Business Law Tutorial (For TARUC Students Use Only)

Agency

Tutorial 8: Suggested Answers

BL1/2RCA
1. State 4 ways in which an agency may arise.
i. By express appointment,
ii. By implied appointment,
iii. By ratification,
iv. By necessity.

2. Briefly establish the duties of the agent towards his principal.

Answer: The duties of an agent to his principal are:
i. to obey principals instruction, failure to obey is a breach of contract and agent
liable for any loss suffered by principal.
ii. to exercise care and diligence in carrying out the work and to use such skill as
he possesses,
iii. to render proper accounts when required,
iv. to pay to Principal all sums received on Ps behalf,
v. to communicate to P,
vi. In the absence of the Principal, to act to the best interest of the Principal.
vii. not to let own interest conflict with duty , as duty of agent is to act solely for
the benefit of his Principal,
viii. not to make secret profit out of the performance of his duty,
ix. not to delegate his authority unless P approves of the delegation, in case of
necessity / emergency,/ or where the act is clerical and does not involved use of
discretion.
x. not to disclose confidential information or document entrusted to agent by the
principal.

3. An agents authority may be either actual or apparent. Briefly describe the

difference between actual authority and apparent authority, with case law if any.

Ans: 2 main types of authority - 1. Actual. 2. Apparent /ostensible authority.

a. Actual authority arises from an agreement It consist of express and implied

authority. Authority can be implied from the express authority given, the
circumstances, the custom and the position of the person as in the case of :

Panarorama Development (Guilford) Ltd. V Fidelis Furnishing Fabrics.

A company secretary exceeded his actual authority in hiring motor vehicles from
the plaintiffs. The court had to decide whether the defendant company could be
taken to have authorized the hiring. Held that defendant company was liable
because in appointing a company secretary, the defendant company was stating
that the secretary had authority to do things which company secretaries usually

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did. The hiring of motor vehicles was something which a company secretary
usually did, as it was part of company administration.

b. Apparent Authority is where the law regards the Agent as having, although
Principal may not have consented to Agent having such authority. Apparent
authority can happen in 2 situations:

i. Where Principal, by his words or conduct, makes a third party believe that
the agent has authority to act for him. It is the conduct of the Principal that
creates apparent authority.

ii. Where Agent previously had authority to act, but that authority was
terminated by P and P did not inform third parties that he has terminated
the agent.

In Graphic Lines Pt. Ltd. V Chai Chee Mein & Ors (Singapore case) it was
held that the defendants (partners in a night club) were bound by the acts of their
assistant manager who had placed advertisement for the night club with the
plaintiffs. This was because one of the partners had told the plaintiff that
advertisements should be done through the asst. manager. The inference is that the
asst manager had apparent authority.

4. Briefly state the various ways in which an agency can be terminated.

Answers
An agency can be terminated by
a. act of the parties or
b. by operation of law

By act of parties will be by:

i. mutual consent
ii. revocation by the principal
iii. renunciation by the agent

Terminate by Operation of law:

i. by performance of the contract
ii. by expiration of the agency period
iii. by death of either party
iv. by the subsequent insanity of either party
v. by bankruptcy / insolvency of principal.
vi. By frustration e.g. by the happening of an event which renders the agency
unlawful.

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5. P appoints A as her agent, instructing A to buy a lady's watch on her behalf

costing not more than RM5000. A saw a RM10k ladies watch which P had
always wanted, on sale for RM6K and bought the watch on behalf of P costing
RM6k. P is very upset and refuses to pay for the watch. Advise A as to whether P
can refuse to pay for the watch.

i. A has exceeded her authority as agent. This is an issue of ratification under

Section 149.
ii. Whenever agent exceeds his authority, principal has a choice either to accept
which means ratify the agents action or reject which means P is not bound.
iii. In this case P can accept As action which means P is bound ( to the third
party) or P can reject which means P is not bound.
iv. A is advised that P has a right to refuse to pay which means P is not ratifying
the contract.

6. Explain, using case law if any, how an agency by necessity may arise.

3 conditions must be satisfied:

i. Impossible to contact Principal,
ii. Agents action is necessary to prevent loss to principal,
iii. Agent acted in good faith.

Case: Great Northern Railway Co. v Swaffield.

7. Jack who had migrated to Australia, had appointed Ken to be his agent in all his
legal, tax and accounting affairs. Jack had informed Ken to sell his bungalow in
Shah Alam for a price not less that RM1.5 million. In addition, Jack owns three
other properties which have been rented out. Ken was to collect the monthly
rentals and keep proper accounts. Subsequently, Ken informed Jack that he
could not sell the house at that price but there was a buyer who was willing to
pay RM1 million for the bungalow. Jack then authorized Ken to sign the
documents for the sale and purchase of the bungalow. Four months later, when
Jack returned to Malaysia for a holiday, he discovered that the buyer of the
bungalow was Kens wife. Jack also discovered that the collection and recording
of the monthly rentals were not in order but in fact was a shortage of a large sum
of money amounting to RM 200,000. Jack is very upset and wants to know if
Ken has breached these duties as his agent. Advise Jack and the remedies he can
seek against Ken.

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Answer:
1. Ken is the agent for Jack. As agent he owes a fiduciary duty to Jack. This includes the
duty to act honestly, not to allow his personal interest to conflict with his duty, to
obey the principals instruction and to keep proper accounts.

2. One of the duties of an agent is not to allow his personal interest to conflict with his
duty as agent. By selling the bungalow to his wife without Jacks knowledge, Ken has
allowed his personal interest to conflict with his duty to Jack. More so now when he
sold it for RM 1 million when the house is worth RM 1.5 million. This breach of
conflict of interest duty would not have arisen if Ken had disclosed and obtain
approval from Jack that his wife is the buyer for the bungalow.

3. In addition, as agent his duty is to act honestly to the principal. Here by informing
Jack that he was unable to sell the house at the price of RM 1.5 million, without any
effort to look for buyers, Ken had not acted honestly.

4. Another duty is to act in the best interest of the principal. Here Ken had also not acted
to the best interest of his principal, that is, to look for more interested buyers for the
bungalow in order to obtain the best price possible. This was because of his conflict
of interest to keep the bungalow for his wife to buy.

5. Duty to keep proper accounts for the principal. This is another duty of an agent
towards his principal. By failing to keep proper accounts, Ken has breach his duty.
The shortage of RM 200k is a large sum of money and this would indicate that Ken
has not acted honestly.

6. By Kens failure to keep proper account, this also indicates that Ken has breach his
duty to exercise care and diligence when carrying out his work as agent for the
principal.

7. Jack is advised that he can seek the following remedies:

a. Terminate the agency and sue Ken for the damages for Jacks loss.
b. Recover any secret profit e.g. RM1.5 million 1 million = RM500k.

c. Make Ken account, i.e. pay back to the principal Jack, for the shortage of RM
200k.

d. Refuse to pay Kens agency fees and commission.

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