Lawof Agency (Iii) PDF

LAWOF AGENCY (III)
DUTIES , BREACH,
REMEDIES & TERMINATION
RELATIONSHIP
BETWEEN
PRINCIPAL
AND AGENT
Duties of An Duties of
Agent to his Principal to
Principal His Agent
7/07/2020 Agency : Dr. Zuraidah 2

DUTIES
• Usually the relationship between agent and

Principal will arise out of the contract.
• In the case where the contract is silent on
the terms, the rights and duties of an
agent, vice versa are governed by section
164 to 178 of the Contract Act.

• The relationship between agent and principal is
generally accepted as fiduciary relationship
involving trust and confidence
• Once a relationship is categorized as fiduciary it
will invoke equitable standards of conduct.
• The relationship between agent and principal is
generally accepted as fiduciary relationship
involving trust and confidence
• Once a relationship is categorized as fiduciary it
will invoke equitable standards of conduct.
Wong Mun Wai v Wong Tham Fatt &
Anor [1987] 2 MLJ High Court
• ..the principal-agency relationship is by its

inherent nature of fiduciary relationship, By
reason of the relationship, certain duties are
owed by agent to principal; those duties are
the fiduciary. What particular duties may be
owed in any given situation will depend upon
the nature of the situation in question.”
Duties Duties
Arises out of an agreement
• Where contract is
• silence on terms
i) express and
implied
• Section 164 – 178

ii) terms in contract of of Contract Act
agency

Duties of Agent to His Principal
• 1) To obey the principal’s • 6) To pay his principal all
instructions (sect 164) sums received on his
• 2) In absence of behalf (sect 171)
instructions – act • 7) Not to let his own
according to customs interest conflict with his
(sect 164) duty
• 3)To exercise care and • 8) Not to make any secret
diligence in carrying out profit out of his duty
his work and to use such • 9)Not to disclose
skill as he possess (sect confidential information
165) or documents entrusted
• 4) render proper account to him by his principal.
when required (sect 166) • 10) Not to delegate his
• 5) To communicate with authority
principal (sect 167)

To obey the principal’s instructions
• Section 164 of the Contract Act
• An agent is bound to conduct the business of

his principal according to the directions given
by the principal, ….
• He is under no duty to obey the unlawful
instructions of his principal.

2) In absence of instructions – act according to
customs
• s 164 of the Contract Act 1950
• …..in the absence of any such directions, according
to the custom which prevails in doing business of the
same kind at the place where the agent conducts the
business. When the agent acts otherwise, if any loss
be sustained, he must make it good to his principal,
and, if any profit accrues, he must account for it.

ILLUSTRATIONS
• (a) A, an agent engaged in carrying on for B a business, in
which it is the custom to invest from time to time, at interest,
the moneys which may be in hand, omits to make the
investment. A must make good to B the interest usually
obtained by such investments.
• (b) B, a broker, in whose business it is not the custom to sell
on credit, sells goods of A on credit to C, whose credit at the
time was very high. C, before payment, becomes insolvent. B
must make good the loss to A. Skill and diligence required
from agent

3)To exercise care and diligence in carrying out
his work and to use such skill as he possess
sect 165 of the Contract Act
An agent is bound to conduct the business of the agency

with as much skill as is generally possessed by persons
engaged in similar business, unless the principal has notice
of his want of skill.
The agent is always bound to act with reasonable diligence,
and to use such skill as he possesses; and to make
compensation to his principal in respect of the direct
consequences of his own neglect, want of skill, or
misconduct, but not in respect of loss or damage which are
indirectly or remotely caused by such neglect, want of skill,
or misconduct.

Illustrations
(a) A, a merchant in Kuala Lumpur, has an agent, B, in London, to
whom a sum of money is paid on A's account, with orders to
remit. B retains the money for a considerable time. A, in
consequence of not receiving the money, becomes insolvent. B
is liable for the money and interest from the day on which it
ought to have been paid, according to the usual rate, and for
any further direct loss-- as, e. g., by variation of rate of
exchange--but not further.
(b) (b) A, an agent for the sale of goods, having authority to sell on
credit, sells to B on credit, without making the proper and usual
enquiries as to the solvency of B. B, at the time of the sale, is
insolvent. A must make compensation to his principal in respect
of any loss thereby sustained.

• (c) A, an insurance broker employed by B to effect an
insurance on a ship, omits to see that the usual clauses
are inserted in the policy. The ship is afterwards lost. In
consequence of the omission of the clauses nothing can
be recovered from the underwriters. A is bound to make
good the loss to B.
• (d) A, a merchant in England, directs B, his agent at
Kelang, who accepts the agency, to send him 100 bales of
cotton by a certain ship. B, having it in his power to send
the cotton, omits to do so. The ship arrives safely in
England. Soon after her arrival the price of cotton rises. B
is bound to make good to A the profit which he might
have made by the 100 bales of cotton at the time the ship
arrived, but not any profit he might have made by the
subsequent rise.

Keppel v Wheeler
4) Duty to render proper account
section 166 of the Contract Act 1950 : Agent's
accounts :
- An agent is bound to render proper accounts

to his principal on demand.

5) Duty to communicate with principal
• Agent's duty to communicate with principal
• Section 167 of the contract Act 1950 states;
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.

6) Duty not to deal on his own
account
• Section 168 of the Contract Act
If an agent deals on his own account in the
business of the agency, without first obtaining the
consent of his principal and acquainting him with
all material circumstances which have come to his
own knowledge on the subject, the principal may
repudiate the transaction, if the case shows either
that any material fact has been dishonestly
concealed from him by the agent, or that the
dealings of the agent have been disadvantageous
to him
Illustrations
• a) A directs B to sell A‘s estate. B buys the estate for himself
in the name of C. A, on discovering that B has bought the
estate for himself, may repudiate the sale, if he can show
that B has dishonestly concealed any material fact, ort hat
the sale has been disadvantageous to him.
• (b) A directs B to sell A’s estate. B, on looking over the
estate before selling it, finds a mine on the estate which is
unknown to A. B informs A that he wishes to buy the estate
for himself, but conceals the discovery of the mine. A allows
B to buy, in ignorance of the existence of the mine. A, on
discovering that B knew of the mine at the time he bought
the estate, may either repudiate or adopt the sale at his
option.
7) Duty to pay his principal all sums
received on his behalf
• (sect 171)
• Agent's duty to pay sums received for
principal
• Subject to the deductions specified in section
170, the agent is bound to pay to his principal
all sums received on his account. When
agent's remuneration becomes due

Agent’s remuneration is due
• S172 of the Contract Act 1950

• . 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.

8) Not to let his own interest conflict with
his duty
• To act solely for the benefit of the principal
• He cannot allow his own personal interest to
conflict with this duty
• Section 169
• If an agent, without the knowledge of his
principal, deals in the business of the agency on
his own account instead of on account of his
principal, the principal is entitled to claim from
the agent any benefit which may have resulted to
him from the transaction.

• ILLUSTRATION
• A directs B, his agent, to buy a certain
house for him. B tells A it cannot be bought,
and buys the house for himself. A may, on
discovering that B has bought the house,
compel him to sell it to A at the price he
gave for it.

Parker Mc Kenna [1987) LR 10 at 118
• Cairns LC
• “Now the rule of this court…as to agents is
not a technical or arbitrary rule, It is a rule
founded on the highest and truest principles
of morality. No man can, in this court, acting
as an agent be allowed to put himself in a
position in which his interest and his duty will
be in conflict.

8) Not to make any secret profit out
of his duty
• an agent should not make any profit or

acquire any benefit in the course and in the
matter of his agency without the
knowledge and consent of his principal.
• Such profit, generally known as secret
profit, is not restricted to money but may
include anything of value, for example, an
interest-free loan, a club membership, etc.

Secret Profit
• 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.
• The law presumes that upon receiving the a
secret profit the agent had been influenced by

the payment to the detriment of his principle.
• There is no need to prove corrupt motive of the
agent
• There is a need to differentiate between a bribe
and a secret profit.
Bribe
A payment of a secret commission:
i) that the person making the payment makes it to the agent
of the other person with whom he is dealing
ii) That he makes to that person knowing that that person is
acting as the agent of the person with whom he is dealing
iii) that he fails to disclose to that other person with whom he
is dealing that he had made payment to the person whom
he knows to be the other person’s agent.
Per Slade J in Industries and Gen Mortgage Co Ltd v Lewis
[1949] 2 All ER 573 at 574

The difference
• Lies in the sources:
• A bribe emanates for a third party
• A secret profit arises from the use by the agent of
the principal’s property, which usage results in an
unauthorized and undisclosed gain accruing to
the agent.
• An agent who has made secret profit is liable to
account to the principal for such profit in addition
to any other remedies available to the principal
for the agent's breach of duty

• If the principal knows the secret profits and
consents to it : the profit is not longer a secret
• If, the profit is a secret; the principal may do the
followings;
i) repudiate the contract
ii) Recover the amount of secret profit from the
agent
iii) Refuse to pay the agent his commission or other
remuneration
iv) Dismiss the agent for breach of duty
v) Sue the agent and third party giving the bribe

Mahesan v Malaysia Govt Officers Co-operative
Housing Society Ltd [1978] 1 MLJ 149
• Appellant received RM 122k as a bribe or

secret commission from the vendor.
• PC : respondent could recover either the
bribe or the amount of the actual loss
suffered by it as a result of entering into
the contract.

Mahesan v Malaysian Governement Officers
Coorperative Housing Society [1975] 1 MLJ 77
• Where an agent has been bribed so to do,
induces his principal to enter into a contract
with the person who paid the bribe and the
contract is disadvantageous to the principal,
• The principal may recover the amount of

bribes and damages for any loss which he has
sustained
An agent must account to his principal any
secret profit that he received even if there is no
bribe or corruption of fraud with the third party.
Boardman v Philips [1966] 3 ALL ER 721
- an agent would have to account to his
principal where he was found to have

obtained an unfair advantage for himself
even if he had acted honestly
The duty to account to the principal for secret
profits cease to apply when the agency or
business no longer exists.
- Nordisk Insulin-Laboratorium v Bencard Ltd
[1953]1 All ER 986

9) Non disclosure of confidential information or
documents
Not to disclose confidential information or

documents entrusted to him by his principal

10) Not to delegate his authority
• Unless delegation is done with an express or
implied consent from the principal
• Delegates non protest delegare :
an agent cannot devolve upon anor person
obligations owed to the principal which the
agent has personally undertaken to fulfill

Exception
1) Where the principal approves or consents
to the delegation of authority
2) Where it is presumed from the conduct of
the parties that the agent shall have power
to delegate his authority
3) Where the custom, usage or practice of the
trade or business permits delegation

Exception
4) Where the nature of the agency is such that
delegation of the authority to another person
is necessary to complete the business
5) In the case of necessity
6) Where the act to be done is purely ministerial
or clerical or administrative and does not
involve the exercise of any special discretion
or skill

Sub Agents
S144 : When delegation to duties is authorised,
the person who is appointed by the agent to act
in the business of the agent and is under the
control of the agent is called sub agents.
- There is no privity of contract between
principal and sub agent.

- The relationship of principal and agent exists
between agent and sub agent.

- rights and liabilities arises between the
immediate parties
Sub agents
The principal cannot sue the sub-agents for
monies received on the principal’s account and
neither can the sub-agents claim his
remuneration.
The agents will be liable to the principal for the
actions of sub agent
Exception in cases where the sub agent commits
a fraud or wilful wrong, the principal can sue
either the agent or sub agents or boht
Sub-agents and third party
When delegation is authorised, the principal is
bound by the acts of sub agents as if he was the
original agent of the principal.
in the case where the delegation is
unauthorised, the agents will be liable to both
the principal or third party and the principal is
not liable for the sub agent’s agent unless he
ratified it.
Substituted Agent
An agent is authorised to name another person
for act for the principal in the business of
agency.
Section 147 : the person named is deemed to be
the agent of the principal and not his sub agent
for the part that is entrusted to him.
there is a privity of contract between the
principal and the substituted agent.
Duties of Principal to His
Agent
Section 175 - 178
Not to willfully To indemnify and

To pay reimburse the
commission or hinder To Respect
the agent agent
or for acts done
Any Lein He
other agreed from earning Agent Has
his commission in the exercise of
remuneration his Over The
unless duties Proeprty Of
agency is The Principal
gratuitous

To indemnify and reimburse the agent
for acts done In the exercise of his duties
Where the agent

Where the agent suffers injury
Agent has incurred causes injury during the course of
losses or liabilities to third party his duty
in the due to the
in performance execution of
of the contract principal’s neglect or
his authority as want of skill
of agency agent

BREACH OF WARRANTY OF AUTHORITY
Breach
Thirdof
partyAuthority
can sue the agent
Breach of warranty of authority
Third party can sue the agent

• A third party is misled by the agent’s misrepresentation of
authority
1
• Agent is personally liable

2
• Measure of damages
3
• Actual loss sustained or benefit the other party would have

had from the contract if the representation had been true
4

AUTHORITY OF AGENTS
• An agent’s act is
binding if it is done
within his authority
• In excess or outside Classifications
authority
Apparent/Ostensible
• Will not bind principal 1) Actual Authority
Authority
unless principal
adopts/ratify

Actual Authority (Kuasa Sebenar)
Authority conferred upon the agent by
agreement
Express
Implied
Orally/
Writing The
Express power circumstances The Situation
All powers are
Of the customs and
Proper to or Conduct
Execute the case
usage of the
Express
authority Of trade parties

Apparent/Ostensible Authority
:Authority given by the law
2 situations
• 1) Section 190 – A • 2) An agent has the
principal make the third authority previously,
party believe that his but the authority was
agent has the authority terminated by the
to make contracts for principal.
him.
• Third party was not
• Through words or given any notice.
conduct

Relationship between principal and third
party
Categories of
principals
A named principal 3) An undisclosed

2) A disclosedprincipal
principal’s name principal
Existence is disclosed
has been Existence and
Identity is not known
disclosed identity is
Third party knew that
third party knew Not known
Agent is a contracting
The agent is acting agent
for a known
principal

• Named Principal • Exceptions
• The relation of an • 1) Agent agrees to
agency exist accept personal
• Agent incurs not right liability
of liability under the • 2) Agent executes a
contract. deed in his own name.
• Principal alone can • 3) Agent signs a
sue and be sued negotiable instrument
in his own name

• Exception where agent
• Disclosed Principal will be liable
• 1) The contract is made by
• Principal’s existence is an agent for the sale or
revealed but not his purchase of goods for a
identity. merchant resident abroad
• Section 183 : an agent • 2) Where agent does not
cannot personally enforce disclosed the name of his
contracts entered into by principal- agent will be
him on behalf of his liable
principal nor he is • 3) The principal is a
personally bound by them foreign sovereign or
ambassador or a minor or
of unsound mind.

• Undisclosed Principal • 2) Right of the
Principal
• 1) Rights of third party • -section 184(a)- P may
require the
• - no knowledge or performance of
reason to suspect that contract by third party
the person is dealing
is an agent – he has • Third party has as
the right to sue either against P, the same
Principal or Agent or right as he would have
BOTH has against the agent
if the agent has been
principal

• 3) Agent’s Rights against • Section 189 of the Contract
Third Party Act.
• - He can sue of on the • A person with whom a
contract simply because it is contract has been entered
his contract. into in the character of
• If he has represented agent is not entitled to
himself as the contracting require the performance of
party. it if he was in reality acting
not as agent, but on his own
account Section 189 of the
Contract Act.

TERMINATION
OF AGENCY :
i) By act of the
ii) By operation
parties
of law
ACT OF THE PARTIES
• a) Section 154 • Unilateral renunciation by
• Mutual consent or the agent at any time
unilateral revocation by • - need to give notice
principal – notice • - if agency is for indefinite
Exception duration – reasonable
• i) Agent has interest in the notice
property and form part of • If for fixed period – agent is
subject matter (s155) liable to compensate the
• ii) If the authority has been principal for premature
partly exercised (s157) renunciation

Contract Act
• 1) Section 154 – • 4) Section 157- revocation
Termination of Agency where authority has been
• 2) Section 155- Termination partly exercised)
of Agency- where agent has • 5) Section 158 –
an interest in subject matter Compensation for
• 3) Section 156 (where revocation by principal or
principal may revoke renunciation by agent
agent’s authority) • 6) Section 159 (Notice of
revocation or renunciation)

How Termination: by revocation
A. Method of termination/ revocation: sec 154
1. Principal revoking authority
– Sec 156: revocation before authority is exercised
When principal may revoke agents’ authority
The principal may, save as is otherwise
provided by the last preceding section, revoke
the authority given to his agent at any time
before the authority has been exercised so as
to bind the principal.
56
How Termination: by revocation
Revocation where authority has been partly exercised
• 157. The principal cannot revoke the authority given to his agent
after the authority has been partly exercised, so far as regards
such acts and obligations as arise from acts already done in the
agency.
• ILLUSTRATIONS
(a) A authorizes B to buy 1,000 bales of cotton on account of A, and to
pay for it out of A’s money remaining in B’s hands. B buys 1, 000
bales of cotton in his own name, so as to make himself personally
liable for the price. A cannot revoke B’s authority so far as regards
payment for the cotton.
(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to
pay for it out of A’s money remaining in B’s hands. B buys 1,000
bales of cotton in A’s name, and so as not to render himself
personally liable for the price. A can revoke B’s authority to pay for
the cotton.
57
How Termination: by Notice of
revocation or renunciation
• 159. Reasonable notice must be given of such
revocation or renunciation; otherwise the damage
thereby resulting to the principal or the agent, as the
case may be, must be made good to the one by the
other.
• 160. Revocation and renunciation may be expressed
or may be implied in the conduct of the principal or
agent, respectively.
• ILLUSTRATION
A empowers B to let A’s house. Afterwards A lets it
himself. This is an implied revocation of B’s authority.
58
Termination by revocation
• Ahmad bin Daud v Koperasi Jimat Cermat dan
Pinjaman Mercantile Bhd[2011] 4 MLJ 516
• Merbok Hilir Bhd v Sheikh Khaled Jassem bin
Mohammad Jassem Al-Thani (t/a Petroserv
General Trading Establishment) and other
appeals - [2013] 5 MLJ 407
• American International Assurance Co Ltd V
Koh Yen Bee [2002] 4 MLJ 301
59
How Termination: by renunciation
2. Agent renouncing Principal’s business
– Sec 159: reasonable notice of renunciation must be given
– Sec 160: may be expressly made or by conduct
3. Completion of agency business

4. Death of Principal or Agent
• 162. When an agency is terminated by the principal
dying or becoming of unsound mind, the agent is
bound to take, on behalf of the representatives of his
late principal, all reasonable steps for the protection
and preservation of the interests entrusted to him.
2. Principal becoming a bankrupt / insolvent
60
Termination of sub-agent’s authority
• 163. The termination of the authority of an
agent causes the termination (subject to the
rules herein contained regarding the
termination of an agent’s authority) of the
authority of all sub-agents appointed by him.
61
When termination of agent’s authority takes
effect as to agent,and as to third persons
• 161. The termination of the authority of an agent does not, so far as
regards the agent, take effect before it becomes known to him, or, so far
as regards third persons, before it becomes known to them.
• ILLUSTRATIONS
• (a) A directs B to sell goods for him, and agrees to give B 5 per cent
commission on the price fetched by the goods. A afterwards, by letter,
revokes B’s authority. B, after the letter is sent, but before he receives it,
sells the goods for RM100. The sale is binding on A, and B is entitled to
RM5 as his commission.
• (b) A, at Port Dickson, by letter directs B to sell for him some cotton lying
in a warehouse in Kelang, and afterwards, by letter, revokes his authority
to sell, and directs B to send the cotton to Port Dickson. B, after receiving
the second letter, enters into a contract with C, who knows of the first
letter, but not of the second, for the sale to him of the cotton. C pays B
the money, with which B absconds. C’s payment is good as against A.
• (c) A directs B, his agent, to pay certain money to C. A dies, and D takes
out probate to his will. B, after A’s death, but before hearing of it, pays
the money to C. The payment is good as against D, the executor.
62
By operation of law
• 1) The contract of agency 4) The subsequent insanity or
has been performed either the principal or agent
(section 154- Completion of 5) Principal being adjudicated
agency business or declared bankcrupt or an
2) By the expiration of the insolvent
period fixed or implied in 6) The happening of an event
the contract of agency which renders the agency
3) By the death of either the unlawful
principal or agent- section
154

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LAWOF AGENCY (III)

7/07/2020 Agency : Dr. Zuraidah 2

• Usually the relationship between agent and

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• ..the principal-agency relationship is by its

• Section 164 – 178

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• An agent is bound to conduct the business of

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An agent is bound to conduct the business of the agency

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- An agent is bound to render proper accounts

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It is the duty of an agent, in cases of difficulty, to

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• S172 of the Contract Act 1950

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• an agent should not make any profit or

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secret profit the agent had been influenced by

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• Appellant received RM 122k as a bribe or

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• The principal may recover the amount of

principal where he was found to have

[1953]1 All ER 986

Not to disclose confidential information or

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principal and sub agent.

between agent and sub agent.

Not to willfully To indemnify and

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Where the agent

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Breach of warranty of authority

Third party can sue the agent

• Agent is personally liable

• Actual loss sustained or benefit the other party would have

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A named principal 3) An undisclosed

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