Law of Business Organisation: Types of Agency and Trust Creation

This article discusses the types of agency and trust creation in the law of business organization. It covers the certainties required for trust creation and the liability of the principal for the acts of the agent. A case study is also included to illustrate the concepts.

Business Law
Assignment
Running Head: BUSINESS LAW 0
Student’s Name

LAW OF BUSINESS ORGANISATION 1
Contents
Assessment Task 1...........................................................................................................................2
Assessment Task 2...........................................................................................................................6
References......................................................................................................................................10

LAW OF BUSINESS ORGANISATION 2
Assessment Task 1
In the emerging era of economy, there are various kinds of business structures. Trust is one of
them. As the name implies, trust is a type of obligation to work in favour and good faith of
others. As similar to other business structures, in trust also there are some parties, which are
described and discussed in the below analysis. Along with this there are some basic elements,
which are required to create a trust (Australian Government, 2018).
Whenever a trust is created, there must be three parties such as settlor, trustee and beneficiaries.
Sometimes trustee and beneficiary can be the same person, but trustee cannot be the sole
beneficiary in such case. He/she can hold interest in trust property along with other beneficiaries
(Legalvision, 2016)
Majorly there are two types of trust. One is implied and another one is expressed. When due to
requirement of law or nature of relationship among parties, a trust come into effect then the same
is known as “Implied Trust”. In such type of trust, there is no expression involved for creating a
trust (The Quinn Group, 2018); whereas on the other side, when a person either by words or
his/her actions expresses their intention to create a trust, such trust is treated as “Expressed
Trust” (Justia, 2018). It may be state that express trust, does not arise by law or facts or due to
the reason of nature of relationship in between or among parties. In such cases there must be a
certainty of intention.
The person who creates or establishes a trust is known as settlor. So in an express trust, settlor
must show his/her intention to create such trust. Here, it is important to mention that such
intention needs not to be in written, it can be verbal or it can be show by merely expressions.

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Such certainty of intention is need to be confirm so that it can be assure that settlor wants to put
some obligation on trustee in respect of trust property for the benefits of beneficiaries. In order to
be valid, a trust needs to fulfil three certainties in total. In conjunction to certainty of intention,
there are two more types of certainties which need to be ensuring, then only a trust can be held
valid in the eyes of law. These certainties are Certainty of Subject Matter and Certainty of
Objects (Findlaw Australia, 2018).
Here, subject matter is property of the trust, whereas objects reflect the motive and purpose for
which trust has been created. In certainty of subject matter, this is important to know that what
exactly trust property is and up to which extend each beneficiary is held his/her interest in it
(CraddockMurrayNeumann Lawyers, 2014a). In a trust, certainty of subject matter has high
importance. A trustee cannot properly perform his/her duty until, he/she is updated with the trust
property. Trust property must be certain and specific in nature instead general in nature. For
instance, if car is a trust property, it must be clear that which car exactly is this. Here it respect of
subject matter of trust, this is to mention that this can be anything but must not be illegal element
(Cambridge University Press, 2012).
Similarly, Certainty of object is also an important element. It is basic necessity to know that for
what reason a trust has established or in whose favour; a trustee need to deliver his/her duty is an
important aspect (Pont, 2011). There can be a number of beneficiaries in a single trust, but a
trustee must know that which beneficiary has how much interest in trust property. Object defines
the roles and responsibilities of trustee. The same also decide entitlement of beneficiaries.
In the given case, a person named Basil has declared himself as trustee in respect of 5% of total
issued share capital of Basil Electrical Co Pty Ltd. Total shares of the company were 1000 in

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numbers, which means 50 shares were the trust property. No other further identification or
information is available about the said shares. Now the question is that whatever the enough
certainties are there for creation of trust?
As for a valid trust, it is firstly required to present a certainty of intention, in the given case, by
declaring himself as trustee of shares; basil has made an intention to create a trust. So, it may
state that first certainty has provided.
Further, in the case provided, Basil, being a trustee cannot identify the particular shares. The
term shares are very general in nature. Trust property cannot be treated as identified in this case,
until unless it is decided that the mentioned shares carries which distinctive number. As quantity
is mentioned of share, similarly distinctive number must also be there, as trust property always
needs to be specific in nature.
In addition to this the reason or purpose for creation of this trust is not clear. Similarly
beneficiaries are also not determined. Basil has only declared himself as trustee but did not
declared anything about the fact that for whom he is going to held 5% shares of Basil Electrical
Co Pty Ltd as trust property. Certainty of object is one of the most important certainties when it
comes to establishment of trust. While creating a trust, Settlor must express the object or reason
which he/she is creating the trust.
To conclude the issues asked in the provided case, here it may conclude as that due to declaration
of Basil, certainty of intention was there. But he has simply declared himself trustee of 50 shares
of Basil Electrical Co Pty Ltd. He did not make any further clarification that about which shares
exactly he has declared. So, Certainty of subject matter was missing. Further, Basil has not
announced that for what reason he is holding the mentioned shares or in whose favour he is

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doing this. So, the requirement of Certainty of object has not fulfilled in this case. For a valid
trust all the mentioned certainties are need to be fulfilled. So, it may confirm that there were not
sufficient certainties for creation of a trust

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Assessment Task 2
It is very general that a single person cannot do everything, so for this reason people started
giving some of their authorities to another person by establishing a relation with such other
person. Such another person is known as “Agent”, and the person who gives such authority is
called “Principal”. The relationship between agent and principal is a very popular term, known as
“Agency” (Dundas Lawyers, 2014). Agency can be of various types according to the way of
their foundation and nature thereon. In this discussion, types of agency, their nature and impact
are explained.
Agency is a trust based relation in between principal and agent. Principal is liable for the act of
agent towards the third party, but up to the level of granted authority. It may understand here that
until agent is performing on behalf of the principal under the umbrella of given authority,
principal shall be held liable for such agent’s act (Arts law Centre of Australia, 2018). In the law
of agency, there are some types of agencies defined.
When a person shows his/her intention to appoint another person as agent, such agency is treated
as “Express actual Agency”. In an express authority, there is an agreement executes between
principal and agent, but such agreement need not to be in writing, it can be verbal too. In
addition to this it may be partially verbal and partially written (Estate Agents Authority, 2018).
But in an express authority, intention to create agency relation must be there. So other people
would have reason to belief that agent is acting on behalf of principal and the same has required
authority from the side of principal. Apart from Express authority, there are two more types of
agencies where authorities are not expressed one by principal. These authorities are “Implied
Authority” and “Ostensible Authority”.

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Implied Actual Authority is an authority which comes into effect due to the nature of acts of
agent. Here, it can be understand as that sometimes principal does not express his/her intention to
establish agency in words, but agent do some task by which it can assume that the same has
authority granted by principal. This agency only become valid when principal does not denied or
object such actions of agent by which it can assume that there is an agency relation between
them (ACAPMAG, 2016). In addition to this, many of the times principal gives some task to
agent but in the due course of performance of such task, agent need to do something else in
addition. So, for that additional task, it is deemed to have authorities and such deemed authorities
termed as implied agency.
Sometimes, law creates agency relation between the two parties. This mostly happens in business
and other forms of trade, where it is expected from a person to have required authority to act on
behalf his/her organization due to his/her designation (LexisNexis, 2018). In corporations, where
the individual bodies of directors and officers work on behalf of it, law gives them authority to
act like an agent on behalf of corporation (CraddockMurrayNeumann Lawyers, 2014b).
Similarly, in other forms of business also, law requires some person to have a level of authority
to act on behalf of their organization as an agent. In such cases Organizations are bind for deeds
of their agent and such authority is known as Ostensible Authority (AZCentral., 2018).
As per the case Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors [2015] QSC 53, No
matter, what kind of agency exist in between principal and agent, principal is liable for the acts
of agent till the limit of granted authority.
In the given case, Tina was the director of the company. She was acting like a managing director,
but has not been appointed on this designation ever. Further, as development of land was her

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duty and responsibility so she has employed a firm of architects to design plans for the land.
Here this is to mention that even being director of company, Tina was acting like managing
director, it was an implied authority. As board of directors of the company was aware with this
but they never stopped her by doing this, so architects had believed to rely upon her authority.
Further, again as in order to develop land, she needed some assistance, so it was necessary to
have some more authority. Tina was acting on behalf of company as an agent and although
company has not expressly authorized her to employed architecture firm, but for performance of
her duty, it was necessary to do this. So, in this situation, she is deemed to be in an implied
agency with her company.
The main issue was that the said firm of architects has raised a bill but company has not paid the
same. Subsequently, architects sued the company for non-payment of raised bill. Here Tina was
working as an agent on behalf of the company. Being a director, she was in an ostensible agency
with the company. Further, as it was necessary for Tina to hire firm of architects in the due
course of perforce of her duty, so she was also in implied agency with the company as the
company did not make any objections for her this deed. In every kind of agency, principal
always be responsible for act done by agent towards third party as he/she himself/herself conduct
the same.
This issue can be conclude that as Tina was the director of the company and for this reason she
was meant to be an agent of company by the virtue of Ostensible authority Architects had reason
to believe on her authority. Further, she also had an implied authority due to the nature of her
duty. As she was acting like managing director without any objection of company, she had an
implied authority. So for this reason, company was liable for acts done by her on behalf of the

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company in the course of her duty and firm of architects could sue the company as they were
entitled to do so.

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References
ACAPMAG. (2016) Actual And Apparent Authority: Don’t Run The Risk [online] Available
from: http://acapmag.com.au/home/2016/06/actual-apparent-authority-dont-run-risk/ [Accessed
on 26/05/18]
Arts law Centre of Australia. (2018) Agency agreements [online] Available from:
https://www.artslaw.com.au/info-sheets/info-sheet/agency-agreements/ [Accessed on 25/05/18]
Australian Government. (2018) Trustees and Beneficiaries [online] Available from:
https://www.ato.gov.au/General/Trusts/Trustees-and-beneficiaries/ [Accessed on 24/05/18]
AZCentral. (2018) Who Are the Principal and Agents of a Corporation? [online] Available from:
https://yourbusiness.azcentral.com/principal-agents-corporation-7119.html [Accessed on
25/05/18]
Cambridge University Press. (2012) Equity and Trusts in Australia [online] Available from:
https://www.cambridge.org/core/books/equity-and-trusts-in-australia/certainty-requirements-in-
the-law-of-trusts/4447AFBF360B0751F06FA83913EB38EE [Accessed on 26/05/18]
CraddockMurrayNeumann Lawyers. (2014a) what are the required certainties when creating a
trust instrument? Available from:
http://www.craddock.com.au/Document/What+are+the+required+certainties+when+creating+a+
trust+instrument-3f.aspx [Accessed on 26/05/18]

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CraddockMurrayNeumann Lawyers. (2014b) The authority of an agent to enter into contracts on
behalf of a corporation [online] Available from: https://yourbusiness.azcentral.com/principal-
agents-corporation-7119.html [Accessed on 25/05/18]
Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors [2015] QSC 53
Dundas Lawyers. (2014) Agency agreements – what are they and how are they used? [online]
Available from: https://www.dundaslawyers.com.au/agency-agreements-what-are-they-and-how-
are-they-used/ [Accessed on 25/05/18]
Estate Agents Authority. (2018) Types of authority [online] Available from:
http://www.eaa.org.hk/en-us/Information-Centre/Publications/Agency-Law/-4-Types-of
authority [Accessed on 25/05/18]
Findlaw Australia. (2018) Certainty and creating express trusts [online] Available from:
http://www.findlaw.com.au/articles/4559/certainty-and-creating-express-trusts.aspx [Accessed
on 26/05/18]
Justia. (2018) Trusts [online] Available from: https://www.justia.com/estate-planning/trusts/
[Accessed on 26/05/18]
Legalvision. (2016) Frequently Asked Questions About Trusts [online] Available from:
https://legalvision.com.au/frequently-asked-questions-about-trusts/ [Accessed on 24/05/18]
LexisNexis. (2018) Property → Contracts — general principles → Agency [online] Available
from: http://lexisweb.lexisnexis.com.au/Practical-Guidance-Topic.aspx?tid=1804 [Accessed on
26/05/18]
Pont, G.E.V. (2011) Equity and Trusts in Australia. Australia: Thomson Reuters (Professional)

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The Quinn Group. (2018) Implied Trust [online] Available from:
http://www.alltruststructures.com.au/implied-trust/ [Accessed on 26/05/18]