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LAW of agency Prepared by: Norazla abdul wahab. LEARNING OUTCOME At the end of this chapter, students will be able to: Explain how an agency relationship.

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Presentation on theme: "LAW of agency Prepared by: Norazla abdul wahab. LEARNING OUTCOME At the end of this chapter, students will be able to: Explain how an agency relationship."— Presentation transcript:

1 LAW of agency Prepared by: Norazla abdul wahab

2 LEARNING OUTCOME At the end of this chapter, students will be able to: Explain how an agency relationship is created. Explain the authority of an agent. Explain the agent’s duty to the principal. Explain the agent’s right against the principal. Explain the liabilities of principals and agents to third parties. Describe the termination of agency.

3 Introduction Agency is the relationship which subsists between the principal and agent, where the agent has been authorized to act for the principal or represent him in dealing with others/ 3 rd party.

4 Introduction S.135 CA- Agent is a person employed to do any act for another in dealing with third person S.135 CA- Principal is the person to whom such act is done or who is so represented.

5 For e.g. If Ali appoints Muthu to buy some goods on his behalf, Ali is called the principal while Muthu is his agent. The seller of the. goods is called as third person

6 Parties to Agency The creation of agency involves three parties; the principal who passes the authority to act to the agent and the agent who in turn with this authority affects the legal relations of the principal with a third party. Third party

7 CAPACITY OF AGENTS AND PRINCIPALS Capacity of the Principal Section 136 of CA, 1950  Any person who is of the age of majority according to the law to which he is subject and who is of sound mind may employ an agent.

8 Continue….. Capacity Agent Section 137 OF CA, 1950  As between the principal and third persons, any person may become and agent; but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in the behalf herein contained.

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10 Any person can become agent, including minors and unsound mind persons However, they are not responsible for their act The principal must be responsible and take the risks of their acts.

11 Chan Yin Tee v William Jacks & Co (Malaya) Ltd [1964] MLJ 290 Chan & Yong (minor) were partners in business. Chan told William Jacks (third party) that Yong is his partner and has authority to act on his behalf. William Jacks supplied goods to Yong but no payment was be made. WJ brought an action against Chan as a Principal of Yong.

12 Chan Yin Tee v William Jacks & Co (Malaya) Ltd [1964] MLJ 290 Held: Chan was responsible to Yong’s act no matter he is an adult or a minor.

13 Contractual relationship 2 kinds of contractual relationship : a) Between principal and agent b) Principal and 3 rd party.

14 Agency is created or formed by agreement and consent of both parties No specific formality in order to form the contract of agency Consideration is not necessary in order to form a contract of agency. S 138 OF CA : “ No consideration is necessary to create an agency”. CREATION OF AGENCY

15 Express appointment Implied appointment Necessity Ratification Estoppel/ holding out Modes of creation

16 1. Express appointment Section 139 CA: “The authority of an agent may be expressed or implied” Section 140 CA: “ An authority is said to be EXPRESS when it is given by words spoken or written.” (Express = verbally/ writing). i.e. Power of Attorney- that is created by the authorization by the client given to the solicitor to act on his behalf.

17 S.140 CA “...an authority said to be implied when it is to be inferred from the circumstances of the case...” a) Circumstances of the Case. b) Relationship between Husband & Wife c) The Partnership Act 1961 2. Implied appointment

18 a) Circumstances of the Case. Illustration Section 140 “A, owns a shop in Kajang, living himself in Kuala Lumpur, and visiting the shop occasionally. The said shop managed by B, and he is in the habit of ordering goods from C, in the name of A for the purpose of the shop, and of paying for them out of A’s fund with A’s acknowledge. B has IMPLIED AUTHORITY from A to order goods from C in the name of A for the purposes of the shop.

19 Chan Yin Tee v William Jack Chan and Yong (minor), were registered as partners. At a meeting with a representative of the respondent company, the Chan held himself out to be Yong partners (impliedly). Good were supplied to Yong but were not paid for. Chan was liable for Yong’s acts.

20 b) Relationship between Husband & Wife It is implied that the wife has authority to pledge the husband’s credit in a contracts that are necessaries and suited to their condition and style of living. Impliedly, the wife is an agent to the husband. The wife has an implied authority to make contract on behalf of the husband. The husband as the Principal liable upon such contracts that are necessaries and suited to their condition and style of living.

21 However, the husband can rebut by proving that: 1) expressly forbid his wife from pledging his credit; 2)Expressly warned the tradesman not to supply his wife with goods or credit; 3) His wife was sufficiently provided with the goods ; or 4) His wife was given a sufficient allowance for buying goods without having to pledge her husband’s credit; 5) The contract was unreasonable, taking into consideration her husband’s income.

22 S. 7 of the Partnership Act : each partner in a partnership is an agent to the firm or other partners in the firm, when contracting the course of the partnership’s business. Each partner : implied agent to the firm The firm/ other partners are the implied Principal to any one of the partners. The firm/ other partners are liable to whatever contracts which has been entered into by any of the partners. c) The Partnership Act 1961

23 3. Necessity or Emergency Where an agent can be appointed during an emergency even in the very beginning the agent is not appointed by the Principal to act on his behalf.

24 3. Necessity or Emergency An agency by necessity may be created if the following conditions are met; a) There must be a real & actual emergency b) the agent’s action is necessary to prevent loss to the principal or the agent was entrusted with the Principal’s property/ goods. c) it is impossible for the agent to get the principal’s instruction at that time d) the agent acted in good faith.

25 a) There must be a real & actual emergency Phelps James & Co. v Hill Held: “ emergency must be referred to the reasonable situations by looking into the dangerousity, facilities available, cost, time distance etc.”

26 b) the agent was entrusted with the Principal’s property/ goods./ in the possession of the agent. Section142 CA. “ an agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as …” For e.g. selling off perishable goods to prevent rotting.

27 Jebarra v Ottoman Bank [1972]2 KB 254 Held: “ agency by necessity only exists if the agent is entrusted with the goods of the principal or being instructed to deliver the goods to certain destination and where at the time emergency occurred while the goods are under the responsibility of the agent”.

28 c) it is impossible for the agent to get the principal’s instruction Generally, in S. 167 of CA, 1950. “it is duty of an agent in the case of emergency to communicate with the Principal to get some instructions.”

29 c) it is impossible for the agent to get the principal’s instruction However in S. 142 of CA, 1950 “ if he failed to communicate with the Principal, then only the agent may use his own discretion taking the necessary steps”.

30 Springer v Great Western Railway Company [ 1921] 1 KB 257 the D (agent) agreed to carry P( Principal)’s tomatoes from Jersey to Covent Garden Market. Owing to bad weather, the ship arrived late at Weymouth. Some of the tomatoes were found to be bad. The D decided to sell the tomatoes locally as they felt the tomatoes could not arrive Garden Market in a saleable condition. They did not communicate with P.

31 Springer v Great Western Railway Company [ 1921] 1 KB 257 HELD: P was awarded with damages as D failed to communicate with P as he could have done so.

32 Effect of Agency By Necessity 1. the agent will be protected from any claims by the Principal The agent will be entitled to the additional payment for his effort to protect & to preserve the safety and interest of the Principal A contract exists between the Principal and & 3 rd party.

33 Case study: Anis is the distributor of ikan keli around the cities of Malacca and Ipoh. One day, her neighbor, Amir wished to go back to his hometown in Kedah and Anis requested him to send 3 baskets of ikan keli to her agents in Ipoh. On arriving at Tanjung Malim, Amir discovered that the ikan keli started to become smelly. Amir tried to contact Anis to seek her latter opinion. Unfortunately, Anis was not home. Amir decided to sell the fish at the road shoulder where he stopped and sold the fish at a lower price. When Anis noted that, she felt very angry and wished to claim against Amir in the court. Advise Anis?

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35 4. Ratification Certification/ acceptance by the Principal for an act done without authority or exceeding the authority given.

36 4. Ratification 2 situations: 1) when an agent who was appointed has exceeded his given authority; and 2) when a person, who has no authority to act for the principal, has acted as if he has authority to act so;

37 The Principal has a choice either to REJECT or ACCEPT the contract that was made on behalf of him. If he accepts and confirm with the contract, that means that HE RATIFIES the said contract.

38 Can be either EXPRESS OR IMPLIED. S. 150 of CA, 1950: “ Ratification may be expressed or may be implied…”

39 As a result, agency by ratification exist between Principal and Agent S. 149 of CA, 1950 “ where acts done by one person on behalf of another but without his knowledge or authority, he may elect to ratify of to disown the acts. If he ratifies, the same effects will follow as if they had been performed by his authority”

40 However, if the Principal does not agree, NO AGENCY RELATIONSHIP exists and the Principal would not be liable upon such contracts.

41 For example, on 2 July, X appoints Y as his agent to buy a car not exceeding RM 40,000. Y ordered a car costing RM 50,000, telling the salesman that he was buying the car on X’s behalf. On 4 July, the salesman delivered the car to X.

42 If X adopts the contract on 4 July, then Y is said to be his agent through ratification. Alternatively, X can also reject the contract on 4 July since Y has exceeded his authority

43 Effects of Ratification Once, there is ratification by the Principal, the Principal is bound to the contract. S. 149 of CA “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 effects will follow as if they had been performed by his authority”.

44 The Principal is bound to the contract retrospectively.  where the relationship of principal and agent is created retrospectively, the contract is effective from the date when the original contract was made by the agent and not from the date of the principal’s ratification

45 Bolton & Partners Ltd v Lambert (1889) 41 Ch D 295 Held: The contract is effective from the date when it was made, not from the date it was ratified by the principal.

46 A contract can only be ratified under the following conditions: 1. The contract done by the agent was without authority or exceeding the authority.

47 A contract can only be ratified under the following conditions: 2. The act or contract must be recognized by law /not illegal.

48 Brook v Hook (1871) LR 6 Ex 89 Held: “the Principal MAY NOT RATIFY a contract in which his signature had been forged by the unauthorized agent.” Illegal illegal

49 3. The agent must, at the time of the contract, expressly act as agent for the principal (section 149)

50 Keighley Maxted & Co. v. Durant [1901] AC 240  An agent was authorised by the appellant (Principal) to buy wheat at a certain price. The agent exceeded his authority & bought it at a higher price.  However, the agent contracted in his own name.

51 Keighley Maxted & Co. v. Durant [1901] AC 240  Held: “the principal was not liable for the act of an agent who did not profess to be an agent when he entered into the contract.”

52 4. The principal must be in actual existence or capable of being ascertained, when the contract is made. (must exist).

53 Kelner v. Baxter (1866) LR 2 CP 174 “a contract to buy a hotel by an agent on behalf of a company which was about to be formed, could not be ratified by the company since it did not exist at the time. ”

54 5. The principal must have contractual capacity at the time of the contract

55 6. The principal must, at the time of the ratification, have full knowledge of all material facts, UNLESS it can be proven that he intends to ratify the contract whatever the facts may be. S. 151 of CA, 1950. “no valid ratification can be made by a person whose knowledge of the facts of the case is materially defective”.

56 Marsh v Joseph A principal had ratified a contract without the full knowledge of all material facts. Held: The P not bound to such contract.

57 7. The principal must ratify the whole act or contract. He cannot accept only a part. S. 152 Of CA, 1950 “A person ratifying unauthorized act done on his behalf ratifies the whole of the transaction of which the act formed a part”.

58 8. The ratification must be made within reasonable time. Metropolitan Asylum Board v. Kingham and Sons (1890) 6 TLR 217 The agent contracted to buy eggs without the authority. The Principal tried to ratify the said contract after a week it was made. Held: the ratification was too late.

59 9. The ratification must not injure a third party’s right or interest Section 153. “ an act done by one person on behalf of another…which would have the effect of SUBJECTING a third party to DAMAGES, terminating any rights or interest cannot by ratification”.

60 If the Principal has ratified the contract, but any one of those conditions had not been fulfilled, the contract IS NOT BINDING on the PRINCIPAL.

61 Case study Afeedah has been instructed by Azliza to buy a computer for a price not exceeding RM 6,000. Afeedah then had ordered a computer from Ariff Communication in her own name for a price of RM 6,500 since that was the lowest price in the market. When Ariff Communication delivered the computer, Azliza accepted it even though the price exceeded the amount she had authorised. When Ariff Communication demanded a payment, unfortunately Azliza refused to pay on the ground that the said price was too expensive and in fact it was bought by Afeedah herself. Discuss whether there is contract of agency between Afeedah and Azliza?

62 5. Estopple Generally, a person (Principal ) is not bound by a contract made on his behalf without his authority.

63 5. Estopple For an agency by estoppel, is when a Principal who by conduct or words allows a third party to believe that the agent is acting on his behalf. He is estopped (stop) or restrained from denying that the agent is working on his behalf.

64 Example: A tells T in the presence of P that A is P’s agent and P does not contradict this statement. P later cannot deny that A is his agent; if T sells goods to A, believing him to be P’s agent and later claim for the price from P.

65 S. 190 of CA, 1950 “ 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 persons to believe those acts and obligations were within the scope of the agent’s authority” Effects of Estoppel

66 1) The P has LIABILITY / BOUND to the contract that being made by the agent. 2)when a Principal does not inform or announce to the 3 rd party that his agent has no authority or the agent’s authority had been terminated, but the agent still continuous acting on behalf of the P, then the P is BOUND/ has LIABILITY for the contract made by agent irrespective whether the agent had acted with or without the Principal’s knowledge.

67 Freeman & Lockyer v Buckhurst Park Properties Ltd There were 4 directors in a company. One of them, A contracted on behalf of the company with T (3 rd party) without any authority. The other directors knew about the contract but does not inform T that A actually had no authority to act on behalf of the company. Thus, T is induced to believe that A had authority to enter into a contract on behalf of the company.

68 Freeman & Lockyer v Buckhurst Park Properties Ltd Held: “ the company is estopped from denying that A is the company’s agent and had authority on behalf of the company.

69 Summary Agency by Estoppel only happen if the Principal himself through his own words or conduct induced the 3 rd party to believe that a certain person having authority to act on his behalf. It does not happen if the 3 rd party was induced by the agent only.

70 CLASSIFICATION OF AGENCY A) According to extent of authority : Universal agent- a general agent with extensive powers. He can do all acts which a principal may personally do. General agent- an agent who is employed to act on behalf of principal in particular goods or trade. Special agent- agent with limited power to do specific act or for specific purpose.

71 B) According to nature of works performed are: Del credere agents- an agent who undertakes that a third party will perform his obligations. If third party fails to perform, the agent will be held liable Factors- a commercial agent who is entrusted with the goods of the principal for sale. He sells the goods in his own name without disclosing the principal’s identity. Broker- an agent who make contracts between his principal and third parties for a commission Auctioneer- an agent who is employed to sell goods at auctions. Bankers- can either be an agent for customer or an employee as agent for banks.

72 Authority of the Agent An agent’s act is binding upon the Principal if the act is done within the authority of the agent. The authority of the agent is classified into: 1) Actual authority; 2) Apparent ( ostensible) authority

73 1. Actual authority Through agreement between the Principal and the agent. It comprises of: a) EXPRESS AUTHORITY b) IMPLIED AUTHORITY

74 A) EXPRESS AUTHORITY Expressly given by the Principal orally/ writing S 140 of CA, 1950. “An authority is said to be EXPRESS when it is given by words spoken or written.” (Express = verbally/ writing)..

75 S 141 of CA, 1) An agent having authority to do an act and to do all the lawful things which are necessary 2) An agent having authority to carry on a business and has authority to do every lawful things that necessary for that purpose or the usually done in the course of conducting such business.

76 Example: B appoints C as his agent to sell his car for not less than RM 50K, If C acted accordingly with the express authority, B is BOUND to the contract made by C

77 B) IMPLIED AUTHORITY Authority implied from the following: i) All such powers which are proper/ necessary/ usual to execute the express authority; ii) The circumstances of the case; iii) The customs/ usages of trade iv) The situation and conduct of the parties.

78 1) All such powers which are proper/ necessary/ usual to execute the express authority; Also known as “IMPLIED USUAL AUTHORITY”. Example: B appoints C to sell his car and entrusts C with possession of the car. C by implication has the authority to allow potential buyers to test drive the car.

79 CASES CHAN YIN TEE V WILLIAM JACKS Held: “ From the conduct of Chan telling WJ that Yong is his partner, it shows that Yong has implied usual authority to act on behalf of Chan in buying goods for the business.”

80 2.APPARENT /OSTENSIBLE AUTHORITY The law presumed that the agent possesses certain authority, although the Principal may not have consented to or give such authority to the said agent. Based on the representation made by the Principal to the 3 rd party irrespective of any agreement between P & the agent.

81 It arises in 2 situations: 1) where a Principal by his words / conducts leads the 3 rd party to believe that his agent has authority to make contract for him. S.190 of CA 2) where the agent previously had authority to act, but that authority was terminated by the Principal without notifying it to the 3 rd parties.

82 BREACH OF WARRANTY OF AUTHORITY An agent who acts outside his authority or a person who acts as if he has the authority to act as an agent for another person is liable for breach of warranty of authority. In other words, where a third party is misled by the agent’s misrepresentation of authority, however innocent, the agent is personally liable.

83 Yonge v. Toynbee [1910]1 kb 215 the agents were held liable for damages even though they had acted in good faith. Where an agent acts in excess of his authority and that part which is excess of authority is separable from the rest, then the principal is bound by those action within the agent’s authority but not the rest. But if the acts are inseparable, the whole transaction is not binding on the principal (section 180- 181)

84 But this does not affect the right of the third party to claim against the agent for breach of warranty of authority. An agent is not liable if his lack of authority is known to the third party or if he expressly disclaims authority or if the contract excludes his liability

85 DUTIES OF AGENT TOWARDS PRINCIPALS Normally, the rights and duties of an agent are stipulated in the terms of contract of agency. However, contract Act 1950 also provided some rights and duties of an agent towards Principal via versa.

86 1) To obey the principal’s instructions section 164  An agent must obey the principals’ instructions  If failed to obey; breach of contract of agency and the agent is liable for any loss sustained by the Principal.  However, not to follow instructions that against the law.

87 Turpin v Bilton (1843)5 Man & G 455 The agent has been instructed by the Principal to get the insurance for his vessel. However, the agent failed to do so. The vessel lost and as a result the Principal bare some loss. Held: the agent is LIABLE for breach of duty due to his failure to obey the Principal’s instructions. Thus the agent LIABLE to pay compensation.

88 2) In the absence of instructions from the principal, to act accordingly section 164 “…according to custom that prevail in doing business of the same kind”. Illustration (b) of S. 164

89 3)To exercise care and diligence in carrying out his work and to use such skill as he possesses. section 165. “an agent is bound to conduct business of the agency with as much skill as is generally possessed by person engaged in similar business…”  i.e. : if the agent is employed for professional service, he must use all his skills & expertise that usually required for a same professional man.

90 Keppel v Wheeler [1927]1 KB 577 the D (agent) was employed by the P (Principal) to sell his house. The first offer was accepted by the P with a condition. A few days later a higher offer (2 nd offer) was made by X but this does not communicated to P. the court held that the D liable to pay the differences between 1 st offer and 2 nd offer

91 4)To render proper accounts when required section 166. “…agent is bound to render proper account to his Principal on demand.”  Duty of the agent to account for all monies that accepted on behalf of the Principal  It should not be mixed up with the agent’s property.

92 5)To communicate with the principal during EMERGENCY section 167 section.142

93 6. Act in Good Faith and No Conflict of Interest.  the agent must act solely for the benefit of his principal.  Good Faith is: 1) The agent cannot become a party to transaction with the Principal If the Principal noticed that he is contracting with his own agent, the Principal has the right to repudiate the contract.

94  Section 168 states that he cannot sell his own shares to the principal, unless he has earlier informed the principal and obtained his consent. Wong Mun Wai v. Wong Tham Fatt & Anor [ 1987] 2 MLJ 249 the court found that the defendant failed in his duty as he sold the principal’s share of land below the market value and he sold the land to his own wife. The agent (D) is under duty to act in good faith and cannot use his position as agent to gain profit at the Plaintiff’s expense.

95 2) The agent cannot act on behalf of 2 Principals at one time without their consent Fullwood v Hurley The agent had acted on behalf of both parties; the P and the 3 rd party, by claiming commission from both of them without their knowledge and consent. Held: the agent had breached his duty towards the Principal for not acting in good faith.

96 3) The agent must disclose everything that he knows to the Principal relating all materials facts of the contract. 4) Not allowed to disclose his Principal’s secret. 5) All monies & profit should be put into the Principal’s account. S. 166

97 7) Not to make any secret profit out of the performance of his duty section 168. Secret profits refer to a bribe/ secret commission/any financial advantage which is above and beyond the agreed commission between P &A. When the principal knows of the extra profit and consents to it, the agent is entitled to keep the profit. (S. 168).

98 If the principal does not consent; the Principal may: a) Repudiate the contract b)recover the amount of the bribe from the agent.  S.169 “if an agent, without knowledge of his Principal deals in the business of the agency on his own account instead of an account of Principal, the Principal is entitled to claim any benefit resulted from the said transaction.”

99 Tan Kiong Hwa v Andrew S.H. Chong [1974] 2 MLJ 188 the P (Principal) bought a flat from a company. The D (agent) was the managing director. The P authorized the D as his agent to sell the flat for $45000. the defendant sold the flat for 54000 and the extra $ 9K was credited into company’s account. the court held that the P entitled to claim the extra $9000 as the D had breached his duty as an agent.

100 c) The Principal may refuse to pay the agent’s commission/ other remuneration d) The P may dismiss/ terminate the agent’s authority  Boston Deep Sea Fishing & Ice Co & Farham [1957] 1 WLR 1051 Held: an agent had been dismissed by the P for receiving bribe.

101 e) The P may be sue both the agent and 3 rd party who gave the bribe and may claim damages. Mahesan v Malaysian Government Officers Co-Operative Housing Society Appellant (agent) was Director & secretary of the Respondent(Principal) which bought land at the price of $944k from the Vendor who had earlier paid $ 456K for that. The A knew the facts but failed to inform the P. Only after the sale was made the P discovered the fact that the A had received $122k as a bribe. Held: the P could recover either bribe or the amount of loss.

102 f) The agent and the 3 rd party may be charged under a criminal offence.  S.4 of the Prevention of Corruption Act 1961.

103 8) To pay to his principal all sums received on his behalf  Whatever amount received on behalf of the Principal, must paid to the principal.  However, section 171. “subject to the deduction specified in S. 170, the agent is bound to pay his Principal all sum received on his account”.

104 S. 170  Agent is entitled to deduct any sum from the Principal’s money for the payment of : 1) Any sum owed to the agent in respect of advances made/ expenses incurred by the agent in conducting business; 2) Any commission / remuneration payable to the agent.

105  The agent also has the right to retain his Principal’s property in his possession until his remuneration is paid. right of lien-S. 174 “…an agent is entitled to retain goods, papers and other property, whether moveable or immoveable..until amount due to himself for commission, disbursement, and respect of the same has been paid for him”.

106 9) Not to delegate his authority to other person Maxim “ delegatus non potest delegare” the relation between principal and agent is personal one and the agent cannot employ another person to do his duty.

107 Exception:- The agent may delegate his authority to other person Exceptions: 1) where the Principal approves the delegation of authority. 2) Where it is presumed from the conduct of the parties that the agent would have power to delegate his authority to other person to perform his duty 3) In case of emergency (i.e. injured in accident) 4) If the act done is purely ministerial or clerical which is does not involve any discretion or professional skill of the agent.

108 De Bussche v Alt (1878) 8 Ch D 286 The Principal appointed an agent in China to sell a ship at a certain price. The agent was unable to sell the ship. Therefore the agent sought the Principal’s approval to appoint sub agent to sell the ship in Japan. Held: there was no breach of the agent’s duty in appointing the sub agent because there was express consent from the principal to the delegation.

109 John McCann & Co v Pow [1975]1 All ER 129 An agent has been employed to sell a house belonged to Principal. The agent delegated his authority to another person. Held: “ the agent failed to get his commission due to his breach of duty delegating his power to another person. Such duty involves his personal skill & discretion in order to get the best price for his P. It was not merely ministerial or clerical duty. “

110 Sub-Agents  where delegation of duties is authorized, the person appointed to act on behalf and under the control of the agent is called a sub-agent.

111 Sub-Agents  Sub agents: person who is appointed by the original agent to act in the business of the agency. (S. 144 of the CA).  and is under the order and control of the original agent.

112 The relationship between the sub-agent and the agent is like the relationship between the Principal and agent. The sub agent acts on behalf of the original agent who appointed him to become the sub agent. Consequently, sub agent is NOT under the control of Principal.

113 Liability Between the Parties The S/A is RESPONSIBLE for his acts towards the agent only. S/A has no direct contract / duty with the original Principal.

114 Liability Between the Parties The principal cannot sue the sub-agent if there is any breach of duty by the S/A unless the sub agent commit fraud or wrongful action. s. 145 (3) ‘sub agent is responsible for his acts to the agent but not to the Principal except in the case of fraud / wilful wrong”.

115 Sub Agent cannot claim any remuneration or commission from the Principal. The S/A is liable towards the agent for any of breach of duty as for his commission or remuneration as well. Thus, S/A can claim against the agent only.

116 In the other hand, agent is liable towards: i) His Principal ii) sub agent s. 145 (2) “an agent is responsible to the Principal for the acts of the sub-agent”. o S. 145 (3) If S/A commit fraud / willful wrong, the P can sue both the S/A and agent.

117 Hedley Byrne v Heller and Partners Ltd [1964] AC 465 Held: “ the P who suffered some loss due to the negligence statement of the sub agent can bring direct action in tort against the S/A.

118 Effect of Contract By S/A: 1. Contract that made by the S/A with the 3 rd party is LIABLE on the Principal: i) if the appointment of S/A is approved by the P; and ii) if he is originally appointed by the P. (S. 145 (1) )

119 HOWEVER, If the appointment of the S/A was not approved by the P, the P IS not BOUND to the contract made with the 3 rd party by such S/A. Agent is PERSONALLY RESPONSIBLE to his P and to the 3 rd party for the acts of the S/A or for the wrongful conduct of the S/A. (S. 146).

120 Duties of Principal Towards Agent To pay Commission / other agreed Remuneration Not to willfully prevent or Hinder the agent from Earning Commission To indemnify/ reimburse the agent for lawful acts done in the exercise of his duty

121 1. To pay Commission / other agreed Remuneration  upon the completion of all contractual duties of the agent. S.172 of CA “…payment for the performance of any act due to agent until the completion of the act.

122 1. To pay Commission / other agreed Remuneration  Depends on the terms of the contract.  If no amount- reasonable remuneration will be paid.  If agency guilty of misconduct, he losses his right S. 173 “..agent guilty of misconduct, not entitled to any remuneration”.

123 Andrews v Ramsay & Co. [1930] 2 KB 635 Held: The P IS NOT BOUND to pay the agent’s commission due to the fact that the agent had received secret profit or a bribe when performing his duties as an agent.

124 2. Not to willfully prevent or Hinder the agent from Earning Commission Under the duty of P not to prevent the agent from gaining his commission. Examples whereby the P is said to willfully PREVENTING or Hinder the agent from Earning Commission 1) the P refused to accept the contract made by the A 2) the P appointed another agent to carry on the same duty or to deprive the original agent from earning commission.

125 i) Where the agent incurs some liabilities or losses in performing his duties. Hichen, Harrison, Woolston & Co v Jackson & Sons Held: The agent is entitled to damages for anything incurred in the performance of his duties and to be reimbursed for whatever the agent had advanced or lost. 3. To indemnify/ reimburse the agent for lawful acts done in the exercise of his duty

126 Kyall & Evat v Lim Kim Keat (1928) SSLR 206 The P had instructed the agent who were share broker to sell on her behalf the shares in a company registered in England which is according to the will of the deceased. The broker then made a contract to sell the shares to 3 rd party. Unfortunately, it was discovered that the will had not been proved in England and the shares cannot be delivered. The agent was compelled to buy other shares for substitution and consequently suffered loss. The agent sued the P to recover hiss loss.

127 Held: fail to disclose the fact that the shares cannot be delivered will render the P to indemnified the loss of the A.

128 ii) the A causes injury to 3 rd party S 176 “where one person employs another to do an act, the said agent does the act in good faith, the employer is LIABLE to indemnify the agent against the consequences of the act though it cause an injury to the rights of the 3 rd person”.

129 iii) the A suffers injury during the course of his duties due to P. S. 178 “ the P must make compensation to his agent in respect of injury caused to the agent by the P’s neglect or want of skill”.

130 However, if the agent is employed by the P to do a criminal act, the P IS NOT LIABLE to indemnify the A any commission for any consequences of the said act, even though there was an express or implied promise of the P for such indemnify. S. 177 “ where one person employs another to do an act which is criminal, the employer IS NOT LIABLE to the agent”.

131 EFFECTS OF CONTRACTS MADE BY AGENTS 1)Named Principal P’s name has been disclosed to 3 rd party by the agent. The 3 rd party knows the name & identity of the P knows that the agent is acting on behalf of the P

132 2) Disclosed Principal The P’s existence is disclosed but the identity is unknown to the 3 rd party. He only knew the person whom he is dealing with is acting as an agent 3 rd party does NOT know the name and identity of the Principal.

133 3) Undisclosed P The P’s existence & identity is UNKNOWN to the 3 rd party The 3 rd party acts under the impression that he is contracting with the A personally Only after the contract has been signed, the 3 rd part comes to know that the person whom he is dealing with was actually acting on behalf of the P.

134 1)Named Principal  No liability for the A S. 183 “an agent cannot personally enforce contract entered by him on behalf of his Principal”  P alone will be LIABLE, whereby he has the right to enforce, can sue and be sued S. 179 “contract entered through an agent will have the same effect has it been entered by the P”

135 Exceptions: a) The agents agrees to accept and make himself personally liable upon the contract. b) The A executes an agreement in his own name c) The A signs a negotiable instruments in his own name without making it clear that he is signing on behalf of the P. d) The A exceeding the authority UNLESS be ratified e) The A liable to the said contract made according to custom.

136 Chin Yuen Tung v Bep Aketik [1978]1 MLJ 211 R (3 rd party) were requested by the A to make a valuation report on piece of land in S’wak and to send a copy of the report to a N.York company (Principal). In the previous dealing, the R were paid by A. Now, when the R claimed payment, the A REFUSED and disclosed that they were merely acting as an oversea agent for the N.Y company.

137 Held: “ the A should make the payment. The A had represented that the terms of payment would be the same as earlier dealings. The agents agrees to accept and make himself personally liable upon the contract.

138 2. Disclosed Principal  No liability for the A when he acknowledges that he is contracting on behalf of the P. S. 183 “an agent cannot personally enforce contract entered by him on behalf of his Principal”  P alone will be LIABLE S. 179 “contract entered through an agent will have the same effect has it been entered by the P”

139 Exceptions :- (whereby the A is PRESUMED to be LIABLE even the P has been disclosed) 1. Contract made for sale & purchase of goods for a merchant resident abroad. (S. 183 (a)) 2. Where the agent does not disclose the name of his P. (S. 183 (b) ; and 3. Where the P’s name & identity has been disclosed but the P cannot be sued. (S. 183 (c))

140 3. Undisclosed P 1) Right of 3 rd party: section 186. Where the third party has no knowledge or reason to suspect that the person he is dealing with is acting as an agent, he has the right to sue either the agent or principal or both of them

141 3 rd party CAN take legal action against the agent. If not satisfy, party may proceed against the P same if not satisfy with the A.

142 H/ever, 3 rd party may be prevented from proceeding with the agent if : i) he think that the agent is only the one can be sued same as if he think that the P is the one is liable. (S. 187). ii) Doctrine of estoppel ( if he elects to sue 1 party, he may be estopped from suing other if he has allowed the other to believe that only the one he sued is liable.

143 Pernas Trading Sdn Bhd v. Persatuan Peladang Bakti Melaka [1979] 2 MLJ 109 chemicals and fertilizers have been ordered by the respondents for themselves rather than on behalf of a principal. When the appellants sued for the balance of the price, the respondents denied liability on the ground that they were ordered for another party (for P).

144 Held: The respondents were liable as they contracted in such a form to make themselves personally liable.

145 2. Rights of the P. “ may require the performance of the contract” by the 3 rd party even the 3 rd party does not know that he is the P. S. 184 (a) Subject to the original rights & liabilities subsisting between the agent & 3 rd party.

146 P who disclose himself, before the contract is complete CANNOT enforce the contract if the 3 rd party can show the identity of the P was important ;OR 3 rd party would have not entered into contract “ if he had known who is the P or..the agent was not P S. 184. (b)

147 3. Right of the A The agent can claim his rights under the contract as the contract is actually his contract. However, not entitled to enforce contract, if he falsely contract with the 3 rd party as agent. S. 189.

148 TERMINATION OF AGENCY An agency may be terminated in the following manner:  1. By the act of the parties 1) mutual consent ; 2) unilateral revocation by the principal; 3) unilateral renunciation by the agent

149 Unilateral revocation or renunciation :- 1) s. 154: P revoke the agent’s authority/ agent renounce the business of agency. S. 156: P revoke at any time before the agent exercise his duty. S. 159: the P must give a reasonable notice. Otherwise the A entitled to claim Damages via versa. S. 158: if agency for fixed term, earlier termination will entitle the A to claim damages. S 160: expressed or implied in the conduct of the parties

150 Sohrabji v oriental Security Assurance co. AIR 1946 Held: 3 ½ months of notice that given by the P was NOT Adequate to terminate the agency properly which had lasted nearly 50 years. The measure of damages: the amount the agent might have earned under the contract of agency had he not been prevented from continuing his duty.

151 Exceptions:- (WHERE P is prevented from revoke the agent’s authority): 1)the agent himself has interest in the property (s. 155) 2)after the authority has been partly exercised by the agent (s. 157) 3)the notice of termination by the P would only effective when it comes to the knowledge of the agent and 3 rd party. (s. 161).

152 Smart v Sanders (1848)5 CB 895 An agent was sent with goods to be sold on behalf of the P. He also made advances to the P for the security of the goods. Held: The agency cannot be terminated by the P because the agent has interest in the goods.

153 Trueman v Loder (1840) 11 Ad&EI 589 Held: A 3 rd party who dealt with an agent whose authority had been revoked was able to claim from P the goods supplied because the 3 rd party had no knowledge of the revocation.

154  2. By operation of law: 1) completion of the task undertaken to be performed by the agent-section 154; 2) Expiration of the period fixed 3) by the death of either the principal or agent- section 154; 4) by the subsequent insanity of either the principal or agent- section 154;

155 5)by the bankruptcy or insolvency of the principal- section 154 and; 6)by the happening of an event which renders the agency unlawful.

156 by the death of either the principal or agent- section 154; Exceptions: If the A has interest in the property (s. 155) Effective upon agent having notice of the P’s death (s.161) When the P died, the A must take reasonable steps to protect & preserve the interest of the P.

157 Case study Afeedah has been instructed by Azliza to buy a computer for a price not exceeding RM 6,000. Afeedah then had ordered a computer from Ariff Communication in her own name for a price of RM 6,500 since that was the lowest price in the market. When Ariff Communication delivered the computer, Azliza accepted it even though the price exceeded the amount she had authorised. When Ariff Communication demanded a payment, unfortunately Azliza refused to pay on the ground that the said price was too expensive and in fact it was bought by Afeedah herself. Discuss the position of all parties involved.

158 Note: This Notes and Copyright therein is the property of Madam Norazla Abdul Wahab and is prepared for the benefit of her students enrolled in the MGM3351 course for their individual study. Any other use or reproduction by any person without consent is prohibited.


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