Business and Corporations Law (pdf)

BUSINESS AND CORPORATIONS LAW
ASSIGNMENT
STUDENT ID OR NAME
[Pick the date]

Question 1
Issue
The major issue in the present case is to determine the presence of any enforceable contract
between Terence and outsider parties named Gabby, Mary and Gordon on the account of the
contract enacted by agent Sara and Peter respectively.
 Sara enacted a contract with Gabby to design and sell a brooch of elephant shape worth
$1000
 Peter enacted a contract with Mary to buy gold for jewellery worth $1500
 Peter enacted a contract with Gordon to buy diamond for jewellery worth $5000 and has
disappeared to South America and has not informed Terence
Law
Agent is a person who has received the authority and rights from the principal to deal with
external parties in the name of the principal. The associated rights and obligations of this
relationship are discussed in a special law called agency law. There is a possibility that agent
would not complete the fiduciary duties and work against the instructions given by principal.
In such case, the principal can sue the respective agent and claim for the incurred damages
(Pendleton & Vickery, 2005).
The agent would receive either of the below highlighted authority from the principal.
 Apparent authority
 Express authority
There may be instances where the principal has not specifically announced or directed the
authority to the agent but has presented such that the external party would believe that agent
has the power to enact contract on the part of principal. In such condition, the authority would
not be given but is present and hence, would be termed as apparent/implied authority. The
case where the principal has clearly directed the authority to agent, then it would be called as
express authority (Edlin, 2007).
According to the highlights of agency law, the principal is liable for the contracts executed by
the agent only when the external parties have entered into contractual relation in good faith
under the assumption that agent has the authority to enact contract on behalf of principal. The

contractual relationship would occur between principal and external party but not between
agent and external party. This is because the agent is the representative of principal and
therefore, the contract would be enforceable between principal and third party not with the
agent (McKendrick, 2003).
There is a critical aspect that when the agent does not possess the authority to create legal
contractual relationship with the external party but subsequently enacts contract with the third
party, then the following aspects would be taken into account (Harvey, 2009).
 Whether the external party is aware about the agent not possessing the authority to
execute contract on the part of principal.
According to the judgement given by honourable court in Royal British Bank v Turquand
(1856) 6&B 327 case, the indoor management doctrine principal would validate such
transactions and the principal is bounded with the contractual duties that have arisen by the
contract created by agent. This is because third party does not know about lack of authority
and entered into contract in good faith (Gibson & Fraser, 2014).
 Whether the external party has any clear suspicion or doubt regarding the aspect that the
agent lacks the authority to enact contract on the part of principal.
 Whether the external party knows that the agent does not possess authority to enact
contract but still creates legal relationship with agent.
According to the judgement given by honourable court Freeman& Lockyer v Buckhurst Park
Properties [1964] 2 QB 480 case, the indoor management doctrine principal would not be
valid and the principal is not bounded with the contractual duties in such contracts.. This is
because third party already knows that agent does not possess authority and still has entered
into contract (McKendrick, 2003).
Application
Terence is the owner of Terry’s Terrific Designs Company and has appointed Sara and Peter
In first case, Terence has provided authority to Sara to work as an agent on his behalf. Gabby
is a customer who is willing to purchase designer brooch and therefore, agent Sara has met
Gabby and finalized a design with a consideration of $1000. It is apparent that Sara is not
enacting contract for herself because she is representing Terry.. Hence, an enforceable
contract is formed between Terence and external party Gabby.