Question

CORPORATE LAW

Consider the following scenarios and identify what type, if any, agency relationship has arisen:

a) Harry has requested his father go with him to purchase a new car. He asks his father to conduct the negotiation. His father agrees, and when they arrive he dutifully begins negotiations. However, halfway through the negotiation his father receives a call from a friend of his, saying he has a free ticket to a cricket match and whether he wants to go. Harry’s father agrees, and tells Harry “Later Loser”, before jumping in his own car and leaving.

b) Ben is the newest steward at a football club. One day the chairman of the club, Steve, walks up to Ben and requests he clean up a mess in his office. At the same time, Adam, a rival football team manager shouts looking at Ben, “Steve, is that your new centre-forward?”Ben feels a bit upset by this remark, and shouts out “No, I’m the club’s new managing director. So if you want to buy any players come and talk to me.” Steve walks off without saying anything. Later Adam, comes to Ben and requests to buy the clubs best player at a very low price. Ben agrees to the sale.

Answer 1

Case a:-

Apparent Authority:- Apparent authority exists when the agent takes actions for the principal with a third party that the third party reasonably believes that agent has the authority to take. Here the third party has an implication that agent has authority to perform certain types of duties. This means a principal is bound by the agent's actions, even if the agent had no actual authority, whether express or implied. It raises an estoppel because the third party is given in assurance, which he relies on and would be inequitable for the principal to deny the authority given. Apparent authority can legally even if actual authority has not been given.

In given case, Harry's father agrees to negotiate and on arrival he dutifully begins negotiations. Although he received a call from his friend and he has to go, but the third party (shop owner) can implied due to relationship of Harry and his father. It is implied here that Harry's father has complete authority to negotiate on behalf of Harry who is in capacity of principal in this case.

Case b:-

Actual Authority:- Actual Authority exists when the agent takes an action on behalf of the principal and he reasonably believes that the principal wants this action taken. Actual authority includes "express" authority, where the principal tells the agent exactly what to do, and "implied" authority, where the agent takes actions reasonably necessary to accomplish the objective of the agency. Principals can also limit agents' authorities or revoke them as they choose.

In above case, Adam comes to Ben requests to buy the clubs best players at a very low price to which Ben agrees. So, Ben will work/perform on behalf of Adam which shows that Ben takes the an action on behalf of the principal. Adam, as a principal, gives command to Ben about what to do and in what manner it has to be done. Here he tolds the manner that he has to purchase best players at low prices.