LAW OF AGENCY

PERSONAL NOTES

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CHAPTER CONTENT AND OVERVIEW

A. IMPORTANCE OF AGENCY

B. ELEMENTS IN AGENCY

 Definition and nature

 Creation of Agency
 Relationship between P and A
 Duties of A → P
 Duties of P → A
 Effects of Contract made by the Agent
 Termination of Agency Relationship

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DEFINITION & NATURE
PERSONAL NOTES

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IMPORTANCE OF AGENCY

 Because sometimes a person may not be able to act for himself. He may need the
help of another to do certain things for him.

 AGENT – the person employed to do an act for another or to represent another in

dealing with third persons.

 PRINCIPAL – the person for whom such act is done, or who is so represented.

AGENCY

1. DEFINITION

 Is the relationship which subsists between the P and the A who has been authorised
to act for him or represent him in dealing with others.
 The contracts created are: Contract between the P and A from which A derives his
authority to act for and on behalf of P.
 Contract between P and Third Party through the act of the agent

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2. NATURE

 P must have contractual capacity to employ an A. – Section 136.

 An A is not necessary to have capacity – Section 137 “Any person may become an A,
but no person who is not of the age of majority and of sound mind can becomes an
A so as to be responsible to his P…”

 CHAN YIN TEE V WILLIAM JACK & CO

 Court’s held: Chan was responsible to Yong’s act as Yong was not an adult (minor).

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CREATION OF AGENCY
PERSONAL NOTES

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1.0 CREATION OF AGENCY

 Express Appointment
 Implied Appointment
 Ratification
 Necessity
 Estoppel

1.1 EXPRESS APPOINTMENT

 Section 140 – An authority is said to be express when it is given by words spoken or

written.
 “I appoint you as my agent”

1.2 IMPLIED APPOINTMENT

 Circumstances of Case. Illustration to Section 40.

 RELATIONSHIP OF HUSBAND & WIFE - Unless:
 a) Husband forbids wife to pledge his credit.
 b) Husband warns tradesman not to let wife pledge his credit.
 c) Husband has supplied necessary goods.
 d) Husband has given wife enough money.
 e) The contract was unreasonable with the Husband’s income.

 PARTNERSHIP – Section 7 of Partnership Act 1961, “each partner in a partnership is

an agent to the firm or partners in the firm.”

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1.3 RATIFICATION

 Section 149 – 2 situations:

 a) Agent appointed by principal exceeded his authority.
 b) A person who has no authority but has acted as if he has the authority to act on
behalf of the P
 When the P approves/accepts/ratifies anyone of the above unauthorized actions,
Agency by ratification is created.

 Section 150 – ratification can be either expressed or implied.

EFFECTS OF RATIFICATION

 Binds principal with the contract retrospectively

 For example: 1st December – Agent contracted with 3rd party on behalf of principal
exceeding authority given
 10th December – Principal was informed of the contract & he approves.
 Principal is bound by the contract from 1st December.

CONDITIONS FOR RATIFICATION

 The act or contract of the A must be unauthorized.

 Unauthorized act is not illegal (BROOK V HOOK).
 Agent must expressly act as Agent & not use own name to contract (KEIGHLY
MAXTED CO V DURANT).
 Principal must exist at the time the contract was made (KELNER V BAXTER)
 Section 35 Companies Act of Malaysia: pre-Incorporation Contract (COSMIC INS V
KHOO CHING POH).

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CONDITIONS FOR RATIFICATION CONTINUED

 Principal must have capacity at the time of contract AND at the time of ratification.
(BOSTON DEEP SEA FISHING & ICE CO V FARNHAM) & (GROVER & GROVER V
MATHEW)
 Principal must know all material facts – name of 3rd party, terms of contract, etc
(MARSH V JOSEPH) – Section 151
 P must ratify whole act or contract – Section 152
 Ratify in reasonable time (METROPOLITAN ASYLUM BOARD V KINGHAM)
 Must not injure 3rd party – Section 153

CASES

 BROOK V HOOK – contract must be legal

 Court’s held: The P may not ratify a contract in which his signature had been forged
by the unauthorised A.

 KEIGHLEY MAXTED & CO. V DURANT

 Facts: P hired an agent to buy wheat from 3rd Party (Durant) at a certain price. At first
P agreed to the contract but later refused to perform it. Durant sued the P for breach
of contract.
 Court’s held: The P was held not liable to Durant. The ratification by the P was not
valid because the A had not acted expressly as an A to the P at the time of the
contract.

 KELNER V BAXTER
 Facts: Contract to buy a hotel made on behalf of a company before it was registered.
 Court’s held: the contract could not be ratified because the Co(P) did not exist at that
time.

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 GROVER & GROVER V MATHEW – must have contractual capacity at the time of
contract and ratification
 Facts: A made contract to insure against fire. The P only ratified the contract 1 week
after the factory was in fire.
 Court’s held: The contract of an insurance policy which had been ratified after the
occurrence of the insured event was not effective. Because the P was not competent
to contract at the time of ratification.

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1.4 AGENCY BY NECESSITY – SECTION 142

 A person may become an agent without being appointed due to the necessity or
emergency circumstances, in order to protect the P from any loss.
 Between Husband and Wife, wife pledge husband’s credit in times of necessity even
against his wishes.
 Commercial agency of necessity, person entrusted with property of another & has to
do something to protect the property from losses.

CONDITIONS FOR AGENCY BY NECESSITY

1. THERE MUST BE A REAL & ACTUAL EMERGENCY

 (PHELPS JAMES & CO V HILL) - factors: dangerous, facilities available, cost, time,
distance. – (GREAT NORTHERN RAILWAY V SWARFIELD)
 If mere inconvenience, liable in tort for conversion. No agency by necessity – (SACHS
V MIKLOS) – sale of furniture at lower price. the agent was liable as no agency by
necessity.

CASES

 GREAT NORTHERN RAILWAY V SWARFIELD

 Facts: A was entrusted to deliver a horse to a destination. But nobody came to take the horse.
Incurred cost when he made contract to rent a place to preserve the safety of the horse. The
A claimed from the P the extra expenses incurred. The P refused to pay on the ground that
the A was not authorised to do so.
 Court’s held: The Railway co was the agent by necessity and therefore entitled to claim.

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2) AGENT WAS ENTRUSTED WITH PRINCIPAL’S PROPERTY.

 JEBARRA v OTTOMAN BANK

 Any person who is not entrusted with the P’s property is not entitled to become an
A by necessity.

3) IMPOSSIBLE TO GET PRINCIPAL’S INSTRUCTIONS

 SPRINGER v GREAT WESTERN RLY CO

4) AGENT ACTED IN GOOD FAITH

CASES

 SPRINGER v GREAT WESTERN RLY CO

 Facts: A hired to carry P’s tomatoes from Jersey to Covent Garden market. Bad
weather arrived late at Weymouth and the A’s workers were on strike. The A sold
the tomatoes feeling that the tomatoes could not arrive at the market in saleable
condition. The A did not communicate with the P even though they could do so. The
P claimed damages for the loss. The A claimed that they are an agent by necessity.
 Court’s held: The P entitled to damages because the A were not agents by necessity
as they have failed to communicate with the P when they could have done so.

EFFECTS OF AGENCY BY NECESSITY

 Principal cannot sue agent for losses.

 Principal must pay agent for expenses.
 Contract exists between principal & 3rd party.
 Refer CASES: GREAT NORTHERN RAILWAY V SWARFIELD

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1.5 ESTOPPEL
 FREEMAN & LOCKYER
 Agent contracted-on behalf of the company without authority.
 The other Directors knew about this but did not inform 3rd Party. This induced 3rd
Party to believe that Agent has the authority.
 Court’s held: the company was estopped from denying that Agent as the
company’s agent. Hence the company was bound by the contract with 3rd Party.

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RELATIONSHIP
BETWEEN P & A
PERSONAL NOTES

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2.0 AUTHORITY OF AGENT

1. ACTUAL AUTHORITY

 Expressly given by the P

 Implied. Not expressly given. Inferred for the circumstances of the case or ordinary
course of dealing.

2. APPARENT/OSTENSIBLE AUTHORITY

 P by words or conduct leads a 3rd party to believe his A has authority. Section 190 –
GRAPHICS LINES PTE LTD V CHAI CHEE MEIN.
 The authority of A has terminated without knowledge of 3rd party. – OVERBROOK
ESTATE LTD V GLENCOMBE PROPERTIES LTD.

2.1 DUTIES OF AGENT TO PRINCIPAL

1) A must obey the P’s instructions. Section 164. If not A liable for the P’s loss.

 P vs A. - TURPIN v BILTON
 Facts: The A instructed to insure vessel. But failed to do so. The P suffered loss as the
vessel was lost.
 Court’s held: The A was liable to pay compensation for the loss.

2) If no P’s instructions, A must follow norm/custom. Section 164. if not A liable to P’s loss.
P Vs A. Illustration(b) Section 164

3) A must exercise care, skill, diligence – Section 165. If not A liable to P for his neglect, want
of skill or misconduct. If the A is employed to sell goods, must obtain the best price possible.

 KEPPEL V WHEELER
 Facts: P hired A to sell a house, X and Y offered their prices, but Y offered the best,
yet, A only inform P about the offer from X. So, the contract is done with X.
 Court’s held: The A liable to the P for the difference between the 2 offers.

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4) A must give proper account when required – Section 166

 LYELL V KENEDY
 Court’s held: an agent who has been entrusted with the P’s money /property is
bound to keep the money/property separately from his own money.

5) A must communicate with P to get instructions when emergency/difficulty – Section 167.

6) A must act in good faith & no conflict of interest.

 Must not be a party to contract with P

 ARMSTRONG V JACKSON
 Facts: An A been ordered to buy shares for P. A sold his own shares without informing
the P.
 Court’s held: A had not acted in good faith.

 WONG MUN WAI V WONG THAM FATT

 Court’s held: The A breached his duty on 2 reasons: He sold the P’s land below the
market value and he failed to inform the P that he sold it to his wife.

 Must not act for both Principal & 3rd Party without consent.
 FULWOOD V HURLEY – the A has breached his duty.
 Must disclose everything that he knows. All monies and profits should be put into
the P’s account. Cannot mix with his own money.

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7) A cannot make secret profit - ‘kickback’, bribe, financial advantage out of the performance
of his duty.

 Any breach, Principal can:

 a) End contract made by agent – (SHIPWAY V BROADWOOD).
 b) Recover the Special Performance – (TAN KIONG HWA’S CASE)
 c) Refuse to pay commission – (ANDREWS V RAMSAY)
 d) Terminate agent – (BOSTON DEEP SEA FISHING’S CASE)
 e) Sue agent & 3rd Party for losses – (MAHESAN’S CASE)

CASES

 SHIPWAY V BROADWOOD
 B as the principal has the right to repudiate the contract in consequence of the bribe
given by S to the agent.

 TAN KIONG HWA

 Facts: P ordered A to sell a house at RM45K and A sell the house for RM54K to 3rd
Party.
 Court’s held: The P is entitled to claim the extra RM9K from the A who has breached
the duty of an agent.

 ANDREW V RAMSAY & CO

 Facts: P ordered to sell his house & and agreed to pay him £50, A received £100 which
he took £50 and pay the remaining £50. Later discovered that A received another
£20.
 Court’s held: The P entitled to recover both sums as the A breached his duty as an
agent.

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  MAHESAN’S
 Facts: P authorized A to buy a piece of land, Manickam initially bought the land at
RM456,000. Manickam bribed A for RM122,000 in order to sell the land to P with
higher price. Manickam managed to sell the land to P at RM944,000.
 Court’s held: The P could recover either the bribe or the amount of the actual loss
from the A as the A breach his duty as an agent.

8) Give all money received to principal - Section 171

 But can deduct (Section 170) if:

 a) Unpaid commission
 b) Expenses incurred by agent

9) Cannot delegate authority except:

 Principal approves – (DE BUSSCHE V ALT)

 b) Implied from conduct it is permissible
 c) Emergency situation
 d) Purely ministerial / clerical – (ALLAM V EUROPE POSTER SERVICES LTD & JOHN
MCCANN V POW)
 e) Custom of business approves delegation
 f) Need to delegate to complete business

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2.2 DUTIES OF PRINCIPAL TO AGENT

1) Pay agent’s commission / remuneration as agreed (Section 172)

 unless guilty of misconduct (Section 173).

2) Cannot prevent agent from earning commission by:

 a) Refusing contracts made by agent without reason

 b) Assign same task to another agent

3) Indemnify & reimburse agent where:

 a) Agent incurred losses / liability when doing duties. – (KYALL & EVATT V LIM KIM
KEAT)
 b) Agent causes injury to 3rd party by carrying out instructions (Section 176) &
illustration (b).
 c) Agent suffers injury by carrying out instructions (Section 178)

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EFFECT OF CONTRACT
MADE BY AN AGENT
PERSONAL NOTES

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3.1 EFFECTS OF CONTRACT MADE BY THE AGENT

 Depends on kinds of P: 3 kinds:

 NAMED P – the P’s name has been disclosed to the 3rd party by the A. so the 3rd party
knows the existence and the identity of the P.
 DISCLOSED P – the P’s existence is disclosed to the 3rd party by the A. so the 3rd party
only knows the existence of the P but does not know the identity.
 UNDISCLOSED P – the P’s existence and identity is unknown to the 3rd party at the
time of contract.

3.1.1 EFFECTS OF CONTRACT ON NAMED PRINCIPLE

 General Rule – P alone bound by the contract. Not the A. only P can sue and be sued.
Section 183 & 179
 Exceptions: The A agrees to accept personal liability. (CHIN YUEN TUNG V BEP
AKETIK).
 The A execute a contract in his own name
 The A signs a negotiable instrument in his own name without making it clear that he
is signing it only as agent. (KAVENA SAID MEYDIN).
 The A exceed his authority and not ratified by the P.
 The custom/norm of trade makes the A liable.

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3.1.2 EFFECTS OF CONTRACT ON DISCLOSED PRINCIPLE

 General Rule – Only P liable and not the A.

 Exceptions: Section 183(a), (b) &(c). Where the contract is made by an agent for the
sale or purchase of goods for a merchant resident abroad.
 Where the agent does not disclose the name of his P; and where the P, though
disclose, cannot be sued. E.g. P unsound mind.

3.1.3 EFFECTS OF CONTRACT ON UNDISCLOSED PRINCIPLE

 Right of the 3rd party – right to sue either the A or P. (PERNAS TRADING V
PERSATUAN PELADANG BAKTI MELAKA).
 Rights of the Principle – the undisclosed P may require the performance of the
contract by the 3rd party even though the 3rd party does not know that there is a P.
Section 184(a). However, this is subject to the right and obligation subsisting
between the A and 3rd party.
 Rights of the Agent – Section 189 –The A can claim his right under the contract if the
contract is actually his contract.

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TERMINATION OF
AGENCY
RELATIONSHIP
PERSONAL NOTES

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4.1 TERMINATION OF AGENCY RELATIONSHIP

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4.2 REVOCATION BY THE PRINCIPLE

 P may revoke the A’s authority at any time before the A has exercised his authority
so as to bind the P – Section 156.
 P must give reasonable notice to A. If not, A entitled to damages – Section 159.
 What is reasonable notice?
 SOHRABJI’S & SYARIKAT JAYA’S – 3 ½ months’ notice was not adequate for 50 years’
service. 2 years would be reasonable.
 SYARIKAT JAYA V STAR PUBLICATION – 6 months’ notice was reasonable for a sole
agency agreement.
 Exceptions: P is prevented from revoking the A’s authority:
 When A has an interest in the property, which is the subject matter of the agency.
(Section 155) unless if there is express contract to the contrary. – (SMART V SANDERS
& FIRTH V FIRTH).
 If the A has incurred personal liability as a result of carrying out P’s instructions. –
(READ V ANDERSON)

CASES

 SMART V SANDERS
 Facts: P sent A his goods to sell it on his behalf, A advances his money for the security
of the goods.
 Court’s held: The A cannot be terminated by the P because the A has an interest in
the goods, by paying the security of the goods.

 FIRTH V FIRTH
 The authority could not be revoked after the factor had made advances for the
security of the goods to the owner and while these advances remained unpaid.

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  READ V ANDERSON
 Court’s held: The P would not revoke the turf commission agent’s authority after
losing the bet. The P would have to indemnify the agent for the amount, which the
agent had paid to the person with whom he made the bet.

Q: WHEN REVOCATION BY P EFFECTIVE?

 Only effective when it comes to the knowledge of the A and the third party. Section
161.
 PICHAPPA CHITTY V HJ. JAH
 Court’s held: the 3rd party who advanced money to the A appointed but whose
authority had been revoked without the A and the 3rd party knowledge, was entitled
to recover the money from the P.

 TRUEMAN V LODER
 Court’s held: the 3rd party who dealt with an agent whose authority had been
revoked, was able to claim from the P the goods supplied because the 3rd party had
no knowledge of the revocation.

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4.3 RENUNCIATION BY THE AGENT

 Section 154 – An agency is terminated …by the A renouncing the business of agency…
 Section 160 – may be express or impliedly – the A must give reasonable notice to the
P. otherwise the P entitled to damages – Section 159
 Section 158 – if for a fixed term –any premature renunciation – the A must pay
compensation.

4.4 REVOCATION BY OPERATION OF LAW

By performance - By expiration of fixed The death of P or A -

Section 154 period Section 154

Changing in event that

By bankruptcy of P -
By insanity of P or A render the agency
Section 154
unlawful

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