Commercial Law Law of Agency Creation of Agency Authorities and Duties of Agent and Principal

Introduction Objective of this topic is to discuss the application of the law of agency in commercial/business transactions. What are the examples of businesses/transactions that involve law of agency? Employment Financial advice Real estate brokerage Business negotiation Promotion A relationship between agent and principal with the third party. Who are they?

Legal Authority Authority: Part X of the Contracts Act 1950 (Ss. 135 – 191) Unique compared to contract law – See S. 138: Consideration not necessary.

Agent and Principal Section 135 CA Agent: “A person employed to do any act for another or to represent another in dealings with third persons” Principal: “The person for whom such act is done, or who is so represented” In such a relationship, how many contracts will be involved in a business transaction? Answer: 2 contracts – (P&A, P&TP)

Requirements of Principal S. 136 CA “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.” Requirements: AOM Sound mind

Requirements of Agent S. 137 Thus, NO requirement, BUT “As between the principal and third persons, any person may become an 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 that behalf herein contained.” Thus, NO requirement, BUT If not attained AOM or not od sound mind, he would not be liable towards his principal for acts done as agent.

Creation of Agency It can be created in 5 ways: Express appointment by principal Implied appointment of principal Ratification by principal Necessity Doctrine of estoppel (holding out)

Express & Implied Appointment S. 140 CA “As between the principal and third persons, any person may become an 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 that behalf herein contained.” Express: appointed expressly in written or oral form. Example: airline companies appointed travel agencies to act as agent to sell air travel. Implied: when appointment is inferred from: the circumstances of the case and things spoken or written The ordinary course of dealings that may be accounted circumstances of the case See illustration S. 140

Ratification Can exist in either of the two situations: An agent who was duly appointed has exceeded his authority; OR A person who has no authority to act for the principal has acted as if he has the authority. Then, principal can reject or accept the contract made as per S.149 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.”

Ratification may be expressed or implied – S. 150 CA It has retrospective effect. Conditions of ratification: The act or contract must be unauthorized When dealing with third party, the agent must expressly state that he is acting for the principal The agent must have a principal who is actual existence or capable being ascertained when the contract was made Principal must have contractual capacity at the time contract was made and at ratification Principal must have full knowledge of all material facts during ratification – S.151 CA Principal must ratify the whole act – S.152 CA It must not injure third party – S.153 CA

Ratification: Example Param appointed Alex as his agent to buy a car for his business with a mandate of RM200K. Later, Alex went to Tan Chong Motors in Kuala Terengganu and ordered a car with the price of RM210K. He told the sales executive that he is buying the car on behalf of Param. A week later Tan Chong delivered the car to Param. If Param confirms and adopted the contract on that day, Alex is said to be his agent through ratification.

Necessity For creation of agency by necessity, these conditions must be fulfilled: Impossible for agent to get principal’s instruction – S. 142 CA Agent’s action is necessary in the circumstances to prevent loss to his principal with respect to the matter committed to his charge. The agent acted bona fide (in good faith)

Necessity: Example Emma is a tour guide for XYZ Tours. She was entrusted by the company with the charge of 20 tourist visiting the beautiful island of Bali. Later, there was a terrorist bombing of a popular tourist spot in the area. Few of her group members are severely injured. She tried to contact XYZ Tours for any contingency plan, but failed due to communication disruption following the attack. She then employ medical assistance from the local doctors and hospitals to treat the injured tourists. If she has not given authority by the company for treatment of tourists, her actions will bound the company by necessity.

Estoppel A person cannot be bound by a contract made on his behalf without his authority. However if by his words and conduct allows third party to believe that a particular person is his agent even when he is not, and the third party relies o it to the detriment of the third party, he will be estopped from denying the existence of that person’s authority to act on his behalf.

Duties of Principal to his Agent Ss. 175-178 CA To pay the agent, unless gratuitous Not prevent or hinder agent from earning his commission To indemnify agent for acts done in exercise of his duties.

Rights of Principal S. 177 CA S. 169 CA Non liability of employer of an agent to do criminal act. S. 169 CA Right of principal to benefit gained by agent when agent deals on his own account in business of agency without the principal’s consent.

Duties of Agent to his Principal Ss. 164-169 CA They are: Conduct business according to directions given by principal Skill and diligence Agent is bound to render proper accounts to his principal upon demand Agent’s duty to communicate with the principal

Rights of Agent Ss. 169-178 CA

Authority of the Agent A’s acts are binding on P if the acts are done within A’s authority. If A exceed authority, P is not bound unless P ratifies the unauthorized act. An agent’s authority may be ACTUAL or APPARENT

Actual Authority Authority expressly given by the principal or implied from the express authority given, form the circumstances of the case, custom and the conduct of the parties. Example: Alex is authorised by Top Hotel to handle reservations of clients, to take the client money, deduct his commission and then remit it to the hotel’s account. He would also have the implied authority to give receipts to client.

Apparent Authority It is also called ostensible authority Authority that is not expressly given by the principal but which the law regards the agent as possessing although the principal has not consented. Secret or private restrictions on the authority of the agent do not effect a third party who does not know of such restrictions and acted in good faith relying on the agent’s apparent authority.

Termination of Agency Agency may be terminated in either of the following ways: The acts of the parties By operation of law

By the acts of the parties S. 159 CA Where the agency is for an indefinite duration, the agent can terminate the agency by giving reasonable notice of termination to the Principal. After giving reasonable notice, the agent is no longer liable to the principal and he can claim reimbursement for all services rendered. If duration is definite/fixed, the agent cannot terminate agency before that date/period without just cause. If terminate, may be liable under S. 158 CA.

By operation of law When the contract of agency has been performed under S. 154 CA Upon the expiry of the period fixed in the contract of agency Upon death of principal under S. 154. Effective when agent has notice of death under S. 161 illus (c) AND S. 62 requires the agent to take all reasonable steps to protect and preserve the interest of the principal when he dies. When the principal or the agent has become insane. See S. 62 When principal becomes insolvent or is made bankrupt under S. 154 Upon the happening of an even which renders the contract of agency unlawful.