RELATIONSHIP BETWEEN AGENT AND PRINCIPAL

THE RIGHTS AND DUTIES OF AGENT AND PRINCIPAL

Introduction Agency is based on mutual

trust and confidence The principal trusts the agent

to carry out his work The agent trusts the principal

to pay his remuneration Consequently, the law

imposes duties and rights on both parties

Duties of agent to principal Section 164 – 171 of Contracts Act

1950 Obey the principal’s instructions

Agent is personally liable for any loss suffered by the principal

Act in the usual way – reasonable manner

Use skill and knowledge Render proper account

Duties of agent to principal

Receive and pay money into principal’s account

Keep confidential information from unauthorised third parties unless principal gives consent

Contact principal for instructions whenever necessary – subject to section 142

Duties of agent to principal

Not to sub-delegate unless: Minor clerical work Agent is unable to perform his

job Temporary or permanent

disability Hospitalisation Unsound mind

The principal has given consent

Duties of agent to principal

Duty to act bona fide (in good faith)

Good faith means to act honestly, without any intention to cheat or deceive Fiduciary duty Act bona fide Honesty and accountability Avoid conflict of interest Give priority to the interest of the

principal

Fiduciary relationship Relationship based on mutual

trust and confidence Where the party owes the duty

to protect each other’s interests Duty to act honestly to each

other This is the duty of good faith or

‘to act bona fide for the interest of the other party’

Usually owed by agent to principal

Conflict of interest Where the personal interests of

the agent conflicts with that of the agency

The agent is in a position where he could elect to act for himself instead of for the principal

The agent might be tempted to serve his own interest rather than the agency

Consequently, he would act for his benefit but to the detriment of the principal

Circumstances where conflict of interest may arise1) Competing with the principal2) Contracting with the

principal3) Using his position as an

agent to gain personal profit or benefit

4) Acting for more than one principals at the same time

Competing with the principal

Where the agent himself is dealing in the same business or with the same customers as the principal

This will lead the agent to use the opportunity presented by the agency to serve his personal interest

The priority will change - resulting in a probable loss to the principal

The remedies1) Recover any profit made by the

agent as it is considered to be secret profit

2) Not to pay the agent’s remuneration

3) Dismiss or terminate the agent’s service for breach of duty

4) Sue the agent for damages on actual losses suffered by the principal

Contracting with the principal

Where the agent becomes a party to the transaction with the principal i.e. as a buyer for the property the principal instructed him to sell

The agent may only contract with the principal when he had disclosed the matter and received consent from the principal

Failure to do so is a breach of good faith

Section 168 of the Contracts Act 1950

The remedies The principal has the right to

repudiate the contract even though he did not suffer any losses

It is sufficient to show that the agent had dishonestly concealed material facts (the identity of the contracting party) from him

Illustrations (a) and (b) to section 168

Wong Mun Wai v Wong Tham Fatt & Anor (1987) 2 MLJ 249

The 1st defendant was an agent for the plaintiff. He had sold the plaintiff’s land to his wife at a lower price than the market value.

The court held that he had the duty to act in good faith which he had breached by using his position to promote his own interest over that of the principal.

Using his position to gain private profit or benefit

Section 168 of the Contracts Act 1950

This is also known as secret profit It is defined as ‘any money or benefit

received by the agent in the course of his duty over and above the remuneration due to him from the principal’

The money or benefit could be said to properly belong to the principal

Instances of secret profit Receiving bribe from a 3rd party Receiving commission from a 3rd

party Discounts which were not

disclosed to the principal Using confidential information

gained from his position Any money or benefit received as

a result of competing or contracting with the principal

Acting in good faith

It is a breach of good faith even if there was no fraud or dishonesty involved

It is sufficient to show that the agent had received an advantage or that it is to the detriment of the principal

The agent is not liable if he had disclosed it to the principal and was given consent to keep the money or benefit

The remedies

1) Repudiate the contract2) Recover the secret profit3) Not to pay the agent’s

remuneration4) Dismiss or terminate the

agent’s service5) Sue agent and 3rd party for

damages If the principal elects to sue for

damages, he cannot seek to recover the secret profit and vice versa

Mahesan v Malaysian Govt. Officers Co-operative Housing Society Ltd (1978)1 MLJ 149

The director and secretary of the Society bought land for the society from the vendor at RM 944,000. For this, he received a payment of RM 456,000 from the vendor.

The court held that the society could recover either the bribe of RM 456,000 OR damages for the actual loss suffered by the society as a result of the agent’s act

Acting for more than one principals at the same time

Where the business, market or customers are the same or similar

Conflict of interest might arise as the agent would have to choose between two or more competing interest

For instance, if he is selling two houses belonging to two principals and a customer is found, then which house shall he sell?

More than one principal

He may only act for more than one principal if consent is given by all the principals

In Fullwood v Hurley (1928) 1 KB 498, an agent who was instructed to administer some property was held to have breached his duty of good faith when he acted and received commission from two different parties without consent of either party.

Duties of principal to agent

Pay remuneration to the agent Not to hinder agent from getting

his remuneration Pay indemnity to the agent for

matters or liabilities arising from the performance of his job

Duties of principal to agent Indemnify the agent if:

Agent suffers injury or losses in performing his job

A third party suffers loss or injuries in performing his job

Agent has used his own money to pay for the expenses to perform his job

As long as it happened while agent is performing his duty according to instruction

Rights of the agent Receive remuneration for his

work Deduct money received from

principal for expenses and remuneration (according to the sum agreed)

Indemnity for any lawful acts done in performance of his duty He is not entitled to any indemnity

if he committed an unlawful act

Rights of the principal

Full account of information from agent

Receive money obtained by agent in performing his job

Honesty and accountability on the part of the agent

Skill and knowledge of the agent in performing his job