INTRODUCTION TO LAW

CEA 1023
LAW OF CONTRACT
- ELEMENTS OF A CONTRACT -
LAW OF AGENCY

www.inspen.gov.my
 INTRODUCTION
➢ What Act Governs The Law Of Agency
The Contract Act 1950, Part X

➢ Why Does Agent And Principal Relationship

Exist?
• To save time and energy ;
• Agent engaged for special service or knowledge ;
• Agents duties are needed during emergency ;
• A person social status.
➢ What Is Agent And Principal?

 Agent is defined as “a person employed to

do any act for another or to represent
another in dealing with third persons”.

 Principal is “the person whom the act is

done, or who is so represented”.

Example:
 Akmal appoints Adibah to buy goods on
her behalf.
 Akmal is principal while Adibah is an
agent
➢ Types of Agent

1. Universal Agent

Is a general agent with extensive powers. He can

do all acts which a principal personally do. This
kind of agency though seldom made is created by
deed in form of Power of Attorney. A principal
rarely grants extensive powers unless there are
compelling reasons.

2. General Agent

A general agent is an agent who is employed to act

on behalf of his principal, generally in transactions
relating to a particular trade or business.
➢ Types of Agent (Cont’d)

3. Special Agent

Agent appointed to do a specific purpose act or for

a specific purpose and his authority is limited to
that act or purpose.
 CREATION OF AGENCY
➢ An agent can be expressed or implied by :

1. Express Appointment
2. Implied Appointment
3. Ratification
4. Necessity
5. Estoppel
1. Express Appointment
Express appointment may be in written or oral
form.

Examples :
 Travel agents are acting as agents for many
company airlines by selling their air travel
packages as in the provisions set in their general
agreement.

 Appointment of Power Attorney that is made in

writing.

2. Implied Appointment

When a person by his words or conduct holds out

another person as having authority to act for him.
 3. Ratification
▪ Ratification may occur in the following situations :
1. An agent who was appointed has exceeded his
authority; or
2. A person who has no authority to act for the
principal has acted as if he has the authority.
▪ When one of the above mentioned the principal can
either reject or accept the contract.
▪ When the principal accept and confirms the contract.
The acceptance is called ratification.
 3. Ratification (Cont’d)
▪ Conditions of ratification are as follows :

1. The act or contract must be unauthorized.

2. The agent at the time of contract must

expressly act as an agent. He must not allow
the third party thinks that he is the principal.

3. The agent must have a principal, who is in

actual existence or capable in actual
ascertained, when the contract is made.

4. The principal must have contractual capacity at

the time when the contract is being made and
at the time of ratification.
▪ Conditions of ratification are as follows (cont’d):
5. The principal must, at the time of ratification
have full knowledge of all material facts, unless
it can be show that he intends to ratify the
contract whatever the facts may be and assume
responsibility for them.
6. The principal must ratify the whole act or
contract.

7. The ratification must not injure the third party.

4. Necessity
Agency by necessity may happen in the following
situations :

 It is impossible to get the principal’s instruction.

 The agent’s action is necessary in particular

circumstances in order to prevent loss to the
principal with respect to the interest committed to
his charge.

 The agent of necessity must have acted in good

faith.
5. Estoppel
▪ A person cannot be bound by a contract made
on his behalf without his authority.
▪ However, if he by his words and conduct allows
third party to believe that particular person is
his agent even thought he is not,
▪ and the third party relies on it to the detriment
of the third party,
▪ he will be stopped from denying the existence of
that person’s authority to act on his behalf.
 DUTIES OF AN AGENTS AND
PRINCIPAL
➢ Duties Of An Agents To His Principal

• Conducting the business according to the

direction given by the principal.
• Skill and diligence required from the agent.
• An agent is bound to render proper
accounts too his principal on demand.
• Agent’s duty to communicate with the
principal.
• Not to let his interest conflict with his duty.
 DUTIES OF AN AGENTS AND
PRINCIPAL
➢ Duties Of Principal

• To pay the agent the commission or other

remuneration agreed, unless the agency
relationship is gratuitous.
• Not to willfully prevent or hinder the agent
from earning his authority.
• To indemnify the agent for acts done in the
exercise of his authority.
 TERMINATION OF AGENCY
➢ Agency can be terminated in two ways
which area s follows :

1. The Act Of Both Parties

2. By Operation Of Law
1. The Act Of Both Parties
➢ The agency may be terminated by act of both
parties as follows:
 Revocation by principal or
 Renunciation by agent.
➢ Renunciation and revocation may be expressed
or implied:
a) Indefinite Duration
Where agent can terminate the agency by
giving reasonable notice of termination. Or
else the agent will be liable to the principal for
damage or any loss caused by the premature
termination.
b) Agency For Definite Period Of Time

Where an agency is for a definite or fixed

period of time, the agent cannot terminate
the agency before the expiry of that period
without a just cause.
Or else, he will be liable to the principal for
damage or any loss caused by the premature
termination of the agency.
2. By Operation Of Law

➢ The situations if which an agency can be

terminated by operation of law are as follows :
1. When the contract of agency has been
performed.
2. Upon the expiry of the period fixed in the
contract of agency.
3. Upon the death of principal or the agent.
4. When the principal or the agent become
insane.
5. When the principal becomes insolvent or is
made a bankrupt.
6. Upon the happening of an event which
renders the agency unlawful. (Discharge by
frustration).