TODAY’S TOPICS ARE:

AGENCY

Where one person (the agent), is authorised by another (the principal), to enter into a contract with a third party.

The above is an example only. The Principal may in fact be asking the Agent to make a purchase on his behalf. In other words, the Principal instigates the contract.

TYPES OF AGENTS:

• SPECIAL AGENTS - Are specifically instructed as to into which contracts they may enter
• GENERAL AGENTS - Authorised to contract for the Principal in all matters of a certain class. (ie non-specific authority)
• UNIVERSAL AGENT - Unrestricted authority to act for Principal.
• DEL CREDERE AGENT - An agent who guarantees the contract at a price agreed with the Principal.

APPOINTMENT OF AGENTS

The relationship of Principal and Agent may arise in the following ways:

By express appointment

Often a spoken agreement between Principal and Agent, but must be evidenced in writing in the following situations:

• When the agency is to last for more than 1 year.
• When the contract of sale involves land, or a business.
• If the agent is to recover his commission in a legal debate.
• If the agent is a universal one.

With Apparent or Ostensible authority

When the Principal behaves in a way that leads others (potential "third parties") to believe that a relationship of agency exists, that principal would be ESTOPPED from denying that the relationship exists. In other words, agency can be created by behaviour.

An agent may also have ostensible authority to enter into a contract subsidiary to one that has been expressly authorised. For example, if the agent had been instructed to purchase 200 pairs of shoes from a manufacturer in Italy, it would be presumed that he would also have the authority to arrange a contract to freight the goods back to Australia

By Operation of Law

a) Co-habitation

A spouse or de-facto spouse is presumed to have authority to pledge their husband’s/wife’s credit for goods and services that are deemed necessary to maintain their current standard of living. This presumption can be denied if the Principal can prove that:

• the Agent-spouse had been expressly forbidden to pledge the Principal's credit.
• the Principal had expressly told merchants not to supply the spouse with goods or services on credit.
• the order was beyond the Principal's means.

The burden of proof in this situation is on the supplier. If the supplier fails to show that the goods supplied to the agent are necessaries, action is only possible against the agent.

b) by Necessity

• When an emergency arises which is serious.
• If it is impossible to get the P's instructions.
• Agent must be entrusted with P's property.
• The agent must be acting in good faith of P's interest and not just for his own convenience.

c) by Ratification

When an agent has acted either without authority or has exceeded his capacity, the contract can be RATIFIED at a later date by the Principal. The following conditions must apply for the ratification to be effective:

• the agent must purport to act as agent.
• the agent must have a known principal in mind.
• the principal must have contractual capacity.
• the act must be capable of ratification.
• ratification must take place within a reasonable time.
• ratification may be expressed or implied.
• ratification must apply to the whole contract.

RIGHTS AND DUTIES OF PRINCIPAL AND AGENTS

AGENTS DUTIES TO PRINCIPAL

• must follow instructions
• cannot delegate responsibility
• must exercise due care and skill
• must act in good faith
• must not divulge confidential information
• must keep proper and separate accounts
• not to be third party without principal's approval.
• cannot rescind a contract on principal's behalf

AGENTS RIGHTS AGAINST PRINCIPAL

• right to remuneration (commission)
• right of indemnification of losses/liabilities
• right of lien (right to hold principal’s property if agent is owed commission)

LIABILITY OF AGENTS TO THIRD PARTIES

Generally an agent cannot sue or be sued on a contract between the Principal and the Third Party. In order to avoid being liable on the contract, however, the Agent must inform the Third Party that he/she is acting on behalf of a Principal. If the Agent contracts in his or her own name, concealing the existence of the Principal, the Third Party may take action against the Agent.

TERMINATION OF AGENCY

The agency can be terminated by:

• the parties

1. by agreement
2. by principal revoking authority
3. by completion of service
4. by lapse of time (expiry)

• the law

1. by the death of either party
2. by the loss of contractual capacity of the principal, or the insanity of the agent
3. by the subject matter becoming illegal or being destroyed

CASE STUDIES

1. Wayne, the manager of a remote farming property in the Northern Territory, wrote to Mary's Bookshop in Melbourne to order a new novel.

In his letter, Wayne also asked Mary to arrange delivery of the book "by the fastest means possible, regardless of cost." Mary contracted with a courier company to have the book delivered to Wayne overnight, for which the company charged $200.

When Wayne was presented with the account for the $200 delivery charge, he refused to pay, saying that the amount is excessive and he was therefore not liable. The courier company has told Mary that as she make the contract, she must pay.

Is Mary liable? Why/why not?

2. Ben owns an electrical goods store. He asked Jacko, his employee to go to a liquidator's auction and purchase any electrical appliances that were on sale, except for refrigerators, because Ben was overstocked with these.

When Jacko attended the auction he found that the only appliances for sale were refrigerators, but he bought them anyway because they were very cheap.

When Ben received the accounts he refused to pay them.

Explain whether Ben is liable.

3. Villien left her friend Cherry to look after her house while she was on holidays in Phuket. During this period, a storm severely damaged the roof, leaving a strong possibility of water getting in and damaging Villien's very valuable carpets and furniture. Cherry hires Frank, a tradesman, to carry out repairs which cost $1,000, saying that Villien will pay when she returns.

When Villien returns, she is very angry because Cherry has been borrowing her clothes. The two girls argue and Villien states that she will not pay Frank because she did not hire him.

Who has to pay Frank?

4. Sho-yee asks Daniel to be her agent and sell several valuable paintings on her behalf. She tells Daniel that the minimum price for the whole collections is $500,000. Daniel believes the paintings are worth much more than this, and would like to buy them himself, but he doesn't want to alert Sho-yee to this fact because she might charge more. Therefore Daniel asks his brother to buy the paintings in his name.

Sho-yee finds out about this and wants to recover her paintings. Will she be able to by using the laws of agency?

5. Brian owns a clothing store. He employs his nephew John to work in the shop as a salesman and also to place orders for some items of clothing from wholesalers. One day John places an order with a regular supplier, and when the goods are delivered John takes the goods and absconds with them.

The wholesaler wants to get paid for his goods, but Brian says it's just BAD LUCK!!! What do YOU think??

6. Patrick was the licensee of a hotel, and he allowed his name to appear above the hotel door even after he left the business. The people who took the business over from Patrick bought their liquor from Liquor Ltd., and after several months of not paying their accounts, Liquor Ltd. sued Patrick for the cost of the liquor supplied.

Do you think Patrick is liable?

7. Bec, the manager of Disco Inferno, arranged fire insurance for the nightclub as directed by her employer. Shortly before the policy was due to expire Bec renewed the policy, but not with her employer's knowledge. Two days after the old policy was due to expire Disco Inferno lived up to its name and burned to the ground. The insurance company refuse to pay because Bec did not have authority to make this particular contract.

What is the position of the nightclub owner?

8. Peter appointed Andrew to act as his agent for the purchase of a dining setting and a stereo being sold at auction.

Peter instructed Andrew that he would be willing to pay $600 for the dining setting and $1,200 for the stereo. Andrew successfully bid for both items although the dining setting was purchased for $520 and the stereo for $1,300.

Peter then refused to take delivery of the goods. Which, if any, is he liable for?

9. Daniel is an agent for Barbara. He is authorised to purchase cattle at a limit of $20 per head. Daniel was unable to purchase at this price so he purchased in his own name 400 head at $30. Afterwards Barbara agreed to ratify the contract. However when the cattle is delivered Barbara and Daniel refused to pay.

Who pays?

10. A ship arrived in Hong Kong, in 1824, in an unseaworthy condition. It was destined for Melbourne, but would obviously be unable to complete the voyage. The ship's Captain entered into a number of contracts for repairs which ended up being much more costly than anticipated. Unable to pay for the repairs, the captain found a buyer and sold the ship in order to pay the bills.

The original owner seeks to recover damages from the captain. What are his chances?

11. Sam, who worked as an accountant, earned $200 per week. One day his wife went shopping and bought a diamond ring for $300, paying for it with a credit card.

Sam does not wish to pay for it. Do you think he must?

12. A stockbroker, Kate, was instructed by her client Lee, to purchase a number of shares at a stated price. Kate however, managed to buy the shares at a lower price.

Explain whether Kate is entitled to keep the difference.

13. Bart, who is a race-horse trainer, instructed his new assistant Tommy Woodchip to attend a horse sale, and to purchase two young thoroughbred horses. Bart advised Tommy that these horses would be trained hard, and hopefully one of them would win the Melbourne Cup in the future. Tommy attended the auction and purchased two horses. Unfortunately for Bart, Tommy had decided to revenge himself against Bart who had shouted at him earlier that day, so instead of buying normal sized thoroughbred race-horses, he purchased two Shetland ponies.

When the ponies were delivered Bart refused to pay for them. Explain how he might avoid paying.

14. Dale instructed Doris, a stockbroker, to sell her shares when the market price reached a certain figure. Doris failed to sell the shares at this price, but held on to see if the price would get higher. The market dropped, and Doris was forced to sell at a much lower price. Dale wants to sue Doris for her loss. What is the likely outcome of this case, and what arguments would be likely to be raised by the parties involved?

15. Ketut was addressing a highly distinguished group of businessmen at the Windsor Hotel. Upon being deposited at the front door by his chauffeur, Ketut looked for and found a porter wearing the Windsor Hotel uniform, and entrusted his luggage to the man. Ketut’s luggage was stolen by the porter. Naturally he sued the Windsor Hotel, who responded by proving that the porter responsible was actually off duty at that time.

What advice would you give Ketut in order to get his luggage back?

16. Sally owns a valuable racehorse. She arranged to have the horse transported to Adelaide last week, and be collected at the other end by the horse’s trainer, Bart. The transport company delivered the horse by truck to the required destination but the driver could not find Bart. The driver contacted his employer who gave instructions to put the horse into a hired stable until Bart could be located. The transport company eventually found Sally, and explained the situation to her, saying that she would be liable for the stabling costs. Sally refused to pay, and now the transport company refuse to give the horse back to Sally. Explain the situation in relation to agency.