Exact Nature of Relationship between Andrew and Adc Ltd - Case Study Example

Agency Law, Scenario Based Question Introduction: Business world has adopted a lot of new methods to carry on its complex transactions around the world; even at those places where its actual presence is not found. Franchises, contractual hiring and out sourcing are few of these methods but agency is one of the oldest and mostly preferred method to conclude such transactions. Reasons of its adaptation are numerous. Such as, in today’s corporate world, company, a legal entity, acts through its directors, who also have a fiduciary relationship with the company as an agent. Its not possible for the directors to be involved in all sort of activities by themselves and even in other types of businesses like firms and sole proprietors, there are numerous instances where different people act as agents for the business.1 (John May, 1961) Due to its frequency of use and adoptability, law on agency has been well developed by now and rights and duties of agent, principle and third party viz a viz each other are codified, however, there are still instances in legal proceedings where new and interesting situations arise and new aspects of the law are framed and discussed. In our instant case law, we will try to discuss a scenario based proposition and will try to answer the issues so framed in the light of codified law and legal precedents. To analyses the situation, process of FIRAC, which is, Facts, Issues, Rules, Analysis and Conclusion is being adopted which is widely applicable in analysis of legal cases.2 (David Guenther, 2009) Facts of the case: Brief facts of the case are reproduced below: Andrew works as an agent for business trading in different varieties of computers. ADC Ltd is a company needs 20 sets of Model XXP computers by Christmas 2009 by spending no more than £20,000. Dan is the sales assistant from PC Express, who offers Andrew 20 sets of the new Model XXP Plus computer at a discount price of £30,000. Andrew is sure that ADC Ltd would want the new model of computer rather than the old model and asked Dan to wait for an hour so he can speak to ADC Ltd in order to get the permission. He discloses that this order would be beyond his power and he is only acting as the agent. When Andrew rings Dan back to confirm the order he is asked specifically whether he received consent from ADC Ltd, Dan is told that it has all been sorted and that permission has been given, the order is made and the goods are delivered. However, Andrew did not in fact seek permission from ADC Ltd, he did ring but no one answered the phone call. Considering he had to contact Dan from PC Express in an hour, he concluded the deal before the written or oral permission from ADC Ltd. After Christmas, ADC Ltd asked Andrew to buy another 35 sets of Model XXP computers due to the expansion of the business. James owns a company involved in the production of computers and his business is mainly on importing computers from China and reselling them to the customers in the UK. James has just imported some Model XXP Computers from China. Knowing that Andrew often works as an agent for many companies in the computer business he contacted him with the purpose of concluding a contract. James is aware that Andrew works as an agent for ADC Ltd. However, James does not want Andrew to contract with him on behalf of ADC Ltd as the agent as in every previous transaction ADC Ltd has been very late in making payments. Andrew is aware of the previous problems and of James’ current instructions. Andrew enters into a contract with James and signs the contract ‘as the agent’ for an unnamed purchaser. Some weeks later James discovers that the Andrew contract with him on behalf of ADC Ltd and he pulls out of all future obligations under the contract on this basis. Issues: After careful study of the case following issues can be framed: 1 What type of agency exists between Andrew and ADC Ltd? 2 Whether ADC Ltd is bound by the deal accepted by Andrew with Dan? 3 Whether there will be any change of status if offer by Dan would be limited by time? 4 In case of deal with James, what are the rights and duties of ADC Ltd? 5 What are right of duties of Andrew in James’ deal? Rules: Before moving further, first of all we have to define and understand the term agency and will have to see its different facets. This will help us to identify the exact nature of relationship between Andrew and ADC Ltd. This term agency has deep roots in common law and is derived from Latin proverb, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests. Agency may be define as, “A legal relationship whereby one person acts for another to create a legal relationship with Third party”.3 (Emerson, Robert W. and Hardwicke, John W, 1997) Agency can be made: a) By Contract, express or implied, oral or written, b) By Ratification in those cases where agent was not having that authority at the time of committing that act but principle accorded that authority after the act, c) By estoppel, where principle by his act and conduct made the other party reasonably believe about an agency and later on if third party acts on that believe, the principle is bound by that act of agent and liable to that third party. d) By necessity. Sometimes situations arise where a person acts for another in an emergency situation without express authority to do so. This is known as agency by necessity.4 (Emerson, Robert W. and Hardwicke, John W, 1997, pp 251,252) Agency is a tripartite relationship in which one person acts as Principle on whose behalf the agent is acting and with whom the third party is actually entering into a contract through his agent. Agent is the person who carries legal authority to act on behalf of the principle and create legal relationships on his behalf with third party. All of agent’s acts are considered as acts of principle provided he acts within limits of legal authority. The third party in case of agency is one who interacts and comes in legal relationship with the principle through his authorized agent. He carries all rights and liabilities against the principle and seeks performance of his contracts from the principle.5 (Ramkrishna R.Vyas) Agency may be universal, limited or special. In universal agency, an agent holds broad authority and acts exactly as principle in all the circumstances, because of identical footing with the principle. These might be arising from legal document like power of attorney in favor of agent or because of professional relationship between the two like a relationship of lawyer with his client in which lawyer acts as his universal agent in all court related matters. Second category of agency is of general agents. They carry much limited authority to act and only in specific circumstances and defined areas they hold authority, for example, general authorized agent of companies to obtain orders and ensure deliveries. Third category of agency is special agency in which authority of the agent is limited to a period of time or to a number of transactions only, beyond which, agency would be considered null and void. This agency is normally created in cases like sale and purchase of property etc.6 ( McKendrick & Ewan, 2005) An agency can be terminated at any time. If the trust between the agent and principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice.7 (Indian Contract Act, 1872) Rights and duties of an agent: Here we may have a look at the rights and duties of an agent. An agent has the following duties: 1- Duty to obey all the instructions provided by the principal and not to act otherwise; 2- Duty to act with skill like a person of ordinary prudence; 3- Duty of loyalty towards the principle; 4- Duty to protect confidential information; 5- Duty to provide all information; 6- Duty to account for monies spent; and 7- Duty to indemnify the principle. If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage. Similarly, an agent has the right to be indemnified for all the acts done in pursuance of agency and those acted upon in good faith. 8(Markesinis & Munday, 1998) Analysis: After giving a brief of laws and rules applicable in case of agency, we are able to discuss the issues framed earlier, one by one. 1-What type of agency exists between Andrew and ADC Ltd? Although the facts of the case do not indicates about the presence of a written contract of agency between Andrew and ADC Ltd., however, it is very much obvious that Andrew has an implied authority to act on behalf of ADC Ltd., for purchase of computers. Both in cases of Dan and James, this authority is well established in the market and is not denied by ADC Ltd. Preview of the authority, however, is general to the purchase of computers only and not beyond that. Here we can define this agency as an express as well as implied in favor of Andrew for computer purchase and therefore acts of Andrew bind the ADC Ltd., as principle. However, this agency is not vicarious and no criminal liability exists on the part of principle for criminal acts of his agent. 2 Whether ADC Ltd is bound by the deal accepted by Andrew with Dan? In case of deal with Dan, we have observed that Andrew was given clear direction to purchase 20 sets of Model XXP computers by Christmas 2009. By spending no more than pound 20,000 Andrew had an offer of a better make of computers for 30,000 and believing that it is a very good offer which his principle would definitely like. He asked for an hour to confirm the deal. Meanwhile, he tried to contact the ADC Ltd., but the contact could not be done. Here, Andrew did two things: firstly, he believed in fairness of offer which otherwise was very suitable for a business and secondly, despite no contact with the principle, he posed that he had consent of his principle. That, a principal is bound only by the authorized acts of his agent.9(The Pacific Reporter, Volume 154) For his first act, we must see the prudence of his act. Considering the fact that the offer is so good that ADC Ltd, would definitely like it, he acted in business prudence and his act is covered in good faith. However, by posing to Dan that he had a node from his principle, he in fact overstepped his authority which a third party can not confirm. Dan acted in good faith considering that Andrew had got consent of ADC and done the deal. In these circumstances, being a fiduciary relationship between the agent and the principle, ADC is advised to honor the commitment made by his agent in good faith. Against, Andrew, the Agent, ADC Ltd, can sue for damages, if any, and may terminate the authority for future transactions. 3 Whether there will be any change of status if offer by Dan would be limited by time? In original situation, the offer of Dan was not limited by time. And in fact it was Andrew who asked Dan to wait for an hour. But considering the situation that if the offer would be limited by time and Andrew had to respond in an hour, situation would be a different. Andrew is acting as an agent on behalf of ADC Ltd. And being a loyal and prudent person, 10(Floyd Russell, 1914) it is expected that he would act in best interest of the company. Considering the common prudence in business, Andrew did what he should have done for his own business, that is, he went for a better deal. Though, in both the instances, ADC Ltd, as a principle is liable to third party, but in this case, his right to claim damages from Andrew would not stand and being a prudent agent his act would be liable to be indemnified by his principle. 4 In case of deal with James, what are the rights and duties of ADC Ltd? At the time of deal with James, James had certain reservation to contract with ADC Ltd, due to past payment problems. In this particular case, James had conveyed his displeasure to Andrew knowing that he used to act as an agent of ADC Ltd., in past. James had directed Andrew clearly not to contract for ADC Ltd. Andrew had the knowledge of past transactions and in order to have a deal for his principle; he concluded a contract on behalf of an unnamed principle. Now, Andrew had acted in clear violation of James directions as well as he had no authority to conclude this contract in such a manner. Andrew had acted ultra virus to his authority and is liable to indemnify both ADC Ltd. and James for breach of trust.11 (Bowstead, Reynolds& Davenport, 1968)James had acted rightfully by rescinding the contract as Andrew had entered into that contract by misrepresentation of facts and therefore contract is rescindable on part of James. However, ADC Ltd, and James have right to claim damages from Andrew. Furthermore, Andrew was duty bound to disclose all the facts to his principle which he failed to do.12 (Aronoff vs Lankin Co.) 5 What are right and duties of Andrew in James’ deal? In case of James’ deal, Andrew has liability to indemnify his principle against all loses incurred and damages if any. James, too, has a right to sue Andrew for misrepresentation and concealment of facts, 13(William W. Story, 1874) and can sue for price of goods so delivered and damages against Andrew. However, James has no direct claim over the ADC Ltd, as Andrew had never posed to act on behalf of ADC Ltd. Andrew on the other hand, acquires no right as to indemnification due to clear violation of directions from the both sides. 14(Bowstead, Reynolds & Davenport, 1968) Conclusion: Law of agency is based on mutual trust and confidence. It is widely accepted due to its affectivity and easiness in working. However, this is not always the case. Agents and principle may act in ultra virus and in breach of established cannons of law. In above given scenario, we have observed such types of actions on part of an agent. One of the acts was done in good faith and is done in favor of his principle. In that case, all of his acts are covered by law of agency and principle is bound to indemnify his agent. In this case agency is secured and rule of common prudence in favor of agent is applied. However, in case of deal with James, no such principle is established and act of Andrew are clearly without any legal authority from the principle. Furthermore, the breach of trust is also seen when dealing with James in clear violation of his directions by the way of concealment of facts and misrepresentation. ADC Ltd, as principle in this case has two different footing in above given scenario. In case of Dan, act of Andrew are binding on the principle and contract has to be performed. But in case of James’ deal all responsibility lies on Andrew for his unauthorized actions. Read More