FACULTY OF BUSINESS AND MANAGEMENT

SEPTEMBER SEMESTER 2022

BDUK3103

INTRODUCTORY LAW OF CONTRACT

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 Contents
1.0 Introduction................................................................................................................................3
2.0 The Elements of a Valid Contract................................................................................................5
2.1 Offer.............................................................................................................................................6
2.2 Acceptance..................................................................................................................................8
2.3 Consideration............................................................................................................................10
2.4 Intention to Create Legal Relations............................................................................................12
2.5 Capacity.....................................................................................................................................14
2.6 Certainty of Contract.................................................................................................................17
2.7 Free Consent..............................................................................................................................18
3.0 The Authorities of an Agent......................................................................................................20
3.1Actual Authority.........................................................................................................................21
3.2 Ostensible or Apparent Authority..............................................................................................24
4.0 Learner’s View on the Importance of Authorities of an Agent..................................................26
5.0 Summary..................................................................................................................................28
6.0 Reference.................................................................................................................................29
7.0 List of Cases..............................................................................................................................30
Part 2 Online Class Participation.....................................................................................................31

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1.0 Introduction
Pursuant to the provisions of Section 2 (a) of CA 1950, this provision provides that, “When
one person signifies to another his willingness to do or to abstain from doing anything, with a
view to obtaining the assent of that other such act or abstinence he is said to make a
proposal.”

Figure 1.0.1: Contract

The mutual rights and obligations of the parties to a contract are established, clarified, and
governed by law (Hermalin, B. E et al., 2007). The transfer of commodities, services, money,
or a promise to transfer any of those at a later time is common components of contracts. The
injured party may seek legal remedies like damages or rescission in the event of a contract
breach (McKendrick, E., 2014). Agreements must be kept, which is the foundation of
contract law, a branch of the law of obligations that deals with contracts. Pursuant to the
provisions of Section 10 (1) of CA 1950, this provision provides that, “All agreements are
contracts if they are made by the free consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby expressly declared to be void.”
Thusly, contracts are the cornerstone of every business, as well as of human collaboration and
society. A contract is a verbal or written agreement that enables parties (people or
corporations), organizations, and society to work together and jointly pursue their unique
goals and objectives. They are formally binding contracts that the law will uphold. A
contract, then, creates a binding legal commitment.

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Additionally, contracts are used by businesses to lay the groundwork for their business
connections and to provide the procedures that will be followed in those interactions. With
the help of a contract, the parties can specify how they will cooperate and how their
respective obligations will be upheld.

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2.0 The Elements of a Valid Contract
A legally binding agreement is a contract. It is not always simple to determine if the
fundamental conditions of a contract—offer and acceptance, the necessity of consideration or
not, the parties' capacity, the actuality of their assent, etc.—are met (Miceli, T. J., 2017).
Dicey and Morris lay down a simple rule, that ‘the formation of a contract is governed by
that law which would be the proper law of the contract if the contract was validly concluded’
(Merrett, L., 2009). Offer, Acceptance, Consideration, Intention to create a legal relationship,
Capacity to contract, Certainty, and Free consent are the fundamental components of a
contract.

Figure 2.0.1: Elements of a Valid Contract

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2.1 Offer
According to Section 2(a) of CA 1950, stated that “When a person signifies to another his
willingness to do or to abstain from doing anything with a view to obtaining the assent of that
other to the act or abstinence, he is said to make a proposal.”

One of the parties must make an offer to the other party in order for a contract to be formed
(Bayern, S., 2015). An offeror is a person who submits an offer. An offeree is a person to
whom an offer is made. When an offeror makes a set of terms to an offeree with the hope that
they will be accepted and result in a legally binding agreement between the two parties, that
action is known as making an offer. The Offeree shall be deemed to have accepted the Offer
and to have agreed to be bound thereon. Therefore, a contract would be formed by this
acceptance. A contract is a legally enforceable agreement, thus neither an offer nor an
acceptance should be made unless both parties are ready to take responsibility for any
resulting legal issues.

In Kent's case, selling his Yamaha motor is a priority. He makes Ivan a RM15,000 offer for
his Yamaha motor. The proposal is deemed accepted if Ivan says yes.

Figure 2.1.1: Offer

An invitation to treat, on the other hand, just serves as a request for an offer to be made. An
offer shouldn't be made by someone who isn't ready to face the legal consequences of it being
accepted (Bayern, S., 2015). But mere acceptance of an invitation to treat does not constitute
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a legally binding contract. In a court considers what it believes both parties intended before
determining whether one of the parties has made an offer. The decision-making process will
take into account every aspect of the case.

Advertisement may consist of invitations to treat or offers. If an advertisement constitutes an

offer, the individual who accepts the offer enters into a legal contract with the advertiser. An
advertisement cannot be accepted in a way that results in the formation of a contract if it is
merely an invitation to treat.

Nevertheless, people who purchase items from stores enter into contracts to do so. However,
putting goods on display in a store window does not constitute an offer to sell such items. So,
the display is merely an invitation to treat.

A case in point is CARLIL VS. CARBOLIC SMOKE BALL CO. [1893] 1 QB 256 the Court
Of Appeal held that, “the Plaintiff had accepted the offer of the company made to the world
at large and is, therefore, entitled to the money”.

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2.2 Acceptance
When an offeree accepts an offer made to them, they are said to have received that offer from
the offeror (Bayern, S., 2015). Pursuant to the provisions of Section 2 (b) of CA 1950, this
provision provides that, “when the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise”.
Acceptance is merely some kind of signal from the recipient that the offer has been accepted
(Bayern, S., 2015). Acceptance must be unambiguous, unconditional, and free of any
restrictions. The acceptance of the offer must be discernible to the impartial onlooker.

Figure 2.2.1: Acceptance

In accordance with section 7 (a) of CA1950, provide that “The acceptance of the proposition
must be absolute and unqualified”. A case in point is HYDE V. WRENCH [1840] 3 Beav.
344 ER 132. The Court held that “no contracted existed between them. The Pl. had rejected
the original proposal on 8 June so that he was no longer capable of accepting it later”. An
acceptance must be made within a reasonable period under section 6(b).

Therefore, unless the proposer specifies the manner in which it is to be accepted under
section 7 (b), acceptance must be stated in some usual and reasonable manner. Pursuant to the
provisions of Section 7 (b) of CA 1950, this provision provides that, “In order to convert a
proposal into a promise the acceptance must- (b) be expressed in some usual and reasonable
manner, unless the proposal prescribes the manner in which it is to be accepted. If the
proposal prescribes the manner in which it is to be accepted, and the acceptance is not made
in that manner, the proposal may within a reasonable time after the acceptance is
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communicated to him, insist that his proposal shall be accepted in the prescribed manner,
and not otherwise; but, if he fails to do so, he accepts the acceptance”.

However, acceptance is only effective when it has been expressed. It can be sent verbally or
in writing, through telex, facsimile, or recorded message. The Malaysian Contract Law
stipulates different times during which the communication of an acceptance is complete.
When it is put in a course of transmission to Offeror, he will receive it as such (S.4 (2) (a)).
Additionally, to Offeree with regard to the Offeror's knowledge (Section 4(2) (b)).

A case in point is IGNATIUS V. BELL [1913]2 F.M.S.L.R.115. The Court held that, “there
can still be an agreement because the Offeror, though having no knowledge of the
acceptance, is bound whilst the acceptor, because his acceptance had not come to the
knowledge of the proposer, is not bound”.

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2.3 Consideration
According to Section 2(d) of CA 1950 defined the word, “consideration is when at the desire
of the promisor, the promisee or any other person has done or abstained from doing, or does
or abstains from doing, or promises to do or abstains from doing, something, such act or
abstinence or promise is called a consideration for the promise”.

Consideration is typically defined as anything that either represents a benefit to the one
making the promise, a disadvantage to the one being promised to, or both (McKendrick, E.,
2014).

Figure 2.3.1: Consideration

Most contracts involve the exchange of two promises, making each party both a promisor and
a promisee. In a contract dispute, the plaintiff frequently contends that the defendant violated
the promise made to the plaintiff; as a result, the plaintiff is typically the promise and the
defendant is the promisor.

Dwayne Johnson, for instance, drives Denzel Washington to the market and back home.
Denzel Washington makes a promise to pay Dwayne Johnson some petrol money when he
drops him off at his place. Since the consideration (Dwayne Johnson's act of giving Denzel
Washington a ride) happened before Denzel Washington's promise, Dwayne Johnson cannot
sue Denzel Washington to execute Denzel Washington's promise. Denzel Washington
received a ride from Dwayne Johnson without any expectation of compensation. (Dwayne
Johnson did not provide Denzel Washington with transportation in exchange for Denzel
Washington's payment for gas).

On the other hand, consideration need not be advantageous to the promisor; hence,
consideration may exist if the promisee experiences some loss at the promisor's request, but

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the promisor receives no particular advantage. Contracts created for the benefit of third
parties are another instance in which the promisee may provide consideration without the
promiseor benefiting.

There are three forms of consideration:

a) Executory Consideration

When promise to execute future acts are exchanged, consideration is executory

(McKendrick, E., 2014). In other words, an act or promise that will be carried out in
the future is referred to as an executory consideration. For instance, S agrees to send
widgets to J at a later time, and J agrees to pay S when he receives the cargo. If S fails
to deliver the widgets to J, J may bring a breach of contract claim against S.

b) Executed Consideration

After a promise is given in return for an action, that action is considered executed
only when it is completed (McKendrick, E., 2014). In other words, executed
consideration refers to a deed that has been done to carry out the terms of the contract.
If S timely delivers the widgets to J in the previous example, S's consideration is put
into action.

c) Past Consideration

An offer, acceptance, and consideration are necessary for any contract (McKendrick,
E., 2014). Exchange of advantages and disadvantages constitutes consideration (e.g.,
the making of a promise in exchange for an act). A voluntary act is considered "past
consideration" if it occurs before the other person makes a pledge (since the act was
already performed and not made in exchange for the promise). Past consideration also
refers to actions fully completed prior to the promise being made.

A case in point is Kepong Prospecting Ltd. v Schmidt. The court held that “The
services rendered by Schmidt prior to the agreement and after the company’s
incorporation was a valid consideration in accordance with S.2 (d)”.

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2.4 Intention to Create Legal Relations
If an offer is accepted, a contract will only be formed if both parties seemed to want to enter
into a binding contract (Liao, Z., 2013). As a result, it is claimed that the intention to create
legal relations is a requirement of a contract.

Figure 2.4.1: Intention to Create Legal Relations

The court considers the parties' intentions objectively before determining whether or not there
was an intention to create legal relations. Thus the court considers what the parties appeared
to the reasonable person to intend rather than what they actually intended. The two categories
of agreements recognized by law are those formed in a social or domestic context and those
made in a business or commercial context (Liao, Z., 2013).

a) Agreements made in business or commercial context

A contract is presumed to have been intended by the parties if it is made in a business

or commercial context (Liao, Z., 2013). This is merely a presumption, so it's not a
cast-iron rule; rather, it's only a place to start. Therefore, it will be on to the party
asserting that there was no intent to create a legal relationship to present evidence to
refute the presumption. This might be possible, but if the presumption is not
disproven, a contract will have been formed.

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 b) Agreements made in a social or domestic context
Friends make social agreements with one another. Domestic agreements are
negotiated by family members (Liao, Z., 2013). The courts start with the presumption
that the parties do not intend to create a contract when either a social or domestic
agreement is made. It will be necessary for the party arguing that such an arrangement
constitutes a contract to provide proof that both parties seemed to have this as their
intended outcome. Undoubtedly, this is a possibility.

A case in point is Family Agreement (Domestic) Case Balfour v. Balfour. The Court of
Appeal held that, “The arrangements made between husband and wife was not a contract
attended by legal consequences. The presumption that there was no intention to contract was
not rebutted by the wife, Mrs. Balfour. Therefore, they were presumed to have no intention to
contract”.

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2.5 Capacity
According to S. 11 of CA 1950 stated that, “Every person is competent to contract who is of
the age of majority according to the law to which he is subject, and who is of sound mind and
is not disqualified from contracting by any law which he is subject”. The parties to a contract
must be of legal age to enter into one for it to be enforceable (Hesselink, M. W., 2005). As a
matter of law, some groups of persons are assumed to be incapable of entering into contracts.
These include people who are minors by law, those with mental illnesses, drunken people,
and so on (Hesselink, M. W., 2005). A contract is deemed voidable if it is signed by
individuals who meet these requirements. If a contract is voidable, the party who lacked
capacity can choose to terminate it or keep it going as planned. The purpose of this concept is
to safeguard the lacking capacity party.

A) Capacity as to Age

Minors Have No Capacity to Contract

According to the Age of Majority Act 1971, for “every individual person, the age of majority
is 18 years old”. As a result, minors under the age of 18 are not legally able to enter into
contracts and are instead only able to honor an agreement or void the contract. Nevertheless,
according to S. 69 of CA 1950 stated 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”. Therefore, if a claim
is for necessities supplied to a person who is unable to sign a contract, it may be valid
(Hesselink, M. W., 2005). Despite, the service that is necessary for a minor's life was not
defined under the Contract Act of 1971. Common Law, however, provides minors with the
necessities for their daily lives, including clothing, housing, food, medical care, education,
professional development, scholarships, insurance, and so forth.

Figure2.5.1: Capacity
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For instance, 12-year-old Ivan walks into an electrical goods store and buys a television from
SenHeng Corp. on a payment plan. SenHeng Corp files a breach of contract lawsuit against
Ivan after he doesn't pay the instalment.

A case in point is MOHORI BIBEE V DHARMODAS GHOSE the Court held that, “the
contract with the minor was void and he could not sue or be sued on any contract”.

Additionally, a case in point is a contract for necessities case The Government of Malaysia v
Gurcharan Singh and Ors. The court, held that, “education was a necessary. Since he had
partly fulfilled his bond, he was ordered to reimburse a reasonable sum, taking into account
his partly completed service”.

B) Mental Capacity

Pursuant to the provisions of Section 2 of CA 1950, this provision provides that, “A person
who sound of mind can make a contract if at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect upon his interest”. A
person's legal guardian or they may nullify a contract if they lack the mental capacity to do
so, with the exception of situations where the contract involved necessities (Hesselink, M.
W., 2005). The "cognitive standard" used to determine mental ability is whether the party
grasped the meaning and impact of the situation.

Figure 2.5.2: Mental Capacity

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A case in point is Asia Commercial Finance (M) Bhd. v Yap Bee Lee & Ors. [1991] 1 CLJ
271. The court stated that, “a person of sound mind who intended to rescind a contract which
he had entered into, on the grounds of unsoundness of mind must prove two things, that is he
was of unsound mind and the fact of the unsoundness of his mind was known to the other
party at the time of entering into the contract”.

Based on the aforementioned cases, it may be said that a contract made by a person not of
sound mind is lawful but may be revoked at the request of the party who can demonstrate that
the other party was aware of the person's mental instability at the time the contract was
created.

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2.6 Certainty of Contract
According to S.30 of CA 1950, “Agreements, the meaning of which is not certain, or capable
of being made certain, are void”. To put it another way, the definition of certainty is a state of
being completely certain, such as the certainty of death (Brand, F. D. J., 2021). According to
contract law, a contract is certain when its terms are adequately stated, well outlined, and
clearly spelled out.

The parties cannot have reached an agreement in the eyes of the law if the provisions of the
contract are unclear or lacking. An agreement to agree does not make a contract, and if the
parties are unable to reach consensus on important issues—such as pricing or safety—the
entire agreement may be rendered invalid (Brand, F. D. J., 2021).

A case in point is Karuppan Chetty v Suah Thian. The court in this case held that, “the
agreement of the parties in a contract for lease of land for $35 a month for so long as the
lessee pleases is a void contract for lack of certainty of terms”.

Figure 2.6.1: Certainty

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2.7 Free Consent
Free consent is one of the most essential elements of a legal contract. Pursuant to the
provisions of Section 10(1) of CA 1950, this provision provides that “All agreements are
contracts if they are made by the free consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby expressly declared to be void”.
The phrase "free consent" refers to a discussion between two parties (or more) who are free
and open-minded about an agreement (Kim, N. S., 2017). When two parties accept and
understand the objective, subject matter, and terms and circumstances of the agreement in the
same way, this is free consent (Kim, N. S., 2017). Both of them must take things in the same
way.

Figure 2.7.1: Free consent

The contract will be deemed to be voidable if the purpose is deemed to be unlawful or in
violation of Section 14 of the Contract Act (CA) 1950. Section 14 of CA 1950 states that
consent is free when it is not caused by any of these elements:

I. Coercion – Coercion is the unlawful holding of property against the will of any
person with the intent to compel that person to engage into a contract, or the
committing or threatening to commit any conduct banned by the Penal Code (S. 15)
(Wertheimer, A., 2014).

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 II. Undue Influence – When two parties enter into a contract and one of them is in a
position to control the other party's will and unfairly exploits that position, the
contract is said to have been influenced unfairly (S.16) (Quinn, M. J., 2014).
III. Fraud – Fraud is defined as any conduct intended to deceive a person, including the
false assertion of facts, the concealment of facts, and any promise (S. 17) (Sefton-
Green, R., 2005).

IV. Misrepresentation – Misrepresentation is the giving of false information in order to

induce the other party to engage into a contract and suffer damage as a result
(Cartwright, J., 2012). However, the guilty party's information was provided because
they truly believed it to be true. When someone intentionally misrepresents something
to another person, they are first said to have engaged in misrepresentation. Secondly,
there has been a duty violation that has seriously impacted the prejudice of one party
or another. Finally, due to the behavior or information of the person who is
misrepresenting them, another has made a mistake. (S. 18).

V. Mistake - One of the parties is said to have consented to the contract by error when
this occurred as a result of a misunderstanding (MacMillan, C., 2010). If not for the
misunderstanding, the parties would not have entered into the arrangement (S.21, 22,
23).

For illustration, let's say Daniel and Martin are two parties, and Daniel is looking to create a
contract since he is going through a financial difficulty. Martin wants to accept the contract
that Daniel has created after gathering all the facts and considering the circumstances. Here,
the parties mutually agree to the terms of the contract or agreement before it is made. This is
nothing more than the contract's free consent.

A case in point is East Asiatic Co. Ltd v. Othman [1966] 2 MLJ 38 , the held was “Wang
can certify for the loss of wage and pay in light of Ngan was not prepared to pick her as the
agent executive or head of the organization. "The pay compensation lost is imperative and it
is a rapid damage to Wang". Along these place, it is claimable. For the long last, Wang can
emphasize up to RM1 million as in the contract when Ngan couldn't bump into the terms of
the assertion”.

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3.0 The Authorities of an Agent
The authority of an agent is granted by its principal (Rasmusen, E., 2004). In business
situations, principals typically give their agents the power to do any or all of the following:
initiate, finalize, or otherwise deal with contracts between the principal and clients. An
agent's ability to bind a principal in a legal agreement will depend on the terms of the
principal's delegation of authority to the agent and the nature of the agent's appointment
(Rasmusen, E., 2004). The agent will have the ability to bind the principal to a contract when
such authority exists. The contract will not be binding on the principal if such authority is not
present or if the relevant act is done beyond the scope of the relevant authority. The two types
of authorities that an agent has are actual authority and ostensible authority (Rasmusen, E.,
2004).

Figure 3.0.1: The Authorities of an Agent

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3.1Actual Authority
Actual authority is the agent's power to impact the principal's legal relationships by acting in
accordance with the principal's expressed agreement to him or her (Rasmusen, E., 2004). In
other words, authority that the principle directly grants to the agent or that the principal
consents to is what is meant by actual authority. The authority of an agent may be expressed
or implied (S. 139).

I. The acts that the agent has the power to carry out on behalf of the principal are
specified in contract form as Express Authority (Rasmusen, E., 2004). It specifies
the agent's ability to solicit, start applications, and gather initial premiums when
acting on behalf of the principal and is established through verbal or written
communication (S.140).

Figure 3.1.1: Express Authority

Example: Steven works for Supermax Corporation. He commits to selling Supermax

Corp products directly to Watson Company by signing an employee agreement. He is
specifically authorised to enter into any agreements with Watson Company for the
selling of products made by Supermax Corp.

A case in point is Johnston v Kershaw (1866–67) LR 2 Ex 82. "Kershaw (the

Liverpool-based principal) instructed Johnston (the agent, who was based in

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 Pernambuco in Brazil) to purchase 100 bales of cotton. Johnston only purchased 94
bales, claiming that this was the maximum number that could be obtained at the time.
Kershaw refused to pay for the bales on the ground that Johnston had not acted in
accordance with the express authority conferred upon him (i.e. to purchase 100
bales). Johnston sued. Was held that Johnston was acting within his express actual
authority".

II. A legal concept known as "Implied Authority" is used in contract law to describe a
people's ability to enter into a binding agreement on another person or entity's behalf
(Rasmusen, E., 2004). According to S. 140 of CA 1950, stated that “An authority is
said to be implied when it is to be inferred from the circumstances of the case”.
Implied authority does not exist in written form; rather, it is presumed that an agent
has the right to act on behalf of the principal party in a given transaction or contract
(Rasmusen, E., 2004).

Example: Emma is appointed Senior Sales Manager by Spritzer Berhad. Spritzer

Berhad is selling a shipment of supplies that 99 SPEED MART SDN BHD wants to
buy. It is acceptable for a retailer to assume that someone with Emma's title has the
authority to enter into direct sales agreements, even if her employment agreement
clearly forbids it. Emma may not sign a sales contract on behalf of Spritzer Berhad if
the store is not aware of her restrictions, and Spritzer Berhad will be held liable for
the transaction. Although Emma's title suggests that she has the right to deal with
other parties in this way, she may still be accountable to Spritzer Berhad.

Figure 3.1.2: Implied Authority

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A case in point is Hely-Hutchinson v Brayhead [1968] 1 QB 549. The Court of
Appeal found that “Mr Anthony Richards had no express authority to give the
compensation. However, Mr Anthony Richards had an implied authority deriving
from the facts that he was allowed by the defendant company’s board to act as a
managing director. Also, the Court of Appeal ruled that the defendant company’s
consent amounted to a representation that gave Mr Anthony Richards the apparent
authority”.

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3.2 Ostensible or Apparent Authority
Essentially, ostensible or apparent authority is when the main leads a third party to believe
that an agent has power when they do not (Mayfield, B., & Lund, E. C., 2000). The agent can
only appear to act on behalf of the principal; true authority does not exist. However, if the
third party contracts with the agent based on the principal's representation, that contract will
still be binding against the principle.

Agency by estoppel will result from ostensible or apparent authority (Mayfield, B., & Lund,
E. C., 2000). When a third party acts on the principle's assertion that the agent has the right to
act on his or her behalf by signing a contract with the agent, it creates an estoppel that
prohibits the principal from disputing the validity of the transaction.

In addition, the idea of a necessary intervention by someone who is related to the defendant
legally can be traced back to the idea of agency of necessity, when an agent overstepped their
bounds by acting on the principal's behalf in an emergency (Mayfield, B., & Lund, E. C.,
2000). The courts were willing to regard the agent as though he or she had the required
authority to take the actions that were reasonably necessary to protect the principal's property
due to the circumstances of need, including the impracticability of the agent communicating
with the principle. The agent would be compensated for the expenses incurred in rescuing the
principal's property if an agency of necessity was established (Mayfield, B., & Lund, E. C.,
2000).

Figure3.2.1: Ostensible or Apparent Authority

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Example: Taylor is a Top Glove Corp. employee. She holds the generic title of manager. She
has little authority to bind Top Glove Corp. with purchase agreements. However, she
frequently bargains with suppliers over the conditions of purchasing agreements. The
purchase agreements are subsequently sent to her employer, who signs them. Taylor is the
only person with whom the supplier ever transacts. Taylor will probably be required to
personally sign the acquisition agreement, in which case Top Glove Corp will most likely be
obligated. She demonstrates to suppliers that she has the right to do so by signing the
contracts. Taylor is the main contact for negotiating the deals, so it stands to reason that
suppliers would think she had this power.

A case in point is Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] 2 QB 480.
The Court of Appeal held that “The defendant company was bound to pay the plaintiffs for
their architecture work. In particular, the court found that the defendant company’s articles
of association contained the power to appoint Mr Shiv Kumar Kapoor managing director.
Thus, Mr Shiv Kumar Kapoor was a managing director of the defendant company with the
authority to hire architects. In these circumstances, the defendant company was bound to pay
the plaintiff architects for their work because of Mr Shiv Kumar Kapoor’s apparent
authority”.

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4.0 Learner’s View on the Importance of Authorities of an Agent
Under agency law, agents have various forms of authority. These rights include actual
authority, which consist of express authority and implied authority, as well as ostensive
authority. Actual authority is important for an agent, verbally or in written form is very
important, especially when you are starting a business, don't make the mistake of thinking
that you have a contract agreement with someone who has not formed a contract with you or
your business for signing the contract. Equally important, if the agent is acting within their
actual authority, they will be able to claim against the principal for any remuneration or
expenses incurred under the agency contract with the principal. In addition, agents acting
beyond their actual authority may be liable to third parties for breach of implied warranties of
authority.

Express authority usually arises from a contract between the principal and the agent. It can be
in writing or oral, unless the agent is authorized to perform the deed on behalf of the
principal, which must be granted by deed and does not require a specific form. It is important
to know that an agency agreement can be reached verbally, so agencies should exercise
caution when negotiating with potential agents to ensure that if the agreement does not reach
the desired stage, it will not be reached. The extent of the agent's express authority will
depend on the interpretation of the agreement between the parties and, in the case of an oral
agreement, evidence of the existence of the agreement and its terms and interpretation of
what was said. Where it be ambiguity, the court will apply various rules of interpretation,
including the interpretation of the agreement to the agreement maker, who in most cases will
be the principal in favor of the agent. Where appropriate, courts may also imply terms in the
agreement.

Implied authority is the employment of an agent and authorization to perform all incidental
and incidental acts to perform its duties under the agency agreement. Implied authority can be
divided into ordinary authority, that is, authority that is common to a particular type of agent,
and customary authority from commercial use or the local market. An example is if a person
goes to a retailer and the sales person tells the buyer that if he or she buys a TV, he or she
will get a free cable box. In doing so, the sales person enters into contracts with individuals
on behalf of the businesses they are employed for. Considering the sales person claims that
the TV comes with the router for free, that means the sales person has the right to offer deals
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to individuals. If sales person conducts transactions, they are legally obligated by the implied
authority of the contract, which may result in employees being subject to management level
of punishment. Now, that's not to say that suing the sales person is a lucrative idea for
offering a fictitious deal. The most likely outcome, however, is an apology from the store to
the customer and some form of punishment from management for the employee’s
unreasonable use of implied authority.

Ostensive authority occurs when a principal, or a person acting under the actual authority of a
particular principal, represents to a third party that the agent is authorized to conduct
transactions that the agent and the third party subsequently enter into. If the agent does not
intend to enter into the agreement as the principal, it can also lead to an ostensive delegation
of authority. Furthermore, if a third party is induced to transact in reliance on the
representation, and the third party changes their stance to their detriment, it will also result in
an ostensive authority. For example, a company's high-ranking officials are given titles,
status, and facilities that misrepresent the extent of that official's actual powers without
safeguards to prevent such misrepresentations.

Actual authority and ostensive authority is that if the principal has indicated to a third party
that the agent has the authority to act on their behalf, the agent will have an ostensive
authority. Even though the agent has no actual authority to do so. Ostensive authority also
applies where a third party becomes dependent on the agent and produces tangible business
results. In the case of ostensive authority, the "authority" of the agent is only appearances,
and the principal does not grant actual authority. However, if a third party contracts with such
an agent operating under ostensive authority, the contract still has legal effect on the principal
binding force. An ostensible or apparent authority induces agency by estoppel. The principal
represents to a third party that the agent has the authority to act on their behalf when the third
party acts by entering into a contract with the agent, which acts as estoppel and prevents the
principal from denying that the contract is binding. If the principal gives the impression that
the agent is authorized but not actually authorized, then the third party is exempt from
liability as long as the third party takes reasonable action.

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5.0 Summary
The success of the organization depends on the contracts being compliant and in order
because contracts are a crucial component of organizations. When examining a contract,
keeping all seven of these factors in mind will help to ensure that all legal criteria are
completed and that all contracts are enforceable. There is a high possibility that the contract
will fail if one of these components is missing, costing the organization a significant amount
of time and money.

On the other hand, the principal is only accountable for a contract made by an agent if the
principal gave the agent permission to do so. Such authority may be express, implied, or
ostensible. Express means made in words, whether spoken or written; implicit means the
agent has the power to carry out tasks that are ancillary to or arguably required for carrying
out the expressly authorized transaction. Ostensible or apparent authority arises when the
principle offers a third party a good reason to believe the agent is in a position of authority.
Based on all the facts and circumstances, the third party's belief is judged to be reasonable.
The principal may, after the fact, approve the agreement formed by the agent, even if the
agent lacked authorization.

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6.0 Reference
Bayern, S. (2015). Offer and Acceptance in Modern Contract Law: A Needles Concept. Calif.
L. Rev., 103, 67.
Brand, F. D. J. (2021). Equity and certainty in contract law. Acta Juridica, 2021(1), 141-176.
Cartwright, J. (2012). Misrepresentation, mistake and non-disclosure. Sweet & Maxwell.
Hermalin, B. E., Katz, A. W., & Craswell, R. (2007). Contract law. Handbook of law and
economics, 1, 3-138.
Hesselink, M. W. (2005). Capacity and capability in European contract law. European
Review of Private Law, 13(4).
Kim, N. S. (2017). Relative Consent and Contract Law. Nev. LJ, 18, 165.
Liao, Z. (2013). Intention to create legal relations and the reform of contract law: A
conservative approach in the modern global era. Beijing L. Rev., 4, 82.
MacMillan, C. (2010). Mistakes in contract law. Bloomsbury Publishing.
Mayfield, B., & Lund, E. C. (2000). Franchisor Liability Under an Apparent Authority
Theory. Am. J. Trial Advoc., 24, 75.
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press
(UK).
Merrett, L. (2009). Article 23 of the Brussels I regulation: a comprehensive code for
jurisdiction agreements?. International & Comparative Law Quarterly, 58(3), 545-
564.
Miceli, T. J. (2017). 2. The Elements of a Valid Contract. In The Economic Approach to Law,
Third Edition (pp. 92-94). Stanford University Press.
Quinn, M. J. (2014). Defining undue influence. Journal of the American Bar Association
Commission on Law and Aging.
Rasmusen, E. (2004). Agency law and contract formation. American Law and Economics
Review, 6(2), 369-409.
Sefton-Green, R. (2005). Mistake, fraud and duties to inform in European contract law.
Cambridge university press.
Wertheimer, A. (2014). Coercion. In Coercion. Princeton university press.

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7.0 List of Cases
Asia Commercial Finance (M) Bhd. v Yap Bee Lee & Ors. [1991] 1 CLJ 271
Balfour v. Balfour
CARLIL VS. CARBOLIC SMOKE BALL CO. [1893] 1 QB 256
East Asiatic Co. Ltd v. Othman [1966] 2 MLJ 38
Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] 2 QB 480
Hely-Hutchinson v Brayhead [1968] 1 QB 549
HYDE V. WRENCH [1840] 3 Beav. 344 ER 132
IGNATIUS V. BELL [1913]2 F.M.S.L.R.115
Johnston v Kershaw (1866–67) LR 2 Ex 82
Kepong Prospecting Ltd. v Schmidt
MOHORI BIBEE V DHARMODAS GHOSE
The Government of Malaysia v Gurcharan Singh and Ors

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Part 2 Online Class Participation

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