1. Is a valid legal contract is constructed between Gabby and Terence even when Gabby enter into a contract with Sara?
2. Is there a contract between Terence and Mary?
3. Is there a contract between Gordon and Terence?
4. Is Roger personally liable to pay $200,000?
5. Is Roger likely to succeed in changing the decision of the department for rejection of the licence application of Explosive Industries Pty Ltd?
Is a valid legal contract is constructed between Gabby and Terence even when Gabby enter into a contract with Sara?
In this case, the principle of agency law applies. An agency is an agreement between two or more parties one of the party is the principal whereas the other party is the agent (CSU LAW504 Modules, 2018, Topic 12). In this agreement, the principal gives the agent authority to establish contract with third parties on his behalf. The provision of undisclosed principals provides that the principal is bound by the terms of a legal agreement which is created by the agent even if the agent did not disclose to the contracting party that he or she is working on behalf of the authority given by the principal. Furthermore, in cases of an undisclosed principal, the doctrine of election applies which provides that the third-party can choose between the agent and the principal and decides who will perform the terms of the contract (Munday & Munday, 2010, pp. 245-246).
In Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199 case, an employee died in an accident, and his representatives claim money from the insurance company. The insurance company claimed that the number of the corporation is written in the contract of insurance; hence the employee’s representatives cannot claim the insurance money. The court held that the company is an agent of its employees; therefore, based on the provision of an undisclosed principal, the representatives of the employee can claim for the insurance money.
Sara failed to disclose to Gabby that she is an agent of Terence, and she entered into a contract with Gabby. Later, Terence called and disclosed his agency to Gabby. As given in Siu Yin Kwan v Eastern Insurance Co Ltd case, a third-party formed a legal contract with both the principal and the agent in case of the agency is disclosed. Based on such provision, Terence and Gabby have entered into a valid legal agreement, and Gabby enforce the performance from either party.
To conclude, a valid contract exists between Terence and Gabby because Sara acted on behalf of Terence, and Gabby can ask for fulfilment of the terms of the contract from either Terence or Sara.
Is there a contract between Terence and Mary?
The principal is bound by the fact whether he or she has given the authority to the agent (CSU LAW504 Modules, 2018, Topic 12). The agency law categorised agency into three parts which include actual, ostensible and authority of necessity. The actual authority is categorised into two parts which include express and implied. The express authority to perform an action or enter into a legal agreement which is given in writing or orally by the principal is called express authority. On the other hand, the implied authority implies in a case when the principal hires an agent on a specific post and in order to perform his or her duties the agent is required specific authorities. The implied authority is included in the scope of the position of a job (Busch, Macgregor, & Watts, 2015, pp. 61-62). When an employer gives title or role to an employee, then the authority necessary to discharge such role is called implied authority.
An important decision was given in the Watteau v Fenwick (1893) 1 QB 346 case. In this case, the court provided the judgement based on the provision of implied authority. In this case, a pub owner (Fenwick) hired a manager (Humble) to run its operations for him giving him authority to perform actions which are usually performed by ‘pub manager’. Fenwick asked Humble not to purchase anything other than mineral waters and bottled ales, however, Humble entered into a contract with Watteau for the purchase of cigars. After finding out about the agency of Fenwick, Watteau filed a suit against him for collection of unpaid amount. The court held that Humble had implied authority to enter into a legal contract for Fenwick, therefore, Fenwick has to pay the unpaid amount to Watteau.
Terence has hired Peter as a Supplies Purchaser giving him the authority to purchase supplies and entered into contract on his behalf. Mary had often dealt with Peter before, and she knows that he has the authority to act on behalf of Terence. In Watteau v Fenwick case, the court held that Humble had the authority of action on behalf of Fenwick and he is liable to pay unpaid amount of cigars to Watteau. Similarly, in this case, Terence and Mary have entered into a contract because Peter has the authority to make purchasing decisions for Terence.
To conclude, Terence and Mary have entered into a contract because Peter has implied authority to act on behalf of Terence, and Mary can file a suit against him if he failed to comply with the terms of the contract.
Is there a contract between Gordon and Terence?
In order to establish ostensible authority, the principal represents that the agent is in the position to enter into a legal contract on his behalf whereas, in reality, he did not have such power (CSU LAW504 Modules, 2018, Topic 12). In case ostensible authority is established, then the party which has entered into a legal agreement with the agent based on the representations made by the party has the right to enforce the performance of the contract either from principal or the agent. The judgement given in the Freeman & Lockyer v Buckhurst Park Properties (1964) 1 ALL ER 630 case is a good example in which the board allowed a director (Kapoor) to take actions as the managing director of the company in specific situations. In reality, they did not appoint Kapoor as the MD of the company. Kapoor used his title to contract with two architects for working on a project; however, the board denied that Kapoor did not have the authority to enter into a contract. The court declines the appeal by stating that the contract is valid because the bored represented that Kapoor is the MD of the company in specific situations which is enough for a third party to assume the authority of Kapoor, therefore, the contract is valid.
Although Terence fired Peter, he failed to shut down his access to the email system of the company, and he used it to book an order with Gordon who had often dealt with him before and knew that he poses the authority. As per Freeman & Lockyer v Buckhurst Park Properties case, if a principal let others believe that the agent has the authority to act on his behalf, even when he/she did not have such authority, the principal is bound based on actions of the agent. Similarly, Terence failed to shut down Peter’s access to the email system, and he used it to book order with Gordon, therefore, based on the provision of ostensible authority, Terence and Gordon have entered into a contract.
To conclude, there is a contract between Terence and Gordon because of the provision of ostensible authority because actions of Terence let Gordon believed that Peter has the authority to act on his behalf.
Is Roger personally liable to pay $200,000?
The definition of a company is given under the section 119 of the Corporations Act 2001 (CSU LAW504 Modules, 2018, Topic 14). The section provides that a ‘company’ is referred to a body corporate which comes into existence upon its registration. It means that a company became a legal person after its registration. The characteristics of a corporation include legal existence which is separate from its owners, a perpetual succession which means it continues to exist until liquidation, and it has the ability to enter to legal contracts with third parties, and in case of breach of such contracts the company can sue or get sued by third parties. The section 124(1) (a) of the act provided that a corporation has the rights of a natural person. The corporation has a separate legal entity and just based on the fact that a shareholder owns a large number of shares in the company, it does not become his/her agent.
The separate personality and limited liability concept are included in the characteristics of the company which was first given in the case of Salomon v Salomon & Co Ltd (1897) AC 22. Salomon transferred his assets from a sole proprietary business to a company (Salomon & Co Ltd), and in return, the corporation paid him shares and debentures. The company become insolvent, and creditors’ money remained unpaid whereas the company paid Salomon because he was a debenture-holder. The creditors filed a claim in the court on the basis that debenture was a sham; therefore, Salomon is responsible toward the creditors. The House of Lords rejected the arguments of creditors and provided that the corporation has separate entity from Salomon and public documents were available for creditors to know that debenture exists in the corporation and there is no indication of fraud. Therefore, Salomon cannot be held personally liable.
Roger is the majority shareholder in United Chemicals Pty Ltd, and he runs it with the help of his wife and brother. The corporation failed to pay the final instalment of the machine bought from the Industrial Machines Ltd. The board filed a suit against Roger stating that he should be personally liable because he is the majority shareholder. However, a corporation has separate legal entity for its owners, and its owners have limited liability as given in Salomon v Salomon & Co Ltd case. Therefore, Roger cannot be held personally liable to pay for the final instalment of the machine.
To conclude, Roger cannot be held personally liable by the board of Industrial Machines Ltd because United Chemicals Pty Ltd has a separate legal entity and Roger has limited liability.
Is Roger likely to succeed in changing the decision of the department for rejection of the licence application of Explosive Industries Pty Ltd?
In specific cases, the court can lift the corporate veil to found out who is controlling a company to put them liable for the actions of the corporation (CSU LAW504 Modules, 2018, Topic 14). A corporation has separate legal entity from its owners, and they are protected under a corporate veil from being held personally liable for its actions. However, the court can lift the corporate veil to found out who are taking actions in a company and hold them personally liable for its actions. The provision of lifting a corporate veil was given in Daimler Co v Continental Tyre and Rubber Co (1916) 2 AC 307 case. In this case, the court used the principle of lifting of corporate veil because the corporation was created in order to trick the law. In this case, the government of the United Kingdom prohibits the trading with Germans during WW1. The court provided a judgement that a company which is registered in the UK but controlled by Germans is constituted as an enemy.
Roger is a convicted theft, and he cannot receive a licence of explosive manufacturing. In order to escape the effect of the law, he established Explosive Industries Pty Ltd in which he was the majority shareholder and applied for the licence. The department rejected the application and Roger cannot turn the decision of the department because based on the principle of the lifting of corporate veil because it is invalid to use the company as a way to avoid the law as given in Daimler Co v Continental Tyre and Rubber Co case.
To conclude, Roger will not succeed in changing the decision of the department for rejection of the licence because the court can use principle of lifting of corporate veil to see that the corporation is created just to escape the effect of the law.
Busch, D., Macgregor, L. & Watts, P. (2015). Agency Law in Commercial Practice. (1st ed.). England: Oxford University Press. pp. 61-62.
CSU LAW504 Modules, 2018, Topic 12
CSU LAW504 Modules, 2018, 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
Munday, R. & Munday, R.J.C. (2010). Agency: Law and Principles. England: Oxford University Press. pp. 245-246.
Salomon v Salomon & Co Ltd (1897) AC 22
Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199
Watteau v Fenwick (1893) 1 QB 346