Fiduciary duty of agents
Issue 1
Is Sylvester liable for breaching fiduciary duty that he owed as an agent to Veronica?
Law
Agency refers to an agreement where one person or the principal confers the authority with another person or one the agent who is entitles to enter into a valid contract with a third party where he or she will allow to work on the behalf of the principal. Agency can either arise from the operation of law that is, there need not be any agreement between the principal and the agent. It may also be gratuitous that is, the principal does not provide any consideration to the agent.
The agents are obligated to perform the following duties towards the principal:
- They must act as per the instruction of the principal and within the authority of the principal.
- They are required to act in good faith and avert any form of conflict of interest. As was observed in Christie v Harcourt [1973] 2 NZLR 139 that the principal is entitled to sue the agent who was found guilty for several damages when they are trying to sell the house of the principal or the owner in a lesser value rather than the actual market value towards his daughter and fiancé.
- The agent is not bound to entitle of anysecret profit at the expense of the principal. In Bentley v Craven [1853] 52 ER 29, it has been found that the agent of a sugar refinery bought sugar himself at a serious lowest market price and sold it to that refinery at higher price. The principal was entitled to recover the profits so earned by the agent.
In the given scenario, Sylvester is the agent, Veronica is the principal, and the principal–agent relationship between the parties arises by the operation of the law. Since Sylvester is the agent, he owed certain fiduciary duties towards Veronica.
Veronica trusted him to buy for the shop and sell to the collectors. However, when the lawyer offered an 18th century for sale to Sylvester, he buys it for $10000, and sells the clock to his friend who is also a collector of the clocks at an inflated price of $15000.
Here, Sylvester commits a breach of the fiduciary duties that he owed to Veronica (Principal). An agent is must not authorized to have any secret profit as per the expense of the principal. Veronica hired Sylvester for buying antiques for shop and it is obvious that it should be bought at lowest market prices, but Sylvester sold the clock to his friend/collector at inflated price, thus earning profit at the expense of the principal. As was observed in the case Bentley v Craven, the principal was entitled to recover profit from the agent, similarly, in this case, Veronica is entitled to recover profits earned by Sylvester by selling the clock at an inflated price.
Conclusion
Therefore, Sylvester has committed a breach of his fiduciary duty as an agent towards his principal, Veronica, by making secret profit at the expense of the principal (Veronica) and is entitled to return the profits to the principal (Veronica).
Issue 2
Is Veronica bound by the contract entered into by Bob with Angela?
According to the common business law the principal of the contract is entitled by the activities of the agent who is depends on the various types of authority which she is required and conferred on the activities on the agents. The most require common law helps to recognize the most basic types of authorities. There are three types of authorities which include the actual authority, ostensible authority and Authority of necessity. The type of authorities involved in the given case study includes the following two authorities:
- According to the common law of business, the actual authority defines through expression or implication. The express authority are bound to authority of the principle where it can be express through written or verbally. Therefore when the express authority is not required to provide any person then he or she required a position where they can get appointed.When the implication of the appointed person authority not makes any success or fails to prove according to the scope of activities then it may not require of any particular position.
- Ostensible authority defines the facts where the principal shows no intension for the authority but he has the represents the authority as an agent where the principal is estopped due the rejection of the authority of the agents.
Veronica’s claim against Sylvester
The term’ representation’ defines through the principal which allow to take the form of inaction for the implication of the principal who is aware that the agent is required to have the authority to act but still does not allow intervene to rectify the impression which might arise in the mind of the third parties or disregards according to the activities of the agents. As was held in Freeman & Locker v Buckhurst Park Properties [1964] 1 ALL ER 630 where the board of the company deliberately permitted one of its directors (Kapoor) to act as MD even though he was not appointed for that position of the company. The company was held to be liable in the contract for entered into by Kapoor.
The agent can carry on with the authority even after being rejection or dissolution by the principal if the third party with whom the agent used to deal is unaware of the dismissal of the agent from his authority.
In the given case, Bob frequently dealt with Angela who collects pictures by contemporary Australian artists. Bob was not performing his duties properly and received several warnings from Veronica regarding his performance and fired him.
However, Veronica did not ensure whether Bob actually left the premises or not before going to the meeting. As was held in the Freeman & Locker’s case, the director deliberately allowed Kapoor to act as Director even though he was not appointed from the position. The directors were held to be bound by the contract entered into by Kapoor as the ostensible authority bound the directors.
In this case, Bob was represented by Veronica (principal) and the term ‘representation’ implied that she disregarded the fact whether Bob left the premises after she left for the meeting and neither she rectified any of the collectors that the agents dealt with about the fact that Bob was dismissed.
Furthermore, since Bob frequently dealt with Angela and she was not aware of the dismissal of Bob, it can be said that Bob sold the painting within his authority.
Therefore, Veronica was liable to deliver the painting to Angela as she as bound by the contract under the ostensible authority.
The legal rights of Mary in relation to the sale of the a surveying instrument to one of the partners of United Surveyors namely Smith.
The law related to partnership in Australia is dealt by statutory provisions as well as the provisions of common law. Each state in Australia have their own partnership acts which govern the functions of partnership within the state.
Ostensible authority and contracts
In New South Wales the law off partnership is governed by the Partnership Act 1892 (NSW) (PA).
The relationship of the partners with the outsiders in relation to a partnership is usually based on the law of agencies and has been modified through Section 5-9 of the PA.
The authority of the partners is set by any written or oral agreement which they may enter upon in relation to the partnership.
Thus the express authorities which the partners have in relation to the business have is limited according to the terms of the partnership agreement and thus the acts of the partners which have been committed in accordance to the partnership agreement are binding on the business that is all other partners.
It has been provided by section 5(1) of the PA that the actions of the partners bind the business to them as they are its agents of the business and all other partners. However the acts of the partners which have not been authorized by the partnership agreement would not be binding on the other partners unless their party involved in the transaction did not have any knowledge or reasons to believe that the partner have acted outside the authority provided to him.
Two important effects are provided through this section. firstly according to the section all partners of the business have implied authority to bind the business to their actions which have been conducted within the powers provided by the business. In addition it has been provided by section 7 of the PA that the acts which are not authorized by the agreement of partnership would be binding on the business if the partner has been provided special express authority in relation to the act. Secondly, the section implies that even in case the actions of the partners have not been committed in accordance to the partnership agreements the business would still be binding to such actions if the their part would be able to prove that the business had been conducted within the usual implied authority of the partner and had no reasons to believe that the act was not authorized by the business. The provisions had been discussed broadly in the case of Mercantile Credit Ltd v Garrod [1962] 3 All ER 1103.
In relation to the first issue where it has been provided by the scenario that Smith has purchases a surveying instrument from Mary which was priced at $6000. As per the partnership agreement the partners only had an authority to enter into a contract limited to the value of $5000.
Veronica’s liability in the case of Bob and Angela
As per section 5 of the PA the partners are the agents of the business only to the extent that they acted within the authority. However the section also provides that if a third party believes that the transaction is in the usual course of business and the partner indulging in it has the authority to do so than the transaction would be binding on the business even if it is not within the authority of the partner.
It has been provided that smith usually entered into the purchase of surveying equipments from Mary on behalf of the partnership. Thus it can be said that Mary had no knowledge that he is only allowed to carry on business till the value of $5000.
Thus in these circumstances as per section 5(1) of the principles of the above discussed cases the act of Smith is binding on the partnership and Mary can make a claim.
Whether Mary can claim the $3000 for the sale of a mini-driller purchased by Smith
In the case of Lang v James Morrison & Co Ltd (1911) 13 CLR 1 it had been provided by the court that the partners are the agents of the partnerships and all other partners.
The partnership firm or any other partner is not liable for any activity of a partner which has been conducted for personal interest as provided in the case of Mercantile Credit Co Ltd v Garrod.
In the case of Union Bank of Australia v Fisher (1893) 14 LR (NSW) Eq 241 it had been provided by the court that even if the act is allowed by the partnership agreement but is carried on in an unusual way the act may not be legally binding. The act is taken to be usual if it is necessary and not merely convenient.
In the case of Mercantile Credit Co Ltd v Garrod it had been provided by the court that if a transaction appeared to a third party as conducted within a usual course of business even if the other partners did not allow such truncations and the third party did not have knowledge about such disagreement the act would be binding on the business.
Even though the partners did not allow for the oil exploration process, smith decided to purchase a mini oil driller from Mary.
The transaction was within the partnership agreement’s scope but had been expressly rejected by the other partners and thus may be considered as an unusual act. This would have made the firm not binding to the actions of smith according to the Garrod case and fisher case as it was also in the personal interest of Smith.
However as per the principles further provided by the Garrod case the partners would be liable for the actions of the other partner even if the act was unusual if it appeared to the third party that it was in the usual course of business which was in fact in the provided scenario with Mary.
Mary has the right to claim the 3000 for the sale of the mini driller
References
Bentley v Craven [1853] 52 ER 29
Christie v Harcourt [1973] 2 NZLR 139
Freeman & Locker v Buckhurst Park Properties [1964] 1 ALL ER 630
Lang v James Morrison & Co Ltd (1911) 13 CLR 1
Mercantile Credit Ltd v Garrod [1962] 3 All ER 1103
Mercantile Credit Ltd v Garrod [1962] 3 All ER 1103
Partnership Act 1892 (NSW)
Union Bank of Australia v Fisher (1893) 14 LR (NSW) Eq 241
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