Agency and insurance Law - Case Study Example

Agency and Insurance Law Case I Drew and Bev are employed by Kirk as his sales assistant in his business of selling building and decorating suppliesand related products hence they are his agent. An agent is a person employed expressly to do any act for another or to represent another in dealing with a third party. Kirk on the other hand is the principal. Principal is a person who employs another to contract on his behalf. The relationship that occurs between the principal and the agent is known as agency. In Agency, the act of an agent, done within the scope of his authority binds his principal. The work of an agent is to linking the principal with a third party bringing about a contractual relation between his principal and a third party. (Saleemi, 1992) Eileen runs a large office went to Kirk firm to make a big order of 1000 potted plants. He was served by Drew, one of the sales assistant in Kirk firm. Drew informed her that the price for the potted plant was 20 per plant. Just to be sure about it, Eileen requested to confirm about the price from Kirk, his boss. Kirk told Eileen that he had authority to make such an agreement on his own but he would confirm about this particular order with his boss. Drew went to the back of the office out of Eileen's sight and returned saying he had confirmed the deal with his boss. Drew did not confirm about this order with Kirk since he was on phone but Eileen believed him. In agency law, the agent is engaged to bring about a contract between the principal and a third party, therefore, it is important that both the principal and the agent possesses contractual capacity. Advice to Eileen Kirk is liable for the contract entered by Drew and he should not escape the contract. Drew as Kirk's sales assistant is presumed that there is creation of agency between them by express agreement. Hence Drew possesses a contractual capacity to make a contract with a third party on behalf of his principal which is binding. Eileen believed that even though Drew had no capacity to make sales agreement for big order, he confirmed about the sale when he visited their premises and Drew confirmed this from Kirk at the back of the shop out of her sight. This case would also be ostensible authority where an employee who has been placed in a position of responsibility mat be assumed to have such authority as normally matches with the position, irrespective of what is his actual authority. For this case, entered into contract with Drew believing that he had proper authority of his employer. So, the employer is liable for the contract. A similar case studied is that of: Watteu v Fenwic, 1893 In this case, a manager of a public house was expressly instructed by his employer to order all hotel requirements through him. In breach of these instructions, the manager ordered some cigars and other goods from the plaintiff. It was held that the owner of the public house was bound by the manager's act because it matches his position. (Emanuel, 2004) Advice to Kirk Kirk might not be liable for the contract if Drew as an agent acted on the contract by exceeding his authority. If for example there is an agreement during creation of agency that the agents have only authority to make sales agreements not exceeding a certain quantity, then Kirk might not be liable. Advice to Drew Drew might be liable for the contract if he exceeded his authority while making that contract. A breach of implied warranty of authority arises when a person exceeds his authority. In this case the principal is not under no liability on the contract and the agent becomes personally liable for the breach of implied warranty of authority to the third party. It is immaterial for this purpose that Drew (agent) believed himself to have such authority. Case II Wendy was a manufacturer of table saw and she approached Bev to make an offer to sell table saws for 400 per table saw provided he picked them up from her factory. Bev agreed to Wendy's offer even though he had authority to sell but not to purchase. Ten days after the delivery date of the table saw, Kirk read an article in the papers about world wide shortage of table saws and went to Wendy's factory to demand delivery of table saw. There is creation of agency by ratification in this case. This is where an agent has no authority to contract on behalf of a principal or exceeds such authority, and then the contract is not binding on the principal. But if A, without prior authority of R, purports to make a contract on behalf of P, then, it is possible for P subsequently to ratify the contract. The effect of ratification is to render the contract as binding on the principal as if the agent had been properly authorised at the time of entering into the contract. The ratification has a retrospective effect; that is, the agency is taken to have come into existence from the moment the agent first acted, and not from the date of the principal's ratification. (Emanuel, 2004) Advice to Kirk Due to the fact that the contract was entered into by Bev, Kirk's agent, then, he can ratify the contract. The agency took place immediately Bev agreed with Wendy about the table saws. For this case, Wendy is liable to bind into the contract they entered with Bev. A similar case studied is that of: Bolton Partners v Lambert, 1889 L made an offer to M, the managing director of a company, who accepted the offer on the company's behalf, although he had no authority to do so. L then gave notice to the company that he withdrew his offer. The company subsequently ratified M's unauthorised acceptance. It was held that as the ratification dates back to the time of acceptance, the withdrawal of the offer was inoperative, and so L was liable for the breach of contract. (Saleemi, 1992) Advice to Bev Bev having agreed to Wendy offer to purchase the table saw outside his limit of authority. Where an agent enters into contracts within the limits of his authority, the general rule is that he does not incur nay personal liability. But he becomes personally liable upon a contract made by him on behalf of his principal if the agent acts for a concealed principal. For this case, Bev would be liable for the contract he entered into, but for this case the contract was to benefit their firm. (Emanuel, 2004) Advice to Wendy For this case, since Wendy entered into contract with Bev, Kirk's agent, then he should bind by the contract. Kirk is the principal hence he ratified the contract and hence he has the rights of collecting the table saws because the contract went into existence at the time when they agreed Bev. Kirk for this case can sue Wendy for a breach of a contract. Case III Big Builders Ltd needed a large supply of plywood and went to order them from Kirk's firm. They were served by Bev, Kirk's sales assistant. Bev had quoted a price of 80 per sheet but BB convinced Bev that he would get 20 per sheet if he lowered the price to 40. Bev agreed to this on behalf of Kirk and entered into a contract. Advice to Kirk Kirk ought to have taken an insurance policy against the loss caused by this employee's unfaithfulness. For this case the insurance company would have compensated his against all loss caused by Bev when he sold plywood at a lower fee to Big Builders Ltd. A contract must be purported to be made on behalf of a named principal, and a contract intended to be made on behalf of undisclosed principal cannot be ratified. The agent's intention to act for another must have been manifested at the time of entering into the contract. Kirk can ratify the sale of the plywood to BB and stop the supply and that price. (Saleemi, 1992) A similar case studied is that of: Keighley, Maxted and Co v Durrant, 1901 X was authorised by his principal to buy wheat at a certain price. As the wheat could not be obtained at that price, X exceeded his authority and bought the wheat at a higher price in his own name. He did not disclose the fact that he was an agent. Later, the principal ratified the purchase of the wheat, but failed to take the delivery. The seller of the wheat there upon sued him, but failed in his action because X at the time of contracting had not disclosed that he was acting as an agent. (Saleemi, 1992) Advice to Bev Bev is personally liable for his conduct of pocketing the 20 he got from Big Builders Ltd. This is a void contract which cannot be ratified. Advice to Big Builders Ltd. Even though Big Builders were aware that the 20 was personally going to Bev pocket not Kirk, the principal, they may be having good title of the goods at a low price. A Similar case studied is that of: Forlkes v King, 1923 F, an owner of a car, delivered it to H, a mercantile agent, for sale at not less than 575. H sold the car for 340 to K who bought in good faith without notice of any fraud or prohibition on the power of H. H misappropriated the sum of 340 and F sued to recover the car from K. It was held that as H was in possession of the car with F's consent for the purpose of sale K got a good title. (Emanuel, 2004) Big Builder Ltd. On the other hand could be personally liable for their conduct for allowing an agent pocket 20 per sheet instead of the owner of the firm. References Emanuel, S. L, (2004), Fundamental of Business Law, 4th Edition, Sydney, Educational Publisher Emerson R. W, (2003), Business Law, 5th Edition, Sydney, Educational Publisher Hussain, A, (1993), General Principles and Commercial Law, 1st Edition, Nairobi, East Africa Educational Publishers Saleemi, N. A, (1992), Elements of Law, 2nd Edition, Nairobi, N.A, Saleemi Publishers Tyler, T. R. (1990). Why People Obey the Law. Hew Haven: Yale. Read More