Agency Business Authority - Essay Example

Law of Agency Introduction: This case study needs to consider ity of agency business undertaken by Shelly with regard to transactions she hasundertaken with Papa Dog, despite express contrary to instructions from her principals, Alfie and Casey, not to conduct any further business with them since their products were heath hazards for the pets of clients and various complaints have been received regarding these products. It also considers the unauthorised and secret profits made by Shelly from papa Dog without the knowledge or consent of her principals, Whether Alfie and Casey have incurred potential liability to Papa Dog towards payment of unauthorised purchases made by Shelly, and to “Feltford Travels” towards air fare for Shelly and Josh to New York on principal’s credit account? What rights do Alfie and Casey, or for that matter, Canine Creations have over Shelly and Josh. Issues: The first aspect is with regard to the fact that Shelly had not heeded orders of her Principals by placing fresh orders with Papa Dog. Thus, she is personally liable for her actions and not her principals. Although initially she had remonstrated with Josh, regarding the defect in product K10, later she confirmed order for £600 without seeking permission from her principals. This action has made her liable under law of criminal tort and negligence. In this case it is seen that “Agency by estoppel is created when an agent’s unauthorized activity causes a third party to believe the agent has that authority.” (Law Articles: Creating Agency). The next feature that needs to be seen is that under the law of agency, it is illegal for an agent to make secret profits out of actions arising out of agency business. Even if she did she would be liable to disclose the same to the principal and act according to their instructions. However, this was also not done, making her an ideal candidate for tort, criminal action under agency laws and fraudulent conduct. “Agents have certain duties to their principals. This could be in terms of performing the legal duties as embodied in covenant and adhering to “standards of reasonable care, skills and diligence implicit in all contracts.” (Chapter 19: Agent Duties to Principal, #13). Again agents have a major duty to reveal to the principal information gathered from outside sources regarding matters relevant to business “that is important to the principals.” (Chapter 19: Agent Duties to Principal, #13). “The duty of loyalty” in terms of not working in cross purposes or detrimental to the interests of the principal is also sacrosanct for the agent. .” (Chapter 19: Agent Duties continued, #14). Again the duty of obedience entails that agent would have to honour the legal and ethical guidelines offered by the principal “during the performance of the agency.” (Chapter 19: Agent Duties continued, #14). It is seen that all payments received by the agent towards the agency business needs to be immediately remitted to the principal. In the case of Alwood v. Clifford (2002) EMCR -3, the lady, Alwood was expecting eight children, and she hired the services of Clifford, for arranging for leading newspaper to cover the rare event. Clifford claimed £15,000 from the newspaper company being his share for arranging the meet. However, Alwood claimed the money to be hers, since Clifford was hired to act as her agent. This view was endorsed by the Court who held that unless the party had consented to such arrangement with the sponsors, the money could not be” retained by Clifford.” (Stone 2002, P. 166). Again, one of the principal duties and responsibilities of the agent, Shelly, towards her principal would be the full disclosure of all aspects of agency business which was not known to the principals. Coming to the fact whether the principal holds vicarious liability for the actions of the agent, and thus whether they need to or don’t need to pay the amount due to Papa Dog, it is seen that instructions not to accept the goods were conveyed to Shelly but not to Papa Dog. As a seasoned businessman it was essential on their part to inform the vendor company in which case, even a later dispute could be swung in favour of Canine Creations since they supply goods which were specially banned. It was necessary for Canine to issue a letter or document terminating the business with regard to K10 products, However, the management of Papa Dog (except Josh) may not have been aware of the proceedings, the management of Papa dog could claim that they treated the sale as routine ones since they were not informed about the stoppage of business with Canine Creations. Only Josh knew about it, but he managed to do business with Canine Creations despite the ban, due to his close rapport with Shelly. It is seen that the shop is a small one with no internal control in place, Moreover, there would be no one to testify about Shelly’s action except of course, Josh or Shelly herself. Under the circumstances, with mistake on part of the principals, Alfie and Casey, it is seen that they would be accountable for the misconduct and illegal business carried out by Shelly. In the event Shelly is available, she would have been held responsible, but in her absence the vicarious liability would fall upon Alfie and Casey. Thus it could be said that, according to existing law of agency, and the fact that Papa Dog was not informed about the termination of business, it would be incumbent on the part of Alfie and Casey to pay the supply bills for K 10 shampoos purchased by Shelly under apparent authority from her erstwhile principals. Regarding the air tickets to New York booked by Shelly, it is apparent that she did not have the express or implied authority to do so, since she had resigned prior to purchase of air tickets. The staff of Feltford travels had erred in not informing principals about the air ticket transaction and therefore, this payment cannot be adjudged as a liability on the part of Canine Creations, or its owners Coming to the next aspect, with regard to the rights that Canine creations or their owners have towards Shelly, is that they could bring a lawsuit against her for violation of agency laws. In this case, the violations that could be brought against Shelly would be on six counts. 1. Exceeding implied authority of agent in ordering for goods which she was prohibited from buying. Action could be brought in the form of lawsuit to claim the amount from her. In the decided case of Rose v. Plenty (1975) 1 WLR 141, a milk delivery man hired a teenage boy as delivery assistant, despite objections from his employers. When the boy fell and was injured, his parents filed action of negligence both against the deliverer and employers. While in the lower court the action failed, The Court of Appeal held that the employer was liable since the accident occurred during the carrying out of his official duties, thus involving employer too. (Rose v Plenty (1975). 2006). 2. Criminally entering into agreement with agent of the seller, Josh, for profits on agency business without express approval, or consent of agent. Action and damages for illegal activities and fraud 3. Unwillingness on the part of the agent, Shelly to disclose gains on agency business and pass on the money earned to the principals Action could be in terms of criminal lawsuit to recover illegal gains arising out of agency business also damages and penalty for wilful negligence and fraud 4. Fraudulent conduct on the part of Shelly in purchasing air tickets for herself and Josh without authority or consent of the principals. It is to seen that law of tort needs to be enforced for criminal behaviour on both Shelly and her accessory in crime, Josh. 6. Josh’s guilt lies in the fact that he was aware of restrictions on sale of his products to Canine creations but choose not to inform either his superiors or the principal about it. Again he was an accessory for criminal and fraudulent payment of sales commission to Shelly, without the knowledge of both his own employers and the client, Canine Creations. Arguments and Analysis: The first aspect is with regard to whether a bona fide agency has developed between the owners of the shop, Alfie and Casey, and the shop manager, Shelly. According to agency law “Respondent superior is built upon the premise that where there is a servant-agent over whom the principal has the legal power over their physical activities, the principal is liable whether or not he is negligent in hiring and training that agent.” (The Non-Servant Agent). It could be argued that the question of agency would be in terms of whether the acts of the agent binds the principal or not, or if the principal gives notice, either explicitly or implicitly, overtly or covertly, directly or indirectly, that the said person is, as a matter of fact, held out as an agent. In this case, it is seen that through their actions and not words, Alfie and Casey have provided agency license to Shelly. Moreover, it is also seen that by use of same agency privilege, they had specifically banned purchase of K10 shampoo to their agent. Thus, legally speaking the fact that agency has been established beyond doubts Is accepted and on her part, Shelly does not dispute the agency aspect. The next aspect would be in terms of the effects of accepting bribes for purchases. In this case, both Shelly and Josh are liable since giving a bribe is as large an offence as taking it. The law moves strongly regarding bribes. In many leading cases, the taking of bribes for favours rendered have been viewed with disapproval, and also, the taking of bribes by agents in the course of agency business has proved very detrimental for such agents. It is also possible for the principals in such cases to sue the agent and/or Third Parties for accepting bribes. Canine Creations could book a lawsuit in the names of Shelly and Josh for unlawful practices under law of Torts. However whether their actions have caused large detriment to the shop is not known since the market reactions to the improved version of K 10 are not known. However, even if the results of the new modified version are known, it would not make much of difference to the case since it is now based upon fraudulent conduct on the part of both the sellers and buyers agents The best way would be to pay off the debts due to Papa dog and claim it from the offenders through criminal lawsuit. The next issue deals with the spat between the owners/ principals of Canine Creations and the agent, Shelly which resulted in the resignation of the latter, Another issue in this case would be in terms of the inactive agent booking air tickets on credit. The issue would be in terms of the fact whether the travel agents had been informed that Shelly is authorized to order air tickets on behalf of the firm. In the event authorization was there, it was necessary to withdraw it, upon her resignation from services of Canine Creations. This did not occur, From the point of view of the travel agency they could argue that Shelly was authorized to book tickets and they were not aware that this had been withdrawn with effect from 1st May when the ticket request was made on 5th May. In the case of the air tickets this writer believed that the principals are not liable because of the following reasons 1. They were not aware or had not sanctioned the said transaction 2. Their escape was a calculated move to avoid being subject to legal action in this city and was a criminal tort case 3. The travel agent needed to have checked the authenticity and validity of the transaction before issuing the said air flight tickets to New York 4. Under the circumstances, the ticket costs would need to be collected from the defendants along with other dues as deemed by the Court. 5. The alleged accused, Shelly and Josh need to be served and summoned with a habeas corpus by a competent court in this country and made answerable for their misdemeanours and deceitful acts. Yet another aspect that impinges upon this case is that of Specific liability in agency business which has been assumed by Shelly. The main aspects that stem from specific liability are the authorization or ratification of performance. There are three aspects to it as follows: 1. Agent acts within the rules and restrictive covenants of the principal 2. Agent exceeds his jurisdiction but this is ratified and honoured by the principle 3. Agent acts ultra vires the agency covenant and places the principal in a detrimental situation. When considered specifically we find that in Illustration 1 above, no harm enures, either to the agent, or the principal. However, in illustration 2, it is sent that there are risks, not only because of the vicarious liability that the principal has to bear, but also in terms of the responsibility of the agent, which the principal has to bear. For instance if A is the chauffeur employed by D on a whole time basis, salary being paid by D’s employer, and he unwittingly causes an accident, injuring Z; both D and his employers would be vicariously liable for the injuries to Z, although they were not even present during the time of the accident. In this case, it could be said that although A was authorized to drive the vehicle, he was not authorized to create an accident and injure Z. Thus the question of authorization occurs only when the apparent authority of the doer is questionable or not clarified by his principals. But in cases where tort is established even with authorization, a different scenario emerges. The liability of the principal would be established beyond doubt if the following criteria are established: 1. The defendant principal demeanour would have led even a man of reasonable prudence to believe that he had vested the agent with the authority to act on his behalf. 2. The plaintiff believed that the agent had acted within the powers accorded to the defendant. 3. The plaintiff was reasonable in assuming that the “agent had the authority to act on behalf of the defendant.” (Larson 2003). Conclusion: Thus it is seen from the above deliberations that Shelley and Josh have no doubt misused their official agency powers to enrich themselves at the cost of the Canine Creations business. It could also be said that the principals are also largely to blame for this state of affairs since they were not able to control or monitor the activities of the agent more closely and effectively, even by using a third party, which may have hampered the relative ease with which these two partners in crime have enriched themselves through commission business. It is believed in law that what binds the agent also binds the principal and this is most vividly seen in this case study. The principals’ were not able to control or monitor the day to day activities of Shelly, and using her agency by estoppel, the vendors were able to sell large quantum of unauthorized goods and also benefit mutually through commission shares. The use of vicarious liability in which the acts of agents have to be the responsibility of principals have spawned a large number of court cases in the United Kingdoms every year, and add to this, it is seen that with the increased liberalisation of trade and commercial activities, these figures are rising exponentially and in leaps and bounds. It is believed that internet and ecommerce enabled business which may sometimes circumvent brick and mortar enterprises have recorded a larger incidence of tort and internet crimes, thanks to the ease of operations and also difficulties in unearthing such kind of crimes. The nexus between agency and principal is a major form of trade in that it eliminates the risks and threats posed by sole proprietorships and partnership businesses. However, only that kind of activities where one person buys goods and sells it to 3rd parties could strictly come within the ambit of agency. A buys goods from B stocks it and then sells it to C at a higher margin of profits. These are termed as agency sales. Bibliography Law Articles: Creating Agency. [online]. LawyerIntl.com. Last accessed 5 January 2009 at: http://www.lawyerintl.com/law-articles/103-Agency%20Law Chapter 19: Agent Duties to Principal. [online]. P. 13. Last accessed 5 January 2009 at: http://wendywallberg.com/docs/ch19%20with%20additions.ppt STONE, Richard. (2002). The Modern Law of Contract. [online]. Routledge. P. 116. Last accessed 5 January 2009 at: http://books.google.co.in/books?id=eTRMeE5JVlwC&printsec=frontcover&dq=what+are+the+express+and+implied+terms+in+the+law+of+agency+%3F&source=gbs_book_other_versions_r&cad=3_0#PPA166,M1 Rose v Plenty (1975). (2006). [online]. The K-Zone. Last accessed 5 January 2009 at: http://www.kevinboone.com/lawglos_RoseVPlenty1975.html The Non-Servant Agent. [online]. Agency Outline. Last accessed 5 January 2009 at: http://lawschool.mikeshecket.com/ba/agencyoutline.htm LARSON, Aaron. (2003). Principals, Agents, and Tort Liability. [online]. ExpertLaw. Last accessed 5 January 2009 at: http://www.expertlaw.com/library/personal_injury/agency.html -- Read More