12 Bduk3103 Topic 8
12 Bduk3103 Topic 8
12 Bduk3103 Topic 8
8 on Agency
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the various circumstances which give rise to a relationship
of agent and principal;
2. Distinguish the various types of agent and their scope of duties
towards the principal;
3. Elaborate the forms of authority of an agent and the effects of his
acts on the principal based on different authority;
4. Analyse the obligations of an agent to his principal and vice versa;
5. Examine the rights of an agent towards his principal, and vice
versa, where an agent or principal has failed to perform his
obligations; and
6. Elaborate the circumstances which may terminate a contract of
agency.
X INTRODUCTION
You are aware that sometimes in business and other daily activities certain
transactions are, for one reason or another, delegated to another person. The
relationship between the party that delegates and the party that carries out the
delegation is called an agency relationship. Topic 8 discusses the definitions of a
principal and an agent, how an agency relationship is formed and the capacities
of a principal or an agent.
Topic 8 will explain the various categories of agent based on his capacity to bind
his principal and also based on his functions. You will also understand the types
of authority of an agent in the performance of the functions entrusted to him by
his principal. Apart from that, in this topic to you will be able to identify various
types of principal.
All sections referred to in this topic are sections of the Contract Act 1950
(hereinafter referred to CA 1950), unless stated otherwise.
SELF-CHECK 8.1
Illustration 1:
A owns a used car dealership. He appoints a number of sales representatives to
handle his customers. If and when his sales representative makes a sale, the
contract of sale binds A and the buyer. Where the buyer intends to sue for breach
of contract, he may only sue A and not the sales representative because there is
no contractual relationship between the buyer and the sales representative.
From the definitions of principal and agent, it may be said that an agency
relationship is a relationship where the principal delegates his powers to an
agent to represent him in his dealings with third parties.
These are important capacities because the dealings of a principal done by his
agent with third parties form a contract. Hence the two conditions are important
to create a valid contractual relationship between the principal and the third
party.
Who has the capacity to be an agent? Section 137 explains this matter.
Yong, a minor, and Chan are partners of a firm, Chan & Yong
Trading. This matter was disclosed by Chan to a representative of
Williams Jacks & Co. during a discussion. Williams Jacks & Co.
supplied goods to Yong for which they were not paid.
ACTIVITY 8.1
You may observe that there are five ways of giving authority to the agent, as
shown in Figure 8.1 which follows.
In this case, the court held that every agent who has acted
beyond the authority stipulated in the power of attorney
does not, by his conduct, bind his principal, unless the
principal accepts or rectifies the agentÊs conduct.
Illustration 2:
A appoints B as a sales representative at his used motor car
dealership. B transacts a Âtrade-inÊ which A allows. AÊs conduct in
allowing B to transact Âtrade-inÊ is seen as B has the authority to
transact Âtrade-inÊ in AÊs business. A is thus bound by BÊs conduct as
in Chan Yin Tee v Williams Jacks & Co. (Malaya) Ltd.
Waithman v Wakefield
The husband had retained goods, which were not
necessaries, bought by the wife and he refused to return
them to the seller.
The court held that the husbandÊs conduct amounts to
ratification of the contract between the wife and the seller.
Illustration 3:
A appoints B as the manager of his garment stores. B is only authorised to
purchase and sell silk garments. C offers and B purchases batik materials for A
at knock down price. A meets C and pays for the materials. Here B has acted
Suppose B were never appointed by A and B had purchased the batik materials
on AÊs behalf from C, A may disown or accept the purchase. If A accepts the
purchase, he is bound to the contract of sale between C and B because B has,
through ratification, become AÊs agent.
Effects of Ratification
What are the effects of ratification on the principal?
Upon ratification by the principal, all rights and obligations under the contract
become the rights and obligations of the principal. The agent has nothing more
to do with the contract.
The principal is also liable to pay the agent compensation for any loss sustained
by the agent in the making of the contract which has been ratified by the
principal, as shown in Illustration 4 which follows.
Illustration 4:
A owns a garment store. B is appointed to manage the store and is authorised to
purchase silk materials. On 1 May 2001, B bought some batik materials from C.
On 5 May 2001, A met C and paid for the batik materials. Upon AÊs payment on
5 May 2001, A is bound by the contract as from 1 May 2001.
Only under certain circumstances that ratification by the principal, binds himself
to the contract with a third party. The circumstances are:
(i) That the act of the agent was without authority or that the agent had acted
beyond his authority;
(ii) That the act of the agent is not contrary to law. Hence, a void contract or a
criminal act cannot be ratified.
(iii) The act of an agent without authority may only be ratified by the person
whom the agent claims to be his principal. Thus, if the conduct of the agent
without authority shows that he has acted on his own behalf, no other
person may ratify the contract;
(iv) Ratification may be done by the principal of the agent without authority.
However, the person must be in existence at the time of the agentÊs act.
Thus a new born baby cannot ratify the act of a person who claims to be his
agent before he was born.
(v) The person who is represented by the agent without authority must have
the capacity to contract. A person who has no capacity to contract cannot
be named as a principal because he has no capacity to ratify a contract
entered into by an agent without authority. Nevertheless, a contract of
necessaries for a minor may be made by an agent without authority and
subsequently ratified by the minor. Based on S.35 of the Companies Act
1955, a contract made by an agent for the company prior to its
incorporation may be ratified by the company after its incorporation;
(vi) The person ratifying the contract must be identifiable as the person
represented by the agent without authority to be the principal. Such a
person may be identified by name or description.
(vii) Based on S.151, the person represented as the principal must have
knowledge of the important facts of the contract at the time of its
ratification. Nevertheless, if the person intends to ratify it under whatever
circumstances, such ratification without knowledge of the important facts
of the contract is a valid ratification, as in Marsh v Joseph which follows.
Marsh v Joseph
Grover v Mathews
(ix) A ratification must not have the effect of subjecting a third person to loss, or
of terminating any right or interest of a third person; and
(x) The ratification by the principal of a contract made by his agent who had
acted beyond his authority must be done in total. The principal cannot
choose to ratify some parts, while rejecting some other parts.
Reasonable acts are acts which would have been done by a person of ordinary
prudence under similar circumstances as the agent.
Illustration 5:
A assigned B to transport fruits from Cameron Highlands to Ampang
Supermarket in Kuala Lumpur. On reaching Kuala Lumpur, a great flood
prevented B from proceeding to his destination. The fruits needed to be
disposed of immediately before they perished. B took the fruits to and sold them
at Sungai Buloh market. BÊs act in disposing of the fruits at Sungai Buloh was
beyond his authority. However, B may in defence prove the agency by necessity.
The court held that there was agency by necessity and the
plaintiffs must be paid.
For a person to claim agency of necessity, he must prove three matters as shown
in Figure 8.2.
In the explanation which follows, let us look at the elaboration on these three
matters.
Therefore, if the circumstances are that which forces a person to do such act
as would be done by a person under similar circumstances for the good of
the person who he represents, the act is said to be an act of necessity. In
this situation, the condition of emergency, facilities, expenses, time,
distance and other factors should be taken into account.
Sachs v Miklos
The act of an agent of necessity must be for the purpose of protecting his
principal from loss.
Based on S.167, the agent must prove that he had used all
reasonable diligence in communicating with his principal
and in seeking to obtain his instructions but fails, before he
acts in the manner he did. Only then there arises an agency
of necessity.
3 Agent has the prior authority of the 8 The person was never an agent of
principal. the principal.
This agency arises when the conduct of the principal causes the public to
presume that the person has the authority to represent the principal. In this
circumstance, it is said that the agent has ostensible authority. The authority is
known as ostensible authority because the person, in fact, does not have the
authority, but to the public he appears to have the authority to represent the
principal, as explained in Illustration 6, which follows.
Illustration 6:
A appointed B to represent him in certain timber trade transactions.
Subsequently A terminated BÊs services for breach of trust. B then met C and
bought timber for himself, but B informed C that the timber was for A. C claimed
payment. A refused to pay on the grounds that BÊs services has been terminated.
The question is whether AÊs refusal to pay for the purchase on the grounds that
BÊs services had been terminated before the contract with C would succeed.
In the circumstances of the termination, A ought to have notified the public of BÊs
termination through the newspapers or persons who regularly carry on business
with A through B as an agent.
AÊs failure to do so may have caused C to presume that B was acting as AÊs
agent. In the circumstances, A is estopped from denying BÊs authority. A failure
to notify the public of BÊs termination causes C and other persons to believe that
B is an agent of A. BÊs acts amounts to acts of a lawful agent.
You must remember that an estoppel agency only exists where the authority of
the agent is presumed from the conduct of the principal. If the presumption is on
the agentÊs conduct, there is no agency by estoppel.
ACTIVITY 8.2
EXERCISE 8.1
P has been posted overseas for one month. P has purchased from K
all the daily necessaries for his wife and children, which amount to
RM1,000, needed for the period that he would be away. P also
prohibits K from supplying other goods to his family. One week
after PÊs departure, PÊs wife bought some other goods worth RM200
from K. Upon his return, P refused to Pay K.
Is P obliged to make the payment?
In your opinion, why should there be various types of agent acting for
the principal?
There are three categories of agent based on their scope of authority as explained
in Table 8.2 which follows.
A general agent has the authority to act for his principal in all his (the agentsÊ)
business of a particular kind only.
Illustration 7:
Where a person is appointed a restaurant manager, he is a general agent to act for
his principal in relation to managing the business of the restaurant. The general
public would presume that the manager has the authority in managing all the
business of the restaurant. Where the authority of the agent is restricted, a notice
must be given to the general public, as in Wateau v Fenwick which follows.
Watteau v Fenwick
A special agent is authorised to act only for a special purpose. His authority is
restricted to the special purpose and he shall not act beyond the authority.
Categories of Agent
No. Explanation
Based on Function
1. Del credere Agent An agent who manages the contract between his
principal and the third party and undertakes that
the third party will perform his contractual
obligations. The agent is entitled to extra
commission when he succeeds and he will be liable
if the third party fails to perform the obligations.
2. Factors A commercial agent, who in the ordinary course of
his business, is entrusted with the goods of his
principal for sale at a certain price fixed by him or
his principal. He has a lien on the goods in his
possession, as commission.
3. Brokers An agent who is employed to make a contract with
the third party on behalf of his principal but he is
not entrusted with possession of the goods.
4. Auctioneers An agent who is employed to sell goods by
auction. He is an agent for a seller during an
auction and when he accepts a bid from a buyer he
also becomes an agent for the buyer.
5. Bankers An agent for a bank responsible for the
performance of the functions stipulated by the
bank (principal) and also an agent for the
customers when dealing with them.
8.6.2 Factors
If he does not disclose the name of his principal, he is not disqualified from being
an agent, provided he is in possession of the goods of his principal. He sells the
goods at a certain price fixed by him or his principal.
He has a lien on the goods in his possession, as commission from his principal.
The right of lien is only applicable on goods in his lawful possession, either
physically or constructively, as an agent. Such goods cannot be sold or disposed
of by the factor. He also does not acquire title to the goods on lien.
8.6.3 Brokers
ACTIVITY 8.3
You must have heard of the term ÂbrokerÊ. What do you understand
by the term Âbroker?Ê In addition, attempt a list of examples of a
broker which you usually hear or know.
He will look for buyers or sellers on behalf of his principal and he manages the
contract until an agreement is sealed between the principal and the third party.
He is paid commission, called a ÂbrokerageÊ.
A broker is not entrusted with possession of the goods. Thus, he has no right of
lien because a lien is based on possession of the goods. He is also not to make the
contract in his name.
8.6.4 Auctioneers
What are the functions of an auctioneer?
When an auction starts off and until the auctioneer accepts a bid from a buyer, he
is an agent for the seller. There after, he is also an agent for the buyer.
He has a discretion as to the price at which the goods should be sold. If the seller
fixes a reserved price, the auctioneer will be liable to the seller if he sells the
goods below the reserved price. The contract remains binding on the seller unless
the buyer has knowledge of the auctioneerÊs restrictions.
8.6.5 Bankers
What is meant by Âbankers?Ê
8.7.1 Sub-agent
How does a sub-agency occur? Who creates a sub-agent? A sub-agency occurs
where the agent is authorised by the agency contract and his principal to
delegate his duties to another person. The other person is a sub-agent to the said
agent. The sub-agent has no agency relationship with the principal. He is an
agent to the agent. In this situation the sub-agent becomes an agent and the first
agent becomes the principal. The rights and obligations of the sub-agent exist
between him and the agent only. The sub-agent has no right or obligation to the
original principal. Similarly, the principal too has no right or obligation to the
sub-agent.
The agent who appoints the sub-agent is liable to the principal for the acts of the
sub-agent, as stated in S.143(3).
S.143(3) states that a principal may sue the agent only or sub-
agent only or both in case of fraud or wilful wrong.
The acts of a sub-agent may bind the principal with the third party as if the sub-
agent is the first agent. Where the delegation of duties is not authorised by the
contract of agency, the agent is liable to the principal for the acts and misconduct
of the sub-agent.
The principal is not bound by the contract unless he ratifies the appointment of
the sub-agent.
SELF-CHECK 8.3
To facilitate your understanding, list the distinctions between an
agent and a sub-agent in the following table.
Agents Sub-agents
SELF-CHECK 8.4
To facilitate your revision, list the distinctions between an agent who
acts with a contract and a gratutious agent who acts without a
contract.
(a) Implied from the actual authority of the agent. Where an agent performs
his actual authority in the course of his duties, by implication he may do all
that is necessary for the performance of the actual authority.
Illustration 8:
A has appointed B, as a motor vehicle sales representative. BÊs actual
authority is to sell motor cars. However, B has other authority which is
reasonably necessary in the performance of his functions. For example, B by
implication, has the authority to allow prospective buyers to test drive a
motor car which he would be selling on behalf of A.
(b) Actual authority implied from ordinary practices and customs of the trade
In businesses, there are various ordinary practices and customs of the trade
which at times are common to the trade and sometimes differs among
trades, as in Watteau v. Fenwick.
Watteau v Fenwick
ACTIVITY 8.4
Ostensible authority is authority of the agent which the law regards the agent
as possessing although the principal may not have consented to his exercising
such authority.
(a) In cases which show that a person is authorised to act as if he is the agent of
another although the first person is not the agent of the second. Refer to
Barrett v Deere which follows.
Barrett v Deere
(b) In cases which show that the principal has led the third party to believe that
the agent has the authority of the principal, as in Todd v Robinson.
Todd v Robinson
The Defendant has appointed an agent to purchase certain
goods from the plaintiff. The agent was authorised a
purchase limit of £31. In one transaction, the agent had
purchased and appropriated to himself goods of the price of
£45. The issue was whether the defendant was liable to pay
the £14 owed by his agent in excess of his authority.
The court held that the actual authority of the agent was
only known to the principal. The plaintiff had no knowledge
of the restriction. The defendant was therefore liable to pay
the full price of the goods.
(c) The principal allows the agent to act as if the agent has the authority
although the authority has been terminated.
Where the authority of the agent has been terminated, unless the principal
has given notice of such termination to all those who normally deal with
the agent, the principal is bound by the act of the agent. The principal only
needs to give a general notice to the public, as in Drew v Nunn.
Drew v Nunn
(d) The principal has restricted the agentÊs express actual authority without
making it known to those who deal with the agent, as in Hely-Hutchinson v
Brayhead Ltd. & Anor.
Copyright © Open University Malaysia (OUM)
TOPIC 8 THE LAW ON AGENCY W 283
The judge stated that when the board of directors restricted the
authority of the managing director to contract up to £500 only
unless with the authority of the board, the actual authority was
limited to the amount. However, his ostensible authority included
all authority ordinarily possessed of a managing director. The
company is bound by an act of the managing director which
exceeded the amount where the third party had no knowledge of
the restriction on his authority.
(i) The representation of the principal on the authority of the agent is known
to the general public
The court held that the company was liable because the board of
directors knew and had allowed the second defendant to act as
the director though he was not duly appoint such. Since the board
is the ÂorganÊ of the company authorised to manage the company,
the conduct of the board of directors in allowing one of their
members to act as a director has led the third party to believe that
the second defendant has the authority of the first defendant.
When all the three elements have been proved, only then the third party
could bind the principal to the contract made by his agent on his behalf.
EXERCISE 8.2
Your friend meets and enquires from you whether the acts of his
agent whose authority has been terminated would bind him with the
third party. Explain to your friend.
S.183 states that the agent who acts for a named principal is not
bound by the contract which he makes and that he has no right to
enforce it.
According to S.179, where an agent has acted within his authority, his acts bind
the principal as if the principal has acted on his own behalf. However, under
certain circumstances, the agent is liable for his own acts, namely:
(a) Where the agent agrees to be liable on the contract which he has made on
behalf of his principal, as in Ching Yuen Tung v BEP Akitek, which follows:
The court held that based on the statements of the agent, the
appellant was personally liable to pay the fees although he
has merely acted on behalf of his principal.
(b) Where the agent has contracted in his own name, unless he is an agent
under a power of attorney;
(c) Where the agent has signed a negotiable instrument in his own name; and
(d) S.164 stipulates that when an agent has acted in excess of his authority he is
personally liable, unless he has acted under an agency of necessity, under
an ostensible authority or the principal rectifies his acts.
SELF-CHECK 8.5
Is the principal liable for the acts of the agent in dealing with the third party?
S.183 stipulates that the principal is not liable for the acts of the
agent in dealing with the third party where the agent has not
disclosed the name of the principal.
Other than that, according to S.183 when a foreign buyer or seller buys or sells
goods through a local agent, the buyer or seller contracts with only the agent.
The foreign buyer or seller has no contract with the seller or buyer of the goods
unless the foreign buyer or seller has all along intended to contract with the local
seller or buyer and the agent merely acts as the foreign buyerÊs or sellerÊs Âspokes
personÊ. To understand this, look at Illustration 9.
Illustration 9:
A who is in the United States contracts to purchase timber from B in Sarawak
through C. Based on S.183 the contract is deemed a contract between A and C,
unless A intends to make other future contracts with B through C as AÊs
spokesperson.
Where the agent does not disclose the existence of or name his principal, the
agent is personally liable to the third party. The agent remains personally liable
to the third party if, where subsequent to the making of the contract, the third
party knows of the principal.
Finally, the agent is also personally liable if the law prohibits the principal,
whether disclosed or named, from being sued, such as a minor in a contract
which is not a contract of necessaries.
The liabilities of the agent and the principal are joint and severable.
Joint and severable means that the third party may sue the agent only and
where the findings of the court are not fully satisfied by the agent, the third
party may then sue the principal.
Other than that, the third party may sue both the agent and the principal,
provided that the third party has not acted in a manner which estoppes him from
suing one and not the other; that is the agent or the principal. To understand
this, let us look at Illustration 10.
Illustration 10:
A contracts with B. Subsequently A discovers that B was acting on behalf of C
but A does not claim the price for the goods long after the contract was made.
AÊs delay induces C to believe that A has settled his claims from B. Here A has
acted in a manner which estoppes him from suing C after A has discovered the
existence of C.
The principal cannot enforce the contract if the terms of the contract are contrary
to the existence of the contract of agency, as it happens in Humble v Hunter.
Humble v Hunter
The court states that when a charterparty is contracted in such a
manner as if the agent is the principal, the principal cannot
enforce the charterparty.
Table 8.5 explains the three categories of the principal and their effects of the
contract.
SELF-CHECK 8.6
SELF-CHECK 8.7
What are the duties of an agent and how do they arise? The duties of an agent
arise from a relationship of agency through an agreement, whether expressed or
implied, and the duties of the agent and the principal depend on the terms of the
contract of agency.
Where the contract does not stipulate the duties of the agent and the principal,
S.164 to S.178 of the Contracts Act explain the scope of duties of both the parties.
You may refer to Figure 8.7 on ten duties of an agent.
As a representative of his principal, the agent must obey the instructions of his
principal which are not contrary to law. If the agentÊs failure to obey the lawful
instructions of his principal causes loss to the principal, the agent is liable for the
loss because he has breached his duties, as it has happened in Turpin v Bilton.
Turpin v Bilton
The failure of the agent to insure his principalÊs ship has been held
by the court as a breach of the agentÊs duties and thus he is liable
for the loss incurred by his principal.
ACTIVITY 8.5
Your must have had participated in a team assignment. Imagine you
are the leader of a team project. How do you ensure that your
instructions as the team leader are obeyed by the team members?
What are the possible losses if your instructions are not obeyed by the
team members?
B has appointed A as his agent to sell film compact discs. B has not given A any
instruction with regards to his duties to sell the goods. It is a customary practice
in the trade that the seller allows the buyer to view the film before purchase. A
does not allow test viewing of the films and as a consequence no sale is made. B
incurs losses. If B could prove that test viewing of film before purchase is a
customary practice in the trade in Malaysia, A has failed to perform his duties as
an agent and is liable for the losses sustained by B.
When an agent is appointed for his professional skills, he has to display such
skills as is generally possessed by people engaged in a similar profession. What
is meant by such professional skills?
Where the agent is appointed not for a particular skill, he must exercise due
diligence and use whatever skills that he possesses in the performance of his
duties. Therefore, if the agent enters into a contract, he must endeavour to get
the best offer for his principal. Let us look at the following case.
Keppel v Wheeler
The court held that the agent is liable to pay the difference in the
two prices to his principal.
The conclusion from the above case is that the agent must inform his principal of
all current information which he has and which may influence the decision of the
principal in his action, as in the case of Phillips v Barns.
Phillips v Barns
The agent must prepare true accounts on all dealings handled by him on behalf
of his principal.
Nevertheless, S.170 allows the agent to retain or deduct, out of any sum received
on behalf of his principal, the following items:
(a) All reasonable expenses or advances incurred by the agent in carrying out
his duty;
(b) His commission and other remuneration payable to him for acting as agent
and
(c) S.174 also gives the agent the right of lien on his principalÊs property in his
possession until his remuneration is paid.
The agent must use all reasonable diligence to communicate with and in seeking
to obtain instructions from his principal under such circumstances. If he has used
all reasonable diligence and still fails to communicate with his principal, then all
actions of the agent under such circumstances are deemed necessary and the
principal is bound by those actions. This matter is provided in S.142.
Armstrong v Jackson
The principal had instructed his agent to purchase shares on his
behalf but the agent, without the knowledge of his principal, sold
his shares to the principal.
The court held that the agent has acted for his personal interest.
An agent should not concurrently act for two principals, unless consented to by
both the principals. An agent must maintain the confidentiality of all dealings
which he handles on behalf of his principal. Refer to Lyell v Kennedy.
Lyell v Kennedy
The court states that the agent has a duty to keep the property and
money of his principal separately for his personal property and
money.
This duty is similar to that of a trustee. If the agent enters into any transaction in
conflict with his principalÊs interest, such as when he sell his property to his
principal without the knowledge of the principal, the agent may be ordered to
return to his principal all benefit which he has received. The order may be
granted even where the principal does not sustain any loss.
S.168 explains that when an agent makes secret profit, the principal may do any
or all the five actions as listed in Figure 8.8.
The cases in relation to the second action (claim on the secret profit) are Tan
Kiong Hwa v Andrew S.H. Chong and Mahesan v Malaysian Government
Officers Cooperative Housing Society.
Andrews v Ramsay and Co. is a case in reference to the third action where the
principal is entitled not to pay the agentÊs commission and other remunerations if
the agent has made secret profit.
The following case relates to the fifth action where the principal may sue the
agent and the third party who bribes the agent to recover damages for any loss
which he has sustained as a consequence of entering into the contract.
EXERCISE 8.3
Discuss four duties of the agent to his principal based on Part X of
the Contracts Act 1950.
The agent is entitled to the agreed commission even where the dealing is
unsuccessful caused by the failure of the principal or the third party. Where the
failure is caused by the agent, he loses his entitlement to the commission. Where
the agentÊs failure brings benefit to him, the principal is not obliged to pay the
agent commission, as explained in Illustration 12.
Illustration 12:
B appoints A to sell certain plots of land at a fixed price to a millionaire. A sold
90% of the plots of land to the millionaire who refuses to purchase the balance
10% of the land. With BÊs knowledge, A sold the balance at a much cheaper price
to some other person. In such circumstances, A is only entitled to 90% of the
agreed commission. He is not entitled to the balance 10% of the commission. He
must also pay the principal the loss which the principal sustained on the sale of
the balance 10% of the land.
The principal has appointed an agent to find a buyer for his land.
The agent succeeded in finding a buyer and he put the buyer in
communication with his principal. The buyer paid the purchase
deposit and signed one copy of the contract. Subsequently, the
principal refused to complete the sale.
The court held that the agent is entitled to his commission because
he has performed his duties. The deal failed because of the
conduct of the principal.
Let us refer to Hichens, Harrison, Woolston & Co. v Jackson & Sons, which is a
case relating to this section.
The court held that the principal is obliged to pay his agent all
expenses incurred and all sums advanced by his agent.
If however the agent has incurred the expenses in respect of matters not
authorised by the principal or negligently, the agent is not entitled to
reimbursement from his principal. The agent is personally liable for such
expenses.
Finally, the agent is also entitled to damages or compensation for the negligence
of his principal.
To understand this section better, you may refer to the Illustration to S.178.
SELF-CHECK 8.8
Recall the duties of a principal to his agent. List those duties.
S.154 to S.163 of the Contracts Act explain the manner of terminating an agency.
These provisions do not prevent other possible ways of terminating an agency.
Other than that, we may also refer to S.160 on termination of the contract.
Why are there differences in the notice period? In brief, whether a notice is
reasonable or not depends on the facts and the circumstances of each case, such
as the duration of the existence of the agency, the nature of the agency
relationship and others.
How is the amount determined? Such amount may include the commission or
other remuneration. The amount may also include cost incurred by the agent in
the performance of his duties prior to the termination by the principal.
The same obligations are imposed by law on the agent if he renounces the
agency.
Failure of the agent to do so would cause the agent liable in damages to his
principal.
(a)
S.155 states that where the agent has an interest in the
property which forms the subject matter of the agency, the
agency cannot, in the absence of an express contract, be
terminated to the prejudice of such interest.
Illustration 13:
Illustration (a) to S.155, A gives authority to B to sell AÊs land, and to pay
himself, out of the proceeds, the debt due to him from A. A cannot revoke
this authority, nor can it be terminated by his unsoundness of mind or
death.
(b)
Based on S.157, the principal cannot revoke the authority
given to his agent after the authority has been partly
exercised.
Read v Anderson
From this case it could be concluded that the principal cannot avoid his
existing obligations by revoking his authority.
Illustration 14:
A instructed B to sell AÊs goods. A agrees to pay 5% commission from the
proceeds of the sale. A subsequently revokes his authority by a letter to B.
Before receipt of the letter, B has sold the goods for RM100. The sale
contract binds the principal and B is entitled to the 5% commission, which
is RM5.
Where the revocation of authority is not known to the third party, the
principal is liable for the acts of his agent. The reason is that third party
only knows of express or implied authority of the agent to a third party, so
long as the two categories of agency is not revoked, the agent has the
authority to act for his principal. Therefore, the principal is liable for the
acts of his agent because of the existence of ostensible authority.
The principal may be excluded of liability if he could prove that the third
party has due notice whether from the principal or from other sources. A
constructive notice of the revocation is deemed good notice on the third
party. An example of constructive notice is a public notice in a national
newspaper.
(a) S.154 states that an agency is terminated by the completion of the business
of the agency.
(b) Where the agency is created for a specified period, the agency is terminated
on expiration of the period, unless there is an express term that it shall
continue until completion of the agencyÊs business.
(d) S.154 also stipulates that when the principal is adjudicated a bankrupt,
generally the agency is terminated, unless there are contrary provisions in
the contract of agency.
SELF-CHECK 8.9
This topic explains how a contract of agency may be terminated.
What is the best and most effective way of giving a notice of
revocation of authority to the agent? Explain.
EXERCISE 8.4