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Commercial Law (BULAW1503) Assignment Semester 1, 2016

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CОMMЕRСIАL LAW 4

Commercial Law (BULAW1503) Assignment Semester 1, 2016

Question 1: Cassie — MME / Agent-Principal relationship

ISSUE — identify your immediate problem;

PRINCIPLE — identify the principle/s of law involved;

APPLICATION — apply the principle/s of law to the facts given; and

CONCLUSION — state the result of that application.

Issue 1: Is there an agent- principal relationship?

Cassie is employed by MME as Business Development Manager. MME plans to open an office in Ballarat. Cassie was ordered by MME to visit the central business district of Ballarat, survey relevant business opportunities, evaluate competitors, and make enquiries on retail premises before reporting back to head office with a recommendation1. The instruction given to Cassie to act on the behalf of MME constitutes an agent-principal relationship (Wyoming case Fowler v. Westair Enterprises, Inc).

In this case, Cassie’s role allows her to act as an agent for MME and the recommendation made by Cassie is through the authority given by MME. Her role, which appears even in her business card allows her to act on the behalf of MME, but within the scope of authority given by MME.

Therefore, there is an agent-principal relationship between Cassie and MME. Every transaction conducted by Cassie, MME should be liable. Cassie is not only employed in MME as the Business Development Manager but is also instructed to act on the behalf of MME and look for the business premises and make an order for the office equipment (State vs.Bell, 34 Ohio St. 194).

Issue 2: How extensive was Cassie’s authority?

Agent’s authority should coincide with the instructions given by the principle. The instructions given to Cassie by MME of visiting the central business district of Ballarat, surveying the relevant business opportunities, evaluating competitors, and making enquiries on retail premises was what measured the extent of his authority. Pat, MME’S owner, talks to Theo informing them that Cassie would inspect the premises and commit a lease2. The writing of a lease with Theo was after Cassie had followed all the instructions given from MME and as per the call made by Pat to Theo stating that Cassie would act on the company’s behalf. Union Mutual Life Insurance Co. v. Wilkinson, 80 U.S. 222, 234 (1871), applies

Here, Cassie’s authority is well stated, and she cannot do anything beyond the instructions. The instructions are clear and that is what Cassie is supposed to follow to avoid violating the agent-principal relationship requirements

Apparently, Cassie’s authority was what she did at Ballarat and recommending Theo’s property was after the conduct of the given instructions. Pat trusted in the recommendations and conclusion that would be made by Cassie about Theo’s property. Writing a lease with Theo was within her level of authority, as identified in (Hydes vs. Joyes, 4 Bush, (Ky.) 46-!, 96 Am. Dec. 311). Despite the fact that Cassie had thought of making a detailed enquiry to Theo before Pat called Theo, Cassie made the enquiry and wrote a lease after Pat had communicated to Theo regarding the issue. This means that all that Cassie did was within her scope of authority as an agent representing MME, as applied in (Birdsall Vs. Olark. March, 1878.).

Issue3: Could Cassie, if made the wrong judgement/ recommendation, have imposed liability on MME his principal?

An agency relationship is whereby all the activities conducted by an agent lender the principal liable. The recommendation made by Cassie imposed liability on Pat the owner of MME3. Cassie’s feelings towards Theo’s property was acceptable by MME because she was acting on the behalf of MME. Writing the lease with Theo made MME liable because all was done on its behalf. This applies in Steven Shavell, Strict Liability v. Negligence9 J. LEG. STUD. 1 (1980)

In this case, the choice of Theo’s property was conducted after making detailed enquiry and writing a lease arrangement on behalf of MME was as per the instructions given by Pat. In addition, Pat seems to have already recommended Theo because his call to Theo was suggestive and indicated that he had already decided to do business with Theo.

Therefore, the activities conducted by Cassie and more specific of writing a lease arrangement with Theo imposed liability to Pat, MME’s owner. MME should be liable for the activities conducted by Cassie within the scope of her authority as the company’s Business Dev elopement Manager (Mailhews vs. Alea;and?’ia, 68 nio. 115, 30 Am. Rep. 776)

Issue 4: Is MME liable to Theo because of Pat refusing to agree to the terms of the premises and canceling of the office equipment order?

The agent-Principal relationship makes the principal liable for all the injuries imposed to the third party by the agent within the scope of authority4. Refusing to agree with the terms of the premises in the mail and cancellation of the office equipment order injured Theo because Cassie already made the agreement on the behalf of MME and she acted as per the authority given by MME through Pat the owner (Castillo v. Case Farms of Ohio, 96 F Supp. 2d 578, applies).

In this case, Theo incurs some damage because of the invoice issue to MME for the office equipment as per the agreement made between Cassie and Theo on behalf of MME. The contract made by Theo and Cassie makes MME liable in the case of some problems

MME is liable for the damage caused to Theo. Pat, the owner of MME, was the one who instructed Cassie to report back to the office with a recommendation and then informed Theo that Cassie was going to inspect the property and be committed to a lease. Therefore, MME should compensate Theo for the injury. The same applied in (Thompson vs. Scllermerlwrn-, 6 N. Y. 92, 55 Am. Dec. 385,). It is clear that Pat violated the agreement made between MME and Theo, thus making him liable for the damages experienced by Theo (Grady Vs. American Central Insurance Company. May, 1876.).

Question 2: The relationship between agency and contract law

Similarities

Agency law and contract law are associated with a formation of a legal relationship between parties. The agency and contract law are applied when there is a violation of an agreement between the involved parties whereby one of the parties has suffered some damages or injury resulting from the conduct of the other party. The two laws are formed when the involved parties have the capacity to engage in a legal relationship.

Differences

Agency law is different from the contract law5. Agency law is practiced in the area of commercial law, and it deals with contractual or fiduciary relationships involving the agent who is authorized to act on the behalf of another party known as the principle to create a legal relationship with a third party (State vs. Hauser, 63 Ind. 155). On the other hand, the contract law is applied when there is a formation of a contract between two parties, and one of the parties tend to violate the terms of the contract. The two parties in a contract understand or know each other when forming the contract unlike in the agency law whereby the third party enters into a contract without understanding the position of the agent, and the third party might be thinking that the agent is the owner of the premises of product basing the formation of a contract6. In contract law, the party violating the contract requirements is liable for the damage caused to the other party and is supposed to compensate the infringed party as per the court’s judgement. However, in agency law, the agent who directly enters into a contract with the third party behalf of the principal might conduct some activities leading to injury to the third party, but the principal will be liable for the damage or injuries experienced by the third party7. In addition, in the contract law, a collision between the parties is solved in consideration of the two parties and no other party. This is different in the agency law whereby the collision between the agent and the third party has to be solved in the presence of the principal who the agent was acting on behalf.

In contract law, both parties have the responsibility of caring for each other and especially the one whose opinion is relied on by the other party. On the contrary, the agency law, the agent has the responsibility of acting within the scope of authority8. Even when the principal tends to mislead the agent, the agent acts accordingly in order to obey and the agent is not supposed to show care to the third party, as long as the agent does not act beyond the powers given by the principal. The liability of the agent to the third party is ensuring that the agent acts on behalf of the principal and does not violate the instructions given by the principal same with (Lyon vs. Jerome, 26 Wend. (N. Y.) 485, 87 Am. Dec. 271). In contract law, the liability of the two parties is to act in good faith and avoid hurting or causing damage to one another. In agent law, the third part has a liability to the principal of responding to the activities conducted by the agent on behalf of the principal. Agency relationship is commonly known in allowing the agent the power to harm the third party because even if the third party bears the harm, the agent is not liable and cannot be charged for any loss met by the third party (Harralson Vs. Stein. January 1874.). In the contract law, no party is allowed to behave irresponsibly or allowed to hurt the other party because both parties are supposed to act in good faith. For instance in the sale of a product, the seller is supposed to sell a good product to the buyer and adhere to the agreement associated with the transaction. In an agency relationship, when there is a sale of a product, the seller or the third party deals with the agent who purchases the product on the behalf of the buyer or the principal, as witnessed in (Watteau v. Fenwick). This means that if the product is bad, in the contract law, the seller will be liable for the damage suffered by the buyer9. However, in an agency relationship, the third party would be liable for the damages suffered by the principal and not the agent whom they dealt directly with.

Despite the fact that contract and agent law are associated with the making of an agreement between parties, in contract law, the two parties are liable for each other. In agent law, the principal is liable for the third party and not the agent.

Bibliography

Donaldson, T. (2012). The epistemic fault line in corporate governance. Academy of Management Review, 37(2), 256-271.

Elsig, M. (2011). Principal–agent theory and the World Trade Organization: Complex agency and ‘missing delegation’. European Journal of International Relations, 17(3), 495-517.

Gailmard, S. (2012). Accountability and principal-agent models. Chapter prepared for the Oxford Handbook of Public Accountability.

Heracleous, L., & Lan, L. L. (2012). Agency theory, institutional sensitivity, and inductive reasoning: towards a legal perspective. Journal of Management Studies, 49(1), 223-239.

Kim, P. T. (2011). Beyond principal-agent theories: Law and the judicial hierarchy. Nw. UL Rev., 105, 535.

Mustapha, M., & Che Ahmad, A. (2011). Agency theory and managerial ownership: evidence from Malaysia. Managerial Auditing Journal, 26(5), 419-436.

Sant’Ambrogio, M. D. (2011). Agency Delays: How a Principal-Agent Approach Can Inform Judicial and Executive Branch Review of Agency Foot-Dragging. George Washington Law Review, 79, 1381.

Suh, T., Jung, J. C., & Smith, B. L. (2012). Learning creativity in the client-agency relationship. The Learning Organization, 19(5), 428-439.

Tuohy, C. H. (2013). Models of professional regulation: institutionalizing an agency relationship. Israel journal of health policy research, 2(1), 1.

Birdsall Vs. Olark. March, 1878.)

Castillo v. Case Farms of Ohio, 96 F Supp. 2d 578

Grady Vs. American Central Insurance Company. May, 1876.)

Harralson Vs. Stein. January, 1874.)

Hydes vs. Joyes, 4 Bush, (Ky.) 46-!, 96 Am. Dec. 311;

Lyon vs. Jerome, 26 Wend. (N. Y.) 485, 87 Am. Dec. 271;

Mailhews vs. Alea;and?’ia, 68 nio. 115, 30 Am. Rep. 776

State vs. Hauser, 63 Ind. 155;

State vs.Bell, 34 Ohio St. 194;

Steven Shavell, Strict Liability v. Negligence9 J. LEG. STUD. 1 (1980

Thompson vs. Scllermerlwrn-, 6 N. Y. 92, 55 Am. Dec. 385,

Union Mutual Life Insurance Co. v. Wilkinson, 80 U.S. 222, 234 (1871

Watteau v. Fenwick

Wyoming case Fowler v. Westair Enterprises, Inc

1Suh, T., Jung, J. C., & Smith, B. L. (2012). Learning creativity in the client-agency relationship. The Learning Organization, 19(5), 431.

2Sant’Ambrogio, M. D. (2011). Agency Delays: How a Principal-Agent Approach Can Inform Judicial and Executive Branch Review of Agency Foot-Dragging. George Washington Law Review, 79, 1381.

3Mustapha, M., & Che Ahmad, A. (2011). Agency theory and managerial ownership: evidence from Malaysia. Managerial Auditing Journal, 26(5), 423

4Tuohy, C. H. (2013). Models of professional regulation: institutionalizing an agency relationship. Israel journal of health policy research, 2(1), 1.

5Gailmard, S. (2012). Accountability and principal-agent models. Chapter prepared for the Oxford Handbook of Public Accountability.

6Kim, P. T. (2011). Beyond principal-agent theories: Law and the judicial hierarchy. Nw. UL Rev., 105, 535.

7Donaldson, T. (2012). The epistemic fault line in corporate governance. Academy of Management Review, 37(2), 262

8Elsig, M. (2011). Principal–agent theory and the World Trade Organization: Complex agency and ‘missing delegation’. European Journal of International Relations, 17(3), 501

9Heracleous, L., & Lan, L. L. (2012). Agency theory, institutional sensitivity, and inductive reasoning: towards a legal perspective. Journal of Management Studies, 49(1), 223