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Relationship between an Agent and a Principal

Question:

Whether Jeremy Is In Violation Of His Duties As An Agent Against Aspirational Developments?

An agency is the kind of relationship that is established between two parties. The first party is called a principal and the other party is called an agent. It is a kind of relationship wherein the agent is authorized to act on behalf of the principal with an outsider and any acts that are undertaken by an agent is binding upon the principal.  There is no presence of any contractual relationship, the only requirements is the presence of authority on the part of the agent which is delegated upon him by his principal.[1]

The relationship of an agency amid the principal and the agent can be established in four different manners. That is either expressly or by estoppel or by ratification or by operation of law. [2] Once an agency is established amid the principal and the agent, then, the principal is bound by all the actions of an agent. [3]

  1. Actual Authority – Actual authority are of two kinds:[4]
  2. Express authority – An express authority is an authority directly delegated to an agent. In order to create an express authority it is necessary that the principal must either by agreement, words or deed grant an authority to the agent and is called an express actual authority[5].
  3. Implied authority – The authority that is additional to the express authority so that the acts of the principal can be honoured appropriately by the agent. These are the presumed authority that comes along with the express authority and is established in Hely-Hutchinson v Brayhead Ltd (1968).
  4. Apparent Authority – A representation which is made to the third-party which portrays that the person is the agent of the principal and has the requisite authority to bind the principal is called an apparent authority. Acts conducted within the apparent authority by an agent is binding upon the principal. The representation must be made by the person who actually had the authority to enter into the contract and is held in Crabtree-Vickers PL v Australian Direct Mail Advertising & Addressing Co. Pty Ltd (1975).

In the leading case of Australia and New Zealand Bank Ltd v Ateliers de Construction Electriques de Charleroi [1976], it was held that the principal who had the actual authority must had made representation to the third party that the agent has the requisite authority to enter into a contract thereby granting an apparent authority to an agent. The principal of apparent authority is also analysed in Panorama Developments v Fidelis Furnishing Fabrics Ltd [1971].

The difference amid an apparent autotype and an actual authority was rightly analyzed in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd.

The facts reveal  that Gabba Pty Ltd is a company and provides one of the luxury facility in the name of Noora Norra Golf Club Resort. Ricardo is the senior curator and ground manager at the Resort. The Resort is facing financial difficulties and thus the CEO of the Resort informs Ricardo that he is only authored to enter contracts on behalf of the Resort up to the amount of $ 10,000.

It is assumed that the CEO of the Resort has an actual authority to enter into contract of behalf of the company. Thus, since the CEO has the power to enter contracts on behalf of the company, thus, he can delegate such authority to his agent as rightly established in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd .

Under the law established in Hely-Hutchinson an express authority is delegated to Ricardo to contract on behalf of the CEO but only to the extent of $ 10,000. Now, the authority that is delegated to Ricardo is limited in extent.

Types of Authority

However, Richard exceeded this express authority when he enters into a contract with Willow Landscaping for a contract amount of $ 13,000 with an extra cost of $ 4000 (water feature). Later CEO after considering the circumsttbces tells Willow to Proceed. Thus, by making a representation to Willow to proceed an apparent authority is granted to Ricardo thereby authorizing his him contract with Willow for an amount exceeding $ 10,000. As per Australia and New Zealand Bank Ltd v Ateliers de Construction Electriques de Charleroi [1976], apparent authority is granted to Ricardo and the acts undertaken by Ricardo within such authority is binding upon the CEO and thus upon the company.

An agent is the authorized representative of his principal. The principal appoints an agent, grants him authorities and empower him to carry out the tasks that are authorized to him by the principal under actual or apparent authority. Any person can be appointed as an agent by the principal including a minor. There are several kinds of agents that is, general agent, special agents, and universal agents, etc. whatever may be the category of an agent there are few duties that every agent must comply with. The same are:[6]

Duty not to make secret profits - An agent is not permitted to make any secret profits and reimburse to the principal. In Regier v Campbell-Stuart [1939] the agent was held liable for making secret profits.

Duty to make full disclosure to the principal - Every agent must disclose any personal interest and all relevant information that arise while carrying out his acts as an agent. In Mcpherson V Watt (1877), the agent in order to own the property of his principal (which he is authorised to sell on behalf of the principal) brought the property in the name of his brother. It was held that the agent was in violation of his duty to avoid conflicts of interest and the contract was not allowed;

An agent must act as per the directions and instructions of the principal;

No agent can delegate his duties unless he is specifically authorised to do so by the principal;

Every agent must act in a fiduciary manner and with all good faith;

Care and skill must be performed while carrying out his duties;

If an agent is found to be guilty of not performing his duties appropriately, then there are various consequences that can be faced by him. The same are dismissal, no commission; sue for losses suffered by the principal. The agent can be held liable towards his principal when the agent does not comply with his duties and the directions of his principal.

Types of Agents

The law is now applied.

Jeremy is the agent of Aspirational Developments Pty Ltd and he is assigned with the tasks of selling high-rise units “off the plan”. He recently became aware that third competitor is facing financial difficulties thus their units might become valuable.

In order to earn profits he ask his friend to arrange for funds so that he can purchase three units and lets split the profit in two.

It is submitted that Jeremy is the agent and thus he must comply with his tasks with all due care and skills. He must not ring in nay personal gains and if there is any conflict of interest then the interest of principal must prevail (Mcpherson V Watt).

 However, by buying three units without disclosing the fact to his principal, Jeremy has made secret profits and thus is in violation of his duties as an agent. As per Regier v Campbell-Stuartno agent is permitted to gain secret profits and the same must be reimbursing to his principal. He is even in breach of his duties when in return for a small payment, he informs several people who have expressed an interest in purchasing a unit of the news.

Thus, Jeremy must face liabilities for his actions and he must reimburse the profits that are gained by him. His services can also be terminated by Aspirational Developments

Conclusion

Jeremy is in violation of his duties as an agent against Aspirational Developments and must face liabilities for the same

References

Gibson, Andy and Fraser, Douglas, Business Law 2014, (Pearson Higher Education AU, 11-Oct-2013 ).

Pont, Gino Evan Dal , Law of Agency (LexisNexis Butterworths, 2008 ).

Turner,  Cliver, Trone, John, Gamble, Roger , ‘Concise Australian Commercial law’ Thomas  Reuters, 4th             Edition.

Tomasic, Roman, Bottomley, Stephen and McQueen, Rob,  Corporations Law in Australia (Federation Press, 2002).

Australia and New Zealand Bank Ltd v Ateliers de Construction Electriques de Charleroi [1976].

Crabtree-Vickers PL v Australia Direct Mail Advertising &Co PL (1975).

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.

Hely-Hutchinson v Brayhead Ltd [1967].

Mcpherson V Watt (1877).

Panorama Developments v Fidelis Furnishing Fabrics Ltd [1971].

Regier v Campbell-Stuart [1939].

The Law Teacher, Contracts made by Agents (2017) < https://www.lawteacher.net/free-law-essays/contract-law/contract-made-by-agents.php>.

[1] Gno Evan Dal Pont, Law of Agency (LexisNexis Butterworths, 2008 ).

[2] The Law Teacher, Contracts made by Agents (2017) < https://www.lawteacher.net/free-law-essays/contract-law/contract-made-by-agents.php>.

[3] Cliver Turner, John Trone, Roger Gamble, ‘Concise Australian Commercial law’ Thomas  Reuters, 4th Edition.

[4]  Roman Tomasic, Stephen Bottomley and Rob McQueen, Corporations Law in Australia (Federation Press, 2002).

[5] Hely-Hutchinson v Brayhead Ltd [1967]; Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.

[6] Andy Gibson and Douglas Fraser, Business Law 2014, (Pearson Higher Education AU, 11-Oct-2013 ).

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