Agency Law, Third Party Rights, And Partnership Law: A Case Study Essay.

General principle of agency law

After much deliberation and some prodding from Lucy, Daphne decides to go with the pink diamond ring. Although smaller it has an elegance about it that can't be beat. However in order to secure the ring she must exceed the budget by $20,000, but she is sure Lupe won't mind. He has the money and would buy Fifi the moon if he could.

When Daphne shows Lupe the ring, Lupe is in quite a mood, he laughs harshly and calls the size of the ring pithy. When Daphne tells hm the price he becomes furious, fires her on the spot and wants nothing to do with the ring. Daphne quickly comes to discover that Lupe and Fifi have broken up. Apparently they had creative differences when it came to their opinions on the movie editing that led to a very public scene.

A)Lupe would also like to know what recourse he may have against Daphne

Consider these additional facts. After having his heart broken Lupe stopped acting and spent most of his time in Monaco gabbling away his worldly possessions. After having a few weeks to himself and time to think Lupe has decided that life doesn't stop with Fifi. Sadly he is not up to his ears n gambling debts. As it turns out the vintage ring that Daphne had chosen wasn't just your everyday run of the mill pink diamond but apparently a very rare an valuable antique and is actually worth almost 7 times what Lafayette sold it for. Lupe purports to ratify the contract for the ring. Daphne refuses to enforce the contract.

D) Lafayette knowing that the ring is now worth so much more are keen to find a way out of the contract. Advise Lafayette.

The ring is not Lupe’s only problem. One of Lupe’s only assets left is an old vineyard that was left to him by his grandmother some ten years ago. He has never thought much about it until now as he was never really interested in making wine. The inheritance consists of 100 acres of fine vineyards in the Yarra Valley and a much smaller 20 acres plot of land up near Bright. His Grandmother has left him the land with the request that he keep it in the family and pass it on to his children and his children’s children. Lupe’s family has a long tradition of winemaking, however Lupe left at the age of 18 and moved to Hollywood to seek fame and fortune. He know wishes to continue with family business, however the only thing Lupe knows about vineyards is what a $1000 bottle of Champagne looks like. Knowing he does not have the expertise needed and wanting to elevate the vineyard into fame Lupe contacts Fred a renown viticulturist and oenologist. Lupe meets with Fred a few days later and is very impressed with him, but Fred is not interested in being an employee and instead proposes a partnership. The partnership agreement states that Fred will receive 10% of the profits and that the partnership will last for five years. Lupe makes it clear that he intends to pass on the vineyard to his children one day but in return for Fred’s knowledge and experience, Lupe will give him the smaller parcel of land in Bright at the end of the partnership.

As per the general principle of agency law, the principal can be held responsible for the actions of his/her agent. However, it does not mean that the principal will be held liable for unauthorised actions of the agent. Various remedies are given to the principal in order to set the boundaries on agents to not perform certain actions in required manner. The principal has the right to ratify the act or refuse them. If the actions are not ratified by the agent, then the agent becomes personally liable for the actions.

In the given case study, Daphne had to hide the identity of her principal; however, she failed to do so. Moreover, a budget of $300,000 was approved by Lupe; however, Daphne spends $320,000 instead. Therefore, Daphne acted outside the boundaries set by Lupe, and she acted without any authority. As per the principle of agency law, Lupe has the right to hold Daphne liable for $20,000. On the other hand, the size of the ring is also an issue. Lupe specified to Daphne that he wanted a rock which is in the form of a ring. But, a pink diamond ring is purchased by Daphne instead. However, this is not an issue in the agency law because Lupe had given the authority to Daphne to finalise the ring by herself.

Based on the above analyses, Lupe has the remedy to refuse the purchase made by Daphne since she acted outside the boundary of her authority specified by Lupe. The balance amount of $20,000 can be demanded by Lupe. However, the size of the ring was not a condition; thus, Lupe cannot hold Daphne liable for the ring she chooses.

Under agency relationship, the third party has the right towards the principal because the principal gives the authority to the agent. If a third party has any reason to believe that the authority exists, then such party has the right to hold the principal liable. The third party rights are saved in a contract because the principal owed the ultimate responsibility in the contract. The right of the third party remains secure even if the agent acted outside the scope of the authority. In such case, the dispute arises between the agent and the principal; however, the rights of the third party are secured. A contract is considered as valid if all the elements are fulfilled by the party. In Chappell & Co Ltd v Nestle Co Ltd case, the court provided that a contract cannot become ineffective if the consideration is not sufficient.

Remedies for the principal

In the given case study, authority was given by Lupe to Daphne to purchase the ring for per fiancée. Although Daphne acted outside her authority, however, the right of Lafayette is secured since he is the third party. The dispute has arisen between Daphne and Lupe. A contract was formed for the pink ring when Lafayette did not know that it was an antique. Lafayette did not have the right to consider the contract invalid or demand further consideration since a valid contract has formed between the parties. Moreover, the contract cannot be terminated by Lafayette by relying on the fact that Daphne acted outside her authority while purchasing the ring. He also cannot rely on the fact that the consideration was not sufficient in the contract.

A partnership is governed by the partnership agreement which is formed between the partners. The provisions given under this agreement resolves the issues which arise between partners. Although it is not possible for parties to include every term in the partnership agreement, however, their rights and liabilities are decided on equality basis. The partners have to perform their promises as per the provision of equality. Moreover, the rights of the partners are divided equally in case no specific provision is given regardless of the profit sharing ratio of the parties.

In the given case study, a partnership is formed between Lupe and Fred for a period of five years. Moreover, the parties decided that after termination of the partnership, Lupe will give a small parcel of land to Fred. Moreover, Fred will be entitled to receive ten percent of profits of the business. No other provisions established by the parties in the partnership. In this case, the issue is raised based on three properties which include the vineyard, land in bright and the additional property purchased by the partnership. Fred is entitled to receive the land in bright; however, he is not liable to take any share in the vineyard as decided by the parties. Moreover, Fred has the right to get half of the share in the additional land purchased by the parties during the course of their business since no provision was included in the partnership agreement.

Conclusion

Based on the above analysis, Fred as the right to demand half share in the property which was purchased by the business during its course and the rest of the rights are given under the partnership agreement.

As discussed above, the partnership rights are not limited to the agreement which is formed between the parties. The provisions which are included in the partnership agreement by the parties define their rights and liabilities in the business. However, in case no provisions are included in the agreement, then the parties have the right to divide their assets and liabilities equally between themselves. Unless provided otherwise, the partners have equal right in an asset of the business which is purchased during the course of the business by the partners.

In the given case study, both partners have defined their rights and liabilities regarding the properties in the partnership agreement. The rights of the vineyard and the land in bright are clearly defined between the parties. The right of Fred regarding these properties are clear. However, the key issue raised is regarding the third property. The property is purchased by the partners during the course of the business, and they did not specify their rights regarding the property. Since no rights are defined by the parties in the partnership agreement formed between them, all partners have equal rights on the property. Thus, Fred has the right to claim half of the property which is purchased by the parties during the course of the business. The property will be divided equally between both partners.

Based on the above analysis, no provision for the additional property is included by the partners into their partnership agreement. Therefore, the property will be divided equally between the partners since Fred has equal right in the property.

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Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87