Commercial Law Assignment: Australian Law Of Agency

Questions

1. Issue

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  • Whether there is authority of the part of Jevan to authorize the repair work
  • What are the duties of Jevan in relation to the principals
  • What are the liabilities of Jevan in relation to the situation?
  • Has there been a breach of warranty of authority by Jevan

Rule

In the case of case of Cropper v Smith (1884) 26 Ch. D. 700 it had been stated by the court the that a principal is bound to the agent’s action where a there is Actual or Apparent authority

An authority which is created in order to ensure that actual authority is appropriately executed, where no express authority is provided but such authority falls within the scope of the position of the agent is known as implied authority. The third party would not be disabled from making a claim where the principal has limited the authority if the agent. These provisions had been discussed in the landmark case of Watteau v Fenwick [1893] 1 QB 346. In this case a manager has been appointed by pub owner. The role of the manager was being the pub manger and he had been provided with all authority in the normal course as a manager. In this case the manager had been expressly prohibited from purchasing cigars but this fact did not prevent the third party from claiming damages under the contract to purchase of cigars.  This was because the act had been done in the usual course of usual authority. Only when the third party is notified about the limitation can the limitation be effective.

The duties which are owed by the agent to the principal includes the duty to avoid conflict of interest as highlighted in Christie v Harcourt [1973] 2 NZLR 139, the duty of not making secret profit as per Bently v Craven (1853) 52 ER 29 and not misusing confidential information gained as an agent as discussed by Robb v Green [1895] 2 QB 315. It is also provided through the case of Watteau v Fenwick that it is the duty of the agent to abide by the instructions provided by the principle and act in compliance with the authority. In Bristol and West Building Society v Mothew [1998] Ch 1 it was stated by the court that one of such duties is to ensure that the agents exercise reasonable skill and care while doing their duties

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In the case of Armstrong v Jackson [1917] 2 KB 822 it had been stated by the court that whether an agent has been able to comply with such duty or not is determined objectively.

In the case of Parker v McKenna 1874 LR 10 Ch App 96 it had been ruled by the court that an agent has the power to bind the principal to his acts and the third party can make a claim from the principal. However the agent where he has acted outside the express authority can be made liable by the principal to compensate for the loss faced by them. 

In the case of P&P Property v Owen White & Catlin LLP [2016] EWHC 2276 (Ch) it had been ruled by the court that where a person has created an impression of agency where in reality no agency exists on  behalf of principal with the third party warrants that such person is provided the authority to do so. However where in reality no such authority is provided the warrant of authority is breached and the third party can make a claim against the agent.

Answers

Application

In the given situation it has been provided that Jevan is the agent of ‘The Thin Heads’. He regularly enters into contracts on behalf of the band with John for guitar servicing. He has been provided with the functions of a band manager. His activities for the band also include organizing meals, booking instruments and maintenance and repairs of instruments. This is the express authority which has been provided to Jevan. He has been provided with a duty by Jimbo a member of the Band to get a highly collectable guitar serviced. He has got the guitar serviced from John with whom he used to deal frequently. The guitar required a full rebuild which amounted to $8800. In the given situation it has been provided that Jimbo has refused to pay the amount. It has been stated in the above discussed case of Cropper v Smith that a principal is bound to the agent’s action where a there is Actual or Apparent authority. In the circumstances through the application of the case of Watteau v Fenwick it can be stated that Jeven had an implied authority provided by Jimbo. An authority which is created in order to ensure that actual authority is appropriately executed, where no express authority is provided but such authority falls within the scope of the position of the agent is known as implied authority. Jevan being the manager of the band has a normal authority to get the instruments repaired. There has been no limitation imposed by the principal (Jimbo) on Jevan. The guitar has been reapired in the normal course of authority which was owned by Jeevan. In addition John regularly dealt with Jevan as the agent of the band. In the given situation it can be stated that Jeven had implied authority provided by the Band to get the guitar repaired. Hence John being the third party can make the band liable for payment of $8800.

In addition it has been provided through the case of Bristol and West Building Society v Mothew that there are various duties which are imposed on the agents in relation to the principal through the provisions of common law as the nature of their relationship is fiduciary. One of such duties is to ensure that the agents exercise reasonable skill and care while doing their duties. In the case of Armstrong v Jackson it had been stated by the court that whether an agent has been able to comply with such duty or not is determined objectively. Thus if a reasonable person would have shown a higher degree of skill and care in the situation then the duty is breached. In the given situation a reasonable man in the place of Jevan would have got the highly collectible guitar repaired given its value. Thus he has not violated the duty owed Jimbo as an agent by getting the guitar repaired.

Where there has been no breach on the part of Jevan in relation to the duties owed to the band as an agent there is no liability which he owes under the provisions provided in the case of Parker v McKenna.

Issue

There has further not been any breach in relation to warranty of authority which has been made by Jevan in relation to the scenario. This is because where a person has created an impression of agency where in reality no agency exists on  behalf of principal with the third party warrants that such person is provided the authority to do so. However where in reality no such authority is provided the warrant of authority is breached and the third party can make a claim against the agent. In the given situation an implied authority has been determined to be existing between Jevan and the Band.

Conclusion

As analyzed above the actions of Jevan are within the implied authority provided to him by the principal. In addition there is no proof that Jevan has breached his duties as an agent. Thus in the given situation there is n liability which Jevan has in relation to the principal.

2. Meaning of apparent authority

The concept of apparent authority is a famous doctrine with respect to the law of agency. This Doctrine is applied by the court in situations where it would be understood by a reasonable third party that the person who they are dealing with have authority provided by the principal. This signifies that situation where apparent authority exist the principal would be found by the actions of the agent even if no implied or expressed authority have been provided them. The doctrine of promissory estoppel is invoked by an Apparent authority as a third party is provided assurance on which it relies to get into the contract and it would be against the provisions of equity for the principal to not accept the provided authority. Even in place where no actually authority has been provided Apparent authority can be found. However for the authority to be present there has to be an act or omission which has been committed on the part of the principal and in case where the actions of the agent are based on false impression the principal would not be liable to the contract. Therefore in situation where the act has been committed by the agent in the presence of the principal and the principal has not prevented the agent or the third party from getting into the transaction an Apparent authority would deemed to exist. The provisions of apparent authority can also be invoked in situation where the principal has terminated the authority of the agent but has not informed to third parties about the termination (DeMott, 2018).

Four elements of valid apparent authority

The elements of an apparent authority have been discussed through the provisions of the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. In this case it had been provided by the court and for the purpose of analysing whether a valid apparent authority exists in the situation, four considerations have to be made. Firstly the principal has in some way made a representation that the authority in context existed. Secondly a reasonable third party who acted in good faith had a belief that authority has been provided by the principal to the agent. The third party must have relied on the authority which had been manifested by the principal to get into the contract. Finally the third party must have undergone a change in position such as incurring a loss or injury due to the reliance. In this case Apparent authority was established because the principal had made a representation that the agent had an authority to get into a contract on behalf of the company, the representation has been made by a person who had actual authority, the contractor has relied on the authority and had been induced by it to get into the contract and the contractor has suffered losses because of such reliance.

Legal consequence of apparent authority

Where an Apparent authority has been established by the courts through the identification of its elements the principal becomes bound to the actions committed by the agent who had apparent authority. The doctrine of estoppel intervenes to prevent the principal from denying authority of the agent as the principal has permitted the appearance of authority with respect to the agent and subsequently provided the right to the third party to rely on such  appearance of authority in the same way as it has been actually conferred on the agent. However such authority cannot come to existence when the third party acted in bad faith and have the knowledge that the agent does not have authority provided by the principal. These provisions had been provided by the famous company law case of Royal British Bank v Turquand (1856) 6 E&B 327

Remedies available

One of the primary remedies available in relation to apparent authority is that of ratification. Under the principles of ratification the principal has the option to ratify and agreement which had been entered upon into by the agent in unauthorized manners. The process of ratification can be implied or express action of the principles with respect to agreeing with the unauthorized actions which have been committed by the agents. When the principal ratifies the unauthorized activity the transaction becomes binding on the third party. Where the transaction has not been ratified third party will not be found to any unauthorized agreement with has been created by the agent who did not have any apparent authority. On the other hand when it comes to apparent authority the third party and the principal are bound as soon as the agreement has been entered upon between the third party and the agent (Dewing, 2015).