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BAEB 301: BASIC LAW FOR E-BUSINESS

CHAPTER 8: LAW OF AGENCY

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Chapter 8: Law of Agency

2010 Cosmopoint

BAEB 301: BASIC LAW FOR E-BUSINESSSCHOOL OFFACULTYOF BUSINESS MANAGEMENT

KUALA LUMPUR METROPOLITAN UNIVERSITY COLLEGE

Topic Outlines

8.0 Introduction

8.1 Principal and Agent

8.1.1 The Agent

8.1.2 The Principal

8.2 Creation of Agency

8.1.1 Express Appointment

8.1.2 Implied Appointment

8.1.3 By Ratification8.1.4 By Necessity

8.1.5 By Estoppel

8.3 Duties of a Principal to his Agent

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Topic Outlines

8.4 Rights of the Agent

8.5 Duties of an Agent to his Principal

8.6 Rights of the Principal

8.7 The Authority of the Agent

8.7.1Actual Authority

8.7.2Apparent/Ostensible Authority

8.8Agent who acts for a Disclosed/Undisclosed Principal

8.9 Termination of Agency

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Topic Outlines

8.10 Impact of Virtual Agents For Online Transactions

8.10.1 Definition of a Virtual Agent

8.10.2Advantages of Using a Virtual Agent

8.10.3 Unanswered Questions

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BAEB 301: BASIC LAW FOR E-BUSINESSSCHOOL OF

FACULTYOF BUSINESS MANAGEMENT


Learning Outcomes

At the end of this chapter, students should be able to:

Understand the role of the Agent in bringing a conventional contract into

effect on behalf of the principal

Understand the role of the Virtual Agents For Online Transactions.

Understand the Duties and Rights of the Agent and the Principal and howan agency can be terminated.

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8.0 Introduction

It is normal in running a small businessbusinessmen employ agents to handle

contracts with third parties including

customers.

The agents act as the 3rd

party to bring intoeffect a contract between the businessman

and his customer including negotiating with

the customers on the principals behalf.

The agents are not the parties to the

contract between the principal and the

customer.

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8.1 The Principal and the Agent

An agent is defined as 'a person

employed to do any act for

another or to represent another in

dealings with third persons' S.135

Contracts Act.

Any person may become an agent;

but persons of unsound mind and

who are below eighteen years of age

are not liable towards their principalsfor acts done by them as agents -

s137

Topics

8.1.1 The Agent

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8.1 The Principal and the Agent

Principal: The person for whom

such act is done, or who is so

represented, by the Agent.

A Principal must be at least eighteenyears old or above and ofsound mind

- S136 Contracts Act

Topics

8.1.2 The Principal

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Generally, an agency can be created in 5

ways:

i. by express appointment by the principal

ii. by implied appointment by the principal

iii. by ratification by the principal

iv. by necessity, i.e. by operation of law in

certain circumstances

v. by the doctrine of estoppel or'holding out'.

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Express appointment may be in a written or

oral form. E.g. a letter of power of attorney

or words spoken.

8.2.1 Express Appointment

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Implied appointment of an agent occurs

when a person by his words or conduct

holds out another person as having authority

to act for him.

E.g. Ali allows Ismail to book a room on hisbehalf and habitually pays for the room,

Ismail is therefore Alis agent by implied

appointment

8.2.2 Implied Appointment

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Ratification occurs where:

(i) an agent who was duly appointed has

exceeded his authority,

(ii) Person who has no authority to act for the

principal has acted as if he has the

authority.

In any of the above situations the principal

can either reject or accept the contract made

by this agent. Acceptance of this contract iscalled ratification.

8.2.3 Appointment by Ratification

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Agent by necessity arises in the followingsituations:

1. It is impossible for the agent to get the

principal's instruction.

2. The agent's action is necessary, in thecircumstances, in order to prevent loss to the

principal. E.g. agent sells perishable goods

before they rot.

3. The agent of necessity must have acted in

good faith.

4. In an emergency, an agent has authority to

do all such acts for the purpose of protecting

his principal from loss.

8.2.4 Appointment by Necessity

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Agent by estoppel arises where:

1. If the principal by his words and conductallows third parties to believe that aparticular person is his agent when he isnot, and

2. If the third party relies on it to his detriment,the principal will be estopped from denyingthe existence of that person s authority to

act on his behalf.

8.2.5 Appointment by Estoppel

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e.g. Agent by estoppel :

If Mahmud tells Samy in Tays presence thatMahmud is Tays agent and Tay does notdeny this statement, Tay cannot later denythat Mahmud is his agent if Samy hasprovided a room for Mahmud in his hotel forbusiness purpose and when he laterdemands payment from Tay.

8.2.5 Appointment by Estoppel

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8.3 Duties of a Principal to his Agent

1. To pay the agent the commission or other

remuneration agreed unless the agency

relationship is gratuitous.

2. Not to willfully prevent or hinder the agent

from earning his commission.

3. To indemnify the agent for acts done in the

exercise of his authority

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8.4 Rights of the Agent

1. Agents right to get paid once his job is

completed satisfactorily.

2. Agent has a right to impose a lien on

Principals property until he gets paid.

3. Agent is to be compensated for injurysuffered caused by the principals neglect.

4. Agent is to be indemnified against

consequences of lawful acts.

5. Agent is to be indemnified againstconsequences of acts done in good faith.

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8.5 Duties of an Agent to his Principal

1. To obey the principal's instructions

2. To exercise skill and diligence when carryingour duties

3. To render proper accounts to his principal

4. To communicate with the principal.5. To pay sums received for principal.

6. Not to let his personal interest conflict withhis duty. (This is called the agents fiduciarysduty).

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8.6 Rights of the Principal

1. To ask the agent to account for any secret

profits earned by him while acting on his

behalf

2.

Not liable for any criminal act committed bythe agent.

3. To terminate the agency.

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8.7 Authority of the Agent

An agent's acts are binding on the

principal if they are done within the

agent's authority.

If an agent does an act which exceeds

that authority so given, the principal isnot bound unless he adopts and ratifies

the unauthorized act.

An agents authority can be:

i. Actual or impliedii. Ostensible/apparent

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Actual authority is

authority expressly given

by the principal (orally or

in writing), or implied from

the express authority

given, from the

circumstances of the case,

custom or usage of trade,

and the conduct of parties.

8.7.1 Actual/Implied Authorityofthe Agent

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An agent is treated by the law as havingapparent or ostensible authority to bind hisprincipal if he enters into anUNAUTHORISED transaction which is relatedto the principals business.

It is irrelevant that the Principal did not knowabout the transaction nor did he give anyconsent to the agent.

An innocent third party who did not know of

the agents lack of authority at the time of thecontract has the right to assume the agenthas authority to enter into the transaction tobind his principal.

8.7.2 Apparent/Ostensible Authorityofthe Agent

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8.9 Termination of an Agency

An agency may be terminated by: 1. The act of the parties, or

2. By operation oflaw e.g. death of either

party; bankruptcy

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8.10 Impact of Virtual Agents

In the business world a virtual agent can be two

types:

1. an automated representative, called an

intelligent virtual agent, virtual rep orv-rep and

it is a chatterbot program that serves as an

online customer service representative for an

organization.

2. a human agent who works over the Internet at

some distance from the employer'sorganization.

Topics

8.10.1 Definitionofa Virtual Agent

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Virtual agents are increasingly used in CRM to

help people perform tasks such as locating

information or placing orders and making

reservations.

In the case of an automated virtual agent, he

has a human appearance and responds

appropriately to customer questions and he

lends automated interactions a semblance of

personal service. Virtual agents are usually scripted to respond to

a wide variety of questions and remarks

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Virtual agents are usually scripted to respond to

a wide variety of routine questions and they are

programmed to issue scripted remarks to such

questions if asked.

Virtual agents would not be able to answer

complex questions.

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A virtual agent will be able to :

1. Provide immediate responses to client

questions

2. Provide consistent responses

3. Provide ability to escalate unanswered

questions to e-mail or phone if needed, and

integrate with other customer service

knowledge bases

4. Increase clients service options

5. Reduce service cost over time

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8.10.2 AdvantagesofUsinga Virtual AgenttoprovideOnline CustomerService

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A virtual agent will be able to :

6. deliver information to customers on their

mobile phones while the principal will then

build a mobile lead base that will serve as a

foundation for a new way of prospecting.7. reduce the time which human agents spend

on repetitive questions thereby freeing the

human agents to tend to higher duties and

thereby cost-effective.

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8.10.2 AdvantagesofUsinga Virtual AgenttoprovideOnline CustomerService

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Unanswered questions are reviewed daily.

If appropriate, the answers are scripted.

Questions that are answered incorrectly

usually result in reprogramming and

debugging.

In this way the automated agent learns and

grows.

Topics

8.10.3 Unanswered Questions

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