The Essay Explores Agency Law: Principal-Agent Relationship. (70 Characters)

Types of Authority under Agency Law

Question:

Discuss about the National Commercial Banking Corporation.

The law which governs the relationship between the principal and its agent is the agency Law. Under this law, the principal is held responsible for the acts which are undertaken by his agent, to a third party (Munday, 2010, p. 13). Agency governs the relationship between a principal, and its agent, and in such cases, the agent acts on behalf of its principal. The raison d'être behind the agency law stems from the absence of awareness to the third party, regarding the presence of authority with agent, for their acts, and so, the principal is held liable for the conduct of their agent (Busch, Macgregor and Watts, 2016, p. 37).

It can be broadly made two forms, the first one is the actual authority and the other one is the apparent authority. In actual authority, the individual has the express authority to work on behalf of the principal (Murdoch, 2014, p. 5). The other is the apparent or ostensible authority, under which, the conduct of the principal is such, which leads the third party into believing that there was a presence of the required authority to do the act, even when in actuality, the same authority had never been awarded to the agent (Patterson Law, 2012).

In a leading case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, the plaintiff initiated legal action against the defendant, along with Kapoor, the director of the company, for the unpaid payment of thee architecture work fees. Though, the director was never appointed as the MD or the Managing Director of the company, it was always portrayed that he was the holder of this position. And the other directors were aware about this portrayal. Hence, due to the presence of ostensible authority, the defendant was held liable for the unpaid payment (PQ Magazine, 2017).

In another legal case of Hely-Hutchinson v Brayhead Ltd [1967] 1 QB 549, the defendant was sued by the plaintiff for failing in finishing the takeover deal, as a result of which, a loss was incurred. In this case, the plaintiff was the de facto MD and the CEO of the company and had guaranteed the repayment of money. Though, the payment was denied to the plaintiff and it was stated that he did not have the requisite authority to provide any guarantee. Though, it was held by the court that there was a presence of authority and hence, the defendant was required to honor the guarantee given by its agents (Nanda, 2012).

In the case of Watteau v Fenwick [1893] 1 QB 346, the beerhouse was operated by Humble and the plaintiff was the cigar supplier. The interest was assigned to the defendant by the plaintiff and the supply of cigars was continued by the plaintiff to Humble; though he was unaware about the participation of the defendant. The plaintiff sued the defendant for nonpayment. It was held that the defendant was liable for the act of its agent, which was Humble in this case, and he had to pay the plaintiff the amount claimed (Smith, 2012).

Legal Cases based on Agency Law

In the given case, Brad was appointed as the agent by Tina. On basis of his apparent authority, he continued to order fuel from Caltex. Though, even when his authority was revoked, he continued to do the same. Caltex had no knowledge about the same. Applying the case of Watteau v Fenwick here, Tina would be liable for the acts of Brad due to the lack of awareness on part of Caltex about the revocation of the authority, and due to the applicability of ostensible authority. This would make her liable to pay the contractual amount to Caltex.

Under the agency Law, the agents have the implied duty of acting in good faith and ensuring fair dealing in the work they undertake on behalf of the principal (Maughan and Wells, 2013). A number of duties are owed by an agent to the principal. This includes the duty of discharging their duties with care and diligence (US Legal, 2017).

In the case of Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111, the exclusive distribution rights were given by ITC to Yam Seng in 2009, as per which the plaintiff could distribute the Manchester United fragrances in Australia, Africa, Asia and Middle East. A case was made by the plaintiff against the defendant in 2010 and it was alleged that the defendant had breached the implied term of good faith by providing false information to the plaintiff. The claims of the plaintiff were upheld and the court held that the defendant had to the duty to be honest as a part of good faith (Jones, 2014).

In the given case study, Paul withheld the information about the price of vehicle in the market being $ 25 000. He also failed in informing Tina that Fred, his neighbor, was interested in purchasing the same at this price. He instead lied to Tina about needing the vehicle for himself and sold it to Fred, whereby he made a profit of $ 6,000.  This was a clear breach of duty imposed on Paul, by being an agent of Tina.

Paul had the duty of being honest to Tina and had to inform her about the interest of Fred and the actual market price of the vehicle. He acted in a dishonest manner and so, as per Yam Seng Pte Ltd v International Trade Corporation Ltd, he breached his duty of acting in good faith. Hence, he would have to compensate Tina for her loss and for the breach of agent’s duties.

Whether the action raised against the partnership firm by both Sunstar Computer Hardware Ltd and You Beaut Ute Ltd would hold, or not? Whether George, Sara and Mary can initiate actions against Simon, or not?

Partnership can be defined as an arrangement between the parties, who come to be known as partners, whereby they agree to advance their mutual interests by carrying on a business with the aim of attaining profit. Section 1 of the Partnership Act, 1892 (NSW) contains the definition of partnership as per which, for partnership to exist, there has to be a carrying on of a business, which is common and for attaining profits (NSW Legislation, 2012). Partnership is governed by a document, which is known as a partnership agreement and which covers the details of the partnership (Commins Hendriks Solicitors, 2017).

Duties of Agents under Agency Law

The partnership agreement is basically a contract, which sets out the terms of the partnership (Williams, 2011, p. 335). So, when a term in the contract is breached, a claim can be raised by one party, against the other party, as per the contract Law. In case of such breach of contract, the aggrieved party can initiate actions for damages against the breaching party (Latimer, 2012, p. 469). In some cases, the equitable remedies could also be sought after, which can help in stopping the individual, through an injunction; or ask the individual to do some particular task, in form of specific performance; and even rescind the contract through rescission (Clarke, 2016) .

Section 53B of the Partnership Act, 1892 (NSW) contains the provisions regarding the partnership agreement. Due to these reasons, the common law of contract can be applied on the partnership. However, even without a partnership agreement, the Partnership Act of NSW allows the formation of a partnership (NSW Legislation, 2012).

In addition to the contract law, the agency law, as highlighted in the previous part, is applicable on the partnership. Due to the applicability of the agency law over partnership, all the partners are liable for the actions of each other to the third party (Parisi, 2017, p. 415). Hence, the acts undertaken by one partner, are binding on the entire partnership. This provision is further contained in section 5 of this act, as per which, the partners have the power of binding the partnership and the other partners, for the actions undertaken by them. Section 9 of this act makes the partners liable for all the obligations and debts of the firm, which were undertaken when the individual was a partner (NSW Legislation, 2012). The rationale behind this is that when the partners act in the course of partnership business, they are to be deemed as each other’s partners and this was held in the case of Lang v James Morrison & Co Ltd (1911) 13 CLR 1 (Jade, 2011).

In the case of Phillips-Higgins v Harper [1954] 1 QB 411, it was held that as the partners owe a fiduciary duty towards each other, when one of the partners acts as the agent of the firm, the individual would owe duty towards their partners who owe a similar duty back to the partners (Swarb, 2015a). The case of Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103 presents the liability of the partners towards the others. In this case, two individuals were in a partnership, where they carried on a business of leading out garages. Under this agreement, both of these individuals were prohibited from selling the motor vehicles. Even though this prohibition was applicable, one of the individuals sold a motor vehicle to the plaintiff, which was not owned by him. Furthermore, in past, he had sold such vehicles to the plaintiff. So, the partnership was sued by the plaintiff for recovery of damages. Looking at how the transaction appeared to the plaintiff, it was held by the court that from his point, the sale was as per the usual course of business and hence, valid (Swarb, 2015b).

However, in the case of National Commercial Banking Corporation of Australia Ltd v Batty (1986) 60 ALJR 379, it was held that the partnership firm would not be liable for the wrongful actions of the partner, as they were not as per the scope of apparent authority of the partner, and further because the money received by the firm was not in the ordinary course of the business of the firm (Jade, 2017).

In this particular case, a partnership was formed between Simon, George, Sara and Mary. They decided to form a partnership, for which a partnership agreement was drawn. This partnership agreement gave the individuals the power of entering into transactions on behalf of the company, to the value of $10,000. Simon entered into two contracts, one of which was drawn with Sunstar Computer Hardware Limited to the cost of $12,000. The rules stated above provide that the partners and the partnership firm are liable only when the act is done as per the authority given and in the course of business. In absence of transaction done in normal course of business, the firms cannot be held liable.

This was a clear breach of the authority given to him as per the partnership act. Hence, applying the case of National Commercial Banking Corporation of Australia Ltd v Batty, the firm would not be liable for this particular act of Simon. This is because this particular transaction not only breached his apparent authority, but also was not as per the partnership agreement. Hence, Simon would be personally liable for this particular contract. Even though the agency law, the governing sections of the Partnership Act, and the cases like Lang v James Morrison & Co Ltd make the other partners liable for the acts of their fellow partner, but being the acts beyond his apparent authority, the partners would not be liable and Simon would be held personally liable for the breach of authority and the partnership deed.

Moreover, as Simon breached the partnership deed, which acts as a contract, the other partners can initiate action against Simon for the breach of provisions of the partnership act and the breach of contract. This would hold them in stopping Simon from undertaking more such contracts.

However, for the agreement drawn with You Beaut Ute Ltd, the same was as per the authority given to Simon and as per the partnership agreement. Hence, the firm would be liable for this particular contract.

Conclusion

The action raised against the partnership firm by Sunstar Computer Hardware Ltd would not hold; though, the same, when raised by You Beaut Ute Ltd would ne upheld hold and the firm would be liable for the payment of this contract. And George, Sara and Mary can initiate actions against Simon for breach of partnership agreement, as being a contact.

References

Busch, D., Macgregor, L., and Watts, P. (2016). Agency Law in Commercial Practice. Oxford: Oxford University Press, p. 37.

Clarke, P. (2016). Remedies for Breach of Contract. Retrieved from: https://www.legalmatch.com/law-library/article/breach-of-contract-equitable-remedies.html

Commins Hendriks Solicitors. Written Partnership Agreements – Why All Partnerships Should Have One. Retrieved from: https://www.comminshendriks.com.au/written-partnership-agreements-%E2%80%93-why-all-partnerships-should-have-one

Jade. (2011). Lang v James Morrison and Company Ltd. Retrieved from: https://jade.io/j/?a=outline&id=62121

Jade. (2017). National Commercial Banking Corporation of Australia Ltd v Batty. Retrieved from: https://jade.io/j/?a=outline&id=67268

Jones, D. (2014). Implied duty of good faith - what is the current position for distributors?. Retrieved from: https://www.agentlaw.co.uk/site/briefing_notes/implied_duty_of_good_faith_what_is_the_current_position_for

Latimer, P. (2012). Australian Business Law 2012, 31^st ed, Sydney, NSW: CCH Australia Limited p. 469.

Maughan, A., and Wells, S. (2013). UK: Good Faith Obligations In English Law. Retrieved from: https://www.mondaq.com/x/252158/Contract+Law/Good+Faith+Obligations+In+English+Law

Munday, R. (2010). Agency: Law and Principles. Oxford: Oxford University Press, p. 13.

Murdoch, J. (2014). Law of Estate Agency, 5^th ed, London: Routledge, p. 5.

Nanda, P. (2012). Hely Hutchinson v. Brayhead Ltd. - The Authority on Actual and Ostensible Authority. Retrieved from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2229158

NSW Legislation. (2012). Partnership Act 1892 No 12. Retrieved from: https://www.legislation.nsw.gov.au/inforce/f9dfc85e-8f91-e79f-99e5-8042677519f3/1892-12.pdf

Parisi, F. (2017). The Oxford Handbook of Law and Economics: Volume 2: Private and Commercial Law. Oxford: Oxford University Press, p. 415.

Patterson Law. (2012). The Doctrine of Ostensible Authority. Retrieved from: https://pattersonlaw.ca/NewsArticleView/tabid/179/ArticleId/169/The-Doctrine-of-Ostensible-Authority.aspx

PQ Magazine. (2017). A Quick Look At… Freeman & Lockyer V Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. Retrieved from: https://www.aiaworldwide.com/international-accountant/editors-blog/quick-look-%E2%80%A6-freeman-lockyer-v-buckhurst-park-properties

Smith, J.C. (2012). Watteau v Fenwick. Retrieved from: https://h2o.law.harvard.edu/collages/1557

Swarb. (2015a). Phillips-Higgins v Harper: QBD 1954. Retrieved from: https://swarb.co.uk/phillips-higgins-v-harper-qbd-1954/

Swarb. (2015b). Mercantile Credit Co Ltd v Hamblin: CA 1964. Retrieved from: https://swarb.co.uk/mercantile-credit-co-ltd-v-hamblin-ca-1964/

US Legal. (2017). Rights, Duties, and Liabilities Between Principal and Agent. Retrieved from: https://agency.uslegal.com/rights-duties-and-liabilities-between-principal-and-agent/

Williams, G. (2011). Corporations and Partnerships in New Zealand. The Netherlands: Kluwer Law International, p. 335.