Advice to Fruity Limited Company - Essay Example

Commercial Agreement Part A Advice to Fruity Limited Company Fruity Limited Company is a manufacturer of tropical fruity juices distributed through two main outlets managed by Lopez and Gonzales. The two managers are obliged not to sell any other product than that supplied by the company. For the case of Lopez, he is an agent while the Fruity Limited Company is the principal. An agent is a person employed expressly or implicitly to do an act for another, or to represent another in a dealing with a third person. The person on whose behalf he acts is called the principal. When a person employs another to contract on his behalf, the relationship between them is known as agency. (Ogola, 1999) It follows from the above that an agent is a mere connecting link, bringing about a contractual relation between his principal and third parties. The acts of an agent, done within the scope of his authority, bind his principal. Once an agent has brought his principal into contractual relations with another, he drops out, and his principal sues or is sued on the contract. (Emanuel, 2004) Lopez had very strict instructions not to sell any other product other that tropical fruity juices produced by Fruity Limited Company. Using the company fund, he went ahead and bought cartons of bottled water from the local store at a discount and sold them to Danny making a profit of 100 from the deal which he failed to disclose to the company. Under the agency law, the agent must not make any secret profit or accept bribes. Where he does so, he is forced to refund all such amount to his principal and lose the right of receiving commission. Apart from this, the principal can, if chooses, repudiate the contract with the third party. For the case, Lopez makes secret profit which he was supposed to have disclosed to the company. Lopez as an agent for the company had very strict instructions on the specific products that were to be sold at the outlet. As an agent, he had not taken his duties seriously according to the agency law. According to the agency law, the agent must carry out his work according to his principal's instructions. Where he fails to act in accordance with the instructions, he will become liable for breach, and will also entitle the principal to terminate his agency without paying him any remuneration for the work done. For this case, since Lopez undertook his duties against the company's instructions, the company had a right to terminate his agency without paying him for the work he had done. (Ogola, 1999) Advice to Lopez On the other hand, Lopez as an agent contract by the company to head the outlet, he should have kept proper accounts which he was supposed to produce them to his principal. He should not have mixed his principal's money with his own money unless the terms of the agency had permitted him to do so. For the case, Lopez had mixed his money with those of the company when he made secret profits. (Emanuel, 2004) Danny had ordered 10 boxes of tropical fruity juice from Lopez which he settled with Lopez previous personal debt owed to him. For the case, Lopez mixed his principal's money with his own against the agency agreement. For this case, Lopez was not supposed to settle personal debts with the company's money. Advice to Danny For the case of Danny whereby they settled personal debts with Lopez and also sold bottled water to Lopez, he has no case to answer. This is so because, an employee who has been placed in a position of responsibility may be assumed to have such authority as normally matches with the position, irrespective of what is his actual authority. This means that if a third party enters into a contract with such a person believing him to have proper authority of his employer, he will succeed directly against the employer. This is what is referred to as ostensible authority. For the case of Danny, he believed that Lopez being the manager of the outlet, had the authority to purchase on behalf of the company and also he could mix his money with the principal's money in the case where he agreed to settle personal debt with the 10 boxes of tropical juices. A similar case studied is that of:- Watteau 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, he 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 matched with the position. (Ogola, 1999) Advice to Lopez For the case of Lopez, he is liable for his conduct of not performing duties as instructed by the company. The following are some of the cases he is supposed to answer:- He bought cartons of bottled water from Danny which was against the principal's instructions not to sell any other product in the outlet. He made secret profit which he failed to disclose to the company after selling bottled water bought from Danny. He settled personal debt which he owed Danny against 10 boxes of tropical juices he had order from the outlet. His agency would be terminated by the company for engaging in other businesses other than those instructed to do by the principal. He used the company's funds to purchase bottled water from Danny which was against his duty as an agent not to mix his money with those of the principal unless the agency allows it. (Emanuel, 2004) Part B Advice to Fruity Company Limited Gonzales was an agent employed by Fruity Company Limited to head an outlet that was only supposed to sell fruity juices produced by the company. Gonzales against the company's instructions bought a consignment of wine from local dealers, in hope that he would resell the wine. Unfortunately, he was unable to resell the wine due to fall in price due to increased importation of cheap wine in the market hence the wine's debt was not settled. Even though the Gonzales was not supposed to buy any product for resell at the outlet, Fruity Company Limited was liable to settle for the wine order by their agent. This is because the relationship between the company and Gonzales had been created by conduct or implication. The relationship of the principal and the agent usually comes into existence by implied agency. But sometimes the court infer agency from the conduct or situation of the parties. For this case, the agency that had been created between Gonzales and the company was agency by estoppel. Whereas an agency can in general arise by the will of the principal, he may nevertheless so conduct himself leading another to believe that someone is his agent; he is then estopped from denying this fact. For example, if a person allows another to order goods on his behalf and always pays for them, then he will be estopped from denying the authority to the third person who relied on the appearance. (Emanuel, 2004) The agency by estoppel is as effective as an agency intentionally created. The rule of estoppel is based on the principle of "holding out" and is not confined to contracts of employment only. For this case, the local wine company believed that Gonzales was in a position to purchase on behalf of the company hence the company was liable to settle for the wine. This is because they put Gonzales in a position that would be normal for the employee to have such authorities. (Saleemi, 1992) A similar case studied is that of:- Lloyd v Grace, Smith & Co, 1912 In this case, the managing clerk of the defendant company obtained a client's signature conveying two of her cottages which he fraudulently sold and disappeared with the proceeds. The defendant company was held liable because they put him in a position where it would have been normal for the employee to have such authority. (Emanuel, 2004) on the other hand, since Gonzales went against his principal's instructions not to sell any other product in the outlet leave alone purchasing them, the agency is supposed to be terminated. This is because, according to agency law, an agent is supposed to carry out his duties with accordance with the instructions otherwise he would be liable for breach. For this case, since Gonzales carried his duties against the principal's instructions, then the principal should terminate his agency without paying him any remuneration for the work he had done as an agent. (Saleemi, 1992) Advice to Ruddy Ruddy bought fruity juices from Gonzales's outlet with his personal guarantee that the market price of the fruity juices was to remain stable in the next six months. Despite this assurance from Gonzales, the prices of juices dropped within a week causing loss of profit to Ruddy hence he never settled for the 40 boxes of fruity juices. Normally, where an agent contracts within the limits of his authorities, the general rule is that he does not incur any personal liability. But an agent himself becomes liable on the contract made by him on behalf of the principal if he expressly assumes personal liability. This happens when the third party may when contracting with an agent, create a condition that the agent should be personally liable on the contract, and if the agent agrees he will be personally liable for any breach of contract. For this case, Gonzales had guaranteed Ruddy that the market price of the fruity juices would remain stable for the next six month but unfortunately, the price fell within a week. For this case, since by the time of contracting, Gonzales guaranteed Ruddy that the price would remain stable for the next six months, he was personally liable for the breach. Advice to Gonzales Gonzales being the manager in one of the outlet that distributed fruity juices from Fruity Company limited had very clear instruction that he should not sell any other product in the outlet. For this case, he went against the agency and was therefore liable for the following cases:- He bought wine for resell from a local dealer which was against the agency created between him and the principal that he should not sell any other product in the outlet. He had personally guaranteed Ruddy that the market price of fruity juices was to remain stable for the next six months thereby making him by the product. Due to this personally guarantee, Gonzales is personally liable for the unpaid 40 boxes of fruity juices due to fall in price. He was also personal liable for the unpaid wine he had order from a local dealer since he had no authority to sell any other product in the outlet according to the agency. His agency would be terminated by the company for engaging in other businesses other than those instructed to do by the principal. He had bought wine from a local dealer with an aim of making secret profits and even though he had made any profit from this deal, the company would have received the profit and even though he was not allowed to engage in such contracts, the company would have chosen to repudiate the contract with the party. References Bohnet, I., S. Huck and B. S. Frey (1999). More Order with Less Law: On Contract Enforcement and Crowding. Mimeo. Kennedy School of Law. Harvard University. Emanuel, S. 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