RELATIONSHIP BETWEEN

AGENT AND PRINCIPAL

THE RIGHTS AND DUTIES OF
AGENT AND PRINCIPAL

Introduction
Agency is based on mutual
trust and confidence
The principal trusts the agent
to carry out his work
The agent trusts the principal
to pay his remuneration
Consequently, the law
imposes duties and rights on
both parties

Duties of agent to principal

Section 164 171 of Contracts Act
1950
Obey the principals instructions
Agent is personally liable for any loss
suffered by the principal

Act in the usual way reasonable

manner
Use skill and knowledge
Render proper account

Duties of agent to principal

Receive and pay money into
principals account
Keep confidential information
from unauthorised third parties
unless principal gives consent
Contact principal for instructions
whenever necessary subject to
section 142

Duties of agent to principal

Not to sub-delegate unless:
Minor clerical work
Agent is unable to perform his
job
Temporary or permanent
disability
Hospitalisation
Unsound mind

The principal has given consent

Duties of agent to principal

Duty to act bona fide (in good
faith)
Good faith means to act honestly,
without any intention to cheat or
deceive

Fiduciary duty
Act bona fide
Honesty and accountability
Avoid conflict of interest
Give priority to the interest of the

Fiduciary relationship
Relationship based on mutual
trust and confidence
Where the party owes the duty
to protect each others interests
Duty to act honestly to each
other
This is the duty of good faith or
to act bona fide for the interest
of the other party
Usually owed by agent to

Conflict of interest
Where the personal interests of
the agent conflicts with that of the
agency
The agent is in a position where
he could elect to act for himself
instead of for the principal
The agent might be tempted to
serve his own interest rather than
the agency
Consequently, he would act for his

Circumstances where
conflict of interest may
arise

1) Competing with the principal

2) Contracting with the
principal
3) Using his position as an
agent to gain personal profit
or benefit
4) Acting for more than one

Competing with the

principal
Where the agent himself is
dealing in the same business or
with the same customers as the
principal
This will lead the agent to use the
opportunity presented by the
agency to serve his personal
interest
The priority will change - resulting

The remedies
1) Recover any profit made by the
agent as it is considered to be
secret profit
2) Not to pay the agents
remuneration
3) Dismiss or terminate the
agents service for breach of
duty
4) Sue the agent for damages on
actual losses suffered by the

Contracting with the principal

Where the agent becomes a party to
the transaction with the principal
i.e. as a buyer for the property the
principal instructed him to sell
The agent may only contract with the
principal when he had disclosed the
matter and received consent from the
principal
Failure to do so is a breach of good
faith
Section 168 of the Contracts Act 1950

The remedies
The principal has the right to
repudiate the contract even
though he did not suffer any
losses
It is sufficient to show that
the agent had dishonestly
concealed material facts (the
identity of the contracting
party) from him
Illustrations (a) and (b) to
section 168

Wong Mun Wai v Wong Tham

Fatt & Anor (1987) 2 MLJ 249
The 1st defendant was an agent
for the plaintiff. He had sold the
plaintiffs land to his wife at a
lower price than the market value.
The court held that he had the
duty to act in good faith which he
had breached by using his position
to promote his own interest over
that of the principal.

Using his position to gain

private profit or benefit
Section 168 of the Contracts Act
1950
This is also known as secret profit
It is defined as any money or benefit
received by the agent in the course
of his duty over and above the
remuneration due to him from the
principal
The money or benefit could be said
to properly belong to the principal

Instances of secret profit

Receiving bribe from a 3rd party
Receiving commission from a 3rd
party
Discounts which were not
disclosed to the principal
Using confidential information
gained from his position
Any money or benefit received as
a result of competing or
contracting with the principal

Acting in good faith

It is a breach of good faith even if
there was no fraud or dishonesty
involved
It is sufficient to show that the agent
had received an advantage or that it
is to the detriment of the principal
The agent is not liable if he had
disclosed it to the principal and was
given consent to keep the money or
benefit

The remedies
1) Repudiate the contract
2) Recover the secret profit
3) Not to pay the agents
remuneration
4) Dismiss or terminate the
agents service
5) Sue agent and 3rd party for
damages
If the principal elects to sue for

Mahesan v Malaysian Govt. Officers

Co-operative Housing Society Ltd
(1978)1 MLJ 149
The director and secretary of the
Society bought land for the society
from the vendor at RM 944,000. For
this, he received a payment of RM
456,000 from the vendor.
The court held that the society could
recover either the bribe of RM 456,000
OR damages for the actual loss
suffered by the society as a result of

Acting for more than one

principals at the same time
Where the business, market or
customers are the same or similar
Conflict of interest might arise as
the agent would have to choose
between two or more competing
interest
For instance, if he is selling two
houses belonging to two
principals and a customer is
found, then which house shall he

More than one principal

He may only act for more than one
principal if consent is given by all
the principals
In Fullwood v Hurley (1928) 1 KB
498, an agent who was instructed
to administer some property was
held to have breached his duty of
good faith when he acted and
received commission from two
different parties without consent of
either party.

Duties of principal to agent

Pay remuneration to the agent
Not to hinder agent from getting
his remuneration
Pay indemnity to the agent for
matters or liabilities arising from
the performance of his job

Duties of principal to agent

Indemnify the agent if:
Agent suffers injury or losses in
performing his job
A third party suffers loss or injuries
in performing his job
Agent has used his own money to
pay for the expenses to perform his
job

As long as it happened while

agent is performing his duty
according to instruction

Rights of the agent

Receive remuneration for his
work
Deduct money received from
principal for expenses and
remuneration (according to the
sum agreed)
Indemnity for any lawful acts
done in performance of his duty
He is not entitled to any indemnity
if he committed an unlawful act

Rights of the principal

Full account of information from
agent
Receive money obtained by
agent in performing his job
Honesty and accountability on
the part of the agent
Skill and knowledge of the agent
in performing his job