1HI6027 Week 9 tutorial questions – Company Incorporation and its effects;Management of CompaniesSample questions and answers1. Explain the difference between actual and apparent authority. Refer to relevantexamples or cases in your answer.2. Melissa was authorised by her boss to place weekly stationery orders for up to $250.For four consecutive weeks she ordered $400 worth of supplies from Lewis Stationersbecause they were offering customers who spent $1600 in one month a free A4 paperfolding machine and she knew her office needed one. Melissa’s boss has found out andtold Lewis Stationers they have to take back their machine and any supplies exceedingthe value of $250.Answer the following questions, giving reasons.a. Did Melissa have express, implied or apparent authority to place the order?b. Is Melissa’s company legally obliged to purchase the excess stationeryc. Could Melissa be made liable for the cost of the excess stationery?SOLUTIONS1. Actual authority: if a partner has actual authority, the other partners are bound by thepartner’s acts. Every partner is an agent of the firm for the purposes of the partnershipbusiness because the partners operate a business in common.The actual or express authority of the agent will be found in powers:• expressly given by the principal to the agent;• implied in the agency (or employment) agreement;• that arise from operation of law.See: Australia and New Zealand Bank Ltd v. v Ateliers de Constructions Electriques deCharleroi  1 AC 86.Apparent authority: only arises where the question of actual authority is lacking. If athird party is to success against a firm, they must establish that:• the particular partner was acting within the scope of the business of the kindcarried on by the firm (a question of fact in each case);• the transaction was carried out in the usual way;• they knew or reasonably believed that the partner was a partner; and• they were not aware that the partner lacked authority to bind the firm.See: Summers v Solomon (1857) 26 LJQB 301.2. Students are expected to draw on principles from the lecture on Incorporation andContracting with a Company through an Agent: actual (express or implied) and2apparent authority. A person has authority to act for a company if she or he has: Actualauthority (express, or implied) or Apparent authority.Actual authority exists where the principal has actually agreed that the agent can act onthe principal’s behalf. It can be express or implied. Express actual authority can arisefrom a provision in the Corporations Act or the company’s constitution e.g. s 198A. Itcan also arise when a company agent (e.g. the board) who has actual authority delegatessome of their own actual authority.Implied actual authority can arise by implication from things the principal says anddoes e.g. appointing someone to a certain position. Different company officers havedifferent levels of implied authority.Apparent authority can arise even where the principal has not in any way (words orconduct) agreed that the agent can act on the principal’s behalf.Where company denies it is bound by a contract due to some lack of authority or defectin procedures. Policy issue: Need to balance the competing interests of outsidersdealing with companies; and innocent shareholders and creditors of companies.Contract made through an agent may be defective because the purported agent either:has no express actual authority, or has express actual authority that is too narrow forthis contract. Outsider wants to enforce against the companyHere, it could be argued that Melissa has apparent authority to place weekly orders forup to $400 a week. For Melissa’s company to be liable to Lewis’s Stationers topurchase the excess stationery and pay the $1600 owing to the latter, the requirementsof Apparent Authority must be established. There must be:• a “holding out” (or “representation”) – can be words or conduct;• by someone with actual authority – apparent authority not enough: CrabtreeVickers;• on which the outsider relied – outsider must be “induced”.On the facts, it appears that the above requirements are present. It is not stated thatMelissa’s company has advised Lewis’s Stationers as to the limit of Melissa’s authorityto place stationery orders. By virtue of the Indoor Management Rule, Lewis’sStationers can assume that there is no issue or defect in Melissa’s authority and that theorders she made were regular. Therefore, Melissa’s company could be made liable topurchase the excess stationery and pay the $1600 to Lewis’s Stationers.
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