Agency Bribe and Secret Money

(a) Awie appointed Zamri as his agent to buy Rahmat’s land at Jalan Pantai at a price not exceeding RM90,000. The land was urgently needed for the expansion of Awie’s business. Rahmat has agreed to sell the land at RM60,000. Zamri made an arrangement with Rahmat to the effect that the purchase price of the land is stated at RM80,000 in the sale and purchase agreement. Upon payment of the purchase price, Zamri kept RM12,000 for himself and returned the remaining RM8,000 to Rahmat. All this was done without Awie’s knowledge.

A month later, Awie discovered about the dealings between Zamri and Rahmat.

Advise Awie as to his rights. (5 marks)

(b) (i) Explain how a person may become an agent by necessity. (3 marks)

(ii) Explain two situations whereby an agent may have an apparent/ostensible authority. (4 marks)

(c) (i) Explain, with authority, the meaning of a quasi partner and such a person’s liability for the debt of the firm. (3 marks)
--- Partnership not included in syllabus ---

(ii) Shari and Tajul entered into a partnership agreement to run an accounting firm. The agreement, among others did not specify the duration of the partnership. After five years, Tajul sent a notice to Shari, stating his intention to dissolve the partnership. No date was stated on the notice. Tajul claimed that he sent the notice on the 1st of August 2009, but Shari had only received it on the 22nd of August 2009. The firm had incurred additional debts between 1st August 2009 and 22nd August 2009.

Advise Shari as to when is the effective date of dissolution of the partnership and the extent of liability that he may share with Tajul. (5 marks)

--- Partnership not included in syllabus ---

(MIA QE 2009/9 Q3, 20 marks)

(a) Zamri has colluded with Rahmat to cheat Awie. As agent for Awie, Zamri owes Awie duty of care and should observes fiduciary duty in carrying out his work for Awie, his principal.

According to Agency Contract under Contracts Act, 1950 S.168, Right of principal when agent deals, on his own account, in business of agency without principal's consent.

"If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him."

Therefore, Awie can repudiate the sale and purchase agreement based on S.168 CA50.

If Awie chooses to ratify the contract, ie accept the SPA as legal (give consent to the voidable contract), he may choose to claim the benefit which had gone to agent - Zamri, ie RM12,000. This is provided under S.169 of CA50.

S.169 Principal's right to benefit gained by agent dealing on his own account in business of agency.

"If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction."

Over and above, Awie have the rights to claim the RM8,000 that had passed back to Rahmat because it was a profit which the agent obtained from him (Awie).

'The principal has the right to recover the bribe or secret profit not only to the extent where in a transaction an agent sells at a price higher than was set by him, it also includes secret profit passed on to another person by agent.'

It matters not that the agent has not taken the profit himself. In the case of Tan Kiong Hwa v. Andrew S.H. Chong [1974] 2 MLJ 188, the defendant was the managing director of house agency company. The plaintiff has bought a flat from that company. The plaintiff later authorized the defendant as his agent to sell the flat for $45,000. However the defendant sold the flat for higher price, which is $54,000. The difference of $9,000 was credited to the company. The court held that the plaintiff was entitled to recover $9,000 from the defendant as the defendant had breached his duty as an agent.
Thirdly the principal Awie may refuse to pay the agent’s commission to Zamri. In connection with S173 Contract Act 1950, an agent who is guilty of bad conduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted of behaviour.
S.173 Agent not entitled to remuneration for business misconducted.
"An agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted."

In the case of Andrews v. Ramsay and Co [1903] 2 KB 635, where the principal successfully recovered both the commission paid to the agent plus the secret commission received by his agent from a third party.

In that case, the plaintiff directed the defendant to sell property and agreed to pay him commission of 50 pounds. The defendant received 100 pounds from a purchaser as deposit for the property. The defendant paid 50 pounds to the plaintiff and kept the other 50 pounds in payment of his commission with the plaintiff’s knowledge. However the plaintiff learnt that the defendant had also received another 20 pounds as commission from the purchaser. He sued his agent to recover these 20 pounds and also the 50 pounds he had paid the defendant initially. The court held that he could recover both of them.

Another remedy that may be taken by the principal Awie is he may sue both Zamri and or any third party giving the bribe for damages (if Rahmat was inducing Zamri) for any loss he may have sustained through entering into the contract.

As in the case of Mahesan v. Malaysian Govt. Officers Co-operative Housing Society Ltd [1978] 1 MLJ 149, the appellant was a director and secretary of the respondent co-operative society. He brought land at a price of $944,000 from the vendor who had earlier paid $456,000 for it. The appellant knew of this fact however he failed to inform the society. The society discovered the fact only after the sale was done and discovered the appellant had received $122,000 as secret commission from the vendor. As a result, the Privy Council held that the respondent could recover either bribe or the amount of the actual loss suffered by it as a consequence of entering into the contract.

Finally, Zamri has breached the fiduciary duty, and Awie can terminate the agency contract according to Boston Deep Sea Fishing & Ice Co v Ansell (1888). In such case, Awie can deny any commission due to Zamri, paid or unpaid.

S.168, 169 & 173 Contracts Act, 1950.


(i) An Agency May Arise By Necessity

According to S142 Contracts Act 1950, an agency may arise by necessity or in an emergency.

Agency of necessity means a person may become the agent of another without being appointed as such under certain circumstances.
For example, a deserted wife or a wife who is justified in leaving her husband and she has not working, can claim for the necessities of life from her husband according to the income and position of the husband even though her husband unwilling to fulfill this pledge.

However, if she is has been given an adequate allowance and can support her own life either in money or in earning capacity, then there is no arise of agency by necessity as in case Biberfield v. Berens [1952] 2 All ER 237.

It is created when a person is entrusted with another’s property and it becomes necessary to do something to preserve that property although he has no express authority to do so. Besides, there must be already some existing contractual relationship between the principal and the person who acts on his behalf. For instance, relationship between the owner (principal) and the master of a ship (agent) and relationship between an owner (principal) and a carrier of goods (agent) are examples that show existing contractual relationship between principal and the person who acts on his behalf.

This kind of relationship can be illustrated through the example as followed:

Goods are sent by truck to A at Tanjung Malim with directions to send them immediately to B at Johor Bahru. A may sell goods at Tanjung Malim if the goods will not be able to bear the journey to Johor Bahru.

However, to create an agency by necessity, there are three conditions have to be satisfied:

a) It must be a situation that impossible for the agent to get the principal’s instruction.

b) The agent’s action is necessary.

c) Agent of necessity has acted in good faith (Bona fide)


(ii) Two (2) situations whereby an agent may have an apparent/ostensible authority.

From Wikipedia,

Apparent authority (also called "ostensible authority") exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship.

For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position.

If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably.

This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.[4]

To hold the principal liable under apparent agency theory, it must be establish that:

1. the principal manifested consent to the exercise of such authority,
2. the third person acting in good faith had actually believe that the agent possessed such authority,

3. the third person, relying on such appearance of authority, has changed his/her position and injured or suffered loss.

Thus, there are three essential elements to apparent authority:

1. a representation by the principal,
2. a reliance on that representation by a third party, and
3. a change in position by the third party in reliance on the representation.

Wikipedia search 'apparent authority', available at
USLegal. Authorityof agents, available at