LAW OF AGENCY

PART 2

SOURCES:
1. Contract Act 1950
2. Lee Mei Pheng, Ivan Jeron Detta (2011). Business Law : ,Kuala Lumpur:Oxford
University Press
Hassan, Mumtaj and Md. Salleh, Khuzaimah and Mohamed Yusoff, Zuryati and Mohd Ali
@ Ramli, Azlin Nam (2017). Undang-undang Perniagaan di Malaysia, Sintok:UUM Press
 (6) AN AGENT’S DUTIES TO THE PRINCIPAL

1. Carry out the principal’s instructions.

2. Exercise proper care, skill and diligence.
3. Render proper accounts.
4. Communicate with the principal.
5. Avoid conflict of interest.
6. Give sums received on behalf of the principal back to the principal.
7. Cannot make secret profit.
8. Cannot disclose confidential information.
9. Not to delegate power to another.
1. Carry out the principal’s instructions.
§ S.164 CA
§ Cases:
a)Turpin v Bilton (1843) 5 Man & G 455
§ The case involved failure to insure the principal’s ship as entrusted.
§ The ship lost at the sea.
§ Held:The agent was liable for the loss.
b) Bostock v Jardine (1865) 3 H & C 700
§ An agent made an order of stock beyond the authority given.
§ Held:The agent must pay for the extra stock ordered.

c) Cohen v Kittel (1889) 22 QBD 680

§ An agent has the right not to follow the principal’s instruction if the
act (instruction) was contrary to the law.
§ In this case, the instruction was to involve in gambling. The action here
was illegal.
2. Exercise proper care, skill and diligence
§ S.165 CA
§ Case:
a) Keppel v Wheeler & Anor [1927] 1 KB 577
§ An agent was hired to sell the principal’s house. The agent failed to
inform the principal about the highest offer from a potential buyer.
§ The principal only knew about it after the agreement had been signed.
§ Held: The agent had breached his duty to exercise proper care, skill and
diligence as an agent.
3. Render proper accounts
§ S.166 CA
§ Case:
a) Parker (Harry) Ltd v Mason [1940] 2 KB 590
§ The court held that any profits made from an invalid or illegal
transaction should be given to the principal, as long as the original
agreement between agent and principal is legal.
4. Communicate with the principal
§ S.167 CA

Q: How about during an emergency situation?

§ S. 142 CA
§ An agent has the 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.
5.Avoid conflict of interest
§ S. 168 CA: If an agent deals without the principal’s knowledge, The principal can
reject the transaction, if it shown that material facts had been dishonestly
concealed and causes loss/disadvantages to the principal.
§ Illustration (a) of S. 168 CA
§ Case:
a) Wong Mun Wai v Wong Tham Fatt and Anor [1987] 2 MLJ 249
§ An agent sold the principal’s land to his wife below the market price.

• S.169 CA
6. Give sums received on behalf of the principal back to the
principal
§ S.170 CA

• S.171 CA
7. Cannot make secret profit.
§ An agent should give any secret profit to the principal.This is according to S. 171 CA.
§ However, If the principal knows about the secret profits and allows it, the agent can
keep it.
§ Otherwise, if the principal disagree with the secret profit, the principal can choose
any of the following actions:
a) Repudiate the contract
§ refer to illustration (b) S. 168 CA
b) Recover secret profit from the agent
§ Case:
i) Tan Kiong Hwa v Andrew S.H. Chong
§ The principal ordered to sell his flat for RM45,000 but the agent sold it for
RM54,000.
§ The differences of RM9,000 has been deposited to the agent’s account (secret profit)
§ After the company’s winding up – the principal was entitled to claim for RM9,000.
c) Refuse to pay commission to the agent
§ Case:
i) Andrews v Ramsay & co. (1903) 2 KB 635
§ The agent who has been appointed to arrange land transaction has
been promised some commission.
§ The agent accepted a commission given by the principal, but he also
accepted commission by the buyer (secret profit).
§ Held:The principal was entitled to claim the secret profit.
d) Dismiss the agent

e) Sue the agent and the third party for damages.

§ Case:
i) Mahesan v. The Malaysian Government Officers Cooperative
Housing Society
§ The agent got RM122,000 as a bribe from landlord who got a land
for RM456,000, but sold to the principal for RM944,000.
§ The Court held that the principal might claim the loss from the agent
and the third party who gave the bribe.
8. Cannot disclose confidential information.
§ Case:
i) L.S. Harris Trustees Ltd v Power Packing Services (Hermit Road)
Ltd [1970] 2 Lloyd’s Rep 65
§ The agent disclosed confidential documents of the principal relating
to insurance policy.
§ Held:The principal has the right to dismiss the agent.
9. Not to delegate power to another
§ The general rule:An agent is not allowed to delegate his power to another.
§ Exceptions:
a) The principal gives permission for the agent to delegate power to
another
§ Case:
i) De Bussche v Alt [1878] 8 Ch D 286
§ The principal gave permission to appoint sub agent in Japan to sell ships.
§ There was an express consent delegated by the principal to his agent to
appoint sub agent. Thus, there was no breach of duty committed by the
agent.
b) If the kind of work that is done requires representation.

c) The agents should have power to delegate by the principal

d) Under emergency
e) Where the act done involves ministerial / administrable / clerical only,
and does not involve the exercise of discretion
§ Case:
i) Allam & Co v Europa Poster Services Ltd
§ The defendant carried on the business of outdoor advertising contractors.
§ They would obtain licenses or agreements from the owner of the sites, which will
allow them to display advertisement on those sites.
§ Then, the defendant obtained some of the owner’s consent to use sites which
were used by the plaintiff, who were their competitors in the same business.
§ The defendant was also authorised by the site owner to give notice terminating
any existing licenses to the plaintiff and asked their solicitor to send the notice to
the plaintiff.
§ Issue: whether the maxim “delegatus non potest delegare” has been violated.
§ Held: the delegation was purely ministrial act and not involving confidence or
discretion – authorised delegation of duty
 (7) THE PRINCIPAL’S DUTY
TOWARDS AN AGENT

§ Rights and duties of principal towards his agent are stated in the
contract of agency, either expressly or impliedly.
Q:What if the rights an duties are not stated?
§ S. 175 – S.178 will be applicable.
1. To pay the agent the remuneration/commission when the act
is completed, unless the agency relationship is gratuitous.
§ S.172 CA: In the absence of any special contract, payment for the
performance of any act is not due to the agent until the completion of
the act; but an agent may detain moneys received by him on account of
goods sold, although the whole of the goods consigned to him for sale
may not have been sold, or although the sale may not be actually
complete.
2. The principal will not intentionally block or prevent the agent
from earning his commission.
§ S.173 CA: An agent who is guilty of misconduct in the business of the
agency is not entitled to any remuneration in respect of that part of the
business which he has misconducted.
3. To relinquish the liability of the agent for the actions taken
while carrying out his duties.
§ S.175 CA: The employer of an agent is bound to indemnify him
against the consequences of all lawful acts done by the agent in the
exercise of the authority conferred upon him.
§ Case:
a) Hichens, Harrison, Woolston and Co. vs Jackson and Sons
(1943) AC 266
§ The principal is bound to indemnify all expenses advanced by the
agent.
§ The agent’s right to release liability exists in the following situations:
a) When an agent had advanced their money and suffered loss
in completing the legal instruction by the principal.
§ Case:
i) Isaac W.C. Soloway & SL vs J.P. Laughlin
§ Held: An agent had failed to claim for compensation. The reason was
because the agent’s intention was to deceit the principal.
b) An agent had caused a third party to suffer loss while in the
contract of agency with no bad intention.
§ The principal will be liable
§ S. 176 CA
c) An agent can claim for compensation due to loss
suffered through injuries caused by the negligence of the
principal or his lack of expertise.
• S.178 CA
• E.g.: refer to the illustration in S. 178 CA
 (8) AUTHORITY OF AN AGENT

§ An agent needs to act according to the jurisdiction granted to him by the principal.
§ If the agent acts within the authority given, the principal will be responsible.
• However, if the agent acts beyond his authority, the principal is not responsible unless
the principal ratifies the agent’s acts.
• S. 141 (1) CA: An agent having an authority to do an act has authority to do every
lawful thing which is necessary in order to do the act.
• S. 141 (2) CA: An agent having an authority to carry on a business has authority to
do every lawful thing necessary for the purpose, or usually done in the course of
conducting such business.
• S. 139 CA:The authority of an agent may be expressed or implied.
1) Actual authority
§ This is an authority conferred to an agent by an agreement.
§ It can be further divided into:
a) Express actual authority
b) Implied actual authority
Case:
i) Panorama Development (Guildford) Ltd v Fidelis Furnishing
Fabrics Ltd [1971] 3 All ER 16
§ The court held that a secretary in a company has an implied actual
authority to rent a car, even if it was a luxury car.
§ Therefore, the principal (the defendant) was liable to pay the
outstanding payment.
2) Apparent/ostensible authority
§ This is an authority that is not given by the principal, but there is presumption under
the law that the agent has the authority.
§ Apparent authority might exist in 2 situations:
a) When a principal, through the words used and his acts let the other
party believes that the agent has the power to do so.
§ S.190 CA
§ Case:
i) Chew Hock San & YL vs Connought Housing Development Sdn. Bhd.
§ Apparent authority would not arise if the agent had acted beyond the authority.
b) When an agent’s authority has been terminated by the principal, but the
third party have not been notified.
§ The principal is responsible, unless the third party knows that agent has no authority.
 (9) EFFECT OF THE CONTRACTS
MADE BY AGENTS

1) If the agent acts on behalf of the principal and named the

principal.
§ The third party had knowledge with whom they are contracting with.
§ The rule is that the agent would not be liable and the principal bears all
liability/ the principal is responsible.
2) If the agent states that he is acting on behalf of the principal, but
does not name the principal.
§ The agent disclosed the existence of the principal without specifically
named the principal.
§ The third party had knowledge that they are having a contract with the
agent who acted on behalf of the principal.
§ The rule is that the agent would not be liable and the principal is liable.
§ Case:
i) Universal Steam Navigation Co. Ltd v James Mc Elvie & Co
§ A ship has been hired under the transaction of the agent of the ship’s
owner (X) and J.M & Co (agent for a principal/hirer that has not been
named). X knew that J.M & Co was an agent.
§ The ship owner later claimed payment from J.M & Co which refused to pay.
§ Held: J.M & Co was not liable since they only acted as an agent. It was the
principal who were liable.
3) If the agent had contracted on behalf of the principal
without informing the existence of the principal.
§ It is as if the agent acted on his own personal capacity.
§ S.186 CA
§ Illustration to s.186
 (10) TERMINATION OF AGENCY

§ A contract of agency can be terminated in two ways:

1) By the act of the parties involved.
2) By operation of laws.

§ Sections 154 – 163 CA deals with the manner in which an

agency may be terminated.
1) By the act of the parties involved.
§ S.154 CA
§ S.160 CA
§ 3 ways of termination by the acts of the parties involved:
a) By mutual consent of the principal and the agent.
b) Termination of the agent’s authority by the principal.
§ The rule is that the principal is allowed to terminate the agent’s authority
at any time, either expressly or impliedly.
§ If the principal terminates the agency before the expiration of time, the
agent might either;
i) ask for commission for acts done; or
ii) claim for any advance of money; or
iii) claim for any remedies available if the termination was without
reasonable notice.
c) Rejection of power by the agent.
• S.159 CA
2) By operation of laws.
The situation in which agency can be terminated by operation of laws are
as follows:
a) Completion of agency.
b) The principal or the agent died or become unsound mind.
c) The principal is declared as bankrupt.
d) Time period fixed has expired.
e) Event which makes agency unlawful.