Nature and functions of law in society
The issue is that whether there was a contract between Gabby and Terrance. The issue is also regarding the fact that whether Mary and Peter had authority. Whether there is a liability on the part of Peter to Gordon.
The law of agency states that an agreement is formed when an individual authorizes his right to another person for the purpose of negotiating on his behalf with the third parties. The individual authorizing the right can be termed as the principal and the right entrusted on another person is his agent. In this regard, it is noteworthy to mention here that, under the law of agency the agent acts according to the interest of the principal. The principal, in certain cases, is liable for the actions of his agent. However, it is essential to have knowledge of the fact that whether the agent has an authority to act. Therefore authority under law of agency can be categorized into-
- Actual authority.
- Implied authority.
- Ostensible authority.
An authority is entrusted by the principal to his agent, however if the agent acts in excess of his authority then the principle shall not be held accountable for the action of the agent. An actual authority can be made orally and in writing. The agent in some cases shall be personally accountable to the third party for breach of warranty. It can be observed in Watteau v Fenwick [1893] 1 QB 346, that the manager of the pub was directed by the owner not to buy cigarettes. Such an authority was given by way of express or actual authority. However, it can be noted that in this case was not held liable for the purchase of cigars because it formed an important part of authority of the pub managers in England during that time.
An agency can arise as a result of implied authority. However, implied authority may not be mentioned in the contract. Therefore, in some cases it may happen that the principal has authorized the agent to work on his behalf for the purpose of ordering specific goods and thereafter pays the agent for the same. In such cases an implied authority can be formed which was noticed in the landmark case of Chan Yin Tee v William Jacks and Co. [1964] MLJ 290.
Apparent or ostensible authority can be formed in situations does not intend to give the agent his authority and therefore authorizes the agent to believe that he has an authority to make decisions in the absence of the plaintiff with the third parties. However, in most of the cases, an authority lies upon the agents to act on behalf of the principal. In such cases, it can be observed that when the prior authority was vested with the agent and such authority was terminated without informing the agent then an ostensible authority is formed. In case of ostensible authority, there is an intention on the part of the principal not to entrust an authority to the agent however; he pretends to do so. Such representation on the part of the principal can be in the form of inaction, as the principal was aware of the circumstances that how the agent would have acted if was given the authority. It was observed in Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630, that an authority was given to Kapoor, one of the directors of the company to act as a managing director on various occasions. In this case, the third party had the knowledge that Kapoor was authorized by the company to perform the role and therefore entered into a contract with him accordingly.
Classification of legal systems around the world
A contract exists between a third party and the principal even if it was not disclosed by the agent that he was acting on the behalf of the principal. In case of undisclosed principle a contract is formed between the principal and the third party because in such cases the agents do not reveal that they are working under the authorization of their principle. It was found in Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199, that the agent has particular skill and therefore the third party entered into a contract with him believing that he was acting on his own behalf. In case of undisclosed principle, the third party demands performance from the agent or from the person with whom he believes he has contract which is termed as the doctrine of election.
In the present case study, it can be observed that Sara had a contract with Gabby without informing him the fact that she was working as an agent under Terence. Therefore in this case the doctrine of election can be applied. Gabby shall decide that whether he has a contract with Terrance or Sara. In this regard, the case study of Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 can be applied.
In the present scenario, it can be stated that there is an actual authority to Mary while Peter had implied authority. This is due to the reason that he was directed by Terrence not to buy gold which he did. However, Terrence directed him to buy silver which he did not.
It can be observed that Terrence fired Peter on Monday i.e. after the termination of agency. In this case Terrence shall be liable to Gordon as he was of the knowledge that Peter had authority and that there were no termination. However, in this case Peter has used the business email-id and therefore there is a breach on the part of Terrence in relation to ostensible authority. Therefore, it is worthwhile to refer the case of Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630 as Gordon believed that Peter has authorized to act.
Conclusion:
It can be concluded that, there is a contract between Gabby and Terrence. There is an actual authority to Marry while an implied authority lies with Peter. Therefore, Peter is not liable to Gordon, Terrence is liable.
The issue is that whether Roger is personally liable to Industrial Machines Ltd. There is an issue that whether Roger can challenge the decision of the Department of Industry regarding rejection of application.
Components of Australian federal system
According to the provisions of Section 119 of the Corporation Act 2001 (Cth), a company forms a corporate body upon being registered. Therefore, it is worth mentioning that a company has a legal existence which is separate from its members. Therefore, the shareholders cannot be sued only the Company has the right to sue and be sued it is own which was held in Macaura v Northern Assurance Co Ltd [1925] AC 619. In this regard, mention can be made of Section 124(1) (a) of the Corporation Act 2001 (Cth), where it has been written that a company possesses the legal capacity and powers same as that of an individual as well as the powers of a corporate body. It is noteworthy to mention here that when a company is established as a separate legal entity, it is separate from its members as a result of certain consequences which can be summarized as-
- It is evident the company is liable for the debts incurred by it. Therefore, the shareholders of a limited liability company are not accountable to pay the debts incurred by such company.
- The company does not act as an agent to its shareholders.
It is worthwhile to refer here that the concept of separate legal entity and limited liability was entrenched in the landmark case of Salomon v Salomon & Co Ltd [1897] AC 22. In this case, it was observed that Salomon being the owner of the company transferred the assets to another company which supplied him with shares and a debenture. As a result of it, Salomon’s ownership transferred to that of a shareholder and to a creditor of the company. Therefore, the creditors of the company who were supplying goods issued an application stating that debenture was invalid. In this case, the court rejected the fact that Salomon was personally liable to the creditors. The Court relied upon the following grounds while rejecting the arguments presented by the creditors. These were:
- A company has a separate legal entity which is separate from the shareholders.
- The company was not established with an intention to defraud the creditors.
Therefore, it is worth noting that the shareholders of a company cannot be sued personally only the company can be held accountable because of its corporate liability. Therefore, the company can be sued directly.
The doctrine of lifting of corporate veil was first established in the case of Lee v Lee’s Air Farming Ltd (1961) AC 12. In this case, it was held by the Court that Lee being the shareholder of the company cannot stay behind corporate veil as he was also the owner of the company. This case also established the fact that the shareholder has the right to contract with the company if he owns shares with the company. It is worth noting that when a company is formed as a result of bypass the effect of law, then the corporate veil can be lifted. Similarly, it was observed in Gilford Motor Co Ltd v Horne [1933] Ch 935 it was observed that in order to avoid contractual obligations, a restraint of trade was agreed on the part of the employee of the plaintiff. In such process he started same line of business with his wife and other employees as shareholders. In this case, it was held by the court that the restraint has been broken. In Daimler Co v Continental Tyre and Rubber Co [1916] 2 AC 307, it was observed that the courts are at the authority to pierce the corporate veil in cases where the company tries to escape the effect of law. In Daimler Co v Continental Tyre and Rubber Co, however, it was found that World War 1, the trading with companies of Germany was strictly prohibited. Therefore, it was decided by the court that the trading of UK registered company with shareholders from Germany was like trading with enemies. But still in case of loss incurred by the company, the shareholders shall not be held liable.
In the present scenario, it can be observed that the company was formed by Roger with Mary and Timothy as the shareholders. Therefore the case of Salomon v Salomon & Co Ltd [1897] AC 22 can be referred in this regard. The company formed by Roger had a separate legal entity and therefore Roger is not personally liable to Industrial Machines Ltd however the company is liable. Therefore, in this regard, it is worthwhile to mention here that the Industrial Machines Ltd can directly sue the company but cannot personally sue Roger. In such cases, the company is liable for non-payment and not the managing directors.
In the present scenario, it can be seen that the application for licence for explosives manufacturing gets rejected. In this regard, the cases of Daimler Co v Continental Tyre and Rubber Co [1916] 2 AC 307 and Gilford Motor Co Ltd v Horne [1933] Ch 935 can be applied. It is noteworthy to mention here that, the courts shall not lift the corporate veil in cases if there is an existence of deceit or wrongdoing that is common to all. In the present scenario, it has been already mentioned that the Commonwealth legislation has prohibited licenses to individuals having prior criminal convictions. Therefore, even if the courts lifted the corporate veil in favor of Roger, his application would get rejected if he applied again for license.
Conclusion:
In the conclusion, it can be stated that Roger is not personally liable to Industrial Machines Ltd. Roger cannot challenge the decision of the Department of Industry for declining the application for license.
References:
Cases:
Chan Yin Tee v William Jacks and Co. [1964] MLJ 290.
Daimler Co v Continental Tyre and Rubber Co [1916] 2 AC 307.
Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630.
Gilford Motor Co Ltd v Horne [1933] Ch 935.
Lee v Lee’s Air Farming Ltd (1961) AC 12.
Macaura v Northern Assurance Co Ltd [1925] AC 619.
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.
Acts:
The Corporation Act 2001 (Cth).
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