Post on 15-Apr-2016
description
RELATIONSHIP BETWEEN AGENT AND PRINCIPAL
THE RIGHTS AND DUTIES OF AGENT AND PRINCIPAL
Introduction Agency is based on mutual
trust and confidence The principal trusts the agent
to carry out his work The agent trusts the principal
to pay his remuneration Consequently, the law
imposes duties and rights on both parties
Duties of agent to principal Section 164 – 171 of Contracts Act
1950 Obey the principal’s instructions
Agent is personally liable for any loss suffered by the principal
Act in the usual way – reasonable manner
Use skill and knowledge Render proper account
Duties of agent to principal
Receive and pay money into principal’s account
Keep confidential information from unauthorised third parties unless principal gives consent
Contact principal for instructions whenever necessary – subject to section 142
Duties of agent to principal
Not to sub-delegate unless: Minor clerical work Agent is unable to perform his
job Temporary or permanent
disability Hospitalisation Unsound mind
The principal has given consent
Duties of agent to principal
Duty to act bona fide (in good faith)
Good faith means to act honestly, without any intention to cheat or deceive Fiduciary duty Act bona fide Honesty and accountability Avoid conflict of interest Give priority to the interest of the
principal
Fiduciary relationship Relationship based on mutual
trust and confidence Where the party owes the duty
to protect each other’s interests Duty to act honestly to each
other This is the duty of good faith or
‘to act bona fide for the interest of the other party’
Usually owed by agent to principal
Conflict of interest Where the personal interests of
the agent conflicts with that of the agency
The agent is in a position where he could elect to act for himself instead of for the principal
The agent might be tempted to serve his own interest rather than the agency
Consequently, he would act for his benefit but to the detriment of the principal
Circumstances where conflict of interest may arise1) Competing with the principal2) Contracting with the
principal3) Using his position as an
agent to gain personal profit or benefit
4) Acting for more than one principals at the same time
Competing with the principal
Where the agent himself is dealing in the same business or with the same customers as the principal
This will lead the agent to use the opportunity presented by the agency to serve his personal interest
The priority will change - resulting in a probable loss to the principal
The remedies1) Recover any profit made by the
agent as it is considered to be secret profit
2) Not to pay the agent’s remuneration
3) Dismiss or terminate the agent’s service for breach of duty
4) Sue the agent for damages on actual losses suffered by the principal
Contracting with the principal
Where the agent becomes a party to the transaction with the principal i.e. as a buyer for the property the principal instructed him to sell
The agent may only contract with the principal when he had disclosed the matter and received consent from the principal
Failure to do so is a breach of good faith
Section 168 of the Contracts Act 1950
The remedies The principal has the right to
repudiate the contract even though he did not suffer any losses
It is sufficient to show that the agent had dishonestly concealed material facts (the identity of the contracting party) from him
Illustrations (a) and (b) to section 168
Wong Mun Wai v Wong Tham Fatt & Anor (1987) 2 MLJ 249
The 1st defendant was an agent for the plaintiff. He had sold the plaintiff’s land to his wife at a lower price than the market value.
The court held that he had the duty to act in good faith which he had breached by using his position to promote his own interest over that of the principal.
Using his position to gain private profit or benefit
Section 168 of the Contracts Act 1950
This is also known as secret profit It is defined as ‘any money or benefit
received by the agent in the course of his duty over and above the remuneration due to him from the principal’
The money or benefit could be said to properly belong to the principal
Instances of secret profit Receiving bribe from a 3rd party Receiving commission from a 3rd
party Discounts which were not
disclosed to the principal Using confidential information
gained from his position Any money or benefit received as
a result of competing or contracting with the principal
Acting in good faith
It is a breach of good faith even if there was no fraud or dishonesty involved
It is sufficient to show that the agent had received an advantage or that it is to the detriment of the principal
The agent is not liable if he had disclosed it to the principal and was given consent to keep the money or benefit
The remedies
1) Repudiate the contract2) Recover the secret profit3) Not to pay the agent’s
remuneration4) Dismiss or terminate the
agent’s service5) Sue agent and 3rd party for
damages If the principal elects to sue for
damages, he cannot seek to recover the secret profit and vice versa
Mahesan v Malaysian Govt. Officers Co-operative Housing Society Ltd (1978)1 MLJ 149
The director and secretary of the Society bought land for the society from the vendor at RM 944,000. For this, he received a payment of RM 456,000 from the vendor.
The court held that the society could recover either the bribe of RM 456,000 OR damages for the actual loss suffered by the society as a result of the agent’s act
Acting for more than one principals at the same time
Where the business, market or customers are the same or similar
Conflict of interest might arise as the agent would have to choose between two or more competing interest
For instance, if he is selling two houses belonging to two principals and a customer is found, then which house shall he sell?
More than one principal
He may only act for more than one principal if consent is given by all the principals
In Fullwood v Hurley (1928) 1 KB 498, an agent who was instructed to administer some property was held to have breached his duty of good faith when he acted and received commission from two different parties without consent of either party.
Duties of principal to agent
Pay remuneration to the agent Not to hinder agent from getting
his remuneration Pay indemnity to the agent for
matters or liabilities arising from the performance of his job
Duties of principal to agent Indemnify the agent if:
Agent suffers injury or losses in performing his job
A third party suffers loss or injuries in performing his job
Agent has used his own money to pay for the expenses to perform his job
As long as it happened while agent is performing his duty according to instruction
Rights of the agent Receive remuneration for his
work Deduct money received from
principal for expenses and remuneration (according to the sum agreed)
Indemnity for any lawful acts done in performance of his duty He is not entitled to any indemnity
if he committed an unlawful act
Rights of the principal
Full account of information from agent
Receive money obtained by agent in performing his job
Honesty and accountability on the part of the agent
Skill and knowledge of the agent in performing his job