Business and Corporation Law : Assignment

Added on - 30 May 2021

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Question 1IssueThe aim of the case is to determine whether there is any contract between principal (Terence)and third party (Gabby, Mary, Gordon) on the account of the contract enacted by agent (Sara,Peter).LawAgency law would be taken into consideration when the objective is to determine therelationship among agent, principal and third party. As per agency law, the agent is supposedto work on behalf of the principal based on the authority delegated by principal. This agencyrelationship provides the rights to the agent to enact contract for the concerned principal. Inthis regards, it is essential that agent must possess the necessary authority to enact contracts.This authority can be implied or express. When the principal has explicitly granted the rightsto work on behalf of the principal, then it would be categorised as express authority.However, in case of implied authority the sphere of the authority would be presumed onbehalf of the third party after taking the note of the conduct of the principal towards his/heragent (Pentony, et.al., 2013).Also, the case when the agent does not have any of the authority (implied or express) and stillhas represented the principal, then based on the indoor management rule, the rights of thethird party will remain safeguarded and hence, the principal has to complete the contractualobligations. However, the critical part is that the third party must not have any clue regardingthe lack or absence of authority of agent and in good faith, the third party should have createdlegal relation with agent. The decision announced inRoyal British Bank v Turquand(1856) 6E&B 327 case is the witnesses of this fact(Latimer, 2016).However, it is pivotal that the above immunity would not be extended when the third partywas well aware regarding the absence of agent’s authority and still enacted the contract withagent. In such cases, the indoor management rule would not provide any rights to third partyto sue principal for not completing the contractual liability. This is because the contract madeby agent with the third party become void and hence, would not be enforceable on theprincipal(Vermeesch & Lindgren, 2011).
According to the general rule, it is essential that when the principal has revoked authority ofthe agent, then the principal must inform the external parties regarding the withdrawal. Thisis because there is significant possibility that agent would contact the external party and enactcontracts and work fraudulent on behalf of the principal. Further, if the external party doesnot get any clue from outside and make legal relations with agent based on the belief thatagent is representing the principal, then the contractual liability would arise on principal. Theverdict cited by honourable court inFreeman& Lockyer v Buckhurst Park Properties[1964]2 QB 480 case is the relevant evidence in this regards(Taylor & Tayor, 2015).According to agency law, when the respective agent has not obeyed the instructions offeredby the principal or makes any secret gains by acting for self-interest, then the principal has allthe legal rights to sue the agent for violating the fiduciary duties and also the principal canrecover all damages suffered.Application1.Terrence (Principal), Sara (Agent), Gabby (External party)Terence is the principal who has asked Sara to make designs for his Jewellery business andalso to make contracts with external parties. Sara has visited a customer Gabby and hasdisplayed several designs of brooch. Finally, Gabby has selected a particular design of broochwith cost of $1000 and has enacted a contract with Sara. It is essential to note that Gabbydoes not have any clue that Sara has working for Terence and hence, in good faith has enteredinto legal relations. It is apparent that Sara was working as agent on Terence behalf and thus,the contractual liability to design a brooch of worth $1000 of the selected design would be aliability for Terence. An enforceable contract present between Terence and Gabby.2.Terrence (Principal), Peter (Agent), Mary (External party)Terence has granted the authority to Peter for enacting contract with external parties.However, Terence has specifically asked not to order gold for the company because theyalready have excess amount of gold. Irrespective of this instruction, Peter has agreed topurchase gold worth $1500 from Mary. Also, Mary was unaware of the aspect that Terencehas strictly said no to purchase gold and therefore, under the relevance of indoor managementdoctrine, the parties Mary and Terence are bound in an enforceable contract. If Terence
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