Question

Mr Choden frequently asks his secretary to order boxes of donuts from Delightful Donuts in his name for him, his staff and friends. One day he has an argument with his secretary and she decides to play a trick on him. She knows Mr Choden does not like pizza so she quietly rings Pizza House and tells them that she is the secretary for Mr Choden the well-known entrepreneur, that she is acting on his behalf and that Mr Choden would like 15 pizzas delivered to him. She then leaves work with a smile on her face. Mr Choden is bemused when 15 pizzas arrive with his name on the order and is not sure whether he is liable to pay or not.

QUESTION FOUR: (15 marks. 540 words maximum)

Explain briefly the nature of agency and then discuss whether Mr Choden or his secretary is liable to pay for the pizza order.

Answer 1

Issue: Mr. Choden used to order boxes of donuts in his name from Delightful Donuts through his secretary. The store would supply the orders, and Mr. Choden would pay. Now the secretary, in order to teach him a lesson, orders 15 pizzas to be delivered to him from Pizza House. Mr. Choden is not sure whether he is liable to pay or not. Therefore, the issue here is to decide whether the principal-agent relationship can apply to this transaction also. If the answer is yes, then Mr. Choden would be liable.

Law: Normally, an agency is created by an express agreement. Contracts of agency can at times be created also by the conduct of the parties. One such agency is agency by holding out, which falls within the purview of the law of estoppel. Accordingly, where a person by his words or conduct has wilfully led another to believe that certain set of circumstances or facts exists, and that other person has acted on that belief, he is estopped or precluded from denying the truth of such statements, although such a state of things did not in fact exist. The alleged principal is bound by the acts of the supposed agent, if he has induced third parties to believe that they are done with his authority.

Analysis: By ordering donuts through the secretary and paying for them, Mr. Choden has led Delightful Donuts to believe that she is the agent for Mr. Choden, and he would be bound by such transactions. But since Mr. Choden does not like pizzas, it can be assumed that no such transaction has taken place between Mr. Choden and Pizza House through the secretary in the past. Accordingly, it can be said that no such agency has been created by holding out between Mr. Choden and the pizza store. In other words, Pizza House has not been led to believe in the past that the secretary is authorized to act on Mr. Choden's behalf.

Conclusion: Mr. Choden would not be liable to pay for the pizzas. The secretary would be personally liable, as she has committed breach of warranty of authority.