Step 1 a€ Identify the area of law This four step process refers to liabilities of an agent. The case involves an agent called Tim Jones who represents an anonymous seller of chocolate products. Tim arranges a contract with ABC Foods Pty Ltd for the supply of chocolates to the various shops of ABC. Tim fails to notify his principle of the contract hence the supply of chocolates is never produced. ABC is trying to sue Tim for non-performance under the terms of the contract.
This process will advise Tim of his position and the options he may have. Step 2 a€ Explain the law John D Maltas (2008, 18) describes agency in a legal sense as a relationship which exists between two parties whereby one (the agent) is authorised by the other (the principle) to do, on his/her behalf. The agent receives an extension or grant of the contractual powers of the principal. The principle would then determine the limits of the agenta€™s authority. Many business matters are conducted through the instrumentality of an agent.
An agent is usually employed to bring about a contractual relationship between the principal and a third party. A Principle will be bound by what the agent does on the principala€™s behalf provided that the agent has acted within the scope of his/her authority. An agency relationship can be created in one of four ways. Express agreement, implied agreement, operation of law and ratification. Express agreement is a contract, oral or written which contains the intentions of the involved parties in words.
Implied agreement can be effective in two situations; if actual authority implies it or if it is implied via estoppel. In the case Australia and New Zealand Bank Ltd v Ateliers de Constructions Electrocutes de Charleroi  1 AC 86 held that an agent duly appointed to act for the principal in certain business dealings, had actual implied authority to open a bank account to give effect to the businesses arrangements. Estoppel is to remedy injustice that would flow if one person who represented something to another were able to withdraw from that representation with immunity.
Operation of law occurs when in situations of emergency, presumed authority to act as an agent. Ratification is when a principle agrees with an unauthorised act done on his/her behalf by an agent. The nature and scope of agents authority is broken into two parts; actual authority and apparent authority. Actual authority can either be expressed verbally and or in writing or it can be implied. An example of expressed actual authority would be when a principle ives an agent a specific instruction to enter into a contract to purchase a particular piece of land at a given price, or to sell a specific item under the principles name. Implied actual authority usually permits an agent to do everything necessary for, and ordinarily incidental to, carrying out his/her express authority. The apparent or ostensible authority is the authority of the agent as it appears from a 3rd party. If an agent is acting outside of their actual authority the agent will be held liable to the principal.
When an agent discloses the name of the principal, the contract is deemed to be that of the principal, and the agent is not liable on the contract except where: the agent contracts outside the scope of his/her actual or apparent authority in which case he/she will be liable for damages for a breach of warranty of authority or if the agent agrees he/she is liable. The agent is also liable if he/she contracts by deed in their own name or if the principal is nonexistent.
When the agent signs a bill of exchange or written contract in his/her name without identifying him/her as an agent, then he/she will be personally liable on the bill of exchange or contract. As stated in John D Maltas (2008, 45) the general rule is that where an agent discloses the fact that a principal exists but the name of the principal has not been disclosed, the agenta€™s liability is the same as where the name has been disclosed. If the third party contracts knowing there is a principal but does not ascertain the principala€™s name, the third party cannot sue the agent.
In other words the agenta€™s liability is the same provided he/she contracts as an agent whether or not the principals name is disclosed or not. Where an agent contracts in his/her name without disclosing the existence of an agency contract, the agent becomes personally liable on the contract. An agent is under a duty not to exceed the scope of his/her authority. So long as this is not done an agent will not be personally liable to persons with whom he/she deals.
Where the agent either expressly or impliedly represents that he/she has authority to enter into a particular transaction and a third party relies upon such representation, the agent is taken to have warranted that such representation is true. In the case of such a warranty being untrue, the agent is liable in damages for breach of warranty. However a principal is liable for the tortuous acts of his/her agent where these have been committed within the scope of the actual or apparent authority under the agency. A principal will not be liable for n agenta€™s fraud where the agent was not authorised to do the act or where the act was not within the class of acts that an agent was usually authorised to do. In order to escape liability the principal must show that he/she did nothing to represent that the agent had authority to do the act. The general position with reference to liability to the principal is that an agent is an intermediary who is employed to negotiate a transaction(s) on behalf of a principal with another party in order to affect a contact between them.
Generally the agent incurs no liability against the principal with regard to the contract. Where an agent, however, disobeys the instructions of the principal, such an agent will be liable for any losses suffered by the principal as a result of breach of the agency agreement. There are a few primary factors in which the agent must obey to prevent acting outside of the agency agreement. These factors are; to follow the principala€™s instructions, to act in good faith, to make full disclosure of any personal interest, to not make a secret profit and to exercise reasonable skill and care.
If any one of these duties of an agent is broken, the agent will likely become liable for damages caused. When following the principals instructions, every agent must act in person and apart from the express or implied authority of the principal, an agent has no authority to delegate his/her duties as an agent to another. This is to ensure that the principal may rely upon the agenta€™s skill or knowledge to be used on his/her behalf. An agent must also act in good faith, which means the agent has a duty to make a full disclosure of any personal interest and not make a secret profit in any agency deals.
The agent and principal share a fiduciary relationship and there are obligations of trust and confidence which imposes on a person in circumstances where that person, the fiduciary, is bound to act for the benefit of another, the principal. The agent is under a duty in all cases to act in the interests of the principal and must not allow his/her own interests to conflict with those of the principal. An agent must make full disclosure all the material circumstances of what he/she is aware of, which might influence the principal when entering in to any material negotiation.
An agent who is employed for remuneration is presumed to have and is bound to exercise such skill, care and diligence in the performance of the undertaking on behalf of the principal. Where a person asks an insurance agent to obtain insurance and the agent agrees to do so, the agent assumes a duty to exercise the reasonable degree of care and skill appertaining to the insurance industry. If the agent fails to exercise the requisite care and skill in carrying out the terms of the contract of agency, then the agent will be liable to the principal for the loss sustained by the latter as a result of the agenta€™s breach of duty.
Step 3 a€ Apply the law In the Tim Jones vs. ABC Foods Pty Ltd case, the information provided establishes an agency relationship exists between Tim Jones as agent for Henry Phillips, a supplier of chocolate products. This establishes that Tim has been authorised by Henry (the principle) to do the selling of goods, on his behalf. Tim received an extension of the contractual powers of Henry (the principal), in his capacity as agent. It appears that Tim Jones was working lawfully to bring about a contractual relationship between the principal (Henry) and a third party (ABC Foods Pty Ltd).
There has not been enough information provided to establish the exact details of the creation of the agency relationship, but clearly tim was working under authority of an express or implied agreement. An express agreement is a contract, oral or written which contains the intentions of the involved parties in words. Implied actual authority usually permits an agent to do everything necessary for, and ordinarily incidental to, carrying out his/her express authority. If an agent is acting outside of their apparent authority the agent may be held liable.
The apparent or ostensible authority is the authority of the agent as it appears to a 3rd party. Tim was working within the nature and the scope of his actual and apparent authority. Henry allowed Tim to be the agent for the selling of chocolate products. Tim has demonstrated that he has acted within his apparent powers of his agency agreement. Tim disclosed the presence of an anonymous principal (Henry) hence the contract is deemed to be that of the principal, and the agent is not liable on the contract.
However if Tim is proven to operate in a manner outside of the scope of his apparent authority, he will be liable for damages for a breach of warranty of authority. Tim has abided by all of the apparent authority requirements. The general rule states, it was fine for Tim to disclose the fact that a principal exists even if he decided to remain anonymous, the agenta€™s liability is the same as if the name had been disclosed. If the third party contracts knowing there is a principal but does not ascertain the principala€™s name, ABC Foods Pty Ltd cannot sue Tim on those grounds.
In other words Tima€™s liability is the same provided he contracts as an agent whether or not Henrya€™s name is disclosed or not. Generally Tim would incur no liability against the principal with regard to the contract. However, if it can be proven that Tim disobeyed the instructions of the principal, Tim will be liable for any losses suffered by the principal as a result of breach of the agency agreement. Tim must prove that he has acted in good faith, made full disclosure of personal interest, not made any secret profits and that he has exercised reasonable skill and care.
Tim followed the principals instructions, every agent must act in person and apart from the express or implied authority of the principal, Tim has no authority to delegate his/her duties as an agent to another. This is to ensure that Henry can rely upon Tima€™s skill or knowledge to be used on his behalf. With the information provided, it can only be assumed that Tim acted in good faith as there did not appear to be any personal benefit for the agent and the contract organised was in the best interest of his principal (Henry).
Not enough information is given to make an assumption as to wether any of the money was taken as a secret profit but it could easily be reconciled. Tim had a duty to make full disclosure to Henry of all the material circumstances of what he was aware of. Tim not informing Henry of the number of chocolates ABC required demonstrates a breach of full disclosure. If Tim wanted to remove his liability he would have to prove that he acted bona fide and also that he made a full disclosure of all the material facts.
An agent who is employed for remuneration is presumed to have and is bound to exercise such skill, care and diligence in the performance of the undertaking on behalf of the principal. Failing to inform Henry of the contract with ABC Foods Pty Ltd demonstrates a lack of skill and care in the performance of his work. When Henry asked Tim to be his chocolate agent and when Tim agreed, Tim assumed a duty to exercise the reasonable degree of care and skill appertaining to the chocolate industry.
Tim failed to exercise the requisite care and skill in carrying out the terms of the contract of agency. Tim will be liable to the principal for the loss sustained by the chocolate supplier as a result of the agenta€™s breach of duty. In the case Aliotta v Broadmeadows Bus Services Ltd (1988) A. T. P. R. 40-873 the defendanta€™s agent, during negotiations of a sale of property did not tell the 3rd party that parts of the lease were subject to council approval. The court held that his was misleading conduct as the agent had a duty to disclose all material information.
The case is very similar to the one Tim is facing in the way Tim withheld vital information that affected the contract of goods. Step 4 a€ Conclusion In conclusion Tim will not be liable to the third party as he demonstrated he acted within his apparent authority and he disclosed the presence of his anonymous principal. However! Tim will be held liable for the damages caused to his principal (Henry) because he did not act within his duties as Henrya€™s agent due to misleading conduct and not disclosing all material information.