LAW504 Business Law Assignment: Agency, Corporate Law, and Contracts

This business law assignment addresses several key legal issues. The first part examines contract formation in the context of agency, exploring undisclosed principals, implied authority, and ostensible authority, referencing cases like Keighley, Maxted and Co v Durant, and Watteau v Fenwick. The second part delves into corporate law, specifically the concept of limited liability, the separate legal entity of a corporation, and the doctrine of lifting the corporate veil, referencing Salomon v Salomon & Co Ltd and Daimler Co v Continental Tyre and Rubber Co. The assignment analyzes scenarios involving contract disputes, shareholder liability, and corporate governance, providing legal arguments and conclusions based on established legal principles and case law.

Running head: BUSINESS LAW 0
Business Law

BUSINESS LAW 1
Question 1.1
Issue
Whether a contract exists between Terence and Gabby even through Sara failed to tell
Gabby that she works for Terence?
Law
An agency is referred to a business or organisation which offers a specific service on
behalf of another person, business or group (CSU LAW504 Modules, 2018, Topic 12). The
Agency Law provides that an agent has the authority to establish a legal relationship between
the principal and a third party. While entering into a contract, an agent is required to disclose
his agency by stating the name of his/her principal. In Keighley, Maxted and Co v Durant
(1901) AC 240 case, an agent entered into a contract without disclosing his agency to
purchase wheat in his own name. The court held that the principal could not be held liable for
the act of an agent who did not profess his/her agency while entering into a legal contract
(OUP, 2016). However, the principal will be held liable for the action of an agent if the
identity of the principal disclosed at the time of the transaction. As per the judgement which
was given in Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199 case a corporation
which purchases insurance for its employees is considered as an agent and after disclose of
the principal, the insurance company had to pay the amount of insurance claim to the
representatives of the principal.
Application
While dealing with Gabby, Sara failed to reveal her agency which makes her liable
for the contract. However, Terence revealed his agency by calling Gabby. As per the
provision of undisclosed principal, Terence has entered into a contract with Gabby because
he is liable for the actions of his employees as provided in the case of Siu Yin Kwan v Eastern
Insurance Co Ltd.
Conclusion
In conclusion, Terence entered into a contract with Gabby based on the provision of
undisclosed principal and Gabby has a right to ask for performance from either principal or
the agent.

BUSINESS LAW 2

BUSINESS LAW 3
Question 1.2
Issue
Whether a contract exists between Terence and Mary even though Terence
specifically told Peter to buy silver rather than gold?
Law
In the agency law, the principal provided authority to an agent to act on his behalf and
enter into legally binding contracts with third parties. The agency law categorised authority of
an agent into two parts: actual and ostensible or apparent authority. The actual authority is
categorised into two parts: express and implied authority. The express authority is defined as
the authority which was given by a principal to his/her agent in written or oral form (CSU
LAW504 Modules, 2018, Topic 12). On the other hand, the implied authority is the ability of
an agent to construct a legal contract with third party on behalf of the principal without an
express agreement. It refers to an agent with the jurisdiction to perform an act which is
reasonably necessary for completing the purpose of the agency.
The court analyses facts of each case to understand the customs and usage of a
business or trade in order to determine an implied authority. A similar judgement was given
in Watteau v Fenwick (1893) 1 QB 346 case. In this case, Watteau (the claimant) sold cigars
to the Humble (pub manager). He later found out that Fenwick is the real owner of the pub
and he filed a claim against him for the unpaid money. The court held that although Humble
would have held liable for the unpaid amount by the agency of Fenwick has been disclosed,
therefore, he will be liable to pay the unpaid amount of his agent because he acted on his
behalf.
Application
In case of Terence and Mary, a contract exists between the parties based on the
provision of implied authority. Terence had given implied authority to Peter when he
employed him as supplier purchaser. Mary also knew that Peter is authorised to act on behalf
of Terence. Based on implied authority, a contract has constructed between Terence and
Mary and Terence is liable to comply with the terms of the contract. A similar judgement was
given in

BUSINESS LAW 4
Conclusion
To conclude, Terence and Mary have entered into a contract because Peter had
implied authority to act on behalf of Terence. Mary can ask for unpaid amount from Terence
based on the terms of their contract.

BUSINESS LAW 5
Question 1.3
Issue
Whether a contract exists between Terence and Gordon even though Terence has fired
Peter and he gives the order to Gordon for conducting fraud?
Law
In order to establish ostensible or apparent authority, the principal represents or shows
to other parties that the agent has the right to enter into a legal contract on his behalf whereas
he did not bestow such authority to the agent. Based on such representation, the party must
deal with the agent believing that he/she represent the principal and the party much bind the
agent into a legal contract (CSU LAW504 Modules, 2018, Topic 12). In simple words, the
principal shows by way of words or conduct that the agent can enter into contract on his
behalf whereas he did not give such right to the agent and based on such representation the
party entered into a legal contract with the agent based on which the principal will be bound
by the terms of the contract. The Freeman & Lockyer v Buckhurst Park Properties (1964) 1
ALL ER 630 case is a good example in which the board of a company allowed on director to
act as Managing Director, however, they did not appoint him to the post. The MD entered
into a contract with architects Freeman and Lockyer for a project however the board argued
that the contract is not valid because the director did not have authority to enter into a
contract on the corporation behalf. The court provided that allowing the director to act as MD
is enough for third parties to assume that he had the authority to entered into a contract on
behalf of the company, therefore, the contract is valid.
Application
Terence failed to shut down Peter’s access to the email system, and he booked an
order with Gordon who knew that Terence had authorised Peter to act on his behalf. As
provided in Freeman & Lockyer v Buckhurst Park Properties case, if the principal represents
that the agent has the authority to act on his behalf and the third party entered into a contract
with the agent based on such representation, then the principal is bound by such contract.
Therefore, Gordon and Terence have entered into a contract and Terence is bound by the
terms of such contract.

BUSINESS LAW 6
Conclusion
Conclusively, a contract exists between Gordon and Terence based on the principle of
ostensible authority.

BUSINESS LAW 7
Question 2.2
Issue
Can Industrial Machines Ltd hold Roger personally liable to pay for the last
instalment of the machinery because he is the majority shareholder?
Law
As per the section 119 of the Corporations Act 200, a company is a body corporate
which becomes an artificial person after its registration (CSU LAW504 Modules, 2018,
Topic 14). The attributes of a corporation include a separate legal entity, limited liability of
owners, ability to sue or get sued, capacity to hold property under its own name and perpetual
succession until it is de-registered or liquidated. The Corporations Act 2001 provides that the
legal identity of a company is different from its owners. The owners or shareholders of a
company have limited liability, and the court cannot use their personal assets to pay off the
debts of the corporation. A company is not the agent of its shareholders, and they just own its
parts in the form of shares. The Salomon v Salomon & Co Ltd (1897) AC 22 is an important
case in which the principle of limited liability and a separate personality was given.
In this case, Salomon decided to shut down his shoe manufacturing sole proprietary
business and incorporate a corporation called Salomon & Co Ltd. Salomon was the
shareholder and creditor of the corporation because he owned its shares and debentures. He
was the majority shareholder of the company. The corporation failed, and at the time of
liquidation, debenture holders which include Salomon received their money back whereas
unsecured creditors such as goods suppliers did not receive anything. The unsecured creditors
filed a suit against Salomon by stating that the debenture is a scam and the company is his
agent because he is the majority shareholder. The court held that just because Salomon is the
majority shareholder does not make the company his agent. Salomon & Co Ltd has a separate
legal entity from Salomon, and he cannot be held personally liable for its debts (Tomasic,
Bottomley & McQueen, 2002, pp. 31-34). The information regarding the debenture is given
in publically available documents of the company which means they are not fraud, therefore,
Salomon cannot be held personally liable.

BUSINESS LAW 8
Application
Industrial Machines Ltd argued that Roger hold majority shares in United Chemicals Pty Ltd
and his wife own the rest of the share and his brother is the managing director, therefore, he
should pay the final instalment of the machinery. However, as provided in Salomon v
Salomon & Co Ltd case, a company has separate legal entity from its owners, and it is not the
agents of its shareholders. Therefore, Roger cannot be held personally liable for the debts of
United Chemicals Pty Ltd.
Conclusion
Conclusively, Roger did not have to pay the final instalment of the machinery of
United Chemicals Pty Ltd because a corporation has separate personality from its owners and
owners have limited liability.

BUSINESS LAW 9
Question 2.2
Issue
Can Roger change the decision of the department for rejecting the explosive
manufacturing licence application of Explosive Industries Pty Ltd?
Law
As per the Corporations Act 2001, a company is separate from its owners, and it has
its own rights and duties. The owners cannot be held personally liable by the court for the
debts of the corporation which is called a corporate veil. However, the court can lift the
corporate veil in specific situations to hold the people who take actions in the company liable
for its debts (CSU LAW504 Modules, 2018, Topic 14). The doctrine of lifting of corporate
veil is established to hold directors or managers in a company liable for their actions and
prevent them from misusing the policy of separate legal entity. A similar judgement was
given in the case of Daimler Co v Continental Tyre and Rubber Co (1916) 2 AC 307. In this
case, the court implemented the doctrine of lifting of corporate veil to prevent people from
misusing the law. At the time of World War I, trading with enemy was prohibited by the
government. In this case, Continental Tyre and Rubber Co were incorporated in the United
Kingdom, however, all of its directors and shareholders were German, and the secretary was
English. The House of Lords provided that thought the corporation is UK-based, however, its
effective control is in the hands of Germans, therefore, it had acquired the enemy character
(Rudorfer, 2009, pp.2-3).
Application
Roger’s application for explosive manufacturing was rejected because he was a
convicted theft, so he incorporated Explosive Industries Ltd in which he is the majority
shareholder. As per the judgement of Daimler Co v Continental Tyre and Rubber Co, the
court can lift the corporate veil if the purpose of incorporation of the company is to trick the
law. Roger who is a convicted theft holds effective control of Explosive Industries Ltd,
therefore, he cannot change the decision of the department.

BUSINESS LAW 10
Conclusion
Conclusively, Roger has incorporated the company to escape the law, and he
completely controls its, therefore, he will not succeed in changing the decision of the
department for rejecting his licence application.

BUSINESS LAW 11
References
CSU LAW504 Modules, Topic 12
CSU LAW504 Modules, 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
Keighley, Maxted and Co v Durant (1901) AC 240
OUP. (2016). Chapter 13: Problem question guidance. Retrieved from
http://global.oup.com/uk/orc/law/company/baskind_concentrate3e/resources/
problem/ch13/
Rudorfer, M. (2009). Piercing the corporation veil. Germany: GRIN Publishing. pp. 2-3.
Salomon v Salomon & Co Ltd (1897) AC 22
Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199
Tomasic, R., Bottomley, S. & McQueen, R. (2002). Corporations Law in Australia. (2nd ed.).
Sydney: Federation Press. pp. 31-34.
Watteau v Fenwick (1893) 1 QB 346