GCM 6113 – MALAYSIAN BUSINESS LAW

LAW OF AGENCY
 Agency – Part X (ss.135 – 191) Contracts Act 1950

• S.135 CA - An “agent” is a person employed to do any act for another

or to represent another in dealings with third persons. The person for
whom such act is done, or who is so represented, is called the
“principal”

• S.136 CA - Any person who is of the age of majority according to the

law to which he is subject, and who is of sound mind, may employ an
agent
• S.137 CA - As between the principal and third persons, any person
may become an agent; but no person who is not of the age of
majority and of sound mind can become an agent, so as to be
responsible to his principal according to the provisions in that behalf
herein contained

• Two separate contracts in agency:

i) Between principal and agent – agent derives his authority
ii) Between principal and third party – through the work of agent

• S.138 CA - No consideration is necessary to create an agency

 Examples of Agency
• Solicitor – client
• Partnership
• Buying and selling of properties
 CREATION OF AGENCY

• Agency can be created through:

i) Express appointment
ii) Implied appointment by principal
iii) Ratification by principal
iv) Necessity
v) Estoppel
 
 Express Appointment

• S.139 CA - the authority of an agent may be expressed or

implied.
• When the principal expressly appoints a person to be his
agent
• S.140 CA - an authority is said to be express when it is given
by words spoken or written
 Implied Appointment

• S.140 CA - an authority is said to be implied when it is to be inferred

from the circumstances of the case; and things spoken or written, or the
ordinary course of dealing, may be accounted circumstances of the case
• Implied appointment can happen under three situations:-
1. When a person by his word or conduct holds out another person as
having authority to act for him
• Illustration - A owns a shop in Kajang, living himself in Kuala Lumpur,
and visiting the shop occasionally. The shop is managed by B, and he is
in the habit of ordering goods from C in the name of A for the purpose of
the shop, and of paying for them out of A’s funds with A’s knowledge. B
has an implied authority from A to order goods from C in the name of A
for the purposes of the shop.
 Implied Appointment

2. Relationship between husband & wife

3. Relationship between partners (in a partnership)

 Ratification (Approval)
• S.149 CA - where acts are done by one person on behalf of another but
without his knowledge or authority, he may elect to ratify or to disown
the acts. If he ratifies them, the same effects will follow as if they had
been performed by his authority

• S.150 CA - ratification may be expressed or may be implied in the

conduct of the person on whose behalf the acts are done

• Illustration - A, without authority, buys goods for B. Afterwards B sells

them to C on his own account; B’s conduct implies a ratification of the
purchase made for him by A
• Agency by ratification can happen only if it falls under these two
situations:-
• 1. Agent who has been appointed but has exceeded his authority when
he entered into a contract with a third party.

• 2. A person who has no authority to act for the principal but he acted
as if he has the authority to enter into a contract with third party.

• If either one of the two situations happen, the principal has two choices
i.e. reject or accept the contract

• When the principal accepts the contract, it is known as ‘ratification’

 Agency by Necessity

• S.142 CA an agent has authority, in an emergency, to do all such acts

for the purpose of protecting his principal from loss as would be done
by a person of ordinary prudence, in his own case, under similar
circumstances
• Illustration - An agent for sale may have goods repaired if it be
necessary
• An agency by necessity can be created if these three conditions are
fulfilled: 
1.  It is impossible to get the principal’s instructions
2.  The agent’s action is necessary to prevent loss to the principal. This
happen when the principal put the agent to be in charge of the goods
3. The agent had acted in a good faith

• The agent’s acts must be reasonable and prudent

 Agency by Estoppel
• Meaning of estoppel - Estoppel is a legal principle that bars or prevents a party
from denying or alleging a certain fact owing to that party’s previous conduct,
allegation or denial
• Three elements necessary to constitute estoppel:
i) A representation made by or on behalf of the principal to the third party
concerning the authority of the agent
ii) Reliance by the third party on the representation made by the principal to the
third party
iii) The third party must rely on the principal’s representation and alter his or her
legal position on the strength of the representation
• S.190 CA - When an agent has, without authority, done acts or
incurred obligations to third persons on behalf of his principal, the
principal is bound by those acts or obligations if he has by his words
or conduct induced such third persons to believe that those acts and
obligations were within the scope of the agent’s authority

• Illustration - A consigns goods to B for sale, and gives him instructions

not to sell under a fixed price. C, being ignorant of B’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
• Agency by estoppel is created when:
1) The principal allows a third party to believe that a person is the
agent of the principal.

2) The principal can make a third party to believe so (the

representation) through his conduct or word.

3) When this happens, the principal is estopped from refusing to accept

that the person (who made the representation) is his agent
DUTIES OF AGENT TO PRINCIPAL
(ss.164-178 Contracts Act 1950)
 DUTIES OF AN AGENT TO PRINCIPAL
• The duties of and agent are governed by ss.164-178 Contracts Act
1950
1. To obey the principal’s directions – s.164 CA
• An agent must follow the directions (instructions)
• In the absence of any direction, the agent must act according to the
custom that prevails in the same kind of business
• When the agent acts otherwise, he must make good for any losses
suffered by the principal and if any profit accrues he must account for
it
2. To exercise care, skill and diligence – s.165 CA
• An agent must use his skill and diligence when conducting the
principal’s business
• 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 (lack) 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
• Keppel v Wheeler (1927) 1 KB 577
• The Defendant was an agent for Plaintiff. The agent was asked by the
Plaintiff to sell a house. One offer was made by A through an agent
and was accepted by the principal subject to a condition.
• Later, another offer was made by B, but this time the offer is higher
than the first offer made by A. The agent did not inform the principal
about B’s offer. The Principal signed a contract with A. The principal
took an action against the agent.
• Held: that the agent was liable because he must use his skill and care
for the benefit of his principal. Since agents failed to do so, he was
liable to pay the principal the difference between the two offers.
3. To render proper accounts when required by the principal – s.166
CA
• An agent is bound to render proper accounts to his principal on
demand
• Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine
Insurance Underwriting Agency Ltd [1995] QB 174 – the agent has a
duty to provide the principal with access to the agent’s records
4. To pay the principal all sums received on behalf of the principal -
s.171 CA
• The agent is bound to pay to his principal all sums received on his
account
• The agent may however, before giving all the monies to the principal,
deduct the following sums:-
i) advances paid by the agent first, on behalf of the principal
ii) the agent’s commissions
iii) the agent’s remuneration (salary)
5. To communicate with the principal – s.167 CA
• The agent must use his reasonable diligence to communicate with the
principal
• He must use all his skill and diligence in giving any information to or
getting any instruction from the principal
• In a situation where it is impossible to obtain the principal’s
instructions e.g. in cases of emergencies, the agent must use his
discretion in the best interest of the principal
6. Not let his own interest to conflict with his duty
• An agent must act in the best interest of his principal.
• An agent must not allow his interest to go against the interest of his
principal
Wong Mun Wai v Wong Tham Fatt & Anor (1987) 2 MLJ 249
• The agent (Defendant) sold the principal’s land below the market
price to the agent’s wife.
• Held: The agent has failed in his duty on two grounds:
i) He sold the Plaintiff’s land below the market price
ii)  He sold it to his wife without telling it to the principal. 
• The court gave his decision based on the fact that the agent had a
duty to act in a good faith to protect the interest of his principal and
must not do any thing that would be conflicting with the interest of
the principal
7. Not to make any secret profit out of the performance of
his duty
• Secret profit means a bribe or payment of a secret
commission or any financial advantage the agent receive by a
third party in addition to the commission or salary that has
been agreed by the agent and principal
• The consequences of a secret profit:
i)  If the principal knows about it and consents to it, the agent may
keep the profit – s.168 CA
ii)  If the principal does not consent to it, the principal may repudiate
the contract that has been entered by the agent on his behalf – s.168
CA
iii) The principal may recover the secret profit/unauthorized financial
gain from the agent – s.169 CA
• Tam Kong Hwa v Andrew S.H. Chong (1974) 2 MLJ 188
• The plaintiff bought a flat from the defendant’s company. The plaintiff
then authorised the defendant as the agent to sell the flat for
RM45,000.00.
• The defendant sold the flat for RM54,000.00.
• The difference RM9000 was kept by the defendant’s company.
• Held: the Plaintiff has the right to recover the RM9000 because the
defendant has breached his duty as an agent
 iv) The principal may refuse to pay commission or remuneration to the agent
– s.173 CA
Andrew v Ramsay and Co (1903) 2KB 635
• The Plaintiff appoints the Defendant as his agent to sell his property. The
Plaintiff agreed to give the agent 50 pounds as a commission
• The agent sold the property to a purchaser and received 100 pounds as
deposit of the property. The agent gave 50 pounds to the principal and with
the consent of the principal kept 50 pound as the commission due to him
• The Principal later found out that the purchaser has also gave 20 pounds to the
agent as a commission
• The Principal then sue the agent to recover the 20 pounds commission given
by the purchaser and 50 pounds commission he has given to the agent
• The court held that the principal can recover both the sums 
v)  The principal may dismiss the agent on the ground of breach of
duty
 
vi) The principal may sue the agent and any third party for damages
for any loss he suffered due to entering the contract

 
8. Not to disclose confidential information or documents
entrusted to him by his principal
• Not to tell other parties about any information or document
entrusted to him by his principal
9. Not to delegate his authority
• “delegates non potes delegare” - no delegated powers can be further
delegated

• An agent must not ask another person to perform his duty. The agent
must personally perform the duty asked by the principal

• The relationship between the principal and the agent is personal

where the principal has put his trust in the agent he selects
•There are exceptions to this rule
•An agent may delegate his authority to another in the following circumstances:-
1.Where the principal approves the delegation of authority

De Bussche v Alt [1878] Ch D 286

•The principal appointed an agent in China to sell a ship at certain price. However,
the agent was unable to sell the ship so he sought the principal’s approval to
appoint a sub agent to sell the ship in Japan
•Held:There was no breach of the agent’s duty in appointing a sub agent because
there was an express consent to such delegation
2. Where it is presumed from the conduct of the parties that
the agent would have power to delegate his authority

3. Where custom of the trade or business permits delegation

4. In case of necessity or unforseen emergency e.g. illness of

agent
DUTIES OF PRINCIPAL TO AGENT
(ss.175-178 Contracts Act 1950)
• The duties of a principal to his agent include:-
1) To pay commission or remuneration to the agent 
• The principal has to pay the agent his commission or remuneration as
agreed in the contract between them.

• The agent will lose his right to remuneration if the agent is guilty of
misconduct in the business of agency – s.173 CA
2) Not to willfully prevent or hinder the agent from earning his
commission

• When a principal has appointed a person to be his agent, he cannot

employ a second agent to do the same act as the first agent
• This is to protect the first agent from not getting the commission that
has been promised to him by the principal
3) To indemnify and reimburse the agent for acts done in the exercise
of his duty. 
• The principal has the duty to indemnify the agent for all losses and
liabilities that the agent incurred while he performs his duty
AUTHORITY OF AGENT
• The agent’s act bind the principal if it is done within the authority
given by the principal. If the agent acts outside from the authority
given, the act will not bind the principal unless the principal ratifies it
later
• There are two types of authorities:
1)  Actual Authority
2) Apparent Authority/Ostensible Authority
1. Actual authority is the authority that is given to the agent by the
principal through an agreement
2. Actual authority comprises of:
a) Authority expressly given by the principal to the agent orally or in
writing
b) Authority impliedly expected from an agent
2. Apparent/Ostensible Authority
• This authority is given by the law.
• This authority may arise under 2 situations:-
a) S.190 CA - where a principal leads a third party to believe that his
agent has the authority to make contracts for him. This can be done
either by the words or conduct of the principal (estoppel)
b) Where previously an agent had authority to act but the authority
was terminated by the principal and this was done without giving
notice to the third parties
TERMINATION OF AGENCY
(ss.154 - 163 Contracts Act)
• An agency may be terminated in the following situations:
1) By the act of the parties
2) By operation of the law
 
 Termination by act of the parties
a) An agency contract may be terminated by mutual consent or
by unilateral revocation by the principal or unilateral renunciation
by the agent at any time by giving notice

b) Termination by performance
• The contract of agency came to an end when the agent has
performed the contract

c) Termination upon expiry of the period fixed in the contract of

agency
 Termination by operation of law
• An agency may be revoked by operation of law in any of the
following circumstances:-
 
1. Upon the death of the principal or agent
• An agency came to an end when the principal or the agent dies
 
2. When the principal or agent became insane

3. Where the principal or agent became a bankrupt

 Termination by frustration

• Upon happening of an event which renders the agency

unlawful, the agency may be terminated
• Stevenson v Aktiengesellschaf Fur Cartonnagen Industrie
[1918] AC 239
• An outbreak of war made principal an enemy alien.
• It was held that the agency was terminated.
Reading Materials and References:

1) Mei Pheng Lee & Ivan Jeron Detta, Commercial Law, Third
Edition, Oxford Fajar (2017) – Chapter 4
2) Contracts Act 1950