LAW OF AGENCY (BUSINESS LAW).

QUESTION

Datin Edora ordered Din, her agent to sell her house in KL Heights at the price of RM 400,000. Din managed to sell it at RM 410,000 and the extra RM 10,000 was credited into his company account.

Datin Edora also ordered Din to sell her Perdana V6. Malik Din’s best friend wished to buy it at RM 50,000. At the same time, Zaim called Din and offered to buy the car for RM 54,000. Din did not inform Datin Edora about Zaim’s offer. A contract was sign then signed between Datin Edora and Malik.

Later, Datin Edora found out about the extra RM 10,000 received by Din and the RM54, 000 offered by Zaim.

Advise Datin Edora.

Issue:

i)    Whether Din made any secret profit out of the performance of his duty?

ii)  Whether Din had conflict of interest or not?

Introduction

Agency, being a form of a contract, is governed by the Contract Act 1950. In section 135 said that agent as a person employed to do any Act for another or to represent another in dealing with third persons. It further states that the person for whom such act is done, or who is so represented, is called the ‘principal’. 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.

Hence the agency also can define as a relationship which subsists between a principal and an agent, where the agent has been authorized to act for the principal or represent him in dealing with other or third party. Looking at the nature of contract between the parties and we can see that have two kind of contractual relationship existing in an agency. The first example of the situation is the contractual relationship between the principal and the agent from which the agent derives his authority to act for and on behalf of principal in dealing with a third party.

 The principle that can be used in this case is Agency. It is because the principal Datin Edora employed the agent Din to be her representative on her behalf to sell the car and the house of Datin Edora.

Application

            In answering the first issue, whether Din made any secret profit out of the performance of his duty or not. 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. In section 168 provide 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. 

Example of the cases is Graham v. Cummings, a 1904 Pennsylvania Supreme Court case, the shareholders of a corporation had authorized the defendant shareholder to sell their stock. The defendant secretly negotiated to receive a higher amount for his stock than for that of his fellow shareholders. The Court concluded that an agent “cannot make profits out of his principal in the business of his agency.”,

Another case that has been related with this case is Kribbs v. Jackson, 1957 Pennsylvania Supreme Court case, the defendant had acted as an agent of the plaintiff for the purpose of collecting rent on property that the plaintiff owned. The trial court found that the defendant had fraudulently concealed the full amount of rent collected and had thereby earned a profit in excess of his commission. The court ordered the defendant to account for the fraudulently-earned profit. The Supreme Court affirmed the trial court, reasoning that “all profits made and the advantage gained by the agent in the execution of the agency belong to the principal.”

In the case of Boston Deep Sea Fishing and Ice Co. v. Ansell (1888) 39 Ch D 339, 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.

Based on this case, Din receives or made a secret profit when he act as a representative behalf Datin Edora when Datin Edora employed him for to sell her house at KL Heights. Din should not take the extra RM 10,000 from the actual price and credited into his company account without the consent by Datin Edora. After Din take the extra money from the actual price, Datin Edora found out that Din took the money without her consent and Datin Edora did not agree with the action made by Din and because of that Din has been charge as breach of duty and Datin Edora also may refuse to pay Din commission or other remuneration.

If the agent is Din receives profit and the principal Datin Edora does not consent to it and there are few remedies are available for her which are first is the principal may repudiate the contract. If Datin Edora feels that it is the disadvantageous to her. With reference to S168 Contract Act 1950, if an agent deals on his own account in the business of the agency without getting the agreement from the principal and acknowledge him with all significant circumstances which have come to his knowledge on the subject, the principal may repudiate the transaction. Principal need to show either any material facts have been dishonestly hidden from him by the agent, or that the dealings of the agent have brought unfavourable condition to him. 

The second remedies is principal may recover the amount of the secret profit, 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 of Tan Kiong Hwa v. Andrew S.H. Chong [1974] 2 MLJ 188, the defendant was the managing director of house agency company. The plaintiff has bought a flat from that company. The plaintiff later authorized the defendant as his agent to sell the flat for $45,000. However the defendant sold the flat for higher price, which is $54,000. The difference of $9,000 was credited to the company. The court held that the plaintiff was entitled to recover $9,000 from the defendant as the defendant had breached his duty as an agent.

Thirdly the principal may refuse to pay the agent’s commission. In connection with S173 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 of behaviour. In the case of Andrews v. Ramsay and Co [1903] 2 KB 635, where 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 these 20 pounds and also the 50 pounds he had paid the defendant initially. The court held that he could recover both of them. 

Lastly for a remedy that may be taken by the principal is the principal may sue both 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, 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 the respondent could recover either bribe or the amount of the actual loss suffered by it as a consequence of entering into the contract.

In answering second issues, Datin Edora and Din can be identifying as principal and agent. An agent must not let his own interest conflict with his duty. The agent must add solely for the benefits for his principal not for his own benefit. This action has been stated in Section 168 of contract Act 1950. S168 provides that if an agent deals on his account in the business of the agency without first obtaining the concern of his principal and acquainting him with the all material circumstances which have comes to his on knowledge on the subject, the principle may repudiate the transaction, if this case shows either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent has been disadvantageously to him.

Another section that must be refers is Section 169 of Contract Act 1950. It been stated that if an agent without knowledge of his principal deals in the business of agency on his own account instead of an account of his principle, the principle is entitled to claim from the agent any benefit which may have resulted to him from the transaction.   

 Within the situation given, Datin Edora entrusted her ownership of Perdana V6 to Din. Din managed to sell those car in lower price and don’t accept the proper offer that be given to him. Din also inconsiderate the better offer that can gain more profit to Datin Edora. It shows that Din had misuse of his authority to communicate about the offer of higher price. It can be proved that Malik had near relation with Din because Malik is Din’s best friend. Although, Zaim had offered a better price for those car that can make more profit towards Datin Edora. Din failed to inform about the price that stated by Zaim. The agreement of purchase had been sealed between Datin Edora and Malik.

Furthermore, this situation shows that Din had acted by his own, he to credit the extra money from the purchase to his company account. Merely, Din had made profit by his own in dealing about the house and cars with the buyers. This situation is without permission given by Datin Edora. It also shows that Datin Edora appoints Din as her agent but Din make another deals to gain more benefit from the purchase. As an agent towards her principal, he only entitled his commission from the agreement. He also breach the trustworthy element that been given by Datin Edora because he did not inform her about Zaim’s offer. 

We can defined the meaning of acting in good faith and no conflict of interest in term of several action that been made by the agent which are the agent cannot become a party to a transaction with the principal. The agent cannot become the person that involves directly in selling agreement and deals with the principal. It can be referring in case of Armstrong v Jackson, the defendant (agent) has given the order to buy share for his principal (plaintiff). The agent sold his own share to the principle without informing the principal in advance. The court held that the agent has not acted in good faith and therefore the principal could are rescind the contract.

 Plus, if the principle discover that he is contracting with his own agent, and the principal does not agree to it, the principal has the rights under Section168 of CA 1950 to repudiate the contract even though the agent may have acted fairly in transaction. It can be referring in cases of Wong Mun Wai v Wong Tham Fatt, it was held that the defendant had breached his duty as agent to the plaintiff (principal) on two reasons which are he sold the plaintiff’s share of land below the market value and he failed to inform the plaintiff that he had sold it to his wife. The court held the defendant is under the duty to act in good faith in protecting the interest of the plaintiff and could not use his position as agent to gain profit at the expense of the plaintiff.

 Furthermore, Din as agent towards Datin Edora must not disclose everything that he knows, to the principal relating to all material facts of the contract. He is also not allowed to disclose his principal’s secret to the other. It had been restricted by section 169 of CA 1950. We can foresee from the situation that Din disclose about Zaim’s offer and proceed about Malik’s offer only. The information been closed and not be inform to Datin Edora. Besides that, all monies and profit should be put into the principal’s account. Agent like Din cannot mix them with his own money or property. In previous review, Din had credited extra money from the purchase of Datin Edora’s house to his company account. He should tell Datin Edora about the extra money and Datin Edora can decided what her want to do with those extra money. We can refer this situation in cases of Lyell and Kennedy; the true owner may recover money which was rightfully his from a person to whom the money in question had been wrongly paid by the collector of the money. A fiduciary is one who has undertaken, whether on request or without request, of his own motion to act on behalf of another in circumstances in which equity will not allow him.

In a nutshell, within the strong point that been given that Din as agent toward her principal, Datin Edora had violate certain restriction of power that given to him. Thus, Datin Edora can make an action to terminate even not give any commission to Din. Plus, Datin Edora shall bring cases to court for relevancy punishment.