Determining the Existence of Agency

In determining whether an agency in the legal sense exists, the court looks at the authority of the supposed ‘agent’ and other aspects of the relationship between the parties. Discuss, with reference to the Contract Act 1950 and relevant cases, how an agency may arise.

According to Contract Act 1950, an agency’s authority may arise in a five ways, by expressing appointment by the principal, implied appointment made by the principal, ratification by the principal, by necessity (operation of law in certain circumstances) and by doctrine of estoppels or holding out.

As stated in S140 Contract Act 1950, authority of an agent can be expressed in written or oral form. Meanwhile, implied appointment held that certain circumstances of the case will infer the creation of an agency. It may arise by implication when a person holds out another person as the person is having authority to act for him by his words or conduct. In case Chan Yin Tee v. William Jacks and Co. (Malaya) Ltd [1964] MLJ 290, Chan, the appellant held himself out as Yong’s partner in a meeting with respondent company. Yong was a minor and they were registered as business partner in a business. Business was conducted between Yong and respondent company, but the price for the goods was not being paid. Because of this, the respondent company sued Chan and Yong. Court held that since Chan had held Yong as his agent, who has authority to do things on his behalf, so Chan was liable for Yong’s acts.

Besides, under implied appointment, it states that relationship of principal and agent could be existed between husband and wife. The presumption is wife has an authority to pledge her husband’s credit for necessaries suited to their living style. However, husband can rebut the presumptions in certain circumstances such as he has expressly prohibited his wife to pledge his credit, or warning had been given to the tradesman as not to supply his wife with goods or credit, or his wife was sufficiently provided for with goods of the kind in questions, or his wife was given a sufficient allowance for buying the goods without having to pledge her husband’s credit, or the order, though for necessaries, was unreasonable, taking into consideration her husband’s income at that time. If a husband is putting advertisement on newspaper to disclaim himself from being responsible for this wife’s actions, eventually this will not relieve him from his wife’s future debts if he used to settle the wife’s past debts. By right, he should inform the tradesman about his disclaimers. However, the husband is free from his wife’s debts if the debts are arise from new tradesman who give the credit to his wife after the advertisement.

Furthermore, by the Partnership Act 1961, S7, partners are accounted as each other’s agent when they are getting into a business partnership contract, so the authority of agency for one another is exists between business partners. Partners are two or more than two co-owners of a business, they own joint control to carry on businesses and share the profit and loss together.

Agency of ratification may arise followed by one of two situations; it can be either an agent who was properly appointed has exceeded his authority or a person who has no authority to act for the principal has acted as if he had the authority. As in S149 Contract Act 1950, when situation above happens, principal can elect either to accept or reject the contract, ratification will arise when principal accepts and confirm the contract. According to S150 Contract Act 1950, ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.

Ratification is retrospective, which means the date when the original contract was made will be taken into account of the contract, not the time of ratification was made. In case Bolton Partners V. Lambart (1889), an agent of Bolton Partners has acted as agent on behalf of Bolton to accept an offer from Lambart without any authority given by Bolton. Lambart revoked his offer before Bolton ratified the contract made by the agent. As ratification is retrospective based, the time was back to the time of acceptance made by the agent, not the time ratification was made, so Lambart was bound with the contract made.

There are a few conditions to be fulfilled to ensure the validity the ratification.

The act or contract must be unauthorized.

The unauthorized act must following the law recognition.

The agent must profess himself as agent to principal to third party during the time of the contract.

Case: Keighley Maxted & Co. V. Durant [1901] AC 240

The appellant, Keighley, had authorized an agent named Robert to buy wheat at a given price. Robert bought the wheat at a higher price from Durant, Keighley Maxted & Co. represented by its manager, Wright, to inform Robert that it will take the consignment of wheat regardless of the higher price. Later, Keighley failed to take up the wheat from Durant. Durant was forced to sell others at a lower price, so Durant sued Keighley and Robert on his loss damages. The House of Lords held that Keighley was not liable to Durant since there is no ratification as there is no disclosure of agency made by Robert during the time of contract.

The principal must exist at the time of contract.

Case: Kelner V. Baxter [1866] LR 2 CP 174

Kelner, a promoter acted as an agent made a contract to buy wine from Baxter to run a hotel on behalf of a company, but the company was not formally formed yet. Later, the company fell into liquidation. Baxter sued the company. Since the company didn’t exist at the time of contract made, it was treated as no contractual capacity to make the contract and the ratification of contract is void. As a result, the agent, Kelner was held liable on his action.

However, in Malaysia, following S35 Companies Act 1965, a company can ratify a contract that was made prior to its formation, and then the company will be bound with the date of the contract once the ratification is done.

Case: Cosmic Insurance Corporation Ltd V. Khoo Chiang Poh [1981] 1 MLJ 61

Three things must be proven to align with S35, Companies Act 1965

There must be a contract to prove that the agent has entered into contract on behalf of on company which prior to its formation.

The company may ratify the contract upon its formation.

Once ratify, the contract’s date will follow the date the contract was made, not the date of ratification.

The principal must own contractual capacity during the time of contract made and also at the time of ratification. A minor can’t ratify a contract.

At the time of ratification, as stated in S152 Contract Act 1950, the principal must be acknowledged of all the material facts related to the contract unless it’s shown that he is intends to ratify without taking any facts into consideration.

The principal must also ratify the whole contract and partial ratification is not allowed.

The ratification must be made within reasonable time.

Case: Grover & Grover V. Mathew [1910] 2 KB 401

Ratification on a policy of fire insurance was made after a fire had happened, the principal ratified the agent’s act after the premises had been destroyed by fire. Therefore the ratification was held to be ineffective, because the ratification on agent’s act should be done before the loss of goods.

According to S153, CA 1950, any ratification made must not bring any damages or termination of right or interest to third party.