Discuss about theAssessment Item for Equitable Standards in Fair Dealing.
Issue: in this question, the issue that arises on the basis of the present facts is if the contract created by Brad with Caltex for the purchase of 30,000 L patrol is enforceable against Tina, the owner of the business also expressly told Brad that he should not order patrol in future. In the same way, there is another issue that needs to be decided in this question. Therefore it has to be decided if Paul had made a secret profit while he was acting as the agent of Tina.
Law: in view of the now the facts that have been given in this scenario, the principles of law of agency needs to be applied. According to the law of agency, an agency is an agreement that is created between the party known as the principal and the other party, which is called the agent. The agency agreement provides that an agent has the power to enter into the contracts on behalf of the principal. Therefore, such contracts also bind the principal (Watteau v Fenwick, 1893). Similarly, even if the agent has created the contrary, the lawprovides that the benefit of such a contract go to the principal. The reason is that in such a case, the contract has been created by the agent on behalf of the principle.
Apart from the relationship that has been created between the principal and the agent, another relationship is created with the third-party. The acts of the agent result in the creation of a relationship between the principal and a third party (Mason, 2000). At the same time, the law provides that although the agent had entered into the contract, but in such a case, a relationship is not created between religion and the third party. The law of agency also provides that different types of authority can be given to the region by the principal (Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd., 1964). Hence the authority of the agent can be actual authority, apparent authority or such authority can be the authority of necessity. In case of express authority, authority is provided to the agent in writing or orally by the principal. On the other hand, it can be said that the agent had implied authority when even if the authority was not provided expressly, the agent was designated to a particular position, and consequently some authority is associated with this position (Carter, Peden and Tolhurst, 2007). The apparent authority of the agent arises in cases where the principal as not confer any authority on the agent but a representation has been made by the principle that the agent has that authority. It needs to mention at this point that for the purpose of authority, any representation that may be made by the agent is not significant, but the representation that has been made by the principal needs to be considered (Christie and Another v Harcourt & Co, 1973). The law provides that the principal may make such a representation in the form of inaction also, particularly when the principal knows that on the basis of the actions of the agent, the third parties may arrive at the conclusion that such authority is possessed by the agent. In this type of cases, the law provides for the responsibility of the principal to inform the parties that such an agent does not have the authority. On the other hand, if the principal has not informed the third parties accordingly, it may be presumed that the liability of the principle arises regarding the acts of the agent.
It has also been provided by the law of agency that the directions given by the principal should be strictly followed by the agent. On the other hand, if the agent had failed to follow these directions, it can be considered that the agent is liable to the principal. In case of an agency relationship, it is required that the agent should use his talent for the benefit of the principal. Similarly, the agent also has the obligation to exercise due care. Another duty of the agent is that the agent should act in good faith. According to other fiduciary duty of the agent, the law requires that the agent should act while keeping in view the best interests of the principal. Hence any conflicts of interest should be avoided by the agent. On the other hand, if any such conflict of interest is present, the agent should immediately informed the principle that such a conflict is present. Similarly, another important duty of the agent requires that any secret profit should not be made by the agent. In Bentley v Craven (1853) the court had arrived at the conclusion that if any secret profit has been made by the agent at the expense of the principal the law allows the principal to recover it from the agent. The agent is also under a fiduciary duty which requires the agent not to withhold any information and similarly, such information should not be used by the agent for making a profit for himself (Robb v. Green, 1895).
Application: In view of the legal position that has been described above, in the present case, earlier express authority was given by Tina to Brad. So that he can order patrol. However, later on Tina withdrew this authority when she recovered from her illness and return back to business. Although the authority was withdrawn from Brad, he ordered 30,000 L of patrol from Caltex. However, at this point, it needs to be mentioned that although Tina had with John authority from Brad to purchase the patrol but Caltex did not knew regarding this withdrawn of authority. As a result, Caltex would reasonably presume that Brad still had the authority to order patrol on behalf of Tina.
But in case of the second scenario, a secret prophet had been made by Paul when he was acting as an agent for Tina. In the same way, Paul had failed to inform Tina regarding the true value of that car. A conflict of interest has arisen when Paul decided that you purchase the car for himself and the later on sold the car at a profit. Therefore it can be set in this case that the duties of Paul as an agent of Tina have been breached. Consequently, the law allows Tina to recover the secret profit made by Paul.
Conclusion: under these circumstances it can be concluded in this case that the contract created by Paul to purchase petrol from Caltex is binding on Tina although she had withdrawn the authority to do so and asked Brad not total petrol in future. The reason behind this conclusion is that Caltex was not aware that Tina had withdrawn the authority to purchase patrol from Brad. Consequently, in this case, Caltex can reasonably assume that Brad had the authority to create a contract for the purchase of patrol on behalf of Tina. Regarding the second issue, Paul had made a secret profit and Tina can recover this amount from Paul due to the breach of duties as an agent.
Issue: the issue in this question is if the contracts entered into by Simon can be considered as binding on the other partners, George, Sara and Mary especially due to the fact that it is mentioned in the partnership agreement that while entering into a contract for more than $10,000, each partner has to inform the rest of the partners. Similarly, as the partnership was not in the business of freight business the purchase of Ute by Simon can be considered as binding or not?
Rule: The Partnership Act, 1892 contains the provisions that can be applied beside the above-mentioned issues. Therefore, the Partnership Act provides that a partnership can be created by an agent or through an oral agreement. The partnership agreement will describe the powers that have been given to the partners. Similarly, this agreement will also describe the scope of express authority that has been given to the partners (Robb v Green, 1895). Therefore it is clear that when a partner has entered into a contract that is within the scope of authority, such a contract will be binding for the rest of the partners. At the same time, it has also been provided by the Partnership Act that a partner also enjoys implied authority to act as the agent of other partners (Watteau v Fenwick, 1893). However, it needs to be mentioned that the implied authority enjoyed by the partners is limited to the nature of the business (Latimer, 2006). Consequently, if an act does not comply with the business that is generally carried on by the partnership, the act cannot bind the other partners (Christie v Harcourt & Co., 1973).
Application: In view of the rules mentioned above, it can be said in this case that a contract was created by Simon for purchasing 500 TB storage drive from Sun Star Computer Hardware Ltd at a price of $12,000. Even if it has been mentioned in the partnership agreement that the authority of the partners is limited to contracts worth $10,000 but in view of the rules mentioned above, although in this case, Simon had exceeded his authority as a partner but Sun Star Computer Hardware Ltd was not aware of the fact that Simon did not have the authority to form this contract. The result is that this contract can be enforced against the partnership.
However, in case of this second scenario where Simon formed a contract for purchasing a second hand Ute, because he was willing to divert the partnership business into freight business, it needs to be noted that the general nature of the business carried on by the partnership firm was related with information technology. Consequently, this contract cannot be treated as a part of the usual business. Hence the contract is not binding on the other partners, George, Sara and Mary.
Conclusion: Therefore it can be, concluded in this case that the contract formed by Simon with Sun Star Computer Hardware Limited is binding against the other partners of the firm. The reason behind this conclusion is that although the partnership agreement provides that each partner has authority to enter into a contract worth $10,000 only, but Sun Star Computer was not aware of such a limitation imposed on the authority of the partners. Therefore, the other partners can be considered as being bound by the contract for purchasing a 500 TB storage drive. Although this contract exceeded the authority provided to Simon.
However, in case of the second scenario where Simon contracted to purchase a second hand Ute for $9,000, the conclusion is that even if this contract is within the scope of authority that has been provided to the partners but still this contract cannot be enforced against the partnership. The reason is that the freight business is not the general business carried on by Computer Solutions. Therefore, this contract is not enforceable against the other partners, George, Sara and Mary.
References
A.F. Mason (2000)“Contract, Good Faith and Equitable Standards in Fair Dealing” 116 L.Q.R. 66
JW Carter, E Peden and GJ Tolhurst(2007) Contract Law in Australia, Lexis Nexis, Sydney, 5th ed
Latimer, Paul (2006) Australian Business Law, 25th edition, CCH Australia Limited
Case Law
Christie and Another v Harcourt & Co – [1973] 2 NZLR 139
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Robb v Green, 1895, 2 Q. B. I AND 315
Watteau v Fenwick, [1893] 1 QB 346
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