Business and Corporation Law: Case Studies

This article provides case studies on business and corporation law covering topics such as law of agency, principle of usual authority, ostensible authority, and corporate veil.

Running head: BUSINESS AND CORPORATION LAW
Case studies
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer to question 1:......................................................................................................................2
First part:......................................................................................................................................2
Issue:........................................................................................................................................2
Rule:.........................................................................................................................................2
Application:.............................................................................................................................3
Conclusion:..............................................................................................................................3
Second part:.................................................................................................................................4
Issue:........................................................................................................................................4
Rule:.........................................................................................................................................4
Application:.............................................................................................................................4
Conclusion:..............................................................................................................................5
Third part:....................................................................................................................................5
Issue:........................................................................................................................................5
Rule:.........................................................................................................................................5
Application:.............................................................................................................................6
Conclusion:..............................................................................................................................6
Answer to question 2.......................................................................................................................6
Part 1............................................................................................................................................6
Issue:........................................................................................................................................6

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Rule:.........................................................................................................................................6
Application:.............................................................................................................................7
Conclusion:..............................................................................................................................7
Part 2:...........................................................................................................................................8
Issue:........................................................................................................................................8
Rule:.........................................................................................................................................8
Application:.............................................................................................................................9
Conclusion:..............................................................................................................................9
Reference:......................................................................................................................................10

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Answer to question 1:
First part:
Issue:
The main issue of the case is to determine the fact whether Terrance can make a claim
regarding the contract that has been made in between Sara and Gaby or not.
Rule:
The facts of the case are subjected to the law of agency (Cohen, 2017). According to the
principle of law of agency, principal gives certain rights to the agent so that they can enter into
certain contract with others on behalf of the principal and can represent him on behalf of
principal. One of the essential of the law of agency is that the agent shall have all the respective
authorities regarding the contract and he can make direct contract with the third party.
A close analysis of the Law of Agency showing the facts that in this case, two contracts
are made simultaneously. First contract is made in between the agents and the principal, where
the principal transferring certain contractual rights to the agent with the third parties. The second
contract has been made in between the agent and any third party. Therefore, it can be stated that
the law of agency consists of three parties that is the principal, agent and the third party. In this
case, delegation of power can be observed from the sides of principal and the matter regarding
the right of the agent in respect of a contract depends on the power that has been conferred by the
principle to the agent to this effect.
There are certain terms that have been used under this law of agency. A principle named
doctrine of undisclosed is one of the essential terms in this case. According to this principle, it

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has been observed that the third party always have the right to choose the contracting party. It
means he can choose whether he wants to make a contract with the principal or with the agent.
Further, it has been observed by the court in the case of Yin Kwan v, Eastern Insurance Co Ltd
[1994] 2 AC 199, in case the third party has no knowledge about the fact that the agent is
working on behalf of the principal, he can stepped ahead with the concept that the agent has all
the rights and capacity to make the contract. The principle of estoppels will be imposed in this
case. It is a well-known principle of law. According to this doctrine, a party is restricted to
withdraw any promise that he has made to other person and if that other party relies on the
promissory statement.
Application:
In the present case, it has been observed that Terrance has started a jewelry business and
Sara was working under him. Sara was a jewel designer and her appointment denotes the fact
that she can enter into any contract with third party. A contract has been made in between Sara
and Gaby regarding the making of certain jewelry and Gaby did not know about the fact that
Sara is working under Terrance. Therefore, Gaby has all the rights to choose the person with
whom he can enter into the contract. Further, Sara is under the obligation to deliver the jewelry,
as she could not reject the order under the concept of promissory estoppels.
Conclusion:
To conclude, it can be state that Terrance could not make any claim from Gaby; rather
Gaby can ask for the delivery of the contracted goods either from Sara or from Terrance.

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Second part:
Issue:
Regarding the second part, the main issue that has been cropped up is to determine
whether Terrance has any liability to pay Peter off regarding the Gold or not.
Rule:
The subject matter of the case is based on the concept of authority. According to the law
of agency, the scope of authority depends on the authority he gets from the principle. According
to the concept of actual authority, the agent can enjoy both the express and implied authority.
However, this case is depending on the principle of usual authority where the extent of the agent
regarding actual authority can be determined. It has been held in the case of
Watteau v. Fenwick (1893) 1 QB 346 that principal will be liable for the acts of the agent if that
acts of the agent exceed his actual authority. The same principle has been established in the case
of Edmunds v. Bushell & Jones (1865) L. R. I Q.B. 97. However, according to the general
provision of law, usual authority denotes the implied authority. This principle has been laid down
in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.
Application:
In this case, it has been mentioned that Peter had appointed Terrance as a supply
purchaser of Gold. It has been observed that Terrance was entered into a contract with Mary
regarding the transaction of Gold. It can be learnt from the case that Mary had supplied 50 Gram
Gold to Terrance. Considering the principle of usual authority, it can be stated that Terrance is

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obliged to pay the Gold amount to Peter according to the contention made in the case of
Edmunds v. Bushell & Jones (1865).
Conclusion:
Therefore, Terrance is liable to pay the amount of Gold money to Peter.
Third part:
Issue:
The fundamental issue in this case is to point out whether Terrance owes any
responsibility regarding the payment for the diamond to Gordon or not.
Rule:
One of the most important doctrines in case of law of agency is the concept of ostensible
authority. According to this doctrine, the third party can understand the fact that the agent is
working on behalf of the principal. The third party can assume that fact that the duties done by
the principal has authorized the agent. According to the principle, the principal is liable for the
action of the agent and the scope of principal’s liability extend up to the obligation where the
agent is not empowered to do the act either expressly or impliedly. The application of ostensible
authority sustains even in the absence of actual authority. However, according to this principle,
the effectiveness of the concept depends on the knowledge of the principal. According to critical
interpretation of ostensible authority, it can be stated that the principle will not be applied if the
agent has done certain acts without the knowledge of principal. According to the judgment made
in Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 63, the assumption of the
third party should be based on rational ground. According to this, the third party should have
reasonable ground to believe on the fact that the agent was working for the principal.

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Application:
A close analysis of the case states that Terence was the principal of Peter and Peter was
working on behalf of Terrance. This assumption was strong when Terrance was failed to unlock
the mail account of the business sent by Peter. Further, Gordon knew the fact that Peter is
working on behalf of Terrance but was unaware of the fact that he has been fired. Therefore,
there is every possibility for the application of ostensible authority.
Conclusion:
Terrance is liable to pay all the debts to Gordon.
Answer to question 2
Part 1
Issue:
The main issue of the case is to determine whether the Industrial Machine Ltd can sue
Roger personally for the failure of the company United Chemicals Pty Ltd. to pay the last
instalment.
Rule:
The subject matter of the case is based on the principle of separate liability of the
company. It is a common principle of company law that a company will not be personally liable
for the wrongful acts of the directors or any stakeholders. This principle has been established in
the historical case Salomon v Salomon & Co. In this case, it has been held that there is a
corporate veil present in between a company and the other stakeholders. According to this rule,
the identity of a company is required to be parted from the owner. It can be stated that the owner

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of a company could not be held liable for the debts of the company. It has been held in
Salomon’s case that the owner of a company can only be held liable for the price of share he has
been incurred by the company. The owner of a company is acting as a managing director and
major shareholder of the company. It has further been observed that no director should be held
personally liable for the acts of the company according to the rules of corporate veil.
However, if there is a possibility that the company has been incorporated for fraudulent
purpose, the concept of corporate veil will be pierced and both the director and the company will
be held liable for the fraudulent activities. In the absence of this, the principle of corporate veil
will be applied in all circumstances.
Application:
In the present case, it has been observed that Roger was a major shareholder in the
company and the principle of corporate veil will be applied in this case. According to the case
study of Salomon v Salomon, it can be stated that Roger will not be held personally liable for the
debts of the company on the ground that he is the major shareholder. Further, in this case, there
are no hints that can present the fact that the company has been incorporated for certain
fraudulent purpose. Therefore, the concept of corporate veil will be prevailed in this case.
Conclusion:
Therefore, it can be stated that Industrial Machine Ltd could not held Roger personally
liable for the debts of the company.

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Part 2:
Issue:
The main issue of the case is to find out whether application for the license from
Explosive Industry by Roger is valid or not.
Rule:
The issue of the case is based on certain provision of Constitution of Commonwealth of
Australia. According to Article 51 (xx), commonwealth parliament can legislate any rules that
can be applied to any trading and financial corporation and the provision can also be extended
further on the foreign institutions that have been incorporated within the territorial jurisdiction of
Australia. According to the judgment of Huddart, Parker & Co Ltd v Moorehead (1909), the
powers of the corporations are largely been neglected by this norms. Further, it has been stated
that there are certain limitations regarding the application of such power. The power of the
commonwealth can only be applied in case of existing companies. This principle has been
established in the case of New South Wales v Commonwealth (1990).
Under the common legal norms, company is a separate legal entity and could not be held
liable for any wrongful acts of the directors. However, the Company law has stated it that in case
a company has been incorporated for fraudulent purpose then the liability of the company will
not be excused and the notion of corporate veil will be pierced. Fraudulent purpose means
anything that attracts the provision of restrained to trade.

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Application:
In this case, Roger was held liable for manufacturing explosives in the company and the
same goes against the policy of Australian Commonwealth. Further, it has been observed that he
has incorporated another company fraudulently and transferred shares in it. Therefore, the
mentality of Roger regarding the incorporation of the company is bad and attracts the provisions
of restrained to trade. Therefore, it can be stated that the plea of Roger for obtaining license is
invalid and he ought not to allow by the ASIC for manufacturing the explosives in his company.
Conclusion:
Application for obtaining License should not be regarded as valid.

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Reference:
Cohen, G. M. (2017). Law and Economics of Agency and Partnership. The Oxford Handbook of
Law and Economics: Volume 2: Private and Commercial Law, 399.
Corporations Act 2001 (Cth)
Edmunds v. Bushell & Jones (1865) L. R. I Q.B. 97
Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 63
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
Huddart, Parker & Co Ltd v Moorehead (1909)
New South Wales v Commonwealth (1990)
Salomon v Salomon & Co
Watteau v. Fenwick (1893) 1 QB 346
Yin Kwan v, Eastern Insurance Co Ltd [1994] 2 AC 199