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Definition of Agency and its Types

Discuss about the Business Law for Legal Entity Operating Structure.

The first issue that has been identified in the given scenario is whether Terence is entitled to claim the remuneration for the jewelry from Gaby.

The law of agency is relevant and applicable in this given scenario. Agency can be defined as an agreement by which the principal confers authority of dealing with other third parties and representing the principal in contracts with third parties to the agent (Loewenstein, 2017). The agreement of agency involves the following parties:

  • The principal who confers the authority
  • The agent who receives the authority to act on behalf of the principal
  • The third party who deals with the agent.

There are two types of contracts involved in the law of agency:

  • Contract made between principal and the agent in which the principal confers the authority to the agent
  • Contract made between the third party and the agent, acting on behalf of the principal.

It can be stated that whether the principal is bound by the actions of the agent is dependent on whether the principal has delegated the authority to the agent.

However in accordance with the doctrine of undisclosed principal it can be stated that the third party can always choose from whom he demands the performance. The doctrine of election had been established in the case Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199. It can be stated that in circumstances when the third party did not have knowledge that the agent was acting on behalf of the company, he can choose from whom to demand performance. However for the application of the aforementioned doctrine, the third party must have entered into the contract with the agent believing that the agent was acting on his own behalf relying on the fact that the agent possessed particular skill.

It has been provided through the facts of the given case study that Sara had been appointed by Terrance as the designer of jewellery. This means the authority to act on behalf of the Terrance can be held to be implied in this case. Sara had shown the design of her jewellery to Gaby. She had asked Sara to design a thousand dollar brooch for her. Thus by the application of the doctrine of election in case of undisclosed principals  as held in the case Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199, it can be stated that Gaby can demand performance of the contract from Sara as she had no knowledge that Gaby had been acting as the agent of Terence.   

Conclusion

Thus to conclude, it can be said that Gaby can choose demand performance from either Sara or Terence, however she has the right to enforce the contract against Sara and demand performance from her.

Contracts involved in Agency Law

The issue that has been identified in the given scenario whether Terrance is bound to pay the price of the gold that had been ordered by Peter.

The principle of usual authority is applicable in this given scenario involving Terrance, Peter and Mary. Usual authority had been held to be synonymous with implied authority in the case Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.  It can be stated that implied authority is the authority is assessed by the courts to have been conferred to the agent by the principal for discharging the duties conferred on them by express authority (Law, 2015). An example of  usual authority had been illustrated in the case Watteau v Fenwick [1893] 1 QB 346 in which it was held that the owner of the bar was liable to pay for the cigars even though he had forbidden the bar manager to buy cigars. In this case it was held by the court that the principal would be liable for all acts of the agent which are usually within the scope the authority which are usually conferred notwithstanding any limitations.

Thus by analyzing the facts of the case it can be stated that Peter had been delegated the authority to act as the supply purchaser by Terence. Terence had forbidden Peter to purchase gold as they were over supplied with gold. However, Peter enters into a contract with Mary, a gold dealer who often transacted with Terence’s Terrific Designs previously of supplying 50 grams of gold for 1500 dollars. Thus by applying the principle of usual authority as held in the case of Watteau v Fenwick, it can be stated that Terence is liable to pay Peter the amount as the act of purchasing gold can be considered to be usually falling within Usual Authority of Peter.

Conclusion

Thus in conclusion, it can be said that Terence is liable to pay Mary the amount of 1500 dollars.

Issue:

The issue that has been identified in the given scenario is whether Terence is liable to pay Gordon for the diamond picked up by Peter in the name of the jewellery business

The law of ostensible of apparent authority is applicable in this given scenario.  Ostensible authority can be defined as the authority which is actually not delegated by the principal but is assumed by the third party (DiMotto, 2017). Therefore in a scenario in which a reasonable third party believes that the agent was acting within the authority conferred upon him by the principal, even though such authority had not been actually delegated by the principal, the principal would be liable for the actions of the agent. The law of apparent or ostensible authority is based on the doctrine of estoppel. The rationale behind the law of apparent or ostensible authority is that a principal would be bound by the actions of his agent, as the third party transacted business in assurance that the agent had the authority and relied on such assurance and therefore it would be inequitable for the principal to deny the authority conferred to the agent. In the case Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630 a key test had been identified by Lord Diplock to assess whether the principal should be bound by the actions of the agent. The test assesses whether it was reasonable for the third party to believe that the agent had been acting within his authority due to the action of the principal or because the principal had allowed the agent to act on his behalf.  

Doctrine of Undisclosed Principal

Thus by analyzing the facts of the case it can be said that it was reasonable for Gordon to believe that Peter had been acting as an agent of Terence as Terence had failed to should to shut down Peter’s  access to the email of the business. The mail sent by Peter was from the business’s email id and therefore it was not possible for Gordon to know that Peter was not acting within his authority. Therefore the act of Peter would be binding upon Terence

Conclusion

Terence is liable to pay Gordon for the order of the diamonds.

Answer Two:

The issue that has been identified in the given scenario is whether Industrial Machines Ltd. can personally sue Roger for the failure of the company United Chemicals Pty Ltd. to pay the last instalment.

The doctrine of separate legal entity of a company is relevant to this given case study. The Doctrine of Separate legal entity had been first established in the case Salomon v Salomon. The doctrine of separate legal entity states that the identity of the company is to be differentiated from that of its owners. Therefore the owners of the company cannot be personally held to be liable for the debts incurred by the company (Joy, 2018). Such owners would only be liable to pay as much as the value of the shares held by them in the company. In the aforementioned case Salomon had transferred the assets of his business, the shoe shop to the company and the company in return had paid him with shares and debentures. Therefore Salomon had been acting in three categories:

  • The third party seller of the business to the company
  • The majority shareholder of the company
  • The managing director of the company.

Salomon had later sold the debentures of the company after which the company became insolvent. Thus in relation to this case the concept of separate legal entity of the company had been established on the basis of the following grounds:

  • The entity of the company was different from the majority of the shareholders, Salomon
  • There was no indication of fraud or to deceive the creditors.
  • The publicly lodged documents were available to the creditor to discover the debenture’s existence

Therefore by the establishment of the aforementioned facts the principle of Corporate Veil of a company had been established.

Thus by analyzing the facts of the given case study it can be said that Roger Smith was only a majority of the shareholders of the company United Chemicals Pty Ltd. However, the company United Chemicals has a separate legal entity from that of his owners according to the principle of the Salomon vs Salomon case.  Thus in this case even though Roger Smith is a holds majority of the shares of the company he cannot be held personally liable for the debts of the company. The Corporate of the company cannot be lifted as there was no indication on his part to deceive the share holders

Usual Authority and Apparent Authority

The issue that has been identified in the given case study whether the application for license of the company Explosive Industries Pty Ltd made by Roger was valid

It can stated in relation to section 117(1) of the Corporations Act 2001 (Cth) that for the purpose of registering a company a person must lodge an application with the Australian Securities and Investment Commission containing the provisions as provided in section 117(2)  of the Corporations Act 2001(Cth).

It can be stated in accordance with section 117(2) that an application for registering a company must contain the following details:

  • The type of company that is proposed to be formed
  • The proposed name of the company
  • The name and address of the persons who consent to becoming the members of the company.
  • The present given and family name, the former family names of the directors of the company and date of birth of such directors
  • The address of the persons who wish to become the directors of the company
  • The present names and family names, date of birth of the company secretary
  • The address of each of the persons who wishes to become the director
  • Address of the proposed registered office of the company.

Thus by analyzing the facts of the case, it can be said that Roger wishes to expand his business into the area of making explosives.  However it has been provided through the facts of the give case study that the commonwealth legislation prohibits granting explosive license to any person who has a conviction record. However, it has been provided in the given case study that Roger had been convicted of theft before.

In accordance with section 117(1) of the Corporations Act 2001(Cth) it can be stated that for the purpose of registering the company an application of license has to be lodged with the ASIC. The application must contain the provisions as provided in section 117(2) of the CA. Therefore in relation to section 117(2)(D) , the application form must contain the present and former family names of the persons who consent to become the directors of the company. Thus in this given scenario the name and identity of Roger, who wishes to become the Managing Director of the company has to be provided in the application form. Therefore upon inspection by the ASIC it was evident that Roger, had a conviction record and therefore the company Explosive Pty Ltd. was not be granted the license.

Conclusion

Thus to conclude it can be stated that the application of license of the company Explosive Industries Pty Ltd. was not valid.  

Reference List:

Corporations Act 2001 (Cth)

DiMotto, J. (2017). Apparent authority doctrine determines jurisdiction dispute. Wisconsin Law Journal.

Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630

Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

Joy, J. (2018). Legal Entity Operating Structure. In Divestitures and Spin-Offs (pp. 157-168). Springer, Boston, MA.

Law, J. (Ed.). (2015). A dictionary of law. OUP Oxford.

Loewenstein, M. (2017). Agency Law and the New Economy.

Salomon v Salomon & Co Ltd [1897] AC 22

Watteau v Fenwick [1893] 1 QB 346

Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199

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[Accessed 24 May 2024].

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My Assignment Help. Legal Issues In Agency And Company Law Essay. [Internet]. My Assignment Help. 2019 [cited 24 May 2024]. Available from: https://myassignmenthelp.com/free-samples/business-law-legal-entity-operating-structure.

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