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.
In most instances, these two organs delegates the
power to others- example MD, etc.
The company as principal bound by the act of the
authorised agent.

Agents authority
1- Actual
express
implied
2- Apparent / ostensible authority

1- Actual authority company and agent entered into

consensual agreement
-Express

oral
written (MOA/AOA/BOD resolution/GM
resolution). e.g. art 93

-Implied - to be understood from the circumstances

e.g his position is an MD to do anything

reasonably incidental to the conduct of the
ordinary business of the company such as:
-executing BOE,
-receive repayment of debt,
-to borrow money and give security for the debt on
-behalf of the company,
-institute legal proceedings,
-contracting,
-execute
-guarantees on the companys behalf etc.

Hely-Hutchinson v Brayhead Ltd & anor

R c/man of B. He often contracted on behalf of B

without the knowledge of the board until late when

he reported the matter. The board knew of the
action and acquiesced in that.
Plf - chairman and managing director of P. Plf gave
personal loan 50,000 to P. Later Plf became director of B.
Plf met R R promised that B will provide guarantee if Plf
give loan to P. B will also indemnify Plf for the loss of the
personal loan. Promises were written on Bs paper.

P went into liquidation. Plf. sued B on the

promises.
Q- was R an agent of B? Did he possess the
necessary authority to bind B to the promises?
Held- R 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
Plf. on behalf of B.

2- Apparent/ostensible authority
Appear to others to be authorised. In reality he
does not have 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
individual;
iii- the others must have relied on that
representation when decided to contract with the
company

Representation how it happened?

a)Apparent authority derived from actual authority.
When the actual authority has been reduced or
terminated. e.g. company secretary was not to book
any hotel room for GM until received approval of the
BOD. He booked rooms despite the limitation on his
authority.
Q- can the hotel enforce the contract? Did the
secretarys act bind the company?
Answer apparent authority as a company secretary
to organise meeting of the company.

Since the third party, hotel did not have notice of

the limitation of the actual authority company is
bound by the act of the secretary.
b) When the company informed others about the
agents authority. The agent himself did not know
about his authority.
What is a valid representation?
a) The representation must be made by authorised
person. e.g BOD, resolution of the company,

Armagas Ltd v Mundogas SA

Representation by the agent cannot prevent the
company from denying the agents authority
British Bank of the Middle East v Sun Life
Assurance Co of Canada
BB wrote a letter to SL to confirmed the authority
of an officer Dehnel to execute an undertaking to
repay SLs customers debt. It was addressed to
GM but answered by Branch Manager, Clarke.

Q-Did the representation made Dehnel an agent

with apparent authority?
Held- since Clarke himself did not possess
authority to make the representation, his action
did not give Dehnel apparent authority. SL did
not liable for his action.
b) The third part must have relied on the
representation
Know / ought to have known about the agents
lack of authority cannot rely on the representation/
was put on enquiry, cannot rely on apparent
authority

Constructive notice doctrine & agency rules

An outsider dealing with a company is
deemed to have notice of all the company's
public documents.
Meaning
-to have known about their presence and
their contents; and
to have read and understood

KL Engineering Sdn Bhd & anor v Arab

Malaysian Finance Bhd
The documents include MOA, AOA, Form
49, AND other public notice
***This is a harsh rule which effect is
mitigated by the Turquand rule.

Turquand rule/ indoor management rule

Find the article online:
Notis Konstruktif & Kaedah Dalam Royal BritishBank
V Turquand ...
Companys public document useful to check the
authority of the companys agent.
The law allows outsiders to assume that acts w/in
the companys MOA and powers have been properly
and duly performed. Hence, outsiders are not
bound to inquire whether acts of internal
management have been complied with.

How to determine whether the organ/ the

agent was authorised to act?
In most instances when the agents
authority is lacking outsiders would not
have knowledge because the matters are
within the companys internal management
procedures and processes.

Royal British Bank v Turquand

Company incorporated to operate mine and railway.
AOA - directors may borrow on bonds sum or sums
of money if authorised in the GM.
Two directors singed a document wh issued a
bond acknowledging the companys indebtedness
to the bank for the sum of 2,000. The bond was
issued under the seal of the company with the
approval of the GM. H/ever, the resolution did not
state the authorised amount.

Q- did the contract bind the company?

Held- Yes. the outsiders were bound to read the
companys constitution. But they were not bound
to enquire into the internal proceedings of the
company. Outsiders have right to assume that all
acts of internal management had been fully carried
out unless they knew or ought to have known of the
failure to adhere to the procedures.

Conditions to be fulfilled to rely on this rule:

1- third party must have acted in good faith. If he
knew about the irregularity he cannot rely on this
rule. The k/ledge must be present at the time of
entering into the contract
Howard v Patent Ivory manufacturing Co.
AOA of the company provides that directors may
borrow money on behalf of the company not
exceeding 1000 at any one time.

They lent money to the company secured by

debentures for the amount exceeding the limit.
They wanted to enforce the debentures.
Q- can they rely on turquand rule to enforce the
contract upon the company?
Held- the debentures were valid to the extent of
not exceeding 1000. They cannot rely on
Turquand rule because they knew about the
lack of authority to borrow more than 1000

Turquand rule cannot be relied on by the outsider

against the company if:
i- outsider has actual knowledge of the irregularity;
ii- ought to have known of the limitation;
iii- outsiders who deal with company is put on
inquiry but fails to inquire;
- the facts known may be such as would make it
obvious to a reasonable person that something
was definitely wrong; or

- the facts known may raise only a question in the mind of a

reasonable person as to whether something is wrong
iv- irregularity concerning forged document
Hence, if the companys seal or signature
was forged company is not bound.