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SECTION A
QUESTION 1
(a)
Sources of Written Law
Federal and State Constitutions; The Federal Constitution is the supreme law of
the land. All of the thirteen states have their own constitutions known as the
State Constitution.
Legislation enacted by Parliament and the State Legislative Assemblies; such as
Acts of Parliament, Ordinances and Enactments.
Subsidiary Legislations; made by persons or bodies under powers conferred on
them by Acts of Parliament or State Assemblies; such as Rules and
Regulations, By-laws and Guidelines.
Sources of Unwritten Law
Part of Malaysian law which is not enacted by Parliament or the State Assemblies.
Principles of English law applicable to local circumstances.
Judicial decisions of the superior courts; such as the High Courts, Court of
Appeal and the Federal Court.
Customs of local inhabitants which have been accepted as law by the courts.
(4 marks)
(b)
Valid contracts of minors:
The general rule is that, contracts made by minors are void. The Age of Majority Act,
1971: the age of majority in Malaysia is 18 years.
Exception to this rule: (provisions for a valid minor’s contract)
Contract for necessaries: Govt. of Malaysia v. Gurcharan Singh & Ors.
Contracts of scholarship: Contracts (Amendment) Act, 1976;
Contracts of insurance: Insurance Act, 1963: infant over the age of ten may
enter into a contract of insurance and if he is below 16 years old, may require
the consent of his parents or guardian.
(6 marks)
(c)
Consideration need not be adequate:
Under the Malaysian law, the consideration need not be adequate in order for the
contract to be valid.
Explanation 2 to Section 26 of the Contracts Act, 1950: an agreement is not void
merely because the consideration is inadequate.
Illustration (f), Section 26: ‘ A agrees to sell a horse worth $1000 for RM10Athe
agreement is a contract notwithstanding the inadequacy of the consideration.’
Phang Swee Kim v. Beh I Hock
Held: There was adequate consideration in this case (there being no evidence of
fraud or duress) because the respondent agreed to transfer the land to the appellant
on payment of $500 when the land was subdivided.
(5 marks)
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(d)
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What is an offer:
An offer or proposal is necessary for the formation of an agreement.
Section 2(a) of the Contracts Act, 1950 states that when one person signifies to
another his willingness to do or 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.
Section 2(c): the person making the proposal is called the ‘promisor’.
Under the Contracts Act, 1950 and the English law, a proposal or offer is something
which is capable of being converted into an agreement by its acceptance. A proposal
must be a definite promise to be bound provided certain specified terms are
accepted. The promisor (or offeror) must have declared his readiness to undertake
an obligation upon certain terms leaving the option of its acceptance or refusal to the
promisee (or offeree).
Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui
Held: Where there was a lack of offer and acceptance, the purported hire purchase
agreement was declared void ab initio ( void from the very beginning).
(5 marks)
(Total: 20 marks)
QUESTION 2
a)
This question on company law tests the candidates’ knowledge and understanding
on the principle of separate legal personality. The law treats a company as being a
separate person from its members and those who manage its operation. This was
affirmed in the leading case of Salomon v Salomon (1897) where the House of Lords
held that, a company incorporated under the Companies Act is an independent legal
entity separate and distinct from its members. In that case, despite the fact that Mr
Salomon controlled the company, it was not his agent or trustee. The company was
treated as operating the business in its own right, and as separate from its controller,
Mr Salomon. The fact that a company is a separate entity form its controllers was
emphasised in Perman Sdn Bhd & Ors v European Commodities Sdn Bhd & Anor
[2005] where it was held that a company is a separate person from the shareholders.
The shareholders have no interest, legal or beneficial over the property of the
company.
The effect of incorporation is set out in section 16(5) of the Companies Act 1965 and
from the date of incorporation, the company becomes a body corporate which is
capable of exercising all the functions of an incorporated company, it can sue and be
sued, has perpetual succession and a common seal and has power to hold land.
Liability on the part of the members may be limited.
The consequences of treating the company as separate legal entity are as follows:
(i)
Liability of members to contribute in the event of winding up is limited by the
Companies Act. In the case of a company limited by guarantee, the liability is
limited to the amount nominated in the memorandum and article of
association (see sections 18(1)(e) and 214(1)(e), Companies Act). In the case
of a company limited by share, the liability is limited to the amount of any
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unpaid shares held by the member (sections 18(3) and 214(1)(d), Companies
Act).
b)
(ii)
Where a company incurs a contractual obligation or a liability in tort, that
obligation or liability is the company’s and not an obligation or liability of its
members or officers. Hence, the debts of a company are not the debts of its
shareholders. See Fairview Schools Bhd v Indrani Rajaratnam & Ors [1998].
(iii)
A company can sue and be sued in its own name. Since a company is a
separate legal entity, it follows that it is liable for its own debts and may sue or
be sued in its own name. See Re Application by Yee Yut Ee [1978].
(iv)
A company has perpetual succession. The company is a continuing entity in
law with its own identity regardless of changes in its membership. See Abdul
Aziz bin Atan v Ladang Rengo Malay Estate Sdn Bhd [1985].
(v)
A company’s property is not the property of its participants. A company may
own property distinct from the property of its members. See Macaura v
Northern Assurance Co Ltd (1925)
(vi)
A company can contract with its controlling participants. Because they are
separate legal entities, a company and its participants can enter into contracts
with each other. See Lee v Lee’s Air Farming Ltd (1961).
(vii)
A company has the power to hold land. However, the right to hold land is
subject to certain restrictions as stated under section 199(2) of the
Companies Act.
(10 marks)
A private company is defined in section 4(1) of the Companies Act as follows:
(i)
Any company which immediately prior to the commencement of the
Companies Act was a private company under the repealed written law;
(ii)
A company incorporated as a private company pursuant to section 15; and
(iii)
Any company converted into a private company pursuant to section 26(1).
(iv)
A private company limited by shares must always include the words
‘Sendirian Berhad’ or the abbreviation ‘Sdn Bhd’ in its name (s 22(4)
Companies Act).
(v)
It may either be exempt private companies or non-exempt private company. A
private company is exempt if it has less than 20 members and none of its
members are themselves companies. Exempt private companies can keep
their financial information private.
Any company that is not incorporated as, or converted to, a private company is
treated as a public company (sec 4(1) of the Companies Act). Thus, if the company
does not have the characteristics and restrictions set out in sec 15 of the Companies
Act, it must be a public company. A company limited by shares will be formed as a
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public company (or converted to public company status) only if it is intending to have
public shareholders, or it is proposing to engage in activities only permitted to public
companies. Public company may be listed or unlisted.
(4 marks)
c)
This question on company law tests the candidates’ knowledge on the functions of
board of directors, the managing director and individual directors:
(i)
(ii)
The board of directors:
The directors collectively are referred to as board of directors. Typically, the
board of directors are charged with the function of managing the company’s
business – Table A, Articles 73 of the Companies Act:a.
Management of the company
b.
Delegation of power
c.
Issue shares
d.
Transfer of shares
e.
Convene meetings of members
f.
To declare dividends
g.
To borrow money
h.
Handle the financial affairs of the company
i.
Sign cheques, promissory notes and other negotiable instruments
j.
Appoint agents on behalf of the company.
(iii)
Managing director:
i.
Under Table A, art 91, it is a common practice for a board of directors to
delegate some of its functions to a managing director:a. Day to day management of a company
b. Agent and employee of the company
c. The Board will supervise the managing director to ensure that he/she
keeps within the sphere of authority allowed.
Individual director:
i. A director is generally responsible for ensuring that the company is run in
accordance with the Act. However, the function of a particular director
depends upon the arrangement between him and the company and upon
the company’s organisational set-up. For e.g. some directors may be fulltime executive directors; others may only be nominee directors appointed
to sit on the board by reason of some personal qualification or contacts.
The precise sphere of responsibility of any particular director varies from
company to company and from director to director.
(6 marks)
(Total: 20 marks)
(iv)
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SECTION B
QUESTION 3
(a)
The sale of the bag of charcoal would be governed by the Sale of Goods Act, 1957.
Section 2: defines the word ‘goods’ as every kind of movable property other than
actionable claims and money; and includes stock and shares, growing crops, grass
and things attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale.
In this situation, implied terms would apply since there is no express terms governing
a bag of charcoal.
The Sale of Goods Act implies (inter alia): That the goods must be of merchantable
quality and be reasonably fit for purposes for which the buyer wants them. The bag of
charcoal bought was not of merchantable quality due to its explosive nature and was
not fit for the purpose for which the buyer wants them (barbecuing).
Wilson v. Ricket, Cocherall & Co.
Held: a consignment of fuel which included a piece of coal in which a detonator was
embedded was unmerchantable since it had defects making it unfit for burning.
Mr. Barb is advised that he can bring an action for breach of the said implied terms
under the Sale of Goods Act, 1957.
(5 marks)
(b)
An agency by necessity may be created if the following conditions are met:
- It is impossible for the agent to get the principal’s instruction: Section 142,
Contracts Act, 1950.
- The agent’s action is necessary, in the circumstances, in order to prevent loss to
the principal with respect to the interest committed to his charge; such as when
an agent sells perishable goods belonging to his principal to prevent them from
rotting.
- The agent of necessity must have acted in good faith.
In an emergency, an agent has authority to do all such acts for the purpose of
protecting his principal from loss as would be done by a person of ordinary prudence,
in his own case, under similar circumstances: Section 142, Contracts Act, 1950.
(5 marks)
(c)
Duties of principal to his agent:
-
To pay the agent the commission or other remuneration agreed, unless the
agency relationship is gratuitous;
Not to willfully prevent or hinder the agent from earning his commission;
To indemnify the agent for acts done in the exercise of his authority.
The right to be indemnified entitles the agent to recover not only his commission or
remuneration but also money which he paid on the principal’s behalf and all losses
suffered by him in carrying out the directions of his principal.
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The agent however, loses his right to be indemnified if he acts beyond his duty or if
he has performed his duty negligently.
(5 marks)
(d)
When the termination of agent’s authority takes effect as to agent, and as to third
person.
Section 161 Contracts Act, 1950: The termination of the authority of an agent does
not, so far as regards the agent, take effect before it becomes known to him, or, so
far as regards third persons, before it becomes known to them.
Illustrations:
- A directs B to sell goods for him, and agrees to give B 5 percent commission on
the price fetched by the goods. A afterwards, by letter, revokes B’s authority. B,
after the letter is sent but before he receives it, sells the goods for RM100. The
sale is binding on A, and B is entitled to RM5 as his commission.
Advise: The sale of the car by Chan was valid since Chan never receive notice of
the revocation of authority. Amid shall have to pay Chan RM10,000 as commission
promised to him. The person who bought the car through Chan may have keep it.
(5 marks)
(Total: 20 marks)
QUESTION 4
(a)
(b)
(i)
The minimum number of partners is two whilst the maximum is twenty.
However, there is no ceiling on the number of partners for professional firms.
(ii)
In accordance with the Partnership Act, 1961, as partnership can be formed
orally or in writing, a written partnership agreement is not strictly necessary.
(iii)
Partnerships are required to be registered with the Registry of Businesses.
(iv)
Each partner is liable for the firm’s debts and his or her liability is unlimited.
Section 11 of the Partnership Act, 1961provides that every partner is liable
jointly with the other partners for all debts and obligations of the firms incurred
while he is a partner.
(v)
A partnership is not a legal entity by itself. It merely comprises of two or more
persons carrying on business with a view of profit.
(5 marks)
Advise to a retiring partner on legal requirements and mode of giving notice:
It is advised that unless notice of dissolution is given, all customers of the partnership
are entitled to treat all the former members as continuing to be members.
Upon a partner’s retirement, any partner may publicly notify the same and may
require the other partners to concur for that purpose in all necessary or proper acts, if
any, which cannot be done without his or their concurrence: Section 39, Partnership
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Act, 1961. Notice may be given by an advertisement in a local press, gazette or by a
circular letter.
For old customers and clients of the partnership, an advertisement in the gazette is
considered not sufficient notice. Express notice such as a circular letter must be
served on old customers and clients of the firm.
Tower Cabinet Co. Ltd v Ingram;
Re Hodgson;
Kam Hoy Trading v Hup Aik Tin Mining;
Barfoot v Goodall.
(5 marks)
(c)
(i)
Liabilities of partners for contracts entered in the course of business: Section
11; explanation on joint and several liabilities of partners;
- Extra right acquired by the creditor in the event of a demise of one of the
partners: section 19;
- Liability of partners for misappropriation of client’s money: section 13 &
14.
(5 marks)
(ii)
In the event that one of the partners misappropriates a client’s money, while
the money is in the possession of the firm or under its control, all of the
partners may be liable for the misappropriation. However, if a partner, acting in
his individual capacity, misappropriates client’s money, as a general rule, his
partners are not liable. Section 15: Partnership Act, 1961.
(5 marks)
(Total: 20 marks)
QUESTION 5
(a)
This question on company law tests the candidates’ knowledge on the legal effect of
the Articles of Association of a company. They are as follows:
(i)
By 33(1), subject to the Companies Act, the articles of association and
memorandum shall when registered bind the company and its members to
the same extent as if they have been signed and sealed by each member,
and contained covenants on the part of each members themselves, and
therefore one member may enforce the articles against another member.
(ii)
As a result of this section, the terms of the articles of association are regarded
as the terms of a contract between the company and its members. In the case
of Wong Kim Fatt v Leong Co Sdn Bhd (1976) serves as a example where
the articles provided that the holders of seven tenths of the issued capital of
the company may at any time serve the company with a requisition to enforce
the transfer of any particular shares not held by the requisitionists. Pursuant
to this article the majority shareholder served a requisition to buy out the
minority shareholder’s shares. The court held that the minority shareholder
was bound to comply with the demand as it was part of what the defendant
had bargained for.
(6 marks)
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(b)
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Vico Sdn Bhd may amend the memorandum and articles of association subject to
meeting certain statutory requirements. As regards to the memorandum, the
provisions can be altered in the following ways:
(i)
Company’s name. The company’s name may be changed to another name by
which the company could have been registered consistent with sec 22 of the
Companies Act. This is done by passing a special resolution (sec 23).
(ii)
Objects clause. The contents of the objects clause may be altered by special
resolution (sec 28).
(iii)
Share capital. A company may reduce or increase its share capital by
following the procedure in sec 64 and sec 62 of the Companies Act
respectively.
(iv)
Class rights. The provisions in the memorandum relating to class rights can
be altered by following the procedure for variation of class rights under sec 65
of the Companies Act.
(v)
Any other provisions in the memorandum. These provisions may be altered
by special resolution unless the memorandum expressly specifies that these
additional provisions cannot be altered.
According to section 31 of the Companies Act, it states that the amendment or repeal
of any provision in the articles requires a special resolution of members. In a small
company, the members may agree that amendments to the articles require the
written consent of all of the members. If such a requirement were included, any
purported amendment to the articles by special resolution would not take effect
unless that additional requirement was satisfied (sec 31(1)).
(10 marks)
(c)
This question on company law tests the candidates on the alteration of the Article of
Association in relation to preference share holders. Preference share holders may be
able to challenge the validity of the alteration if it amounts to a variation or abrogation
of their class rights – s 65(1). A variation of class right is one which directly alters the
right of class of shareholders:
(i)
Class rights may only be varied with the consent in writing of the holders of
three-fourths of the issued shares of that class or sanction of a special
resolution passed at a separate meeting of the holders of the class of shares.
(ii)
If the prescribed procedure has not been followed, the variation of class rights
is not valid.
(4 marks)
(Total: 20 marks)
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QUESTION 6
(a)
Forged transfer of share is a total nullity as no title can pass under such transfer. This
is so even if the company has informed the original owner that a transfer of his
shares has been lodged with the company and the owner has not responded. A case
in point is Barton v London & North Western Railway (1889) where a company wrote
to an executor of a deceased shareholder stating that a transfer of the testator’s
stock had been lodged with it and that unless she sent a reply within a week, the
stock would be transferred to the transferee. She did not reply and the company
proceeded to register in the name of the transferee. Later, she brought an action to
have her name restored to the register of members. The court held that she was
entitled to be so restored.
In Julie’s case, she can sue the stock company to restore the stock to her name or
compel it to buy equivalent stock and have it registered in her name. The company
can in turn sue the bank for an indemnity. The bank can claim indemnity from Mark
because when a person lodges a transfer with the company, he impliedly promises
that the transfer is genuine and when it is not, he has to indemnify the company for
the loss that it suffers. A case in point is Sheffield Corporation v Barclay (1905) where
the fact is similar as in Julie’s case.
However, Jacob Sdn Bhd is entitled for damages as it is stopped from denying Jacob
Sdn Bhd’s right to the stock. A case to illustrate this is Daily Telegraph Co v Cohen
(1905) where, as a result of a forged transfer, the original owner was removed from
the register of members and replaced by the first transferee, X, who was duly issued
with a new share certificate by the company. X in turn transferred the shares to Y
who was the registered shareholder when the forgery was discovered. The court held
that the original owner was to be restored to the register of members, but Y was
entitled to damages from the company as it was stopped from denying Y’s title.
(10 marks)
(b)
This question on company law tests the candidates’ knowledge on company’s winding
up.
(i) Persons that may petition for winding up of a company must be able to show:
1. That the petitioner had the right to present the petition
2. That one of the grounds set out in the Act as justifying a winding up had been
made out:a. The company itself
b. A creditor
c. A contributory
d. Personal representative of a deceased contributory.
(5 marks)
(ii) Lam can wind up the company on just and equitable ground:
1. Under section 218(1)(i) of the Companies Act, a company can be wound up on
just and equitable ground:
a. Where the main object of the company has failed. For e.g. if a company
was formed for a particular purpose and such purpose cannot be
achieved – Re German Date Coffee Co (1882)
b. Where there is no bona fide intention on the part of the directors to carry
on business in a proper manner – Re London and County Coal Co (1897)
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c. Company formed to perpetrate a fraud – Re Thomas Edward Brinsmead
and Son (1897)
d. Where was no more mutual trust and confidence which was the basis on
which the company was carried on. – Yenidje Tobacco Ltd (1916)
e. Where the petitioner has been deliberately excluded from management
in breach of an agreement or understanding that he would be allowed to
participate in the management of the company – Tay Bok Choon v
Tahansan Sdn Bhd (1984).
In Lam’s case, he may wind up the company on just and equitable ground
because it appears that there is no more mutual trust and confidence between
them. See also the case of Ebrahim v Westbourne Gallaries.
(5 marks)
(Total: 20 marks)
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