Commercial Law - MOO Company - Case Study Example

Commercial Law Student Name: Student Number: Course Code: Course Name: Institution Name: Commercial Law Although a company is recognized as an entity with the capacity to enter to legally binding contracts or actions, it can only achieve that through delegation of such authority to individuals within the company as provided for in the company constitution. Application of the doctrine of agency plays a critical role in protecting the interests of the company owners as well as that of the customers in actions or contracts executed by third parties on behalf of the company (Chapple & Lipton, 2002). In this regard, the law has stipulated different circumstances in which the company owners can sue for breach of contracts entered by third parties on behalf of the company as well as situations where a customer or another agency can seek the enforcement of contracts transacted with company agents. In this paper, application of the law in the different scenarios will be demonstrated by way of different case scenarios. Question1 Issue Tom, a Business Development Manager for MOO executed in writing a lease arrangement with Bob for a retail business premise on behalf of MOO under circumstances that raise question on the legality of his actions. In this case, the company had instructed Tom to visit Ballarat to make enquiries on the retail locations available to let and subsequently report back to the head office with a recommendation. Although Tom as an agent of the company can exercise certain powers to execute certain actions on behalf of the company, this scenario raises concerns as to whether he acted within the authority entrusted on him by the company or by virtue of being an agent of the company. With the name and role of Tom prominently displayed on the company web site as on business cards and stationary, Bob decision to enter into the lease agreement with Tom raises further questions as to whether he exercised due diligence in entering into the contract. MOO headquarters in Perth declined to approve the written lease agreement between its agent Tom and Bob leading to the latter considering initiating legal actions against the company bordering on breach of contract. In this case, several legal issues arise including the determination as to whether Tom as agent of MOO company acted within his authority to execute the lease agreement, if the agreement should be considered as legally binding and if so the legal premise under which Bob could litigate the breach of contract. In addition, MOO can also object to Bob demands in a court of law based on the laws governing entry into contract by other parties on behalf of a company. The scenario as raise a legal issue, if the contract is established to be not legally binding, then who should shoulder the burden of the illegal agreement made between the company and Bob. Rule The Corporation Act, sections 126 & 127 stipulates how corporation executes legally binding contracts and as such, any deviation from such provision may result into unintended legal actions either by the corporation or by the other contracting partner (Latimer, 2016). Corporation and its agents are therefore expected to conduct their transactions or execute any contract or legally binding agreements within such provisions to alleviate legal issues that arise from poorly executed contracts. As deduced from the above scenario, the main issue revolves around whether the written agreement between Tom on behalf of MOO Company is enforceable against the company. Therefore, the root of the case is to determine if Tom’s action in signing the agreement on behalf of the company was within the authority bestowed on him by virtue of being the company’s agent (Latimer, 2016). In addition, it would be prudent to determine whether the signatory, in this case Tom could be held personally liable for the lease agreement declined by his company. In reference to section 26 of the Corporation Act, the law allows permits an individual to execute or enter into a contract on behalf of the company with the company’s express or implied authority (Latimer, 2016). Through section 27 of the Act, the law further provides that a contract or an agreement is enforceable if 2 or 1 director and a company secretary or a director only in case of a sole proprietorship. With fulfillment of the above requirements, the contracting partners have a legal ground to demand for enforcement of the contract or agreement. However, the litigants must prove beyond reasonable doubt the contract or agreement in question was executed correctly in accordance to provisions of the sections 126 and 127 of the Corporations Act. In addition, entry into large contracts such as lease agreements require the other party to confirm that indeed the agent has authority to sign on behalf of the company before treating such agreements as enforceable. Application of the Rule Subject to provisions of sections 126 & 127 of the Corporations Act, the case scenario involving a written lease agreement executed between Tom and Bob demonstrates that indeed a legally binding contract was executed (Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd). The scenario provides sufficient evidence to show that Tom as an agent of MOO Company acted on behalf of the company with what would be regarded as implied authority. The Moo company sent Tom to identify retail premise and provide a recommendation to the headquarter office. However, Tom identified a possible premise and applied his implied authority to act on behalf of the Company to sign a lease agreement with Bob. In this case, Bob has sufficient grounds to initiate action against the company for breach of contract or better enforcement of the contract. The issue of whether Tom had the authority to execute the contract lies within the organizational structure of the Company and its operations, of which Bob may claim, not be privy to. In this case, the contract was executed on behalf of the company and with the provisions of the Corporations Act. The company has done well in ensuring that the position and roles of Tom in the company are in the public domain. However, this can be interpreted to mean that Bob’s decision to enter into the agreement was influenced significantly by the belief that the agent was applying his authority either express or implied to sign the lease agreement on behalf the MOO Company (Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd). However, the agreement document signed by Tom and Bob must show that indeed Tom signed the agreement on behalf of the company as the litmus test for enforcement of the contract. On the contrary, MOO Company could also challenge Bob claims by rejecting the argument that Tom acted on behalf of the company and indeed, he had the authority to do so. According to the Act, the powers are stipulated in the company’s constitution, which MOO Company could adduce before the court as prove that Tom did not act on behalf of the company. In addition, the company could also advance the argument that, the contracting partner failed to exercise due diligence to confirm the Tom’s authority to Act on behalf of the company before entering into a contract of that nature. Conclusion The lease agreement between Tom (on behalf of the MOO Company is legally enforceable because there is sufficient evidence that indeed the contract was executed within the provisions of the Corporations Act sections 126 & 127. Although Tom failed to follow instructions from the head quarter, as per the contract execution, it can be concluded that it was well executed. The only alternative is that Tom could be held personally liable for contract if the company proves that indeed he went against the company’s constitution. It is clear that Tom as the agent acting for the company since his profile and role displayed in the company website and other platforms convinced Bob that he had either express or implied authority to be a signatory for the company in the lease agreement. Question 2 Likely Successful Claims from the Case Scenario Although the de facto relationship is recognized in the Australian law and especially with regard to property ownership, it does not have a provision that allows a partner to be responsible for the other partner’s debts (Legal Services Commission of Australia, n.d). This is only possible with a signed contract or in joint accounts established by the two partners in which one partner is held responsible for the other partner’s debts. This legal provision could be applied to support the retailers’ argument to ensure a successful claim against Anna for the goods purchased using the credit account of Kevin without his authority. in the case of groceries delivered from a local TPN supermarket, it is evident that there was an implied authority from the Kevin’s for the supermarket to supply groceries ordered by Anne for home use. This is demonstrated by his regular payments for the groceries. Although Kevin had an agreement with his partner change about the use of the credit account in which he warned her against purchase of expensive luxury goods, he failed to make known that agreement to the TPN supermarket. In this case, the TPN cannot be held liable for agreements made between the two partners. The de facto relationship between Kevin and Anne and the fact that Kevin has been paying for the groceries order by Anne using his credit account provides the supermarket with a strong belief of an existing mutual agreement between the partners. In this case, TPN supermarket can successfully litigate its claims against Kevin for failure to pay for the groceries. TNP supermarket is in a contract with Kevin by virtue of opening a credit account for him and can only recognize the implied authority that Anne orders groceries with to enforce its claims (Latimer, 2016). As such, Kevin is obliged to pay for the delivered groceries despite the existing misunderstanding between him and Anne. On the other hand, RPG may have challenges successfully litigating claims for the $ 2,000 high-end kitchen blender. This is because, RPG relied on a verbal statement from Anne in which she claimed to be Kevin’s de facto partner. In addition, the law on de factor marriages does not allow either of the partners to enter into debt or be held reliable for a debt attributed to the partner. There is no evidence to show that Kevin had authorized his partner to purchase any goods using his credit account and as such, RPG cannot dwell on the premise of implied authorization for the transaction. In this case, Kevin has a legal ground to argue that he did not authorize the partner to use his credit account despite being de factor partners. However, RPG can consider litigating against Anne to pay for the Blender based on fraudulent deal in which she decided to secretly purchase the luxury good without the authority or knowledge of the credit account owner. Question 3 Why should the law give legal force to contracts created by agents who have only ostensible or apparent authority? The law should give legal force to contracts created by agents who have only ostensible or apparent because in some cases the outsiders may not have the capacity to determine whether an agent has actual authority and the extent to which the agent can exercise such authority. It is important to note that, companies or corporations interact with the clients or outsiders mainly through the agents who represent the companies on the ground. Understandably, in most cases the outsiders only know the agent and have no interests in who has what authority in their transactions provided, the agents can deliver what they require. In this case, they only rely on the appearance of the authority by virtue of representation by the agent and as such end up making decision based on what the agent has to say (Rogers, 2004). Enforcement of contracts made through apparent or ostensible authority is only fair to the outside because of the belief that the agent must act within the interest of the company or company owners. This critical in ensuring that the principle does not prevent enforcement of a contract entered on his behalf by an agent with an outsider. The exercise of agency by estoppel or apparent authority is considered a valid contract between the principle and the other partner in the contract similar to what agents with actual authority have capacity to do (Latimer, 2016). However, this should only be so if it can be determined that the agent exercising apparent or ostensible authority applied such authority in the best interest of the company or principle. Application of ostensible or apparent has proven reasonable in the Freeman & Lockyer v Buckhurst Park Properties Ltd in which the judge outlined circumstances under which the principle can be applied including evidence of representation by word or conduct, action by someone who poses actual authority and the evidence that the other partner in a contract relied on such representation to make their decisions. References Chapple, L & Lipton, P. (2002). Corporate Authority and dealings with officers and agents. CCH Australia Limited. Retrieved from http://law.unimelb.edu.au/__data/assets/pdf_file/0004/1721164/2-Larelle-Chaple.pdf Krawitz, A. (2002). Protecting outsiders to Corporate contracts in Australia. Murdoch University Electronic Journal of Law, 9(3). Retrieved from http://www.austlii.edu.au/au/journals/MurUEJL/2002/22.html Latimer, P. (2016). Australian Business law 2016, (35th Ed). Oxford: Oxford University Press. Legal Services Commission of Australia. De facto relationship. Retrieved from http://www.lsc.sa.gov.au/resources/LEGAL_FactSheet_De%20Facto%20Relationships% 20pics.pdf Rogers, K. (2004). A case harshly treated? Watteau v Fenwick re-evaluted. Hertfordshire Law Journal 2(2), 26-29. Cases Freeman & Lockyer v Buckhurst Park Properties Ltd Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd Read More