Commercial and Corporation Law: Agency Law Liability and Ratification

This report analyzes a commercial law scenario concerning agency, focusing on the liability of a principal when an agent acts without the principal's full knowledge or within specific constraints. The report defines agency, emphasizing the contractual relationship between a principal and agent, and explores different forms of authority: actual, apparent, and ratification. It examines relevant case law, including Peterson v. Moloney, Beazley v. Seed & Grain, Watteau v. Fenwick, and Keighley, Maxted & Co v Durant, to illustrate these principles. The application section applies these legal concepts to the scenario, assessing the liability of Bill, the principal, considering Willy's actions as the agent. The report concludes that both Bill and Willy can be held liable, depending on whether the auction house knew Willy was Bill's agent or not. The analysis highlights the importance of authority, ratification, and the doctrine of the undisclosed principal in determining liability in agency relationships, providing a detailed understanding of the legal aspects of agency in commercial transactions and how the courts interpret and apply agency laws in resolving disputes. The report also includes a detailed list of references, including textbooks, journal articles, and case laws.

RUNNING HEAD: COMMERCIAL AND CORPORATION LAW
Company and Corporation Law

COMMERCIAL AND CORPORATION LAW
Issue
The main issue in the given scenario is what will be the liability of Bill if the car yard had no
knowledge of Willy being his agent.
Rule
Agency is lawful relationship that takes a variety of forms and is common to business and
trade transactions.1 A contract between the principal and the agent is at the centre of the
official partnership by which the officer is authorizes to behave and perform duties on behalf
of the principal.2 In other words, an agency agreement is lawful contract that creates a
fiduciary connection by which the first party agrees that a second party’s actions bind the
principle to subsequent contractsmade by the agent as if the principal had made the
subsequent agreements himself. In the case of Peterson v Moloney3, it was stated by court
that an agent is an individual who by means of the power on him, is capable of establishing or
affecting legal freedoms and responsibilities as between another individual called his main
and third party.
In the case of Beazley v Seed & Grain4, the main issue in this case was whether there was
enforceable contract. In this case, an agent was approved to sell some property provided a
published register of a verbal agreement among seller and buyer and sent records to both
buyer and seller. Venders asserted the published document as written note signed by them. It
was held by the court that it is never enough to tell that an individual is an agent. One must
always confirm for what reason the person concerned was appointed as an agent, and one
must always look to see if the agent as an agent or in some other capacity was doing the
particular act.
In common laws of Australia, under agency, agent has various authorities. Under agency
principal is bound by the act of agent up to the extent of authority of agent. Relationship of
agency can be established by; ratified authority, actual authority and apparent authority.
1 M.A. Clarke, R.J.A.Hooley, R.J.C. Munday, L.S. Sealy, A.M Tettenborn and P.G.Turner, Commercial Law:
Text,Cases, and Materials (Oxford University Press, 2017) 1200
2 Justin Malborn and Bernard Bishop, Australian Export (Cambridge University Press, 2014) 352
3 (1951) 84 CLR 91
4 (1988) 4 BPR 952
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COMMERCIAL AND CORPORATION LAW
Ratification means confirmation of the conduct that has not been previously approved and
may not have been authorised, generally by principal, adopting the conduct of his agent.
Once the acts of agent are being ratified by the principal then both are become bound as if
principal had authority. In the case of Hagedorn v Oliverson5, the court held that agents
conduct could be ratified by the principal even though agent was not authorised at that time.
In the case of Firth v Staines6, it was held by the court that ratification applies in situations
where the authority is exceeded or had no authority to an agent.
There may be two types of actual authority. Either the principal could have specifically
granted authority to agent or the authority could be assumed.7 An agent shall, as a standard
principle, only be permitted to compensation from the principal if he has behaved within the
reach of his real power and if he acts outside that power, he may be responsible to a third
party for infringement of the implied authority guarantee.
Whereas apparent authority also known as fictitious authority exists where the words or
behaviour of the principle would lead a prudent person in the position of the third party to
consider that, the agent was authorised to act, although if such a connection had never been
discussed by the principal and the alleged agent.8 In the case of Watteau v Fenwick9, it was
held by the court that a third party was in position to hold principle personally liable for
whom he did not had knowledge that when his agent sold cigars to some other person outside
his authority. The court further held that the principal is responsible for all actions of the
agent normally entrusted to an agent of that nature, irrespective of the limitations placed on
that authority among the principal and the agent.
In several cases, agent and principal are both responsible for the acts done by the agent who
has actual or apparent authority. However, where the principal is not obliged because the
agent does not have any real or apparent authority, the alleged agent is responsible to the
third party for infringement of the implied authority guarantee.10 If the principal has directed
to not act in contrary and still the agent does so then in that case the principal shall not be
hold responsible.11
5 (1814) 2 M&S 485
6 (1897) 2 QB 70
7 Jon P. McConnell, Apparent Agency:Caught by illusion, Cornell Hotel and Restaurant Administration
Quarterly,26 (2) 28-33
8 Paul Latimer, Australian Business Law (CCH Australia Limited, 2012)
9 (1893) 1 QB 346
10 Dilan Thampapillai, Vivi Tan, Claudio Bozzi and Anne Matthew, Australian Commercial Law (Cambridge
University Press, 2015) 544
11 Fray v Voules (1859) 1 EL & EL 839
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COMMERCIAL AND CORPORATION LAW
In the case of Keighhley, Maxted & Co v Durant 12, an agent on behalf of his principal
purchased wheat from third party. The third party fixed the rates but both principal agent
counter offered, which was later denied by the third party. Agent bought the wheat at higher
price without informing the principal but later he informed about the deal, which was ratified
by the principal. However, they did not paid the contract price due to which third party had to
sell at lower price. Third party sued both. It was held by the court that principal could not
authorize where agent has no authority and he did not implicate to act for principal i.e.
undisclosed principal. The reason behind this was that the principle of undisclosed principal
relies on the fact that agent has actual authority.
There is no liability to third party where the agent reveals agency except subject to certain
exceptions. However, if the agent fails to reveal about the agency then he can be held liable
personally.13 The doctrine of undisputed principal enables third parties to file a suit against
the agent or principal, but not both, if the agency has not been disclosed. The injured party
may sue an agent who commits tort but he has the right of indemnity if he is acting within
authority.14 An agent can be held liable in such cases under the charges of false representation
in tort or under s 28 and 29 of the Australian Consumer Law.15 In case if third party wants to
establish his case, he is required to prove that; agent showed that he had authority, due to
such representation third party was induced to act, he relied upon such representation and
third party was unaware of the actual situation.16
Application
In agency, the agent represents himself to third party on behalf of principal. Principal is
bound by the conduct of agent. As applying the case of Peterson v Moloney, the relationship
of Bill and Willy was of principal and agent. Bill has given power an authority to Willy to
purchase cars on his behalf although he specified not to purchase European cars. This
indicates that they have a lawful relationship that of principle and agent.
12 (1901) AC 240
13 Tobias Marsch. Principal- Agency- Theory in Mergers and Acquisitions (GRIN Verlag, 2015) 19
14 Dr Lynden Griggs, Prof George Cho, John McLaren and James Scheibner, Commercial and Economic Law in
Australia (Kluwer Law International BV, 2018) 392
15 Adrian Coorey, Australian Consumer Law (LexisNexis Butterworths, 2014) 997
16 Stephen G. Corones, The Australian Consumer Law (Lawbook Company, 2012) 713
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COMMERCIAL AND CORPORATION LAW
As applying, the case of Beazley v Seed & Grain, in the present case Willy was given
authority by the Bill to purchase car. In this case, the vendors asserted the published
document as it was signed by the agent. But is not always sufficient to rely upon the acts of
the agent. It is always the duty of third party to ensure that for what reason the concerned
agent was appointed and must make sure that whether he is acting within his capacity. Thus,
in instant case, Willy did not acted within his capacity and the auction house did not
confirmed about the same. It is expected from the third party that is auction house to make
sure that the Willy was acting within his capacity or was doing the particular act. Thus as per
considering this case, Willy can be held liable solely.
As per the doctrine of ratification once, the principal ratifies the contract he becomes bound
by it except to certain exceptions. Although Bill was not aware of the transaction of Willy
with the Sharon and auction house, he to maintain relations with auction house ratified the
contract. As applying the case of Hagedorn v Oliverson, Willy was not authorised by the Bill
to purchase European cars still he bided in the auction with the intention of profit. However,
Bill was not aware of such fact he still ratified the contract just to maintain his relation with
the auction house.
Willy was strictly instructed by his principal that not to invest in European cars thus, he had
no authority or he exceeded his authority. As applying the case of Firth v Staines , the
principle of ratification only applies where the agent has no authority or surpassed his
authority, similarly in the case of purchase by Willy the doctrine of ratification is applicable.
As there are two types of authority. Actual authority applies where the agent acts within
authority and the agent shall be entitle to compensate with the principal only if has acted in
real powers but if he acts beyond authority then he shall be held liable except to certain
exceptions. Similarly, Willy was not authorised by the Bill, he acted beyond his actual
authority in that case Willy be held responsible to third party for infringement of authority.
Whereas, if the principle of ostensible authority is applicable then the principal is also
considered as responsible for the acts of agent. As applying the case of Watteau v Fenwick,
Bill did not authorise Willy to purchase such car as well as no knowledge of such intention of
Willy still he shall be hold responsible against third party. If the doctrine of ostensible owner
is applied by the court to determine the liability of Bill then he shall be liable for the all acts
of Willy normally entrusted to him.
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COMMERCIAL AND CORPORATION LAW
However, at various instances both are held liable for the acts done by the agent who has
actual or apparent authority. It completely depends upon the facts and circumstances of each
case.
As applying the case of Keighley, Maxted & Co v Durant, the Bill cannot ratify the act of
Willy because he has no authority and he did not implicate to act for principle i.e. undisclosed
principal. As applying, the doctrine of undisclosed principle Bill shall not be held responsible
for the act of Willy. If the auction home did not know the fact that Willy was not acting on
behalf of Bill then the doctrine of undisclosed principal applies. The injured party or the third
party may sue Willy for false representation in tort committed by him. Willy had the right to
indemnify only if he acted within the given authority but he failed to do so. Willy can be held
responsible under sec 28 and 29 of the Australian Consumer Law.
Conclusion
As per the rule of ratification once the agents act is accepted by the principal then both the
parties become bind by the contract. The Bill ratified the conduct of Willy and accepted the
contract. Bill and Willy both are bound by the principle of ratification. Whereas in case
where the auction house was not aware of the fact that Willy was Bill’s agent then the
doctrine of undisclosed principal applied in that case Will be held responsible to third party.
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COMMERCIAL AND CORPORATION LAW
Work Cited
A- Books/Journal Articles
Clarke, M.A., R.J.A.Hooley, R.J.C. Munday, L.S. Sealy, A.M Tettenborn and P.G.Turner,
Commercial Law: Text,Cases, and Materials (Oxford University Press, 2017)
Coorey, Adrian, Australian Consumer Law (LexisNexis Butterworths, 2014)
Corones, Stephen G., The Australian Consumer Law (Lawbook Company, 2012)
Griggs, Dr Lynden, Prof George Cho, John McLaren and James Scheibner, Commercial and
Economic Law in Australia (Kluwer Law International BV, 2018)
Latimer, Paul, Australian Business Law (CCH Australia Limited, 2012)
Malborn, Justin and Bernard Bishop, Australian Export (Cambridge University Press, 2014)
Marsch, Tobias, Principal- Agency- Theory in Mergers and Acquisitions (GRIN Verlag,
2015)
McConnell, Jon P., Apparent Agency:Caught by illusion, Cornell Hotel and Restaurant
Administration Quarterly,26 (2) 28-33
Thampapillai, Dilan, Vivi Tan, Claudio Bozzi and Anne Matthew, Australian Commercial
Law (Cambridge University Press, 2015)
B- Legislation/ Cases
Beazley v Seed & Grain, (1988) 4 BPR 95
Firth v Staines (1897) 2 QB 70
Hagedorn v Oliverson (1814) 2 M&S 485
Keighley, Maxted & Co v Durant (1901) AC 240
Peterson v Moloney (1951) 84 CLR 91
Watteau v Fenwick (1893) 1 QB 346
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