Responsibilities of Principals and Agents Q7

Compare and contrast the responsibilities between the principal and the agent.

(20 marks, 2014 Q7)

Section 135, Contract Act 1950 as below.

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”.

To answer this question, the foremost is about the 'responsibilities'. A distinction must be drawn between 'responsibilities' and 'duties' here.

This is because if the question asks about duties, then the law has the provisions on 'Duty' as in s.164 to s.174 Contracts Act, 1950 for 'Agent's duty to principal' as well as s.175 to s.178 on 'Principal's duty to agent'.

Therefore, the answer here would take the softer approach as responsibilities rely very much on the relationship. Like relationship of boss to subordinate, the responsibility of employer and employee. For instance, the answers would be Employee to carry out the job description, and the Employer to pay salary and ensure safety of work place.

Subsequently, the approach would be first to identify the responsibilities of agents and principals, and next to compare and contrast between them.


Contracts Act 1950 has specified the duties of Agent to Principal among the sections 164 to 174.

Contracts Act 1950 has also specified duties of Principal to Agent among the sections 175 to 178.



15.6.1 As the agent is an intermediary, generally, once the principal and third party are brought into a contractual relationship, the agent drops out of the picture, subject to any issues of remuneration or indemnification that he may have against the principal, and more exceptionally, against the third party. Generally, agents are entitled to be indemnified for all liabilities reasonably incurred in the execution of the agents´ authority.

15.6.2 Aside from any specific contractual obligations that may govern the relationship between the principal and the agent, an agent is considered a fiduciary vis-à-vis the principal. As such, the agent should not, without obtaining the informed consent of the principal, place himself in a position where his duty to his principal may conflict with his own interests. If the agent receives a secret bribe, the agent must account for this to the principal - see Mahesan v Malaysian Government Officers Co-operative Housing Society Ltd [1975] 1 MLJ 77.

15.6.3 Obviously, if the agent exceeds the authority conferred on him and this causes the principal loss, the principal may claim against the agent.

Types of agencies:

Agency by Agreement/Contract: 

An agency relationship based on an express or implied agreement that the agent will act for the principal. Obviously the most common form. In some cases, there weren't enough required elements to form a contract, and thus only an agreement.

Agency by Ratification: 

A confirmation by the principal of an act or contract performed or entered into on his or her behalf by another, who assumed, without authority, to act as his or her agent. May be oral or written, usually cannot be rescinded, is retroactively applied back to original date the alleged contract was made.

Agency by Estoppel: 

If a principal (NOT THE AGENT) holds out to a third party that another is authorized to act on the principal's behalf, and the third party deals with the other person accordingly, the principal may not later deny that the other was the principal's agent for purposes of dealing with that third party.RARE!

Agency by Operation of Law: 

Agencies recognized by courts - e.g., family relationships, emergency situations - in the absence of any formal agreement, confirmation, or act or omission by the principal that implied the agent's authority. Usually deals with necessities.

Note that marriage is not necessarily considered an agency relationship solely due to the mere fact the couple is *married*. Recall an agency relationship results from manifestation of assent and direction from one to another (don't laugh, married folks!).


Provision by Contracts Act, 1950 on Agents Duty to Principal please go here.

  • Loyalty: An agent has the duty to act solely for the benefit of his or her principal, and not in the interest of the agent or a third party. Moreover, any information or knowledge obtained in the course of the agency is confidential.
  • Obedience: An agent has the duty to follow all lawful and clearly stated instructions of the principal. What else would anyone agree to have an agent/principal relationship if not for following a set of instruction?
  • Accounting: Unless otherwise agreed, an agent has the duty to keep and make available to the principal an account of all property and money received and paid out on the principal's behalf, including gifts received from third persons.
  • Performance: An agent impliedly agrees to use reasonable diligence and skill (except for a specialist, who is held to a higher degree of skill) in performing the task in its entirety. In other words, due care.
  • Notification: An agent is required to notify the principal of all matters that come to the agent's attention concerning the subject matter of the agency. As a result, the principal must be in constant communication with the agent.

PRINCIPAL'S DUTIES (Agent's rights)

Provision of Contracts Act, 1950 on Principal's Duty to Agent please go here.

  • Compensation: When a principal requests certain services from an agent, the principal has a duty to pay the agent, in a timely manner, for those services rendered.
  • Reimbursement: Whenever an agent disburses sums of money to fulfill the principal's request or to pay for necessary expenses incurred in the reasonable performance of his or her duties, the principal has the duty to reimburse the agent.
  • Indemnification: Subject to the terms of the agency agreement, the principal has a duty to compensate, or indemnify, the agent for liabilities arising from the agent's lawful and authorized acts on the principal's behalf.
  • Cooperation: A principal has the duty to cooperate with the agent and to assist the agent in performing his or her duties.
  • Safe Working Conditions: A principal has the duties
  1. to provide its agents and employees with safe working premises, equipment, and conditions, and
  2. to inspect working conditions and warn agents and employees of unsafe areas.


This section tries to put the above responsibilities into comparison.

Before going into the differences (contrasts), let us discuss about the similarities.


a) Trust

An agent should trust his principal, and so the principal has to trust his agent. There is no reason to be in the agency relationship if one party does not trust another.

b) Lawful act

Both agent and principal have to abide by the law. The agency cannot exist if it is an unlawful act. A principal cannot contract an agent to carry out illegal act, e.g. stealing.

c) Relationship is time and scope based

The relationship exists for the time and scope of the defined agency contract. This means the agent and the principal are bound by the time and scope of the contract. Beyond that, there is no agent and no principal.

d) No consideration required

The agent or principal cannot rely on consideration to honour the contract. It can be spoken, written or implied. If there is no consideration paid, and any party were to avoid the contract, both parties are treated equal in law.


1. To be simple, the principal has bigger role than the agent.

The agency contract is a scope for what the agent is appointed for. It is a smaller scope than the whole scope of what the Principal can do, in his own personal capacity.

For example, a principal wants to sell a property at RM500,000. He can sell it below or at whatever price he wishes, but the agent has only the agreed price to sell, ie RM500,000. Of course, he can sell at higher than RM500,000. But, it will be ratified later to fulfill the contract. If he sells lower, the principal may refuse to honour the contract, as agent had breach the term of contract in the first place.

2. Binding of types of agency contract.

The agency contract can be established in various ways. One of the common practices is Exclusive or Sole Agency Appointment. That is, a principal appoints an agent, and nobody else. Other types of agency can be:

  • Sole-Joint Agency
  • Joint Agency

Hence, if the principal choose to establish joint agency, the agent can be put in a position to compete with other agents for the same property. In this manner, the principal has more control than the agent. The agent in such relationship does not have exclusivity from the principal. Whereas, the principal has the control of who to choose to go with at the end.

3. Avenue of Avoidance.

From below, in the event that the agent breaches her/his contract with the principal, the principal may elect to avoid any contract he entered into with the agent. However, this may be challenged in court, and certainly, the principal may not able to avoid all liabilities.

On the side of the principal, he has no obligation to inform the agent other than the related scope of the contract. Whereas, the agent would have to inform whatever dealings to the principal, including the likelihood of the third party in a fall out. For example, if the agent feels that the third party may cause damage to the property, it is his duty to inform the principal of that risk. On the other hand, it is not the obligation of the principal to inform the agent which third party has the risk, if any.

In agency appointment of an expert, this standard is even higher. But on the side of principal, he has no obligation at all to be expert of the matter.

4. The element of tort.

When element of tort comes into play, the principal cannot discharge his duty from the liability. For example, when a meeting is between an agent and a client, the agent got into a fight and damaged the car of the client. Although the damage is claim under tort, the principal cannot run away from his responsibility to be liable.

This is very much the essence of the relationship between Real Estate Agent and his Negotiator. The REA is responsible for all that is done by his REN, especially involving tort. See earlier post on Ratifying unlawful act of an agent.]

With the conflicts of perspective of principals and agents - for they are never 100% alike, there are some remedies for principals, but not for agent. Agent can just walk away from the appointment, by stating that he terminates the contract of agency. See termination of agency here, and 2011 Q2 Dicharging obligation under contract here.


Most principal-agent relationships are governed by some actual or implied contract; therefore, most of the remedies available to a principal are the same available to any plaintiff in a breach of contract case. In other words, the principal can sue!!!

However, in the event that the agent violates her fiduciary duties to the principal, the following may also apply:

Constructive Trust:

Anything an agent obtains by virtue of the agency relationship belongs to the principal; therefore, a principal may sue to recover any benefits retained by the agent.

1. Trust: This is the reason anything developed in intellectual property while on the job belongs to the employer, not the employee, although usually, but not necessarily, the employer will allow the employee to share in the royalties.

2. Avoidance: In the event that the agent breaches her contract with the principal, the principal may elect to avoid any contract he entered into with the agent.

3. Indemnification: To the extent that the agent's breach causes harm to some third party, who then sues the principal, the principal may seek indemnification from the agent.

Contract Act, 1950, available at
Agency Relationships - An overview. Available at,
[Own account]