Question 1

The first issue in this case is whether Tina who is the owner of a service station is liable to be in
contract with Caltex for the order of 30,000 liters of fuel, which was ordered by Brad working as
a checkout operator, acting contrary to instruction given by Tina?

The second issue is whether Tina can legally recover the profit from Paul a salesman employed
by her, who was working contrary to the fiduciary duty of an agent?

Agency in simple sense is an agreement by a person who is known as the principal in terms of
which she or he gives authority to another person who is acting as an agent to make contracts
with third parties on behalf of the principal(CSU LAW504 Modules, 2015, Topic 12). An agent
having the representative authority can act on behalf of principal and can enter into
transactions which will bind the principal as if the principal carried the transaction himself or
herself (Pentony, Stephen, Parker, & Whitford, 2012). Authority can be actual authority or
apparent authority or also can be authority of necessity. In actual authority can be express
which can be stated by the principal and in the absence of express, implied authority falls
normally to the scope of that position (CSU LAW504 Modules, 2015, Topic 12). In authority of
necessity, in which authority does not arise from any agreement but in certain circumstances
due to emergency an agency arises giving a person an assumed authority (Pentony, Stephen,
Parker, & Whitford, 2012).

In an agency when there is a private agreement between principal and agent, in which the
agent’s authority is limiting to something less than what attaches to the position will not
restrict the 3rd party from relying on the normal scope of the authority(CSU LAW504 Modules,
2015, Topic 12). To act within principal’s authority, is the agent’s duty towards principal and if
the agent breaches the authority given by principal than the agent will be liable to principal
(CSU LAW504 Modules, 2015, Topic 12). For example as shown in the case of Watteau v
Fenwick [1893] 1 QB 346, in which the principal was found liable to the third party due to the
contract entered by the agent in which restrictions on his authority was exceeded. In this case

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the agent did not followed the instructions given by principal and the principal found himself
bond by a contract with third party which she did not. Also principle of Estoppel may apply
because where a person’s conduct creates the impression that there is an agency, and a 3rd
party relies on the representation and deals with the ‘agent’ in normal scope, the person who
made the representation will be held liable as if the agent did in fact have the authority
(Pentony, Stephen, Parker, & Whitford, 2012).

An important feature of agent and principal relation is that agent has some fiduciary duties
towards the principal. As soon as agent and principal comes into contract, fiduciary duties
towards principal is applied on the agent even if the contract is silent (Pentony, Stephen,
Parker, & Whitford, 2012). It happens that agent has access to the information about the
principal’s work and agent use that information for personal benefit by not following the
fiduciary duty which says that agent should always act in the interest of the principal and
should not take secret profit at the expense of principal. For example in the case of Christie v
Harcourt [1973] 2 NZLR 139 and Bentley v Craven [1853] 52 ER 29 in which agents do not act to
the position appointed by exploiting the principal and making secret profit out of principal’s
expense. In this kind of scenario where agent breaches any of the duties towards principal, the
principal has the right to recover damages from the agent (CSU LAW504 Modules, 2015, Topic
12).

Given that Tina appointed Brad for checkout operator and in the absence of Tina for four
months Brad was dealing with Caltex for fuel order, which made Caltex believe that Brad was
working as an agent with the authority given by principal. But when Tina returned she
instructed Brad not to order fuel anymore as she is back now. As an agent it was the
responsibility of Brad to follow Tina’s instructions, but due to his increased status of dealing
with oil companies, Brad did not followed her instructions by ordering 30,000 liters of petrol to
Caltex without even informing Tina. According to law of agency, agent cannot act without
express or implied authority. Caltex as the third party was unaware of the limitation of agent,
and the contract was formed between the principal and Caltex. In the meanwhile when Caltex

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was preparing for the delivery of petrol, Tina entered into contract with BP which was more
advantageous than Caltex because she was unaware of the fact that Brad has already placed
the order with Caltex. Finally the day come for delivery from Caltex and truck arrives to deliver
the fuel. According to the law Tina is bond with the contract with Caltex because Brad was
working for her as an agent and Caltex was not aware of limiting authority of Brad.

In the second incident where Paul was the salesman appointed by Tina. Paul being an
experienced salesman it was his responsibility and fiduciary duty towards Tina, that if any
vehicle is priced less than the market value he should not sell it on less price. But Paul for his
personal benefit told Tina that he wants a Holden car which was in the display for sale for
$19000 and bought it from her because he knew that the car can easily fetch $25000. After few
days finally Tina found out that Paul sold the same car to his neighbor for $25000 making a
secret profit at Tina’s loss. Paul breached the fiduciary duty and according to the agency law, if
any agent breaches any duties to the principal, the principal is liable to recover the damages
from the agent. So, Tina can sue Paul for not relying on his duties and can recover the profit
made by him.

Conclusion is that Tina was in contract with Caltex because the law of agency gives right to the
third party to form a contract with agent. So, Tina cannot deny that there was no contract
between her and Caltex, but can recover the loss from the agent Brad for not acting on the
instructions given. Same way in the second incident Paul also made profit by acting in his
personal interest and not acting in good faith towards Tina. So, Tina can sue Paul and can
recover the total amount of profit made by Paul and can also terminate both Paul and Brad.

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Question 2
Issue in this case is whether George, Sara and Mary are liable in contract with Sunstar
Computer Hardware Ltd and You Beaut Ute Ltd.

According to Section 1 of the Partnership Act 1892 (NSW), “Partnership is a relationship in

which different persons come together and carry on business in common view to earn profit”.
All partners are bound by a partnership contract, both as a group and individually. They are
both considered as agents and principals of their partnership (Pentony, Stephen, Parker, &
Whitford, 2012).

Section 5(1) of Partnership Act says that, each partners is having implied authority as an agent
towards all the other partners in a partnership business. According to Section 5(1), which also
says that implied and ostensible authority of partners is restricted by the nature of the
business, which binds all the partners to make transactions only related to the nature of
partnership business (CSU LAW504 Modules, 2015, Topic 13). Section 5(1) also says that even if
a partner acts against his or her express authority, partners will be still liable if the third party
can prove that the transaction was lying within the usual implied authority of a partner unless
partners can prove together that third party was aware of the partners’ lack of authority, in this
way Section 5(1) protects the third party.

Section 8 of Partnership Act states that, any internal agreement between partners which limits
their authority can effect third party only if the third party was aware of the limitation of the
agreement. The best example of application of this rule is mentioned in the case of Mercantile
Credit Ltd v Garrod [1962] 3 ALL ER 1103, in a partnership of two partners in a garage business
made agreement that they would not buy or sell cars, but one of the partner did sell a car

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which business did not own. The third party obviously had to return the car to the right owner
and sued both partners for breach of contract of sale. The second partner who was not
included during the transaction tried to avoid the liability on the basis of agreement which
limits his authority. However, court held both the partners liable because selling and buying of
cars falls in the normal scope of garage business and Section 5(1) protected the third party as
there was no evidence that third party was aware of the agreement of partners (CSU LAW504
Modules, 2015, Topic 13).

Partners are liable jointly in a partnership business. Section 9(1) of Partnership Act imposes
joint liability on partners, which means that all partners are equally liable in contract. For
example if one partner is released by the plaintiff from liability, all the other partners will
automatically release (CSU LAW504 Modules, 2015, Topic 13). According to the Supreme Court
rule, if a plaintiff bring an action against a partnership firm, which will effect that all the
individual partners are also sued, which eliminates the risk of failing to joint partner in the
action (CSU LAW504 Modules, 2015, Topic 13).

In this case Simon purchased 500TB storage drive from Sunstar Computer Hardware Ltd,
costing $12000 and a second hand ute worth $9000 from You Beaut Ute Ltd. Simon, George,
Sara and Mary were having agreement that any partner can enter into contract of up to
$10000, but any contract more than that needs unanimous approval of all the partners. George,
Sara and Mary refused to take the delivery so both the Sunstar Computer Hardware Ltd and
You Beaut Ute Ltd sue all the partners. According to Section 9(1) of Partnership Act, all the
partners are equally liable for the action of one Simon. The third party where unaware of the
limiting authority of Simon but Simon did the transaction falling in the usual implied authority
of the IT company in which he was partner, so Section 5(1) can make George, Sara and Mary
liable to pay Sunstar Computer Hardware Ltd the amount of $12000. But George, Sara and
Mary are not liable to pay for Ute because the transaction was not falling in the usual scope of
partnership business, as the partnership was of an IT company and there was no agreement by
all partners regarding the authority given to Simon related to freight business.

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Sara, George and Mary are liable to accept the storage drive ordered by Simon, because the act
of joint liability bounds them and Sunstar were not aware of internal limitation breached by
Simon. But the transaction of Simon with You Beaut Ute Ltd was not at all in the business scope
of partnership agreement so only Simon can be liable but not George, Sara and Mary.

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 Bibliography
Pentony, B., Stephen, G., Parker, D., & Whitford, K. (2012). Understanding business Law. Sydney: Lexis
Nexis.

CSU LAW504 Modules, 2015

Cases:

Watteau v Fenwick [1893] 1 QB 346

Christie v Harcourt [1973] 2 NZLR 139

Bentley v Craven [1853] 52 ER 29

Mercantile Credit Ltd v Garrod [1962] 3 ALL ER 1103

Statute:

Partnership Act 1892 (NSW)