Business Law - Topic 9: Law of Agency (Part 2)

Prepared by: Abigail C. Chong

Learning Outcomes (LO)

• Explain duties of principal and agent.
• Discuss situations where an agency relationship could be terminated.

Duties of Principal and Agent

• Relationship is fiduciary, involving trust and confidence.
• Hospital Products Ltd v United States Surgical Corporation (1984)
  • Fiduciary undertakes to act in the interests of another.

Duties of an Agent

1. To obey the principal's instructions

   • Breach leads to agent's liability for losses (e.g., Turpin v Bilton [1843]).
   • No duty to obey unlawful instructions (e.g., Cohen v Kittel [1889]).

2. To act according to prevailing customs

   • In absence of principal's instructions, follow business customs.

3. To exercise care and diligence

   • Required to use skill and diligence as per Section 165 of CA 1950.
   • Example: Selling goods without due diligence on buyer's solvency.

4. To render proper accounts

   • Agents must account for all transactions (Section 166 of CA 1950).
   • Foley v Hill (1848) establishes agents' accounting duties.

5. To pay the principal all sums received

   • Agent's lien on principal's property until remuneration is accounted.

6. To avoid conflict of interest

   • Agent must act solely for principal's benefit.
   • Parker v McKenna (1874) - conflict is not tolerated.

7. To not make secret profits

   • Secret profits must be disclosed to principal.
   • Mahesan v Malaysian Government Officers Co-operative Housing Society Ltd. (1978) - recovery of bribes.

8. Not to delegate duties without consent

   • Delegation only with principal's consent (De Bussche v Alt (1878)).

Duties of a Principal

1. To pay agreed commission

   • Payment contingent on agent fulfilling agency agreement.

2. To indemnify the agent

   • Reimburse agent for authorized actions and costs.

Termination of Agency

1. Termination by Agreement

   • Mutual agreement or contract provisions can terminate agency.

2. Termination by Revocation

   • Principal can revoke authority before exercise unless exceptions apply (e.g., Smart v Sandars (1848)).

3. Termination by Renunciation

   • Agent can renounce with reasonable notice (Section 159 of CA 1950).

4. Termination by Performance

   • Agency ends when the contract is fully performed.

5. Termination Upon Expiry

   • Ends at the expiry of the agreed period.

6. Termination by Operation of Law

   • Events like death, insanity, or insolvency terminate agency.
   • Exceptions for agent's interest in property.

7. Termination by Frustration

   • External events making the agency unlawful (e.g., war).

References

1. Lee Mei Pheng, Ivan Jeron Detta (2022), Business Law, 3rd Edition, Oxford University Press.
2. Dr. Loganathan Krishnan, et al. (2022), Principles of Business and Corporate Law, Malaysia, 4th Edition, CCH Malaysia.
3. Contracts Act 1950 (Act 136)
4. Federal Constitution
5. Civil Law Act 1965 (Act 67)
6. Subordinate Courts Act 1948 (Act 92), Subordinate Courts (Amendment) Act 2010
7. Courts of Judicature Act 1964 (Act 91)