Creation of Agency | My Assignment Tutor

1Agency Tutorial QuestionsCreation of Agency1. Explain the difference between actual and apparent authority. Refer to relevant examples orcases in your answer.2. Melissa was authorised by her boss to place weekly stationery orders for up to $250. For fourconsecutive weeks she ordered $400 worth of supplies from Lewis Stationers because they wereoffering customers who spent $1600 in one month a free A4 paper folding machine and she knewher office needed one. Melissa’s boss has found out and told Lewis Stationers they have to takeback their machine and any supplies exceeding the value of $250. Answer the followingquestions, giving reasons.(a) Did Melissa have express, implied or apparent authority to place the order?(b) Is Melissa’s company legally obliged to purchase the excess stationery?(c) Could Melissa be made liable for the cost of the excess stationery?Suggested answer1. Actual authority: if an agent has actual authority, the principal is bound by the agent’s acts.The actual or express authority of the agent will be found in powers: expressly given by the principal to the agent;implied in the agency (or employment) agreement;that arise from operation of law. See: Australia and New Zealand Bank Ltd v. v Ateliers de Constructions Electriques deCharleroi [1967] 1 AC 86.Apparent authority: only arises where the question of actual authority is lacking. If a thirdparty is to succeed against a firm, they must establish that: the agent was acting within the scope of the business of the kind carried on by thefirm (a question of fact in each case);the transaction was carried out in the usual way;they knew or reasonably believed that the agent in fact authorised to represent theprincipal; andthey were not aware that the agent lacked authority to bind the firm. See: Summers v Solomon (1857) 26 LJQB 301.2. Students are expected to draw on principles from the lecture on Incorporation andContracting with a Company through an Agent: actual (express or implied) and apparent2authority. A person has authority to act for a company if she or he has: Actual authority(express, or implied) or Apparent authority.Actual authority exists where the principal has actually agreed that the agent can act on theprincipal’s behalf. It can be express or implied. Express actual authority can arise from aprovision in the Corporations Act or the company’s constitution e.g. s 198A. It can alsoarise when a company agent (e.g. the board) who has actual authority delegates some oftheir own actual authority.Implied actual authority can arise by implication from things the principal says and doese.g. appointing someone to a certain position. Different company officers have differentlevels of implied authority.Apparent authority can arise even where the principal has not in any way (words orconduct) agreed that the agent can act on the principal’s behalf.Where company denies it is bound by a contract due to some lack of authority or defect inprocedures. Policy issue: Need to balance the competing interests of outsiders dealing withcompanies; and innocent shareholders and creditors of companies. Contract made throughan agent may be defective because the purported agent either: has no express actualauthority, or has express actual authority that is too narrow for this contract. Outsider wantsto enforce against the companyHere, it could be argued that Melissa has apparent authority to place weekly orders for up to$400 a week. For Melissa’s company to be liable to Lewis’s Stationers to purchase theexcess stationery and pay the $1600 owing to the latter, the requirements of ApparentAuthority must be established. There must be: a “holding out” (or “representation”) – can be words or conduct;by someone with actual authority – apparent authority not enough: Crabtree-Vickers;on which the outsider relied – outsider must be “induced”. On the facts, it appears that the above requirements are present. It is not stated thatMelissa’s company has advised Lewis’s Stationers as to the limit of Melissa’s authority toplace stationery orders. By virtue of the Indoor Management Rule, Lewis’s Stationers canassume that there is no issue or defect in Melissa’s authority and that the orders she madewere regular. Therefore, Melissa’s company could be made liable to purchase the excessstationery and pay the $1600 to Lewis’s Stationers.3Duties of Agents1. List and briefly explain the main duties that agents owe to their principalsSuggested answerAn agent has both a contractual and a ‘fiduciary’ duty to the principal, the latter being a duty oftrust. The agent must make the interests of the principal their primary aim, not their own. Thefollowing are some of the implied fiduciary duties required of the agent:1. to follow instructions2. to make full disclosures of any interest that they have regarding the principal’sinstructions3. not to make secret profits4. confidentiality5. act in person6. to keep proper accountsAgent’s rights and liabilities1. What rights does on agent have against a principal?Suggested answerWhile an agent owes various duties to the principal, the agent can similarly enforce their ownrights under the agency contract, which are made expressly or impliedly; for example, the right tobe properly informed of the principal’s business.Rights of an agent may include the: right of remunerationright of indemnity and reimbursementright to a lienright to a stoppage in transit 2. Explain the circumstances that could cause an agent to be liable to a third party the agent hadcontracted with or had apparently contract with on behalf of the principal.Suggested answerAn agent is not liable to the third party, except where:• the agent agrees to be;4• trade, customary practices or usage means the agent will be personally liable – forexample, a stockbroker when buying and selling;• the agent personally signs a bill of exchange;• the principal does not exist;• the agent exceeds their authority; and• the agent does not disclose that they are an agent – if the principal does not later ratify thecontract then the agent remains liable.


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