ASSIGNMENT (INDIVIDUAL)

LAW240
INTRODUCTION TO COMMERCIAL LAW
SEMESTER SEPTEMBER 2017 – JANUARY 2018

NAME AZYAN BINTI AZHAR

STUDENT NO. 2016490944

LECTURER’S NAME PUAN ROSNANI BT MOHD SALLEH

COURSE CODE LAW240

CLASS JAC1103A

SUBMISSION DUE DATE 13TH DECEMBER 2017

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TABLE OF CONTENT

CONTENT PAGE

QUESTION 2 A) 2-6

QUESTION 2 B) 7 - 11

REFERENCES 12

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Question 2
a) With reference to the provisions of the Contract Act, 1950 and the decided cases,
discuss the creation or formation of agency by emergency / necessity.

Agency is a consensual relationship between two persons, known as principal and

agent, through which the agent is authorized to act for and on behalf of the principal. Based
on Contracts Act 1950, Section 135 states that “ An ‘agent’ is a person employed to do any
act for another or to represent another dealings with third persons.” An agent, therefore, is the
one who represent another, the principal in business dealings with a third person. As the
agent makes a contract with the third party on behalf of his principal, the contract is only for
the principal. Agent only act as intermediary and only the representative of the principal.
Also, in Section 135 stated that principal is “…The person for whom such act is done, or who
is so represented, is called the ‘principal’”. Principal is the one who give authority to the act
on his behalf for any transactions. When the agent is dealing with the third party, the
principal, in legal effect, is present in the person of the agent; and the result of the agent’s
functioning is exactly the same as if the principal had dealt directly with the third party.1
An agency is formed or created by the agreement of both parties, the principal and
agent. Besides, agency may exist without consideration. It stated under Section 138 “No
consideration is necessary to create an agency.” The law provides that agency may be formed
by the following ways ; by express and implied appointment, by ratification, by
emergency/necessity or by the estoppel.
For formation of agency under by emergency/necessity, this is a category of agency
created by law in certain circumstances and falls into two categories which are commercial
agency and domestic agency. At common law, domestic agency explained a deserted wife is
treated as an agent of necessity with authority to pledge her husband’s credit for necessities.
The husband is therefore liable as principal. For this agency to arise, the following conditions
are necessary the wife must have been deserted by her husband, she must be free from blame
and she can only pledge her husband’s credit for necessaries, what are necessaries is a
question of fact and varies from case to case.
For commercial agency , this agency arises where a party is in possession of another’s
goods whether perishable or not and an emergency arises requiring immediate action in
relation to the goods and it is impossible for the party in possession to seek instructions from
the owner. As a matter of emergency, an agent can be appointed during an emergency even in
the very beginning the agent is not appointed by the principal to act on his behalf. The agent
has no authority to do certain act, but need to do it in order to preserve the interest of the
principal, also preventing him from suffering greater loss. In the context, commercial
necessity imposes on the agent the duty to act in good faith in the interest of all the parties.
The legal rules relating to agents of necessity seek to achieve common sense in day to day
human life.

1
‘Law of Contract’ by Paul H. Richards, Fifth Edition, Longman Group Ltd 1992, page 417

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 The concept of commercial agency of necessity was explained in the case of China
Pacific SA V Food Corporation on India (The Winson), (1982).2 The defendant chartered a
ship to transport a cargo of wheat from the Usa to Bombay. En route, the ship became
stranded on a reef. The shipmaster entered into a contract with plaintiff, a firm of professional
salvors. Plaintiff managed to salvage 15,429 tonnesof wheat and, to protect it from
deteriorating , stored it at its own expense. Plaintiff then sought to recover these storage
expenses from defendant,but defendant refused to pay. It was held that salvors, plaintiff, are
entitled to reimbursement because they had implied authority from the defendant to take care
of the cargo, they acted as agents of necessity on behalf of the cargo owner and could
recover the expenses from defendant.
For this agency to arise the following conditions are necessary to form a valid agency
by necessity ; there must be a real and actual emergency, an emergency necessitating
immediate action in relation to the goods , it is impossible for the party in possession to seek
instructions from the owner and the party in possession must act in good faith as owner.
The first condition which is there must be real and actual emergency, the agent must
prove that the act was done under a real emergency situation. This can refer to case Phelps
James & Co. V Hill (1891). The plaintiff shipped their goods from Swansea in the
defendants’ vessel to New York. Bill of lading contained usual exceptions including one from
liability for collision. The ship was a general ship, and there were other shippers of goods
besides the plaintiffs. Leaving Swansea vessel encountered bad weather. Both vessel and the
cargo were damaged, and vessel had to put back to a port of refuge. The master called at
Queenstown and telegraphed for directions to the defendants but did not communicate with
the plaintiffs. Defendants, who run shipbuilding business at Bristol, instructed him to bring
the ship back to Bristol. On her way to Bristol she collided in another vessel and sunk. The
plaintiffs brought an action for the non-delivery of the goods on the ground that the vessel
deviated from her course by proceeding to Bristol, since Bristol was sixty miles further than
Swansea from Queenstown. The court held stated that what is meant by ‘emergency’ must be
referred to the reasonable situations by every material cicumstances must be taken into
account- the danger, facilities available, cost, time distance, expenses and so forth.
Next condition is an emergency necessitating immediate action in relation to the goods.
An agent was entrusted with the principal’s goods can only become an agent by emergency.
Any other person who was not entrusted and have action to the principal’s goods, cannot act
as an agent by necessity. This can refer to case Jebarra V Ottoman Bank (1927) that
described agent by necessity only exists if the agent is instructed to deliver goods, who was
entrusted with it to certain destination and that time is where an emergency occurred.

Besides, immediate action in relation to the goods is one of the conditions. It means that
action needed by the agent to protect the goods as can be refer to case Great Northern
2
‘Commercial Law’ by Ian Brown, Faculty of Law, University of the West of England, Bristol, published by Reed
Elsevier Ltd 2001, page 76, Chapter Agency by Necessity

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Railway Co. vs. Swaffield (1874), the plaintiff railway company had transported a horse to a
station on behalf of defendant. When the horse arrived, there was nobody to collect it. So, the
plaintiff sent it to a stable. A number of months later, the plaintiff paid the stabling charges
and then straight to recover what it had paid from the defendant. In this case, the court was
held that the plaintiff’s claim succeeded even though he is involved in the extension of
doctrine of agency of necessity to include carriers of goods by land. There was an agency of
necessity because the plaintiff was found to have had no choice but to arrange for the proper
care of the horse.
The next condition that necessary to form a valid agency by necessity is when it is
impossible for the party, as agent in possession to seek instructions from the owner, principal.
Whenever an emergency occurs, an agent is under the duty to communicate with the principal
to get further instructions. This was stated under Section 167 of Contract Acts 1950, “ 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.” However, if the agent had try so
hard trying to communicate with the principal but failed, he must use his own discretion
taking necessary steps to protect the principal’s goods and property. This also can be refer to
Section 142 of Contract Acts 1950 “ An agent has authority, in an emergency ; to do all such
acts for the purpose of protecting his principal from loss as would be done by a person of
ordinary prudence, in his own case, under similar circumstances.”
In the case of Springer v. Great Western Railway Company (1921) , Great Western
Railway Company as defendant agreed to carry plaintiff’s tomatoes from Channels Island to
London, by ship to Weymouth and by train to London. The ship was stopped at Channels
Island for three days due to bad weather. Eventually, when the ship arrived at Weymouth,
defendant’s employees were on strike, tomatoes were unloaded by casual laborers but it was
delayed for two days. At that time, some of the tomatoes were found to be bad. So, defendant
decided to sell the tomatoes as they felt that tomatoes could not arrive in Covent Garden
market in a good and saleable condition. When plaintiff found out about this, plaintiff wanted
to claim damages from defendant. The court was held that plaintiff was entitled to damages
because defendant ought to have communicated with the plaintiff when the ship arrived at
Weymouth to get instruction. As defendant has failed to communicate with plaintiff when
they could have done so, thus, there was no agency of necessity.
In additon, this condition also can be refer to case Gwilliam V Twist (1895)3. The
policeman thinking driver of bus is drunk orders him to discontinue driving. The driver and
conductor authorise a passerby to drive bus to company (defendant) yard quarter mile away.
Due to negligence of that person and injury is caused to plaintiff. Plaintiff’s case failed as
there was no necessity. It was held that act should be reasonably necessary.

Last condition is agent of necessity has acted in good faith (Bona fide). The agent
must have proved that what has he done is in a good faith and the act is reasonable and might

3
‘Law for Accountancy Students’ by Richard Card,Jennifer James, Butterworth &Co Publishers Ltd, Second
Edition 1982

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be done by any other person too. This condition can be illustrated in case Prager v. Blatspiel,
Stamp and Heacock Ltd (1924)4 which was regarding there must be a genuine necessity and
the agent must act bona fide. After the outbreak of First World War, the plaintiff who was
from Romania contracted to buy a number of furs from defendant who was from London.
Plaintiff was intended to wait and ask defendant to deliver the furs which were largely paid
until the war was over. At that time, Romania was occupied by the Germans and
communication between both parties became impossible. The furs that were stored were
increasing in value. Towards the end of the war, defendant began to sell the furs locally with
assumption that occupation of German will be continued. When the war ended, the plaintiff
demanded delivery from defendant but the defendant only told the plaintiff that the furs had
been sold off under agency of necessity. The court held that there was no agency of necessity
because the plaintiff was willing to wait for goods which were appreciating in value and it is
clear that defendant acted against bona fide when defendant sold off the furs which got higher
value at that time.
Next case that can be refer is Sachs V Miklos (1948). Miklos agreed to store Sachs’s
furniture. Some considerable time later Miklos has decided that he needed the storage space
for his own use. He tried to contact Sachs to get the furniture removed but was unable to do
so, so he sold the furniture. When Sachs found out he sued Miklos for wrongfully disposing
of the furniture. It was held that Miklos was liable. His argument that he had acted as an
agent of necessity in disposing of the furniture was dismissed since he had sold it merely for
his own convenience and not act in good faith.
The effects of agency by emergency / necessity that might occurs are the agent will be
protected from any claim of the principal. This because the principal cannot sue the agent for
acting without or beyond his authority as the agent done the act in order to protect the
interests of the principal due to emergency situations. Then, the agent also will be entitled to
any additional payment which been contributed by him as his effort protecting and preserving
the safety and interest of the principal. Lastly, the contract will binding and exists between
principal and the third party.
In conclusion, there are some valid ways to create an agency, the contractual
relationship between an agent and a principal, and contractual relationship between the
principal and the 3rd party. As there was no consideration to form an agency, the stated ways
are the best option to be follow in order to form an agency which is by express and implied
appointment, by ratification, by emergency/necessity or by the estoppel. As for the agency by
emergency/necessity, the principal and agent need to fulfil the conditions to have a valid
agency by necessity.

Question 2

4
‘Law of Contract’ by Paul H. Richards, Fifth Edition, Longman Group Ltd 1992, page 417

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 b) Encik Rahim entered into a contract with Riang Ria Publisher to produce monthly
health magazine. The negotiation was done between Cik Manis, his agent and Riang
Ria Publisher. Encik Rahim recently found out that Cik Manis had received a personal
commission of RM3,000 from Riang Ria Publisher while negotiating the publishing
contract on his behalf. As a result, Encik Rahim will suffer a loss of RM20,000. Encik
Rahim is very angry. Advise Encik Rahim as to his rights arising from this incident.

Issue
1. Whether there is an element of secret profit by the action of Cik Manis received a
personal commission of RM3,000 from Riang Ria Publisher without Encik Rahim’s
knowledge, while negotiating the publishing contract on behalf of Encik Rahim?
2. Whether Encik Rahim can sue Cik Manis for breach of duty as agent receiving the
personal commission of RM3,000 from Riang Ria Publisher?
3. Whether Encik Rahim entitle to claim the loss of RM20,000 from Cik Manis?

Law
Agency is a contractual relationship which subsists between an agent and a principal.
Under this agreement, the agent then being said to possess and employed an authority by the
principal to act on behalf of him dealing with other parties. As the contract made with the 3 rd
party is on behalf of the principal, the contract is binding on the principal, not the agent.
Refers to Section 135 of Contract Acts 1950, “ An “agent” is a person employed to do any act
for another or to represent another in dealings with third persons. The person for whom such
act is done, or who is so represented, is called the “principal”.” An agent is a person
authorized, expressly or impliedly, to act for his principal so as to create or affect legal
relations between the principal and the third party. The principal makes use of the agent to
enter into a legal relationship with a third party. A principal, is the person who authorizes the
agent to act on behalf of him.5
Agency can be created by contract like express or implied, oral or written, by confirmation
such as an agreement is given either to an act done by someone who had no previous
authority to act or to an act that exceeded the authority granted to an agent, by estoppel or
principle its explain where a person allows another to act for him or her to such an extent that
a third party reasonably believes that an agency relationship exists, or necessity or
requirement of a person where acts for another in an emergency situation without express
authority to do so.

5
‘Commercial Law’ by Ian Brown, Faculty of Law, University of the West of England, Bristol, published by Reed
Elsevier Ltd 2001, Chapter 7 Duties of agent owed towards his principal

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 As the principal-agent relationship is formal and contractual, the both parties have their
own duties and rights. The agent’s express authority and his rights and duties are specified in
a written contract. There may be a purely oral contract but, in both situations, there will be
some remedies for breach of contract if there is failure by agent to perform the duties under
the terms of the contract and the principal may sue the agent for breach of contract. For an
agent, the main duties of an agent towards the principal that need to follow are ; the agent
must obey the principal’s instructions, agent must act according to the customs that prevail in
doing business of the same kind if no instruction given, agent must exercise due care,
diligence and use all skill in executing his authority, agent must render proper accounts when
required, agent must communicate with the principal during emergency, agent must act in a
good faith and no conflict of interest, agent cannot make any secret profit, agent must pay all
sums received to his principal and lastly, the agent cannot delegate his authority to other
person.
One of the most important duties of an agent towards principal is that an agent cannot
make or earn any secret profit. The secret profit means any bribe or secret commission or any
financial advantage which is over and above the commission agreed under the agency
contact. An agent is not allowed to receive any amount of secret profit from any third party
when dealing on behalf of his principal without his knowledge. However, if the principal
knows of the profit gained by the agent, and the principal consents to it, it is no longer
‘secret’ and therefore no breach of duty by the agent. But, if the principal does not consent to
it, the principal may sue the agent for breach of duty. For example, in Lucifero V Castel
(1887)6 an agent appointed to purchase a yacht for his principal. However he bought the
yacht for himself and then sold it to his principal at a profit, the principal being unaware that
he was buying the agent’s own property. An agent’s duty is to pay his profit back to the
principal and it is a must even if the principal could not have earned the profit himself.
Thus, there are some remedies which available for the principal. Firstly, the principal
may terminate the contract that has been made by the agent behalf upon him immediately. In
Section 168 of Contract Acts 1950, provides that 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.

6
‘Commercial Law’ by Ian Brown, Faculty of Law, University of the West of England, Bristol, published by Reed
Elsevier Ltd 2001, Chapter 7 Duties of agent owed towards his principal

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 Second remedy is the principal may recover the amount of the bribe. 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 Tan Kiong Hwa v Andrew S.H. Chong (1974), the defendant was the managing director
of house agency company. The plaintiff has brought a flat from that company. The plaintiff
later authorized the defendant as his agent to seek the flat for RM45,000. However, the
defendant managed to sell the flat for higher price of RM54,000. The difference of RM9,000
extra was credited to the company. In the principle of law, the court held that the plaintiff was
entitled to recover RM9,000 from the defendant as the defendant has breached his duty as
agent.
Third remedy is the principal may refuse to pay the agent’s commission or other
remuneration. In connection with Section 173 Contract Act 1950, an agent who is guilty of
bad controlling in the business of the agency is not entitled to any remuneration in respect of
that part of the business which he has misconducted. For example, X employs Y to recover
RM50,000 from Z, and to invest it on good security. Y discovers the RM50,000 but invest
only RM40,000 on good security. He invest the remaining RM10,000 on security which he
ought to have known to be bad. This results X loses RM2,000. Thus Y is entitled to
remuneration for recovering the RM50,000 and for investing the RM40,000. He is not
entitled to any remuneration for investing the RM10,000 and he must make good the
RM2,000 to X. In the case of Salomons V Pender (1865) 7, the plaintiff was instructed to sell
the land for the defendant, obtained an offer from a company in which he had a substantial
shareholding and of which he became a director just before contract was exchanged. The
plaintiff received nothing from the company in respect of this transaction, nor was there any
evidence that the land had not realised its full price. Nonetheless, it was held that the
plaintiff’s undisclosed interest or secret profit disentitled him to a commission.
Besides that, if agent makes any secret profit out of the performance of his duty, the
principal may dismiss or terminate the agent’s authority for breach of duty. In the case of
Boston Deep Sea Fishing and Ice Co. v. Ansell (1888), Ansell was a director of BDSFI,
employed on a fixed-term contract. He was also secretly a director of a boat-building
company. He ordered many boats for BDSFI from his other company due to incentives he
received on sales. Ansell was dismissed because he was found incompetent. He was being
sued for wrongful dismissal. While preparing for their defence, Boston discovered Ansell’s
secret dealing. At court, Ansell proved that he was competent however the court held that the
dismissal was justified due to the secret dealing.

7
‘Law of Estate Agency’ by Joh Murdoch, Taylor & Francis, 2014, Fifth Edition

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 Next remedy is the principal may sue the agent and the third party giving the bribe for
damages 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
149,8 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 principal has
alternatives remedies, (i) an action for money had and received against agent or third party
for the amount of bribe, or (ii) an action for damages for fraud against the third party or the
agent for the actual loss sustained.
Furthermore, above remedy also can be refer to the case of Andrews v. Ramsay and Co
(1903), 9where 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
this 20 pounds and also the 50 pounds he had paid the defendant initially. The court held that
he could recover both of them.
Last but not least for the remedies available for the principal, the agent and the third
party may be charged under a criminal offence. They may be charged under Section 11 of the
Anti- Corruption Act 1997 : If
(a) any agent corruptly accepts or obtains, or agrees to accept or attempts to obtain, from any
person, for himself or for any other person, any gratification as an inducement or a reward for
doing or forbearing to do, or for having done or forborne to do, any act in relation to his
principal’s affairs or business, or for showing or forbearing to show favour or disfavour to
any person in relation to his principal’s affairs or business; or (b) any person corruptly gives
or agrees to give or offers any gratification to any agent as an inducement or a reward for
doing or forbearing to do, or for having done or forborne to do any act in relation to his
principal’s affairs or business, or for showing or forbearing to show favour or disfavour to
any person in relation to his principal’s affairs or business;
he shall be guilty of an offence.

8
‘Law for Accountancy Students’ by Richard Card,Jennifer James, Butterworth &Co Publishers Ltd, Second
Edition 1982
9
‘Commercial Law’ by Ian Brown, Faculty of Law, University of the West of England, Bristol, published by Reed
Elsevier Ltd 2001, Chapter 7 Duties of agent owed towards his principal

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 Virtue of those provisions, both the agent and the third party who received or gave the
bribe or secret profits shall be guilty under a criminal offence. Both of them shall liable to :
(a)imprisonment for a term not less than 14 days and not more than 20 years; and (b)a fine
not less than 5 times the value of bribe received or RM10,000 whichever is the higher. This
can be refer to Section 16 of Anti-Corruption Act 1997 Any person who is found guilty of an
offence under section 10, 11, 13, 14 or 15 shall on conviction be liable to (a) imprisonment
for a term of not less than fourteen days and not more than twenty years; and (b) a fine of not
less than five times the sum or value of the gratification which is the subject matter of the
offence where such gratification is capable of being valued or is of a pecuniary nature, or ten
thousand ringgit, whichever is the higher.

Application
Cik Manis had breach of duty as an agent as he making a secret profit as receiving a
personal commission of RM3,000, without informing Encik Rahim, from Riang Ria
Publisher while negotiating the publishing contract on behalf of Encik Rahim. She does not
intend to have the consent from Encik Rahim for the personal commission. If she does so, she
do not be considered as making secret profit. Encik Rahim can sue Cik Manis for breach of
duty as his agent for receiving the personal commission of RM3,000. He also can sue the
Riang Ria Publisher for giving Cik Manis the bribe of personal commission which brought a
loss to Encik Rahim of RM20,000. Besides, Encik Rahim is entitle to recover the amount loss
of RM20,000 from Cik Manis as she the one who responsible to act as good faith agent to her
principal but she had breach her duty.

Conclusion
In conclusion, an agency is a contractual relationship that consists of its own unic terms
and stipulation that needed to acquire by both agent and principal. Both the agent and
principal must play the most important role in this relationship in order to preserve a smooth
and clear contract especially with the third party. Normally the duties of an agent are
stipulated in the terms of agreement of agency. If the agent failed to do any of the duties, the
agent would be liable for breach of duty towards the principal. As the duty of an agent can be
classify into agent’s duties of performance and agent’s fiduciary duties, both of them must
being followed and cannot do some acts that against it. Same goes to the principal that may
have his own duties and rights in order authorizing trusted agent to act on his behalf. If both
of the party act in good faith and with determination, a good agency can be formed.

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REFERENCES

 ‘Law of Contract’ by Paul H. Richards, Fifth Edition, Longman Group Ltd 1992, page
417
 ‘Commercial Law’ by Ian Brown, Faculty of Law, University of the West of England,
Bristol, published by Reed Elsevier Ltd 2001, page 76, Chapter 6 Agency by
Necessity & Chapter 7 Duties Of Agent Owed Towards His Principal
 ‘Law of Estate Agency’ by Joh Murdoch, Taylor & Francis, 2014, Fifth Edition
 ‘Law for Accountancy Students’ by Richard Card,Jennifer James, Butterworth &Co
Publishers Ltd, Second Edition 1982

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