Whether a contract exists between Terence and Gabby even through Sara failed to tell Gabby that she works for Terence?
An agency is referred to a business or organisation which offers a specific service on behalf of another person, business or group (CSU LAW504 Modules, 2018, Topic 12). The Agency Law provides that an agent has the authority to establish a legal relationship between the principal and a third party. While entering into a contract, an agent is required to disclose his agency by stating the name of his/her principal. In Keighley, Maxted and Co v Durant (1901) AC 240 case, an agent entered into a contract without disclosing his agency to purchase wheat in his own name. The court held that the principal could not be held liable for the act of an agent who did not profess his/her agency while entering into a legal contract (OUP, 2016). However, the principal will be held liable for the action of an agent if the identity of the principal disclosed at the time of the transaction. As per the judgement which was given in Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199 case a corporation which purchases insurance for its employees is considered as an agent and after disclose of the principal, the insurance company had to pay the amount of insurance claim to the representatives of the principal.
While dealing with Gabby, Sara failed to reveal her agency which makes her liable for the contract. However, Terence revealed his agency by calling Gabby. As per the provision of undisclosed principal, Terence has entered into a contract with Gabby because he is liable for the actions of his employees as provided in the case of Siu Yin Kwan v Eastern Insurance Co Ltd.
Conclusion
In conclusion, Terence entered into a contract with Gabby based on the provision of undisclosed principal and Gabby has a right to ask for performance from either principal or the agent.
Whether a contract exists between Terence and Mary even though Terence specifically told Peter to buy silver rather than gold?
In the agency law, the principal provided authority to an agent to act on his behalf and enter into legally binding contracts with third parties. The agency law categorised authority of an agent into two parts: actual and ostensible or apparent authority. The actual authority is categorised into two parts: express and implied authority. The express authority is defined as the authority which was given by a principal to his/her agent in written or oral form (CSU LAW504 Modules, 2018, Topic 12). On the other hand, the implied authority is the ability of an agent to construct a legal contract with third party on behalf of the principal without an express agreement. It refers to an agent with the jurisdiction to perform an act which is reasonably necessary for completing the purpose of the agency.
The court analyses facts of each case to understand the customs and usage of a business or trade in order to determine an implied authority. A similar judgement was given in Watteau v Fenwick (1893) 1 QB 346 case. In this case, Watteau (the claimant) sold cigars to the Humble (pub manager). He later found out that Fenwick is the real owner of the pub and he filed a claim against him for the unpaid money. The court held that although Humble would have held liable for the unpaid amount by the agency of Fenwick has been disclosed, therefore, he will be liable to pay the unpaid amount of his agent because he acted on his behalf.
In case of Terence and Mary, a contract exists between the parties based on the provision of implied authority. Terence had given implied authority to Peter when he employed him as supplier purchaser. Mary also knew that Peter is authorised to act on behalf of Terence. Based on implied authority, a contract has constructed between Terence and Mary and Terence is liable to comply with the terms of the contract.
Conclusion
To conclude, Terence and Mary have entered into a contract because Peter had implied authority to act on behalf of Terence. Mary can ask for unpaid amount from Terence based on the terms of their contract.
Whether a contract exists between Terence and Gordon even though Terence has fired Peter and he gives the order to Gordon for conducting fraud?
In order to establish ostensible or apparent authority, the principal represents or shows to other parties that the agent has the right to enter into a legal contract on his behalf whereas he did not bestow such authority to the agent. Based on such representation, the party must deal with the agent believing that he/she represent the principal and the party much bind the agent into a legal contract (CSU LAW504 Modules, 2018, Topic 12). In simple words, the principal shows by way of words or conduct that the agent can enter into contract on his behalf whereas he did not give such right to the agent and based on such representation the party entered into a legal contract with the agent based on which the principal will be bound by the terms of the contract. The Freeman & Lockyer v Buckhurst Park Properties (1964) 1 ALL ER 630 case is a good example in which the board of a company allowed on director to act as Managing Director, however, they did not appoint him to the post. The MD entered into a contract with architects Freeman and Lockyer for a project however the board argued that the contract is not valid because the director did not have authority to enter into a contract on the corporation behalf. The court provided that allowing the director to act as MD is enough for third parties to assume that he had the authority to entered into a contract on behalf of the company, therefore, the contract is valid.
Terence failed to shut down Peter’s access to the email system, and he booked an order with Gordon who knew that Terence had authorised Peter to act on his behalf. As provided in Freeman & Lockyer v Buckhurst Park Properties case, if the principal represents that the agent has the authority to act on his behalf and the third party entered into a contract with the agent based on such representation, then the principal is bound by such contract. Therefore, Gordon and Terence have entered into a contract and Terence is bound by the terms of such contract.
Conclusion
Conclusively, a contract exists between Gordon and Terence based on the principle of ostensible authority
Can Industrial Machines Ltd hold Roger personally liable to pay for the last instalment of the machinery because he is the majority shareholder?
As per the section 119 of the Corporations Act 200, a company is a body corporate which becomes an artificial person after its registration (CSU LAW504 Modules, 2018, Topic 14). The attributes of a corporation include a separate legal entity, limited liability of owners, ability to sue or get sued, capacity to hold property under its own name and perpetual succession until it is de-registered or liquidated. The Corporations Act 2001 provides that the legal identity of a company is different from its owners. The owners or shareholders of a company have limited liability, and the court cannot use their personal assets to pay off the debts of the corporation. A company is not the agent of its shareholders, and they just own its parts in the form of shares. The Salomon v Salomon & Co Ltd (1897) AC 22 is an important case in which the principle of limited liability and a separate personality was given.
In this case, Salomon decided to shut down his shoe manufacturing sole proprietary business and incorporate a corporation called Salomon & Co Ltd. Salomon was the shareholder and creditor of the corporation because he owned its shares and debentures. He was the majority shareholder of the company. The corporation failed, and at the time of liquidation, debenture holders which include Salomon received their money back whereas unsecured creditors such as goods suppliers did not receive anything. The unsecured creditors filed a suit against Salomon by stating that the debenture is a scam and the company is his agent because he is the majority shareholder. The court held that just because Salomon is the majority shareholder does not make the company his agent. Salomon & Co Ltd has a separate legal entity from Salomon, and he cannot be held personally liable for its debts (Tomasic, Bottomley & McQueen, 2002, pp. 31-34). The information regarding the debenture is given in publically available documents of the company which means they are not fraud, therefore, Salomon cannot be held personally liable.
Industrial Machines Ltd argued that Roger hold majority shares in United Chemicals Pty Ltd and his wife own the rest of the share and his brother is the managing director, therefore, he should pay the final instalment of the machinery. However, as provided in Salomon v Salomon & Co Ltd case, a company has separate legal entity from its owners, and it is not the agents of its shareholders. Therefore, Roger cannot be held personally liable for the debts of United Chemicals Pty Ltd.
Conclusion
Conclusively, Roger did not have to pay the final instalment of the machinery of United Chemicals Pty Ltd because a corporation has separate personality from its owners and owners have limited liability.
Can Roger change the decision of the department for rejecting the explosive manufacturing licence application of Explosive Industries Pty Ltd?
As per the Corporations Act 2001, a company is separate from its owners, and it has its own rights and duties. The owners cannot be held personally liable by the court for the debts of the corporation which is called a corporate veil. However, the court can lift the corporate veil in specific situations to hold the people who take actions in the company liable for its debts (CSU LAW504 Modules, 2018, Topic 14). The doctrine of lifting of corporate veil is established to hold directors or managers in a company liable for their actions and prevent them from misusing the policy of separate legal entity. A similar judgement was given in the case of Daimler Co v Continental Tyre and Rubber Co (1916) 2 AC 307. In this case, the court implemented the doctrine of lifting of corporate veil to prevent people from misusing the law. At the time of World War I, trading with enemy was prohibited by the government. In this case, Continental Tyre and Rubber Co were incorporated in the United Kingdom, however, all of its directors and shareholders were German, and the secretary was English. The House of Lords provided that thought the corporation is UK-based, however, its effective control is in the hands of Germans, therefore, it had acquired the enemy character (Rudorfer, 2009, pp.2-3).
Roger’s application for explosive manufacturing was rejected because he was a convicted theft, so he incorporated Explosive Industries Ltd in which he is the majority shareholder. As per the judgement of Daimler Co v Continental Tyre and Rubber Co, the court can lift the corporate veil if the purpose of incorporation of the company is to trick the law. Roger who is a convicted theft holds effective control of Explosive Industries Ltd, therefore, he cannot change the decision of the department.
Conclusion
Conclusively, Roger has incorporated the company to escape the law, and he completely controls its, therefore, he will not succeed in changing the decision of the department for rejecting his licence application.
References
CSU LAW504 Modules, Topic 12
CSU LAW504 Modules, Topic 14
Daimler Co v Continental Tyre and Rubber Co (1916) 2 AC 307
Freeman & Lockyer v Buckhurst Park Properties (1964) 1 ALL ER 630
Keighley, Maxted and Co v Durant (1901) AC 240
OUP. (2016). Chapter 13: Problem question guidance. Retrieved from https://global.oup.com/uk/orc/law/company/baskind_concentrate3e/resources/problem/ch13/
Rudorfer, M. (2009). Piercing the corporation veil. Germany: GRIN Publishing. pp. 2-3.
Salomon v Salomon & Co Ltd (1897) AC 22
Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199
Tomasic, R., Bottomley, S. & McQueen, R. (2002). Corporations Law in Australia. (2nd ed.). Sydney: Federation Press. pp. 31-34.
Watteau v Fenwick (1893) 1 QB 346
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