Legal Analysis Of Contractual Authority And Duties Of An Agent

Issue 1: Sole Trader’s Authority and Duties of an Agent

Tina appoints Brad as checkout operator at her independent garage which she operates as a sole trader. The business operates both as a service station and as a used-car lot.

Tina contracts glandular fever, and during the four months she is off work, she tells Brad that he can order petrol while she is sick. During this period, Brad negotiates supplies with Caltex. Brad orders fuel from Caltex every fortnight. Tina returns from her illness, and tells Brad that he should no longer order petrol and that matters will be conducted as they were before she was ill. However Brad, who enjoys the increased status of dealing with the oil companies, ignores Tina’s instruction, phones Caltex and orders 30 000 litres of fuel. When the truck arrives to deliver the fuel, Tina is furious (as she has already entered into a more advantageous arrangement with BP). She phones Caltex, and denies that there is a contract between her and Caltex, stating that Brad was acting contrary to instructions when he placed the order.

Tina employs Paul as a salesman of the used vehicles.   Paul has several years experience in the second hand vehicle market. Tina has a number of vehicles on display, including a 2012 Holden Commodore Wagon, priced at $ 19 000. She does not realise that the vehicle could easily fetch $ 25 000. Paul however does know this, and also that his next door neighbour, Fred, wants to purchase just such a vehicle. Paul says that he needs a vehicle himself, and buys the wagon from Tina for $ 19 000. He then sells it to Fred for $ 25 000;Tina is furious when she finds out what has happened.

Advise Tina as to her legal position in relation to the above situations, citing relevant authority.

Simon, George, Sara and Mary were all employed by different IT companies. However, they felt that they could do better if they went into business themselves. They pooled their available cash and drew up a partnership agreement, which stated that each partner had authority to enter into transactions on behalf of their IT firm, which they called Computer Solutions. The firm operates in Sydney and provides a service of storing data for customers. The agreement states that partners have authority to enter into contracts of up to $ 10 000, but that any contract for more than that must be approved unanimously by all partners.

George, Sara and Mary approach you for legal advice in relation to two transactions entered into by Simon, who had acted without referring back to the partners. On was for a 500TB storage drive, bought by Simon on behalf of Computer Solutions, from Sunstar Computer Hardware Ltd, costing $ 12 000.

The other was for a second-hand ute, costing $ 9 000, which Simon ordered for the firm from You Beaut Ute Ltd, on the basis that the partnership should branch into the freight business.

George, Sara and Mary have refused to accept delivery of both the storage drive and the ute and the partnership has been sued by both Sunstar Computer Hardware Ltd and You Beaut Ute Ltd. Give George, Sara and Mary legal advice, referring to relevant statutory and case law authority.

Issue 1: Sole Trader’s Authority and Duties of an Agent

The problem relates to authority of the agent to bind the principal and his duties towards his principal.

The main issues are

1. Status of contract entered by Brad on behalf of Tina with Caltex?
2. Status of vehicle purchased by Brad from Tina at an undervalued price?

These issues are resolved by understating the law.

The Relevant law 

The First issue can be resolved by understanding the authorities of an agent and its scope.

Agents Authorities

An agent is a person who is appointed by a principal and who acts and works as per the control and directions of the principal. The principal normally grants authority to an agent and specifies that an agent must act within such scope (Lang v James Morrison & Co Ltd , (1911). ). So, on the basis of scope, an agent’s authority is normally of two kinds. (Egert, (2007))

First, when the principal by his express will allocates an authority to an agent, then, it is called actual authority. This can be allocated by specifying into the agency agreement or can be provided by the principal through is conduct or by his inferences. It is a direct allocation of authority (Australia and New Zealand Bank LTD v Ateliers de Constructions electriques de Charleroi , [1969]).

Second, when the principal does not express his desire to allocate the authority directly to an agent but he represents to others that the agent in fact does possess some kind of authority under which he has the power to bind the principal, then, such authority is called ostensible authority (Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd and Kapoor , (1964)). (Bowen, (2017))

In both the situations, the agent is powered to enter into transactions which will be binding upon his master.

With power comes the responsibility.

Responsibilities of an agent

When any principal appoints any agent then it is the duty of an agent that he must act appropriately and always in the best interest of his master. Broadly, the main duties of an agent are, First, that he must act with honesty and thus holds fiduciary relationship with his master (Scott v Davis , (2000)); second, that he must not make any profits by exploiting the position of his master; third; if any profits are made then he must repay the same (Hollis v Vabu , (2001)); forth; the information that is collected by him during his role as an agent should not be misused by him; fifth, he must use his expertise to the benefit of the principal and not for his own benefit when catering the services of his principal. (McCarthy, (2004))

Now, if an agent does not cater his duties properly and because of the noncompliance he gets benefits at the cost of the principal, then it is his duty to repay the profits or benefits that are attained by the agent. The principal has every right to sue the agent for the recovery of his loss.

These principal are now applied to the facts of the case.

Application of law to the facts 

First issue

The first issue requires the analysis of the status of contract that is entered by Brad on behalf of Tina with Caltex.

Agents Authorities

Tina is the sole trader and operates a business through garage. He appoints Brad as the checkout operator. While Brad was furnishing his duties, he was assigned with special tasks of ordering petrol during the span of time for which Tina was sick.

Now, since, Brad was given the authority of ordering petrol during the time Tina was sick, thus, this power is the actual authority that is granted by Tina to Brad. The authority is restricted to the tasks of ordering petrol only.

This actual authority was withdrawn by Tina when she returned to work. However, Caltex from whom the petrol is ordered by Brad is not aware of this variation nor the same was communicated to Caltex by Tina. So, indirectly a representation is made by Tina who depicts that Brad still has the power of ordering petrol.

So, when Brad ordered petrol after the recovery of Tina, then, even though the tasks is outside the actual authority of Tina but still the tasks is valid because it is carried out within the ostensible authority of Brad.

Issue 2

The second issue requires the status of vehicle purchased by Brad from Tina at an undervalued price.

Now, Tina is also interested in selling his vehicles. In order to do so she employed an experienced sales person, Paul. Paul is acquainted with the knowledge’s of the prices of the second had vehicle in the market and he was employed by Tina so that she can use her expertise in order to bring profits for herself.

Now, she is willing to sell her 2012 Holden Commodore Wagon. Since she is not aware of the actual worth that can be fetched from the sale of the vehicle so she quoted the price at $ 19 000. However, Paul is aware of the actual worth and he is aware that the actual amount that can be fetched from the sale of the vehicle is $ 25 000. 

It is the duty of Paul as an agent that he must specify to Tina the actual worth of the vehicle. It is his fiduciary duty to do so. But, he misguided Tina and in order to avail profits for himself, which he can acquire by selling the same to his friend Fred.  

He purchased the vehicle at $ 19,000 and re-sell the same to Fred @ $25,000 thereby making gains.

So, Paul is totally is in violation of his duties which he must comply with as the agent of Tina.

Conclusion 

The contract between Caltex and Tina, which is established by Brad within his ostensible authority, is valid and Tina must honor the same.

Also, Paul has violated his fiduciary duties towards Tina and brought unfair gains to himself, thus, he must repay the profit amounts to Tina.

The main issues are

1. The validity of contract entered amid Commuter Solutions and Sunstar Computer Hardware Ltd?
2. The validity of contract entered amid Commuter Solutions and You Beaut Ute Ltd?

The formation of any partnership is the outcome of the relationship amid two or more person who join together to conduct a business and to earn profits from the same. These partners share an agony relationship with the firms and each other which signify that the acts which are performed by the partners will bond the others and the firm (Lang v James Morrison & Co Ltd , (1911). ). (Egert, (2007))

Responsibilities of an agent

The partner may carry out the acts within its actual authority or ostensible authority, but, if the transactions are within their authority then there is no question to doubt upon the authenticity of the transactions. But, when any firm deals with the outsider through its partners, but, the partners does not have the relevant authority or power to bind the firm, then, such transaction has no validly because the same lack authority. In such situation, the firm does not want to honor the transactions that are entered by their partners by acting without authority or by exceeding authority. (Woodward, (2001))

However, the outsiders who are dealing with the partners in good faith and ha the genuine reason to believe that the partner must have the authority to bind the firm may suffer set back and face consequences. So, in (Royal British Bank v Turquand , (1856).), it was held that when an outsider acts in good faith and has no reason to believe that the partner is not authorized and enters into a contract with such partner on behalf of the firm, the, the contract are valid as per the indoor management rule. (Halsbury)

But, no partner must act with deceptive intention or has reason to believe that the partners are not authored to act on behalf of the firm (Northside Developments Pty Ltd v Registrar-General , (1990)).

Application of law to the facts 

Now, the computer solutions are established by four partners, Simon, George, Sara and Mary. All the four partners has established an agreement according to which all the four partners are empowered to make contracts for and on behalf of computer solutions but the power is restrain only for contract the worth of which is $ 10,000.

If any partner wants to make contract beyond $10,000 then it is necessary that the partner must seek approval of all the other partners and I no approval is granted then the contract is outside the scope of the partners authority and is thus non-binding upon the firm.

Simon, in order to make contractual relationship, makes two transactions. She contracted with Sunstar Computer Hardware Ltd to buy one 500TB storage drive which is worth $ 12,000. Now, this act of Simon is outside the partnership agreement that is entered amid the partners. So, the computer solutions has every reason to disregard  the transaction by considering that the same is outside the scope of the company and no permission is taken by Simon from the other three partners, so, is also outside the scope of authority of Simon and thus is not valid.

But, Sunstar Computer Hardware Ltd can prove that when the contract was made with Simon it has no reason to believe that Simon is not authorized to netter into transaction beyond $ 10,000 unless approval of other partners are not taken. The internal proceedings of the firm cannot be checked by Sunstar Computer Hardware Ltd and the acts are taken in good faith and honest belief. Thus, the rule of indoor management must be applied and the transaction is binding upon Computer solutions.

Further, Simon also enters into a contract with You Beaut Ute Ltd which is worth $ 9,000. This contract that is made by Simon is as per the provisions of the partnership agreement and is within the scope of her actual express authority. So, this transaction in no circumstances be denied by Computer Solutions.

Conclusion 

The two transactions that are entered by Simon is valid and must be enforced against Computer Solutions. The contract with You Beaut Ute Ltd is within the actual express authority and a per the partnership agreement and is thus valid.

The contract with Sunstar Computer Hardware Ltd is outside the scope of partnership agreement and authority of Simon but is valid by applying the rue of indoor management.

Australia and New Zealand Bank LTD v Ateliers de Constructions electriques de Charleroi ([1969]).

Bowen, R. ((2017)). Agency Authority in Australia. Australia.

Egert, A. ((2007)). DEFINING A PARTNERSHIP: THE TRADITIONAL APPROACH VERSUS AN INNOVATIVE DEPARTURE ? DO QUEENSLAND APPEAL COURT DECISIONS POINT TO THE NEED FOR A REVIEW OF THE TRADITIONAL APPROACH TO . Bond Law Review.

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd and Kapoor ((1964)).

Halsbury. Halsburys Laws of England - 4th Edition, volume 9., (p. paar 1338 note 7). 

Hollis v Vabu ((2001)).

Lang v James Morrison & Co Ltd ((1911). ).

McCarthy, L. ( (2004)). VICARIOUS LIABILITY IN THE AAGENCY CONTEXT. 

Northside Developments Pty Ltd v Registrar-General ((1990)).

Royal British Bank v Turquand ((1856).).

Scott v Davis ((2000)).

Woodward, E. ((2001)). Corporations Law - IN principle, 5th edition. (p. 113). Australia: LawbookCo.