An agency relationship is created by a binding contract or law, such that the principal grants power to an agent. The agent uses the authority to practice on behalf of the principal for agreements dealing with third parties. The agreement is either implied or express. The agency contract between Jevan and John is expressed and the band members are bind by the agreement to honor all demands resulting from the engagement. According to Selvarajan (2015), the doctrine of agency as crafted by the courts stipulates that where an individual makes another person believe that a third person is the authorized agent, the second person is under no obligation to deny relationship. Notably, the nature of the underlying relationship defines the terms and conditions of the agency relationship.
Question One
Legal Issues and Points Arising in the Agency
The contract between Jevan and John is expressed and legally binding to the parties. The band manager led his partners to consider John as their agent for guitar servicing. As such, John has the authority to repair and maintain the guitars and conduct other necessary improvements that befit the situation so that the band members do not experience problems when performing on stage. The relationship is not unlimited and as such, in case of a breach, the afflicted party has rights to sue and take necessary actions to get compensation for the damages. Failure by the band members to pay John is a violation of the expressed agreement and as such, The Thin Heads is legally obliged to pay the full amount owed to the agent.
The Australian common law governs the creation, operations and annihilation of the agency relationship. The common law, which is based on the UK legal system oversees the rights and duties of the agents, principal, and the third parties (Bendi, 2017). Essentially, contractual relationships are marred by legal problems. In most instances, the agent has more information and knowledge about the act than the principal and third parties. It is not possible for the principal to guarantee third parties that the performance of the agent is what was promised. Consequently, the agent has an incentive to act in an opportunistic manner by reducing performance quality and diverting some of the proceeds that were promised to the principal. According to Bendi (2017), complex tasks require complete discretion and as a result, agency costs tend to increase.
In the case of John and the band, the latter acted opportunistically by engaging the agent in a deal yet they were not ready to cover all the costs. Javan and the other band members gave John the authority to repair the highly collectable guitar for a price. The nature of the damages however prompted the agent to act on behalf of the principals and decided to rebuild the guitar. The cost of operations was high and the band members failed to honor the agreement by paying after receiving the rebuilt guitar. In such a scenario, Javan should take total responsibility since he is the principal acting on behalf of the third parties. He introduced the band members and made an express agreement that John was the right agent acting for the members. Javan is legally obliged to pay John the damages resulting from the contract. John sued the members as the mandated agent and since Javan is the principal in the agency relationship, he is obliged to compensate as John or the court deems necessary.
In line with the Mercatile Agents: Goods Act (1958), the agent has the duty of delivering the goods to the seller and receive payment depending on the terms and conditions of the contract (Fox, 2016). Section number 3694.32 of the Act stipulates that unless there is an agreed variation, delivery and payment of goods is concurrent. The seller, in this case the agent should be ready and willing to deliver the products in exchange for a price, and the principal should be willing to pay for the good in exchange for possession of the item. A legal case against Javan, on behalf of the band members is therefore authentic and in favor of John since the former failed pays the price after possessing the rebuilt guitar.
Part 11 and 111 of the Goods Act stipulate the provisions for the contract in situations where the buyer fails to pay for the possessed goods. The agent lost his lien when he delivered the goods and failed to reserve the right of disposal. After transferring the repaired goods to the owners, John did not consider the cost of disposal and as such, he has no lien over the goods. However, the principals accepted the goods without complains. In addition, no negotiations were made after the agent stated the cost of the repairs. As such, the transfer of ownership is lawful and John has the right to give payment notice to the principal. The notice can be given to the principal or the person in possession of the goods. John sued the members who possessed the goods and gave a notice after filing the claim. As such, payment of the full amount owed to the agent by the members disqualifies the court order unless John decides to pursue the matter further.
The Goods Act maintains in number 3694 section 54 that failure by the buyer to pay for the possessed goods gives the agent a right to take a legal action for damages (Fox, 2016). The agent acted adequately by filing a legal action for damages for non-acceptance against the principals. Damages are measured by computing the estimated losses that naturally or directly result in the ordinary operations after the buyer breached the contract. Given that there is an available market for the guitar, the agent can ascertain the cost of the damages by taking the difference between the market price and the amount depicted in the contract. The period that is used to determine the damages should be in this case be counted from the time when the band members refused to pay in exchange for the good.
Australian Competition and Consumer Protection versus Flight Center Travel Group (20160 is a case that is related to the issue between John and Javin. The court ruled that the defendant breached Trade Practices Act 1974 since it was observed that the firm was in competition with the airline that it was contracted to advertise and distribute tickets for. John and the principal operate a dual distribution model.
Another legal issue that arises between Javan and John is contract breach. Under the Goods Act, the agent is compelled to treat the breach as a warranty and set the claim in extinction of the cost or maintain the legal claim until compensation for the damages is awarded. Javan as the principal did not honor the agreement of the contract and since the members received the goods in good condition without complains, the agent has full rights over the property. It is therefore upon the two parties to come to an agreement and provide for the damages. The decision to maintain the contract after the breach is upon the agent. John has the authority to set prices and set terms of the contract and as a result, it is assumed the two are in competition. The agent is in this case autonomous thereby presenting great risks to the contract. However, since the principal authorized John to act on behalf of the members and did not complain about the prices or the performance, he is obliged to pay the total cost of repair and damages.
Question Two
Apparent authority holds when a third party accepts and understands that an agent has authority to act on an obligation. The third party consents that the principal has allowed another person to perform an activity on their behalf. Apparent authority is created under three situations. The first is the evidence given by the principal to the third party. For example, the principal may express an agreement with the agent by giving him or the authority to act on behalf of the third parties. When the principal consistently collaborates with an agent, there is substantive evidence for the third parties to honor the relationship without a formal agreement. In Barraclough versus Hellyer case, it was ascertained that the defendant had earlier appointed Hellyer as the principal agent to sell his property and that the latter had exclusive rights of selling the land for a period not more than 24 months. However, the defendant withdrew the land from sale immediately after agreeing to the contract. Upon suing the plaintiff for damages, it was determined that the authority to sell was not binding and as such, the principal had the right to revoke the agreement before the expiry of the contract. On appeal, the court stated that the contract should have been maintained for the agreed period unless the decision to revoke was reached upon by the two parties. The case depicts that the perception of third parties on the authority subjected to the agent lies on the principal. The agent in this case had the right to sell the land to third parties on behalf of the principal and since there was a binding agreement, the court of appeal ruled that the agent had authority that could not be revoked unless the principal discussed with the agent.
In another example, the case between Flight Center and the airlines it was contracted to act on behalf of third parties constitutes perceived authority. The Australian Competition and Consumer Commission (ACCC) sued the airlines since it breached its agency contract. ACCC requires Flight Center to conduct its businesses without conflicting with the interests of the principals. The ticketing firm has authority to act on behalf of the consumers, in this case the airlines and as such, failure to act accordingly makes the agent culpable.
Second, the third party relies on the manifestations of the principal towards the third party. The actions of the principal as it relates to the agent stipulate the authority given to the former by the contracting firm. As noted in the case between Barraclough and Hellyer, it is observed that the principal demonstrated his intentions to give authority to the agent to sell land on his behalf. The impelled agreement gives authority to the agent and as such, consumers and other third parties that may be involved in the relationship, in this case the court of appeal have evidence that there is apparent authority.
Third, Kuhn (2012) noted that apparent authority arises on condition that the third party is reasonable enough to interpret the manifestations of principals and go ahead to rely on those actions to perceive that there is apparent authority. It therefore means that the third party should be of sound mind and with a clear understanding of the principals obligations and relationship therein as to interpret the manifestations imply that the agency has authority to act on behalf. As such, there is a binding agreement between the third party and the agent given that the former is in a position to make an informed decision and perceive the manifested authority.
The case between Garnaic Grain. Co. and Faure FairClough Ltd depicts the three conditions that results to apparent authority on the basis of third party perceptions. The plaintiffs entered into a contract with the defendants owing to the fraud of another individual. The plaintiffs were therefore innocent of any claims. The court ruled that the defendants had apparent authority and acted on behalf of the unknown principal. As such, fraud of unidentified principal represented a credible defense to an action of agency contract even though it was ascertained that the agents were innocent. However, the court held that no material element of the facts were evidenced by given that three conditions of authority were satisfied; the plaintiff manifested that the defendants were the agents of the unfamiliar principal, Grain relied on the actions of to perceive the authority and they reasonably interpreted that Faure acted on behalf of the principal. The principal in this case is culpable of the offense that was committed by the agents. Given that the third parties, in this case Garnaic Grain knew and accepted to be served by FairClough on behalf of the principal, both parties are obliged to the subsequent legal issues.
Conclusion
An agency relationship binds the agent and the principal to a legally binding contract. Whether the contract is through expressed or impelled agreement, both parties are obliged to perform their duties and maintain respective rights. Third parties who perceive that there is an apparent authority as depicted by the manifestations of the principal towards the agent are also bind by the contract. The agent acts on behalf of the principal and the third parties and as such, it is upon the parties to determine how power is shared among the contract bearers to avoid conflicts of interest.
References
Armour, J., Hansmann, H., & Kraakman, R. (2009). Agency problems, legal strategies, and enforcement. Oxford Legal Studies Research Paper, 21/2009, part 2.1.
Bedi, R. (2017). Leading cases in Australian law: A guide to the 200 most frequently cited judgments [Book Review]. Ethos: Official Publication of the Law Society of the Australian Capital Territory, 243, 58.
Fox, W. (2016). Australian agency law. Retrieved from http://www.agentlaw.co.uk/site/global/Australia.html
Kuhn, C. (2012). Apparent authority. Retrieved from https://thekuhnlawfirm.com/apparent-authority-act-created-person-principals-conduct-interpreted-person-principal-consents-act-behalf-person-purporting-act/
Moulislegal (2017). High Court redefines agency relationships. Retrieved from http://moulislegal.com/not-cleared-for-take-off-high-court-redefines-agency-relationships-in-flight-centre-decision/
Selvarajan, T. T., Slattery, J., & Stringer, D. Y. (2015). Relationship between gender and work related attitudes: a study of temporary agency employees. Journal of Business Research, 68(9), 1919-1927.
