Legal Opinions: Analysis Of Agency Relationships And Breach Of Duties

Question:

Discuss about the Business Law Study ?

Legal opinions are very important as they set the stage for a vigorous legal battle. It explores different options an aggrieved party can follow to receive redress on any question of law. The format of writing legal opinions varies from case to case. In this paper however, the opinion has been discussed using the ILAC format.

The issues in this scenario is whether Brad acted beyond his powers as an agent when he ordered 30,000 litres of fuel from Caltex in total disregard of Tina’s express instructions and whether there was breach of contract by Tina on refusing to accept delivery of fuel from Caltex.

Law

An agency relationship describes situations where a party known as the principal gives another party called the agent the authority to deal on the principal’s behalf with third parties. For an agency contract to arise, the principal should have the capacity to contract. The actions of an agent bind the principal so long as the agency is still in force. The agent has a limitation on the range of duties he or she can perform. The agency agreement is limited to the express instructions of the principal. Where an agent act outside his or her powers, it is said that he has acted ultravires and those contracts entered into outside his powers do not bind the Principal.

The agent has the authority to act for the benefit of the principal. He or she should not carry himself as the principal in any transaction. He has the duty to account to the principal on all the profits he or she makes during the course of the agency. An agent is also required to employ the use of reasonable care and skill in the performance of the delegated duties. He should not act so negligently so as to expose the principal to unnecessary legal action. In the case of Collen v Wright (1857) 8 E & B 647, the agent was held liable for purporting to enter into a contract with a third party though he had no authority to do so.

The agency agreement is terminated by the principal at any time or when the duty to be done under the Agency agreement has been accomplished. It also comes to an end when the agent resigns.

Analysis

There is an oral agency agreement between Tina and Brad. The agency arises when Tina contracts Glandular fever and appoints Brad to order fuel while she is way. Brad carries his instructions as directed and orders fuel from Caltex after every fortnight. However, when Tina returns, the principal-agent relationship ceases to exist at that time he is informed by Tina that normal operations would resume and he will no longer order fuel from Caltex. This is a case of termination of an agency agreement by the principal.

In disregard of the express instructions, he goes ahead and orders 30,000 litres of fuel from Caltex which Tina refused to pay. At this point, the agency agreement no longer exists as it has been terminated by the principal.

Analysis of the Issue of Agency Relationship

Tina and Brad had an agency agreement which was to subsist when Tina was away through sickness. Tina is no longer sick and has resumed her duties as a sole trader. She terminates the agency agreement between her and Brad. By Brad ordering fuel from Caltex, he is acting on his own capacity and not as an agent. He is therefore personally liable. There is no breach of contract on the part of Tina. Caltex are therefore free to pursue a claim for damages and breach of contract from Brad.

The issue in this scenario is whether there is an agency relationship between Tina and Paul and if so, whether Paul breached any of his duties as an agent especially the duty to account or the duty to act in good faith.

The law of agency imposes duties on the agent. The agent acts on behalf of the principal and therefore there are duties attached to that kind of relationship that should not be breached. An agent is a person with authority to act on behalf of another, the principal in a transaction involving third parties. The duties imposed on agent are fiduciary in nature. The agent is in a position of trust giving rise to duties to the principal.

The agent is required to act in the best interest of the principal in every transaction he is involved in. this duty requires the agent to use his knowledge and skill and diligently negotiate with the third party on terms that are to the advantage of the principal. An agent would be in breach of this duty when he contracts in a manner that benefits him and not the client. In the case of McPherson v Watt (1877) 3 App Case 254, the principals wished to dispose a property and wanted to put an advert to that effect. The solicitor informed them that he was capable of finding a buyer. The solicitor then arranged for his brother to put a bid for the property. He bought it and later conveyed it to the solicitor. The principals discovered what had transpired, they sued their agent, the solicitor and the transaction was set aside because the agent was found to have acted in bad faith.

Common law also prohibits an agent from making profits or to acquire a benefit out of the agency relationship without the consent or knowledge of the principal. The profit is known as secret profit and is not limited to money only but also includes anything that has value. Where an agent makes a secret profit, he is supposed to account to the principal for the said profit and any other remedy that accrue from breach of the duty of an agent. In the case of Reiger v Campbell Stuart (1939) 3 All ER 235, a principal sought to purchase a property. He asked one of his agents to find a suitable one. The agent found a property for worth $ 2000. He never informed the principal about the property but arranged to buy it himself through his brother. He later sold the same property to the principal for $ 5000.the principal on learning of what transpired, he sought to recover the secret profit made by the agent and he was successful.

Analysis of Paul's Breach of Duties as an Agent

Paul has been employed because of the experience he has in the business of motor vehicle sales. That special knowledge he possesses gives Tina a reason to trust him such that she entrust him with the business in the yard. He is Tina’s agent for that matter. Paul has learnt that his next door neighbour is in need of purchasing one of the vehicles in the yard for a price higher that the declared price. Paul is aware of this and misrepresents to Tina that he himself is in need of the same van. He then sells it at a profit which he does not disclose to Tina. That is a secret profit made in disregard of the fiduciary duties he owes to the Principal.

Paul as agent with special knowledge entrusted with the duty to act on behalf of Tina disregards the fiduciary duties he owes the principle. He did not act in good faith when he presented himself to buy one of the vans in the yard just to sell it to a third party at a profit. He therefore did not act in good faith and in the process, made secret profits. He is therefore liable to account for the secret profits made as well as any other remedy resulting from breach of the duty he owed to the principal.

A partnership refers to an association between two or more persons who contribute money in order to conduct a business for profit. A partnership is not a separate legal entity. The partnership and the partners are not separate. A partnership shares both profits and losses incurred.

The issue in this case is a determination whether xyz acted beyond his powers and if so whether the partnership is liable or bound by actions of another partner acting ultra vires.

A partnership is considered as a special type of Agency relationship. This is because a partner acts on behalf and for the benefit of the partnership. It was held in the case of Lang v James Morrison & Co Ltd (1911) 13 CLR 1 at 11 that when agents contract, they do so on behalf of another. They act as agents. A partnership is said to exist where there are two or more persons who carry out business in common with a view of making profits. The business must be carried out by or on behalf of the partners.

Where the partnership agreement clearly states the extent of transaction that a partner can engage in on behalf of the partnership, the said partner should abide by the express agreements. A partner acts or is in a fiduciary relationship with the partnership. He should act therefore in the interest of the partnership. For a transaction to bind the partners or the partnership;

Partners can only be bound to any transaction made with a third party when the person making such transaction is a partner. If the transaction is made by another person apart from the partner, the other parties do not owe any liability.

Conclusion

This is a question of fact. A partner should not enter into a transaction for the provision of goods and services outside the   business of the partnership.

In the case of Polkinghorne v Holland (1934) 51 CLR 143, the plaintiff, a client to a law firm consisting of three solicitors. The client received professional legal advice from one of the partners about an investment venture in which the partner had developed some interest. The investment failed terribly, prompting the Plaintiff to bring an action for damages.  The court had to determine whether the remaining partners could be held liable. The main issue was whether the two innocent partners were liable for her loss. The court found for the plaintiff because giving of legal opinion was in the course of duty and therefore he acted on behalf of the partnership

Partners owe each other fiduciary duty which include;

1. The duty to act in good faith
2. To account for all the information and assets in the custody of a partner
3. To avoid conflict of interest
4. the duty to account for any profits

This is a partnership business consisting of four persons carrying on a common business with the expectation of making profits. Thy have a partnership deed which sets the agreement between them. Quite notable is the set value above which any partner should not exceed in contract negotiation with third parties. However, Simon enters into a contract to purchase a 500TB storage device costing $120000 in disregard of the set $ 100000. He orders for a used ute, for $ 9000 though the partnership had not shifted to another form of business. The remaining three partners are confused as to the suit. A close examination of the case brings out the acts by Simon to be outside the partnership agreement.

Conclusion

The four persons are partners carrying on a common business with the view of making a profit. However, one of the partners has engage in two different transactions that have gone beyond his powers as contained in the partnership agreement.. He acted ultra vires. The other partners are within their right to refuse delivery and therefore, Simon is individually liable to pay damages from his own account since the remaining partners were never involved.

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