Commercial Law
Commercial Law
Commercial Law tests transactions and business organizations: agency, partnerships, corporations, negotiable instruments, and secured credit. The exam focuses on who is bound, who bears loss, and which creditor has priority.
Core rules
- Agency: Actual authority arises from express or implied grant; apparent authority arises when the principal’s conduct leads a third party reasonably to believe the agent has authority. A disclosed principal is bound by an authorized act; an undisclosed principal may sue or be sued subject to defences.
- Partnership: Partners are agents of the firm for ordinary business; each partner is jointly and severally liable for firm obligations unless limited-liability forms are used.
- Corporations: Formation creates a separate legal person; shareholders have limited liability but may face veil-piercing for fraud, commingling, or undercapitalization. Directors owe care and loyalty duties.
- Negotiable instruments: A holder in due course takes free of personal defences if it takes for value, in good faith, without notice of defects, and complete on its face.
- Secured credit: Perfection by filing or possession determines priority; a perfected security interest generally beats an unperfected one and later creditors.
Worked example
A managing director of X Ltd buys machinery from Y “on behalf of X.” X’s board had capped his authority at 100,000; the contract is 150,000. Y had seen a signed company letter stating the director could contract up to 200,000. Actual authority fails, but apparent authority may bind X because the board’s own communication reasonably led Y to believe the director had authority. X is bound unless Y knew or should have known of the cap. If X is bound, the director may be liable to X for exceeding internal authority.
Traps
Do not confuse actual with apparent authority; apparent authority requires a representation by the principal, not the agent. Do not pierce the veil merely because a company is small. In instruments, do not give holder-in-due-course status to someone with notice of a defence. In secured credit, check perfection and priority, not just the loan agreement.