SIDC Module 6 Contract law, the stockbroker-client relationship and negligent misstatement question: shares in an unlisted company

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

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:

A rescind the sale only by written notice within 14 days of receiving the contract note
B do nothing, as he received exactly the price that he had asked the broker to obtain
C claim from the broker the benefit it gained by dealing on its own account
D claim only if he proves that his asking price was below the shares' market value

Show the answer and explanation

Answer: C. claim from the broker the benefit it gained by dealing on its own account

Section 169 of the Contracts Act 1950 provides that if an agent, without the principal's knowledge, deals in the business of the agency on its own account instead of on the principal's account, the principal may claim from the agent any benefit resulting from the transaction. Section 168 adds that where the agent deals on its own account without first obtaining the principal's consent and disclosing all material circumstances, the principal may repudiate the transaction if material facts were dishonestly concealed or the dealing was disadvantageous. The client need not prove an undervalue to recover the secret profit. The 14-day rescission right belongs to s.97 of the CMSA, on undisclosed principal dealings by a licensed dealer in securities. Source: Contracts Act 1950 (Act 136) ss.168, 169; CMSA 2007 s.97(5) (as at October 2026).

Common mistake

Candidates think receiving the asking price ends the matter; an agent's secret profit belongs to the principal.

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Related SIDC Module 6 questions

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 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?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?

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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.