Doctrine of Undisclosed Principal
Discuss about the Freeman and Lockyer V Buckhurst Park.
The principle of agency law applied in this situation in order to determine whether there a contract exist between Terence and Gabby. As per Agency law, an agent has the authority to create legal relations between a principal and third parties. An employee is an agent, but not all agents are employees (CSU LAW504 Modules, 2018, Topic 12). Employees work under a contract for service, and they are subject to the employer’s control, therefore, the employer is liable for their actions of its employees that are performed under his/her authority. In agency law, the doctrine of undisclosed principal is referred to a principal who uses his/her agent to negotiate with a third party who has no information about the principal. Based on this principle, if the agent did not disclose the nature of his/her agency or the name of his/her principal, then the agent can be held personally liable for the actions. However, if the principal is subsequently discovered at the time of the transaction, then he/she would be held liable by the third party. In Watteau v Fenwick (1893) 1 QB 346 case, Watteau sold goods to Humble under the belief that he is the pub owner, however, he learned that Fenwick is the actual owner of the pub. He claimed for the unpaid balance of goods from Fenwick. The court held that the principal is liable to pay the rest of the amount based on the doctrine of an undisclosed principal (Cambridge, 2018).
In this case, Sara failed to disclose to Gabby that she works on behalf of Terence. Gabby belief that she has entered into a contract with Sara, however, Terence called Gabby and provided that he is working on her order. Since Terence has disclosed the agency, Sara cannot be held liable. Therefore, as per the doctrine of an undisclosed principal, a contract exists between Terence and Gabby.
In conclusion, Terence and Gabby have entered into a contract since the agency of Terence was disclosed. As per the doctrine of an undisclosed principal, an agent cannot be held liable once the name of his/her principal has been disclosed to the third party.
As per the agency law, the authority is divided into two parts which include actual authority and apparent or ostensible authority. The actual authority is further divided into two parts which include express authority and implied authority (CSU LAW504 Modules, 2018, Topic 12). Express authority is referred to the authority which is given by the principal to the agent in writing or orally. Implied authority is referred to an agent’s power for acting on behalf of a principal which was initially granted by the principal but without an express agreement. An implied authority depends upon the facts of each case, and the court determines it by analysing the usages and customs of a business, profession or trade. In SMC Electronics Ltd v Akhter Computers Ltd and Others (2001) 1 BCLC 433 case, it was held that an agent who has the authority to sell good on behalf of his principal has the implied authority to enter into a commission agreement with third parties (Keenan, 2001).
Actual Authority and Implied Authority
In this case, the principle of implied authority applies. Mary knew Peter because he often dealt with him before and Peter gives his consent to Mary. Based on the principle of implied authority, a contract has created between Terence and Mary because Peter has implied authority to work on behalf of Terence. Therefore, Terence has to accept the order of Mary or else she can file a suit against him for damages in the court.
In conclusion, Peter acted on behalf of Terence as his agent and Mary knew that Peter is acting on behalf of Terence. Therefore, a contract has constructed between Terence and Mary because Peter has implied authority to act on behalf of Peter and enter into a legal contract. Mary can sue Peter if he breaches the terms of their contract by not accepting the order.
The authority of an agent is categorised into two parts by the agency law which includes actual authority and apparent authority. The apparent or ostensible authority exists in following cases (CSU LAW504 Modules, 2018, Topic 12):
- The principal has made a representation to a third party by words or conduct to provide that the agent has the authority to act on his behalf although the agent did not have such authority in reality;
- The third acted by relying on such fact to deal with the agent; and
- Based on such reliance, the third party has altered the position of the principal, for instance, entered into a contract with the agent.
In other words, apparent authority is established when the principal implied that the agent has the authority to act on his behalf to a third party. If the third party entered into a contract with the agent on the basis of apparent authority, then the contract will be legally binding on the principal. In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480 case, a director, who acted as an agent for the company hired Freeman and Lockyer as architects for its Buckhurst Park Estate project. Buckhurst later refused by saying that director was not authorised to enter into the transaction with the architects. The court held that the director has an apparent authority based on which their contract with the architects is valid (AIA, 2016).
In this case, after firing Peter, Terence forgets to shut off his access to the company’s email system. By using such access, Peter sent a message to Gordon giving him an order of $5,000 diamonds. Gordon accepted the order by believing that it was coming from the official email address Terence’s company. In this case, a contract had established between Terence and Gordon because the third party knows Peter as the agent of Terence even when he fired him. Based on the principle of apparent authority, Terence is liable to pay the money to Gordon because a valid legal contract had created between the two parties based on the principle of apparent authority.
Apparent Authority
In conclusion, Peter has apparent authority because Terence failed to shut down his access to the company’s email system. Based on such apparent authority, Peter sends the email to Mary who did not know that Terence had fired Peter. Therefore, a contract has constructed between Terence and Mary due to the principle of apparent authority and Mary can legally enforce Peter to act based on the terms of their contract.
The issue is whether Roger is personally liable to pay $200,000 to Industrial Machines Ltd given that he holds 92 percent of shares himself and his wife holds another eight shares?
The Corporation Act 2001 defined a company as a separate legal entity which is created by legislation, charter or prescription. A corporation has a separate legal entity from its owners which means that its owners cannot be held personally liable for its debts or liabilities. A company is an artificial person that has the ability to enter into a legal contract with another party (CSU LAW504 Modules, 2018, Topic 14). A corporation can sue, or another party can sue it in case of breach of the terms of a contract. The owners of a corporation have limited liability which means the court cannot use their personal assets to pay back the debts or liability of the company. The Salomon v A Salomon & Co Ltd (1897) AC 22 case is a good example.
In this case, Mr Salomon transferred his sole proprietary business of boot manufacturing into a company called Salomon Ltd. He and his family hold all the shares of the Salomon Ltd. The corporation failed after some time, and the debentures of the company were held by two main parties which include Broderip and Mr Salomon himself. At the time of liquidation, Broderip gets his share, and the rest of the money was given to Mr Salomon as he was the new big secured debenture holder. The minor unsecured creditors got nothing from the liquidation, and they alleged that the company was a sham and Salomon is the principal and the company is his agent, therefore, he should personally be held liable for his debts. The Court of Appeal agreed with the decision of the high court and provided that the company is a myth and Salomon should be held personally liable for its debts (Trans-Lex, 2018). However, the House of Lords held that a majority of shareholders did not terminate the separate legal entity of a company. Owners of a company cannot be held personally liable for its debts.
Corporate Veil
In this case, the board of directors of Industrial Machines Ltd sued Roger because he is wealthy, and he owned the maximum number of shares in the company. Furthermore, his wife holds rest of the share and his brother is the managing directors. However, he cannot be held personally liable based on the principle of the separate legal entity. A company has separate legal entity from its owners, and they cannot be held personally liable for its debts.
In conclusion, Roger cannot be held personally liable to pay for the debts of Industrial Machines Ltd because the company has a separate legal entity which cannot be lost due to the majority of shareholders.
The issue is whether Roger would succeed in changing the decision of the department for rejecting the licences given that Explosive Industries Pty Ltd has a separate legal entity?
A corporate veil protects owners of a company from personally bring liable for its actions because the corporation has a separate legal entity. However, the Corporations Act 2001 provides that owners can be held personally liable for a company’s actions based on the principle of the corporate veil. It is referred to a judicially imposed exception to the principle of a separate legal entity (CSU LAW504 Modules, 2018, Topic 14). A court can pierce corporate veil if the shareholders themselves request it, lessen a penalty, creating an enforceable right or holding directors liable for their actions. In Creasey v Breachwood Motors Ltd (1993) BCLC 480 case, the court pierced the corporate veil because the owners started a new business to avoid the liability of their prevision company. Therefore, in order to uphold justice, the court can pierce a corporate veil and held owners of a corporation personally liable for their actions (Enacademic, 2017).
In this case, Roger formed a new company as a loophole to get the licence for explosive manufacturing which he cannot get because he was convicted of theft. Therefore, the court can implement the doctrine of corporate veil to avoid giving explosive manufacturing licence to Roger.
Conclusion
In conclusion, based on the principle of the lifting of the corporate veil, Roger would not succeed in changing the decision of the department for rejecting the explosive licence application of Explosive Industries Pty Ltd to uphold the justice.
References
AIA. (2016). A Quick Look At… Freeman & Lockyer V Buckhurst Park Properties (Mangal) Ltd [1964] 2 Qb 480. Retrieved from https://www.aiaworldwide.com/international-accountant/editors-blog/quick-look-%E2%80%A6-freeman-lockyer-v-buckhurst-park-properties.
Cambridge. (2018). The Cambridge Law Journal. Retrieved from https://www.cambridge.org/core/journals/cambridge-law-journal/article/authority-of-an-agentwatteau-v-fenwick-revisited/FBF6C2182E774640DF7B1C1775FC47E8.
Creasey v Breachwood Motors Ltd (1993) BCLC 480
CSU LAW504 Modules, 2018, Topic 12
CSU LAW504 Modules, 2018, Topic 14
Enacademic. (2017). Creasey v Breachwood Motors Ltd. Retrieved from https://enacademic.com/dic.nsf/enwiki/11587214.
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480
Keenan, D. (2001). Law case review. Retrieved from https://www.accountancydaily.co/law-case-review-18.
Salomon v A Salomon & Co Ltd (1897) AC 22
SMC Electronics Ltd v Akhter Computers Ltd and Others (2001) 1 BCLC 433
Trans-Lex. (2018). Salomon v. Salomon & Co Ltd [1897] AC 22. Retrieved from https://www.trans-lex.org/310810.
Watteau v Fenwick (1893) 1 QB 346
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