Agency relationship All the sections referred to are found in the Contract Acts. 2 contracts :

1. Agency relationship All the sections referred to are found in the Contract Acts. 2 contracts : i - contract of agency bet A and P ii – any other contract bet P and T concluded by A Principal 1 Agent 2 3rd party (T)

2. Principal – the person who appoints another to contract with third parties. Agent– the person appointed to contract on behalf of another. Agency – contract under which one party is authorised to contract for another.

3. Express authority: specifically delegated to agent by the agreement creating the agency. Implied authority: agent’s authority to do things in order to carry out express authority. Apparent authority: authority that an agent Is believed to possess because of principal’s behavior.

4. When an agent (A) acts for the principal (P) w/in his authority the act binds P to 3rd party (T). e.g. A bought a piece of land for the P from T. The contract binds P and T. They have incurred obligations and responsibilities towards each other. A is not responsible for the contract

5. Creation of agency relationship i- by express appointment Oral or written. If the contract to be entered by A for P is a contract under seal such as sale of land, A’s appointment must be made under a written appointment by way of a power of Attorney (PA)

6. ii- implied appointment (a) P’s the words or conducts informs others that A has authority to act as P’s agent. e.g. P allowed A to order goods for P and always paid for the goods. P is bound for the goods ordered by A as A was impliedly appointed as P’s agent.

7. (b) Relationship bet husband (H) and wife (W). W becomes the agent for H to pledge H’s credit for necessaries suited to their style of living. e.g. H a rich businessman. W can bought goods on credit in a very expensive place. W is the agent of H because it suit their status and the goods are necessaries for their lives

8. H/ever, W’s action may not bind the 3rd party and H if H can show that: - H had expressly forbade W from pledging his credit (bought goods etc on credit); or • H expressly warned 3rd party against supplying W with goods etc on credit;or • W was sufficiently provided for the goods of that kind; or • W was given sufficient allowance (money) for buying the goods w/out the need to pledge H’s credit; or • The order was unreasonable considering H’s income at that time although it is for necessaries.

9. (c) Section 7 of the Partnership Act 1974 provides that partners are agents to each others when contracting in the course of the partnership business.

10. iii- Agency by ratification The acts of P in adopting contract entered into by A who has no authority or who has exceeded his authority. e.g. A was authorised to buy a car worth not more than RM30,000. A bought a car valued at RM35,000. This contract is beyond his authority. P may accept the contract. By accepting the contract P is said to have ratified the contract. P may refuse the contract. He is not bound to the seller of the car if he refused to accept the contract.

11. The contract ratified by P binds him from the date, day and time the contract was made by A. e.g. A bought the car on 2/4/2008. P ratified the contract on 3/5/2008. The contract required the purchaser to pay the price 2 weeks after the contract. Since the contract was made on 2/4/02008 and P had ratified it, failure to pay 2 weeks after 2/4/2008 entitled the 3rd party to sue P for the price because P had committed a breach of contract for failure to pay as required by the contract.

12. Ratification can only be done if the conditions are fulfilled: 1) The action or contract was unauthorised; 2) The action or contract must be lawful and valid. Not unlawful and void contract. 3) A must acts as agent at the time of contracting. He must not, at the time of contracting, creates the impression that he was acting for himself. 4) A must have a P who exist at the time of contracting. If P does not exist, it cannot ratify the contract.

13. e.g. in case of a newly incorporated company. Company was incorporated on 1/1/2008. A contract was entered into on behalf of the company by its incorporator on 12/12/2007. The contract does not bind the company unless the company ratify the contract after its incorporation.

14. Cosmic Insurance Corporation Ltd v Khoo Chiang Poh The company was not yet in existence. The incorporators while in the process of incorporating the company made a contract to appoint the Resp as MD for the company for life. The contract was made on behalf of the company.

15. Q- Did the appointment of the Resp. by the agents binds the company wh had not been in existence at the time the appointment was made? Held- the contract of appointment of the MD binds the company. There was a ratification when the company held a meeting and passed a resolution wh said, “Resolved that Mr Khoo Chiang Poh be appointed managing director and holds office for life in accordance to the Articles and Memorandum of Association and is responsible to the board of directors.”

16. 5) P has capacity to contract at the time the contract was made and at the time of ratification. [s 136] 6) P must have full knowledge of the facts that are material to the contract. e.g the party to the contract, the subject matter, the time, the terms of the contract, the conditions of the contract etc. 7) P must ratify the whole contract. Cannot accept what is advantageous and refuse the rest of the contract.

17. e.g. A bought the car for RM35,000 from S. The contract said that buyer will pay the price in cash and trade in of old car. P must pay the price in cash and also by trading in his old car. He cannot refuse to trade in his old car and pay the price in full in cash. If P accepted the contract in part and refused in part, P is bound by the contract in full and considered to have breached the contract if he did not want to transfer the car to S.

18. 8) Ratification must be made w/in a reasonable time. [s. 152] Metropolitan Asylum Board v Kingham And Sons P purported to ratify the contract 1 week after A bought eggs w/out authority. It was held that the ratification was too late.

19. Grover and Grover v matthews An attempt to ratify a contract of insurance after fire had destroyed the subject of the insurance was held impossible. P and the insurance was not bound by A’s unauthorised act.

20. 9) The ratification must not have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person. [s.153 and Illustration (a)] e.g. T offers to sell goods to A. A accepted the offer w/out authority on 1/1/ 08. on 3/1/08 T sold the goods to C. P purported to ratify A’s action on 4/1/08. P’s ratification will not bind T because it will take away C’s title to the goods.

21. iv – agency by necessity S 142 Agent w/out appointment. Examples of agency by necessity a)-wife (W) who was left by husband (H) or justified to leave H, can pledge H’s credit for the necessaries of life. What is necessary depends on H’s income and position. If W had been given adequate allowance or has means of her own to support her life – no agency of necessity.

22. b)- necessity of commercial nature A person (A) was entrusted with a property by another person (B). It is necessary for A to act to preserve the property of B. Although B did not expressly authorise A to take that action, A is considered as an agent to B. e.g. B, a fresh fruit supplier gave 20 baskets of mangoes to A to be sent to UPM. Big flood occurred while A was driving along the high way in Penang. The flood will not end sooner. A must take action to save the fruits because otherwise the fruits will be spoilt

23. e.g. A had a neighbour B. B entrusted A to take care of B’s house while B was away. Before B return to Malaysia, A was assigned to work overseas. A may have the authority to appoint an agent to look after the house and promised that the agent will receive payment from B.

24. Before agency of necessity can arise - must fulfil the conditions: a) There must be genuine emergency Great Northern Railway Co v Swaffield, The railway company transported the Def’s horse. When no one arrived at the destination to collect it, the railway company paid to put the horse in some stables.

25. Q- did the Def. liable to pay for the cost of the stable? Held – Plf was allowed to recover the costs as necessity had forced them to pay for the stables on behalf of the Def.

26. Prager v Blatspiel Stamp & Heacock Ltd. An agent acting for a principal bought furs in 1915. War broke out and the agent could not communicate with the principal. The agent sold the skins which had increased in value. Held:  The agent was liable to the principal since the furs could have been stored properly and the sale was not necessary. He could quite safely have stored the skins until after the war.

27. b) Impossible for A to get instruction from P. Springer v Great Western Railway Def. agreed to carry tomatoes for Plf from Jersey to Convent Garden Market. The ship that carried the tomatoes from Jersey were delayed by bad weather. When the ship arrived at the port, the railway workers were on strike. Def. decided to sell the tomatoes locally before they become rotten.

28. Held - that the railway company should pay the owner of the tomatoes the difference in the price between the price obtained locally and the (higher) price which would have been obtained in London Why? The reason for this is that it was possible for the company to have contacted the owner for instructions before selling the tomatoes locally. But they did not try. The rule is = A must try to get instruction from P before acting to save P from loss.

29. c) The agent must have acted bona fide (in good faith). He must act in the interests of the principal rather than in his own interest. Sachs v Miklos The Def had agreed to store the Plf's furniture free of charge . After a considerable time the Plf had not reclaimed the furniture and, since the Def wished to rent out the room where it was stored, the Def attempted to contact the Plf. Despite numerous attempts to make contact, the Def could not find the Plf and so he sold the furniture.

30. The Plf then returned to claim his furniture and, when he discovered that it had been sold, he sued the Def in conversion. The Def argued that he was an agent of Necessity. Court held that agency of necessity had not been stablished, simply because there was no need for the furniture to be sold.

31. Munro v. Willmott The Def sold the Plf car which had been left on his premises for a number of years . The Def was not characterised as an agent of necessity because the sale of the car was not required as a matter of real urgency but was done simply for the Def's convenience.

32. v- Agency based on estoppel Also know as agency by holding out. It occurs where there is no actual principal/agent relationship, but the principal makes a third party think that there is. P can do so by words or conducts that is seen by the third party as a proof that another person is P’s agent. (P manifested to others that another person is his agent.)

33. In this case the agent has apparent authority and the principal is bound by any contract entered into by the ‘agent’ and a third party who thought there was a proper principal/agent relationship