Securities Regulation For Cases And Materials - Agency Relationship, Authority, And Duties

Express Authority

Discuss about the Securities Regulation for Cases and Materials.

The two cases in this part embody the elements of agency relationship Management. Tina is the principal in both case and she has given authority to the agents Brand and Tom respectively to act on her behalf. Normally, agency relationship occurs where the principal authorises the agent to contract with third parties, and such contracts would bind the principal as if he or she was acting in person. The authority that empowers the agent to act is given by the principal either expressly or it can be one of necessity or ostensible authority.

The issue in this case scenario can be framed thus;

1. Is there an agency relationship between the parties?
2. Did Brad have authority as an agent to order petrol from Caltex?
3. When was the agency relationship terminated?
4. Did Tina breach any obligation by refusing to accept petrol from Caltex?
5. What remedies are available to the parties in this case?

The law that governs this relationship is that of agency contracts. Agency contract normally arises and follows the main rules of contract such as capacity, offer, acceptance, intention and consideration. In certain circumstances, it may occur through the operation of law. The agent exercises power or authority delegated to him or her by the principal, which authority is used in contracts that bind the principal. The said authority can be express or implied, can arise by necessity or be ostensible.

Express authority is that actual instructions given to the agent to contract on the principals behalf. For instance, in Watteau v Fenwick [1],  a proprietor of a pub appointed the pub’s manager to professionally carry out the duties of a manager. The proprietor gave stern instructions barring the manager from allowing the buying or selling of cigarettes in the pub at any time. The court had to determine a scenario where the manager was accused of buying cigarettes in total disregard of the proprietor’s instructions. The court established that the act of buying or selling cigarettes was within the range of the authority and power that could be exercised by the manager of a pub and therefore the proprietor was bound by that contract.

Termination of an agency relationship can occur at any time when such termination period is not contained in the contract. The principal however has powers in agency relationship to terminate the contract without reference to the agent especially where the agents commits a fundamental breach of the terms of the relationship. Where an agency contract has been terminated but an agent contracts with third parties as if he was still an agent, the contracts would bind the principal due to the application of the principle of ostensible authority.

Termination of Agency Relationship

Agents have duties under the agency contract. Their role is to enter into transactions that benefit the principal but not themselves or third parties. In Collen v Wright[2], the contract negotiated and entered into by an agent who had no authority was held not to bind the principal. The agent was personally liable to the third party.

In applying the rules established in Watteau v Fenwick above, it can be said that the court would not infer that Brad had the authority to contract with Caltex. Though an agency contract had existed, the same was already terminated expressly when Tina informed Brad that business would resume as before. Additionally, the holding in Collen v Wright would be applied by the court to find that Brad is personally liable to Caltex for the price of the Petrol and to damages as to breach of contract. Ostensible authority cannot be pleaded by Brad as the termination was clearly stated to him in the same manner the earlier authority had been conferred.

The parties were initially in an agency relationship. The same had however been terminated when Brad ordered for petrol from Caltex Management. At the time of placing the order, Brad was not an agent and therefore lacked the authority to present himself as so. Tina is therefore not bound or liable to pay for the price of the petrol or any damages. Caltex can sue Brad in his personally capacity but not as an agent.

The issues that can be derived from this case is whether there is an agency contract between Tina and Paul and if so, what remedy is available to Tina in the circumstances.

Where a person in a contract of services has special skill and knowledge acquired either through training or experience and the employer entrusts him or her with managerial roles, he is considered as an agent. Paul therefore became an agent through express appointment to be in charge of selling cars in the car park. Agents owe the principal certain duties in an agency relationship.

An agent is in a fiduciary relationship with the principal and therefore he or she should act faithfully to the benefit of the principal. In Christie v Harcourt[3], the court was faced with a question whether the agent had a conflict of interest when he should a property belonging to the principal at a much lower value to his daughter. The court held that the agent put his interest first as opposed to that of the principal.

Duties of Agents under the Agency Contract

Agents also owe their principals the duty to profit from the agency contract. The law prohibits the making of secret profits for the benefit of agents. This is considered as a case of dishonesty by the agent and a breach of the trust of the principal. Where it is established that an agent has drawn any benefit, be it monetary or otherwise from the agency contract, such profit being made was made unilaterally without the knowledge of the principal, such agent would be required to account for the profit and the principal has the right to claim that profit.  Bentley v Craven [4] has discussed the matter conclusively.in this case, a sugar refinery factory had entrusted agents to negotiate on their behalf and obtain sugar at the lowest prices possible. However, the defendant after negotiations bought the sugar for his own use and later purported to sell the same to the sugar refinery at a profit. The court held that the agent breached the agency contract by wrongfully drawing a profit from the relationship. He had to forfeit the profit he envisaged in the transaction.

The court would first ascertain the type of relationship that exists between Tina and Paul. It would find that the parties are in an agency relationship due to two factors; the special skill that Paul has on matters to do with sale of cars and the trust or appointment given to Paul by Tina in consideration of the special skill and knowledge. The court would proceed to determine whether Paul breached any agent duties when he bought the car himself and sold it to the neighbour at a profit. Relying on the facts and the finding of the court in Bentley v Craven, the court would find Paul to have made secret profit that is in breach of the agent duties. The court would direct Paul to forfeit the profit which is a right of the principal.

Conclusion

In conclusion therefore, there is a subsisting agency relationship between the two parties. The agency is a very special one since the agent is skilled in the area of business that Tina is involved in. however; the agent has breached the fundamental duty under an agency relationship that prohibits agents from drawing illegal profits from the relationship. He has breached the trust bestowed on him by the principal. He is therefore liable to account for the secret profit drawn; the profit which the principal is entitled to receive.

Case Scenario: The Brad-Tina-Caltex Agency Relationship

The case revolves around the principles of the law of partnership. In the case, there are four parties desirous of starting a common business. They bring their resources in a pool and decide to run a business as partners and their relationship is governed by an agreement setting the authority including the extent and value of contract that a person can negotiate and sign. Simon has engaged in transactions that go contrary to the agreement between the parties.

The first issue in this case is whether the agreement between the parties is a partnership and if so, whether the transactions of entered into between Simon and third parties breached the partnership agreement. The other issue is whether the partnership would be bound in the circumstances by the contracts negotiated between Simon and third parties and if so, what remedy is open to the other partners in the partnership regarding the transactions by Simon.

Partnership law and the principles in agency relations are closely related. The partnership cannot act by itself and therefore enters into transactions through the individual partners as agents of the partnership business. The partners act behalf of the partnership and as such, should do so in the partnership’s best interest. In Lang v James Morrison & Company Limited[5], the court stated that at all material times, partners negotiate contracts for the partnership as well as for them and therefore, should do so with caution not to negotiate those that would injure either the partnership or the individual partners.

A contract between a partner and a third party is binding on the partnership. Partners are therefore required to contract faithfully since the authority to bind the partnership is contained in the agreement between the parties. In Mercantile Credit Limited v Garrod[6], there were two individuals who were carrying on a garage business in common. They agreed that they would not involve themselves in the business of buying or selling of cars. The plaintiff brought an action against one of the individuals who had sold him a car with a defective title, prompting the plaintiff company to return the car to its rightful owner. The court found for the plaintiff, holding that in ordinary course and in the business of a garage, they are likely to engage in the act of selling cars. Both individuals were held liable since the third party had no knowledge of the agreement between the two partners not to sell or buy cars. He was an innocent purchaser for value without notice. The court further addressed itself that where the transaction entered into does not ordinarily fall within the range of business, the party involved would be personally liable.

Case Scenario: Paul and Tina's Agency Relationship

The court would first address itself as to whether the arrangement between the individuals is one of partnership. There are four parties have an agreement setting out the nature and powers of the parties in the business. The court would easily make a finding that this is a partnership. On the issue whether Simon acted beyond and in breach of powers given by the agreement, the holding in Lang v James Morrison & Company Limited would guide the court in concluding that Simon exceeded the powers conferred on him by the partnership deed.

The court would consider the liability in the two transactions that Simon entered into. The principle and distinction that the court brought out in Mercantile Credit Limited v Garrod would guide the court. In relation to the first transaction, the third party had no knowledge of the lack of authority by Simon and since it falls within the ordinary scope of business of the partnership, they are bound. On the second transaction, Simon is personally liable because the freight business does not fall within the scope of the partnership business.

In conclusion therefore, the four individuals are in a partnership business. They have drawn up a partnership deed to govern their relationship. Simon as a partner has entered into transactions that go contrary to the agreement and therefore he is in breach. The partnership would only bear responsibility on the first transaction of $12000. Simon would bear individual responsibility as regards the second transaction.

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