4 Step Process

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     Step 1 †Identify the area of law This four step process refers to liabilities of an agent. The case involves an agent called Tim Jones who represents an anonymous seller of chocolate products. Tim arranges a contract with ABC Foods Pty Ltd for the supply of chocolates to the various shops of ABC. Tim fails to notify his principle of the contract hence the supply of chocolates is never produced. ABC is trying to sue Tim for non-performance under the terms of the contract. This process will advise Tim of his position and the options he may have. Step 2 †Explain the law John D Maltas (2008, 18) describes agency in a legal sense as a relationship which exists between two parties whereby one (the agent) is authorised by the other (the principle) to do, on his/her behalf. The agent receives an extension or grant of the contractual powers of the principal. The principle would then determine the limits of the agent’s authority. Many business matters are conducted through the instrumentality of an agent. An agent is usually employed to bring about a contractual relationship between the principal and a third party. A Principle will be bound by what the agent does on the principal’s behalf provided that the agent has acted within the scope of his/her authority. An agency relationship can be created in one of four ways. Express agreement, implied agreement, operation of law and ratification. Express agreement is a contract, oral or written which contains the intentions of the involved parties in words. Implied agreement can be effective in two situations; if actual authority implies it or if it is implied via estoppel. In the case Australia and New Zealand Bank Ltd v Ateliers de Constructions Electrocutes de Charleroi [1967] 1 AC 86 held that an agent duly appointed to act for the principal in certain business dealings, had actual implied authority to open a bank account to give effect to the businesses arrangements. Estoppel is to remedy injustice that would flow if one person who represented something to another were able to withdraw from that representation with immunity. Operation of law occurs when in situations of emergency, presumed authority to act as an agent. Ratification is when a principle agrees with an unauthorised act done on his/her behalf by an agent. The nature and scope of agents authority is broken into two parts; actual authority and apparent authority. Actual authority can either be expressed verbally and or in writing or it can be implied. An example of expressed actual authority would be when a principle gives an agent a specific instruction to enter into a contract to purchase a particular piece of land at a given price, or to sell a specific item under the principles name. Implied actual authority usually permits an agent to do everything necessary for, and ordinarily incidental to, carrying out his/her express authority. The apparent or ostensible authority is the authority of the agent as it appears from a 3rd party. If an agent is acting outside of their actual authority the agent will be held liable to the principal. When an agent discloses the name of the principal, the contract is deemed to be that of the principal, and the agent is not liable on the contract except where: the agent contracts outside the scope of his/her actual or apparent authority in which case he/she will be liable for damages for a breach of warranty of authority or if the agent agrees he/she is liable. The agent is also liable if he/she contracts by deed in their own name or if the principal is nonexistent. When the agent signs a bill of exchange or written contract in his/her name without identifying him/her as an agent, then he/she will be personally liable on the bill of exchange or contract. As stated in John D Maltas (2008, 45) the general rule is that where an agent discloses the fact that a principal exists but the name of the principal has not been disclosed, the agent’s liability is the same as where the name...
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