BULAW5914 Commerical Law- Principal-agent Relationship

Answers

1. Issue

Can an agency relationship be established amid Penelope and Rodney. If yes, then can the store sue Penelope for the expenses created by Rodney?

Law

In Australia, there are various business structures that prevail. In any business structure the owner of the business requires the help of other persons who carry out the tasks of the owner. These tasks that are undertaken by the employees of the owner make the owner bound by the same if the acts are within the scope of the owner.

The situation also applied when two persons two or more persons intend to carry out any business and the person’s intent to share profits/losses. It is a relationship which is contractual in nature and is intentionally established by the parties.  (Latimer, 2016)

The general rule is that the business which is established must be of continuous nature (Ballantyne v Raphael, 1889). At times a single transaction is also considered to be a a business which is established amid two or more person provided the parties intend to consider it s an association amid themselves  (United Dominions Corporations Ltd v Brain Pty ltd and others , 1985). The business that is carried out by the people must be in common. The persons who establish the business are agents of each other, that is, the act of first person represent the second person even though the first person is not taking any active part in the transaction, rather, it is the second person who is involved in the transaction and is representing the first one thereby holding the first person also responsible for the transaction. But, the intention to carry on the business must be common and is held in (Re Ruddock , (1879) ).

It is submitted that in any relationship of agency, it is very important to submit that the intention of the parties must be such that they are ready to be bound by the acts or omission of the person who are carrying out the tasks on their behalf. However, many a times, one person is considered to be an agent of another person under the principle of estoppel. The principle of estoppel establishes that a person represent to an outsider that another person is authorized to take actions of his behalf and thus must be considered as his agent. When the outsider on the firm belief that the authority is granted to the second person enters into any kind of contract with the second person, then such contract is binding on the first party and the first person cannot rebut the contract by establishing that there is no authority, rater, he is estopped from doing so  (Martyn v Gray , (1863) ). (Mugambwa, Amankwah, & Haynes, 2007)

Application

Now, Rodney and Penelope are in de facto relationship and are living together as domestic partners. The facts reveals that Rodney purchases groceries from a supermarket online and is regularly paid by Penelope.  

It is submitted that there is exact business formation that can be established between Penelope and Rodney, because, though there are sharing a relationship amid themselves and the act that is carried out by them is of continuous nature and with common intention, but, they are not undertaking the transactions with the aim of earning anything.

But, the facts revel that Rodney was continuously purchasing items from the store on behalf of himself and Penelope. Thus, the acts are carried out by Rodney on his own account and also on account of Penelope. Thus, there is a creation of agency amid them. In Wiltshire v Kuenzli (1945) it was held that it is the intention of the parties that mainly determines whether they are agents of each other or not.

Now, Penelope has not allowed Rodney to order few items, but, on the contrary Rodney ordered those two items without the approval of Penelope. Now, by applying the rule of estoppel it is submitted that Penelope has by his conduct has established to the store that Rodney has authority to purchase groceries on behalf of Penelope and he will pay for the same. Thus, if the store is acting in good faith, then, it can sue Penelope for the dues.  

Conclusion

Thus, there is no specific business establishment amid Penelope and Rodney. However, by applying the rule of estoppel, store can sue Penelope for its dues.

2. Issue

Whether Tim is an agent of MODO and Can Adam succeed in the legal action taken against MODO?

Law

When a business is created, then, the people who run the business represent each other and bound each other by their actions. Thus, they are called agents of each other. As per the law of agency, every agent in the business is the agent of each other and thus bound by the actions of each other. Normally, every agent can bound others by his actions provided the acts which are undertaken by him falls with his authority that is granted to him whether expressly or implied (Greville v Venables , [2007] ). (Morse, 2010)

But, when the business does not grants any authority to its agent and the agent enters into a contract with an outsider by representing the firm, then, such contract are not binding on the firm as are outside the scope of the agents authority. But, this is a great hardship to an outsider. But, when the situation is dealt as per the law of agency then, if an outsider is dealing with the agent in good faith and on the belief that the agent has the requisite authority to bind the business and other partners then any contract entered by such an agent is binding  (Watteau v Fenwick , [1893] ).

Thus, in the law of agency, the outsider can bind a person on the belief that he is acting with his agent and that the agent has the requisite authority which is granted to him by his agent. However, no safeguard is provided if the outsider is aware of the fact that the agent does not possess the requisite authority. (McKendrick & Liu, 2015)

Every agent has duty to carry out his acts with utmost acre and diligence and must not exceed his authority from the permissible limit that is granted to him.

Application

Now, Tim is appointed by MODO as an office assistant. Tim is allowed to visit Arart, find retail locations, and make enquiries and then report back. Thus, the authority that is provided to Tim is very limited. Tim is mainly acting as an agent of MODO and must act within the prescribed limit.

However, Tim exceeded his authority enters into a lease contract with Adam. It is submitted that MODO may cancel the lease contract with Adam as Tim is not authorized to enter into any such contracts. But, if Adam is acting in good faith and is of the belief that Tim has the authority to represent MODO and enter into contract on behalf of MODO, then, the contracts entered by Tim is valid and can be executed against MODO. As per the law of agency, Adam can assume that Tim has the authority to bind MODO provided there are no reasons to believe that Tim does not hold authority to enter into transactions on behalf of MODO.

Conclusion

The contract amid Tim and Adam is valid and can be enforced against MODO provided the contract is made by Adam in good faith and considering the fact that Tim has authority to bind MODO by his actions. Thus, the rule of agency is applied. 

Thus, apparent authority is different from actual authority and still establishes a relationship of principal and agent amid the parties.

Thus, there is no principal and the agent relationship amid the parties originally, but, with the presence of apparent authority; an agency is established amid the parties which makes a principal bound by the acts of the agent that are undertaken by the agent within his apparent authority.

When a partnership is created, then the partners are the agents of the firm and have the capacity to bind the firm provided the acts are carried out within the scope of their authority. But, when the task is carried out not within the scope of its actual authority, then, many a times the firm is bound by the actions of the agent under the apparent authority, apparent authority signifies that the principal has made some act or conduct in front of the third party which makes the third party to believe that the agent has the requested authority to bind the firm, and any act which is undertaken by the agent within such authority will stably a valid contract between the third part and the firm under the apparent authority of the agent. This is also called ostensible authority (Tower Cabinet Co Ltd v Ingram , [1949] ).

It is important to submit that there must be some act which must be undertaken by the principal which holds out the agent in such manner which portrays that the agent has the authority to bind the firm and the outsider must rely on the representation made by the principal and must act in good faith.

Bibliography

Ballantyne v Raphael, 15 (VLR 538 1889).

Greville v Venables , EWCA Civ 878 ([2007] ).

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) , NSWSC 124 ([2007] ).

Latimer, p. (2016). Australian Business Law . Australia: Oxford University Press, 35th Edition.

Martyn v Gray , 143 ER 667 ((1863) ).

McKendrick, E., & Liu, Q. (2015). Contract Law: Australian Edition. Palgrave Macmillan.

Morse, G. (2010). Partnership Law. OUP Oxford.

Mugambwa, j., Amankwah, h., & Haynes. (2007). Commercial and Business Organizations Law in Papua New Guinea. Routledge.

Re Ruddock , 5 VLR ((1879) ).

Tower Cabinet Co Ltd v Ingram , 2 KB 397 ([1949] ).

United Dominions Corporations Ltd v Brain Pty ltd and others , 157 CLR 1 (1985).

Watteau v Fenwick , 1 QB 346 ([1893] ).

Wise v Perpetual Trustee Co Ltd , AC 139 ([1903] ).