Issues of Separate Identity and Piercing the Corporate Veil

Issue:
(i) The issues that are present in this case include the validity of the contract that has
been created by Sara as an agent of the undisclosed principle with Gabby.
(ii) The second issue is related with the enforceability of the contract that was created by
the supplies purchaser of Terry's Terrific Designs, Peter with Mary for purchasing 15
grams of gold at the price of $1500 even if Peter was prevented from buying gold by
Terence, the owner of the business.
(iii) The third issue is related with the enforceability of the contract against Terence that
was created by Peter after he was fired from service, but still he purchased diamonds
worth $5000 from Gordon and disappeared.
Rule:
(i) In order to deal with the above-mentioned issues, the principles of the law of agency need to
be applied. For example, the first issue is related with the agent of undisclosed principle. The use
of undisclosed agency agreements can be commonly found in the commercial world. For
example a person has entered into a contract for leasing a motor vehicle from ABC Leasing
Company and such person would ordinarily believe that he has a contract with such company.
But the truth can be that the person has contracted with another company who has given
authority as principal to ABC Leasing to act as its agent and enter into a contract on its behalf.
Therefore in such a case, both the agent as well as the undisclosed principle are allowed by the
law to sue and be sued under such a contract unless it has been expressly or implicitly mentioned
in the contract that the right to sue or be sued is confined to the named parties. However there are
certain anomalies present in this doctrine of undisclosed principle. The reason is that this

doctrine runs parallel to the principle of privity of contract. Privity of contract is a principle of
the law of contract according to which the parties to a contract are legally bound to each other
only and not with third-party. However, the doctrine of undisclosed principle is justified on the
grounds of commercial convenience. An example of the agents of undisclosed principle can be
given regarding the stockbrokers (Whincop, 1997). In most of the cases they transact securities
on behalf of the clients, but they do so in such a way that they appear to be the principals (Gelb,
1982). In a recent decision delivered in Abigroup Contractors Pty Limited v Peninsula Balmain
Pty Limited (2001), the court stated that the silence of a developer regarding agency agreement
that has an adverse impact on the interests of the building contractor was sent to be deceptive or
misleading (Sealy and Hooley, 2009).
(ii) An agent may have the actual or the implied authority to enter into a contract on behalf of its
principal. Therefore such a contract is binding against the principal if the agent had actual or
implied authority to do so. In this context, actual authority is provided to the agent when the
agent is granted authority, expressly or impliedly by the principal to act on its behalf. For
example, when a company passes a resolution empowering the agent to bind accompanying case
of certain contracts, it can be said that express actual authority has been delivered to the agent.
On the other hand, implied authority of the agent takes place when, in view of the position of the
agent, it can be expected by the third parties that the agent had the power to enter into contracts
on behalf of the principle. The implied authority of the agent differs on the basis of their position
with the principal and also the type of contract. For example, while it can be expected that the
managing director will have the power to enter into a major supply contract, and therefore would
have the implied authority to do so. However, regarding a junior employee of the company the

same cannot be said even if such employee can be considered to have the implied authority of
entering into minor contracts on behalf of the company as a result of his position in the company.
There are certain cases, when actual authority may not be granted to the agent, but still a third-
party may be allowed by the law to enforce the contract created by the agent, against the
principal if it can be established that the agent and ostensible authority. Whether the agent had
ostensible authority mainly depends on the way. The agent was presented by the principal to the
third-party.
(iii) Similarly, the law provides that when an employee acting as an agent had been fired but this
fact was not known to a third party and it was under the impression that that employees had the
authority to enter into a contract on behalf of principal, such contract will be binding against the
principal. However, in such a case, the principal may have the option to sue the agent for the loss
suffered by it.
Application:
(i) In this case, Sara was acting as an agent of Terence, but he forgot to tell this fact to
Gabby. As a result, the contract created by Sara with Gabby can be enforced by
Terence and also by Sara. The reason is that, Sara was acting as the agent of
undisclosed principle, Terence. Therefore even if Gabby was not aware of the fact but
she had also entered into a contract with Terence.
(ii) In the second issue, Peter was acting as an agent of Terence. Therefore, although
Terence had told Peter that he should not buy any more gold, but this fact was not
known to Mary. Therefore the contract, created by Peter as an agent of Terence is
enforceable against him by Mary.