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1Solution 1Issuesi.Whether Terence can enforce the contract that is established amid Sara and Gabby?LawThe 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 whenentrust some of his authority to another person (agent) who carries out the tasks within suchauthority and establishes relationship with third parties, then, any action that is taken by such anagent is binding upon the principal[ CITATION Pon01 \l 1033 ].The main elements to make a valid agency are:[ CITATION Tha152 \l 1033 ]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 theprincipal;iii.That the principal is bound by the acts that are undertaken by the agent within theentrusted authorityNow, an authority can be defined under various heads:[ CITATION Whi18 \l 1033 ]i.Actual Authority – An actual authority is the authority that is granted by a principal toan 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 isgranted to an agent by words of mouth or in written form, but, there is some sortof express action that is taken by the principal[ CITATION Nor904 \l 1033 ];[ CITATION Per991 \l 1033 ];b.Actual implied authority – An implied authority is the authority that comes alongwith the express authority and comprises of authority that the agent is permitted toundertake while carrying out the tasks that are expressly allocated to him[ CITATION Equ936 \l 1033 ]and[ CITATION Bri921 \l 1033 ]ii.Ostensible authority – The authority which is not expressly provided to the agent butthe principal do some overt act in front of the third parties which makes the third
2party to believe that the agent does possess the authority that is granted to him by theprincipal. Thus, any act that is undertaking by an agent within the ostensible authorityis considered to be binding upon the parties and the principal is held liable for thesame[ CITATION Hel686 \l 1033 ].Further, any outsider when dealing with the agent on the pretext that the agent does possess theactual authority to bind the principal by his act which in reality the agent cannot, then, any actthat is undertaken by an agent with the outsider is binding upon the principal provided theoutsider is not aware of the defect, that is, the agent does not possess the requite authority and isdealing with the agent in good faith.The law is now applied.Application of LawTerence establishes a business ‘Terry’s Terrific Design’. Peter and Sara are appointed byTerence.Sara is assigned the authority to make designs for Terence and Peter is authorized to acts as asupplies purchaser.Transaction amid Sara and GabbyGabby wanted that Sara must design a brooch for him. Sara shows several designs to Gabby butforget 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 andsubmitted 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 herto make design for Terence. There is no authority that is granted to Sara wherein she can enterinto contracts on behalf of Terence.Thus, Sara acted beyond the authority that is granted to her and thus the contract that is madeamid Sara and Gabby is not bound upon Terence.Transaction amid Peter and Mary
3Peter 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 andnot gold. However, Peter buys gold from Mary (with whom Peter had entered into contracts onbehalf 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 permittedto purchase gold. However, Terence has made no efforts to communicate to Mary that Peter isnow not authorize to buy gold. Thus, by not communicating, Terence has made a representationthat 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 GordonPeter was fired by Terence but no communication of the same is made and Peter computersystem was shut down only on Thursday. But, prior to that Peter has bought diamonds fromGordon (Wednesday). It is submitted that by not shutting the system of Peter and not lettinganyone know that peter is not the agent of Terence any more, Terence has granted an ostensibleauthority to Peter.So, the contract with Gordan is valid.ConclusionThe contract amid Gabby and Sara will not bound Terence and thus Gabby is not obligated topay anything to Terence.Mary and Gordan can sue Terence for the contract with Peter as the same is valid underostensible authority.Solution 2Issuei.Whether Industrial Machine Limited sue Roger for the last installment that is not paidby United Chemicals Pty Ltd?ii.Whether Department of Industry can sue Roger for violating the legislative provisionsand lift the veil of the company, Explosive industries Pty Ltd?