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Running Head: BUSINESS LAW
BUSINESS LAW
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1BUSINESS LAW
Table of Contents
Question 1........................................................................................................................................3
Issue 1..........................................................................................................................................3
Relevant Law...............................................................................................................................3
Application..................................................................................................................................4
Conclusion...................................................................................................................................4
Issue 2..........................................................................................................................................4
Rule..............................................................................................................................................4
Application..................................................................................................................................5
Conclusion...................................................................................................................................5
Issue 3..........................................................................................................................................5
Rule..............................................................................................................................................6
Application..................................................................................................................................6
Conclusion...................................................................................................................................6
Answer 2..........................................................................................................................................7
Issue 1..........................................................................................................................................7
Rule..............................................................................................................................................7
Application..................................................................................................................................8
Conclusion...................................................................................................................................8
Issue 2..........................................................................................................................................9

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Rule..............................................................................................................................................9
Application..................................................................................................................................9
Conclusion.................................................................................................................................10
Conclusion.................................................................................................................................10

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Question 1
Issue 1
The issue which has to be analyzed as per the facts provided in the case study is in relation to
agency law. The law needs to be applied to analyze the rights of Gabby to chose the person
which whom he wants to contract
Relevant Law
The relationship between an agent and a principal is governed through the law of agency
according to the provisions common law. The general notion at common law is that all activities
which an agent indulged into make the principal legally bound to such activities. The activity has
to be conducted in the course of business as per Watteau v Fenwick [1893] 1 QB 346. The person
who is carrying out the activity on behalf of the principal has to have authority provided to him
by the principal through the principles of Actual and apparent or ostensible authority. Thus only
if authority has been conferred by the principal to the agent can the principal be liable for the
actions of the agent.
In the landmark case of Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 the court had
established the doctrine of election. Under this rule the third party whose rights have been
violated have the right to select the person from whom they want to make the claim. This occurs
when the principal is undisclosed. The doctrine is applicable in the situation where the third
party whose rights have been violated does not have knowledge that person with whom they
were contracting were actually the agent of another person. In the situation the party has the right
to choose the person from whom the performance can be demanded.

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Application
In the given situation it has been provided through the facts of the case study that Sara who is the
agent of Terence has demonstrated a sample to Gabby. Based on the sample Gabby wanted to
purchase the product and placed an order to Sara. Gabby did not know that Sara is the agent of
Terence. In the situation Terence had made a claim from Gabby in relation to the formation of
contract with him. As per the doctrine of election as Gabby does not know that Sara is the agent
of Terence she has the right to chose with whom she wants to get into the contract. Thus in the
given situation she has the right to claim the performance of the contract from Sara rather than
Terence.
Conclusion
Gabby has the right to select with whom she wants to get into the contract
Issue 2
The issue here is to identify the liability of Terence in relation to Mary for the contract which has
been entered upon into by peter
Rule
In the case of Great Northern Railway Co. v Swaffield (1874) LR 9 Ex 1 it had been ruled by the
court that where the agent has exceeded the authority which has been provided to him by the
principal and have entered into a transaction with a third party who does not have the knowledge
that the agent is acting outside the authority provided to him and relies on the notion of the
agency to get into the contract has a right to make a claim in relation to the contract from the
principal.

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In one of the landmark case of Watteau v Fenwick [1893] 1 QB 346 it was ruled by the court
that any act which is done by the agent in the general scope of authority is binding on the
principle irrespective of any limitation which has been imposed on the agent by the principal
where is the third party does not have any knowledge about such limitation.
Application
It is clearly provided in the scenario that Peter is the agent of Terence. In the general course of
authority Peter used to purchase gold for Terence. It has also been stated that Peter has been
instructed by Terence not to purchase any further gold. In spite of the restriction Peter has
purchase full form Mary. In the given situation if the principles of the case of Irvine & Co v
Watson & Sons are applied it can be stated that even when Peter has exceeded the authority
which has been provided to him by parents and have entered into a transaction with Mary who
does not have the knowledge that peter is sitting outside that already provided to him by Terence
and relies on the notion of the agency between Terence and peter to get into a contract has the
right to make a claim in relation to the contract against Peter. In addition this may be further
established as any limitation on the authority of the agent while performing his general duties
does not make the contract entered into with a third party invalid as per Watteau v Fenwick.
Conclusion
The contract with Peter has entered up on with Mary is binding on Terence.
Issue 3
Whether the application of agency law makes Terence liable to pay and Gordon

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Rule
In the case of Great Northern Railway Co. v Swaffield (1874) LR 9 Ex 1 it had been stated by the
court that there is no liability which the principal has once the contract of agency with the agent
has been terminated. However it is the duty of the principal to notified by reasonable means any
third party associated with the business that the agency of the agent has been terminated. In case
the principal has failed to notify the third parties about such termination and the third party
innocently enter into a contract with the agent relying on the agency with the principal the
principal is bound to the contract with the third party.
Application
In the given situation it has been provided that Gordon has called Terence to inform that is
entitled to receive $5,000 from him Peter has entered into a contract on his behalf and collected
diamond work the same money. This situation took place on Tuesday where is Peter has already
been terminated by Terence on Monday. In the given situation through the application of the case
of dash it can be stated that where Tailors has terminated the agency of Peter on Monday it was
his duty to notify the third parties who are associated with the business Peter is no longer is
agent. However Terence has failed to do so. In the given situation the contract has been entered
upon by Gordon relying upon the agency between Terence and Peter. Therefore in the given
situation it is the liability of Terence to pay Gordon the amount of $5,000.
Conclusion
Terence is bound to the actions of Peter.

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Answer 2
Part A
Issue 1
Whether Rodger is liable to pay the overdue installments in his personal capacity?
Rule
In the Landmark case of Solomon v A Solomon & Co. (1897) AC 22 the defendant owned 99
shares in the company only one share had been provided to his son. The company carried out
business in relation to footwear. A loan had been provided by the defendant who was the
majority shareholder of the company to the company itself. The business of the company did not
go well and it started to incur debts from various creditors. Upon liquidation one of the creditors
of the company sued the defendant in his personal capacity to recover the sum which company
owed to him. The court rejected the claim of such predators stating that the identity with a
company gets while being lawfully incorporated is different from the identity of the
shareholders.
In another case of Macaura v Northern Assurance Co Ltd [1925] AC 619 it has been stated by
the court that there is a corporate veil between the owners of the company and the company. The
court in this case held that when a company has been duly incorporated in compliance of
company law provisions and there is no fraudulent intention behind the formation of the
company the corporate veil cannot be pierced and the liability of the company is different from
its owners. The owners are to be held liable in case of winding up of the organization to the
extent contributions had been made by them in relation to the shares of the company.

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In the case of Lee v Lee’s Air Farming [1960] UKPC 33 the principles of artificial legal
existence of the company had been discussed. The court in this case held that the owner of the
company who was also its employees was entitled to employee compensation fund.
Application
In the given situation the facts provided are similar to the Solomon case. Here roger owns 92
shares of the company. The company has taken purchased a machinery on installments which
were to be paid over a period of three years. In the first year the company was able to do good
business and thus was able to pay the installments. However the business was not as good in the
next year and thus the company was not able to pay the installments. In the given situation the
seller knowing that Roger is rich attempts to sue him directly. However the claim of roger will
not be successful as it was in the Solomon case in relation to the creditor. This is because when a
company has been duly incorporated in compliance of company law provisions and there is no
fraudulent intention behind the formation of the company the corporate veil cannot be pierced
and the liability of the company is different from its owners. There was no fraud on the part of
Roger towards forming the company. The position can be affirmed by applying Macaura v
Northern Assurance Co Ltd where the court stated when a company has been duly incorporated
in compliance of company law provisions and there is no fraudulent intention behind the
formation of the company the corporate veil cannot be pierced and the liability of the company is
different from its owners. The owners are to be held liable in case of winding up of the
organization to the extent contributions had been made by them in relation to the shares of the
company. Thus Roger cannot be personally liable.
Conclusion
Thus Roger cannot be personally liable for the liability of the company.

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Part B
Issue 2
Whether the attempt of Roger to form the company has been correctly rejected
Rule
The Corporation Act 2001 (Cth) governs corporate law in Australia. It has been stated via the
provisions of section 117(1) of the CA that the form 201 has to be duly filled by the person who
wants to register a company and such application is to be made to the Australian Securities and
Investment Commission. The application has to comply with the provisions of section 117(2) of
the CA.
Under the provisions of this section the directors have to notify the ASIC in their application the
proposed name of the company, the type of company to be formed like public or private, details
of the members of the company, the details of the directors, copy of constitution, consent forms,
details of share capital, alternative name and address of the proposed company.
Application
It has been provided through the case study that Roger has been convicted of a crime. It has been
further provided that the Commonwealth registration provides that any person who has a
criminal record cannot indulge in forming an explosive company in Australia. In the given
situation Rodger has initiated of fraudulent plan through which he would hold the maximum
number of shares in the company and name someone else as the director. It is prima facie evident
to the ASIC that the maximum number of shares held in the proposed company belongs to Roger
who is having a criminal conviction. This is because Rodger had to submit his details through
the form 201 to the ASIC. Therefore as the motive of the formation of the company is illegal and

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this is prohibited by law the ASIC has the right to reject the claim of company formation which
has been made by Rodger.
Conclusion
It has been further provided that the Commonwealth registration that any person who has a
criminal record cannot indulge in forming an explosive company in Australia. In the given
situation Roger has initiated a fraudulent plan through which he would hold the maximum
number of shares in the company and name someone else as the director. It is prima facie evident
to the ASIC that the maximum number of shares held in the proposed company belongs to Roger
who is having a criminal conviction. This is because Rodger good had to submit his details
through the form 201 to the ASIC. Therefore as the motive of the formation of the company is
illegal and t prohibited by law the ASIC has the right to reject the claim of company formation
which has been made by Roger.
Conclusion
The ASIC has the right to reject the claim of company formation which has been made by
Rodger.

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References
Corporation Act 2001 (Cth)
Lee v Lee’s Air Farming [1960] UKPC 33
Macaura v Northern Assurance Co Ltd [1925] AC 619
Solomon v A Solomon & Co. (1897) AC 22
Watteau v Fenwick [1893] 1 QB 346
Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199