Agency PQ 2 PDF

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a problem question on the creation of agency relationships. marked by tutor...

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i) Amy asked Jim to buy glue suitable for fastening wood. Jim bought glue for £700 form Daphne’s Products a company in which Jim owns the majority of the shares. The glue purchased by Jim was unsuitable for wood.

Actual authority Agency arises when a principle (P) authorises an agent (A) to act as his representative, usually when contracting with a third party (T). In this scenario, Amy is the principle while Jim is the agent. Firstly, we must consider whether there was actual or apparent authority, which binds P to the contract. Under actual authority, P will give A express or implied consent to act on her behalf, by operation of law and no formalities are required (Bradgate & White 2012) . Amy expressly asked Jim to buy glue for her, which suggests that she appointed Jim as her purchasing agent. For express authority, P will expressly, orally or through wiring give authority to A. generally no formality is required (Heard), but clear evidence of agreement is necessary (Pretty Pictures). In this scenario, Amy gives Jim express authority and he accepts to becoming her agent.

Conflict of interest The issue here is whether A has a potential conflict of interest. Jim as the agent, will have a fiduciary duty towards Amy as she places trust and confidence in Jim to exercise the power to affect legal relations. Therefore, Jim’s duties will include a prohibition of conflict of interest. For example, in Armstrong, P asked a who was a stockbroker to buy shares on his behalf. A sold his shares to P and was liable, however, there was no conflict of interest found in Kelly v Cooper, where the buyer of two adjacent properties was the same. Additionally, if the conflict is disclosed to P and T, prior to the contract and they both consented, then A will not be liable (North & South). In this case, Jim is seen as a selling agent for Amy, where he is buying the glue instructed for fastening wood. However, Jim is buying from Daphne’s products, a company in which he has the majority of the shares. Therefore, it is likely he has a conflict of interest as he hasn’t informed Amy, he is buying form this company, when the glue in this company could be dearer than others on the market. Additionally, the money he accrues from buying the glue from this company, will mean he will be independently benefitted.

Care and skill The issue here is whether Jim acted with care and skill when exercising his duties. Lord Denning LJ in Simmons referred to the standard as being a ‘reasonable’ person in A’s position, where a solicitor was judged as a reasonable solicitor. In the case of Stafford, A was not liable for P’s losses as the market was rapidly changing and unpredictable. But in

Chaudhary, P asked A to buy a car for her after doing all the necessary checks to ensure it was roadworthy. P was negligent in his advice which led to her losing money, and A was liable. It is still unclear whether Jim’s actions constitute a breach of acting with care and skill, as Jim is not an expert in this area, but he bought the glue form a company, where he would benefit individually. However, he may not have known that the glue would be unsuitable for the wood. It is likely Jim acted negligently, as a ‘reasonable competent’ person in a ‘professional capacity’ (Simmons). Therefore, it is likely that Jim will have to indemnify Amy for losses she may accrue for the wood not being fastened correctly and consequently may lead to the wood breaking, because of his negligence and failure to exercise reasonable care and skill. Secret profits The issue here is whether the secret profit received by Jim was undisclosed. The general ruling here is that undisclosed profits are prohibited. This is strictly applied. In Boardman v Phipps [1967], the A made a large independent profit for themselves and P, however, this needed to be accounted for, despite them acting honestly. If A makes a full disclosure to P prior to making the profit and P agrees, then liability will not follow. Any failure to disclose will render A liable to account to P for the profits that are made. Jim failed to disclose the additional profit he’d be making when buying the glue from his company, therefore is likely to be held liable to account for his profits.

ii) Amy instructed Jim to buy planks of wood for manufacturing the frames of the doll’s house. Jim ordered planks of wood from Orla Supplies for £500. Jim noticed that Orla Supplies was also offering blocks of wood suitable for making dolls furniture at a very competitive price. Jim ordered blocks of wood up to the value of £400 Amy accepted delivery of the wooden planks but REFUSED TO ACCEPT DELIVERY OF THE WOODEN BLOCKS

Actual authority Jim already has express actual authority, to be acting on behalf of Amy, to enter into transactions, that she has authorised. However, A’s duties include a duty to obey and perform duties imposed by P (Hermit Road). But these instructions cannot be vague as in (Ireland) and if they are vague the A should ask P to clarify the instructions (European Asian Bank). In this scenario, Amy’s instructions are clear, in that she only ordered Jim to buy the ‘planks of wood’ and not anything else, so therefor eh did not act in accordance to the instructions given. As Jim is outside his authority, Amy is not bound by the contract but Jim may be liable under BOWA. But this will not apply if Orla Supplies knew Jim had no authority (Hope).

Breach of warranty of authority (BOWA) The issue here is whether Jim breached his warrant of authority (BOWA), and if may will be bound by the contract to accept it. If Jim is represented to have authority to bind Amy, when in fact Jim had no authority, and therefore Jim may be liable under BOWA. In the case of Collen, A was liable to BOWA due to a collateral contract between A & T, if A had impliedly promised T that he had authority. However, no claim will succeed if T knew A had no authority (Hope). and did not rely upon that authority, as stated by Tilson in his publication Consumer and Commercial Law,2015. Here, Jim may be liable to Orla for a breach because Amy only asked Jim to order planks of wood and not blocks of wood. However, it is unclear whether Orla knew that Jim had no authority (Hope). Therefore, Jim is likely to be liable for this breach of authority and Orla may be able to claim damages. If Orla’s claim is successful, she can claim damages whereby she as the third party will be placed in the position, they would’ve been in had A’s representation been true (Firbank, Singh). In this case, Amy refused to take the delivery of the chocolate frogs, Orla Supplies will be at a loss of £400 as this was the price for the blocks of wood. However, it is not certain whether Orla knew Jim had no authority. If Orla’s claim is successful, she will be compensated with the £400 she lost. There may also be a liability through the tort of deceit, if Jim knowingly misrepresented the extent of authority ( Polhill), however this is uncertain. iii) Jim bought screws and fastenings from Kayla’s ironmongery for £1,200. Jim has bought such products from Kayla’s in the past and Amy had always honoured the transactions. Amy refused to accept the delivery of the screws and fastenings on the grounds that Jim did not have authority to enter into the contract.

Apparent authority if Jim did not have actual authority, but Amy’s actions have led Kayla to believe that Jim has such authority. Apparent authority is when A does not have authority granted by P, but P’s actions have led T to believe that A has such authority. Apparent authority can clothe an Agent with actual authority despite any restrictions on that authority (Manchester Trust v Furness, 1895) Slade J in Rama said there were 3 ways for apparent authority to suffice. McMeel (2000) promoted the objective consent theory, by saying apparent authority is based on consent and is therefore the real authority, despite English courts not favouring this. First there has to be a representation, which T relied on which led to an alteration of T’s position.

In Freeman & Lockyer, the representation was through words or deeds. A was a de facto MD of P’s company and has apparent authority to bind P to the contract with T. First P must have made a representation, which only P can make, which could lead to estoppel. It is essential this representation is made by P (United Bank of Kuwait). In Raffaella, the bank creditor manager acted on behalf of A and provided P with a signed letter, only signed by one party. However, they were prevented from acting on behalf of A because of their past mistakes. Alternatively, in Univar, the representations were trustworthy and the transactions in the past were always honoured by P, but this may not be enough if the contract is of a different scale than the previous ones (Asia Golden Rice). As only Amy can make the representations, and previously she had accepted all Kaylas deliveries (Univar), this could be assumed to be a contract of a different scale, hence she refused to accept the delivery (Asia Golden Rice). However, apparent authority cannot happen if A genuinely cannot make the representation (Ocean Frost). However, there are exceptions. For example, in First Energy, P made no verbal representation. Here, the first transaction made, P gave representations, but on the second P did not. The agent doesn’t have apparent authority to authorise credit on behalf of P, but had apparent authority to communicate this offer, hence credit was authorised. This binded the principle. Lord Neuberger NPJ, in Mahachon v Akai Holdings, said that the judgements in First Energy illustrates how the law struggles to reconcile principles and predictability with commercial reality and fairness. Secondly, T must have relied on the representation. No reliance if T did not know about the representation before entering into the contract or T was aware that A did not have actual authority to contract. In Ocean Frost, the circumstances were suspicious which should have made T dubious regarding A’s authority. Brightman LJ in Overbrooke said if there is a misrepresentation, and the “purchaser was aware that the agent had no authority to make or give any warranty in relation to this property”, there is no reliance. Quinn argues the reliance need not be reasonable. Kayla relied on the representations as these representations have been made in the past successfully and Amy always honoured their transactions. However, there may not have been a reasonable reliance, as the threshold in Quinn is very low, despite the questioning in Quinn being controversial. Finally, there has to be an alteration of position. This is when the position of the third party is altered to their detriment. In this case, generally entering into the contract itself, will alter Kayla’s position (Rama). CONC: in this scenario, Amy did not make a representation to Kayla that Jim had authority, this was just assumed by Kayla, as other transactions had been honoured in the past. However, it can be assumed that because this transaction is of a different scale to others, Amy can refuse the delivery of the goods because Jim had no authority to be making this transaction. If apparent authority is proved, then the contract is binding and P must pay the damages and accept the delivery. However, in this case, there is apparent authority, hence, he will be liable under BOWA. But this will not apply if Kayla knew Jim had no authority (Hope).

iv) Amy wishes to terminate Jim’s agency with immediate effect. Jim has arranged a total of 8 transactions, during his period of appointment as Amy’s agent Termination of agency The issue here is whether Amy can terminate Jim’s agency and if Jim is entitled to a commission or remuneration. If the contract is silent, the right to renumeration is presumed (Miller) and if the contract makes provisions for remuneration, P should pay A in accordance with the contract. (Novinex). Under the performance, an agency contract comes to an end when both P & A have performed their obligations under the contract. If P&A agree to terminate their contract, if it was for a specific period of time and then was terminated at the end of this period, this is permitted (Dickinson). If a contract requires termination of notice then when notice is given, it will be terminated. If there is no notice, then a reasonable time period is sought (Alpha Lettings). If under the contract, Amy or Jim committed a repudiatory breach of the agency contract, the innocent party can claim damages and discharge himself. Difficulties arise if A’s actual authority has been terminated, P might be bound to agreements reached by A if apparent authority can be demonstrated. As Jim has actual authority, Amy may be bound to the agreements as apparent authority was demonstrated. In Drew, representations were made from P to T, regarding A’s authority but didn’t communicate the end of the contract to T. if Jim had authority, it is up to Amy to communicate with relevant third parties that Amy and Jim’s relationship has terminated. Therefore, it could be argued, that if Jim breached some of his fiduciary duty and acted in excess of thus duty, then Jim repudiated the contract and Amy can accept. Amy may then, be liable for 8K because the agency contract specifies payment of commission (Miller/ Novinex). If Amy is not able to accept a repudiatory breach, it will all be about adequate notice (Alpha Lettings) and the notice period could be relatively short. In conclusion, the termination could be due to a breach or notice and Jim’s contract is more likely to be terminated because of a breach of duty....