Company Contracts

Requirement for company to incur binding legal obligation

- Must be incorporation (bcs incorporation results in a company acquiring legal personalition =
only got legal binding)
- The company must have capacity
- There is a decision made by the approriate organ(shareholders + directors) for the company to
enter any legal obligation
- The company will take the appropriate steps to commit itself or to indicate its consent to the
legal obligation

Method for a company to enter into a contract

1. s64 CA2016
a. s64(1)(a) by the company itself in writing under its common seal
b. s64(1)(b) & (c) on behalf of a company, can be done in writing or orally by a person who is
authorised to do so

2. The company’s decision-making organs have the power to make decisio &enter contracts.
Generally, BOD has the authority to make business decision on behalf of the company. The
decision come from formal resolution of BOD.
Formal resolution:
a. Resolution for enter into a particular transaction
b. Resolution authorising the execution (exp; signing of the relevant doc)
***Sometimes, BOD resolution is not enough… need to have approval of the shareholder (s223
CA 2016 +228); exp; buy & sell substantial value property

S64 CA 2016: ‘by the company’ and ‘on behalf’ of a company

1. Importance to distiguish ‘by’ and ‘on behalf’
- sometimes must be rendered into a written form and executed by a company, this may due to a
staturory requirement
Hilmi &Associates Ltd v 20 Pembridge Villas Freehold Ltd [2010]
F: The company was the tenant and issued a notice. Under section 13 of the housing development
act, such notice needed by the tenant, but not on behalf of the tenant, only one of the director
sign it = no common seal bcs not all the director sign = so this notice is invalid (must use
company seal)

2. Contracts entered into in writing with a common seal

a. s64(1)(a)
b. s61(2); Requirement of a Common Seal
- when a company has a common seal, the CS to be engraved with the company’s name +
regisgtration number in legible romanised characters on the seal
c. s62(1); Official seal outside Malaysia
- a company may have an official seal for use outside Malaysia but subject to its constitution
(s62(1))
- this seal must be an exact copy of the company’s CS with the addition on its face of the place
whr it is to be used (s62(2))
- effect of the official seal s62(3)

** so 1 main common seal, 2 types of official seal --- for foreign jurisdiction + for specific
purpose(s63)
- the seal will be affixed by natural person (s62(4) official seal outside malaysia can be affixed by
an authirise person. The authorisation and appoint must be in writing
Reason of common seal
- Traditionally, affixing common seal was the only way for a company to indicate its cinsent to
incurring a legal obligation
- But, CA2016 ---common seal is no longer mandatory (s61(1)),but other jurisdiction may
require…
- x common seal/ x want to use CS ---go s64(1)(b) n (c)

3. Contracts entered into on behalf of company

-s64(1)(b) writing n (c) orally
a. Contracts entered into by authorise persons
- no need to be entered into by the company itself, can enter through the actions of an authorise
agent (expressly/impliedly)
- normally are the directors, but not necessary
- s21, a company have full capacity ---can appoinyt agent if the constitution allow

Part 2: Relationship with 3rd parties n Authority of agents

Execution of documents
1. Company may execute a document by common seal or by signature
- s66: (1)(a)common seal OR by signature
- But if the method of execution is required by law such as ‘by the company’(common seal), the
method must be comply.
a. By common seal
- s66(1)(a)
- if the company’s constitution contains any limitatios or conditions in relation to the manner of
afficing the common seal, the limitation n condition must be complied with

b. By signing
- an alternative of x common seal
- has the same effect as common seal (s66(3))
- s66(2) must be signed by at least 2 authorise officer, shall be director…. but if sole director
(s66(2)(b)) must signed in present of witness who attest the signature n witness certify it
Take note also: s242 CA2016 - if a person is director n secretary at the same time, he cannot act
as both to sign at the same time
- s66 need to look with s64 on authorisation
- s64: a doc is executed on belf of the company, can be done by any person authorized by the
company pursuant to s64(1)(b)
- A company can also execute a deed empowering its personnel (generally or in respect of
specified matters) to execute a contract on its behalf.

c. Defects in the format

- any non compliance with the additional or alternative procedure can be curred/remedied by the
courts under s582(3), as long as no substantial unjustice cause.
- if common seal is forged, s582(3) cannot be used

D. Execution of a deed (by common seal/signature)

- a deed is a documen in writing, on the face of the doc that it is intended to be a deed, validly
executed as a deed and validly delivery.
- a deed validly executed by the company - s67
- exucetion of a deed must accordance with s67
- a company can empower a person to execute a deed on behlaf of the company…must give
autthority to agent by an instrument executed as a deed s67(3)

Types of authority (actual, apparent/ostensible)

- a 3rd parties must have authority to act on behalf of the company ----valid binding on the
company
- Freeman and Lockyear v Buckhurst Park Properties (Mangal)
F: Mr. Kapoor as a property developer and wants to buy Buckhurst Park Properties and obtained
money from Mr Hoan... Mr Kappor and Mr Hoon and 2 other ppl are the directors...nvr appointed
managing director and mr karpoor acted as he is the MD and the board knew abt it...the claimant
employed upon the company as architect and surveyors... the claimant claim money, the company
said mr karboon is not work on behalf of the company...no authority to appoint...still binding btw
the board knew abt it (astensible authority)

H: An "actual" authority is a legal relationship between principal and agent created by a

consensual agreement to which they alone are parties, the contractor is a stranger.
An "apparent" or "ostensible" authority,is a legal relationship between the principal and the
contractor created by a representation, made by the principal to the contractor, intended to be and
in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal
into a contract of a kind within the scope of the "apparent" authority, so as to render the principal
liable to perform any obligations imposed upon him by such contract. To the relationship so
created the agent is a stranger.

- followed n approved by malaysian case--- Woodland Development Sdn Bhd v Chartered

Bank; PJTV Densun(M) Sdn Bhd
F: the directors of the company recceived some cheque payable to the P's (woodland) ..the
director transfer the money to the 3rd party (PJTV)… represented themselves as a director of the
company... conversion - treating someone money as themselves and use it
HC: need to return the money to the plaintiff …no authority here…

Actual authority
a. Actual express
- P confers authority on the agent and states the extent of the agent’s powers n limitation on the
power
- given by letter of employment./constitution
- can be general term or one off conferral

b. Actual implied
- by P’s conduct appointing the agent to a particular position---the agent will have the authority to
perform any functions and powers that is normally associated with that position
- Tan Ah Tong v Perwira Habib Bank (M) Bhd
***overlap with ostensible authority ---bith also have representation (appointing the agent)

Apparent/ Ostensible authority

- as a result of any representation that has been made by the principal to the 3 rd party regarding the
agent’s authority
- representation can be made by P’s conduct--such as appointing the agent to a particular position
- Hely-Hutchinson v Brayhead Ltd - acquiescing (silent) - can amount to ostensible
authority..sometimes actual implied
- Requirement A/OA; Freeman and Lockyear v Buckhurst Park Properties (Mangal)
i. Representation to a 3rd party that he has such authority
ii. Representation made by the person who has actual authority
iii. 3rd party has to be convinced to entered into the contract
iv. Memoradum of article;not deny such type of contract (x relevant in malaysia)

Implied authority of officers

- person appointed to that position can create a representation by the company that the person has
authority to do certain things
- deemed to have authority to do certain things which are ordinary within the scope of authority of
person holding such position

a. CEO
-Hely-Huchibson’s case- can do all such things as fall within the usual scope of that position
(actual implied)
- Smith v Butler - usual scope of a CEO’s powers depend on custom or usual CEO carry in
similar business, x include the power to suspend any directors or the chairman in the absence of
an express delegation of power to do so
- Entwells Pty Ltd v National and General Insurance Co Ltd - inclede dealing with everyday
matters, supervising the daily running of the company n other senior management n in charge of
the company’s business
- Corpers Pty Ltd v NZI Securities Australia Ltd - x include enterring into transaction that
canot be characterised as an ordinary trading transaction or selling the company’s main business

b. Other officers; scope of implied authority

- Hashim v Koperasi Pekebun Kecil Daerah Segamat & Ors
Some officers may have authority to bind the company based on what is commercially accepted
as being within their authority…

Part 3; Turquand’s Rule/ Indoor Management Rule

- outsider who deals with the company is entitled to assume that any internal procedures, at the
BOD or general meeting of shareholders, have been complied with and that the regular procedures
have been followed
- If the director x comply with the constitution then entered into contract with
outsider.... the contract is still good and valid..bound both parties.. the breach of
constitution is an internal issue...director may amount to breach of duties but..this doesn't
invalid the contract entered... bcs an outsider doesn't know n no right to ask the company
situation whether everthing is good and alright n constitution
- Royal British Bank v Turquand
F: the bank lent 2000pounds to Cameron company.. at that time the company was abt to
wound up... Turquand is the representative for the cameron company... the company
issued bond under the common seal to repay the loan...deed of settlement under the
statute the director can borrow money by general resolution... the director acted without
general resolution..
Is this binding the company?
Court; this is internal procedures...cannot affect outsider...

Turquand -----approved by Malaysian FC case; Hew Sook Ying v Hiw Tin Hee

Implication of Turquand’s rule

- assit outsider to enforce contracts and obligations entered into by person acting on
behalf of the company. Where agents have been represented as having authority to act
on behalf of the company (requirement) but no compky with some required internal
procedured for the authority to be effective, the 3 rd party is able to enforce the contract by
relying on IMR.
Legally, if agent x comply with the procedures = x authority = x bind the P. But an
outsider may x have knowledge on the limitation N the outsider has no duty to inquire
whether the procedures havbe been complied with under IMR
=
Outsider can assume that for any transaction entered into btw the outsider n the
company is properly called!

Ezzen Heights Sdn Bhd v Ikhlas Abadi Sdn Bhd (Soh Yuh Mian, intervener)
F: entered into a joint venture agreement.. to take out a land to develop... P will get 4 lots
n D get 8 lots, clause 2(a) agreed that P need to get permission to do smtg after the
whole development is done,.... P wants to terminate the whole agreement based on his
own breach on without to get oermission... D brought this case to court…Ezzen height
sold it to the 3rd party (Soh Yuh Mian)
HC: The D is entitled to get back his lots.. the agreement n POA is valid and executed..
D appeal:
COA followed the HC ..and saying that the Turqand rules is apply...Ikhlas has no duty to
ask... Cannot use not fulfill IMR as an excuse...

IMR on director’s authority

- under IMR, can assume the director or agent have peoperly comply the procedures
- s203
i. Must be an appointment of the person as a director/manager/secretary
ii. His conduct is in that capacity
iii. The defect regarding appointment or qualification is discovered subsequently

IMR cannot be relied on

- Northside Development Pty Ltd v Registrar-Genral; whr the outsider is put on notice
or on inquiry abt a possible irregularity
- Rolled Steel Products (Holdings) Ltd v British Steel Corp; if the outsider has
uspicions that the contract was defectice
- Mahfuz bin Hashim v Koperasi Pekebun Kecil Daerah Segamat & Ors; if the
outsider knows that the agent lacked express actual authority
- there is forgery or fraud

IMR n Constructive notice of public documents registered with the registrar of

companies
a. 3rd party may assumed that the IMR has been complied with in relation to doc lodged
with registrar
- 3rd party is entitled to rely on public document registered by the company with ROC as
proof that the person he is dealing with is a director of the company ---Pekan nanas
industries sdn bhd v chang ching chuen & ors
- s204; can assue that person stated is a director = legal binding on the company
- KL Engineering Sdn Bhd v Arab Malaysian Finance Bhd; reliance on public doc
must be reasonbale…must be noting put the outsider on inquiry….in this case 5 year is x
reasonable

- rely on document of lodged with thr ROC x mean the outsider has constructive notice of
these docs
- outsider must reasonbale check the public doc, even though he has no duty to check,
but this can make him no suspicion ---- Kang Hai Holdings Sdn Bhd & Anor v Lee Lai
Ban