Agency Delegation of Authority

(a) Explain three (3) ways in which an agency may be created. (6 marks)

(b) In relation to the law of agency:

(i) List three (3) exceptions to the general principle that an agent cannot delegate the authority given to him by his principal. (6 marks)

(ii) State three (3) types of agents based on their various functional classifications commonly known in the commercial world. (3 marks)

(c) Messa is a businessman who runs numerous business activities. One of his businesses is money-lending. Messa has set up a few money-lending firms all over the city. All of these firms were run by a manager who is also acting as his agent. All required capital is provided by Messa, while the managers receive a fixed salary as well as commissions based on the amount of loan repayment received by their respective firms. All of Messa’s businesses are legal and complied with the relevant laws.

Recently he set up a new firm and appointed Jojo as the manager. In running the business, the interest rates imposed by Jojo on lenders exceeded the rate allowed under the law. This is classified as an offence. Jojo never disclosed to Messa about the excessive rates he imposed on lenders. He had also advanced some of his money towards the business of the firm, in view of more profit.

The firm was later raided by the authorities. Jojo and Messa were both charged for illegal money-lending activities. In the mean-time, Jojo wants to recover from Messa the money he had advanced towards the firm’s business. According to Jojo, he is entitled to be indemnified as Messa’s agent.

Advise Jojo whether he may be successful in his claims. (5 marks)

(MIA QE 2014/9 Q2, 20 marks)

(a) 3 ways how agency is created.

  1. by expressed appointment - S.139
  2. by implied appointment - S.140
  3. by ratification - S.149 & S.150
Similar question was asked in

(b) (i) 3) exceptions to the general principle that an agent cannot delegate.

  1. When delegation is a common practice and custom.
  2. When principal approves delegation.
  3. When delegation is required to complete the task.
  4. When delegation is of clerical and ministerial purpose without discretion on decision making.

MIA QE 2011/3 Q4 (e)
MIA QE 2013/3 Q2 (a)
MIA QE 2013/9 Q2 (a)
MIA QE 2014/9 Q2 (b)(i)

Similar case on Principal's indemnity to Agent who has engaged in unlawful act:

MIA QE 2011/3 Q4 - Raz and Bakar.

MIA QE 2012/9 Q2 - Bob and Steve.
MIA QE 2013/3 Q2 - Man and Parjo.
MIA QE 2014/3 Q1 - Mello and Ijan.
MIA QE 2014/9 Q2 - Messa and Jojo (more complicated)
MIA QE 2016/3 Q2 - Prinse and Ejan


MIA model answer:

This case involves the principles on agency. When Messa engages Jojo to do something, Messa is the principal and Jojo is his agent. In the absence of an express contract, the employer of an agent is bound to indemnify the agent against the consequences of all lawful acts done by the agent in exercise of the authority conferred upon him: Section 175, Contracts Act, 1950.

Jojo is advised that he cannot recover the losses suffered when he advanced money towards an illegal venture. The initial act which he was employed to do was legal but he chose to transgress the law by imposing an excessive interest rate on the loans given. This is an offence under the money-lending laws.

By virtue of Section 177 of the Contracts Act, 1950: where one person employs another to do an act which is criminal, the employer is not liable to the agent, either upon an express or an implied promise, to indemnify him against the consequences of that act.

Section 176 of the Act however, does provide for situations where agents may be indemnified against consequences of acts done in good faith, although it causes injury to the rights of third persons. In this situation, had Messa been the one originally running the business against the law, and this fact was unknown to Jojo while he runs the business on behalf of Messa, he may claim to have done the act in good faith or out of innocence. Therefore, Messa is not liable to indemnify Jojo due to the fact that the act done by Jojo was unlawful. In this situation, Jojo will have to bear the losses on his own.


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