Law Report Ques 41

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  QUESTION 41 (a) Ronny, Sonny, Penny and Johny formed a printing company, Jujur Sdn Bhd, of which theyare all directors. Ronny was the backbone of the company and carried out all the functions of the managing directors although he was never formally appointed as one. Two months agoRonny entered into a contract with Malang Sdn Bhd for the service and repair of thecompany's printing machine, the cost of the service being RM 50, 000. When uponcompletion of the service and repair, Malang Sdn Bhd sought payment, Jujur Sdn Bhd refuseto pay on the ground that Ronny did not have the authority of the company to engage them.Answer the following questions.1. Explain the concept of apparent authority in the context of corporate transactions.2. Consider whether Malang Sdn Bhd has a legal right to enforce their claim against Jujur Sdn Bhd. (50 marks )  QUESTION 41 (a) (i)Actual authority is a legal relationship between principle and agent created by aconsensual agreement to which they alone are parties. Its scope is to be ascertained byapplying ordinary principles of construction of contracts including any proper implicationsfrom the express word used, the usage of the trade or the course of business between the parties. To this agreement the contractor is a stranger, he may be totally ignorant of theexistence of any authority on the part of the agent. Nevertheless, if the agent does enter into acontract pursuant to the actual authority, it does create contractual rights and liabilities between the principle and contractor. Thus the company will be bound to a third party whoenters into a contract with the director acting as the compan y‟s agents and within the scope of  their actual authority.   LIABILITY OF COMPANY THROUGH DIRECTOR’S ACT  ACTING AS THE COMPANYACTING FOR THE COMPANY THE GENERALPRINCIPLELIMIT TO THEPRINCIPLEACTUALAUTHORITHYDEEMEDAUTHORITHYAPPARENTAUTHORITHY  Deemed authority is when the director of the company will have deemed authority to bind the company (irrespective of any actual or apparent authority ) in the circumstanceenvisaged by CA 1985, section 35: In a favor of a person dealing with a company in goodfaith, any transaction decided on by the directors is deemed to be one which it is within thecapacity of the company to enter into, and the power of the directors to bind the company isdeemed to be free of any limitation under the memorandum or articles. A party to atransaction so decided on is not bound to enquires as to the capacity of the company to enter into it or as to any such limitation on the powers of the directors, and is presumed to haveacted in good faith unless the contrary is proved. Apparent authority is the authority of an agent as it appears to others. On the other hand, it is a legal relationship between the principal and the contractor created by arepresentation. The agent has an authority to enter a contract on behalf of principal within thescope of apparent authority. So, as to render the principal liable to perform any obligationsimposed upon him by such contract. When the directors act for the company, they are acting as its agents, and the company will be bound by the directors‟ acts in accordance with the  principles of agency as applied to company law.There are 3 conditions giving rise to apparent authority namely:(a)   A representation must be made to the contractor that the agent had authority toenter on behalf of the company into a contract of the kind sought to be enforce(b)   That representation must be made by a person(s) who had actually authority tomanage the company‟s business, either generally or in respect of those mattersto which the contract relates.  (c)   There must be limitations in the company‟s memorandum or articles makingthe contract ultra vires or prohibiting the delegation of authority to the agent.
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