Assignment Business Law

ASSIGNMENT BUSINESS LAW

Question 1

“ A consideration must be adequate” Do you agree with the statement? s tatement? Discuss

your answer by quoting the relevant decided cases to support your answer. Introduction

In contract law consideration is concerned with the bargain of the contract. A contract is  based on an exchange exchang e of promises. Each party to a contract cont ract must be both a promisor and a promisee. They must each receive a benefit and each suffers a detriment . This benefit or  detriment is referred to as consideration.

Consideration must be something of value in the eyes of the law - (Thomas v

Thomas) (1842) 2 QB 851.This excludes promises of love and affection, gaming and betting

etc. A one sided promise which is not supported by consideration is a gift. The law does not enforce gifts unless they are made by deed.

Whilst the common law strictly adheres to the requirement of consideration (although in some instances the courts seem to go to some lengths to invent consideration eg Ward v  Byham [1956] 1 WLR 496,Williams v Roffey Bros [1990] 2 WLR 1153) equity will, in some

instances, uphold promises which are not supported by consideration through the doctrine of  promissory estoppel .

Consideration must be sufficient but need not be adequate:

There is no requirement that the consideration must be market value, providing something of  value is given eg £1 given in exchange for a house would be valid. The courts are not concerned with whether the parties have made a good or bad bargain.

Disscussion

For consideration to be good consideration, it must be of some value, even if it is minimal value. There is no requirement that the consideration be commensurate in economic terms to the original promise. Nominal consideration will suffice as good consideration for a contract, Courts will not measure the adequacy of the consideration as it is up to the parties to decide the subjective worth of each promise. 

Chappell & Co Ltd v. Nestle Co Ltd  [1960] AC 87, Lord Somervell, „A contracting

 party can stipulate for what consideration c onsideration he chooses. choo ses. A peppercorn does not no t cease to  be good consideration consideratio n if it is established that tha t the promisor does not like pepper p epper and will throw away the corn.‟

How does consideration become acknowledged by the courts? Consideration, in some way, must be acknowledged, and the legal term for this is „sufficient‟,

therefore the consideration must be sufficient and is usually of monetary value. Another legal ice. However, the consideration does not need term used here is „adequate‟, this means fair pr ice. to be adequate, but needs to be sufficient to form a contract. An example of this occurred in the case of Thomas v Thomas (1842), where the decision was made that a woman was allowed to reside in a property for £1 a year. Consideration must be given at the time of agreement, but it does not include previous acts. For example, in the case of Re McArdle (1951), previous work was not seen as consideration in that particular contract for a future arrangement. However, if there is an agreement  between parties that previous prev ious work is to be included, included , then that consideration consideratio n would be seen as valid, this was apparent in Lampleigh v Braithwaite (1615) an in Re Case y‟s Patents (1892).

Consideration in a contract must not be illegal, in the case of Foster v Driscoll (1929), this is where goods were smuggled into the USA, and therefore the consideration became illegal. Consideration should not be a duty which exists currently. For instance, in the case of Collins v Godefroy (1831), a lawyer who attended court as a witness, could not also agree to appear  in court. Another case is Stilk v Myrick (1809), this is where sailors had a duty to sail the ship short-handed, therefore, when they promised the captain they would do this, this was not a consideration because it was their duty to do this anyway.

Question 2

State whether the parties below are required by the law of contracts to fullfill their legal obligations in the following situation and explain your answer.

a) fauziah wrote a proposal to sell his new plasma 40 inches televisison to Sherry for  RM1500, When sherry received the letter, she wrote back saying that she agrees to that proposal and will pay off the purchase price within one week from the date of this letter. Two days later, Sherry‟s husband had deposited the said purchase price into Fauziah‟s account. However Fauziah then refused to transfer the o wnership of the

Plasma television on the reason that she only had proposed to sell the said television to Sherry and not her husband.

Sherry has a right of the buyer to bring an action for non delivery. Under Section 57 of the Sale of Goods Act Damages for non-delivery

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer  may sue the seller for damages for non-delivery.

Buyer's Remedies Against Seller For Breach of Contract

A buyer also has certain remedies against the seller who commits a breach. These are: 1. Suit for Damages for Non-Delivery- When the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. This is in addition to the buyer's right to recover the price, if already paid, in case of nondelivery. 2. Suit for price- Where the buyer has paid the price and the goods are not delivered to him, he can recover the amount paid. 3. Suit for specific performance - When the goods are specific or ascertained, a buyer may sue the seller for specific performance of the contract and compel him to deliver the same goods. The court orders for specific performance only when the goods are specific or  ascertained and an order for damages would not be an adequate remedy. Specific

 performance is generally allowed where the goods are of special significance or value e.g. a rare paining, a unique piece of jewellery, etc. 4. Suit for Breach of Warranty- Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat the breach of condition as breach of warranty, the  buyer cannot reject the goods. The buyer may, (a) set up the breach of warranty in extinction or diminution of the price payable by him, or (b) sue the seller for damages for breach of  warranty. 5. Suit for Damages for Repudiation of contract before Due date -Where the seller  repudiates the contract before the date of delivery, the buyer may adopt any of the following two courses of action -A. He may treat the contract as rescinded and sue the seller for damages. This is also known as 'damages for anticipatory breach'. The damages will be assessed according to the prices prevailing on the date of breach. B. He may treat the contract as subsisting and wait till the date of delivery. The contract remains open at the risk and for the benefit of both the parties. If the seller  subsequently chooses to perform there shall be no damages otherwise he shall be liable to damages assessed according to the prices on the day stipulated for delivery. 6. Suit for interest- The buyer may recover such interest or special damages, as may be recoverable bylaw. He may also recover the money paid where the consideration for the  payment of it has failed. In the absence of a contract to the contrary, the court may award interest, to the buyer, in a suit by him for the refund of the price in a case of a breach on the part of the seller, at such rate as it thinks fit on the amount of the price from the date on which the payment was made.

 b) Alia placed the following advertisement in the notice board of Seven to seven stores: “Missing a dark and grey colour Persian Cat. The cat is wearing a silver necklace with a heart shape pendant with a written name Kitty. Anyone who finds the cat may return the cat immediately. Do contact Miss Alia at telephone 013343900 and  rewards will be given for those who return s the cat”

Last week, Tam while jogging at a park near his housing area, found a Persian cat. But he decided to keep the cat at his home. Yesterday morning, Tam went to seven to seven stores to buy a newspaper. Then he came across the advertisement by Alia and it had reminded him that the details of the cat specified by Alia are the same as the cat that he found last week. Immediately Tam contacted Alia to inform her that cat was safe with him. Then Tam returned the cat to Alia, but when Tam enquire as to the rewards as promised, Alia argued that her advertisement was only as an invitation to treat therefore she has no obligation to pay the rewards to Tam. Tam came to you to seek for your legal advice.

Tam already returned the cat that he found to Alia and he should get his reward Refer to WILLIAMS V CARWARDINE [1833] EWHC KB J44

Introduction The essential feature of an offer is that the person making it must (actually or  objectively) intend to be bound without further negotiation, by a simple acceptance of  his terms. Thus there is no offer where the owner of a house, in response to an enquiry from a person who wishes to buy it, states the price at which he might be prepared to sell; nor even where the owner wishes to sell and invites offer at or about a specified  price. In the latter case he is said to make an "invitation to treat", and he is not bound to accept the highest or nay other offer. In border - line cases it is obviously hard to determine with what intention the statement was made: but the difficulty is mitigated in two days. First, it is enough to show that the statement was reasonably understood  by the person to whom it was addressed as indicating an intention to be bound; and secondly, the character of certain frequently-recurring types of statements is settled by rules of law, at any rate in the absence of clear evidence of contrary intention.

Thus it is generally accepted in England that a display of price-marked goods in a shop-window, or on the shelves of a self - service shop, is merely an invitation to treat. The offer in such a case comes from the customer. An indication of the price at which petrol is to be sold at a filling station is, similarly, only an invitation to treat. Likewise, advertisements in newspapers or in tradesmen's circulars are commonly held not to amount to offers. These rules may apply even though the person making the statement calls it an offer: a shop's "special offer" may well be nothing more than an invitation to treat. But it should not be supposed that all displays and advertisements are only invitations to treat. For example, it has been said that a notice displayed at the entrance to an automatic car-park was an offer, presumably because no further act of acceptance on the part of the proprietor was contemplated after the customer drove in. For the same reason, advertisements of rewards for the return of  (for example) lost property are commonly held to be offers. Similarly, in Carlill v Carbolic Smoke Ball Co the manufacturers of carbolic smoke balls promised to pay £100 to any person who caught influenza after using the appliance as directed; and they added that they had deposited £1000 with a name bank "shewing our sincerity in the matter". It was held that the advertisement wan an offer.

Refference

In the theory of invitation to treat, invitation to treat can be defined as inviting the  public to make an offer. Invitation to treat is not an offer because it (offeree) is asking  public (offeror) to make an offer. Invitation of treats can be categorized in 3 types which are display of good, advertisement and auctions. We just focus on advertisement since the statements deal with advertisement of Yamaha Piano. Advertisement can be unilateral offer which the definition is nearly similiarity with invitation to treat, offer made to the world or public. To differentiate it, we can refer  to the case law Carlill V Carbolic Smoke Ball co [3] .Carbolic Smoke Ball co Ltd advertised that they would offer 100 pound for anyone got influenza after using their   product. The plaintiff used their product but nevertheless contracted influenza. The  plaintiff sued them for 100 pound. Court of Appeal said that Plaintiff was entitled to the 100 pound as she had accepted the offer from the Carbolic Smoke Ball co Ltd

which made to the world at large and deals with unilateral offer. Example case law 2 is the Partridge v Crittenden [4] states that the appellant placed an advertisement in a magazine in order to sell cocks and hens for 25 shilling each. He was charged with offering for selling a wild bird, contrary to statute, but the High Court said he must be acquitted. The advertisement was an invitation to treat and not an offer since there are limited stock and the advertiser could not reasonably intend to be bound to sell to all those who might accept.

From both case, we can conclude that whether an advertisement is an offer or an invitation to treats is depends on the intention of the parties. Applied both case law concept to the statement 1, we are clearly know that it is invitation to treat since Steven advertised his Yamaha Piano in the New Focus Paper with stated price RM15,000 and asking public to make an offer to him by contacting his number 016 123456.

Advertisements

The general rule is that advertisements are invitations to treat not offers. It is important to note that generally, an offer should be made to a particular person or  class of persons.

PARTRIDGE V CRITTENDEN [1968] 2 ALL ER 421

FACTS: The defendant placed an advertisement in a periodical, Classified Advertisements section stating: Bramblefinch cocks, Bramblefinch hens 25s each.

ISSUE: Was the defendant offering for sale a wild bird contrary to the Protection of Birds Act 1954?

HELD: The court found that the advertisement was an invitation to treat not an offer. Therefore, the defendant was acquitted.

It is reasoned that if an advertisement was considered an offer then anyone responding and asking for the items would be accepting. This would mean the seller would be  bound and could cause difficulties if, for example, the stock had run out. Cases are determined on the objective intention behind the advertisement. The courts will consider whether: the wording is sufficiently clear to be an offer, the advertiser  intended to be bound and there are issues of limited supply.

Rewards

Rewards are an interesting aspect of advertising and tend to be treated differently by the courts.

For information Advertisements of rewards for information have generally been treated as offers not invitations to treat.

WILLIAMS V CARWARDINE [1833] EWHC KB J44 FACTS:

The defendant placed advertisements stating that: .. whosoever would give such information as might lead to a discovery of the murder of the said Walter Carwardine, should, on conviction, receive a reward of £20.... The plaintiff gave information but was refused the reward. ISSUE:

Was the defendant obliged to pay the reward advertised? HELD:

The advertisement was sufficiently precise, with no negotiation required so constituted an offer. The supply of information was an acceptance and the money should be paid.

For consumers

Rewards advertised to encourage consumers also raise the question of whether they should be considered offers or invitations to treat.

LEFKOWITZ V GREAT MINNEAPOLIS SURPLUS STORES (1957) FACTS:

An American case which is not binding English courts, however the reasoning is interesting. The defendant placed the following advertisement in a newspaper: Saturday 9 A.M. Sharp 3 Brand New Fur Coats Worth to $100.00. First Come First Served $1 Each. The plaintiff was the person to come into the store but the owner refused to sell to him. ISSUE:

Was the defendant's advertisement an offer? HELD:

The court decided that the wording was sufficiently precise and there would be no issues of limited supply, as only three coats were advertised as available. Therefore, the advertisement was found to be an offer not an invitation to treat. The plaintiff had accepted the offer by being the first person to come into the store, as specified.

CARLILL V CARBOLIC SMOKE BALL CO. [1893] 1 QB 256 FACTS:

The defendant placed an advertisement stating: £100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball... £1000 is deposited with the Alliance Bank, showing our  sincerity in the matter.... The plaintiff made a claim for the reward but it was refused. The defendant argued that the advertisement: was mere puff, had not been addressed to specific persons and that the plaintiff had not communicated notice of her acceptance. ISSUE:

Had the plaintiff accepted the offer? HELD:

The court dismissed the defendant's pleas. It found that the advertisement was not mere puff as the defendant had explicitly stated money had been set aside to make such payments. A reasonable person reading the advertisement would take it to be a serious offer which amounted to a binding obligation. Although, an offer must usually be addressed to specific person or class of 

 persons, the advertisement was being made to anyone who met the criteria set out and this was sufficient. Furthermore, the court held that the wording of the advertisement meant the plaintiff did not have to communicate acceptance, as clearly the defendant did not expect every customer to contact them on purchasing the item, rather only those who used the product as directed and then caught influenza. Therefore, the case established that advertisements can constitute an offer to the  public at large and can be worded to waive the need to communicate acceptance prior  to a claim.

Question 3 Hani, a seventeen year old girl, wants to know as whether she can enter into commercial contracts. Advise her as to what types of contracts she may enter into legally.

You will need a co-signer since you are under age. A co-signer is one who will accept responsibility for the contract in the event that the signer (you) becomes unable to maintian the contract.

Minors Have No Capacity to Contract Minors (those under the age of 18, in most states) lack the capacity to make a contract. So a minor who signs a contract can either honor the deal or void the contract. There are a few exceptions, however. For example, in most states, a minor  cannot void a contract for necessities like food, clothing, and lodging. Also, a minor  can void a contract for lack of capacity only while still under the age of majority. In most states, if a minor turns 18 and hasn't done anything to void the contract, then the contract can no longer be voided.

There are actually, exceptions‟ to the above said general rule. The following contracts

are not void if they are entered into by a minor.



Contract of insurance

A contract for life or disability insurance made by a person between the ages of 16 and 18 years for his benefit, or for the benefit of his father, mother, husband, wife,

child, brother or sister, or for the surrender of the insurance, or for the discharge of  money payable or benefit accruing thereunder, shall be good and of the same force and effect as though the minor had attained his majority at the time of making the contract. This section shall not have the effect of making a promissory note or other  evidence of indebtedness given by a minor in payment of premium or premiums on contracts for insurance valid, either in the hands of the original owner or a subsequent  purchaser thereof.



Contract of scholarship

One of the elements constituting a valid contract is that the parties entering the contract are those who have the competency to contract. This is based on section 10 (1) of the Contract Act 1950 which states: “All agreements are contracted if they are made by the free consent of parties competent to c ontact, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

Under section 69 of Contract Act 1950 , it is said that “if a person, incapable of  entering into a contract, or anyone whom he is legally bound to support, is supplied  by another person with necessaries suited to his condition in life, the person who has  furnished such supplies is entitled to be reimbursed from the property of such incapable person.” Under necessaries a minor can enter valid contract if only it is the

 basic need of the minor and suitable of his station in life or lifestyle.

Contract of Scholarship between a minor and the government or non governmental organizations is also valid under section 4 (a) Contracts (Amendment) Act 1976 “the scholar entering into such agreement is not of the age of majority”.

Similarly, a minor may enter into a contract of marriage or divorcement as provided  by section 4 (a) Age Majority Act 1971 : “Nothing in this Act shall affect the capacity of any person to act in the following matters, namely, marriage, divorce, dower and adoption”.

Question 4 Is an invitation to treat an offer? Support your answer with cases whenever necessary.

According to Un Convention on contracts for the International Sale of Goods applies, explanation for the rights and liabilities of the parties that involved Contract is an agreement of a two parties especially once it is written its enforced law. An agreement refers to a "meeting of the minds". There is no magic language necessary to inform an agreement. However, there is an offer must be made by a person to another and so acceptance. In other words, the sides (parties) of a contract must agree given basic terms in order to avoid any misunderstandings which come up after making contract. There are few factors for the existence of a contract. One of the basics is an offer and an acceptance of that offer.

An offer

An offer can basically be illustrated as a clear statement of the terms on which a party (the offeror) is prepared to make a business with other party (the offeree). In other words making (by offeror) an offer is promising to do or not to do something which is depending on acceptance by other person (by offeree). An offer is perfomered by an offeror to an offeree. In contract, offer can be bilateral or unilateral; bilateral offer - means two sides' promise to each other, therefore contract made by agreement with respect of two sides (offeror and offeree) in other words, type of contract which requires agreement and performance from  both sides (parties) to the contract. One party promises to do A and the other party promises to do B. Unsimilarly, unilateral contract occurs when only one side (party) makes an offer to another party and the other party might accept by action instead of by offering something  back. For example, (bilateral offer situation) if somebody offers £20 to a person who will  bring him a hotdog, a unilateral contract is formed when a person performs the condition and supplies him with a hotdog. http://uk.answers.yahoo.com To ensure that made offer is legal, it must include all 3 points shown below: 1. Stated terms must be shown clearly 2. Intention to make a business 3. Communication of that intention Once an offer is made by the party, it might:

Lapse; Rejected; A counter-offer may be made, which automatically rejects the offer preceding it. These events are important in the context of contract disputes as it is the order of events that determines the extent of any contractual relationship between the parties in the circumstances.

An invitation to treat.

The essential feature of an offer is that the person making it must (actually or objectively) intend to be bound without further negotiation, by a simple acceptance of his terms. Thus there is no offer where the owner of a house, in response to an enquiry from a person who wishes to buy it, states the price at which he might be prepared to sell; nor even where the owner wishes to sell and invites offer at or about a specified price. In the latter case he is said to make an "invitation to treat", and he is not bound to accept the highest or nay other offer. In border - line cases it is obviously hard to determine with what intention the statement was made: but the difficulty is mitigated in two days. First, it is enough to show that the statement was reasonably understood by the person to whom it was addressed as indicating an intention to be bound; and secondly, the character of certain frequently-recurring types of statements is settled by rules of law, at any rate in the absence of clear evidence of contrary intention. Thus it is generally accepted in England that a display of price-marked goods in a shopwindow, or on the shelves of a self - service shop, is merely an invitation to treat. The offer in such a case comes from the customer. An indication of the price at which petrol is to be sold at a filling station is, similarly, only an invitation to treat. Likewise, advertisements in newspapers or in tradesmen's circulars are commonly held not to amount to offers. These rules may apply even though the person making the statement calls it an offer: a shop's "special offer" may well be nothing more than an invitation to treat. But it should not be supposed that all displays and advertisements are only invitations to treat. For example, it has  been said that a notice displayed at the entrance to an automatic car-park was an offer,  presumably because no further act of acceptance on the part of the proprietor was contemplated after the customer drove in. For the same reason, advertisements of rewards for  the return of (for example) lost property are commonly held to be offers. Similarly, in Carlill v Carbolic Smoke Ball Co the manufacturers of carbolic smoke balls promised to pay £100 to any person who caught influenza after using the appliance as directed; and they added that

they had deposited £1000 with a name bank "shewing our sincerity in the matter". It was held that the advertisement wan an offer.

Cases Facts of Pharmaceutical

The defendants were charged under the

Society of Great Britain v.

Pharmacy and Poison Act 1933(UK) which

Boots Cash Chemist Ltd

 provided that it was unlawful to sell Cain

(1953)

 poisons unless such sale was supervised by a regisrtered pharmacist.

Held for of Pharmaceutical

The court ruled that the display was only an

Society of Great Britain v.

invitation to treat. A proposal to buy was made

Boots Cash Chemist Ltd

when the customer placed the articles in the

(1953)

 basket. Hence the contract of sale would only be made at the cashier's desk 

Question 5

Disscuss the legal rights of unpaid seller against the buyer. The unpaid seller, in addition to his rights against the goods as discussed above, has the following three rights of action against the buyer personally:

1. Suit for price (Sec. 55). Where property in goods has passed to the buyer; or where the sale  price is payable „on a day certain‟, although the property in goods has not passed; and the

 buyer wrongfully neglects or refuses to pay the price according to the terms of the contract, the seller is entitled to sue the buyer for price, irrespective of the delivery of goods. Where the goods have not been delivered, the seller would file a suit for price normally when the goods have been manufactured to some special order and thus are unsaleable otherwise.

2. Suit for damages for non-acceptance (Sec. 56). Where the buyer wrongfully neglects or 

refuses to accept and pay for the goods, the seller may sue him for damages for nonacceptance. The seller‟s remedy in this case is a suit for damages rather than an action for the

full price of the goods.

The damages are calculated in accordance with the rules contained in Section 73 of the Indian Contract Act, that is, the measure of damages is the estimated loss arising directly and naturally from the buyer‟s breach of contract. Where the goods have a ready market the  principle applicable is that the seller may recover from the buyer damages equal to the difference between the contract price and the market price on the data of the breach of the contract. Thus, if the difference between the contract price and market price is nil, the seller  can get only nominal damages ( Charter vs Sullivan). But where the goods do not have any ready market, the measure of damages will depend upon the facts of each case.

For example, in Thompson Ltd. Vs Robinson the damages were assessed on the basis of   profits lost. In that case, T Ltd., who were car dealers, contracted to supply a motorcar to R.R  refused to accept delivery. It was found as a fact that the supply of cars exceeded the demand at the time of breach and hence in a sense there was no market price on the date of breach. Held, T Ltd., were entitled to damages for the loss of their bargain viz., the profit they would have made, as they had sold one car less than they otherwise would have sold. To take another illustration, if the goods have been manufactured to some special order and they are unsaleable and have been manufactured to some special order and they are unsaleable and have no value at all for other buyers, then the seller may even be allowed the full price of the goods as damages.

1. Suit for special damages and interest (Sec.61) This Section entitles the seller to sue the  buyer for „special damages‟ also for such loss “which the parties knew, when they made the contract, to be likely to result from the breach of it.” In fact the Section is only declaratory of  the principle regarding „special damages‟ laid down in Secti on 73 of the Indian Contract Act. The Section also recognizes unpaid seller‟s right t o get interest at a reasonable rate on the

total unpaid price of the goods sold, from the time it was due until it is actually paid. (Telu Ram Jain vs Aggarwal & Sons).

(a) Suit for Damages for Non-delivery [Section 57] Where the seller wrongfully neglects or  refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for nondelivery.

(b) Suit for Specific Performance [Section 58] In any suit for breach of contract to deliver  specific or ascertained goods, the court may direct that the contract shall be performed specifically.

(c) Suit for Breach of Warranty [Section 59] Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of  warranty entitled to reject the goods, but he may – 

(i) Set up against the seller the breach of warranty in diminution or extinction of the price; or  (ii) Sue the seller for damages for breach of warranty.

 Note: The fact that a buyer has set up a breach of warranty in diminution or extinction of the  price does not prevent him from suing for the same breach of warranty if he suffered further  damage. [Section 59(2)]

Example: X sold a second hand Radio to Y who spent Rs 100 on the repair of this Radio. This Radio was seized by the police as it was a stolen one. Y filed a suit against X for  recovery of damages for breach of warranty of quite possession including the cost of repairs. It was held that Y was entitled to recover the same. [Mason v. Burmingham]

(d) Right to Treat the Contract as Rescinded or Operative in Case of Repudiation of Contract  by Seller before due Date [Section 60] Where seller repudiates the contract before the date of  delivery, the buyer may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.

(e) Suit for Interest [Section 61(2)] In case of breach of the contract on the part of the seller, the buyer may sue the seller for interest from the date on which the payment was made.

Question 6

Discuss the kinds of contract of agency

Law of Agency The law of agency is governed by Part X of the Contracts Act 1950. An agent is defined as a person employed to do any act for another or represent another in dealings with third person[1]. The person for whom such act is done, or who is so represented, is called the “principal”

In other words, agency is the relationship which subsists between the principal and the agent, who has  been authorized to act for him or represent him in dealings with others

e.g. Azzizul appoints Samdan to sign the agreement on his behalf, here Azzizul is called the principal and Samdan is his agent.

Thus in agency there are in effect two contracts:-

i. the first made between the principal and the agent from which the agent derives his authority to act for and on behalf of the principal; and ii. the second, made between the principal and the third party through the work of the agent.

A. Who can be come an agent/principal?

Section 136 CA - Any person who is eighteen years old and above and who is of sound mind may be a principal. As between the principal and third persons, any person may be come an agent, but persons of unsound mind and who are below 18 years of age are not liable towards their principal for acts done by them as agents[2]

eg. if A employs B (a minor) to buy some goods from C on his behalf and C supplies the goods, A cannot allege that he is not liable to pay for the goods just because B is not at the age of majority. A is still liable to pay C for the goods.

B. CREATION OF AGENCY

Like any other contracts, a contract of agency can be expressed or implied for the circumstances and the conduct of the parties. In other words, the authority of an agent may be expressed (given by words spoken or written) or implied (inferred from things spoken or written or from the ordinary course of  dealings.)

eg. X lives in Ipoh and owns a shop in Kuantan. The shop is managed by Y who normally orders goods from Z in X‟s name for the purpose of the shop and Y then pays for the goods out of X‟s fund with X‟s knowledge.

Section 138 CA provides that no consideration is necessary to create an agency.

By express appointment by the principal By implied appointment by the principal  by ratification by the principal  by necessity i.e. operation of law  by the doctrine of estoppel

KGN Jaya Sdn Bhd v Pan Reliance Sdn Bhd [1996] 1 MLJ 233

The Court of Appeal held that the law does not require that an agency or sub agency agreement must  be in writing.

Further more, Part X of the Contracts Act 1950, which contains the relevant provisions on agency does not contain any requirement that the appointment of an agent or sub agent has to be in writing or   be evidence in writing.

1. BY EXPRESS APPOINTMENT

Express appointment may be in written or oral form. An example of an express appointment made in writing is a Power of Attorney. Even a letter written or words spoken may be eff ective in appointing an agent.

2. BY IMPLIED AGREEMENT

The Law can infer the creation of an agency by implication when a person by his words or conduct holds out another person as having authority to act for him.[3]

e.g. If he allows another person to order goods on his behalf and habitually pays for them, an agency may be implied. In such terms he will be bound by the contracts as if he has expressly authorised them.

Chan Yin Tee v William Jacks & Co (Malaya) Ltd [1964] MLJ 290

The appellant and Yong (a minor), were registered as par tners. At a meeting with a representative of  the respondent company, the appellant held himself out to be Yong‟s partner. Goods were supplied to Yong but were not paid for. The respondent company obtained judgement against the appellant and Yong. The appellant appeal to FC which held that since the appellant had held Yong out of his agent who had the authority to do things on his behalf, the appellant was liable for Yong‟s act.

By virtue of Section 7 of the Partnership Act 1961, partners are each other‟s agents when contracting

in the course of the partnership business.

BY RATIFICATION

Agency by ratification can arise in any one of the following situations:-

i. An agent who was duly appointed has exceeded his authority or  ii. A person who has no authority to act for the principal has acted as if he has the authority.

Section 149 CA 1950 – 

Where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts. If he ratifies them, the same effect will follow as if they had  been performed by his authority.

When the principal accepts and confirms such a contract, the acceptance is called ratification. ratification may be expressed or implied[4]

Ratification is retrospective i.e. it dates back to the time when the original contract was made by the agent and not from the date of the principal‟s ratification.

e.g. On 2 January 1996, A appointed B as his agent to buy a car not exceeding RM100,000/-. On 5 January B went to GRG Motors and ordered a car costing RM135,000/-, telling GRG Motor‟s salesman that he was buying the car on A‟s behalf. On 12 January, GRG Motors deliver the car to A.

If A confirms and adopts the contract on 12 January, then B is said to be an agent through ratification. A can also rejects the contract since B had exceeded his authority.

Contract can be ratified under the following circumstances:-

The act must be authorised The agent must, at the time of the contract, expressly act as an agent for the principal[5]i.e. he must not allow the third party to think that he is the principal.

Keighley Maxted & Co v Durant

An agent, R was authorised by the appellants to buy wheat at a certain price. The agent exceeded his authority and bought at a higher price in his own name but intending it for Keighley. Keighley agreed to take the wheat at that price but failed to take delivery. The court held that Keighley was liable to the Durant since R at the time of the contract did not profess to act as an agent.

SRM Meyappa Chettiar v Lim Lian Koo [1954] 20 MLJ 246

PC, the attorney of SC, entered into an agreement with the respondent under which the PC handed over to the respondent a piece of land belonging to his principal in consideration of RM 7,000/- and agreed „ upon the return of normal conditions, the vendor shall obtain a special power of attorney

from the said SC now in India and execute the true and lawful transfer of the said land at the  purchaser‟s own expenses‟. He further agreed that if he was unable to obtain the necessary power 

from his principal the RM7,000/- will be return to the respondent. At the trial, the learned judge held that the agreement had been satisfied by SC and therefore dismissed a claim for recovery of   possession of the land. The Court of Appeal held that the terms of the agreement showed that PC was acting in his personal capacity and therefore the principal of ratification could not apply to the agreement

The principal only applies where the agent has professed to contract for his principal who afterwards

ratifies.

The doctrine is thus stated by Tindal C.J in Wilson v Tumman [1843] 6 M&C 242 at page 242

The act done for another, by a person, not assuming to act for himself, but for such other person, tough without any precedent authority whatever, becomes the act of the principal, if subsequently ratified by him, is the known and well established rule of law. In that case the principal is bound by the act, whether it be for his detriment or his advantage, and whether it to be founded on a tort or on a contract, to the same effects as by, and with all the consequences which follow from the same act done by his previous authority.

The agent must have a principal, who is in actual existence or capable of being ascertained, when a contract is made. No one can ratify a contract if he is not a party competent to a contract at the date of  the contract.

Kelner v Baxter [1866] LRE 2 CP 174

A contract to buy a hotel made by an agent on behalf of the company which is about to be formed, could not be ratified by the company since it did not exist at the time. The agent therefore held for the contract unless the third party agreed to release him.

The principal must have contractual capacity at the time when the contract is being made and at the time of ratification. The principal must at the time of ratification, have full knowledge of all material facts, unless it can  be shown that he intended to ratify the contract whatever the facts may be and assume responsibility from them[6] The principal must ratify the whole act or contract The ratification must not injure the third party, i.e. it must not subject the third party to damages or  terminated his right or interest[7]

BY NECESSITY

An agency by necessity may be created if the following three conditions are met:-

1. It is impossible for the agent to get t he principal‟s instruction[8]