Q.
(a) A contract of agency may be expressed or implied from certain circumstances and conduct of the parties. Describe three ways by which an agency relationship may arise. (6 marks)
(b) In relation to an agency relationship, distinguish between actual authority and apparent or ostensible authority. (4 marks)
(c) You have been approached by a friend seeking your advice regarding an issue. He related the following:
Recently, he went to Mecca to perform the Hajj and was away for about forty days. During his absence, he entrusted his business to his manager, who is in charge of the sales of his farm products. On one occasion, through no fault of his manager, a consignment of tomatoes was stranded at the port due to some technicalities. His manager could not contact him at the time, so he decided to auction-off the whole consignment for a bargain before the tomatoes go bad.
He wonders if his manager is allowed under the law to auction-off the consignment of tomatoes and whether he may have any form of claims against the act of his manager.
(MIA QE 2015/3 Q2, 20 marks)
A.
(c) On Agency by necessity in an emergency, earlier post is referred MIA QE 2011/9 3b here.
(a) Three (3) ways which agency relationship may arise are:
- Express agreement - S.139
- Implied agreement - S.139 & S.140
- Ratification - S.149
MIA QE 2008/9 Q3 (a) with termination.
MIA QE 2009
MIA QE 2010/9 Q4 (e)
MIA QE 2011/3 Q4 (a)
MIA QE 2012/9 Q2 (b)
MIA QE 2014/9 Q2 (a)
S.139 Contracts Act, 1950 (CA50) specifies that Agent's authority may be expressed or implied.
Further to that S.140 CA50 specifies that the definition of express and implied:
An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.
When an act was performed without authority, but yet acceptable to the principal, it is ratified by the principal. This ratification makes the agreement a binding agency contract.
S.149 Right of person as to acts done for him without his authority. Effect of ratification.
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 effects will follow as if they had been performed by his authority.
S.150 Ratification may be expressed or implied.
Ratification may be expressed or implied in the conduct of the person on whose behalf the acts are done.
S.152 Effect of ratifying unauthorized act forming part of a transaction.
A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which the act formed a part.
Summary
Agency relationships can be classified into three (3) different types.
First, the usual and most common appointment which is by express appointment, in written or spoken format. For example, a land owner appoints an estate agent by letter or having spoken to him over the phone or face to face.
Second, the quite unusual manner of implied appointment. In such case, the land owner may already had the land managed by his manager. He let him decide most of the things about the land, like fencing and using the land for cultivation which he does not interfere. As the manager need to improve the drainage of the land, he engaged a contractor for such job. He is now acting as an agent (implied agent) to get the contractor (third party) to perform an act on behalf of the land owner (principal).
Thirdly, the land owner told his friends that he wanted to sell his land. Shortly after that, a buyer came forward as he heard it from a close friend of this land owner. The deal was struck, and the land owner wanted to reward his close friend with a commission. This enables the close friend to become an agent under ratification.
Facts. Defendant owned a hotel-pub that employed Humble to manage the establishment. Humble was the exclusive face of the business; Humble’s name was on the bar and the license of the pub. Defendant explicitly instructed Humble not to make any purchases outside of bottled ales and mineral waters, but Humble still entered into an agreement with Plaintiff for the purchase of cigars. Plaintiff discovered that Defendant was the actual owner and brought an action to collect from Defendant.
Issue. The issue is whether Defendant is liable for damages resulting from an agreement between Plaintiff and Humble, who is knowingly acting outside his actual authority as an agent for Defendant.
Held. Defendant (owner) is liable for damages. Humble was acting with an authority that was inherently reasonable for an agent in that position. The situation is analogous to a partnership wherein one partner is silent but is still liable for actions of the partnership as a whole.
Discussion. The decision could not be based on apparent authority because the principal is disclosed under that doctrine.
The principal is held liable for actions by an agent that are expressly forbidden, but the case limits a principal to actions of an agent that are reasonable under the circumstances.
Ref:
Watteau v Finwick, available at
(c) This is a case of Authority by necessity in an emergency.
Section 142 of Contracts Act, 1950 Agent's Authority in an Emergency.
An agent has authority, in an emergency, 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.
Illustrations:
(a) An agent for sale may have goods repaired if it be necessary.
(b) A consigns provisions to B at Taiping, with directions to send them immediately to C at Parit Buntar. B may sell the provisions at Taiping, if they will not bear the journey to Parit Buntar without spoiling.
[From above (b), similar scenario occurs in this case. The manager did try to contact your friend who was at Hajj but in vain. Therefore, the condition is more of authority at necessity during emergency rather than plain apparent authority.
Your friend who was not contactable would have to bear the losses, if any. In fact, he should have been grateful to his manager due to the fact that he acted in good faith. At such emergency period when your friend was in Hajj, he cut down your friend's losses at least with the auction-off of the whole consignment of tomatoes for a bargain, instead of letting it rot in natural course.
The consignment of tomatoes was stranded at the port due to some technicalities, presumably out of control of the manager. The manager salvaged the condition of total loss before the tomatoes went bad. He could not take action against his manager as he acted in good faith (bona fide) and at ordinary prudent to mitigate his risks just any other ordinary person would do.]
Ref:
S.142 Contracts Act, 1950.
[X] Own account.