Agency terminated by Death

(a) Explain how an agency by necessity is created. (3 marks)

(b) Briefly explain the duties of a principal towards his agent. (5 marks)

(c) Explain any one (1) way in which an agency may be terminated by operation of law. (2 marks)

(d) On the 1st of September, 2010, Nana wrote to Cheng that Ben was his agent and would be acting on his behalf in purchasing some goods on the 1st of December, 2010 for RM200,000. However, on the 25th of November, 2010, Cheng was informed that Nana had passed away the week before. On the 30th of November, Ali offered Cheng RM250,000 for the same goods.

Can Cheng sell to Ali or is Cheng bound to sell to Ben? Advise Cheng the legal implications. (7 marks)

(e) State any three (3) ways in which an agency may arise other than agency by necessity. (3 marks)

(MIA QE 2010/9 Q4, 20 marks)


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 been 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)

[S.176 Agent to be indemnified against consequences of acts done in good faith.]

(b) See link in the question.

(c) Ways to terminate agency by law.

Refer earlier post on termination here. Generally termination can be done by 4 ways:

  1. Completion
  2. Revocation
  3. Death or unsound mind of either principal or agent
  4. Insolvency

(d) Nana is Principal ('A') to Ben (agent 'B') and Cheng is the party to contract 'C'. So A passed on before the transaction with C. The first question is whether B as agent owes the duty to A and thus pursue to purchase from C.

The second question is whether C has a contract with A having heard that A wanted to purchase, thus cannot sell to a third party.

First question is clearly a no. The reason is provided by S.154 Contracts Act 1950.

S.154 Termination of agency.

'An agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated or declared a bankrupt or an insolvent.'

[The agency has ceased to exist, so agent Ben is no more bound to carry out his duty to purchase from Cheng. However, due to provision of S.162 CA50 below, some considerations may need to be taken.]

S.162 Agent's duty on termination of agency by principal's death or insanity.

'When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.'

If there is no further request or directive from the estate of Nana, Ben can just leave the deal as open ended, and Cheng can sell to Ali or whoever is willing to purchase from him.

Second question, on whether there was already a contract between Cheng and Nana when he heard that Nana is getting Ben as agent to buy from him.

In such a condition where there was no consideration paid, or very much at a negotiating stage - Nana sending her agent Ben to engage in a business dealing - is construed to be in a negotiating stage, rather than firming contract. Imagine, if Nana already decided to buy from Cheng, she does not need to send Ben anymore.

So, based on such assumption, it was invitation to treat, and not an offer yet for Ben to come in to negotiate the deal at more detailed terms, for instance delivery terms, payment terms or types of inventories.

Therefore, Cheng can safely sell to Ali for this transaction.

Model Answer provided by MIA

Cheng can sell the goods to Ali since Nana has passed away and therefore, by virtue of section 161 of the Contracts Act, 1950, the agency is terminated by the death of the principal. However, the termination of the agency is only effective when the agent, Ben, has notice of the principal’s death: i.e. a week prior to the 25th of November, 2010: Section 161, Illustration C, Contracts Act, 1950.

So in this situation, Cheng is not obliged to sell to Ben, unless it is proven that Ben has no notice of Nana’s death whatsoever.

[This is impossible as Cheng has a higher bidder Ali, and would inform Ben if he does not know Nana had passed on earlier.]

The rationale of this principle is because the agency is confidential and personal, and therefore, death of either the principal, or the agent would terminate the agency.

Earlier posts.
Answer from MIA.

(e) 3 ways in which an agency may arise other than agency by necessity.

Agency by expressed appointment.
Agency by implied appointment.
Agency by ratification.
S.139, 140, 149 and 150 Contracts Act, 1950.