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By,
Ms. Sharvina Binti Shajahan
Faculty of Business
 Introduction
 Law of Agency is governed by Contract Act 1950;

 Definition :
An agency is the relationship that exists between two persons
when one, called the agent, is considered in law to represent the
other, called the principal, in such a way as to be able to affect
the principal’s legal position in respect of strangers to the
relationship, by making of contracts or the disposition of property.

 Agent – person employed to do any act for another or to

represent another in a dealing with third persons
 Principal – person for whom such act is done, or who is so
represented
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 Therefore agency is the relationship which subsists between the
principal and agent
In agency – exist TWO contracts:
1st – contract made between the principal &
the agent from which the agent derives his
authority to act for & act on behalf of the
principal;
2nd – made between the principal & the third
party through the work of the agent.

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 Creation of Agency
The authority of an agent may be:-
 Expressed
(given by words spoken or written)
 Implied
(inferred from things spoken or written or from
the ordinary course of dealings)

KGN Jaya Sdn. Bhd v Pan Reliance – agency

arrangement need not be in writing 5
Agency may arise in the following ways:

 By express appointment by the principal;

 By implied appointment by the principal;
 By ratification by the principal;
 By necessity - i.e. operation of law;
 By estoppel.

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By express of appointment
 Express appointment may be in written or oral form.
 An example of an express appointment made in writing is
a Power of Attorney.
 Involves actual consent of the principal and the agent -
Garnac Grain Co Inc v HMF Faure & Fairclough Ltd
[1968] AC 1130

By implied agreement
 Actual implied authority is by way of the implied consent
of the principal and the agent. This is derived from the
words and conduct of the parties.
 The Law can infer the creation of an agency by implication
when a person by his words or conduct holds out another
person as having authority to act for him.
 Section 7 of the Partnership Act 1961, partners are each
other’s agents when contracting in the course of the 7
partnership business.
By ratification
Agency by ratification can arise in the following situations:-
i. An agent who was duly appointed has exceeded his authority; or
ii. A person who has no authority to act for the principal has acted as if he
has the authority.
 Defined in the case of Hatman v Hornsby - “the approval by act, word or
conduct of that which was attempted, but was improperly / unauthorisedly
performed in the first instance.”
Section 149 CA - Ratification arise in situations :-
i. where an agent has exceeded his authority;
ii. where a person who has no authority to act for the principal has acted as
if he has the authority.
 When the principal accepts & confirms such contract, the acceptance is
called ratification.
 Section 150 CA - Ratification may be expressed / implied in the conduct
of the person on whose behalf the acts are done.
 Effect of ratification - render the contract as binding on the principal as if
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the agent had been properly authorised beforehand.
By Necessity

An agency by necessity may be created if the following conditions:-

i. It is impossible for the agent to get the principal’s instruction

ii. The agent’s action is necessary, in order to prevent loss to the
principal with respect to the interest committed to his charge e.g.
when an agent sells perishable goods belonging to his principal to
prevent from rotting
iii. The agent of necessity must have acted in good faith.

 In an emergency an agent has authority to do all such acts for the

purpose of protecting his principal from loss as would be done by a
person of ordinary prudence, in his own case, under similar 9
circumstances.
By Estoppel

 A person cannot be bound by a contract made on his behalf

without his authority.
 The principal representing to the third party that the agent had
authority to do the act in question when in fact there was no
underlying of grant of authority for the agent so to act.
 Three elements of estoppel are:
i. A representation made by or on behalf of the principal to the
third party concerning the authority of the agent
ii. Reliance by the third party on the representation made by the
principal to the third party
iii. The third party must rely on the principal’s representation & alter
his legal position on the representation.
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1. To pay the agent the commission or other
remuneration as agreed unless the agency
relationship is gratuitous;
2. Not to willfully prevent or hinder the agent from
earning his commission;
3. To indemnify the agent for acts done in the exercise
of his authority;
4. To respect any lien the agent has over the property
of the principal in the actual or constructive
possession of the agent.
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1. To obey principal’s instructions - Section 164;
2. In absence of instructions, to act according to customs which
prevails;
3. To exercise care & diligence in carrying out his work - Section
165;
4. To render proper account for all monies & property - Section
166;
5. To pay to his principal all sums received on his behalf;
6. To communicate with the principal - Section 167;
7. Not to let his interest conflict with his duty;
8. Not to disclose confidential information or documents
entrusted to him by his principal;
9. Not to delegate his authority;
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10. Not to make secret profit out of the performance of
his duty - Section 169;

– Principal may do the following in event of agent taking

secret profits:
• Repudiate the contract
• Recover the amount of secret profit
• Refuse to pay the agent his commission or other
remuneration
• Dismiss the agent for breach of contract
• Sue the agent and third party for the bribe

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 Authority of Agent
 In agency law, authority means the power, right or commission
that an agent has or appears to have to do acts or make contracts
with third parties on the principal’s behalf.
 An agent’s acts are binding on the principal if they are done within
the agent’s authority.
 If an agent does an act beyond his authority – principal not bound
Authority may be:
i. Actual - authority expressly given by the principal or implied from
the express authority given;
ii. Apparent – not expressly given but which the law regards the
agent as possessing although the principal has not consented to
his exercising such authority
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 Termination of Agency
An agency can be terminated by the following
ways:
1. By agreement
2. By the principal revoking the agent’s authority
3. By performance
4. By operation of law
5. By frustration

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Section 154 - agency is terminated by:
 Principal revoking his authority;
 Agent renouncing the business of the agency;
 Business being completed;
 Death of principal or agent;
 Insanity of principal or agent;
 Bankruptcy of principal or agent.
Section 156 - principal may revoke the authority given to agent at any
time before the authority has been exercised so as to bind the
principal
Section 159 - reasonable notice to be given of such revocation otherwise
the resulting damage must be compensated
Section 160 - Revocation may be expressed or implied
Section 161 - termination of the authority of an agent does not take effect
before it becomes known to him, or, so far as regards third person, 16
before it becomes known to them
 If agency is created for a fixed period, the
agency is terminated at the expiry of the period
whether or not the business is completed.
 Upon the happening of an event that makes the
agency unlawful, the agency is terminated by
frustration

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1. Define Agency.
2. What is the Act govern Agency Law in
Malaysia?
3. List down the duties of an agent.
4. Describes the five (5) ways an agency
can be created?
5. State the ways in which an agency can
be terminated.
6.List down the duties of principal to agent
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