Chapter 10 - LAW OF AGENCY
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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?
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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.
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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
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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
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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 1961a partner is a
agent to the
other partner
when contracting
in the course of
the partnership
business
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Two situations.
◦ Agent who was appointed exceeded his
authority.
◦ Person has no authority, acted as if he has the
authority.
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If the P later on ratifies either one of this
act, the contract is binding.
Conditions (s149-s153 CA 1950):
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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.
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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)
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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)
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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
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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
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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.
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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”
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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?
Del credere agent
He 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
As to the extent of
authority
Universal agent
As to the Functions
Special agent
-a general agent General agent
with extensive
power
-an agent
employed for a
-normally via
certain trade or
Power of
business.
Attorney
-very rare
-appointed
for certain
act.
-the power
is limited to
such act
-can do all that only
is usual in the
ordinary course
of business
Auctioneer
-agent for the
Factors
seller when
-Commercial
accepted bid
agent entrusted
from buyer
with good
-acted for buyer
-has lien over When received
the good if
payment from
P did not pay
the buyer
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
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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.
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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
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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
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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.
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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.
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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.
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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)
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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.
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Cannot disclose confidential information.
Not to delegate because of delegatus non
potest delegare principle unless
exceptions apply.
Exceptions:
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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
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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.
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Indemnified for lawful acts done in good
faith – Ss.175 & 176.
Claim compensation for injury due to P’s
neglect – S.178.
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To pay commission or other renumeration
Not willfully prevent the agent from his
earning commission
To indemnify and reimburse the agent
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Repudiate transaction if A deals on his own
account – S.168.
Claim any benefit if A deals on his own
account – S.169.
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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.
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P declared bankrupt - S.154.
Mutual agreement by P and A.
Time period fixed has expired.
Event which makes agency unlawful.
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Rights of agent very much depends on terms
set by principal.
Rights of third party is at the mercy of the
principal and agent.