Corporate Law - Assignment Sample

Running head: CORPORATE LAW 0
Business Law and Corporate Law

CORPORATE LAW 1
Question 1
Issues
Did Gabby and Terence enter into a contract even though Sara did not tell Gabby that
she works for Terence?
Is Terence liable to pay to Mary even though he told Peter not to purchase any more
gold? Is a contract exists between parties?
Can Gordon demand the money from Terence even though Peter did not have the
authority to book orders for Terence? Is a contract exists between parties?
Law
An agency is referred to an agreement which is constructed between two parties in
which one party is the principal, and another is the agent (CSU LAW504 Modules, 2018,
Topic 12). By entering into an agency agreement, the principal transferred the authority to the
agent and based on such authority the agent can enter into legal agreement with third-parties
on behalf of the principal. While entering into a contract, it is necessary that the agent
disclose his agency to the party of the contract. If the agent does not disclose the agency, then
the principal cannot be held personally liable by the contracting party. However, the doctrine
of undisclosed principals provided that even if the agent failed to disclose his agency, a legal
contract created between principal and the contracting party. In this case, the third-party has
the right to make selection based on doctrine of election in which the party can enforce either
agent or principal to perform the terms of the contract. The example of undisclosed
principal’s liability was given in Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199
case. As per the facts of this case, a company purchase insurance policy for its employees.
When one of its employees died his representatives filed for a claim, however, the insurance
company denied the claim by stating that they contracted with the company. The court
provided that the corporation acted as an agent for the employee and based on the doctrine of
undisclosed principal the insurance company is liable to pay the claim money to the
representatives of the employee.
The authority which enables an agent to take actions for his/her principal is divided into three
parts: actual, ostensible and authority of necessity. Each of these authorities assists the agent
in performing his/her duties. The actual authority is further categories into two parts: express

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and implied authority. In case of express authority, the principal provides the authority to
his/her agent either orally or in writing (CSU LAW504 Modules, 2018, Topic 12). In case of
implied authority, the principal did not directly provide the authority to the agent whereas the
authority is included in the scope of the agent’s duties. This authority is given to the agent by
his/her title or post, and it is referred to the authority which he/she required to perform his
duties (Thampapillai, Bozzi, Tan & Matthew, 2015, pp. 142-144). The principle of implied
authority was implemented by the court in Watteau v Fenwick (1893) 1 QB 346 case. In this
case, Fenwick was the owner of a pub, and he hired Humble as its manager to perform its
daily activities. Fenwick said to Humble that he shouldn’t purchase anything for the pub
other than bottled ales and mineral water. However, Humble entered into a contract with
Watteau for purchasing cigars for the pub. Watteau later find out that the real owner of the
pub is Fenwick and he sued him to claim the remaining amount for cigars, however, Fenwick
argued that Humble did not have the authority to purchase cigars. The court provided that
Fenwick is liable to pay to Watteau because Humble had implied authority to enter into the
contract on behalf of the pub because he was acting as the manager.
Ostensible authority is also called apparent authority, and it is different from actual
authority. In this case, the principal did not provide an actual authority to the agent, however,
he/she represent to third-parties that the agent can enter into a legal agreement on his behalf.
The example of ostensible authority was given in Freeman & Lockyer v Buckhurst Park
Properties (1964) 1 ALL ER 630 case. As per the facts of this case, a director (Kapoor) was
allowed by other board members to take actions as Managing director in some situations
however he was not appointed on the post. He contracted with architects to work on one of
the company’s projects. Later, the board of directors argued that Kapoor did not have the
authority to act as the MD of the company. But, the court provided a judgement that the
board allowed Kapoor to act as MD in meeting of the corporation which is enough for third-
parties to assume that Kapoor has the authority to act on behalf of the corporation, therefore,
the contract is valid (CSU LAW504 Modules, 2018, Topic 12).
Application
While entering into a contract, it is necessary that the agent disclose his agency to the
contracting parties. However, as per the doctrine of undisclosed principals, the principal can
be bound as per the terms specified in the contract even if the agent. Sara failed to tell Gabby
that she work for Terence and she entered into a contact with her. Based on the provision of

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undisclosed principals, Terence and Gabby have entered into a valid contract because Sara
was working on behalf of Terence. As per the doctrine of election, Gabby can choose
whether to sue Sara or Terence in case the parties did not comply with the terms of the
contract.
A valid contract has established between Mary and Terence because Peter has implied
authority. Terence hired Peter to work as a supplies purchaser and in order to perform his
tasks, Peter required authority to make purchasing decision for Terence. Through Terence
told Peter that he should only purchase silver, however, it did not restrict his authority. In
Watteau v Fenwick (1893) 1 QB 346 case, the court held the owner is bound by terms of the
contract which was constructed by the manager even when he told him not to purchase cigars.
Similarly, Peter has implied authority, and Terence is bound to pay the unpaid amount to
Mary.
In case of Gordon and Terence, a valid contract exists between the parties based on
ostensible authority. Peter has dealt with Gordon before, and he used his unauthorised access
to the company’s email system to book order with him. The failure of Terence to stop Peter’s
access is enough for third-parties to assume his authority to act on behalf of Terence. As
given in Freeman & Lockyer v Buckhurst Park Properties (1964) 1 ALL ER 630 case, the
principal is bound by the terms of a contract even if the agent did not have any authority if he
or she represents to others that the agent has such authority. Therefore, Gordon can sue
Terence for unpaid amount because a contract exists between the parties.
Conclusion
Gabby has entered into a contract with both Sara and Terence based on the provision
of undisclosed principal. Gabby can choose between either Sara or Terence based on doctrine
of election to perform the terms of the contract.
Mary has entered into a contract with Terence because Peter has implied authority to
act as the supplies purchaser for Terence. Therefore, Mary can file a suit against Terence if he
did not comply with the terms of the contract.
Gordon and Terence have entered into a legal relationship because of the provision of
ostensible authority. Gordon can demand money from Terence because a contract exists
between the parties.

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Question 2
Issues
Can Industrial Machines Ltd demand money from Roger as he is the majority
shareholder of United Chemicals Pty Ltd?
Does Roger have solid arguments to change the decision taken by the department for
cancelling the explosive manufacturing licence application of his company?
Law
The provisions relating to corporations operating in Australia are given by the
Corporations Act 2001. According to section 119 of the act, a company is incorporated after
its registration. The act provides attributes of a corporation which include limited liability of
owners, a separate personality, perpetual succession, ability to hold property under its name
and capacity to sue or be sued. Salomon v Salomon & Co Ltd (1897) AC 22 is a leading case,
and its judgement established the principle of limited liability of separate personality. In this
case, Salomon started a new company by transferring the assets of its sole proprietary
business. The company issued shares and debentures to Salomon for his capital. The
corporation failed after some time, and during the time of its liquidation, unsecured creditors
did not receive their money whereas Salomon was paid by the corporation since he was a
debenture-holder (CSU LAW504 Modules, 2018, Topic 14). The unsecured creditors filed a
suit against Salomon by arguing that the debentures are a scam and the company is the agent
of Salomon as he is the majority shareholder. Judgement was given by the House of Lords
which provided that information about the debentures is given in the public documents of the
company and a corporation is not the agent of the majority shareholder. The corporation has
separate personality therefore, Salomon cannot be held personally liable.
The owners of a corporation have limited liability as per which the court cannot use
their personal properties for paying off the debts of the firm (CSU LAW504 Modules, 2018,
Topic 14). Furthermore, the owners did not have any liability based on the actions taken by
them for the company which is called a corporate veil. However, in certain circumstances, the
court can hold directors or owners personally liable for actions of the company based on the
doctrine of the lifting of the corporate veil (Nosworthy, Hall, Sepnder & Bottomley, 2017,
pp. 77-78). The court used the doctrine of lifting of corporate veil in Daimler Co v

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Continental Tyre and Rubber Co (1916) 2 AC 307 case. Around the time of World War I, the
British government prohibited trading with Germans. In order to bypass this rule, a
corporation was incorporated in the United Kingdom called Continental Tyre and Rubber Co
in which all shareholders were German, and the secretary was English. The court
implemented the doctrine of the lifting of corporate veil and provided that the company is
incorporated to bypass the law, therefore, trading with the corporation is prohibited because
the company constituted as an enemy.
Application
United Chemicals Pty Ltd has a separate personality from the people who own its
share, and they cannot be held liable for its liabilities. The company failed to pay the final
instalment to Industrial Machines Ltd, and its board demanded money from Roger because he
holds the majority of shares in the company. However, as provided by the court in the
judgement of Salomon v Salomon & Co Ltd (1897) AC 22, a company has separate
personality from its owners. Therefore, Roger did not have to pay the final instalment of the
machine which was bought by his company.
Roger was convicted as a theft due to which he was unable to get the licence for
explosive manufacturing because the law prohibits issuing of the licence to any person who
has a criminal conviction. In order to bypass the law, Roger incorporated Explosive
Industries Pty Ltd in which he holds the majority of shares which means he has controlling
rights of the corporation. As given in the judgement of Daimler Co v Continental Tyre and
Rubber Co (1916) 2 AC 307 case, the court can lift the corporate veil if a company is
incorporated to bypass the law. Therefore, Roger cannot change the decision of the
department for not issuing Explosive Industries Pty Ltd the licence for explosive
manufacturing.
Conclusion
Roger cannot be held personally liable because the company has a separate
personality from its owners.
Roger has incorporated a new company to bypass the law; therefore, based on the
lifting of corporate veil principle, he cannot change the decision of the department.

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References
Bottomley, S., Hall, K., Spender, P. & Nosworthy, B. (2017). Contemporary Australian
Corporate Law. Cambridge: Cambridge University Press. pp. 77-78.
CSU LAW504 Modules, 2018, Topic 12
CSU LAW504 Modules, 2018, Topic 14
Daimler Co v Continental Tyre and Rubber Co (1916) 2 AC 307
Freeman & Lockyer v Buckhurst Park Properties (1964) 1 ALL ER 630
Salomon v Salomon & Co Ltd (1897) AC 22
Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199
Thampapillai, D., Bozzi, C., Tan, V. & Matthew, A. (2015). Australian Commercial Law.
Cambridge: Cambridge University Press. pp. 142-144.
Watteau v Fenwick (1893) 1 QB 346