SIDC Module 6 Contract law, the stockbroker-client relationship and negligent misstatement question: Contracts Act

SIDC Module 6Contract law, the stockbroker-client relationship and negligent misstatement

Aziz tells his PO to buy 10,000 shares at no more than RM2.00. The dealer's representative buys at RM2.10, and the price then falls to RM1.80. Under section 164 of the Contracts Act 1950, who bears the loss?

A The PO, which as agent departed from Aziz's directions and must make good the loss
B Aziz and the PO equally, as both of them knowingly accepted the market risk of the trade
C Aziz, as the contract made on Bursa Securities binds him once the orders are matched
D The selling PO, which must cancel the trade as it was done above the client's limit

Show the answer and explanation

Answer: A. The PO, which as agent departed from Aziz's directions and must make good the loss

A stockbroking company executing a client's order acts as the client's agent. Section 164 of the Contracts Act 1950 binds an agent to conduct the principal's business according to the principal's directions and provides that, when the agent acts otherwise, it must make good any loss the principal sustains (and account for any profit). Buying at RM2.10 against a RM2.00 limit is a departure from Aziz's directions, so the PO bears the resulting loss. The matched market contract binds the PO on the market, but that does not shift the loss to Aziz as between agent and principal. Nothing makes the selling PO cancel a trade validly matched at RM2.10. Source: Contracts Act 1950 (Act 136) ss.135, 164; SIDC Module 6 Study Outline (Jul-Dec 2026) Topic 8, 8.1 and 8.5 (as at October 2026).

Common mistake

Candidates think a matched trade binds the client whatever his instructions were; between client and broker, the agent bears losses from disobeying them.

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Client Mei asks her PO for copies of all entries in its books on her trades and to inspect the contract notes for them. Which of the following are correct under the CMSA?A client tells his broker, acting as his agent, to sell his shares in an unlisted company. The broker secretly buys them through a nominee at the client's asking price and resells them a week later at a profit. Under the Contracts Act 1950, the client may On a client's instructions a PO buys shares for her on Bursa Securities. She then refuses to pay, the PO must still settle with the clearing house, and it loses money selling the shares out. Under the Contracts Act 1950, the PO can claim the loss from her because

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Original study material mapped to the public SIDC Module 6 syllabus. Unofficial, not endorsed by SIDC or the SC. Verify figures and rules against current guidance before relying on them.