Agency Law and Liability: A Case Study on Steve and Bianca

This article discusses the application of Agency Law in a case study involving Steve and Bianca. It explores the liability of the principal for the actions of the agent and the duties owed by both parties. The article concludes with the legal principles that should be applied by Steve for avoiding this liability.

Running head: LAW
Law
Name of the Student
Name of the University
Author note

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Issue
The issue in this scenario is whether Steve will be able to argue to avoid the liability
of a bill worth $3500.
Law
The Law of Agency provides a set of contractual and quasi-contractual relationships
associating an individual called the agent who is directed to act on behalf of another
individual called the principal for creating legal relations with a third party. Therefore, in an
agency, two kinds of contracts exist. The first contract is formed between the agent and the
principal from where the agent extracts his authority to act on behalf of the principal. The
second contract is created between the third party and the principal because of the agent’s
activities. As per the Agency law, an agent cannot be personally liable for the contracts that
are entered into by him on behalf of the principal. The three necessary parts include the duties
of an agent, rights and relationship of the principal to third parties. A principal is generally
held liable for the acts of his agents. In this regard, Hansen v Marco Engineering (Aust) Pty
Ltd is referred to1. Such a situation has been discussed in this particular case. The concept of
vicarious liability arises in the context of such relationship. This kind of liability is based on
the common agency law. Generally, agents owe their duties of obedience, loyalty and care to
their principals. The principals also have obligations of the agents that are implied by law and
are supplemented by an agreement. According to the law, the principal is said to have an
extra obligation to assure the agent for any kind of payments or liabilities incurred by the
agent. In the case of NMFM Property Pty Ltd v Citibank Ltd, Dal Pont had stated that the
law of agency is never static2. He had referred to the present Australian decisions whose
effect cannot be considered in the first edition but was later dealt in the second edition. The
1 Hansen v Marco Engineering (Aust) Pty Ltd [1948] VR 198,
2 NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558

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Federal Court of Australia passed such decision. However, under Australian Law, the terms
principal and agents are defined under the concept of Common Law. The Australian Law
states that there is no statutory requirement in terms of notice period to be provided. The
termination of an agency arrangement generally establishes as per the terms of the significant
agency contract. An agency is defined as a legal relationship that takes different kinds of
forms and is common to transactions in commerce and business. Generally, employers will
be held liable vicariously as per the concept of respondent superior doctrine for committing
negligent acts during the course of employment. For instance, an owner of a car is held liable
vicariously for the negligence caused by a person to whom the car was loaned3. Therefore, if
the principal was the owner and the driver was his or her agent, the owner will be held
responsible for the activities of his or her agent. Consolo v Bennett is such a case where the
Federal Court Decision produced an overview on the laws of agency and aims at the
circumstances in which the actions of an agent can bind the principal4. However, both the
agents and principals have duties that they owe each other5. In a few certain circumstances,
this law is applicable in the states and territories of Australia despite the existence of the
provision in a contract of agency.
Application
It appears from the fact that that Steve was the breeder and carer of an alpaca. Steve
charges $100 per week from the alpaca owners to take care of them. His duty and job was to
secure, feed and provide fresh air to the alpacas every day. One fine day, Steve had observed
that one of the pregnant alpacas were not well as it was facing respiratory problems and
producing nasal secretions. Hence, Steve tried contacting the owner, Bianca but did not get
3 Hedges, Jasper, George Gilligan, and Ian Ramsay. "Banning orders: An empirical analysis of the dominant
mode of corporate law enforcement in Australia." Sydney L. Rev. 39 (2017): 501.
4 Consolo v Bennett [2012] FCAFC 120
5 Beekes, Wendy, et al. "Corporate governance, companies’ disclosure practices and market transparency: A
cross country study." Journal of Business Finance & Accounting 43.3-4 (2016): 263-297.

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any response from her6. He finally heard from the housemate of Bianca that she was out of
town for a period of three weeks. After witnessing the condition of the alpaca, Steve got
tensed and guessed that it was suffering from a disease called Bovine Viral Diarrhoea. He
understood that the five month old foetus was infected and died which called for an
emergency abortion7. Thus, veterinarian took the permission from Steve for operating the
alpaca. It was a complete success and Steve carried out his duties being the career of the
alpaca. After Bianca, the owner returned, she was pleased with the behavior of the Steve but
refused and denied to clear the extensive bill of the veterinarian and the transportation cost
that added up to $3500. According to Bianca, since Steve had authorized the surgery of the
alpaca, he should be responsible for its payment. However, by applying the Agency Law
Steve can argue to avoid this liability8. Agency Law suggests that there is a legal relationship
between the principal and his or her agents. A principal will be held liable for the activities of
his or her principal. As observed in this case scenario, Steve was treated to be the agent of
Bianca as he was taking carrying out his duties for taking care of the principal’s property.
Although Steve tried contacting the owner but was unable to as she was out of town.
Therefore, Bianca should be grateful for Steve taking care of her alpaca when she was not
around and in the bad condition of the alpaca. However, Steve took all the responsibilities of
the alpaca by being the agent of Bianca. Applying the relationship of the agent and principal,
the law infers that Steve will have the right to argue to avoid the liability, as the principal is
liable for the duties carried out by his or her agents. Thus, Bianca will be liable to for the
amount of $3500 that included the cost of the veterinarian and the transportation cost. Being
6 Lin, Philip T., Bin Li, and Danlu Bu. "The relationship between corporate governance and community
engagement: Evidence from the Australian mining companies." Resources Policy 43 (2015): 28-39.
7 García, Jose A., Rosa Rodriguez‐Sánchez, and Joaquín Fdez‐Valdivia. "The principal‐agent problem in peer
review." Journal of the Association for Information Science and Technology 66.2 (2015): 297-308.
8 Allen, William T., and Reinier Kraakman. Commentaries and cases on the law of business organization.
Wolters Kluwer law & business, 2016.

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the agent, Steve carried out his duties by being present at that time when Bianca was not
there9. Under sections 175 to 178 the duties of the agent and principal are produced. The
principal, Bianca is liable to pay her agent the commission and other agreed remuneration if
any. She must not prohibit her agent, Steve from earning the commission. Lastly, it is the
duty of Bianca to reimburse the agent for the all the activities executed in the exercise of his
duties. Their agency was not terminated hence therefore, Bianca will be liable to clear the
payments and bills or reimburse Steve for being loyal and caring for executing his job. These
are the legal principles of Agency Law under the Australian Common Law that should be
applied by Steve for avoiding this liability10.
Conclusion
In this regard, it can be concluded stating that the Agency Law needs to be followed
and applied in a situation where the relationship of Principal and Agents exist. As observed
from the above scenario, it is to be noted that an agent cannot be liable personally. The
principal will always be held liable for the acts of the agents that is also referred to as
vicarious liability. Therefore, the agent will have the right to take actions against his principal
in case of unfair treatment. It is important on part of the agent to act according to the Agency
Law of Australia. In case of a breach committed by the Principal, the agent can take actions.
9 Salehyan, Idean, David Siroky, and Reed M. Wood. "External rebel sponsorship and civilian abuse: A
principal-agent analysis of wartime atrocities." International Organization 68.3 (2014): 633-661.
10 Mitnick, Barry M. "Agency theory." Wiley Encyclopedia of Management (2015).

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References:
Consolo v Bennett [2012] FCAFC 120
Hansen v Marco Engineering (Aust) Pty Ltd [1948] VR 198,
NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558
Allen, William T., and Reinier Kraakman. Commentaries and cases on the law of business
organization. Wolters Kluwer law & business, 2016.
Beekes, Wendy, et al. "Corporate governance, companies’ disclosure practices and market
transparency: A cross country study." Journal of Business Finance & Accounting 43.3-4
(2016): 263-297.
García, Jose A., Rosa Rodriguez‐Sánchez, and Joaquín Fdez‐Valdivia. "The principal‐agent
problem in peer review." Journal of the Association for Information Science and
Technology 66.2 (2015): 297-308.
Hedges, Jasper, George Gilligan, and Ian Ramsay. "Banning orders: An empirical analysis of
the dominant mode of corporate law enforcement in Australia." Sydney L. Rev. 39 (2017):
501.
Lin, Philip T., Bin Li, and Danlu Bu. "The relationship between corporate governance and
community engagement: Evidence from the Australian mining companies." Resources
Policy 43 (2015): 28-39.
Mitnick, Barry M. "Agency theory." Wiley Encyclopedia of Management (2015).
Salehyan, Idean, David Siroky, and Reed M. Wood. "External rebel sponsorship and civilian
abuse: A principal-agent analysis of wartime atrocities." International Organization 68.3
(2014): 633-661.