(Solution) Business and Corporations Law- Assignment
Added on 2021-06-18
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BUSINESS &CORPORATIONS LAWSTUDENT ID:[Pick the date]
Question 1IssueThe key objective is to tender legal advice to Terence in relation to the following issues.Whether a legal contract exists between Gabby and Terence with regards to $ 1,000brooch?Is there an enforceable contract between Terence and Mary in relation to sale of gold?Whether Gordon has an enforceable contract with Terence in relation to sale ofdiamonds?RuleThe branch of law which deals with agency relationship is known as agency law. In agencylaw, the principal delegates some authority to the agent and the latter is supposed to act in theinterest of the principal. One of key functions of the agency relationship is to allow the agentto enter into contracts on behalf of principal. A crucial element in this regards is presence ofauthority with the agent (Davenport & Parker, 2014). This authority may be express orimplied. Express authority refers to the authority that the principal has explicitly granted tothe agent. Apparent authority refers to the sphere to authority that is perceived by the thirdparties on account of the conduct of the agent. It is expected out of the agent that they mustexecute contracts considering the authority provided by the principal (Gibson & Fraser,2014).However, at times contracts are entered into by innocent third parties when the agents do nothave the requisite authority. In such cases, it is imperative to safeguard the rights of theexternal parties which can be carried out on the basis of indoor management doctrine (Carter,2012). The relevant case which forms of basis of this protection extended to third party undercommon is Royal British Bank v Turquand (1856) 6 E&B 327 case. The key aspect whichhas been highlighted through this case is that if the outside party enters into contractualrelation with a company or principal, then the contract cannot be termed void on the basisthat the agent executing the contract lacked the requisite authority or was acting in a mannernot consistent with the directions of the principal (Taylor & Taylor, 2015). However, anexception to this rule is when the third party is aware or has reasonable suspicion about thefraudulent conduct of agent or lack of authority but still goes ahead and executes the contract.
The above common law protection has been extended in the form of Corporations Act 2001where s.128 and s.129, are relevant. In accordance with s. 129, a third party while entering incontractual relation with a company can assume that the concerned agent representing theprincipal has the necessary authority for executing the contract. In accordance with s. 128(3),the innocent third party can also hold the assumption even when the agent is intentionallyacting in a fraudulent manner. Further, s.128(4) highlights that the assumptions would not bevalid if the third party is aware or has reasonable doubts about the agent lacking authority forenactment of the contract (Paterson, Robertson & Duke, 2015).As a general rule, the principal needs to inform the outside parties with regards towithdrawing the authority to a particular agent. In the absence of such communication, it ispossible that the agent may contact the third party which may enter into contractual relationbased on the explicit or apparent authority possessed by the agent representing the principal(Gibson & Fraser, 2014). In such cases, the principal would be bound by the contract owingto the doctrine of indoor management as is apparent from the verdict in the Freeman&Lockyer v Buckhurst Park Properties [1964] 2 QB 480 case (Carter, 2012).Application In the given case, Terence is the principal and Peter & Sara are the agents appointed byTerence. Based on the given facts, Sara has enacted a contract with Gabby for a $1,000brooch. Since Sara visited Gabby as an agent of Terence and additionally also informedTerence about the order, hence it is apparent that there is a contract between Gabby andTerence. This is because the contract enacted by Peter has been on behalf of the principalTerence only. Therefore, an enforceable contract does exist between the two.In relation to transaction between Peter and Mary, it is apparent that on account of theprevious dealings with Peter, Mary was aware that Peter had the requisite authority to enactcontract with regards to purchase of gold. Also, the instruction given by Terence to Peterregarding not buying gold is not known to Mary. As a result, in line with the doctrine ofindoor management, the interest of Mary would be protected irrespective of the fact that Peterdisobeyed the instructions given by Terence (principal). Hence, an enforceable contract existsbetween Mary and Terence for sale of gold.
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