The Law of Agency - Assignment

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Solution 1
Issues
i. Whether Terence can enforce the contract that is established amid Sara and Gabby?
Law
The law of agency is applicable in the given situation.
An agency is a relationship that is established amid a principal and an agent. A principal when
entrust some of his authority to another person (agent) who carries out the tasks within such
authority and establishes relationship with third parties, then, any action that is taken by such an
agent is binding upon the principal (Pont, 2001).
The main elements to make a valid agency are: (Thampapillai, Tan, & Bozzi, 2015)
i. That both the principal and the agent must be capable of entering into contract;
ii. That the agent must act within the authority that is entrusted upon him by the
principal;
iii. That the principal is bound by the acts that are undertaken by the agent within the
entrusted authority
Now, an authority can be defined under various heads: (Whiggs, 2018)
i. Actual Authority – An actual authority is the authority that is granted by a principal to
an agent actually by the principal himself. These are divided in to two kinds:
a. Actual express authority – An actual express authority is the authority that is
granted to an agent by words of mouth or in written form, but, there is some sort
of express action that is taken by the principal (Northside Developments Pty Ltd v
Registrar-General , (1990) ); (Perkins v National Australia Bank Ltd , 1999);
b. Actual implied authority – An implied authority is the authority that comes along
with the express authority and comprises of authority that the agent is permitted to
undertake while carrying out the tasks that are expressly allocated to him
(Equiticorp Finance Limited (in liq) v Bank of New Zealand, 1993) and (Brick
and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd, 1992)

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ii. Ostensible authority – The authority which is not expressly provided to the agent but
the principal do some overt act in front of the third parties which makes the third
party to believe that the agent does possess the authority that is granted to him by the
principal. Thus, any act that is undertaking by an agent within the ostensible authority
is considered to be binding upon the parties and the principal is held liable for the
same (Hely-Hutchinson v Brayhead Ltd, 1968).
Further, any outsider when dealing with the agent on the pretext that the agent does possess the
actual authority to bind the principal by his act which in reality the agent cannot, then, any act
that is undertaken by an agent with the outsider is binding upon the principal provided the
outsider is not aware of the defect, that is, the agent does not possess the requite authority and is
dealing with the agent in good faith.
The law is now applied.
Application of Law
Terence establishes a business ‘Terry’s Terrific Design’. Peter and Sara are appointed by
Terence.
Sara is assigned the authority to make designs for Terence and Peter is authorized to acts as a
supplies purchaser.
Transaction amid Sara and Gabby
Gabby wanted that Sara must design a brooch for him. Sara shows several designs to Gabby but
forget to tell him that he actually works for Terence. Gabby gave a work @ $1000 to Sara.
When Terence call Gabby conforming the order of Gabby, Gabby shows his unawareness and
submitted that he entered into a contract with Sara and not Terence.
It is submitted that Sara is the agent of Terence and an actual express authority is granted to her
to make design for Terence. There is no authority that is granted to Sara wherein she can enter
into contracts on behalf of Terence.
Thus, Sara acted beyond the authority that is granted to her and thus the contract that is made
amid Sara and Gabby is not bound upon Terence.

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Transaction amid Peter and Mary
Peter is the agent of Terence and he is expressly authorized with the task of supply purchaser.
However, Terence later made an express statement to Peter that he should only buy silver and
not gold. However, Peter buys gold from Mary (with whom Peter had entered into contracts on
behalf of Terry’s Terrific Design’) without seeking permission from Terence.
It is submitted that Mary is aware that Peter is the supply purchaser for Terence and is permitted
to purchase gold. However, Terence has made no efforts to communicate to Mary that Peter is
now not authorize to buy gold. Thus, by not communicating, Terence has made a representation
that peter is still permitted to by gold from Mary.
So, the contract by Peter with Mary is valid on account of ostensible authority.
Peter and Gordon
Peter was fired by Terence but no communication of the same is made and Peter computer
system was shut down only on Thursday. But, prior to that Peter has bought diamonds from
Gordon (Wednesday). It is submitted that by not shutting the system of Peter and not letting
anyone know that peter is not the agent of Terence any more, Terence has granted an ostensible
authority to Peter.
So, the contract with Gordan is valid.
Conclusion
The contract amid Gabby and Sara will not bound Terence and thus Gabby is not obligated to
pay anything to Terence.
Mary and Gordan can sue Terence for the contract with Peter as the same is valid under
ostensible authority.
Solution 2
Issue
i. Whether Industrial Machine Limited sue Roger for the last installment that is not paid
by United Chemicals Pty Ltd?

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ii. Whether Department of Industry can sue Roger for violating the legislative provisions
and lift the veil of the company, Explosive industries Pty Ltd?
Law
Once a company is formed then it is an artificial legal person in the eyes of law and has the
capacity to enter into contract, purchase property, etc. The acts that are undertaken by the
company are its own and no company officer can be held liable for the same. (Tomasic,
Bottomley, McQueen, & Rob, 2002)
One of the significant features on incorporating a company is Separate legal personality of a
company.
Separate legal personality of the company signifies that the company is distinct from its
members, directors, employees and officers. If any action is undertaken by the directors of the
company then the same are taken on behalf of the company and the acts are considered as the
acts of the company and not that of the directors. If any loss is sustained by the company because
of the actions then the loss is borne by the company and no liability can be imposed upon the
company directors. (Tomasic, Bottomley, McQueen, & Rob, 2002)
As per (Salomon v A Salomon & Co Ltd [1896], 1896), Mr Aron Salomon turned his business
into a limited company. The business of salmon was sold to the company and wife and sons
become its subscribers and directors. The court held that the company that is formed by salmon
is a company in the eyes of law and cannot be regarded as business for which salmon can be held
personally liable. It is a company which has artificial legal personality in the eyes of law.
But, the concept of separate legal personality has its own disadvantages. This is because there are
various instances where the court is not found to be hesitant in regarding the shareholders of the
company and the company as single entity and the acts that are undertaken by the officers are
considered to be their own personal acts and not the acts of the company. This act of considering
the company and the officers as one is lifting the corporate veil of the company.
There are various instances where the veil of the company can be lifted. The same are:
i. Fraud – When the officers of the company in order to avoid their fiduciary or legal
obligations try to act under the shield of the company then the veil of the company

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can be lifted and the acts of the company are treated to be the acts of the officers of
the company (Re Edelsten ex parte Donnelly , 1992).
ii. Agency- When the shareholders of the company are controlling the acts of the
company in such manner so that they are considered to be the mind and soul of the
company, then the company are considered to be the agents of the shareholders and
in such cases veil of the company can be lifted and the acts of the company ate
considered to be the acts of the shareholders (Balmedie Pty Ltd v Nicola Russo ,
1998), ( Barrow v CSR Ltd , 1988) and (Briggs v James Hardie & Co Pty Ltd , 1989)
iii. Sham or façade – When the incorporation of the company was mainly due to hide the
real purpose of the controller then there is sham and thus the veil of the corporate can
be lifted and is held in ( Sharrment Pty Ltd v Official Trustee in Bankruptcy , 1988)
and (Peate v Federal Commissioner of Taxation , 1964).
iv. Unfairness/justice- When in order to secure justice and to bring fairness to the parties,
it becomes necessary to pierce the veil of the company.
The law is now applied to the facts.
Application of Law
Roger holds 92 shares in a registered company which is formulated by him in 2009, namely,
United. His wife is the secretary of the company (8 shares). Timothy (Rogers brother) was the
managing director of the company. In 2015, the company bought a machine from Industrial @
$60,000. However, the last installment due in 2017 of $20,000 is not paid.
It is submitted that Industrial cannot sue Roger for the last installment that is not paid by United.
When the company is formed by Roger, then, it I a separate legal entity in the eyes of law and
Roger, Mary and Timothy are only the officers of the company and cannot be held to be liable
for the acts that are undertaken by the company. As per (Salomon v A Salomon & Co Ltd
[1896], 1896), the company of Roger is distinct from Roger.
Thus, no action can be brought against Roger.
Issue 2
In 2016, Roger tries to indulge the business in explosive. The Legislation does not allow license
to person who are convicted and Roger was convicted once and thus is not permitted to carry out
the activities of explosives.

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So, Roger makes other company Explosive industries Pty Ltd with 99% shares and 1% to his
wife to carry out the business of explosives. It is submitted that the new company that is
incorporated by Roger was to deceive the legislative provisions and thus to incur fraud and
unfairness to the law. By, incorporating new company, Roger tries to defeat the provisions of the
Commonwealth provisos. Thus, as per (Peate v Federal Commissioner of Taxation , 1964) and
(Re Edelsten ex parte Donnelly , 1992), the veil of the new company must be pierced and Roger
and the new company (Explosive industries Pty Ltd) must be treated as one.
Thus, the Department of Industry can sue Roger for violating the legislative provisions and lift
the veil of the company, Explosive industries Pty Ltd considering the new company and Rogers
as one and single entity.
Conclusion
Industrial cannot bring any action against Roger as United is the distinct personality and Roger is
not accountable by the acts of United.
Thus, the Department is permitted to sue Roger by lifting the veil of the new company
‘Explosive industries Pty Ltd as the same was incorporated to incur fraud and sham in order to
defeat the legislative provisions of the company.

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BibliographyBarrow v CSR Ltd (1988) (Unreported) Supreme Court of Western Australia.
Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) FCA 266.
Balmedie Pty Ltd v Nicola Russo (1998) FCA 980.
Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 10 ACLC 253.
Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 (NSWCA.
Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 11 ACLC 84.
Hely-Hutchinson v Brayhead Ltd (1968) 1 QB 549.
N
orthside Developments Pty Ltd v Registrar-General ((1990) ) HCA 32 .
Peate v Federal Commissioner of Taxation (1964) HCA 84.
Perkins v National Australia Bank Ltd (1999). 30 ACSR 256
Pont, J. (2001).
Law of agency. Butterworths.
Re Edelsten ex parte Donnelly (1992) 18 FCR 434..
Salomon v A Salomon & Co Ltd [1896] UKHL 1.
Thampapillai, D., Tan, V., & Bozzi, C. (2015).
Australian Commercial Law. Cambridge University Press.
Tomasic, R., Bottomley, S., McQueen, & Rob. (2002).
Corporations Law in Australia. Federation Press.
Whiggs. (2018, April 4).
Actual and Ostensible Authority. Retrieved April 27, 2018, from
https://legallyunrobed.com/2018/04/04/actual-and-ostensible-authority/