University Law Assignment: Law of Agency and Company Incorporation

This law assignment delves into two primary areas: the law of agency and company incorporation. The first section examines agency law, focusing on the relationship between principals and agents, duties of agents, and the concept of ostensible authority. It analyzes scenarios involving undisclosed principals, agent responsibilities, and contract breaches, referencing relevant case law. The second section explores company incorporation laws, specifically addressing shareholder liabilities, breach of contract, and compliance with the Corporations Act 2001. It investigates issues of contract breach, shareholder obligations, and the impact of Commonwealth legislation, including the role of the Australian Securities and Investment Commission (ASIC). The assignment provides a detailed analysis of the legal principles and their application to the given factual scenarios.

Running head: LAW OF AGENCY
Law of agency
Name of the student
Name of the University
Author Note

1LAW OF AGENCY
ANSWER TO Q1
Issue: T
he case at hand in the present scenario is concerned with agency laws. Agency law is
invested in the relation between an agent and a principal. In this case Terrence is the principal
and Sam and Peter are the agents. The relation between Terrence and Sara is divided into two
conflict situations that need the involvement of agency law.
First dealing with Sara, the issue in the present case is whether Sara is within her duty to
inform any third party about the position she holds as an agent to Terrence. The issue is whether
an agent is duty bound to inform any third party regarding the relationship that exists between
the principal and the agent? Coming to the issue of Peter, the question is whether an agent is
within his duty to follow the instructions of the principal. The issue with Peter is again
subdivided into a clause of termination, that is, in the present case, whether the proper
termination has been done by the principal. Along with termination, another issue that needs to
be settled is whether Terrence has to pay the amount to Gordon that was agreed between Gordon
and Peter.
Relevant Rule/Law:
Here Terrence is the principal and Peter and Sara are the agents who are governed by the
law of agency and are answerable to the principal. Australia being a common law country, are
widely influenced by the laws of United Kingdom (Mitnick, 2015). Here the parties will be
governed by the rules of agency and the relationship existing between the parties are that of
agent and principal.

2LAW OF AGENCY
Just like contract law, agency law also functions on the principle of an enforceable and
legal agreement (Cohen, 2015). Two parties are necessary to make a contract who their authority
from the agreement, whereas in an agency law, the parties are three in number, the principal, the
agent and the third party where the agent is authorized by the principal to contract on his behalf
(Kotz, 2017). In cases of relationships governed by agency, there is no necessity of an agreement
and an agency functions without the agreement. Another difference that can be attracted in cases
of agency is that there is no need for consideration in cases of agency and they can be made
enforceable without any consideration. The agent works under the authority of the principal and
reports to the principal. The agent has the authority to make contracts with a third party on behalf
of the principal. The principal is liable in cases when the agent defaults (McKendrink, 2015).
There are two principles of agency that can be applied to understand the relation between
the principal and the agent (Knapp, Crystal & Prince, 2016). The first principle is that of
Undisclosed principle, which says that the relation exists between the principal and the third
party without the interference of the agent in between (Cohen, 2017). The other principle is that
of principle of election which was established in the case of Siu Yin Kwan v Eastern Insurance
Co Ltd [1994] 2 AC 199, where it was held that in cases of an agency relation and the agent has
dealt with a third party, the discretion lies on the third party to elect who he can demand that
performance from (Reddy & Canavan, 2015). The sole discretionary power lies on the third party
to demand a specific job from the agent if he is convinced regarding the skill of the agent
(Dewing, 2015).
Agency law rules down the duties and obligations of the agent and also states that agents
are duty bound to follow the instructions of the principal (Michalos, 2017). The agent functions
under the authority of the principal. The laws also impose certain duties inclusive of their actions

3LAW OF AGENCY
being in line with the good faith of the principal and that the agent should apply his prudence in
doing his work. Ostensible authority is a concept under agency lay which tries to dupe the third
party in believing in the authority of the agency relationship between the principal and the agent
(Kraakman & Armour, 2017). Reading the termination clause in line with the principle of
ostensible authority Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630 laid
down that when the principal ostensibly makes a representation that the relationship of principal
agent exists., the principal is stopped from denying his duty. When the ostensible authority of the
principal is counted, the emphasis is placed on the behavior of the principal that could have
given the impression that there was no termination and that an agency existed. In such cases, the
principal is liable for the actions of the agent(Shogren et al., 2017).
Application
Applying the rule of undisclosed principle, the discretion lies with Gaby to choose whom
to demand the work from. Sara had not notified Gaby that she was the agent of Terrence and
therefore Gaby has the right to choose from whom she wants the work done.
The agent being Peter is duty bound to follow the instructions of Terrence. Though
Terrence has fired Peter but has kept the business email active. From the business email Peter
makes the deal with Gordon and gives the impression to Gordon that the agent is authorized by
the principal to deal with him. Therefore, applying the rule of ostensible authority, when Peter
makes the deal with Gordon, he is made to believe that an agency relationship exists because the
deal is made through Peter’s business email. Basing the assumption on the fact that a relationship
exists, Gordon deals Peter. Therefore, as being the principal, Terrence is responsible for the acts

4LAW OF AGENCY
of the agent and therefore, when Gordon claims the amount from Terrence, it is because, Gordon
believes that Terrence is the principal.
Conclusion
Gabby can elect who she wants the design to be made by, therefore, Terrence cannot
claim that Sara has breached the contract.
Peter is duty bound to follow the instructions of Terrence and therefore Terrence is liable
for purchasing the item which was denied by Terrence and therefore he has committed a breach
of contract. Terrence has not properly terminated Peter and therefore Gordon has to be paid by
Terrence.
ANSWER TO Q 2
Issue:
The facts in the present can be understood by a detailed comprehension of company
incorporations laws and laws of business ethics. The issue in the present case is fixing whether
the shareholders have breached the contract and have they committed any unlawful activity by
not paying the amount of 2000000. The facts in the case point towards another issue, that’s is,
compliance with the Commonwealth legislation and how justified the commonwealth legislation
in cancelling the application of manufacturing explosives.
Relevant rule/law:
Australia follows common law regulations and is bound by the UK legislations.
Australian laws owe their origin to commonwealth principles. The Commonwealth had the
power to form laws in matters on Australia by virtue of Section 51(xx) of their Constitution. The

5LAW OF AGENCY
relevant law is the Corporations Act, 2001 and the provisions of the Corporations Act are
applicable in the present case (Marin et bal., 2017). In Australia, the Authority on business laws
is the Australian Securities and Investment Commission, that is, the ASIC. The ASIC has the
major role to play in fixing the rights of the directors, shareholders and the investors. The duties
and obligations of the directors in Australia are governed by the Australian Securities and
Investment Commission (McQueen, 2016). The Australian Securities and Investment
Commission takes charge of all the civil and criminal breaches and fixes pecuniary damages
whenever a company fails to comply with the rules and regulations that have already been
established by the legislature. In cases of any breach of contract, the Australian Securities and
Investment Commission makes the defaulting party makes the necessary compensations. The
governing section of the Corporations Act that is relevant in the present case is the Section 1311,
wherein it is said that if a company breaches any contract and duty owed to him, the company
shall be made responsible to make the payments. The governing provision for attaching penalties
in case of breach is enforced with the help of section 1317. Again, sub sections of 1317 deal with
the compensation and how it can be claimed. As has been held in the case of Solomon v
Solomon, a corporate is a separate legal entity and all the liabilities are incurred by the company
that a natural person incurs in the normal course of their business. The case also held that the
company cannot be read together as the shareholders and that if the company takes part in any
unlawful case, the company will be held liable (Mindy, Loke and Burton, 2016).
The commonwealth has been given power by the laws that in cases of application for
license in explosive manufacture, they have the power to reject it citing that the applicant has a
criminal record (Macaulay, 2018). Criminal record is seen as an impediment to getting license in
explosives manufacturing. This has been emphasized in section 206B of the Corporations Act

6LAW OF AGENCY
which says that in cases if the applicant has a past record, it will lead to his instant
disqualification.
Applicant
In this case Roger is the shareholder who owns 92 shares. He has signed a contract with
United Chemicals wherein he has promised to pay the amount of $600000 in three instalments in
three instalments. After paying two, he writes a formal letter that he cannot continue with the
payment because he has faced some financial crunch. This has lead to a breach of contract
because the contract entered between Roger and United Chemicals was written in nature and
hence the contract was binding on the parties and failure to comply with the same leads to breach
of contract (Pearce, 2015).
Roger has planned to set up an explosive manufacturing company and has applied for
license for the company which has been cancelled and rejected by the Commonwealth
Department of Industry. The reason cited by Commonwealth Department of Industry was that
Roger has a past history of being convicted for theft and therefore under the Commonwealth
regulations he cannot be given a licemse. There is a societal reasoning behind not granting an
applicant with license for manufacturing of explosives because according to law, once a person
has been convicted of a crime, he is not given employment. Applying the same principle of not
giving employment to anyone who has a criminal record, the Commonwealth Department of
Industry does not give license to set up explosives manufacturing. The ASIC is duty bound to
follow the regulations and the Corporations Act cannot act in breach of public policy.
Therefore, if the actions of Roger is taken into account, both of them seem to be unlawful
and both seem to be attracting the penalty clause of the Australian legislature. The work of ASIC

7LAW OF AGENCY
is to make sure that the rights of all the debtors are safeguarded and they do not face nay
financial loss. This can be achieved by preserving the rights of the debtors and penalizing the
shareholders. In this case, Roger by not paying the $200000 has caused a breach of contract and
since it was a written contract which was agreed between the parties, he is liable to pay the
amount to United Chemicals. The United Chemicals have clearly mentioned that Roger has
enough money to pay the debt and therefore Roger is liable to pay the amount because it ahs
been agreed by an enforceable agreement. Again, Roger has applied for license for setting up of
an explosive manufacturing factory which has been rejected by the Commonwealth Department
of Industry because they are governed by the statute which prohibits giving license to anyone
who has a past criminal record.
Conclusion
Roger is liable to pay the amount of $20000 as he has breached the written contract. The
Commonwealth Department of Industry is justified in not approving the license of Roger owing
to his past criminal record.

8LAW OF AGENCY
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