Liability of Principal from Perspective of Law

An agent’s act is binding on the principal if it is done within his authority. Anything which the agent done in excess of that authority does not bind the principal unless the latter adopts or ratifies the unathorised act. It is necessary to know the exact nature and extent of an agent’s authority. An agent’s authority may be classified into actual authority and apparent (ostensible) authority.

Actual Authority

Authority expressly given by the principal to the agent orally or in writting.

Authority implied from the following:-

The express authority is given, that is all such powers as are proper or necessary to execute the express authority. For example, P appoints A to sell his car and entrusts him with possession of it. A, by implication, has the authority to allow the potential buyers to have test drive.

The circumstances of the case;

The custom or usage of trade;

The situation and conduct of the parties.

In the case of Watteau v. Fenwick (1893) 1 QB 346, the court stated that the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character. In that case, the defendant appointed a manager to run a public house and the licence was taken out in the manager’s name which appeared over the door. The manager was forbidden by the defendant to buy cigars from the plaintiff who claimed for price. It was held that the defendant, as principal, was liable because a manager of a public house would usually have authority to make purchases of that kind, and the plaintiff could rely on such authority in the absence of express knowledge of the restrictions imposed by the principal.

In Panorama Development (Guilford) Ltd v. Fidelis Furnishing Fabrics Ltd (1971) 3 ALL ER 16, a company secretary exceeded his actual authority in hiring motor vehicles from plaintiff. The court had to decide whether the defendant company couls be taken to have authorised the transaction. It was held that the defendant company was liable because in appointing a company secretary, the defendant company was representing that the secretary so appointed had authority to enter into thise transactions with which company secretaries wereusually concerned. The hiring of motor vehicles was part of company administration.

In the Malay State case of Firm of T.AR. CT. V. SV. KR (1955) MLJ 2, the Privy Council decided that an agent had authority to part with the firm’s money had in the circumstances of the case, a necessary implied authority to receive repayment for the firm.

In a more recent case in Tunku Ismail bin Tunku Md. Jewa & Anor. V. Tetuan Hisham, Sobri and Kadir (1989) 2 MLJ 488, the plaintiffs were the administrators of an estate and they sold a piece of land to the purchasers for more than one million ringgit. The defendants were solicitors acting for the purchaser and the bank. The defendant solicitor wrote to the plaintiff’s solicitor undertaking to pay RM435,305 upon the plaintiff’s solicitor providing the necessary documents and registration of the transfer. The documents were forwarded by the latter and the land was duly registered in the purchaser’s name.Although the sum of RM450,000 was paid, the defendants failed to furnish the guarantee as promised. The defendant solisitors denied liability. Amongst the defences was the argument that the legal assistant who carried on the day to day business of the branch in Alor Star did not have actual or ostensible authority to bind the principles that are defendants. The court held that the onus of proving ostensible authority rested with the plaintiffs that there could only be ostensible authority to give an undertaking of a kind which was in the ordinary course of a solicitor’s business. Since the undertaking to pay the balance of purchase price to the plaintiffs was necessary for the completion of the documentation and registration of the charge which was undertaken by the defendants as solicitors for the bank, the legal assistant in giving the undertaking had acted within the ordinary course of a solicitor’s business.

Apparent Authority

Apparent authority may arise in two situations as follows:

Where a principal by his words or conduct, leads a third party to believe that his agent has authority to make contracts for him (s190 of Agency Act). It is the conduct of principal that create the apparent authority.

Where the agent previously has authority to act, but that authority was terminated by the principal without notice to third parties.

In Graphic Lines Pte Ltd v. Chai Chee Mein & Ors. (1987) Nov. Butterworths’ Digest, the court held that the defendants, partners of a night club, were bound by the acts of their assistant manager who had placed advertisement for the night club with the plaintiffs. The general manager was one of the partners had represented to the plaintiffs that advertisements should be done through the assistant manager. Since the general manger had actual authority to authorise the assistant manager to place advertisements on behalf of the club, the defendants were bound by his act. The inference to be drawn is that the assistant manager had apparent authority.

However in the case of Sheriffa Shaikhah v. Ban Hoe Seng & Co. Ltd (1963) MLJ 241, the court held that the deposit of title deeds with a firm of commission and real estate agents for safe custody with authority to collect rents, pay rates and assessments and to effect repairs in respect of the properties, did not give the firm actual or apparent authority to morgtgage them.

In the issue of fraud or misrepresentation committed by the agent, the principle is liable if the agent was acting within his actual or apparent authority, irrespective of wheter such misrepresentation or fraud was committed for the benefit of principal or agent himself. The agent is personally liable for such misrepresentation or fraud (s 191 Agency Act).

( Beatrix Vohrah and Wu Minn Aun, 1979. The commercial Law of Malaysia.Longman, Pearson Malaysia Sdn Bhd 1979)

The Nature of corporation and determination of its ownership

Mayson et al. (2007) stated that law regards a corporation as a separate legal entity where “ a person with the same capacity to engage in legal relationships as a human person”.

Lord Halsbury in Saloman v. Saloman & Co. Ltd (1897) AC 22 held that once the company is legally incorporated, it must be treated like any other independent person with its rights and liabilities appropriate to it self.

According to Horwitz (1985), it is difficult to explain on the principle of a corporation is a separate legal entity having rights and liabilities of a natural person, which can sue and can be sued on its own name. Thus, a corporation should be regarded ‘as a collective name of its members”, some theorists suggested. However, Lord Sumner in Gas Lighting Improvement Co. Ltd v. Commissioners of Inland Revenue (1923) AC 723 said that this approach does not fit into the legal view point.