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8/18/2019 Agency Rule
1/20
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 $D" etc.
The company as principal – bound by the act of the
authorised agent.
8/18/2019 Agency Rule
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%gents authority
%ctual express
implied
'# %pparent ( ostensible authority
%ctual authority – company and agent entered intoconsensual agreement
#)xpress oral
written *$O%(%O%(BOD resolution(+$resolution,. e.g. art -
#!mplied # to be understood from the circumstances
8/18/2019 Agency Rule
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e.g his position is an $D – to do anything
reasonably incidental to the conduct of the
ordinary business of the company such as/#executing BO)"
#recei0e repayment of debt"
#to borrow money and gi0e security for the debt on
#behalf of the company"
#institute legal proceedings"
#contracting"
#execute
#guarantees on the companys behalf etc.
8/18/2019 Agency Rule
4/20
1ely#1utchinson 0 Brayhead Ltd 2 anor
3 c(man of B. 1e often contracted on behalf of Bwithout the 4nowledge of the board until late when
he reported the matter. The board 4new of the
action and ac5uiesced in that.
6lf # chairman and managing director of 6. 6lf ga0e
personal loan 789"999 to 6. Later 6lf became director of B.
6lf met 3 – 3 promised that B will pro0ide guarantee if 6lf
gi0e loan to 6. B will also indemnify 6lf for the loss of thepersonal loan. 6romises were written on Bs paper.
8/18/2019 Agency Rule
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6 went into li5uidation. 6lf . sued B on the
promises.
:# was 3 an agent of B; Did he possess thenecessary authority to bind B to the promises;
1eld# 3 had actual authority" to be implied from the
conduct of the parties and the circumstances of
the case" to enter into the contracts with the
6lf. on behalf of B.
8/18/2019 Agency Rule
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'# %pparent(ostensible authority
%ppear to others to be authorised. !n reality he
does not ha0e any authority
Company cannot deny the authority when/
i# The company represented to others that the
alleged agent has authority<
ii# the representation made by authorised indi0idual<
iii# the others must ha0e relied on thatrepresentation when decided to contract with thecompany
8/18/2019 Agency Rule
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3epresentation how it happened;
a,%pparent authority deri0ed from actual authority.
hen the actual authority has been reduced or
terminated. e.g. company secretary was not to boo4
any hotel room for +$ 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.
8/18/2019 Agency Rule
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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"
8/18/2019 Agency Rule
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%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
8/18/2019 Agency Rule
11/20
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
8/18/2019 Agency Rule
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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.
8/18/2019 Agency 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 $O% and powers ha0e been properly
and duly performed. 1ence" outsiders are notbound to in5uire whether acts of internal
management ha0e been complied with.
8/18/2019 Agency Rule
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1ow to determine whether the organ( the
agent was authorised to act;
!n most instances when the agents
authority is lac4ing – outsiders would notha0e 4nowledge because the matters are
within the companys internal management
procedures and processes.
8/18/2019 Agency Rule
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3oyal British Ban4 0 Tur5uand
Company incorporated to operate mine and railway.%O% # directors may borrow on bonds sum or sums
of money if authorised in the +$.
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.
8/18/2019 Agency Rule
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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.
8/18/2019 Agency Rule
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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
8/18/2019 Agency Rule
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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
8/18/2019 Agency Rule
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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.