SIDC Module 6 Contract law, the stockbroker-client relationship and negligent misstatement question: loses money selling the shares out

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

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:

A the agent may treat the unpaid purchase as its own and charge the client a penalty of its choice
B an agent's only remedy is its lien over the principal's property, which here covers the loss
C the client's refusal to pay amounts to the tort of negligent misstatement committed against the PO
D a principal must indemnify its agent against the results of lawful acts done within its authority

Show the answer and explanation

Answer: D. a principal must indemnify its agent against the results of lawful acts done within its authority

Section 175 of the Contracts Act 1950 binds the employer of an agent to indemnify the agent against the consequences of all lawful acts done in exercise of the authority conferred on it. Illustration (b) to s.175 describes a broker who buys on a merchant's orders and is left to bear the loss when the merchant repudiates; the merchant must indemnify the broker. Buying on the client's instructions was a lawful act within authority, so the PO can recover the loss from her. The agent's lien under s.174 is a right to retain property, not its only remedy. Refusing to pay is a breach, not a misstatement, and the Act gives no right to impose an arbitrary penalty. Source: Contracts Act 1950 (Act 136) ss.174, 175 and illustration (b); Rules of Bursa Malaysia Securities Rule 9.12 (as at October 2026).

Common mistake

Candidates think a broker can only sell out and absorb any shortfall; the client must indemnify it.

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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.