the period fixed in the contract of agency.
(c) By the death of the principal or agent.
(d) By the insanity of the principal or agent.
(e) By the principal becoming insolvent or being made a bankrupt.
(f) By the happening of an event which renders the agency unlawful (for
example, in cases of frustration).
 TOPIC 9 LAW OF AGENCY (PART II) ! 155

SELF-CHECK 9.2

a) What is the effect of contract made by an agent who named his

principal to the third party?
b) Under what circumstance will an agent be personally liable for a
contract?
c) How can an agency contract be terminated?
d) Is there any situation under which a principal cannot revoke the
authority of his agent?
e) Describe the ways of termination of agency by way of operation
of law.

An agency contract confers rights and duties to the principal and agent.
An agent is bound to conduct the business of his principal according to the
principals instruction.
An agent must act according to the customs prevailent in the absence of
instruction from the principal.
An agent must exercise care and diligence, and use his skill in carrying out
his work.
An agents duty is to render proper accounts to his principal.
An agent must communicate with his principal to get further instructions.
It is an agents duty not to let his personal interest conflict with his own duty.
An agent must not make any secret profit out of the performance of his duty.
An agent must not disclose confidential information or documents entrusted
to him by his principal.
An agent cannot delegate his authority to another person without permission
or approval from the principal.
A principals duty is to pay the agent his commission or remuneration.
156 TOPIC 9 LAW OF AGENCY (PART II)

A principal must not wilfully prevent his agent from earning his commission.
A principal is bound to indemnify his agent for acts done within his scope of
authority.
An agent is not liable for contracts done for a named principal.
An agency contract may be terminated by the act of the parties or by
operation of law.

Duties Termination
Named principal Revocation
Undisclosed principal Renunciation
Mutual agreement Notice

Text Books
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Wu. M.A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases
Andrews v Ramsay & Co [1903] 2 KB 635.
Boardman v. Phipps [1966] 3 All ER 721.
Davison v. Fernandes (1889) 6 TLR 73.
Keppel v Wheeler [1927] 1 KB 577.
L.S Harris Trustee Ltd v. Power Packing Services (Hermit Road) Ltd (1970) 2
Lloyd's Rep 65.
Mahesan v. Malaysia Govt. Officers Co-operative Housing Society Ltd. [1978]
1 MLJ 149.
Pernas Trading Sdn Bhd v. Persatuan Peladang Bakti Melaka [1979] 2 MLJ
124.
 TOPIC 9 LAW OF AGENCY (PART II) ! 157

Solloway and Anor. v. McLaughlin [1938] MLJ 23.

Turpin v. Bilton (1843) 5 Man & G 455.