When a person gets his work done by the other person on his behalf, then, such relation is known as agency and the person who gets work done from other is known as a principal and the person who acts on behalf of that other is known as an agent. Thus agency is a relationship in which the work is performed by an agent on behalf of his principal. (Egert, (2007))
This concept of agency is normally found in very kind of business wherein the proprietor employs employees under him so as to do work on his behalf and the employees who act on behalf of employer are agent of the employer and the acts of the employees bind the employer. The employee’s acts under the employer are provided with authority and powers by the employer for achievement of tasks (Maynegrain Pty Ltd v Compafina Bank , [1982] ).
Normlaly, each partner acts for other partners and bind the firm by his acts, as one partner acts on behalf of the whole business and binds the whole business and its respective partners by the transaction he carries out in relation to the business. (Egert, (2007))
The employer and the other partners are bound by the acts of their employees and partners respectively when done on behalf of hem. (Gillies, ((2004))
There are certain types of authorities which are provided by the employer to its employees to act accordingly for the completitoin of the task assigned to them.These are:
An actual authority is that authority which actually exists with the agent that may had been provided by the principal impliedly or expressively to him and is analyzed in the leading case of Australia and New Zealand Bank LTD v Ateliers de Constructions electriques de Charleroi, [1969]).()
The authority which is provided by the principal in express from is express actual authority and it can be provided by the principal to an agent by way of a written mode or orally too. (Bowen, (2017))
The authority provided to an agent by the principal impliedly is known as implied actual authority. This kind of authority can be provided by a principal to an agent by way of conduct etc. and is analyzed in (Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd, (1973)). (Greig, (1988))
Apparent authority is that kind of authority which is provided by a principal to an agent apparently. The same is also identified as ostensible authority. In this kind of authority the third person is made to believe by the principal that an agent acting on his behalf has certain authority and upon the belief generated regarding the agency relation by the principal, the third person enters into a deal with such agent on behalf of the principal. In such case the principal cannot back out from the transaction entered into between by the third party with his agent on his behalf (Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd and Kapoor , (1964))
In an agency relationship the agent is also duty bound to act in a certain manner: (McCarthy, (2004))
Tina had employed Brad to do certain tasks on his behalf and thus there is an agency relation between the two. Brad acts on behalf of Tina and purchases petrol during her illness and thus holds actual authority provided by Tina to Brad as held in (Australia and New Zealand Bank LTD v Ateliers de Constructions electriques de Charleroi, [1969])
But on Tina’s rejoining, Tina tells him not to carry any acts on his behalf but still Brad orders petrol from Caltex. As per agency Principal, Tina is bound by the transactions which Brad carries on her behalf as per authority given to him. And Tina wants to avoid the transaction which Brad carried with Caltex on her rejoining but she cannot do so as she had not given any intimation to Caltex that she had taken back the authority given to Brad and moreover Caltex acted in good faith without knowledge of the fact that Brad was not authorized to order petrol on Tina’s behalf after Tina rejoined her services. Hence Tina is bound by the concept of Ostensible or apparent authority and cannot avoid transaction of Brad on her behalf with Caltex.
Paul (experienced salesman) had been appointed as a salesman by Tina
Paul being employed by Tina being his agent purchased a 2012 Holden Commodore Wagon @ $ 19 000 which he knew was undervalued (wrongly priced) by Tina and resells it to Fred @ $ 25000 and thus earns profit.
As Paul is Tina’s agent as being employed by Tina must had acted in good faith as being in fiduciary relationship with her. Moreover it is an agent’s duty not to make any personal profits but Paul did the same by purchasing car from Tina and further reselling it which is against law of agency. So in this case Tina can surely get the profit made by Paul back.
Conclusion:
Tina has to honor the Brad’s deal with Caltex as per the concept of ostensible authority and Tina will be able to recover from Paul as he breached the duty of being a agent of Tina.
In any business two or more persons carry out the business together by bringing resources. All the partners work together to achieve profits and thus divide the same amongst themselves. As all partners work for the firm in which they are named as partners, hence, they act as an agent of the business and also agent on behalf of one another i.e. whenever one partner acts on behalf of business then he binds the firm with his acts and also the other partners by his acts ( Newstead v Frost , [1979]). (Woodward, (2001) )
Whenever a outsider enters into any deal with a business through its partner then it has every reason to believe that the partner who dealt with him has every authority to deal with him on behalf of business so even in case the partner exceeds his authority and enters into deal with outsider on behalf of the buisness which he is not allowed to, then also the other partners are bound by such a deal. This concept which thus saves the outsider who acts in good faith with partner on his firm’s behalf and same is known as doctorine of indoor management (Krawitz, (2000)). But in case the outsider is aware of the fact that the partner who is dealing with him does not has the requisite authority and then also deals with him, then, he is not allowed to take benefit of concept of doctrine of indoor management as this doctorine only saves the outsider in case he acts in good faith with a partner believing he has the requisite authority to deal with an outsider, but in case he knows or has a reason to believe that the partner he is dealing with is exceeding his authority then also if he deals with such a partner then none of the other partner and the business is bound to outsider for such a transaction and is held in (Northside Developments Pty Ltd v Registrar-General , 1990))). (P, 2012)
The case which leads to development of this doctrine is (Royal British Bank v Turquand , (1856)) and is also analused in (Equiticorp Finance Limited (in liq) v Bank of New Zealand, (1993).
The whole point of this doctrine is that an outsider should not suffer unneccisarily and focuses that an outsider must believe that the person he is dealing with has the requisite authority to deal with him on behalf of his firm and is held in (In Australian Capital Television Pty Ltd v Minister for Transport and Communications , (1989))
In case the person is who himself is in breach deals with a partner and later tries to avail benefit of doctrine of indoor management then he is not allowed to take benefit of the same as it is presumed that he would had knowledge of the authority of the person he is dealing with (Morris v Kanssen , [1946]. )
Simon, Mary, Sara and George made a firm named Computer Solutions and thus brought their resources i.e. capital and entered into a partnership with each other, as per the partnership executed between them the partners were authorized to enter into transactions upto $ 10 000 however in case of transaction beyond $ 10 000 the approval from all the partners was mandatory.
Simon one of the partners purchased one 500TB storage drive for $12 000 from Sunstar Computer Hardware Ltd and also one second-hand ute, for $ 9 000 from You Beaut Ute Ltd.
The above said deals were not assented by remaining partners.
As per facts of case every partner has authority to carry out contracts on behalf of Computer Solutions upto an amount of $ 10,000 but in this case Simon without even approval from other partners entered into deal with Sunstar Computer Hardware Ltd for a storage drive worth $12 000 which was outside the scope of his authority but as Sunstar Computer Hardware Ltd had no reason to believe that Simon did not had authority to deal for a sum above $ 10,000 and moreover Sunstar Computer Hardware Ltd acted in good faith and properly. So Sunstar Computer Hardware Ltd can avail the benefit of doctrine of indoor management and thus all the partners and their firm i.e. Computer Solutions are bound by the Simon’s deal with Sunstar Computer Hardware Ltd.
But in case Sunstar Computer Hardware Ltd had reason to believe that Simon cannot deal with them on behalf of Computer Solutions for an amount exceeding $ 10,000 and then also deal with Simon then the other partners will not bound by the Simon’s deal with Sunstar Computer Hardware Ltd
In case of deal of Simon with You Beaut Ute Ltd for an amount of $ 9 000 the other partners are bound by same even if same was not related to the business of Computer Solutions as the amount dealt with by Simon is within the authority provided to him by the Computer Solutions.
Conclusion:
Thus all the partners as well as their firm i.e. Computer Solutions are bound by Simon’s contracts with Sunstar Computer Hardware Ltd for amount of $ 12,000 as per principal of doctrine of Indoor Management Rule. Moreover as per Simon’s contract with Beaut Ute Ltd for amount of $ 9,000 is also valid as the same is within the scope of authority with Simon as provided to him by his firm i.e. and is within the authority of Simon given to him by his firm i.e. Computer Solutions.
Newstead v Frost ([1979]).
Australia and New Zealand Bank LTD v Ateliers de Constructions electriques de Charleroi ([1969]).
Bowen, R. ((2017)). Agency Authority in Australia. Australia.
Breen v. Williams (1996).
Egert, A. ((2007)). DEFINING A PARTNERSHIP: THE TRADITIONAL APPROACH VERSUS AN INNOVATIVE DEPARTURE ? DO QUEENSLAND APPEAL COURT DECISIONS POINT TO THE NEED FOR A REVIEW OF THE TRADITIONAL APPROACH TO . 19.1 Bond Law Review.
Equiticorp Finance Limited (in liq) v Bank of New Zealand ((1993)).
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd and Kapoor ((1964)).
Gillies, P. (((2004)). Business Law. Federation Press.
Greig, D. W. ((1988)). Commercial law. Butterworths.
Hollis v Vabu ((2001)).
In Australian Capital Television Pty Ltd v Minister for Transport and Communications ((1989)).
Jones v. Canavan (1972).
Krawitz, A. ((2000)). Protecting Outsiders to Corporate Contracts in Australia – Volume 9, Number 3 . Murdoch University Electronic Journal of Law.
Maynegrain Pty Ltd v Compafina Bank ([1982] ).
McCarthy, L. ((2004)). VICARIOUS LIABILITY IN THE AAGENCY CONTEXT. Vol 4 No 2 (QUTLJJ).
Morris v Kanssen ([1946]. ).
Northside Developments Pty Ltd v Registrar-General (1990).
Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd ((1973)).
P, H. (2012). Principles of Lender Liability. OUP Oxford.
Royal British Bank v Turquand ((1856)).
Scott v Davis ((2000)).
Woodward, E. ((2001) ). Corporations Law – IN principle 5th edition. (p. 113). Australia: LawbookCo.
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