Indemnity by principal agent’s act


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

(b) Amat, an agent was authorised by Chong to buy a consignment of rice at the price of RM3.00 per kilogram. During the purchase, Amat came across a better quality rice which was priced at RM3.50 per kilogram. Without further informing Chong, Amat decided to purchase the better quality rice even though the price is higher than that authorised by Chong. His intentions were that Chong would be able to resell the rice at a higher price and make more profit. Amat made arrangements for the purchase under his own name. Chong however, failed to take delivery of the rice and the seller sues Amat for breach of contract.

Advise Amat whether he (as an agent) may claim from Chong with regards to the claim made against him by the rice seller. (6 marks)

(c) Man engages a forwarding agent by the name of Parjo, to transport a consignment of fabric from Bandung to Malaysia. Arrangements were made for the consignment to be carried by sea and landed at a certain secluded place near Tanjung Kupang, Malaysia. This is not an official commercial port of entry into Malaysia and hence Man could avoid paying import tax to the Malaysian government. Parjo was instructed to unload the consignment. While unloading the consignment at Tanjung Kupang, as instructed, Parjo was arrested by the Malaysian authorities and the consignment was confiscated. Parjo was charged with illegally bringing in taxable items into Malaysia and evading import taxes. Parjo was found guilty and paid a hefty fine for the offence. Parjo seeks your advise whether he may claim any indemnity from Man, in relation to the losses he suffered since he had acted as Man’s agent.

Advise Parjo. (8 marks)

(MIA QE 2013/3 Q2, 20 marks)

(a) 6 exceptions agent cannot delegate - meaning 6 conditions that agent can delegate.

  1. When it is approved by the principal.
  2. When the job requires delegation as common practice or custom.
  3. When there is need of expert participation.
  4. When delegation is a way to complete the business.
  5. When delegation is for clerical or purely ministerial purpose, and does not involve the exercise of descretion or major decision making.
  6. When during emergency.

MIA model answer:

  1. exceptions are:
    • Where the principal approves or consents to the delegation of the authority;
    • Where it is presumed from the conduct of the parties that the agent has the power to
      delegate his authority;
    • Where the custom or practice of the trade or business permits delegation;
    • Where the nature of the agency is such that delegation of the authority to another
      person is necessary to complete the business;
    • In case of necessity or an unforeseen emergency; or
    • Where the act to be done is purely ministerial or clerical and does not involve the
      exercise of discretion. 

(b) This is a case where Agent acted out of authority, and although Amat acted in good faith (for a bigger profit to Chong), he should have contacted Chong to get his instruction based on S.167.

Agent’s duty to communicate with principal 167. It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions. Thus, when he chose to follow his own way, and acted on his own account, above the limit of RM3.00 at RM3.50, he is said to have acted out of authority.

In such case, if Chong still take delivery of the rice, he is said to have accepted the new contract. In other words, he ratifies the unauthorized transaction to be valid as a new contract. This is provided under S.149 as below. However, in the above scenario, Chong does not ratify the transaction at RM3.50. Owing to this, Chong has repudiated the transaction.

Right of person as to acts done for him without his authority. Effect of ratification

149. 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.

In a twist to the scenario, Chong refused to take delivery at RM3.50, ie does not ratify the transaction. The intermediate solution, I think - may be in part indemnifying Amat, as he has good intention for Chong to make better profit with higher quality rice. This is provided by S.180.

S.180 may provide an avenue for part settlement of the above situation. If Chong takes the delivery at RM3.00, then the Remaining RM0.50 is with Amat as his personal liability and nothing to do with Chong. This is said as the principal indemnifies until the original parts, if it can be separated from the part beyond his authority.

Principal how far bound when agent exceeds authority
180. When an agent does more than he is authorized to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding as between him and his principal.

A, being owner of a ship and cargo, authorizes to procure an insurance for RM4,000 on the ship. procures a policy for RM4,000 on the ship, and another for the like sum on the cargo. is bound to pay the premium for the policy on the ship, but not the premium for the policy on the cargo.

However, if the interpretation is that the contract is in fact one transaction and is not split into two (RM3.00 and RM0.50), S.181 subsequently states that principal is not bound when it can not be separated. See S.181 below.

Principal not bound when excess of agent’s authority is not separable
181. Where an agent does more than he is authorized to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognise the transaction.

A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of RM6,000. A may repudiate the whole transaction 

MIA model answer:

When the principal accepts and confirms such a contract, the acceptance is called ratification and it may be expressed or implied. Section 150, Contracts Act,1950.

In this situation, Amat has exceeded his authority but Chong never affirmed his actions in this respect when Chong did not take delivery of the goods. The fact that Amat made the arrangements under his own name had also absolved Chong from any liability under the circumstances.

In conclusion, Amat could not claim against Chong for any losses that he may incur in relation to the above situation.

Keighley Maxsted & Co. V Durrant [1901] AC 240
S.R.M. Meyappa Chettiar v Lim Lian Koo [1954] 20 MLJ 246

(c) This is again a case of unlawful act by agent, and based on S.177, the principal is not liable.

S.177 Non-liability of employer of agent to do a criminal act.Where one person employs another to do an act which is criminal (smuggering), 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 (which is unlawful).

Therefore, Man is not liable for Parjo who was caught smuggering fabrics from Bandung to Malaysia. Parjo cannot resort to Man for any damage he has sustained from carrying out the unlawful act, inclusive of the fine and the legal fees in defending the charge.

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



S.180-181, S.149-150, S.177 of Contracts Act, 1950.
Own account.