Issues and Application of Law
1. Can Terence sue Gabby for the contract that is established by Sara with him?
2. Sara was employed as a designer in Terry Terrific Designs. She creates designs and shares the same personally to Terence. Thus, the task that is allocated to Sara is only of designing.
3. Peter was employed as a supplies purchaser. So, an actual express authority is granted to Peter according to whom he can purchase metals on behalf of the business.
4. Whether the contract amid Industrial Machines Ltd and United Chemicals Pty Ltd will make Roger personally liable?
5. The facts submitted that one of the portions of the Common wealth law was that no person is permitted to grant with a license dealing with explosive manufacturing if the person has a criminal convention.
- Can Terence sue Gabby for the contract that is established by Sara with him?
- Can Mary and Gordan sue Terence for the contract established by Peter?
In Australia, in any intending person who wants to commence business then the same can be carried out in the form of sole traders, partnership or company. Whatever may be the form of person; there are always requirements of employee who carry work on your behalf.
An employee can be employed by undertaking contract of service wherein the employee acts on behalf of the employer. This relationship is governed by the law of agency. Law of agency implies that the principal appoints an agent and entrust with him the authority and an agent must act within such authority to bind the principal with the outsiders. Thus the main elements to establish agency are:
- There are two parties involved, a principal and an agent;
- The principal appoints and agent;
- The agent is granted or entrusted with authority;
- The agent must act within the authority so delegated;
- The acts within the delegated authority is binding upon the principal;
- The principal must honor the contract entered by the agent with the third parties.
Now, a Principal may delegate authorities which can be:
- Actual express – An actual express authority is kind of authority that is delegated by words, actions or in written form to an agent. An agent must act within the authority so granted and is held in Consolo v Bennett
- Actual implied – An implied express authority is the one which is granted to an agent and which he is permitted to undertake to comply with his express authority and is held inHely-Hutchinson v Brayhead Ltd.
- Ostensible – When no actual authority is granted to an agent, but, the principal, by making any overt act in front of the third party makes the third party to believe that the agent with whom he is dealing does possess authority to bind the principal. Such kind of authority is ostensible and any act under taken by an agent within such ostensible authority is binding upon the principal and is held in Freeman and Lockyer v Buckhurst Park Properties(Mangal) Ltd and Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd .
Terence was the student of Charles Sturt University and has studies jeweler design. He formulated a business called Terry Terrific Designs. There are two students, Peter and Sara, who are employed by Terence.
It is now important to understand whether the transaction undertaken by Peter and Sara are binding upon Terence after applying the law of agency.
Sara was employed as a designer in Terry Terrific Designs. She creates designs and shares the same personally to Terence. Thus, the task that is allocated to Sara is only of designing.
Terence has made an express authority in favor of Sara wherein she is only permitted to create designs for Terry Terrific Designs. Thus, as per Consolo v Bennett Sara cannot indulge herself into any other work apart from designing and sharing the same with Terence.
Now, Sara had an interaction with Gabby who is willing that Sara must design a brooch for him. after viewing several design executed by Sara, Gabby asks her to create a particular kind of brooch for $1000.
Conclusion
But, during the entire communication, Sara forget to tell Gabby that she is working with Terence. Thus, Gaby is under the impression that Sara is independent and is not an agent of Terence. There was also no representation that was made by Terence which makes Gabby believe that Sara is the agent of Terence.
Thus, when Terrence phones Gabby and submits that the order is received by him and is delivered in 2 weeks, then, it is rightful for Gabby to submit that he has a contract with Sara and not Terence.
Sara has exceeded her authority that is provided to her by Terence and thus the contract is not binning upon Terence.
Peter was employed as a supplies purchaser. So, an actual express authority is granted to Peter according to whom he can purchase metals on behalf of the business.
But, Terence has expressly has limited his authority and submitted that he must buy silver only as the business has too much of gold.
Mary was one of the gold dealers who had already dealt with Peter many times and is aware that Peter is authorized to buy the gold., But, Mary is not aware that this author is limited by Terence as the same was not communicated to her either by Terence or by Peter. So, by not disclosing the fact a representation is made to Mary that peter is still authorized to buy gold and is held in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd.
So, the contract amid Peter and Mary, that is, Peter buys 50 grams gold at $1500 is a valid contract and is binding upon Terence under ostensible authority.
Also,
Terence fired Peter on Monday but does not shut off Peter’s access to the business’ email system until Thursday. On Wednesday, Peter placed diamonds from Gordan against an order which is received by Gordan on Tuesday from the Terence’s email system.
Thus, when Terence forgets to shut off Peter access to the system, then, Pater is actually making a representation to his clients that Peter is still the part of the business. under such representation Gordan has entered the contract with Peter under the said representation and on the belief that Peter still possesses the required authority.
Thus, the contract with Peter and Gordan is binding upon Terence under ostensible authority.
Conclusion
There is no contract amid Terence and Gabby as Sara was not authorized to enter into contract with Gabby.
Both, Mary and Gordan can sue Terence as the contract with them by Peter is valid under ostensible authority.
- Whether the contract amid Industrial Machines Ltd and United Chemicals Pty Ltd will make Roger personally liable?
- Can the veil of Industrial Machines Ltd be lifted and Roger was held to be the owner of the company thereby applying the Commonwealth provisions?
A company is one of the businesses forms which are carried on by the persons in Australia. A company acquires its legal status only when the same is incorporated as per the provisions of the Corporation Act 2001.
When a company is registered then it is a non-natural person in law. A company has its own personality and acquires all the powers and rights that are normally acquired by a living and natural persons. In Salomon v A Salomon & Co Ltd the court held that a company is distinct and has a personality of its own. The main elements of a company are:
- A company has a separate legal entity and has the capacity to enter into contract on its own;
- A company is distinct from its members and any act that is carried out by the members are in the name of the company alone. The members cannot be held accountable for the acts that are carried out in the name of the company. In Lee v Lee’s Air Farming Ltd the court held that once a company is incorporated then a company has its own personality and no member or officer can be personally held accountable for the contracts that are entered in the name of the company. This Separate legal personality rile makes a company one of the best choices to carry businesses.
- A company has perpetual succession.
Thus, a company formation is thus in of the most advantageous business formation as the members are not associated with the conduct of the business and it is the company which is held responsible for the same.
But, the separate legal personality of the company is disregard by the court many times and the veil which brings a distinction amid the company and its members can be lifted and the company and members are treated as one. In such situation, the acts of the members are not the acts of the company and the members are held personally liable. The veil is lifted mainly because:
- When the company is formulated in order to incur fraud upon others, then, any contract that is entered by such company is not regarded as separate and the veil is lifted in order to consider the acts of the company and that of the members as one and is held in Re Darby, ex parte Brougham;
- When it is fair to lift the veil of the company in order to bring justice to the people;
- When a company is formed so that to hide itself from any legal provisions then the veil is lifted
- When the shareholders of the company are controlling the company in such manner that the acts of the company are mainly the acts of the shareholders then the veil can be lifted and the acts of the company and shareholders are considered to be one and is held in Smith,Stone & Knight Ltd v Birmingham Corporation.
The facts submit that a company is formulated by Roger smith in the name of United Chemicals Pty Ltd. Roger holds 92/100 shares and Mary (wife and company secretary) holds 8/100 shares. The Managing Director of the company is Timothy Smith.
From Industrial Machines Ltd, the United Chemicals Pty Ltd purchased a phosphate processing machine for $ 600 000, payable in three equal installments in 2015, 2016 and 2017. The contract was signed by Timothy under the authority of the Managing Directors. The contract of 2015 and 2016 goes well. But a default is made in 2017.
It is settled as per Salomon v A Salomon & Co Ltd that a company has a separate legal entity in law after incorporation.
So, when Roger establishes a company in the name of United Chemicals Pty Ltd, then, it is an artificial person in law and thus can enter into contracts on its own behalf.
Thus, the contract of United Chemicals Pty Ltd with Industrial Machines Ltd is entered in its individual capacity and not by Roger personally.
Thus, Industrial Machines Ltd cannot sue Roger as the contract was with United Chemicals Pty Ltd and not with Roger.
The facts submitted that one of the portions of the Common wealth law was that no person is permitted to grant with a license dealing with explosive manufacturing if the person has a criminal convention.’
Roger was convicted on 2005 for theft and thus is restrained by the Commonwealth Provisions. In order to defeat this common wealth provisions, Roger in 2016 in order to improve his business fortune decided to make explosive. He incorporated a company, Explosive Industries Pty Ltd, in which he holds 99/100 shares and Mary holds 1/100 shares.
It is submitted that the company that is incorporated by Roger was against the Common Wealth provision. The company was formed to defeat the law and thus the veil of the company must be lifted and the company and roger should be treated as one. By applying Re Darby, ex parte Brougham , the company was a sham and an act of fraud on the part of Roger and thus the veil is lifted and Roger must be held to be convicted and thus not capable of incorporating a company that deals in explosive manufacturing.
Conclusion
Thus, the contract amid Industrial Machines Ltd and United Chemicals Pty Ltd will not make Roger personally liable because the contract by United Chemicals Pty Ltd is an independent contract on its own behalf and Roger is not associated with the company.
Further, the veil of Industrial Machines Ltd must be lifted and Roger was held to be the owner of the company. So, the Common wealth provisions will apply and will restrain Roger from dealing in explosive manufacturing.
Books/Articles/Journals
Bottomley, S; Hall, K and Spender, P. 2017. Contemporary Australian Corporate Law. Cambridge University Press.
Gibson, A and Fraser, D. 2013. Business Law 2014, Pearson Higher Education AU.
Latimer, P. 2011. Australian Business Law 2012. CCH Australia Limited.
Case laws
Consolo v Bennett [2012] FCAFC 120.
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.
Hely-Hutchinson v Brayhead Ltd [1967] 1 QB 549 .
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711.
Re Darby, ex parte Brougham [1911] 1 KB 95.
Smith, Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116.
Salomon v A Salomon & Co Ltd [1896] UKHL 1.
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