Beware of What You Agree Online

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Most often than not, we couldn’t bother much about what we click or agree to via the internet web. Prior to obtaining more information or services  from a website, we are usually required to click on the web button “Agree” or in other words, we have to e-sign the contract or statement prepared by the online website owner. Hence, the issues of validity, enforceability and admissibility in court of such contract entered by way of e-signing are discussed here.

For instance, ABC Company is developing a pricing request system which will have the ability to generate Standard Sales Contract (“the Contract”). The system will send an email containing a link to the sales contract to the appropriate customer representative for the customer to ‘e-sign’. The customer representative will then click on the link to which he will see a screen which requires him to acknowledge that he is representing the customer company and is willing to make decision on the company’s behalf.

Once acknowledged, a second screen will appear which allows the customer to print a draft of the Company Sales Contract and then proceeds to a third screen where the customer is asked to indicate whether he agree to the terms and conditions of the Company Sales Contract. (i.e. click on ‘Agree’ or ‘Do Not Agree’). If the customer selects ‘Agree’, then the customer is deemed to have ‘e-signed’ the contract.

Under Malaysian law, all contracts entered in regardless of their method are governed by the Contracts Act 1950.  As for the said Contract, it may be admissible in Court under s90A of the Evidence Act 1950 which provides that any document or statement produced by a computer are admissible in court.

Based on the facts given, the issue that may arise is whether or not the customer representative who ‘esigns’ the said Contract has the authority to enter contract on behalf of the company.

The customer representative must be authorized to sign on behalf of the company. A Director who has been authorized by the company resolution can enter contracts on behalf of the company but as for agents, this would depend whether or not they have been given the authority to do so.

Agent and Principal

Section 135 Contracts Act 1950 provides that:-

135. An “agent” is a person employed to do any act for another or to represent another in dealing with third persons. The person for who, such act is done, or who is so represented, is called “principal”.

An employee of a company may also be an agent of the firm. In MMC Power Sdn Bhd & Anor v Abdul Fattah B Mogawan & Anor [2001] 1 MLJ 169, it was held on appeal that the Defendants were bound by the acts of their employee who was given authority to act on behalf of the company. Hence, based on the said case, the company will be bound by the acts of a customer representative who may also be an employee of the company.

But if the customer representative is not an authorized person to enter contracts on behalf of the company, then the said contract shall not bind the company even though the customer representative acknowledged that he has authority to do so.

In the event that an issue arises on the legal capacity of the customer representative, we may rely on the agency by estoppel rule or the Indoor Management Rule.

 Agency by Estoppel: Apparent and Ostensible Authority 

Agency by estoppel arises where one person acted as to lead another to believe that he has authorized a third person to act on his behalf, and that other such belief enters in transactions with the third person within the scope of such ostensible authority.

However, the agency by estoppel rule only applies when a company leads the third party to believe that an agent (i.e. customer representative) is acting on his behalf. In our case, the representation that the customer representative is acting on behalf of the company is done by the customer representative himself and hence the agency by estoppel rule doesn’t apply.

Indoor Management Rule (Turquand’s rule)

This rule, derived from the case of Royal British Bank v Turquand (1855) 5 E & B 248 applied in the Malaysian case of Standard Chartered Bank v Central Wood Tiles Sdn Bhd [1990] 2 MLJ 361, provides protection to persons dealing with a company in good faith. An outsider dealing with a company does not need to enquire into the regularity in the internal affairs and proceedings of the company, and may assume that all is being done regularly (see K Sivapragasam a/l Krishnar v Renominium Development Sdn Bhd & Ors [1998] 4 MLJ 535).

However, the Indoor Management Rule has its limit. Pennington’s Company Law (2nd Ed) at pp 137-138 expressed the rule in Turquand’s case and its limits, in the following terms:

The rule prescribed that if a person deals in good faith with the board of directors or other representative body of a company which is in fact exercising powers of management and direction of its business and affairs, that person is not affected by defects of procedure within the company or by its failure to fulfil conditions which are required by the company’s memorandum or articles to be      fulfilled before the act or transaction in question is effected

In another words, the rule is only limited to deals with the board of directors or other representative body of a company. If the customer representative is an individual low in the corporate hierarchy, we cannot take advantage of the rule in Turquand’s case (Mahfuz Bib Hashim v Koperasi Pekebun Kecil Daerah Segamat & Ors [2005] 3 MLJ 726).

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