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Ch 7: Corporate Liability (Types of liability (in tort and crime) (Primary…
Ch 7: Corporate Liability
s 124
statutory pronunciation of common law principle in
Salomon v Salomon
separate legal entity
as an individual with its own rights, responsibilities and powers
gives extra powers as a body corporate
issue shares
distribute property among members
grant security over company's property
organic theory of attribution
House of Lords in
Leonard's Carrying Co v Asiatic Petroleum
people who act as the company are the "brain"
people who have the directing mind or will of the company
Types of liability (in tort and crime)
Primary
co committed the wrong itself
Test
Is the person who committed the mind or will?
Yes
Primary Liability
#
Tesco Supermarkets v Nattrass
- shop assistant
not acting as the company since board did not delegate authority
Secondary
though co did not commit wrong, it is liable for the actions of its employees or agents
in the course of their employment
Lloyd v Grace Smith & Co
employee committed fraud through transfer of property
firm was liable since by an employee in relation to employment
aka vicarious liability
Tort
#
Crime
#
strict application of organic theory
'special rule' to look at junior staff
ABC Development v Wallace
- co found liable
Liability in contract
Whether the individual had the
authority
to enter on co's behalf
Authority :warning:
Parties
Agent
on behalf of principal
Principal
co itself and the board
Contractor
third party
Freeman v Lockyer
Actual authority
legal relationship between P and A created by agreement
Apparent or ostensible authority
legal relationship between P and C
representation (intended and acted upon)
that the agent has the authority to enter into contracts on behalf of P
s 127
co directors can only bind the company when acting collectively as a board unless:
held out in internal rules
given by actual authority
Indoor management rule
#
:
outsiders in good faith, can presume all internal rules and procedures have been complied with
Royal British Bank v Turquand
entered into loan without approval from shareholders (in constitution)
refused to repay but was held liable
created 'Turquand's rule'
limitations
cannot be relied on if:
the outsider knows of internal irregularities
the outsider is put on inquiry
Northside Developments v Registar-General
director and his son used the common seal of co for a mortgage - Northside not receiving any benefit
suspicious because risking Northside's main asset in mortgage, co secretary was not director's son, no benefit
bank should have made inquiry
s 129
reinforces the indoor management rule
Statutory assumptions
Examples
officer's duty performing for proper purpose
properly appointed officers
sealing done by director and secretary is correct
corporate constitution complied with
Limitations
s 128 (4)
actual knowledge of the true position based on question of proof
imputed knowledge when person suspects assumption is correct