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DPB3063:

BUSINESS LAW
Chapter 4: Agency

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COURSE LEARNING OUTCOME (CLO2)

Apply appropriately basic concepts and principles of


business law in Malaysia. (C3)

At the end of this chapter, students should be able to:


1. Explain the nature of law of agency
2. Explain types of agency
3. Interpret the relationship between principles and
agents as provided under the law
4. Describe the termination of agency

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4.1
Definition

4.6 4.2
Termination Formation

AGENCY

4.5
Rights & 4.3
duties of a Types
Principal
4.4
Rights &
Duties of
an Agent
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Introduction
Agency relationship that constructs the creation
of a legal relationship between a person (the
principal) and a third party via the intervention of the
agent.

Agency is a legal relationship. Exist in employment


law, partnership law, corporate law, buying and selling
of properties, land and goods etc.

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Introduction
Agency is the relationship which subsists
between the principal and agent, who has been
authorized to act for him or represent him in dealings
with others.
There are in effect two contracts;
Made between the principal and the agent from
which the agent derives his authority to act and on
behalf of the principal; and

Made between the principal and the third party


through the work of the agent.
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4.1 Definition
Sec. 135 CA - Agency the relationship that exists between
two person 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 principals legal position in respect of
strangers to the relationship by the making of contracts or
disposition of property

Sec. 135 CA - Agent a


Sec. 136 CA Principal
person employed to do any act
the person for whom such an
for another or to represent
act is done, or who is so
another in dealings with third
represented
persons
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Who can be an agent?
Any person may become an agent; but
persons of unsound mind and who are <18
years old are not liable towards their
principals of acts done by them as agents.

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Who can be a principal?
Anyperson who is 18 years old or above,
Who is of sound mind

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4.2 Formation of Agency

Direct
By By
Appointmen
Implication Ratification
t

Agent of
Estoppel
Necessity

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Direct / Express Appointment
No special form is required for the creation of an agency by
express appointment.
This happens when the principal expressly appoints a
person to be his agent. This can be done in two ways: ORAL
and IN WRITING
E.g.: Ali said Abu, I want you to be my agent.
S140CA 1950 Event a letter written or words spoken
may be effective in appointing an agent

Case: Garnac Grain Co Inc vs HMF Faure & Fairclough Ltd


Held: Express appointment may be in a written or oral
form. 11
By Implied Appointment
Sec 140 CA 1950: an authority is said to be implied
when it is to be inferred from the circumstances of the
case; and things spoken or written, or the ordinary
course of dealing, may be accounted circumstances of
the case.
It happens under 3 situations;
1) When a person by his words or conduct holds out
another person as having authority to act for him.

E.g: Ali always ask Siti to order for him, goods from
Abu. When Abu delivers the goods, Ali will pay the
goods. Now, as impliedly Siti become Abus agent.
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By Implied Appointment
2) Relationship between husband and wife

Pre-assumption can be rebutted;


a) husband expressly forbade wife to pledge credit;
b) husband expressly warned tradesman not to
supply wife with goods or credit;
c) wife was sufficiently provide for with goods;
d) wife given sufficient allowance;
e) the order for necessaries was unreasonable
because of husbands income

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By Implied Appointment
3) Relationship between partners

Held: Any person, irrespective of his


competency to contract, may become an agent,
for whose acts the principle may be liable to 3rd
party

Case: Chan Yin Tee v William Jacks

Held: Any person, irrespective of his competency to


contract, may become an agent, for whose acts the
principle may be liable to 3rd party
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By Ratification
Agency by ratification can happen only if it falls
under these 2 situations;
1. Agent who has been appointed has exceeded his
authority when entered into a contract with the 3rd
party
2. A person who has no authority to act for the
principal but he acted as if he has the authority to
enter into a contract with 3rd party.

When any of the above mentioned situations arises,


the principal can either reject or accept the contract
so made under Sec 149 CA 1950
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By Ratification
When the principal accepts and confirms such a
contract, the acceptance is called ratification
Ratification
may be expressed or implied under Sec
150 CA 1950
Ratification is retrospective, i.e. it dates back to
the time when the original contract was made by the
agent and not from the date of the principals
ratification

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By Ratification
Case: Bolton Partners v Lambert

Held: Ratification may be expressed or may be implied


in the conduct of the person on whose behalf the acts are
done. Ratification is thrown back to the date of the act
done, and that the agent is put in the same position as if he
had had authority to do the act at the time the act was done
by him.

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By Ratification
9 conditions of Ratification
1. The act must be unauthorized
The contract done by the agent was without
authority or exceeding the authority.

2. The unauthorized act is lawful


Case: Brook Vs Hook
The principal may not ratify a contract in which
his signature had been forged by the
unauthorized agent
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By Ratification
3. The agent must act as an agent not as
principal
He must not allow 3rd part to believe that he is
the principal
Case: Keighly Maxted & Co Vs Durant
Fact: An agent was authorized by the appellant (principal)
to buy wheat at a certain price. The agent exceeded his
authority & bought it at a higher price. However, the agent
contracted in his own name.
Held: The Appellent was not liable to Durrant (3rd
party) because the appallent could not ratify the contract
because the contract was made in the agents own name. 19
By Ratification
4. The agent must have a principal who is in
existence
Case: Kelner Vs. Baxter
Held: A contract to buy a hotel made by an
agent on behalf of a company which was not
registered/formed could not be ratified by the
company, because the company (principal) did
not exist at that time.

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By Ratification
5. The principal must have capacity to enter a
contract
Principle in Contract Act 1950 applies

6. The principal must ratify the whole contract


He cannot accept which is advantageous to him
and reject the rest

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By Ratification
7. The principal must have all material fact
regarding the contract
Case: March Vs. Joseph
A principal had ratified a contract without the
full knowledge of all material facts.
Held: The principal was not bound to such
contract

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By Ratification
8. Ratification must be made within a
reasonable time
Case: Metropolitan Asylum Board Vs. Kingham
& Sons
The agent contracted to buy eggs without the
authority. The principal tried to ratify the
contract 1 week after it was made.
Held: Ratification was too late

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By Ratification
9 conditions of Ratification
9. Ratification must not injure a 3rd party
Sec. 153 CA - Ratification must not injure or
affect the interest of a 3rd person

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By Necessity
Under certain circumstances a person may become the
agent of another without having been appointed as such.
Sec. 142 CA A person may become an agent although he
was not appointed.
When this situation happen, that person is known as agent
by necessity.
3 conditions must be fulfilled;
It is impossible to get the principal instructions
The agent action is necessary to prevent loss to the
principal
The agent has acted in good faith
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By Necessity

Case: Great Northern Railway Vs. Swaffield


Fact: D has put his horse on the Ps train to be sent to a
destination which has been agreed by both parties. Upon
arrivals at the destination, there was no one to take the
horse.
The station master didnt know the Ds address and thus
directed that horse to be put in stable.
The railway company later claimed from the D for the
charges of the stable.
Held: P has acted as an agent by necessity.
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By Estoppel
Ordinarily,a person is not bound by a contract made
on his behalf without his authority.

Sec. 190 CA;


It happens when the principal allows a 3rd party
to believe that a person is the agent of the
principal.
The principal can make the 3rd party to believe so
through his conduct or words.
When this happens, the principal is stopped
from refusing to accept that a person is his agent.
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By Estoppel
Example;
Suppose A tells T in the presence of P that A is Ps
agent and P does not contradict this statement. P,
later cannot deny that A is his agent if T sell goods
to A, believing him to be Ps agent and later claim
for the price.

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By Estoppel
Case: Freeman & Lockyer Vs. Buckhurst Park
Properties Ltd

Fact: There were 4 directors in a company. One of them,


A contracted on behalf of the company with T (3rd party)
without any authority. The other directors knew about the
contract, but not inform T that A actually had no authority
to act. This induced T to believe that A had the authority
to enter into a contract on behalf of the company.

Held: The company is estopped from denying that A is


the companys agent and from denying that A had the
authority to act on behalf of the company. 29
4.3 Types of Agency

A del
Broker Factor
credere

Auctioneer Banker

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4.3 Types of Agency

A broker an agent who is


engaged to make contracts A factor (mercantile agent)
between 2 principals (as The factor is an agent for
counter parties) engaged in sale who is entrusted with
trade, commerce or navigation possession of goods
belonging to the principal for
A del credere agent an sale & who sells the goods in
agent who assumes a super- the name of agent without
added duty to ensure the disclosing the name of the
principal is paid by the third principal.
party
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4.3 Types of Agency
Auctioneer An auctioneer is
an agent of the seller, sells the
property of the principal, and
is employed by commission or
for reward.

Banker A banking agent is


a retail or postal outlet
contracted by a financial
institution or a mobile
network operator to process
clients' transactions.
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4.3 Types of Agency
Agency by authority
GENERAL
UNIVERSAL
Anagentin
Agent who is SPECIAL
commercial law (also
authorized to A special agent is
referred to as a
perform all acts or one employed for
manager) is a person
duties his or her the performance of
who is authorized to
principal is a specific task.
act on behalf of
empowered to Once that is
another (called the
perform. Universal accomplished, the
principal or client) to
agents are appointed agency is
create a legal
usually by a 'power extinguished.
relationship with a
of attorney.' 33
DUTIES AND RIGHTS OF A
PRINCIPAL
1. To pay commission or remuneration as
agreed in the contract.

If agent guilty or misconduct,


Sec. 173 CA agent losses
his right to remuneration
Sec. 175 Misconduct refers to
CA wrongful or improper conduct
which results in a wrongful
gain to the agent or a
wrongful loss to the principal
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DUTIES AND RIGHTS OF A
PRINCIPAL
2. Not to willfully prevent or hinder the agent
from earning his commission.
E.g.; A principal cannot
employ a 2nd agent to do the
same act as the first agent.
This is to protect the 1st agent
Sec. 175 from not getting the
CA commission that has been
promised to him by the
principal.
Case: Luxor Vs. Cooper
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DUTIES AND RIGHTS OF A
PRINCIPAL
3. To indemnify & reimburse the agent for
acts done in the exercise of his duties.

Case: Solloway & Anor Vs.


Mclaughlin
The Privy Council held that
Sec. 176 agents who engaged in a
fraudulent scheme to defraud
CA the principal would not be
entitled to be given indemnity,
in regards of transaction which
was formed out of the fraud.
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DUTIES AND RIGHTS OF AN AGENT

1. To obey the principals instructions

An agent must follow the


instruction of the principal. If
Sec. 164 agent does not follow, it is a
CA breach of contract.
An agent only has to follow the
instruction if it lawful.

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DUTIES AND RIGHTS OF AN AGENT
1. To obey the principals instructions.
Case: Turpin Vs. Bilton
The agent has been instructed by
the principal to get the insurance
for his vessel. The vessel lost and
as result the principal has to bear
Sec. 164 CA some loss.
Held: The agent is liable for breach
of duty. Due his failure to obey the
principals instruction. The agent is
liable to pay compensation for the
loss.
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DUTIES AND RIGHTS OF AN AGENT

2. To act according to custom when


instructions are not given.

When the principal does


not give any instructions,
Sec. 164 agent has to act
CA according to normal
standard in doing
business.
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DUTIES AND RIGHTS OF AN AGENT

3. To exercise care, skills and diligence.


Case: Keppel Vs. Wheler
D (agent) was employed to sell the Principals
house. An offer was received & accepted by
the Principals subject to contract. Later, higher
Sec. offer for the same house was made by X but
165 CA this offer was not communicated to the
Principal by D. Contract been made with 1st
offer.
Held: D was liable to P for differences of 2
offers.
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DUTIES AND RIGHTS OF AN AGENT
4. To render proper accounts when required
by the principal.

Agent must give all account


for all monies & property
Sec. 166 CA
that he is in-charged, when
principal ask for it.

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DUTIES AND RIGHTS OF AN AGENT
4. To render proper accounts when required
by the principal.

Case: Lyell Vs. Kennedy


Held: An agent who has been
Sec. 166 entrusted with the principals
CA money/property is bound to keep
the money/property separately
from his own property.

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DUTIES AND RIGHTS OF AN AGENT
5. To pay to his principal all sums received on
behalf of the principal.

Agent must give the principal the


money that he received on behalf of the
principal
Sec. Agent however, before giving all the
170 - monies, may deduct the followings;
171 CA Advances paid by the agent
Agents commission
Agents remuneration
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DUTIES AND RIGHTS OF AN AGENT
6. To communicate with the principal.

Agent must try his best to


communicate with the
principal
Sec. 167 In the situation when this is
CA not possible, e.g. in cases of
emergencies, the agent must
use his discretion to the best
interest of the principal
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DUTIES AND RIGHTS OF AN AGENT
7. Agent must not let his own interest to
conflict with his duty.

Case: Wong Mun Wai Vs. Wong Tham Fatt


Held: D has breached his duty as agent to
the Principal on 2 reasons;
Contrac He sold the Ps share of land below the
t Act market price.
1950 He failed to inform the P that he had sold
it to his wife.
Agent couldnt use his position to gain
profit at the Ps expenses.
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DUTIES AND RIGHTS OF AN AGENT
8. Not to make any secret profit out of the
performance of his duty .

Secre
t
Profit
Bribe, payment of secret
commission by a 3rd party,
financial advantage.

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DUTIES AND RIGHTS OF AN AGENT
8. Not to make any secret profit out of the
performance of his duty
6 actions could be take by Principal if agent are making the secret
profit
1. Sec. 168 - Repudiate the contract

2. Sec. 168 - If the principal knows about it & consent to it, the agent can keep the profit

3. Principal may dismiss the agent on the ground of breach of duty


4. Recover the amount from the agent

Case: Tan Kiong Hwa Vs. Andrew S.H Chong


- P bought a flat from a company. D (agent) was a director of that company. P
ordered D to resell the flat house at the price of RM45,000. However D managed to
sell it at RM54,000 and the extra of RM9,000 was credited into Ds company
account.
- Held: P was entitled to claim the extra RM9,000 from D (breach of duty)
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DUTIES AND RIGHTS OF AN AGENT
8. Not to make any secret profit out of the
performance of his duty
6 actions could be take by Principal if agent are making the secret
profit
5. The principal may refuse to pay commission or remuneration to the agent

Case: Andrews Vs. Ramsay


- Held: Principal can sue both amount;
- Principal can recover the 20 pound commission given by the purchaser to the agent;
- 50 pound commission he has given to the agent

6. Principal may sue the agent & 3rd party for damages, for any loss he suffered due to entering
the contract
Case: Mahesan Vs. Malaysian Govt.
The differences of price was not informed to the P.
- Held: respondent could recover either one of these;
- The bribe money
- The actual loss suffered by respondent as result of entering onto the contract 48
DUTIES AND RIGHTS OF AN AGENT
9. Not to disclose confidential information or
documents entrusted to him by his
principal.

10.Not to delegate his authority.


Delegates non potest delegare (a
delegate cannot delegate)

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DUTIES AND RIGHTS OF AN AGENT
10. Not to delegate his authority
Exceptions;
a) where the principal approves of the delegation.
Case: De Bussche Vs. Alt
The principal appoints an agent to sell the ship at a certain price. The
agent cannot sell it & ask the principal whether he can appoint a sub
agent to replace him. Principle approved it.
Held: Agent didnt breach his duty because the appointment of sub-
agent was approved by principal
b) Where it is presumed from the conduct of the parties that the agent
have power to delegate his authority
c) Where the customs of the trade or business permits the delegation
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DUTIES AND RIGHTS OF AN AGENT
10. Notto delegate his authority
Exceptions;
d) In case of necessity or unforeseen emergency.
E.g illness of agent

e) Where the act to be done purely ministerial or


clerical and does not involve the exercise of
discretion

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TERMINATION OF AN AGENT
Termination ending the contract of agency
between principal and agent

Agency can be terminated in many ways;


by act of parties
by operation of law

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TERMINATION OF AN AGENT
Classification of modes of termination;
By agreement
By the principal revoking the agents authority
By the agents renunciation
By performance
By operation of law
By frustration

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By Agreement
When both parties desire and agree that the
agency shall terminated, the agency is
terminated.

In this method;
Both the principal and the agent can agree that the
agency is to come to an end

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By Agreement
In this method;
Both the principal and the agent can agree that the
agency is to come to an end

If the agency is evidenced by a contract, then any


provisions regarding the termination should be
observed by the party wishing to terminated the
agency

Reasonable notice must be given depends on the


facts and circumstances 55
By Agreement
Case: Sohrabji Vs. Oriental Security Assurance
Held: 3 notice was not adequate to
terminate an agency which had lasted to 50
years. In this circumstances, 2 years notice
would have been reasonable notice.

Case: Syarikat Jaya Vs. Star Publication (M) Bhd


Held: The court held that 6 months notice was
reasonable in terminating a sole agency
agreement.
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By The Principal Revoking The Agents
Authority
The principal may revoke the authority of the
agent at any time before it has been exercised
to bind the principal.

The principal can revoke the agents authority


where;
The principal gives notices to agent
The agent is in default under the agency

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By The Principal Revoking The Agents
Authority

The power to revoke the agency by principal


is limited by;
1. Sec. 155 The agent has an interest in subject-
matter

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By The Principal Revoking The Agents
Authority
Case: Smart Vs. Sanders
Fact: A factor (an agent) was sent with goods
to be sold on behalf of the principal. The
factor made advances to the principal for the
security of the goods.
Held: the agency cannot be terminated by
the principal because the agent has an
interest in the goods by paying the security of
the goods.
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By The Principal Revoking The Agents
Authority

The power to revoke the agency by principal


is limited by;
2. Sec. 157 the principal cannot revoke the
authority given to his agent after the authority
has been partly exercised

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By The Principal Revoking The Agents
Authority
Case: Read Vs. Anderson
Held: a principal could not revoke the turf
commission agents authority after losing the
bet. The principal would have to indemnify the
agent for the amount which the agent had
paid to the person with whom he made the
bet.

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By The Agents Renunciation
An agency may be terminated when the
agent surrenders his or her authority and by
doing so ends the mandate given to him as
agent.

Sec. 159 an agent may renounce the


agency by giving a reasonable notice of
termination to the principal

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By The Agents Renunciation
Ifthe reasonable notice has been given, the
agent will no longer be liable to the principal.

Sec. 158 - If the agent failed to give


reasonable notice, agent is liable for any
damages suffered by principal.

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By Performance
Sec. 154 by the performance of the
contract of agency, that is the transaction
which has been undertaken is performed.

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By Operation of Law

1. Sec. 154 When the Principal or Agent


becomes insane
Since insane people is not capable of entering a valid
contract, the agency is terminated by such insanity

2. Sec. 154 By bankruptcy or insolvency of


principal
Upon insolvency, a persons rights and responsibilities
are vested and therefore the agency relationship is
ceases.
Case: Blades Vs. Free / Case: Pool Vs. Pool
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By Operation of Law

3. Sec. 155 Upon the death of the Principal


or Agent
The death of either the agent or principal terminates the
agency
Case: Blades Vs. Free / Case: Pool Vs. Pool

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By Frustration
Upon the happening of an event which
renders the agency unlawful, the agency may
be terminated.

Case: Stevenson Vs. Aktiengesellschaf Fur


Cartonnagen
Held: an outbreak of war made the principal
an enemy alien, it was held that the agency
was terminated.
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Q & A SESSION
THE END

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