Introduction
This essay examines a scenario in Malaysian business law where Maya authorises Jeremy to purchase a house for less than RM 1 million, but Jeremy contracts at RM 1.1 million. The purpose is to analyse whether a valid agency relationship exists between Maya and Jeremy, whether Maya is legally bound by the contract exceeding her specified limit, and whether she may ratify the unauthorised transaction. Agency law, governed by the Contracts Act 1950 in Malaysia, forms the legal framework for this analysis. The essay will explore the principles of authority, the scope of agency, and the concept of ratification, supported by relevant case law and statutory provisions. By addressing these elements, the discussion aims to provide clarity on the legal implications of Jeremy’s actions and Maya’s potential remedies.
Existence of Valid Agency
Under Malaysian law, an agency relationship is defined by Section 135 of the Contracts Act 1950 as a relationship where one person, the agent, is authorised to act on behalf of another, the principal, to create legal relations with a third party. For a valid agency to exist between Maya and Jeremy, there must be evidence of express or implied authority granted by Maya. In this case, Maya’s explicit instruction to Jeremy to purchase a house below RM 1 million indicates an express authority, establishing Jeremy as her agent within the specified limit. The case of Hely-Hutchinson v Brayhead Ltd [1968] reinforces that express authority arises from clear instructions given by the principal (Hely-Hutchinson, 1968). However, the scope of this authority is critical—Jeremy’s mandate was strictly limited to RM 1 million. Therefore, while a valid agency exists within the defined boundary, any act beyond this limit raises questions about whether Jeremy’s actions bind Maya.
Is Maya Bound by the Contract?
The key issue here is whether Maya is bound by the contract Jeremy entered at RM 1.1 million, exceeding her explicit instructions. According to Section 141 of the Contracts Act 1950, an agent must act within the scope of their authority; any act beyond this does not bind the principal unless ratified. Since Jeremy exceeded the price limit, his action falls outside the authorised scope. The case of Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] illustrates that a principal is not bound by unauthorised acts unless third parties reasonably believe the agent had apparent authority (Freeman & Lockyer, 1964). In this scenario, unless the third party (the seller) was unaware of the price restriction and reasonably assumed Jeremy had full authority, Maya is not bound. Generally, therefore, Maya cannot be held liable for the contract at RM 1.1 million without further legal steps.
Can Maya Ratify the Contract?
Ratification offers a potential remedy for unauthorised acts under Section 149 of the Contracts Act 1950, allowing a principal to adopt an agent’s unauthorised contract, thereby making it binding. For Maya to ratify Jeremy’s contract at RM 1.1 million, certain conditions must be met: she must have full knowledge of the material facts, the act must be lawful, and ratification must occur within a reasonable time. The case of Bolton Partners v Lambert (1889) establishes that ratification can retroactively validate an unauthorised contract, binding the principal as if authority existed initially (Bolton Partners, 1889). If Maya chooses to ratify, she would be liable for the full RM 1.1 million. However, ratification is optional; she may decline and avoid liability, leaving Jeremy potentially responsible for breaching his duty as an agent. Indeed, the flexibility of ratification provides Maya with a strategic choice based on her interests.
Conclusion
In summary, a valid agency relationship exists between Maya and Jeremy within the RM 1 million limit as per her express authority. However, since Jeremy exceeded this limit by contracting at RM 1.1 million, Maya is not automatically bound under Malaysian law, specifically Section 141 of the Contracts Act 1950, unless the third party reasonably believed Jeremy had apparent authority. Furthermore, Maya has the option to ratify the contract under Section 149, provided she is fully informed and acts within a reasonable timeframe. This case highlights the importance of clear authority in agency relationships and the protective mechanisms available through ratification. The implications suggest that principals must define authority explicitly to avoid disputes, while agents must adhere strictly to instructions to prevent legal complications.
References
- Bolton Partners v Lambert (1889) 41 Ch D 295.
- Contracts Act 1950 (Act 136), Government of Malaysia.
- Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.
- Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.
