Agency Relationship - Poseidon Constructions Company - Case Study Example

The law of agency Student’s name Institution affiliation University Facts: Michael trades under the registered business by the name “Poseidon Constructions”. The construction company enters into a build a dry dock contract at Watsons Bay. He employs George as his business manager and mandates him to order building materials and to look after the accounts. George bought a home in the name of the business sited in Vaucluse, and Michael learnt of the same when he paid him a visit. Upon realizing George’s actions, Michael asked him to give the house back, but the selling company objected. The selling company argued George was an authorized representative of Poseidon Constructions, and that the house had been purchased in the name of that business.  The selling company threatened to sue Poseidon Constructions for the outstanding $200,000.  Issues: Michael wants to know whether he can make George pay for the house, and what options he has. The other legal issue is that the selling company wants to take Poseidon Constructions to court for the outstanding $200,000. Poseidon Constructions need to come up with facts to defend itself in that case. Relevant Law: Agency law is relevant in this case. The relationship between the three parties is the agency one. From the law of agency, the court can establish who is liable and who can be compensated. It will apply the law to determine the extent of breach of contract between the principal, agent and the third party. This is a case of agency relationship between Michael and George. Michael in this case stands out as the principal, while George is the agent. George has the authority to order building materials and look after the accounts on behalf of Michael. In this case, George can negotiate on building material on behalf of Michael. As a matter of fact this case involves a breach of is a breach of contract. Agency relationship exists when a person is given authority to act on behalf another. Under the commercial and business law, the person authorized to act on behalf of the other is an agent (Gregory, 2001). The person giving out authority is the principal. The agent gets the authority to create legal relation with the third parties. The authority given to the agent can be express or implied. The agent is to negotiate commercial deals on behalf of his principal and may bring the third party to the principal. The agency law recognizes and controls three types of relationships in an agency relationship. There is the relationship between an agent and the principal; in this case, it is the relationship between Michael and George. The second relationship is between the agent and the third party; in this case, we have George and the company selling the house to him in this relationship. The third relationship is the relationship between the principal and the third parties. In order to control an agency relationship, the law describes authority, duties, and rights of the principal and the agent (Gregory, 2001). It also provides for the liabilities that are likely to exist in this relationship. These three elements will assist in the understanding of the case at hand, and determine the option of Michael. There are three kinds of authority in an agency relationship. The first one is the actual authority. Under actual authority, we have the express and implied authority. The agent has the power and authority to act on behalf of his principal. The principal in this case is liable for any act of the agent as he or she exercise the duties as given the authority to partake. For example, in this case, George has the actual authority to order building material on behalf of Michael. If George in the process of ordering these materials breeches a contract, then Michael will be liable for that. Apparent authority is a complicated authority. The principal knowingly or mistakenly permits his agent or any other party, to act on his behalf. The other person acts in good faith as if the actual authority exists. The principal will be liable for any breach of contract committed by this agent (Rodelick, 2009). For example, using the case, if Michael wanted to purchase a house, and tells the potential seller to talk with George, then George may assume the authority and purchase the house. In case of any breach of contract by George will leave Michael liable for it. The third and the last authority is the ratified authority. This authority applies when the principal decides to make unauthorized act by the agent to be binding on the third party. After ratification, the principal become liable, and the third party bound to it. In an agency relationship, there are three types of liabilities. The agent has no liability for the third party for the acts he or she carried in the scope of authority given by the principal. For example, if George makes an order with a supplier as authorized by George, he will not be liable to the supplier. In case of undisclosed or partly disclosed agency relationship, the agent and the principal are liable (Ernest, 1895). If the agent had no actual or apparent authority, he or she is liable to the third parties. In this case, if George had no authority to purchase the house he will be liable to the company selling the house. The agent is liable to the principal, if he acts without actual or apparent authority. He is liable to indemnify the principal for any loss or damage as a result of his act. For example, in this case, if George bought the house without any authority, he will be liable to pay Michael any loss or damage as a result of his act. The principal is liable to indemnify the agent for any expense he pays using his cash on behalf of the principal (Rodelick, 2009). This expenditure can be expressed or a necessity that benefits the principal directly. For example, if at all George had an express authority to purchase the house on behalf of George, George can indemnify him any amount he paid from his pocket. Under the agency law, an agent owes the principal various duties. He has the duty to undertake his duties as specified by the term of the agency. The duty of care and due diligence is the second duty the agent owes the principal (Hynes, 2001).  In this case, the agent has to demonstrate that he performs his duties with care, such that at least under normal circumstances, anyone can undertake. He has to act to the best of his ability. The agent has the duty to avoid conflict of interest between him and the needs of the principal. In this case, he is doomed to make private profits out of the agency relationship. If this happens, he has the duty to surrender the earning or the profits to the principal. Another duty of the agent to the principal is the duty to disclosure. He cannot make private dealings without the knowledge of the principal. The law requires him to disclose if he acts on behalf of more than one principal. This will protect him against the danger of two conflicting principals. The principal has the duty to remunerate the agent as they had agreed in terms of the agency (Gregory, 2001). He should pay him on time, and the right amount as stipulated in the agreement. He also has the duty to compensate the agent in case of injury. This happens when the principal had the duty to prevent such an injury. Another duty is to indemnify the agent of any cost the agent pays on his behave in good faith. Application of the law: Agency relationship exists when a person is given authority to act on behalf another. Under the commercial and business law, the person authorized to act on behalf of the other is an agent (Gregory, 2001). The person giving out authority is the principal. The agent gets the authority to create legal relation with the third parties. The authority given to the agent can be express or implied. The agent is to negotiate commercial deals on behalf of his principal and may bring the third party to the principal. Under the agency law, Michael has several options at hand. It is very clear that his agent, George, acted beyond his authority. His duties are to make orders of building materials, and work on account, but not to purchase a house. The first option for Michael is to terminate the agency with his agent (George). The law of agency states that, one of the reasons that a principal can terminate an agency is a breach of contract of the agent (Hynes, 2001).  This case qualifies to be a breach of contract. The other option is to ratify the contact between the agent (George) and the company selling the house. In this case, the contract will be binding between him and the company. In this case, he has the duty to ensure that his company (Poseidon Constructions) pays the remaining $200, 000. George purchased the house in the company’s name and, therefore, there will be no need for transfer. George breached the contract by entering into an unauthorized contract of buying the house. As the principal, he has the right of indemnity (Rodelick, 2009). He has the option of suing George in a court of law. In this case, the company as a legal entity has the right to take him to court. The court can determine the damages which George can pay for Michael and his company. The company selling the house is not ready to refund the paid amount, and repossess the house. Michael can sell the house using Poseidon Constructions’ name, and pay the remaining amount to the selling company. This can only take place if and only if, ownership transfer was fully executed. Michael can also evaluate the value of the house, and the amount agreed upon as the purchasing price was abnormal, he as the principal can terminate the contract using legal means. The court can then decide to terminate the contract, or call for better terms of the contract. The other option is to wait for the selling company to go to the court, and defend his company accordingly. In court, he can prove that his agent acted beyond the authority given to him in the agency terms. He can also establish that he never received information about the deal to purchase the house by his agent. He, therefore, did not authorize him to buy the house on his behalf, and in the name of his company. Conclusion: Poseidon Constructions Company owes the selling company the $200, 000. The transaction took place in good faith that George was an agent of the company. The house as a matter of fact was bought in its name therefore, as a matter of law George is the real owner of the house. On this basis Michael and his company may not force George to own up the remaining amount. The company has the obligation to pay the balance. George breached the contract between him and his principal. He acted beyond his authority as indicated in their agreement. Michael can take legal actions against him and call for damages and losses as a result of his action. References Gregory, W, A. (2001). The Law of Agency and Partnership. 3d ed. St. Paul, Minn.: West Group. Floyd. R. M. (1889). A treatise on the law of agency:  including not only a discussion of the general subject, but also special chapters on attorneys, auctioneers, brokers, and factors. New Zealand: Callaghan. Hynes, J. D. (2001). Agency, Partnership, and the LLC in a Nutshell. 2d ed. St. Paul, Minn.: West Group. Ernest, W. H. (1895). Elements of the Law of Agency. Washington, DC.: Ernest w. Huffcut. Edwin, C. G. (1914). Cases on principal and agent: selected from decisions of English and American courts. Racine, Wisconsin, United States: Western Publishing Company. John, R. M. (2003). law of estate. Finland: WS Bookwell. Lucian, B. C. (1951). Equity: Principles and procedures in Virginia and West Virginia. Oxford: Oxford University Press. Murdoch, J. (1993). The Estate Agents and Property Misdescriptions Acts. Finland: Rochester. Rodelick, M. (2009). Agengy: Law and Principals. Oxford: Oxford University Press. Ronger, G. W. (1900). The law of agency. London: Clowes & Sons publishers. Read More