Chapter 10 - LAW OF AGENCY
Chapter 10 - LAW OF AGENCY
How to create an agency relationship? What are types of authority an agent may
have? What are the duties and rights of agent as
against the principal and vice versa? In what situations will agency come to an
end?
Governed by Part X Contracts Act 1950. Definition of agent (A) - S.135. Definition of principal (P) – S.135. There are two contracts i.e. P and A; P
and 3rd P.
Who may be an agent?S137- any person but not a minor or unsound person
Consideration not required – S.138. The meaning of an agent in legal sense is
different from its commercial sense. To determine the existence of agency the
court will look at the authority given to the agent.
Sec 136-a P must◦ not be a minor◦ of sound mind
The agency contract can be made verbally There is no requirement that the agency
contract has to be in writing This was confirmed in the case of KGN Jaya
Sdn. Bhd. v. Pan Reliance Sdn. Bhd. [1996] 2 CLJ 611
In this case, the court held that the law does not require that an agency or sub-agency agreement must be in writing
Express appointment – S.140. Implied appointment – S.140 [every
partner is an agent of another partner - S.7 PA 1961].
Ratification – S.149. Necessity – S.142. Estoppel/holding out – S. 190.
Query? What are the differences?
No special form required
Can be made orally or in writting
If the authority is under seal, need to made under a Power of Attorney which is registered at High Court
When a person by his word or conduct holds out a person to be his agent (holding out)
Eg: A held out that he is B’s partner. C believed it and supplied good to B. B did not pay. C has right to sue both-see Illustration to Sec 140
Relationship between husband & wife.
-it is presumed that wife has authority to plegde her husband’s credit.
-this is still rebuttable if the husband prove otherwise
Sec.7 of Partnership 1961- a partner is a agent to the other partner when contracting in the course of the partnership business
Two situations.◦ Agent who was appointed exceeded his
authority.◦ Person has no authority, acted as if he has the
authority. If the P later on ratifies either one of this
act, the contract is binding.
Conditions (s149-s153 CA 1950):◦ A’s act or contract is unauthorised.◦ The unauthorised act must be one recognised by
law. E.g : it cannot be a criminal act.◦ The agent at the time acting for P and not for
himself.◦ P must exist, have contractual capacity and full
knowledge of material facts. ◦ The third party does not believe that A is a P.
Conditions (s149-s153 CA 1950):◦ P must ratify the whole contract i.e cannot
accept partly only. (Sec 152)◦ The ratification must be made within
reasonable time◦ The ratification must not injure the 3rd party.
(Sec. 153 & illustration)
The consequences of ratification are as follows: -◦ As if the contract was originally made on the
principal’s authority (s149 CA 1950)◦ The contract is between the principal and the
third party. Thus, one may sue and be sued by the other
◦ Ratification is retroactive to the date on which the agent did the act (Bolton & Partners Ltd. v Lambert [1889] 41 Ch D 295)
Under certain circumstances a person may become the agent of another without having been appointed as such.
Examples of agencies of necessities : a. a wife who is deserted or who is
justified in leaving her husband and has no means of support, can pledge her husband’s credit for necessaries of life
b. a commercial agency of necessity- when a person is entrusted with another’s property and it becomes necessary to act to preserve that property although he has no express authority to do so.
Case: Great Northern Railway Co v Swaffield-The plaintiff (a railway co) had contracted with B to deliver a horse to a certain place. Upon arrival, nobody took the horse. Thus the plaintiff stored the horse in a stable. Later the plaintiff asked for the storage charge. The defendant denied.
Held : plaintiff acted as an agent of necessity in this matter to preserve the horse
Must satisfy conjunctive conditions. 1.Impossible to get P’s instruction. Case : Springer v Great Western Railway
Company 2.Prevent further loss to P. If no urgency exists and the goods are sold
merely because they are inconvenience to the agent, agency of necessity does not arise.
.e.g sale of furniture in Sachs v Miklos. Or sale of car in Munro v Wilmott and Co.
3.A acted in good faith. Applied in Great Northern Railway Co. v
Swaffield (1874) LR 9 Ex 132.
Conditions 2 & 3 above are stated in s142 where “in an emergency” and the need for the agent to act as “a person of ordinary prudence”
Condition 1 is stipulated in s167: -“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”
S. 190. Person not bound by contract on his
behalf without his authority. If by his words or conduct,allows a 3rd
party to believe that A is his agent,when A is not,that person will be estopped from denying the existence of A’s authority.Query? Can P refuse to be bound?
As to the FunctionsAs to the extent of authority
Universal agent
-a general agent with extensive power
-normally via Power of Attorney
-very rare
General agent
-an agent employed for a certain trade or business.
-can do all that is usual in the ordinary course of business
Special agent
-appointed for certain act.
-the power is limited to such act only
Del credere agentHe is an agent to P
Contracted with 3rd party& promised
to pay extra commission-if 3rd party fail to do
something, the agent is liable
Auctioneer-agent for the seller when accepted bidfrom buyer
-acted for buyerWhen received payment from
the buyer
Factors-Commercial
agent entrusted with good
-has lien over the good if
P did not pay the commission
Brokers: commercial agent appointed to negotiate based on commision but he does not
have lien over good if P did not pay him
If A acts within his authority, P is bound. If A acts beyond his authority, P is not
bound unless P ratifies. Query? What is the effect then?
Thus, A is in breach of warranty of authority.
Even if A act in good faith – Yonge v Toynbee [1910] 1 KB 215.
Actual authority: conferred upon the agent by agreement. It comprises:◦ Authority expressly given by the principal to
agent orally or in writing◦ Authority implied from the following
express authority given the circumstances of the case the custom or trade usage the situation and conduct of the parties.
◦ Case on implied or usual authority: Watteau v Fenwick / Panorama Development (Guilford) Ltd v Fidelis Furnishing Fabrics Ltd
Apparent/Ostensible Authority◦May arise in two situations:
Where a principal, by his word or conduct, leads a third party to believe that his agent has authority to make contracts for him.-Sec 190
Where the agent previously had authority to act, but that authority was terminated by the principal without notice to third parties.
Apparent/Ostensible Authority◦ The agent is presumed to have the authority that
the principal causes him to appear to have, the element of estoppel applies as the principal is precluded from denying that the agent had such authority.
Case on apparent authority: Graphic Lines Pte Ltd v Chai Chee Mein & Ors
The distinction between implied actual authority and apparent authority is that the former is based on inferences drawn from an agreement between principal and agent whereas the latter is based on a representation made by a principal to the third party irrespective of any agreement between principal and agent.
Carry out P’s instructions – S.164 If no instructions, act according to custom –
S.164. Exercise proper care, skill and diligence –
S.165.Query? What should the standard be?
Render proper accounts – S.166 Communicate with P – S.167. (unless the case
falls under Sec 142)Query? What if he could not do so?
Pay sums received on behalf of P – S.171.(see also Sec 170 & 174)
Avoid conflict of interest – S.169.◦ Applied in Wong Mun Wai v Wong Tham Fatt
and Anor [1987] 2 MLJ 249 [ A sold P’s shares to own wife].
Sec-168-Cannot make secret profit. If there is, P can:◦ Repudiate contract with 3rd Party;Sec- 168◦ Recover secret profit – S.169. However if P
know & consent, the agent can keep the secret profit
◦ Refuse to pay commission◦ Dismiss A◦ Sue A and 3rd P for damages.
Cannot disclose confidential information. Not to delegate because of delegatus non
potest delegare principle unless exceptions apply.
Exceptions: ◦ Where P approves◦ Presumed power to delegate from
the conduct of the parties◦ Trade custom permits◦ Nature of trade allows such
delegation◦ Necessity◦ Ministerial or clerical act
Retain out of sums received on P’s account for money due to him – S.170.
Claim remuneration when act is completed – S.172.
But no such right for misconduct – S.173. Lien on P’s property until money due to A
is paid – S.174.
Indemnified for lawful acts done in good faith – Ss.175 & 176.
Claim compensation for injury due to P’s neglect – S.178.
To pay commission or other renumeration Not willfully prevent the agent from his
earning commission To indemnify and reimburse the agent
Repudiate transaction if A deals on his own account – S.168.
Claim any benefit if A deals on his own account – S.169.
P revokes authority/ A renounces agency provided reasonable notice given – S.154. If not, can be liable to the other party – S.159.
Completion of agency – S.154. P/A died or became unsound mind –
S.154.
P declared bankrupt - S.154. Mutual agreement by P and A. Time period fixed has expired. Event which makes agency unlawful.
Rights of agent very much depends on terms set by principal.
Rights of third party is at the mercy of the principal and agent.