What are Contracts of Indemnity and How Do They Work?
An insurance contract is one where a company (insurer) agrees to indemnify a person (insured) against loss or damage arising out of a pre-determined event in exchange for a premium (periodic payments by the insured) as consideration. An insurance contract is in written form and is referred to as the insurance policy. Insurance is based on risk and is of two kinds- general insurance and life insurance. Insurance contracts are contracts of indemnity by nature. Contracts of indemnity are those where the one party agrees to compensate or indemnify another party for loss or damage suffered by virtue of the occurrence of a predetermined event (Llewellyn 2016).In such a case only loss or damage that happens as a result of the predetermined event is relevant. For example if a person’s car is insured for RM 50,000 against accidents and the car meets with an accident the insurance company would have to compensate that person for the market value of that car or the insured amount whichever is lower. Not all insurance contracts are contracts of indemnity like life insurance, marine insurance and accident insurance are not contracts of indemnity.
A sale refers to the transfer of title and possession of a particular piece of property. Property can be either moveable or immovable. The term goods refer to tangible movable property that can be sold in exchange for money. Thus, these are ideally articles of trade or merchandise. The sale of such articles can be executed between two entities by virtue of a contract of sale. Sale of goods in Malaysia are governed and regulated by the Sale of Goods Act 1957 and the act defines goods under Section 2. Contracts of sale are defined in the act at section 4 (1). The section states that a contract of sale is one where a seller (the person who owns the goods to be sold) transfers or agrees to transfer that the title of the goods to the buyer in exchange for the price of the goods in monetary terms. When such a transfer is contingently associated to an event or is agreed upon to occur at a future time then such an agreement is called an “agreement to sell”. This is different from a contract of sale and is defined under Section 4 (3) of the act.
Agents can be classified based on two parameters- the authority held by them and the work performed by them. In terms of authority the different kinds of agents are (Hunter 2017):
The Concept of Sale of Goods and its Definition
Universal agent: These agents have a wide scope of powers which can be exercised by them. These agents are empowered to exercise any power that is conferred on the principle. An example of this would be an agent appointed through power of attorney.
General agent: General agents are agents who are appointed for a particular trade or business and are empowered to undertake any act related to such a trade or business. An example of this is when a person is appointed to manage a retail outlet.
Special agents: These are agents who are appointed for a particular purpose. Their authority extends only to acts related to that particular purpose. The difference between general agents and special agents is that general agents retain their authority till they are terminated and special agents lose their authority as soon as the purpose they are appointed for is accomplished.
When classified based on the nature of the work performed the various kinds of agents are:
Del credere agent: These agents act as sureties. They undertake to indemnify the principal in case a third person fails to perform a contractual term. If the third person fails in the performance of the duty the agent will be liable.
Factors: Factors are agents who are employed by the principal to sell various goods owned by them. They hold and dispose the properties and pay the sale amount to the principle. The principal pays the factor a commission for the sale.
Brokers: These agents are middlemen who are employed to buy and sell commodities on behalf of the principal. In this case too the principal pays the broker a commission known as brokerage.
Auctioneers: These agents employed to sell goods by hosting a public auction. They are paid fees for the services rendered.
Banker: A banker acts as an agent of its customers especially in terms of holding properties on behalf of the bankers.
Section 154 of the Contracts Act, 1950states that the death of the principal or agent terminates the Agency. Thus in the given case Martin’s death would mean the Aaron is no longer entitled to act on behalf of the principal and thus the seller can sell the goods to George.
3. In the facts and circumstances given above we see that Donald made a purchase of a car from Robert which was stolen. Thus, the true owner of the title repossessed the car. The issue here is to determine if the Donald can make a claim for the entire amount paid by him.
Classifications of Agents Based on Authority and Work Performeds
As stated by Section 2 of the Sale of Goods Act 1957 for a sale to be valid there must be a transfer of ownership. Ownership here refers to the transfer of title. Only the true owner of the good holds a title.
Section 27 of the Sale of Goods Act 1957 lays down the nemo dat rule which states that a person who doesn’t own a good cannot sell it (Milsom 2014). This means that is the title of a good is not held by a person the good cannot be sold by them unless authorized by the true owner. Thus, if there is no transfer of title from the true owner to the seller the seller cannot transfer the title to another buyer and such a sale would not be valid. Applying the requirements of Section 2 and the nemo dat rule embodied in Section 27 of the Sale of Goods Act 1957 we see that since Robert did not have the title to the car he was not entitled to sell the car to Donald. Donald in acquiring the car entered into an invalid transaction since the seller did not have the title to the car. Thus, when Donald purchased the car the true owner who the car was stolen from retained the right to repossess the car.
In contracts of hire-purchase the warranties and conditions implied are (McKendrick 2014):
The hirer in case of a hire-purchase contract has an implied warranty to enjoy peaceful possession of the property. This has been stated in Section 7(1) (a) of the Hire-Purchase Act 1967.
As provided for in 7(1) (c) of the Hire-Purchase Act 1967 the goods given on hire-purchase must be free from all charges and encumbrances from third parties at the time of the execution of the agreement.
The implied conditions in such a case are:
Section 7(1) (b) of the Act provides that in cases where there is a hire-purchase agreement the seller must have the title to the goods at the time of execution of the contract.
Section 7(2) of the Act lays down a condition relating to the quality of the goods in a hire-purchase agreement and mandates that at the time of execution of such a contract the goods in question must be of merchantable quality. This is subject to certain exceptions defined in the act.
Section 7(3) of the Hire-Purchase Act 1967 imposes an implied condition on the hire-purchase of good relating to their fitness. This section mandates that the goods in question must be fit for the purpose of the agreement the time of execution of the contract.
- In case of a hire-purchase agreement the hirer has the following rights:
Section 9 of the Hire-Purchase Act 1967 gives the hirer a right to all material information and documents relating to the goods.
Section 10 of the Hire-Purchase Act 1967 gives the buyer the right to demand an appropriation of the payments made in the hire-purchase agreement from the owner of the goods.
Section 11 of the Hire-Purchase Act 1967 gives the buyer the right to apply to the magistrate for an order for removing the goods from their designated place to a different one.
The buyer has the right to assign his rights in the agreement to a different person under Section 12 of the act.
The hirer can pass his rights in the contract to a legal representative through operation of law as per Section 13 of the act.
The buyer has a right to acquire the goods early after service of notice and payment of balance amount as provided for in Section 14 of the act.
The hirer has a right to determine the contract by returning the goods as provided in Section 15 of the act.
Reference list:
Hunter, Howard. “Modern Law of Contracts.” (2017).
Llewellyn, Karl N. The common law tradition: Deciding appeals. Vol. 16. Quid Pro Books, 2016.
McKendrick, Ewan. Contract law: text, cases, and materials. Oxford University Press (UK), 2014.
Milsom, Stroud Francis Charles. Historical foundations of the common law. Butterworth-Heinemann, 2014.
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