CREATION OF AGENCY

CREATION OF AGENCY

A contract of agency can be expressed or implied for the circumstances and the conduct of the parties.

The authority of an agent may be:-

·         expressed (given by words spoken or written)

·         implied (inferred from things spoken or written or from the ordinary course of dealings)

KGN JAYA SDN. BHD v PAN RELIANCE SDN BHD [1996] 2 CLJ 611, [1996] 1 MLJ 233 – agency arrangement need not be in writing

The Court of Appeal held that the law does not require that an agency or sub agency agreement must be in writing.

Furthermore, Part X of the Contracts Act 1950, which contains the relevant provisions on agency, does not contain any requirement that the appointment of an agent or sub agent has to be in writing or be evidence in writing.

Sec 138 – no consideration is necessary to create an agency

Generally agency may arise in the following ways:

–   By express appointment by the principal

–   By implied appointment by the principal

–   By ratification by the principal

–   By necessity i.e. operation of law

–   By the doctrine of estoppel or ‘holding out’

1. By Express Appointment

Express appointment may be in written or oral form. An example of an express appointment made in writing is a Power of Attorney.

2.  By Implied Agreement

The Law can infer the creation of an agency by implication when a person by his words or conduct holds out another person as having authority to act for him

CHAN YIN TEE v WILLIAM JACKS & CO (MALAYA) LTD [1964] MLJ 290.

The appellant and Yong (a minor), were registered as partners. At a meeting with a representative of the respondent company, the appellant held himself out to be Yong’s partner. Goods were supplied to Yong but were not paid for. The respondent company obtained judgment against the appellant and Yong. The appellant appeal to FC which held that since the appellant had held Yong out of his agent who had the authority to do things on his behalf, the appellant was liable for Yong’s act

By virtue of Section 7 of the Partnership Act 1961, partners are each other’s agents when contracting in the course of the partnership business.

3. By Ratification

• Agency by ratification can arise in any one of the following situations:-
• An agent who was duly appointed has exceeded his authority or
• A person who has no authority to act for the principal has acted as if he has the authority.
• Section 149 CA 1950 – Where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts. If he ratifies them, the same effect will follow as if they had been performed by his authority.
• When the principal accepts and confirms such a contract, the acceptance is called ratification
• Section 150 CA 1950 - Ratification may be expressed or implied in the conduct of the person on whose behalf the acts are done

Effect of ratification – render the contract as binding on the principal as if the agent had been properly authorised beforehand

Ratification of contract can only be done under the following circumstances:

1.    The act or contract must be unauthorized

2.    The agent must, at the time of contract, expressly act as agent for the principal – he must not allow the third party to think that he is the principal

KEIGHLEY MAXTED & CO v DURANT

An agent, Roberts was authorized by the appellants to buy wheat at a certain price. The agent exceeded his authority and bought at a higher price in his own name but intending it for Keighley. Keighley agreed to take the wheat at that price but failed to take delivery. The court held that Keighley was liable to the Durant since R at the time of the contract did not profess to act as an agent.

SRM MEYAPPA CHETTIAR v LIM LIAN KOO

PC, the attorney of SC, entered into an agreement with the respondent under which the PC handed over to the respondent a piece of land belonging to his principal in consideration of RM 7,000/- and agreed ‘ upon the return of normal conditions, the vendor shall obtain a special power of attorney from the said SC now in India and execute the true and lawful transfer of the said land at the purchaser’s own expenses’. He further agreed that if he was unable to obtain the necessary power from his principal the RM7,000/- will be return to the respondent. At the trial, the learned judge held that the agreement had been satisfied by SC and therefore dismissed a claim for recovery of possession of the land. The Court of Appeal held that the terms of the agreement showed that PC was acting in his personal capacity and therefore the principal of ratification could not apply to the agreement.

3.    The agent must have a principal, who is in actual existence or capable of being ascertained when the contract is made

–   No one can ratify a contract if he is not a party competent to the contract at the date of the contract –

KELNER v BEXTER[1866] L.R 2 C.P 174

A contract to buy a hotel made by an agent on behalf of the company which is about to be formed, could not be ratified by the company since it did not exist at the time. The agent therefore held for the contract unless the third party agreed to release him.

4. The principal must have contractual capacity at the time when the contract is being made and at the time of ratification

5. The principal must, at the time of ratification, have full knowledge of all material facts, unless it can be shown that he intends to ratify the contract whatever the facts may be and assume responsibility for them

6. The principal must ratify the whole contract

7. The ratification must  not injure a third party i.e. must not subject the third party to damages or terminates his right or interest

4. By Necessity

An agency by necessity may be created if the following three conditions are met:-

1. It is impossible for the agent to get the principal’s instruction, but he has to prove that he has made an attempt to contact the principal

SPRINGER v GREAT WESTERN RAILWAY COMPANY [1921] 1 KB 257

2. There exists a state of emergency, and the agent’s action is to prevent loss to the principal  PRAGER v BLATSPIEL STAMP & HEACOCK LTD [1924] 1 KB 566
3. The agent has acted in good faith.

In an emergency an agent has authority to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances

GREAT NORTHERN RAILWAY CO. v SWAFFILED (1874) LR 9 Ex 132

The railway company carried the defendant’s horse to its contracted destination. On arrival there was no one to meet it. The station master did not know the defendant or his agent’s address and directed that the horse be put in a stable. The railway company later claimed for the charges for the stable. The defendant refused to pay. The court held that the plaintiff acted as an agent of necessity in this matter. 

5. By Estoppel

A person cannot be bound by a contract made on his behalf without his authority.

However, if he by his words and conduct allows a third party to believe that the particular person is his agent even when he is not, and the third party relies on it to the detriment of the third party, he will be estopped or precluded from denying the existence of that person’s authority to act on his behalf.