1. Legal Framework For Managers
by
Syed Zul
EMIM, MBA
01062014

2. How Agency Can Be Formed
• It is an area of commercial law dealing with a set of :-
• Contractual (an agreement)
• Quasi-contractual (a legal substitute formed to
impose equity between two parties)
• Non-contractual fiduciary (is a legal or ethical
relationship of trust between two or more parties)
– Section 138 of the Contract Act 1950

3. The Concept
• Referred as a relationships that involve a
person, called the agent, that is authorized to
act on behalf of another (called the principal)
to create legal relations with a third party
• A principal is a person, legal or natural, who
authorizes an agent to act to create one or
more legal relationships with a third party

4. Relationship
• agents and principals (internal relationship),
known as the principal-agent relationship
• agents and the third parties with whom they
deal on their principals' behalf (external
relationship)
• principals and the third parties when the
agents purport to deal on their behalf.

5. Sample Agreement

6. 3 Classes of Agents
• Universal agents (hold broad authority to act on behalf of the
principal, e.g. they may hold a power of attorney (also known
as a mandate in civil law jurisdictions) or have a professional
relationship, say, as lawyer and client)
• General agents (hold a more limited authority to conduct a
series of transactions over a continuous period of time)
• Special agents (are authorized to conduct either only a single
transaction or a specified series of transactions over a limited
period of time)

7. Authority
There are essentially three kinds of authority
recognized in the law:
1. Actual Authority
(whether express or implied)
2. Apparent Authority
3. Ratified Authority

8. Express Actual Authority
• Express actual authority means an agent has
been expressly told he or she may act on
behalf of a principal.
Ireland v Livingstone [1872] LR 5 HL 395

9. Implied Actual Authority
• Partners have authority to bind the other
partners in the firm, their liability being joint
and several, and in a corporation, all
executives and senior employees with
decision-making authority by virtue of their
position have authority to bind the
corporation.
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

10. Apparent Authority
• Exists where the principal's words or conduct would lead a
reasonable person in the third party's position to believe
that the agent was authorized to act, even if the principal
and the purported agent had never discussed such a
relationship
• This is sometimes termed "agency by estoppel" or the
"doctrine of holding out", where the principal will be
estopped from denying the grant of authority if third
parties have changed their positions to their detriment in
reliance on the representations made.
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964]
2 QB 480

11. Ratified Authority
• Means that after the unauthorised act, the
principal may agree to that act making it
binding on the third party
(that the third party is not bound to the agreement
created by an agent with ostensible authority until
the principal has ratified it. Whereas in the situation
of an act done under ostensible authority, the
principal is automatically bound to the third party)

12. Principle’s Duty
• To pay the commission or other agreed remuneration
* The agent has the right to retain his principle’s property in
his possesion until his remuneration is paid
‘right of lien’
Section 174 of the Contract Act 1950
* If the agent is guilty of misconduct,
he loses his right of remuneration
Section 173 of the Contract Act 1950

13. Principle’s Duty
• The principal must indemnify the agent for
payments made during the course of the
relationship whether the expenditure was
expressly authorized or merely necessary in
promoting the principal's business If the agent
has acted within the scope of the actual authority
given Section 172 of the Contract Act 1950
* if the agent has acted without actual authority, the
agent is liable to indemnify the principal for any resulting
loss or damage

14. Agent’s Duty
• To undertake the task or tasks specified by the
terms of the agency (the agent must not do
things that he has not been authorized by the
principal to do)
• To discharge his duties with care and due
diligence
• To avoid conflict of interest between the interests
of the principal and his own (the agent cannot
engage in conduct where stands to gain a benefit
for himself to the detriment of the principal)

15. Termination Of Agency
• An agent's authority can be terminated at any
time agreed by both party
If the trust between the agent and principal has
broken down, it is not reasonable to allow the
principal to remain at risk in any transactions that
the agent might conclude during a period of notice.
Section 158, 159 of the Contract Act 1950

16. Terminated By Operation Of Law
• Upon expiry of the peroid fixed in the contact
• By the death of either party
• By the insanity of either party
• By the bankruptcy (insolvency) of either party;
• By frustration of the agency agreement
• Agent renouncing the business of agency

17. References
• Section 138, 158, 159, 172, 173, 174