Answer Final Assessment Law 416

Question 1

According to Section 2(1) Hire Purchase Act (HPA) 1967, a hire purchase agreement includes
a letting of goods with an option to purchase and an agreement for the purchase of goods by instalment.
The parties involved in this agreement are hirer and owner. The owner means that a person who has let
the goods to a hirer under HP agreement. The hirer is a person who has taken goods from an owner
under the HP agreement. Based on this problem, we can know that Modern Home Enterprise (MHE)
act as an owner and Ella is a hirer.

Issue: Whether the hire-purchase agreement between Modern Home Enterprise (MHE) (the owner) and
Ella (the hirer) is valid.

Law: The formation of a hire-purchase agreement states that a variety of formalities must be fulfilled
by the parties in order to establish a valid and binding hire-purchase agreement. The formalities are:

a) Giving notices of the 2nd schedule before entering the HP agreement under S.4(1)
Sections No. Provisions/Explanations
S.4(1)(a) Before entering the contract, the owner must serve a notice duly signed by the owner
to the hirer in accordance with form set out under Part 1 of the 2nd Schedule.
S.4(1)(b)(i) If the agreement is carried out by the dealer, dealer must serve the hirer with the said
notice duly signed by the dealer in accordance with form set out in under Part 1 of
the 2nd Schedule.
S.4(1)(b)(ii) After notice had been served to the hirer, the dealer must serve another notice set out
under Part II of the 2nd schedule duly completed and signed by the owner and the
dealer.
S.4(2) The owner/dealer must serve the notice in person to the hirer and the hirer musts
acknowledge receipt by signing the notice.
S.4(3) Upon receiving the notice, the hirer is still not under any obligation to enter into the
HP agreement NOR shall the hirer be required to pay or give any consideration to
the owner/dealer for the preparation of such notice.
S.4(4) If the HP agreement is made without serving the said notice, the agreement shall be
void. Referring to the case,
Affin Credit (M) S/B V. Yap Yuen Fui
It was found that an offer to enter into the HP agreement is subject to a precedent
condition imposed by S.4(1). In the absence of a written notice under the 2nd
Schedule, the contract would be void.

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 S.4(5) Under HPA 1967, the owner/dealer who did not serve the notices shall be guilty of
an offence.
S.4(6) The owner/dealer who request money or ask the hirer to give consideration for the
service of such notice shall be guilty of an offence under the HPA 1967.
S.46(1) The penalty is:
a) Against body corporate:
1st offence = fine RM100K and below
2nd offence or more = fine RM250k and below
b) Against the director/manager/officer of the body corporate:
1st offence = fine RM25K and below & 3 years jail or both
2nd offence or more = fine RM50K and below & 5 years jail or both

b) Agreement must be in writing under S.4A

Sections No. Provisions/Explanations
S.4A(1) The HP agreement must be in writing.
S.4A(1A) Agreement must be in national language or English Language.
S.4A(2) If it is not in writing, it is void.
S.4A(3) The owner who did not comply with the formality shall be guilty of an offence.
S.46(1) The penalty.

c) Agreement must be signed under S.4B

Sections No. Provisions/Explanations
S.4B(1) The HP agreement must be signed by all the parties.
S.4B(2) The hirer can only sign the agreement when it has been duly completed by the owner.
Signing blank forms by the hirer shall render the agreement invalid.
S.4B(2A) A HP agreement which has not been completed shall not be delivered by the owner
to any dealer or his agent.
S.4B(3) If the agreement is not completed and signed, the agreement shall be void.
S.4B(4) The owner/dealer who did not comply with the formality shall be guilty of an offence
under HPA 1967.
S.46(1) The penalty.

d) The contents of HP Agreement under S.4C

Sections No. Provisions/Explanations
S.4C A valid HP agreement shall contain the followings.

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 S.4C(1)(a) The agreement shall specify:
• the date of the agreement,
• number of installments to be paid,
• amounts of installments, to whom and where it is to be paid,
• time for payment,
• description of the goods, and
• the address where the goods are to be placed.
S.4C(1)(c) The agreement shall also set out in a tabular form to includes:
• the cash price,
• the deposit paid,
• freight – the expenses of delivering the goods,
• the vehicle registering fees,
• the insurance amount,
• the terms charges,
• the annual percentage rate for terms charges,
• the balance originally payable, and
• the total amount payable.
S.4C(2) If the agreement does not contain the above, it shall be void.
S.4C(3) The owner who did not comply with this requirement shall be guilty under the HPA
1967.
S.46(1) The penalty.

e) Separate agreement for every item of the goods under S.4D

Sections No. Provisions/Explanations
S.4D(1) If the good is more than one item, separate HP agreement is required.
S.4D(2) If the formality is not complied with, the agreement is void.
S.4D(3) Owner shall be guilty of an offence under the HPA 1967.
S.46(1) The penalty.

f) Motor vehicle registration certificate under S.4E

Sections No. Provisions/Explanations
S.4E(1) If the good is motor vehicle, hirer may request to keep the registration certificate.
S.4E(2) Upon request, owner shall furnish the registration certificate.
S.4E(4) Owner shall be guilty of an offence.
S.46(1) The penalty.

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g) No alteration or modification on the goods under S.4F
Sections No. Provisions/Explanations
S.4F(1) If the good is motor vehicle and it has been altered or modified in its construction
or structure, then HP agreement shall not be entered.
S.4F(2) If the formality is not complied with, the agreement is void.

h) Declaration on 2nd hand motor vehicle under S.4G

Sections No. Provisions/Explanations
S.4G(1) If the good is a second-hand motor vehicle, owner or dealer shall declare it in
writing any defects in accordance with the inspection by the relevant authority.
S.4G(3) Owner shall be guilty of an offence.
S.46(1) The penalty.

i) Copy of agreement must be served to the hirer under S.5

Sections No. Provisions/Explanations
S.5(1) Within 21 days after the execution of the HP agreement, owner must serve to
hirer and the guarantor a copy of the said agreement.
S.5(3) If the total amount payable consist of payment for insurance, the owner shall
serve the insurance policy to the hirer within 7 days after he received it from the
insurance company.
S.5(4) Any contravention under this section is an offence.
S.46(1) The penalty.

Application:
According to S.4B(2), the hirer can only sign the agreement when it has been duly completed
by the owner. signing blank forms shall render the agreement invalid. It shows that the HP Agreement
made by the sales manager of MHE (the owner) towards Ella (the hirer) is not valid. This is because,
Ella (the hirer) was asked by MHE (the owner) to sign a blank hire-purchase agreement and told her the
details would be completed later. Therefore, MHE (the owner) is guilty of an offence under the HPA
1967 and should be penalized.

Moreover, according to S.4A(1) of HPA must be in writing and according to S.4A(2) if it is not
in writing, it is void. It is proven that the hire-purchase agreement made by the sales manager of MHE
towards Ella (the hirer) is void. This is because, when she asked how much she has to pay for the
instalments every month and the duration of the hire-purchase agreement, the sales manager explained

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to Ella verbally. Therefore, the sales manager of MHE is guilty of an offence under the HPA 1967 and
should be penalized.

Other than that, by referring to S.4C(1)(a), the agreement shall specify the date of the
agreement, number of installments to be paid, amounts of installments, to whom and where it is to be
paid, time for payment, description of the goods, and the address where the goods are to be placed and
by referring to S.4C(2) if the agreement does not contain the above, it shall be void. This is because,
Ella (the hirer) was asked to pay a minimum deposit of 20% for all the goods but the outcome says
otherwise. Therefore, MHE (the owner) is guilty of an offence under the HPA 1967 and should be
penalized.

Conclusion:
For the conclusion, the blank form signed by the hirer is invalid, a valid hire purchase agreement
must be in writing and must contain some particulars.

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Question 2

In Malaysia, there are four types of business organization that are Sole Proprietorship,
Partnership, Company and Limited Liability Partnership. Each type has different characteristics and
attributes.

If a business is incorporated as a company, it must have at least 2 members. For public

company, the is no maximum number of members but for private company, the maximum number of
members is 50. It must be registered at CCM under the Companies Act (CA) 1965. Once a company
has been incorporated, the incorporators will remain as natural person and the newly incorporated
company shall be regarded as an artificial legal person. A corporation is a juristic person that in most
instances is legally treated as a person. The company shall be treated as equal to a natural person in law.
Based on this problem, we can know that Lim and Loh are the members of Amazing Builders Co (ABC)
company and Splendid Supplier Bhd (SSB) is the company’s creditor.

Issue: Whether Splendid Supplier Bhd (SSB) can sue Lim. Next, whether Loh have the right to sell the
land that own by Amazing Builders Co (ABC).

Law: Separate legal personality defined as if the business has been incorporated, it becomes a different
individual from the individual who has incorporated it. Ensuring that even though the personality of the
participants in it varies the company remains unchanged. It also ensures that the company will enter
into lawful agreements with its members, for example as debtors and creditors or as employers and
employees.

Salomon v Salomon & Co. Ltd

Facts: Initially operated as a sole proprietorship, Salomon sold his shoes business to a company
(Salomon & Co. Ltd.), incorporated with representatives consisting of himself and his relatives. The
price for such a sale was paid to Salomon by way of shares and debentures on the assets of the company
with a floating fee. Later, when the company of the firm collapsed and went into liquidation, Salomon's
right to redemption against the debentures was followed by the claims of unsecured creditors who
would, thus, have recovered nothing from the proceeds of liquidation.

Held: If the company is legally incorporated, it must be handled with its rights and obligations
appropriate to itself like any other individual entity, and that the intentions of those who take part in the
promotion of the company are completely insignificant in discussing what those rights and obligations
are. Judges further provide that the Law seems to give a legal existence to the enterprise, as I have said,
its own rights and obligations, whatever their ideas or schemes make it exist.

Section 20 & 21 of the Companies Act 2016 sets down the effects of incorporation.

Section 20 of the Act provides:

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 “A company incorporated under this Act is a body corporate and shall-
(a) Have legal personality separate from that of its members; and
(b) Continue in existence until it is removed from the register.

Section 21 provides:
“(1) A company shall be able to carry out all functions of the corporate body and have full
capacity to carry on or undertake any business or activity including-
(a) To sue and be sued
(b) To acquire, own, hold, develop, or dispose of any property; and
(c) To do any act which it may do or to enter into transactions.
(2) A company have full rights, powers and privileges for the purposes mentioned in subsection
(1)
The followings are the effects of incorporation which can be derived as the consequence of treating a
company as having a separate legal entity from its individual members or directors.

1) Liability of members to contribute in the event of winding up.

- The responsibility of members to contribute to assets if the company winds up and cannot pay
its debt is limited by Section 192 (1) of the Companies Act 2016 (CA).
- The liability is limited to the amount of any unpaid share held by the members in the case of
company limited by share under S.10(2) & S.192(2)(d).
- The liability is limited to the amount which the member has undertaken to contribute to the
company in the event of winding up in the case of company limited by guarantee under S.10(3)
& S.192(2)(b).

2) A company’s obligation and liabilities are on its own, and not those of its participants
- Where a company incurs a contractual obligation or a liability in tort, that obligation or liability
is the company and not an obligation or liability of its members or officers.
- Section 192 states a member shall not be liable on the debts and obligations of the company
by reason only of being member of the company.

Fairview Schools Bhd. V. Indani Rajaratnam & Ors

“Limited company is formed so that its shareholders are not exposed to unlimited liability for the
company's debt. In exchange for this immunity, share capital is pumped into the company which thus
becomes available to the creditors of the company.”

3) A company can sue and be sued in its own name

- Section 21(1)(a) states a company shall be capable of exercising all the functions of a body
corporate and have the full capacity to carry on or undertake any business or activity including
to sue and be sued.

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 Foss v Harbottle

Facts: A director had misapplied company property. Other shareholders of the company filed an action
against the director.

Held: The injury was an injury to the company. Therefore, because the company and its members are
two separate personality, shareholders cannot bring an action on behalf of the company. It was up to
the company to sue.

The above case has laid down the “proper plaintiff rule” upon which the injured party shall be the
proper organ to become the plaintiff to commence an action.

- If the company breaches a contract, it is the company that should be sued. It is unlikely to sue
the members.
- In the event of a corporate group, another company cannot be sued on behalf of its subsidiary.
- The above case provides that, where proceedings involve only a company, it is not necessary
for the members of the company or its officers to be named as parties to legal proceedings.

Re Application by Yee Yut Ee

Facts: Previously Yee was company secretary. At that point, the company laid off staff. There are
disputes related to layoffs. When the matter was referred to the Industrial Arbitration Court, an
appreciation was very angry. Shortly afterwards, Yee was appointed director of the company.
Subsequently, the company suffers dissolution, and the company assets are insufficient to pay the
retrenchment benefits. The Industrial Arbitration Court made an order that Yee would personally be
responsible for paying the retrenchment benefits.

Held: The order was quashed by the High Court. Except in cases of fraud, breach of warranty of
authority and other exceptional circumstances, a director is not liable for the debts of an incorporated
company.

4) A company has perpetual succession

- Section 20(1)(b) states a company incorporated under this Act is a body corporate and shall
continue in existence until it is removed from the register.

Abdul Aziz Atan v Ladang Rengo Malay Estate Sdn. Bhd.

Facts: All shareholders of the company sell and transfer their entire shareholding to a certain buyer

Held: The company is a continuing entity in law with its own identity regardless of changes in its
membership.

- The company may even continue to exist despite the death of all its shareholders and directors.

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 Re Noel Tedman Holdings Pty Ltd

Facts: The company had 2 shareholders married couple. Both of them died in a traffic accident. They
left a small baby. Problems arise about how to transfer shares to a child. The article states that before
the exchange of two shareholders had died during the accident, no director was available, although the
company still exists.

Held: The court allowed the personal representatives of the 2 shareholders to appoint a new director in
order to give assent to the transfer of the shares to the child.

5) A company’s property is not the property of its participants

- Once a company is incorporated it may own property distinct from the property of its members.
- Section 21(1)(b) states a company shall be capable of exercising all the functions of a body
corporate and have the full capacity to carry on or undertake any business or activity including
to acquire, own, hold, develop or dispose of any property.

Macaura v Nothern Assurance Co. Ltd

Mr. Macaura shifted his interest in timber plantations to the company he operated. He had insured the
timber in his own name but failed to transfer insurance policy to the company. When the timber was
destroyed by fire, the insurance company refused to pay under its policy because it had no 'insurable
interest' in the wood, as it was not its owner.

Held: The company was the owner of the timber. Members only own shares in the company. A change
in the ownership will not affect the ownership of the property.

6) A company can contract with its controlling participants

- Because they are separate legal entities, that a company and its members can enter into contract
with each other.
- Section 21(1)(c) states a company shall be capable of exercising all the functions of a body
corporate and have the full capacity to carry on or undertake any business or activity including
to do any act which it may do or to enter into transactions.

Lee v Lee’s Air Farming Ltd

Facts: Plaintiff and her husband formed a company to run an aerial crop spraying business. The husband
was the sole beneficial shareholder, and he was killed in a flying accident. Plaintiff claimed payment
under the workmen’s compensation acts for the death of her husband.

Held: The husband is a servant of the company as the husband and the company were two separated
legal entities. The plaintiff was able to recover under the workmen’s compensation act for her husband
death. Unless the company and its controller were separate legal entities, the finding that a contract

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existed between them would not be open to the court, because a contract requires at least two separate
parties.

7) A company has the power to hold land

- Section 21 (2) of the CA 2016 that provides that the company shall have an unlimited rights,
powers and privileges for the purpose mentioned in S.21(1).
- The capacity of a company to hold land with perpetual succession despite changing proprietors
is one of its advantages over a company.

Application:
Referring to Section 192, a member shall not be liable on the debts and obligations of the
company by reason only of being member of the company and by referring to the case Fairview Schools
Bhd. V. Indani Rajaratnam & Ors limited company is formed so that its shareholders are not exposed
to unlimited liability for the company's debt. It shows that, Lim received a letter from SSB demanding
payment to be made, failing which Lim will not be sued for the debt. This is because, ABC (company)
is separate entity, SSB (company’s creditor) should not look for Lim (member) to pay the company’s
debt. Therefore, SSB cannot sue Lim.

Next, referring to section 21(1)(b) a company shall be capable of exercising all the functions of
a body corporate and have the full capacity to carry on or undertake any business or activity including
to acquire, own, hold, develop or dispose of any property and by referring to the case Macaura v
Nothern Assurance Co. Ltd, members only own shares in the company. A change in the ownership
will not affect the ownership of the property. It shows that, Loh has no right to sell off a land which
belongs to ABC to repay his personal loan to the bank. This is because, Loh (member) in ABC
(company) has no proprietary interest in ABC’s property. Therefore, Loh will have no ownership rights
in respect of it.

Conclusion:
In conclusion, once a company is incorporated, it will have its own rights and the individual
who incorporated it will be two different entities. Therefore, a company’s obligations and liabilities are
of its own and a company’s property is not the property of its participants.

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