Question

Thor was interested in buying properties. Thor was approached by Thanos, who described himself as a ‘managing director’ acting on behalf on Marvel Bhd. Thor agreed to buy a row of shophouses at a substantial discount from Marvel Bhd. Marvel’s standard form contract was signed by Thor and Thanos on behalf of Marvel Bhd. Although Thanos was never been appointed as such, Thanos had acted as managing director for years and so described himself at all times with the knowledge and acquiescence of the board of Marvel Bhd. The Constitution of Marvel Bhd (which Thor had not read) allowed for the appointment of a managing director. When Thanos’s colleagues on Marvel Bhd’s board hear of Thor’s contract, they notify Thor that Thanos was not authorized to enter into the agreement. Thor wishes to hold Marvel Bhd to the agreement made by Thanos purportedly on its behalf.

Analyse the legal implication(s) in the above situation   

Answer 1

Issue: Thor had entered into a contract with Marvel Bhd. through Thanos, the managing director of Marvel, acting on behalf of the company. Though Thanos was not duly appointed as managing director, he had for years claimed to be appointed as such, with the knowledge of Marvel's board. On coming to learn of the contract between Thor and Marvel, the board members of Marvel notified Thor that Thanos was not authorized to enter into the agreement.

Rule: The appointment of an agent may be express or implied. As per the doctrine of estoppel and holding out, if the principal, by conduct, has led third parties to believe that a person has the authority to represent him and bind them in contracts, the principal would thereafter be prevented from denying the agent's representative capacity, unless the principal, has by express notice, revoked the implied agency.

The doctrine of indoor management is also relevant here. An outsider dealing with the company is expected to go through its constitution to find out what the company is authorized to do, and the procedures to be followed.

Application: It is mentioned in the given situation, that Thanos has for years claimed to be the managing director of Marvel, and the board has not objected. It is assumed that he has represented the company in dealings with third parties, and his acts have been ratified by the board. If the management of Thanos does not desire to be so represented any more, they should have given a notice to that effect.

Thor should have gone through the charter documents of the company, but he did not. But that should not change anything, as they authorize the company to appoint a managing director anyway.

Conclusion: Marvel Bhd. would be bound by the contract with Thor, unless it can prove that Thanos was a pretended agent, and therefore he, and not the company, should be personally liable under the contract.