LAW604-Assessment

QUESTION 1

The first issue is whether Yundi can take action against Britney for the tortious
act committed by Taila, a minor?

Section 3(1) of the Partnership Act 1961 stated partnership as the relation that
subsists between persons carrying on business in common with a view of profit. A
partner is considered as an agent under partnership law. To see if a partner's actions
towards a third party will bind the firm, Section 7 can be invoked and four elements
shall be satisfied for the firm to be bound by the partner's act.

First, the act must be linked to the type of business conducted by the firm. In
Mercantile Credit Co. Ltd. v Garrod, Garrod argued he cannot be held accountable
because Parkin's behaviour in selling a customer's car to the plaintiff was illegal as
purchasing and selling cars was explicitly prohibited in their business. The court,
however, held he is liable for Parkin's actions and rejected his denial of partnership
because the act was within the type of activity that is generally associated with a garage
business, and thus other persons may believe that he has apparent authority.

Secondly, the act needs to be carried out in the usual manner. The firm is
obligated not only because the act is regularly performed by the firm, but also because it
is performed in a common and ordinary manner. Thirdly, the third party must reasonably
believe that the person with whom he enters the transaction is a partner. A third party
may presume that a partner has the power and ability to bind his firm. If the third party
with whom the partner is dealing is unaware of his status as a partner or does not
believe him to be one, the firm will not be held liable for his acts. Knowledge of whether
a partner has authority can be gained through previous experiences with the firm or if a
partner is held out as a partner by other firm partners. Fourthly, the third party must be
unaware that the individual with whom he has transacted does not have the
authorization or permission of the partners to operate on behalf of the firm. The firm is
not liable if a third party enters into a transaction with a person knowing that the
individual lacks the authority to act.

A minor is not barred from forming a partnership. This indicates that a minor and
an adult can form a partnership as in William Jacks & Co. (Malaya) Ltd. v Chan &
Yong Trading Co., it is said that the behaviour of a person introduced as a partner
binds the other partners, and this is valid even if the partner is an infant. A minor cannot
be made responsible or made accountable for the firm's liabilities. They can only be
held liable for debts that are legally enforceable against them, such as their basic
necessities.

A partner may commit the tort of negligence, which will give rise to civil actions
granting the aggrieved party the right to claim unliquidated damages. When it comes to
tort liability, Section 12 discusses the two circumstances when tort liability might be
invoked. First, when a partner commits a wrongful act in the ordinary course of the firm's
business or with the authority of his other co-partners, and the wrongful act induces a
third party to suffer loss or injury, or any penalty is incurred as a result of the wrongful
act, the firm is liable; all other partners are also liable to the same extent as the partner
who committed the wrongful act.

In Hamlyn v Houston & Co., the court ruled that Houston & Co. was liable for
the partner's unlawful behaviour since it was done in the regular course of business to
obtain information about a trade rival. It didn't matter if the partner did it legally or
illegally. Second, if a partner is given power to execute a class of activities on the firm's
behalf, the firm is liable for the tortious act committed in the course of committing such
acts or in situations in which such acts should not be performed at all. The firm and the
other partners cannot be held accountable only if the tort is done without the partners'
actual authority and outside the extent of the partners' ordinary authority as in Mara v
Browne.

Section 14 states that there can be joint liability with the other partners or
multiple liability for everything by which the firm is liable for tortious conduct. Hence, in a
tort case, the plaintiff may issue separate writs against each partner or make all the
partners to be the party to the action. If the first person was sued alone and goes
bankrupt, it will not preclude the plaintiff from suing another partner later until the entire
amount is recovered.

However, Section 10 provides that if the partners agree that any restriction on
the power of any one or more of them to bind the firm shall be imposed, no act done in
violation of the agreement is binding on the firm with respect to people having
knowledge of the agreement.

Applying to the situation, Britney, Chrissy and Taila are partners in BCT
Associates while Yundi is the third party in this situation. Therefore, it shall be
determined first whether Taila’s conduct will bind the firm and Britney as a partner. By
applying Section 7, four elements shall first be fulfilled before Yundi can make the firm
and other partners liable, Firstly, Taila’s act must be related to the type of business
conducted by the firm. Here, the firm’s principal business revolves around the
importation and distribution of Fazioli pianos, which are made in Italy. Hence, by
applying Mercantile Credit Co. Ltd. v Garrod, Taila’s act to sell, deliver and tune the
piano was related and within the type of business conducted by the firm.

Secondly, Taila’s act was carried out in the usual manner as she was selling,
delivering and tuning the piano for Yundi which is necessary in the firm’s business of
importation and distribution of Fazioli pianos. Thirdly, it is reasonable for Yundi to
assume that he had entered into a transaction with a partner, Taila who has the power
and ability to bind her firm. It is not necessary for Yundi to have actual knowledge as
long as Yundi believes that she is dealing with the partner of the firm especially when

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Taila herself is delivering and tuning the concert grand piano for him. Any reasonable
person who was in Yundi’s position would assume the same. Fourthly, Yundi must be
unaware that Taila does not have the authority or the partners’ permission in acting on
behalf of the firm. In this situation, Talia had acted on behalf of the firm but Yundi had
the knowledge that Taila was prohibited from tuning the piano. Hence, the firm is not
liable if a third party enters into a transaction with a person knowing that the individual
lacks the authority to act.

By virtue of William Jacks & Co. (Malaya) Ltd. v Chan & Yong Trading Co,
Taila's conduct at first instance can be seen to bind the other partners because a minor
is not prevented from being part of a partnership and Taila cannot be held accountable
for the firm’s liabilities since she is a minor. Applying Section 12, since Taila had
committed a tortious act in the ordinary course of the firm’s business when she had
caused Yundi to lose his left eye’s sight after the piano string tuned by Taila snapped
making BCT Associates at first instance to be liable and all the other partners will also
be liable to the same extent as Taila who had committed the wrongful act.

However, by applying Section 10, since partnership agreement had explicitly

prohibited Taila from tuning the piano but Taila ignored the agreement and the fact that
Yundi had the knowledge that Taila was prohibited from tuning the piano by applying
Section 7, the firm and other partners cannot be held liable. Hence, Yundi may only
take personal action against Taila herself and not the firm or Britney.

In conclusion, Taila’s conduct does not bind the firm and Yundi may only take
personal action against Taila for her negligence.

The second issue is whether Britney may claim the five vans belong to her and
do not constitute as a partnership property?

Section 22(1) provides that all property must be originally brought into the
partnership stock on account of the firm or for the purposes and in the course of the
partnership business and must be held and applied by the partners exclusively for the
purposes of the partnership and in accordance with the partnership agreement.
Section 23 provides that the presumption that property purchased with partnership
money was purchased on behalf of the firm and thus forms partnership property can be
rebutted if it can be shown that there was an opposite intention.

There are three methods for determining partnership property. Firstly, all property
brought in as partnership stock. The agreement between the partners governs whether
the property was originally brought in as partnership stock or not. In Miles v Clark, a
photographer who ran a struggling solo business pulled in the plaintiff as a partner
because he had greater business relationships. He allowed his equipment to be used in
the course of the photography partnership, despite the fact that there was no written
agreement between them. The company was performing well, nonetheless they decided

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to discontinue their partnership due to various disagreements. The judge concluded that
assets such as the lease of the business premises, photography equipment, and the
firm's "goodwill" were not partnership property, but rather the personal property of the
partners who brought them into the partnership.

Second, where property is acquired through partnership money or other means,

for the firm. Thirdly, where property is acquired through any lawful means for all means
and purposes for the partnership business. In Ponnukon v Jebaratnam, the appellant
and respondent formed a partnership to build and sell homes and shops and split the
earnings. The respondent was the owner of the property. The question was whether the
learned judge was correct in deciding that the land is distinct property of the respondent
and not a joint owner of the partnership. Because the partners had not agreed to regard
the land as partnership property, it was not considered partnership property. Second,
simply because the firm's objective is to develop land does not imply that the firm owns
the land. Finally, the land was not purchased using partnership funds, but rather with
payments obtained solely by the respondent.

In the situation, applying Section 22(1), the five vans were purchased by
Britney’s own money and not by the account of the firm which means that the property
is a separate property belonging to Britney and not the partnership property. By applying
Ponnukon v Jebaratnam, whether or not the vans are partnership property is
determined by whether Britney and the other partners have reached an agreement on
partnership property matters; however, the partnership agreement is silent on the
subject. Further, although there is intention to treat the vans as partnership property due
to the fact that the profits generated by the delivery of pianos were shared every month,
but by applying Miles v Clark, although the partnership agreement is silent on matters
concerning partnership property, the five vans bought by Britney are considered as
personal property of who brought them into the partnership. Thus, the presumption of
purchase is rebutted and Britney owns the vans, not the firm. Lastly, although the
property is used as the firm’s transportation in delivering the piano, it does not shift the
property’s status becoming partnership property because the purchase price is paid with
Britney’s own money rather than using the partnership money. The mere fact that a
property was used to generate income does not automatically make it a partnership
asset.

In conclusion, the vans are not partnership property and Britney may claim the
vans belong to her as separate property.

The third issue is whether Saloma, who was employed by Chrissy as a

secretary for RM5000 per month and receives 3% of the monthly profits, is a partner of
BCT Associates?

To determine whether Saloma is a partner, we shall first consider the surrounding

circumstances, as stated in Aw Yong Wai Choo v Arief Trading Sdn Bhd, the High

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Court held that the defendants were in a partnership based on the evidence. To
determine whether a partnership exists, the court must consider the parties' true
intentions, which is not necessarily the expressed intention of the parties as it can be in
any verbal or written agreements as well as the case's surrounding circumstances. In
this particular situation, Saloma falls under the circumstances of Section 4(c)(ii).

Section 4(c) provides that a person's receipt of a share of a company's profits is

prima facie evidence that he is a partner in the company, but such a share, or payment
reliant on or varying with a business's earnings, does not constitute him a partner in the
business. Section 4(c)(ii) provides that a contract for the remuneration of a servant or
agent of a person engaged in a business by a portion of the business' profits does not
render the servant or agent, a partner in the business accountable or liable as such.
This section permits servants or agents to participate in any project in which they will
have a share in the profits, but they are not considered business partners. This is
illustrated in the case of Walker v Hirsch, the plaintiff is a clerk at the defendant's firm.
He agreed to a business arrangement in which he would be paid a fixed salary and get
⅛ of the net profit as losses. It was ruled that no partnership existed since there was no
intention to form one and the plaintiff never participated as a partner or had authority as
one.

Even if there is evidence showing that he might be a partner, it is arguably that

the person is only a ‘salaried partner’. In Abdul Gaffor v Mohamad Kassim, the
plaintiff, a servant of the defendant, signed an agreement allocating shares proportioned
between himself, the defendant, and others. He claims that by doing so, he became a
partner and is entitled to a portion of the profits. The defendant opposes this, claiming
that their relationship with the plaintiff was that of an employer and an employee. The
court determined that there was no partnership based on the circumstances and agreed
that the plaintiff and defendant only had an employer-employee relationship.

Similarly in Chua Ka Seng v Boonchai Sompolpong, the defendant proposed

that the plaintiff work in his new architectural firm. According to their agreement, the
plaintiff will be a partner with a 20% portion in the company's profits. According to the
defendant, the plaintiff was merely a salaried partner who received 20% of the net
profits. The court accepted the argument and held that the plaintiff is only a salaried
partner, not a partner properly so called. In Stekel v Ellice, it was decided that a
salaried partner is not a legitimate partner. The substance of the parties' relationship will
be considered in determining its status.

Applying Saloma’s circumstances, consideration of the surrounding

circumstances shall be taken into account as decided by the Federal Court in Aw Yong
Wai Choo v Arief Trading Sdn Bhd whereby the court must consider the parties' true
intention. Here, it can be said that Saloma was employed as a secretary by Chrissy,
thus Saloma is under a contract of service as she was paid RM5000 monthly and shell
be considered as an agent for BCT Associates as applied in the case of Walker v
Hirsch. Although it can be argued that there is an arrangement made to give 3% of the

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monthly profits generated by the firm to Saloma, she can never be considered as a
partner of Sunrise Auto Repair as there was no evidence proving that the other parties
had the intention to form partnership with Carl.

Here, even Taila normally refers to Saloma as a salaried partner, by applying the
case Chua Ka Seng v Boonchai Sompolpong and Stekel v Ellice, a salaried partner
is not a legitimate partner since the substance of the parties' relationship will be
considered in determining its status especially when the issue is disputed by the other
partners. Hence, it strengthens the fact that Saloma is only only a salaried partner, not a
partner properly so called and her relationship was only as an employer to the firm.

In conclusion, Saloma is not a partner to BCT Associates.

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QUESTION 2
The first issue is whether Chandler, the credit officer, can be considered as the
agent acting on behalf of Syarikat DuBronx Bhd and whether Syarikat DuBronx Bhd
may take action against Chandler for his action of taking the RM500,000 loan.

A company is an artificial legal entity that may only be represented by or act

through individuals. The acts of the company's organs are the acts of the company
itself, and their state of mind is the company's state of mind. The organ is viewed as the
company's directing mind and will: its ego. A company is also bound by its agent's
actions as long as they are within the scope of his power. In Lennard’s Carrying Co
Ltd. v Asiatic Petroleum, Lennard was the ship's active director, and played an active
role in the ship's administration. When it caught fire and exploded, destroying the
petroleum, the company attempted to shift responsibility from the company to Lennard.
The court held that the company's directing mind and will may be the Board of Directors
or shareholders or individuals of coordinate jurisdiction appointed by the General
Meeting, such as Lennard, who is the company's directing mind and therefore his
conduct entitled to the company's action. Similarly in Brambles Holdings Ltd v Carey,
the operations manager was the company's directing mind in this case, as responsibility
for ensuring the company's cars complied with the legislation had been given to him,
making the company responsible.

Section 64 of the Companies Act 2016 provides that contracts formed on the
company's behalf via its formalities bind the company. The contract may be made
through the company via common seal or agents whose authority derives from the
company’s constitution on behalf of the company. Law of agency under a company can
be divided into actual authority or apparent authority. In this particular circumstance,
Chandler falls under an actual authority where this authority can be made through
express or implied authority. For express authority, it can be established via a power of
attorney; a document that establishes an agency and specifies the agent's actual
authority or it could be expressed in the service contract, memorandum & article of
association(M&A), constitution, or general meeting’s (GM) resolution.

As adopted in Chew Hock San v Connaught Housing Development Sdn Bhd,

if an agent enters into a contract pursuant to actual authority (express/implied), it binds
the principal to the contract with the outsider where the individuals making the
representation to the third party must have actual authority as empowered by the
Constitution or M&A. Similarly, in Hely-Hutchinson v Brayhead Ltd, Mr Richards, the
chairman and CEO of Brayhead Ltd, made the final financial decisions. He usually
enters into contracts on behalf of the company and then informs them afterwards which
is a practice that the corporation has embraced. Hutchinson sued Brayhead Ltd for
losses sustained as a result of a failed acquisition bid as he guaranteed money
repayment and covered Lord Suirdale's losses in exchange for money injection into
Lord Suirdale's company Perdio Electronics Ltd. It was then acquired by Brayhead Ltd,
and Lord Suirdale was appointed to the board of directors of Brayhead Ltd, although

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Perdio Ltd's business never recovered. When it went bankrupt, Lord Suirdale resigned
from the board of Brayhead Ltd and sued for the losses he had experienced. Mr
Richards had no power to make the guarantee and indemnification contract in the first
place, hence Brayhead Ltd refused to pay. Lord Denning MR held that it can be inferred
from the parties' actions and the facts of the case, Richard had implied authority when
they thereby implicitly authorised him to do all such things as fall within the usual scope
of that office.

The contract is only binding on the company if the agent operated within the
scope of his authority as indicated in the M&A, constitution or GM resolution. If the
agent had acted in breach of his scope of authority by entering into a transaction
outside the company’s object clause though the agent had power to enter such
contracts then the contract is nonetheless ultra vires but valid by virtue of Section
35(2).

Section 20 and Section 21(1)(a) provides that a company is a separate legal

entity and has the unlimited capacity to execute all of the activities of a corporate entity
and to carry out or engage in any business or activity, including the ability to sue and be
sued. Hence, the company can sue any third party in its own name, and if the company
has any liabilities, the third party can sue the company as well. It should be emphasised
that the company's members cannot be the representative of the company to
commence legal actions on its behalf because only the company has access to its legal
rights. This element can be known as ‘Proper Plaintiff Rule’ as adopted in Foss v
Harbottle, two shareholders of a company filed a lawsuit against the company's
directors for misapplication and inappropriate use of the company's property. The court
ruled that since the injury complained of was to the company, the members do not have
the capacity to sue not sue because only the company had the right to sue.

Applying Chandler's situation, by virtue of Section 64, it can be said that

Chandler is the agent of the Syarikat DuBronx Bhd through an actual authority. This is
because of the assumption that when he is being employed, his scope of work will be
stated on the service contract and the usual practice of a company’s credit officer,
hence making Chandler entitled to enter such a loan contract with MBB. Therefore, his
action had constituted an agent to the company and bind the company as it is within his
scope of authority as applied in Chew Hock San v Connaught Housing Development
Sdn Bhd and Hely-Hutchinson v Brayhead Ltd.

It can be argued that the General Meeting’s resolution only enables the company
to take loans up to a maximum limit of RM300,000 making Chandler to act outside his
job scope and actual authority as he took a loan amounting to RM500,000.
Nonetheless, the loan contract taken by Chandler on behalf of the company is ultra
vires the general meeting’s resolution but a valid contract by virtue of Section 35(2).

Concerning the issue of whether Syarikat DuBronx Bhd may take action against
Chandler for his action of taking the RM500,000 loan as it exceeds the agreed

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resolution, by applying the ‘Proper Plaintiff Rule’ as adopted in Foss v Harbottle, the
company has the capacity in doing so as the injury happened to the company and
prohibit the shareholders or the BOD to initiate such claim. Here, assumption can be
made that during the shareholder’s meeting Chandler was not involved as he was only
a credit officer i.e., worker and not a shareholder. Here, it can be seen that the
constitution of the company is silent on the amount of loan which the company can
borrow and due to depression, the company secretary failed to put into writing the
mandate of the said meeting.

Hence, it can be assumed that Chandler had acted in a good faith to act within
his power given by the company constitution and had no knowledge on the updated
loan amount that can be taken as the secretary failed to put in writing although it is
within the secretary's job. However, if it can be proved that Chandler had the knowledge
on the maximum loan amount that can be taken but he still acted in breach of his actual
authority, only then Syarikat DuBronx Bhd may take an action and claim for the loan that
the company cannot reimburse.

In conclusion, Chandler, the credit officer, can be considered as the agent acting
on behalf of Syarikat DuBronx Bhd and Syarikat DuBronx Bhd may take action against
Chandler for his conduct of taking the RM500,000 loan providing that it can be proved
that Chandler had the knowledge and had acted in breach of his actual authority.

The second issue is whether MBB may invoke Turquand’s rule against Syarikat
DuBronx Bhd in order to receive the payment of a loan taken by Chandler, the
company’s agent?

Before the existence of Companies Act 2016, third parties that do business with
the company are presumed to be aware of the nature and contents of the M&A as it is a
public document that has been filed with the Registrar Of Companies. They are
presumed to have read and comprehended the M&A and this assumption is known as
doctrine of constructive notice. This is evident in Woodland Development Sdn Bhd v
Chartered Bank where it was held that anyone who has dealings with the company is
presumed to be aware of the contents of the M&A, whether or not he has read them.

If the constitution contains a limitation on the authority of the company’s organ,

officer or agent, the law deems this to be known by an outsider dealing with the
company making a company is not obligated by a contract with an outsider if its
documentation demonstrate that the individual claiming to act as agent lacked or
exceeded his power. The outsider cannot thus hold the corporation accountable for any
conduct that is not performed in accordance with the conditions of the contracts.

However, after the implementation of Companies Act 2016, Section 39 provides

that no person shall be deemed to have notice or knowledge of the contents of the
constitution or any other document relating to a company due to the fact that the

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constitution or document has been registered by the Registrar or that it is available for
inspection at the registered office of the company with the exception of documents
relating to instrument of charges.

The indoor management rule or ‘Turquand’s rule’ was established to mitigate

the harshness and burden of the doctrine of constructive notice in relation to outsiders
dealing with companies. In Royal British Bank v Turquand, a company's articles
authorised the directors to borrow such sums as may be authorised by a resolution at
the general meeting. The directors later borrowed 2000 pounds and the company
claimed that under its articles of association, directors could only borrow what was
authorised by a resolution, and that a resolution had been approved, but did not specify
how much the directors might borrow, rendering the bond unlawful. The court held that
the bank was entitled to assume that the relevant resolution had been approved and
that the corporation had followed the borrowing procedure, in the absence of illegality,
the excess of authority is matter only between the directors and the shareholders.

This rule prevents companies from relying on an irregularity to avoid performing

their contractual obligation. A person doing business with an incorporated company is
not required to investigate the firm's internal affairs or the officers' locus standi before
doing business with the company as in Sin Chia v Lin Siong Motor Co. Ltd since the
internal matters of the company cannot be found on the M&A or the company’s
constitution. So long as an agent of the company has apparent authority to act, the third
party is entitled to assume that all the necessary procedures have been complied with.
However, this rule is subject to few exceptions.

In MBB’s situation, the requirement of good faith is necessary as the rule does
not apply to an outsider who knows or should have known about the irregularity at the
time of the transaction. In Howard v Patent Ivory Manufacturing, M&A provides the
value of £1000 as a maximum that could not be exceeded. However, the directors lent
the company money in excess of £1000 on the security of debentures. The directors
then attempted to get the debentures enforced.It was ruled that the debentures were
only valid up to a maximum of £1000. The directors must be notified that the company's
internal standards were not met, and so they could not depend on Turquand's rule. In
Pekan Nenas Industries Sdn Bhd v Chan Ching Chuen, if there is any doubt about
authority, the outsider cannot proceed until that authority is established or new proof of
authority is presented. Thus, a reasonable explanation or assurance provided by a
company agent will not assist the outsider making the Turquand's rule cannot be
applied.

Applying the situation, MBB is not allowed to invoke the Turquand’s rule as there
is no requirement of good faith, since MBB, the outsider who knows or should have
known about the irregularity at the time of the transaction. This can be inferred from the
fact that the MBB loan department manager is a shareholder of the company and
actually attended the meeting held in January 2021 making the loan manager as the

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agent of MBB and the fact the MBB’s agent can no longer be considered as an outsider,
allowing MBB to have access to the company’s constitution by virtue of Section 39.

By applying the case of Howard v Patent Ivory Manufacturing, before

Chandler signed the loan contract in October 2021, it can be said that the MBB loan
department manager had the prior knowledge that Chandler had acted outside the
scope of the GM’s resolution as the resolution only allowed loan to be taken at
maximum amount of RM300,000. Further, concerning inconsistencies between the
GM’s resolution and the company’s constitution on the amount allowed to be taken, by
applying the case of Pekan Nenas Industries Sdn Bhd v Chan Ching Chuen, MBB
have the responsibility to make inquiry as there is a doubt regarding the authority i.e.,
the inconsistencies and cannot proceed with the loan contract until the authority or
evidence had been presented. Thus, MBB’s failure to make inquiries caused them to
not be able to depend on Turquand’s rule. However, the failure of the secretary to put
into writing the mandate of the said meeting causing Chandler to take the loan can be
considered as internal mismanagement and hence made the company to still be liable
for the contract within RM300,000 as provided in the resolution.

In conclusion, although MBB cannot invoke Turquand’s rule, the company still
cannot terminate the loan contract as Chatler, the agent, had exceeded the actual
authority constituted in the General Meeting’s resolution due to the company’s internal
irregularity.

(5181 words)

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