There are various forms in which a business can be carried on, that is, proprietorship, partnership or a company. If a single person initiates business then it is proprietorship and if there is more than one person who works jointly then they can opt for partnership or a company form of business. (Egert, 2007)
When a business is carried out as a proprietorship concern, then, various employees are appointed to do work with him. The employees engaged by an employer are agent of the employer as they perform their duties on behalf of their respective employer and is held in (Maynegrain Pty Ltd v Compafina Bank , [1982] ). The employer gives authority along with power to his subordinate for the completion of the tasks and the subordinate acts as agent of the employer and performs his duties effectively. As and when a subordinate acts on behalf of his superior he binds the superior with his acts provided he acted within the authority provided to him by the superior. (Gillies, (2004))
The authorities that a superior entrusts upon his subordinates are normally divided into two broad categories.
Firstly, Actual authority, It is an authority which the superior entrusts upon his subordinate and the same is actually expressively or impliedly granted by the employer upon the subordinate and is rightly dealt in (Australia and New Zealand Bank LTD v Ateliers de Constructions electriques de Charleroi , [1969]. ) An Express actual authority is an authority which is provided by the superior to the subordinate by express words or orally or by way of a written document (Bowen, 2017). Whereas in case of Implied authority, the authority is provided by a superior to his subordinate by conduct or gestures which implies that the authority is granted by the superior to the subordinate and is dealt in (Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd, (1973)). (Greig, (1988). )
Secondly, another kind of authority which is provided to the subordinate by the superior is apparent authority. It is also known as ostensible authority. In apparent or ostensible authority, the superior acts or represents in such a way, so as the certain kind of authority to do certain acts is granted to his subordinates. These acts of the employer makes the third party believe that the subordinate is entrusted with authority and believing upon same, if the third party enters into a transaction with the subordinate on behalf of his superior, then, in that case both the superior and subordinate are bound by such a transaction which is entered with the third party. The basics of apparent authority are defined in (Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd and Kapoor , (1964). )
Now,
As agency is a relationship between a principal and an agent, so there are certain norms and duties that an agent must follow, that is, an agent must act in interest of his principal and in case he acts in conflict of the interest of his principal, then, such an act is against the agency principal. Thus, an agent is duty bound to act in interest of his principal and not contradictory to same and is held in (Hollis v Vabu , (2001)). The agent is duty bound not to misuse the relevant and important information being received by him during the course of agency or by his principal against the principal (Breen v. Williams, 1996). The agent must act in good faith and in interest of his employer thus must not make any kind of secret profits and is dealt in (Jones v. Canavan , 1972). The agent has a relationship of trust with his principal and he should act properly within the fiduciary relationship between him and his principal and is dealt in (Scott v Davis , (2000)). An agent must do his acts properly with due care and diligently. (McCarthy L. , (2004) )
Brad is acting as Tina’s agent and Brad was provided with actual authority by Tina during her illness to purchase petrol. So this is a direct authority which is transferred by Tina to Brad as rightly illustrated in Australia and New Zealand Bank LTD case. Hence Brad has authority to buy petrol on Tina’s behalf as per actual express authority. Any act within the actual authority will make Tina bound which is undertaken by Brad on her behalf.
But when Tina rejoined her duty after her recovery. She later withdrew the authority given by her to Brad. Thus, there is lapse of express authority. But brad still has the authority on Tina’s behalf to make transactions on Tina’s behalf as the lapse of authority is not told to Caltex who is still is in impression that Brad is authorized by Tina. So there is presence of ostensible authority.
So Tina is bound by the transactions of Brad with Caltex as Bred had ostensible authority and that is the reason the Petrol which was supplied by Caltex assuming Bred is still acting as per Tina’s advice is a valid transaction.
Tina Appointed Paul who is an experienced salesperson who has knowledge of vehicles. Paul purchased the 2012 Holden Commodore Wagon, at $ 19 000 from Tina and he further sells the same to Fred @ $ 25000 thereby making profit.
As Paul is Tina’s agent, so being an agent he must had told Tina that the vehicle can fetch more then what Tina was demanding for the same. But, he did not perform his duty in spite of being in fiduciary relation with Tina. Hence he made profit privately. So, Paul had breached the duty which was with him as Tina’s agent and thus Tina can recover profit from Paul.
Conclusion
Tina is bound by transaction of Brad with Caltex as per the ostensible authority which Brad held in eyes of Caltex. Also, Tina can recover profits from Paul for breach of duty performed by him in agency.
In a partnership form of business, all the partners carry to work together for their firm and thus invest their capital and efforts for the achievement of profits which they in turn distribute amongst themselves. In partnership, all the partners are agents of the firm and of each other and any act done by any of the partners binds the firm and all the partners ( Newstead v Frost , [1979]). (Woodward E. , (2001) )
The concept of indoor management is the principle which governs the relation of the firm with the outsider.
Normally, when a firm or a person acting on behalf of a firm enters into a transaction with any third person without having the authority to enter into such a transaction then those transactions entered into by such person on behalf of firm are voidable except the same are ratified or assented by the firm. This rule was inconsiderate for the third persons as third persons had no knowledge about the internal process and authority of the firm and thus in turn they did not even after entering into transaction realized that a certain transactions binds the firm or not.
These wrong results in causing great sufferance for the third persons. So the concept of indoor management was filtered by the renowned case law of ( Royal British Bank v Turquand , (1856).)
It signifies that when the partners have authority which they get through their firm by execution of documents or else wise, which is not known to the outside world, so in order to curb the harsh behavior of law on the third persons who dealt with the partner on behalf of their firm, it was thus concluded that, if an outsider enters into transaction with a partner in good faith and without any doubt or suspicion regarding the incapability of the partner to enter into such transaction then the firm will be bound by such a transaction even if the partner who transacted on behalf of firm had no authority to enter into such transaction on behalf of his firm and is held in (Equiticorp Finance Limited (in liq) v Bank of New Zealand , (1993) ). (P, (2012). )
But the third person must believe that the partner has authority for act and his acts will bind the firm. (In Australian Capital Television Pty Ltd v Minister for Transport and Communications (1989)). But a person whoi is part of the firm cannot avail the benefit of this concept of indoor management rule (Morris v Kanssen [1946].
In case the third person has knowledge that the partner has no authority to transact and if still the third person enters into a deal with the partner then the benefit of the doctrine of indoor management cannot be attained and is held in (Northside Developments Pty Ltd v Registrar-General , (1990)). (Krawitz, (2000))
As per the facts,
Simon, Sara Mary and George floated a firm called Computer Solutions and thus pooled their cash and executed a partnership agreement, which stated that each partner is having authority to enter into transactions on behalf of their firm.
The agreement states that partners have authority to enter into contracts up to $ 10 000 but in case any contract is more than the said sum, then, approved by all other partners is required. However, Simon purchased one 500TB storage drive for $12 000 from Sunstar Computer Hardware Ltd and second-hand ute, costing $ 9 000 from You Beaut Ute Ltd.
The transactions are not approved by George, Sara and Mary.
Now, each partner can bind the firm with transaction up to $ 10,000 and for transactions more than the aforesaid amount all the partners must unanimously approve the transaction.
When Simon entered into a purchase of $12,000, then, the same is not within the authority of Simon as per the agreement of the partnership. This is because she is permitted to enter transactions only up to $ 10,000 on her own. So, she has an obligation to comply with the terms of the partnership and she has the duty to take assent of all the partners. But she did not do so. So, the other partners will not be liable.
But, if Sunstar Computer Hardware Ltd can prove that it entered into transaction and dealt with Simon on behalf of his firm and had no reason to believe that Simon did not had authority to enter into contract on behalf of firm then it can surly get the benefit of doctrine of indoor Management by applying the law of Royal British Bank v Turquand. Thus, in that circumstances the contract entered by Simon will be binding upon Computer Solutions. If Sunstar Computer Hardware Ltd would have knowledge that Simon had no authority to transact beyond $ 10000 then Sunstar Computer Hardware Ltd cannot recover from Simon’s firm.
Also, the other transaction of $ 9 000 entered by Simon on behalf of his firm, the Computer Solutions, is surly bound as the transaction is within the authority of Simon though outside scope of business of the firm. In this case all the partners and firm are surly bound by Simon’s transaction.
Conclusion
The firm i.e. Computer Solutions and its partners are bound by the transactions entered by Simon on behalf of Computer Solutions as the transaction of $ 12,000 with Sunstar Computer Hardware Ltd is binding as per the doctrine of Indoor Management Rule (presumed that Sunstar Computer Hardware Ltd did not had knowledge about the authority of Simon in firm). And regarding transaction with Beaut Ute Ltd same is for $ 9,000 and is within the authority of Simon given to him by his firm.
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