Agency Rule

8/18/2019 Agency Rule

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Company and agency rules

Legal person= cannot act except through the

agency of natural person.

Company has two organs – members and BOD

Their acts are considered as companys act.

!n most instances" these two organs delegates the

power to others# example $D" etc.

The company as principal – bound by the act of the

authorised agent.


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%gents authority

%ctual express

implied

'# %pparent ( ostensible authority

%ctual authority – company and agent entered intoconsensual agreement

#)xpress oral

written *$O%(%O%(BOD resolution(+$resolution,. e.g. art -

#!mplied # to be understood from the circumstances


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e.g his position is an $D – to do anything

reasonably incidental to the conduct of the

ordinary business of the company such as/#executing BO)"

#recei0e repayment of debt"

#to borrow money and gi0e security for the debt on

#behalf of the company"

#institute legal proceedings"

#contracting"

#execute

#guarantees on the companys behalf etc.


4/20

1ely#1utchinson 0 Brayhead Ltd 2 anor

3 c(man of B. 1e often contracted on behalf of Bwithout the 4nowledge of the board until late when

he reported the matter. The board 4new of the

action and ac5uiesced in that.

6lf # chairman and managing director of 6. 6lf ga0e

personal loan 789"999 to 6. Later 6lf became director of B.

6lf met 3 – 3 promised that B will pro0ide guarantee if 6lf

gi0e loan to 6. B will also indemnify 6lf for the loss of thepersonal loan. 6romises were written on Bs paper.


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6 went into li5uidation. 6lf . sued B on the

promises.

:# was 3 an agent of B; Did he possess thenecessary authority to bind B to the promises;

1eld# 3 had actual authority" to be implied from the

conduct of the parties and the circumstances of

the case" to enter into the contracts with the

6lf. on behalf of B.


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'# %pparent(ostensible authority

%ppear to others to be authorised. !n reality he

does not ha0e any authority

Company cannot deny the authority when/

i# The company represented to others that the

alleged agent has authority<

ii# the representation made by authorised indi0idual<

iii# the others must ha0e relied on thatrepresentation when decided to contract with thecompany


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3epresentation how it happened;

a,%pparent authority deri0ed from actual authority.

hen the actual authority has been reduced or

terminated. e.g. company secretary was not to boo4

any hotel room for +$ until recei0ed appro0al of the

BOD. 1e boo4ed rooms despite the limitation on hisauthority.

:# can the hotel enforce the contract; Did thesecretarys act bind the company;

%nswer – apparent authority as a company secretary

to organise meeting of the company.


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>ince the third party" hotel did not ha0e notice of

the limitation of the actual authority – company is

bound by the act of the secretary.

b, hen the company informed others about theagents authority. The agent himself did not 4now

about his authority.

hat is a 0alid representation;

a, The representation must be made by authorised

person. e.g BOD" resolution of the company"


9/20

%rmagas Ltd 0 $undogas >%

3epresentation by the agent cannot pre0ent thecompany from denying the agents authority

British Ban4 of the $iddle )ast 0 >un Life

%ssurance Co of Canada

BB wrote a letter to >L to confirmed the authority

of an officer Dehnel to execute an underta4ing to

repay >Ls customers debt. !t was addressed to

+$ but answered by Branch $anager" Clar4e.


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:#Did the representation made Dehnel an agentwith apparent authority;

1eld# since Clar4e himself did not possess

authority to ma4e the representation" his actiondid not gi0e Dehnel apparent authority. >L did

not liable for his action.

b, The third part must ha0e relied on therepresentation

?now ( ought to ha0e 4nown about the agentslac4 of authority cannot rely on the representation(

was put on en5uiry" cannot rely on apparent

authority


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Constructi0e notice doctrine 2 agency rules

%n outsider dealing with a company is

deemed to ha0e notice of all the company@s

public documents.

$eaning

#to ha0e 4nown about their presence andtheir contents< and

to ha0e read and understood


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?L )ngineering >dn Bhd 2 anor 0 %rab

$alaysian Ainance Bhd

The documents include $O%" %O%" Aorm

-" %D other public notice

This is a harsh rule which effect is

mitigated by the Tur5uand rule.


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Tur5uand rule( indoor management rule

Find the article online:

otis ?onstru4tif 2 ?aedah Dalam 3oyal BritishBan4E Tur5uand ...

Companys public document – useful to chec4 the

authority of the companys agent.

The law allows outsiders to assume that acts w(in

the companys $O% and powers ha0e been properly

and duly performed. 1ence" outsiders are notbound to in5uire whether acts of internal

management ha0e been complied with.


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1ow to determine whether the organ( the

agent was authorised to act;

!n most instances when the agents

authority is lac4ing – outsiders would notha0e 4nowledge because the matters are

within the companys internal management

procedures and processes.


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3oyal British Ban4 0 Tur5uand

Company incorporated to operate mine and railway.%O% # directors may borrow on bonds sum or sums

of money if authorised in the +$.

Two directors singed a document wh issued a

bond ac4nowledging the companys indebtedness

to the ban4 for the sum of 7'"999. The bond was

issued under the seal of the company with the

appro0al of the +$. 1(e0er" the resolution did not

state the authorised amount.


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:# did the contract bind the company;

1eld# Fes. the outsiders were bound to read the

companys constitution. But they were not bound

to en5uire into the internal proceedings of the

company. Outsiders ha0e right to assume that all

acts of internal management had been fully carried

out unless they 4new or ought to ha0e 4nown of the

failure to adhere to the procedures.


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Conditions to be fulfilled to rely on this rule/

third party must ha0e acted in good faith. !f he

4new about the irregularity he cannot rely on this

rule. The 4(ledge must be present at the time of

entering into the contract

1oward 0 6atent !0ory manufacturing Co.

%O% of the company pro0ides that directors may

borrow money on behalf of the company not

exceeding 7&999 at any one time.


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They lent money to the company secured by

debentures for the amount exceeding the limit.

They wanted to enforce the debentures.

:# can they rely on tur5uand rule to enforce the

contract upon the company;

1eld# the debentures were 0alid to the extent of

not exceeding 7&999. They cannot rely on

Tur5uand rule because they 4new about the

lac4 of authority to borrow more than 7&999


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Tur5uand rule cannot be relied on by the outsider

against the company if/

i# outsider has actual 4nowledge of the irregularity<

ii# ought to ha0e 4nown of the limitation<

iii# outsiders who deal with company is put onin5uiry but fails to in5uire<

# the facts 4nown may be such as would ma4e itob0ious to a reasonable person that somethingwas definitely wrong< or


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# the facts 4nown may raise only a 5uestion in the mind of areasonable person as to whether something is wrong

i0# irregularity concerning forged document1ence" if the companys seal or signature

was forged – company is not bound.

Agency Rule

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