Agency

BU8301

Ag
e nt?

Seminar 9
©Katherine Khoo

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Definition
An agent is
a person who acts on behalf of his principal, who has
authorized him to establish legal relations with a third party.
• An agency involves the following parties:
• i) the agent (A): the go-between acting for the principal;
• ii) his principal (P) : the person whom the agent represents; and
• iii) the 3rd party (3P) : the person whom the agent deals with on behalf
of the principal

• For A to bind the P, A must have authority from the P.

• If A acted with P’s authority, the resulting contract binds the P and the 3P,
but does not bind the A.
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Parties in an Agency Relationship
Agent Re
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Relationship between P & 3P

Principal Third Party

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Creation of Agency Relationship:
• Agency Relationship can arise in the following ways :
• 1) By Actual Authorisation
• - By Agreement Actual Authority
• Express
• Written Express Implied
• Oral
• Implied Written Oral Usual Incidental

• Usual
• Incidental

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 AB Trading
Creation of Agency Relationship agent agent

• 2) By statute: Partner Partner

agents
S5 Partnership Act: A B
• “..each partner is an agent of the firm and his other partners...”

• 3) By conduct of principal:
• (a) Apparent Authority
• also known as ostensible authority or agency by estoppel
• The agent does not have actual authority but appears to have authority
because the principal has held out, by his representation or through his
conduct towards the 3P that the A has authority.

• (b) Ratification
• occurs when a principal retrospectively confirms his agent’s
unauthorized act, binding the principal to the third party.
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 Principal-Third Party Relationship
• Qn : Is the contract entered into by A on P’s behalf binding on P ?
Would 3P be able to sue P under the contract ?

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Principal-Third Party Relationship
• Where A has actual authority :
• (A) Actual Authority
• (1) Express Actual Authority
- Authority that A actually has, as expressed in his contract
and conferred upon him by the P.

• (2) Implied Actual Authority

- Industry and business practices and customs infer that A
has authority:
- to do whatever a person in that industry or
profession would normally be authorised to do AND
- to do whatever that is incidental and necessary to fulfil
what he has been expressly authorized to do.

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Principal-Third Party Relationship
• When can P & 3P sue/be sued under contract ?

Disclosed P Undisclosed P
Named Unnamed
Where A has actual
authority and P is an
Where A has actual undisclosed principal:
authority and P is a
disclosed principal:

3P can choose P can sue 3P under the

to sue EITHER contract UNLESS:
Both P and 3P can A or P under 1) A gave 3P impression
sue and be sued the contract that he was the only
under the contract party to the contract, OR
2) if A’s identity was
crucial to contract. 8
 Principal-Third Party Relationship
• If A has acted within his authority
• whether express, implied :
• Disclosed Principal
If: (1) A has disclosed the existence/name of P to the 3P or
if 3P is aware that A is acting for his P; and
(2) A acts within his authority,
• Then P is bound by the contract with 3P.
• Both P and 3P can sue and be sued under the contract.

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 Principal-Third Party Relationship
• If A has acted within his authority whether express, implied :
• Undisclosed Principal

• If: (1) A has not disclosed the existence of P

(hence undisclosed principal), and / or
(2) 3P thinks that A is the principal when A is in fact contracting
as agent, and
(3) A is acting within his authority,

• Then AFTER discovering P’s existence, 3P may choose to contract with

either A or P.
• Once the 3P makes the election, he cannot change his mind and sue the
other party.
• Conversely, the undisclosed P is generally entitled to enforce the contract
against 3P, and 3P would normally elect to contract with P unless
(1) the identity of the A was crucial to the 3P or material to the contract,
or (2) A gave 3P impression that he was the only party to the contract. 10
Principal-Third Party Relationship
• Undisclosed Principal
• If A has NOT acted within his authority:
• 3P cannot enforce the contract against the undisclosed P,
because P did not authorize the transaction to start with, and
3P did not know that P was the other party to the contract as
P was undisclosed.
• The undisclosed P cannot ratify the unauthorized contract
because in ratification, A must be expressly acting for P.
Keighley, Maxsted & Co v Durant (1901).
• 3P also cannot plead apparent authority to sue undisclosed P
as there has to be a representation by the P, which implies the
P is disclosed.

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 Principal-Third Party Relationship
• Where A has no actual authority
• (& where P is disclosed)
• P not bound UNLESS :
• (1) 3P can plead apparent authority or
• (2) P ratifies A’s act

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Principal-Third Party Relationship
• Scenario 1
• 3P can still bind P to the contract if 3P can plead apparent authority.
Apparent Authority / Ostensible Authority / agency by estoppel
arises when the P, through his conduct, represents to the 3P that the A is
authorised to act, and the 3P relies on that representation and enters into
contract with the P; then P may be estopped from denying A’s authority to act.

• Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964)

• Facts: The D, BPPM was a property development company set up by 2 persons, one
of whom was Mr Kapoor. Though he was not appointed as such, Mr Kapoor acted as
the MD of the company and managed its affairs. The directors knew of Mr Kapoor’s
actions but did nothing to object. Mr Kapoor on behalf of the BPPM contracted with
the plaintiff architects.
• BPPM later refused to pay the plaintiff’s fees on the ground that Mr Kapoor had no
authority to contract on the BPPM’s behalf; thus the they was not liable.
• Held: The D, BPPM failed in its argument because its directors had by their conduct
of acquiescence held out Mr Kapoor as having authority. Hence, the BPPM was
bound by the contract that Mr Kapoor executed and had to pay the architect's fees. 13
Principal-Third Party Relationship
Elements of Apparent Authority
• 1. Representation by words or conduct as to A’s authority

2. Representation made by P or person with actual authority of P

• Note: Representation can be express (written/oral) or implied by conduct. Eg:

appointing A to a position or role may be implied representation, though he may
not have express authority to enter into that transaction for the P.
• A’s representation of his own authority is not sufficient to give rise to an estoppel.
Armagas v Mundogas (1985). The representation must be made by P or a person
who has actual authority of P.

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Principal-Third Party Relationship
Elements of Apparent Authority
• 3. 3P relied on representation that A had authority
and was induced by the representation to enter into contract

• 4. 3P does not know that A lacks authority.

• If 3P was aware of A’s lack of authority, then there is no inducement and reliance
and no room for an estoppel to arise.

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Elements of Apparent Authority
• Alleged P not bound UNLESS 3P can plead :

Apparent / Ostensible Authority

Representation by words or conduct

Made by person with

actual authority
Must
satisfy ALL
Third Party induced by conditions
representation &
enters into contract

Third Party does not know

of Agent’s lack of authority 16
 Principal-Third Party Relationship
Apparent Authority
• Issue : Can apparent authority of an agent continue to exist even if his actual
authority is terminated?
• Summers v Soloman (1857)

• Actual authority may have terminated but apparent authority can still continue
if 3P was unaware of termination.
• P must dispel apparent authority as well. To nullify 3P’s reliance on apparent
authority, such knowledge must be actual knowledge rather than constructive
knowledge.
• P should notify their business contacts and customers personally to ensure that
these 3Ps have actual knowledge that the A is no longer under the employment
of P. They may in addition, give public notice through newspapers, govt gazette,
blast email notices to business contacts in the same or related industry. 17
Principal-Third Party Relationship
Ratification
• Situation where A has no actual authority_(& where P is disclosed)
• Scenario 2:
• 3P can still bind P to the contract if P ratifies the contract.
• P has 2 options : reject A’s act as A
ratify A’s had no authority
unauthorized act to contract
• What is ratification ?

Ratification is the
adoption of unauthorised act as one’s own.
• P may ratify agent’s unauthorized act by approving or affirming it later.
• If P chooses to ratify the contract, P is bound by the contract. The
unauthorized contract is regarded as properly authorized by P from the
beginning.

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Principal-Third Party Relationship
Ratification
Conditions for A must contract as agent for
ratification a named or identifiable P
by principal (undisclosed P cannot ratify)
P in existence at
time of contracting Must
satisfy ALL
Principal must have conditions
capacity to contract at
time of contracting AND
time of ratification
If individual, must be 18 & above

Must be made within

a reasonable time
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 Ratification
• How to ratify
• 1. Express – P expressly adopts A’s unauthorised act
• 2. Implied if conduct shows clear and positive affirmation of
A’s unauthorised act.
• 3. Within reasonable period of time
-What is reasonable depends on circumstances of each case.

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 Principal-Third Party Relationship
Ratification
• Retrospective effect of ratification:
• 1. As if A was authorised from the very beginning
• 2. P and 3P are bound
• 3. 3P cannot revoke if P ratifies
• Bolton Partners v Lambert (1888)
• A, without authority, accepted the 3P’s offer on P’s behalf.
Later, 3P purportedly withdrew the offer. P then ratified A’s act.
• Held: 3P was bound by the contract as ratification has a retrospective effect.

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 Agent-Third Party Relationship
• General rule: A has no obligations or rights under the contract
• ie In a contract between P & 3P, A is not liable and acquires no contractual
rights.
• Exceptions
• (1) In an undisclosed principal situation, where 3P can choose to sue
EITHER P or A under the contract, and 3P chooses A;
• (2) If A undertakes personal liability on the contract;
• (3) If A indicates to 3P that he is acting as agent and warrants that he
has authority when he has exceeded his authority or has no authority
to do so.
• In the last scenario, A impliedly promises that he has the authority to act.

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Agent-Third Party Relationship
• This implied promise is known as “warranty of authority”.
• 3P may sue A for damages for breach of warranty of authority,
if A actually had no authority to act in the instance –
• Richardson v Williamson (1871) L.R.6 Q.B. 276; 40 L.J.Q.B. 145

• This right of action exists whether A made the false warranty

fraudulently, negligently or innocently.

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Agent-Third Party Relationship
• Hence, where A has acted without authority, there is no apparent
authority & P does not ratify the contract ie where 3P cannot sue P,
3P can sue A for breach of warranty of authority.
• Remedy will be damages.

• Does 3P have any other recourse of action ?

• Where the A is aware that he does not have the P’s authority and
intentionally represents otherwise, the 3P may also bring an action in
the tort of deceit. If agent’s representation was made carelessly, 3P may
bring an action in the tort of negligent misstatement.
• Agent may potentially face concurrent liability:
• in tort (negligent misstatement) and
• contract (implied contract/breach of warranty of authority)
Fong Maun Yee v Yoong Weng Ho Robert (1997)
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Principal – Agent Relationship
Agent’s Rights and Obligations
A’s obligations to P

A’s obligations express or A’s Fiduciary duties to P:

implied - cannot have conflict between
- Act according to terms of own interests and P’s interests
appointment and obey P’s lawful - cannot accept bribes
instructions - cannot make secret profit or gains
- Keep true and proper accounts
- Carry out duties with care and skill
- cannot delegate own office
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Principal-Agent Relationship
Agent’s Duties and Obligations
• A’s obligations to P
• 1) Duty to follow instructions
• to act according to terms of appointment and obey P’s lawful instructions.
• If an agent fails to follow his P’s instructions, he is in breach of their agency
contract and is liable to his P in damages.
• Bertram, Armstrong & Co v Godfray

• 2) Duty to keep true and proper accounts

• A has a general duty to keep separate accounts showing P’s money, assets,
property he has received on P’s behalf and all transactions made on behalf of the
P. As P places utmost trust and confidence in A, a fiduciary relationship arises.

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Principal-Agent Relationship
Agent’s Duties and Obligations
• 3) Duty to use care and skill
• Agent must act with reasonable care and skill in discharge of his duties.
• Standard of care would depend on circumstances and be of another with
similar skill and expertise.
• Keppel v Wheeler (1927)

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Principal-Agent Relationship
Agent’s Duties and Obligations
• 4) Duty not to delegate
• A must not delegate his duty and extend his authority to any person
without the P’s consent. John McCann v Pow (1975)

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Principal-Agent Relationship
Agent’s Duties and Obligations
• Fiduciary duties
• 5) Duty to avoid conflict of interests
• An agent must not put himself in a position where his interests conflict with the
interests of his P, unless he makes full disclosure of his interests to his P and his P
consents.
• Yuen Chow Hin & Another v ERA Realty Network Pte Ltd (2009)
• Facts : Estate agent appointed by a couple falsely reported to them that he had
obtained a bank valuation of $650,000 -$700,000 for their flat, which he would
soon place advertisements for. He alleged he had found a buyer, but did not
disclose that this buyer was agent’s boss and his wife. The couple then sold the
flat to the buyers for $688,000.
• Within two weeks, the agent’s boss sold the flat for $945,000, and made a profit
of $257,000 which was shared by the agent, his boss and the wife.
• It was held that the agent was in breach of his fiduciary duty to avoid and
disclose his conflict of interest; he also failed to act in the principal’s best
interest and was thus required to account for the profits made in breach of duty.
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Principal-Agent Relationship
Agent’s Duties and Obligations
• 6) Accepting bribes
• An agent must never accept bribes as it may affect his P’s interests ie his duties
towards his P.
• Should the agent take a bribe, the principal may claim for the value of the bribes or
sue for damages (but not both).
• Mahesan v Malaysian Govt Officers’ Co-Operative Housing Society Ltd (1978)

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Principal-Agent Relationship
Agent’s Duties and Obligations
• 7) Secret profits or gains
• An agent cannot take advantage of his position to gain a benefit for
himself
• Principal may have the remedy of account of profits and recover the
profits made by the agent in breach of this fiduciary duty.

• Thompson v Meade (1891)

• Case of dishonesty where a stockbroker who was instructed to buy at a
particular price, bought at a lower price and tried to keep the difference.
• Held: Agent liable to account for the profit made

• Peter Pan Manufacturing Corp Ltd v Corsets Silhouette Ltd (1963)

• The agent used the principal’s confidential information (of a product
design) to make a profit for himself.
• Held: Agent liable to account for the profit made. 31
Principal-Agent Relationship
Agent’s Rights and Obligations
P’s obligations to A
A’s rights

- Right to
remuneration
- Right to indemnity
- Right of Lien

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Principal-Agent Relationship
Agent’s Rights
• 1) Right to remuneration
• Agent has a right to receive fees for acting on behalf of the P.
• The agent’s fees would be stated in the contract eg a percentage of the
transaction price may be his commission or alternatively, if not expressly
provided, he may be entitled to remuneration on a “quantum meruit”
basis.
• P also has to pay A’s expenses if agreed upon and where reasonable.

• 2) Right to indemnity
• Agent is entitled to be indemnified for all expenses and liabilities incurred
by him in carrying out his duties for the P.
• But if these expenses are already accounted for under remuneration, then
the agent cannot seek reimbursement for such expenses.
• Agent will lose his right of indemnity if he acts beyond the scope of his
authority.
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Principal-Agent Relationship
Agent’s Rights
• 3) Right of lien
• If the agent has yet to be paid and has in his possession, goods or
chattels belonging to the principal, the agent has a right of lien
over the principal’s property which enables the agent to retain
such goods or chattels until he is paid for his services.

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 Termination Of Agency
Termination Of Agency
Termination by consent Unilateral termination Termination by Termination by
- According to parties’ by one party operation of law supervening
intention: arises from P’s - P or A dies or event
- Agent’s job completed revocation of A’s becomes insane – eg Frustration
- Expiry of fixed period authority. - Bankruptcy:
of time [Note: There may be a - P becomes
- Parties agree to breach of the agency bankrupt OR
terminate agency agreement, depending - A’s bankruptcy
on the terms of the renders him
Agency contract.] unfit to perform
duties
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Termination of Agency
• Termination & authority
• - Termination ends A’s actual authority
• - BUT apparent authority may still continue if 3P is unaware of A’s termination

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 To see if P & 3P are bound in K,
there must be :
Agency
W er e
By agreement W er e therh
therh no ae was
on contract no aectwas authoctual
autho ual rity
rity
Actual Ostensible Ratification Operation
Authority /Apparent of law
Authority
P must be named Eg S5 Partnership Act
or identifiable
Representation made
Express Implied by P or person with
P must exist when
K is made
actual authority of P
P must have
Representation of capacity
Agent’s ostensible
Usual Incidental authority made to 3P Ratification must
to do whatever a to do whatever is be within
person in that necessary or incidental 3P relied on reasonable period
industry or to effect the representation and
profession would execution of duties, to induced to enter into K
normally be fulfil what he has been
authorised to do expressly authorized P has capacity to enter
to do. into K
3P has no knowledge
that Agent lacks
authority

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©Katherine Khoo
 Disclosed = made known, not hidden
4 scenarios
A acts with authority A acts without authority

P disclosed, P undisclosed, P disclosed, A P undisclosed,

A acts with A acts with acts without A acts without
authority authority authority authority

P bound 3P has option P not bound A bound

to bind P or A
No issue contract is
A liable to 3P for
3P has right to breach of warranty of between 3P
elect to contract authority, whichever &A
with 1 party way misrep was made P cannot enforce
after discovering contract against 3P
P’s existence as P is not party to
A could ask P to
ratify contract, so A unauthorised
P generally entitled contract
is not liable to 3P;
to enforce contract
then P is bound Undisclosed P
unless 3P elects to
contract with A cannot ratify
because A is P bound unauthorised
material/ contract because
critical to contract Only if 3P can prove A to ratify, A must be
had apparent authority expressly
©Katherine Khoo or if P ratifies contract contracting as P’s A 38
 Yes P bound.
Did Agent act with
Was P No issue.
actual authority ? Yes P generally entitled to
Express or implied OR disclosed ? enforce contract
if in a partnership, by No 3P has option unless 3P elects to
S5 Partnership Act ? to bind P or A contract with A
because A is material
or critical to contract

No Was there
Can P No Apparent No
A liable to
No P not bound 3P for
ratify ? Authority ? breach of
Coz P must Coz P must warranty of
Was P be disclosed be disclosed authority
disclosed ?

Yes
Representation made

Was there
by P or person with
actual authority of P Agency : When can 3P
Apparent
Authority ?
Representation of
Agent’s ostensible
sue under the contract
authority made to 3P
3P relied on representation
OR when is P bound ?
and induced to enter into
Yes contract
No
P has capacity to enter into contract
P bound P not bound
3P has no knowledge that
Agent lacks authority
A liable to
3P for
Can P breach of
ratify ? warranty of P must be named or identifiable
authority
P must exist when contract is made Yes P bound
P must have capacity A could ask P to ratify
Was there
Yes Ratification must be contract, so A is not No
ratification by P ? P not bound
within reasonable period liable to 3P; then P is
bound 39
©Katherine Khoo
Read the relevant chapters of the
textbooks:
Tabalujan, Ch 16;
Chandran, Ch 13;
LWL, Ch 20;
Shenoy & Loo, Ch 20.
Secret agents of
undisclosed principals
are what thriller
novels are made of.

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