BTW1042 Malaysian

Business Law
TUTORIAL 10
TOPIC - AGENCY
Question 1
 
Andrew used to work for Peter. His job primarily consisted of collecting debts from
Peter’s clients. One of Peter’s clients, Trevor, who did not know that Andrew had been
dismissed, paid Andrew $200 which he owed Peter. Andrew disappeared with the
money. Peter wants to know whether he can compel Trevor to pay him again, or must
he seek the money from Andrew?
 Answer:

Apparent or ostensible authority is created by a representation made by the

principal (by words or conduct) which induces third parties to believe that the
act done by the agent was within his authority even though he had no such
authority: Freeman & Lockyer v Buckhurst Park properties Ltd [1964] 2 QB
480

That is:
 
Creation of agency by estoppel - 3 elements necessary:
 
i) Representation was made to Third party
ii) Reliance by Third party
iii)Alteration of legal position by third party
 
S 190 CA 1950 - Liability of principal inducing belief that agent’s
unauthorized acts were authorized

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
On the facts, since Peter did not inform Trevor that Andrew is no more his
agent and he is no longer authorised to collect debts from Peter’s clients ,
therefore Peter is prevented or estopped from denying to Trevor that
Andrewhis no longer hyis agent.

Under the circumstances, Trevor would assume or rely on the fact that
Andrew is still an agent of Peter and has therefore authority to collect the
debts on behalf of Peter.

Therefore, Peter cannot compel Trevor to pay him again the RM200 which
he paid to Andrew ,
 Question 2
Sam, the Accountant of XYZ Ltd, often acted as the Acting Manager of the
company while the Managing Director and other senior staff were absent. His
normal duties when in such a position involved overseeing internal company
matters and ensuring that his own Accounting Department operated well. While
acting as Acting Manager, Sam purchased land at auction from TP on behalf of
the company for $1 million.

Advise the company whether it may withdraw from the contract on the ground that
he acted outside his authority.
  

The issue here is whether Sam, the Accountant, as an agent (employee) of XYZ Bhd (the Company)
has authority to purchase the land at auction from TP on behalf of the Company.

There are basically two types of authority, that is express/actual authority or ostensible authority.
 
Express authority is given by words spoken or written. (Section 140 Contracts Act 1950)
 
Ostensible authority (otherwise also called "implied" or "apparent authority" is to be inferred from the
circumstances of the case, i.e. things spoken or represented or implied from the ordinary course of
dealings.
 
Under section 140 of the Contracts Act 1950 , 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.

Apparent or ostensible authority is created by a representation made by the principal (by words or
conduct) which induces third parties to believe that the act done by the agent was within his
authority even though he had no such authority: Freeman & Lockyer v Buckhurst Park properties
Ltd [1964] 2 QB 480

The principal, by his act, has made it apparent to others that the agent had authority to transact the
business and would be estopped from asserting that he is not bound by the act of agent. The
representation must be by the principal and not the agent.
 
Ratification is defined as approval by a principal of an act done by an agent, without his knowledge or
authority, subsequent to the commission of the act. The effect of ratification is that the principal is
bound as if the approval had been given prior to the act.

Section 149 of the Contracts Act 1950 states as follows:

 
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 effect will follow as if they had
been performed by his authority.
Based on the above basis of law on agency, it is to be noted that Sam’s normal duties as the Acting Manager was
to oversee internal company matters and ensuring that his own Accounting Department operated well (“the said
Normal Duties”). That would be his actual authority as far as his work is concerned in the Company.
 
The Company or the Managing Director or other senior staff had not clearly given any express authority to
transact any property deals for the Company. It could be argued that Sam’s temporary appointment as Acting
Manager would probably be to carry out the said Normal Duties only.
 
Neither could it be implied that Sam would have implied authority to purchase properties on behalf of the
Company unless there is evidence to the fact that the Company or the Managing Director had allowed Sam to
purchase properties when acting as the Acting Manager.
On the issue of whether, Sam had apparent authority , that is the Company or the Managing Director had
held out to third parties by their conduct or action that Sam has authority to purchase properties on behalf
of the Company, it is argued that there is no evidence on the facts herein to suggest the same. Basically,
the third party should have realised or ought to have known, looking at Sam’s position of being only an
“Acting Manager”, he would not have authority to purchase a property especially at such a high price or
value of RM1M under the circumstances or based on the facts.
 
Unless the Company ratifies (approves) the contract, it is to concluded that there is no binding contract
between the Company and the TP. In any case it is to be noted that the company wishes to cancel the
contract, therefore no issue of ratification will arise.
Question 3
Patrick appoints Adolf as his agent to sell his original art work by Tom Wesselmann
entitled ‘Bathtub Collage’. Patrick and Adolf enter a written contract which states Adolf
is entitled to a commission of 10% of the sale price. Adolf is approached by the
GalerieSonnabend (GS) in Paris. GS agreed to purchase the work for $950,000. In
addition, they paid Adolf an additional commission of 15% of the purchase price to
ensure that their offer was accepted by Patrick. The Tate Gallery in London offered
$1,000,000 to Adolf to purchase the painting but did not agree to give him an additional
personal commission, saying his commission was to be paid by Patrick. Patrick sold the
work to GS unaware that the Tate Gallery had offered a higher price. After the sale
Patrick becomes aware that Adolf obtained a secret commission of 15% of the sale price
from the GS.
(a) Advise Patrick if he is bound to sell the art work to GS.
(b) Does Patrick have any cause of action against Adolf?
Answer – 4(a)
 
The issue here is whether Adolf as an agent of Patrick has authority to sell the art work to
GS.

There are basically two types of authority, that is express/actual authority or ostensible
authority.
 
Express authority is given by words spoken or written. (Section 140 Contracts Act 1950).
 Ostensible authority (otherwise also called "implied" or "apparent authority" is to be
inferred from the circumstances of the case, i.e. things spoken or represented or implied
from the ordinary course of dealings.

Under agency law, authority means the power, right or commission that an agent has or
appears to have to do acts or to make contracts with third parties on the principal’s behalf.
Section 141(1) Contracts Act states 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.

Ratification is defined as approval by a principal of an act done by an agent, without his knowledge or authority,
subsequent to the commission of the act. The effect of ratification is that the principal is bound as if the approval had
been given prior to the act.
 
Section 149 of the Contracts Act 1950 states as follows:
 
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 effect will follow as if they had been performed by his authority.
 
Based on the facts it is clear that Patrick has given express authority to Adolf to sell the art work and Adolf has
accordingly as per Patrick’s instructions and conditions had sold the art work, in this case to GS.
 
Notwithstanding there is a breach of duty on the part of Adolf as an agent of Patrick, the contract of sale of the art work
between Patrick and GS is valid and therefore Patrick is bound under the contract.
 
Answer – 4(b)
 
Based on the facts there is a clear breach of duties by Adolf as an agent of Patrick. Adolf
would have breached his following duties and/or obligations towards Patrick.
 
To exercise care and diligence in carrying out his work and to use such skill as he
possesses in accordance with section 165 of the Contracts Act 1950(Act 136).

To render proper accounts when required.

 
An agent is under a duty to account for all monies and property handled by him as agent
for the principal and to produce such accounts when demanded by the principal - Section
166 of the Contracts Act 1950(Act 136).
To pay to his principal all sums received on his behalf. However an agent may retain or
deduct from such sums received, advances made or expenses incurred by him in
carrying out his duty his commission and other remuneration payable to him for acting
as agent. Section 174 of the Contracts Act 1950(Act 136) gives the agent the right to
retain his principal's property in his possession until his remuneration is paid, unless his
contract provides to the contrary.
 
Not to let his interest conflict with his duty. The duty of an agent is to act solely for the
benefit of the principal and he cannot allow his own personal interest to conflict with
this duty - section 169 of the Contracts Act 1950(Act 136).
 
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 which an agent
receives over and above the commission or other remuneration agreed by the parties.
If the principal knows about the secret profit and consents to it, the agent is entitled to keep the profit he
makes since the profit is no longer secret - section 168 of the Contracts Act 1950(Act 136). If, however,
the profits are secret, then the principal may do the following:
a) repudiate the contract if it is disadvantageous to him;
b) recover the amount of secret profit from the agent - section 169 of the Contracts Act 1950(Act 136);
c) refuse to pay the agent his commission or other remuneration;
d) dismiss the agent for breach of duty;
e) sue the agent and the third party giving the bribe, for damages for any loss he may have sustained
through entering into the contract.
 
Based on the facts, there is clear breach of duties as an agent on the part of Adolf as he had failed to act
in the best interest of Patrick by taking the lesser offer under the circumstances and accepting the 15%
additional commission without informing Patrick of the same.  Adolf did not fully inform Patrick of all offers
for the painting, nor did he connect Patrick with the highest bidder. Adolf had a conflict of interest and took a secret
profit.
Answer:
 
(a) Patrick will be bound if Adolf was acting within authority – actual or apparent (or if ratification had
occurred).

(b) Adolf did not fully inform Patrick of all offers for the painting, nor did he connect Patrick with the highest
bidder. Further, Adolf had a conflict of interest and took a secret profit. Discuss agents’ duties to the principal
and remedies for breach of those duties.