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Business law

Business law. Chapter 10 - LAW OF AGENCY. LEARNING OUTCOME. How to create an agency relationship? What are types of authority an agent may have? What are the duties and rights of agent as against the principal and vice versa ? In what situations will agency come to an end?. INTRODUCTION.

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Business law

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  1. Business law Chapter 10 - LAW OF AGENCY

  2. LEARNING OUTCOME • How to create an agency relationship? • What are types of authority an agent may have? • What are the duties and rights of agent as against the principal and vice versa? • In what situations will agency come to an end?

  3. INTRODUCTION • Governed by Part X Contracts Act 1950. • Definition of agent (A) - S.135. • Definition of principal (P) – S.135. • There are two contracts i.e. P and A; P and 3rd P.

  4. Who is an agent? • Who may be an agent?S137- any person but not a minor or unsound person • Consideration not required – S.138. • The meaning of an agent in legal sense is different from its commercial sense. • To determine the existence of agency the court will look at the authority given to the agent. • Sec 136-a P must • not be a minor • of sound mind

  5. Who is an agent? • The agency contract can be made verbally • There is no requirement that the agency contract has to be in writing • This was confirmed in the case of KGN Jaya Sdn. Bhd. v. Pan Reliance Sdn. Bhd. [1996] 2 CLJ 611 • In this case, the court held that the law does not require that an agency or sub-agency agreement must be in writing

  6. CREATION OF AGENCY • Express appointment – S.140. • Implied appointment – S.140 [every partner is an agent of another partner - S.7 PA 1961]. • Ratification – S.149. • Necessity – S.142. • Estoppel/holding out – S. 190. Query? What are the differences?

  7. 1-By express appointment No special form required If the authority is under seal, need to made under a Power of Attorney which is registered at High Court Can be made orally or in writting

  8. 2.By implied appointment When a person by his word or conduct holds out a person to be his agent (holding out) Eg: A held out that he is B’s partner. C believed it and supplied good to B. B did not pay. C has right to sue both-see Illustration to Sec 140 Relationship between husband & wife. -it is presumed that wife has authority to plegde her husband’s credit. -this is still rebuttable if the husband prove otherwise Sec.7 of Partnership 1961- a partner is a agent to the other partner when contracting in the course of the partnership business

  9. 3.RATIFICATION • Two situations. • Agent who was appointed exceeded his authority. • Person has no authority, acted as if he has the authority. • If the P later on ratifies either one of this act, the contract is binding.

  10. 3.RATIFICATION • Conditions (s149-s153 CA 1950): • A’s act or contract is unauthorised. • The unauthorised act must be one recognised by law. E.g : it cannot be a criminal act. • The agent at the time acting for P and not for himself. • P must exist, have contractual capacity and full knowledge of material facts. • The third party does not believe that A is a P.

  11. 3.RATIFICATION • Conditions (s149-s153 CA 1950): • P must ratify the whole contract i.e cannot accept partly only. (Sec 152) • The ratification must be made within reasonable time • The ratification must not injure the 3rd party.(Sec. 153 & illustration)

  12. 3.RATIFICATION • The consequences of ratification are as follows: - • As if the contract was originally made on the principal’s authority (s149 CA 1950) • The contract is between the principal and the third party. Thus, one may sue and be sued by the other • Ratification is retroactive to the date on which the agent did the act (Bolton & Partners Ltd. v Lambert [1889] 41 Ch D 295)

  13. 4.AGENCY BY NECESSITY- Sec. 142 • Under certain circumstances a person may become the agent of another without having been appointed as such. • Examples of agencies of necessities : • a. a wife who is deserted or who is justified in leaving her husband and has no means of support, can pledge her husband’s credit for necessaries of life

  14. 4.AGENCY BY NECESSITY- Sec. 142 • b. a commercial agency of necessity- when a person is entrusted with another’s property and it becomes necessary to act to preserve that property although he has no express authority to do so. • Case: Great Northern Railway Co v Swaffield-The plaintiff (a railway co) had contracted with B to deliver a horse to a certain place. Upon arrival, nobody took the horse. Thus the plaintiff stored the horse in a stable. Later the plaintiff asked for the storage charge. The defendant denied. • Held : plaintiff acted as an agent of necessity in this matter to preserve the horse

  15. 4.AGENCY BY NECESSITY- Sec. 142 • Must satisfy conjunctive conditions. • 1.Impossible to get P’s instruction. • Case : Springer v Great Western Railway Company • 2.Prevent further loss to P. • If no urgency exists and the goods are sold merely because they are inconvenience to the agent, agency of necessity does not arise. • .e.g sale of furniture in Sachs v Miklos. Or sale of car in Munro v Wilmott and Co. • 3.A acted in good faith. • Applied in Great Northern Railway Co. v Swaffield (1874) LR 9 Ex 132.

  16. 4.AGENCY BY NECESSITY- Sec. 142 • Conditions 2 & 3 above are stated in s142 where “in an emergency” and the need for the agent to act as “a person of ordinary prudence” • Condition 1 is stipulated in s167: - “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”

  17. 5. AGENCY BY ESTOPPEL • S. 190. • Person not bound by contract on his behalf without his authority. • If by his words or conduct,allows a 3rd party to believe that A is his agent,when A is not,that person will be estopped from denying the existence of A’s authority. Query? Can P refuse to be bound?

  18. Del credere agent He is an agent to P Contracted with 3rd party & promised to pay extra commission -if 3rd party fail to do something, the agent is liable Kind of agent As to the Functions As to the extent of authority Universal agent Auctioneer -agent for the seller when accepted bid from buyer -acted for buyer When received payment from the buyer Special agent Factors -Commercial agent entrusted with good -has lien over the good if P did not pay the commission -appointed for certain act. -the power is limited to such act only -a general agent with extensive power -normally via Power of Attorney -very rare General agent -an agent employed for a certain trade or business. -can do all that is usual in the ordinary course of business Brokers: commercial agent appointed to negotiate based on commision but he does not have lien over good if P did not pay him

  19. AUTHORITY OF THE AGENT • If A acts within his authority, P is bound. • If A acts beyond his authority, P is not bound unless P ratifies. Query? What is the effect then? • Thus, A is in breach of warranty of authority. • Even if A act in good faith – Yonge v Toynbee [1910] 1 KB 215.

  20. AUTHORITY OF THE AGENT • Actual authority: conferred upon the agent by agreement. It comprises: • Authority expressly given by the principal to agent orally or in writing • Authority implied from the following • express authority given • the circumstances of the case • the custom or trade usage • the situation and conduct of the parties. • Case on implied or usual authority: Watteau v Fenwick / Panorama Development (Guilford) Ltd v Fidelis Furnishing Fabrics Ltd

  21. AUTHORITY OF THE AGENT • Apparent/Ostensible Authority • May arise in two situations: • Where a principal, by his word or conduct, leads a third party to believe that his agent has authority to make contracts for him.-Sec 190 • Where the agent previously had authority to act, but that authority was terminated by the principal without notice to third parties.

  22. AUTHORITY OF THE AGENT • Apparent/Ostensible Authority • The agent is presumed to have the authority that the principal causes him to appear to have, the element of estoppel applies as the principal is precluded from denying that the agent had such authority.

  23. AUTHORITY OF THE AGENT - II • Case on apparent authority: Graphic Lines Pte Ltd v Chai Chee Mein & Ors • The distinction between implied actual authority and apparent authority is that the former is based on inferences drawn from an agreement between principal and agent whereas the latter is based on a representation made by a principal to the third party irrespective of any agreement between principal and agent.

  24. AGENT’S DUTIES TO PRINCIPAL – (Sec 164-174) • Carry out P’s instructions – S.164 • If no instructions, act according to custom – S.164. • Exercise proper care, skill and diligence – S.165. Query? What should the standard be? • Render proper accounts – S.166 • Communicate with P – S.167. (unless the case falls under Sec 142) Query? What if he could not do so? • Pay sums received on behalf of P – S.171.(see also Sec 170 & 174)

  25. AGENT’S DUTIES TO PRINCIPAL – (Sec 164-174) • Avoid conflict of interest – S.169. • Applied in Wong Mun Wai v Wong Tham Fatt and Anor [1987] 2 MLJ 249 [ A sold P’s shares to own wife]. • Sec-168-Cannot make secret profit. If there is, P can: • Repudiate contract with 3rd Party;Sec- 168 • Recover secret profit – S.169. However if P know & consent, the agent can keep the secret profit • Refuse to pay commission • Dismiss A • Sue A and 3rd P for damages.

  26. AGENT’S DUTIES TO PRINCIPAL – (Sec 164-174) • Cannot disclose confidential information. • Not to delegate because of delegatus non potest delegare principle unless exceptions apply.

  27. AGENT’S DUTIES TO PRINCIPAL – (Sec 164-174) • Exceptions: • Where P approves • Presumed power to delegate from the conduct of the parties • Trade custom permits • Nature of trade allows such delegation • Necessity • Ministerial or clerical act

  28. AGENT’S RIGHTS AGAINST PRINCIPAL • Retain out of sums received on P’s account for money due to him – S.170. • Claim remuneration when act is completed – S.172. • But no such right for misconduct – S.173. • Lien on P’s property until money due to A is paid – S.174.

  29. AGENT’S RIGHTS AGAINST PRINCIPAL • Indemnified for lawful acts done in good faith – Ss.175 & 176. • Claim compensation for injury due to P’s neglect – S.178.

  30. P’S DUTIES TOWARDS THE AGENT (SEC. 175-178) • To pay commission or other renumeration • Not willfully prevent the agent from his earning commission • To indemnify and reimburse the agent

  31. PRINCIPAL’S RIGHTS AGAINST AGENT • Repudiate transaction if A deals on his own account – S.168. • Claim any benefit if A deals on his own account – S.169.

  32. TERMINATION OF AGENCY • P revokes authority/ A renounces agency provided reasonable notice given – S.154. If not, can be liable to the other party – S.159. • Completion of agency – S.154. • P/A died or became unsound mind – S.154.

  33. TERMINATION OF AGENCY • P declared bankrupt - S.154. • Mutual agreement by P and A. • Time period fixed has expired. • Event which makes agency unlawful.

  34. SUMMARY • Rights of agent very much depends on terms set by principal. • Rights of third party is at the mercy of the principal and agent.

  35. QUESTIONS

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