Question 2 – Agency Max is an accountant and runs Max’s Accounting Services. Max

Question

Question 2 – Agency       

Max is an accountant and runs Max’s Accounting Services. Max hires Fleur to undertake taxation work for Max. As the owner, Max is in charge of making all purchases for the business.

Fleur needs specific software to perform her taxation work. Max is not available, so Fleur decides to go to IT World. At IT World, Fleur talks to Carl, and hands Carl her business card. Fleur purchases a software package for $5,000 on behalf of Max’s Accounting Services.

When Max receives the invoice for the software package, he is not happy. Max calls IT World and says that he has not given Fleur authority to purchase items for the business. Carl from IT World argues that he was under the impression that Fleur had authority, and the contract is valid.

Using relevant legal principles, discuss whether Max is correct – does Fleur have the authority to enter the contract for the software package on behalf of Max’s Accounting Services? Who will be responsible to pay IT World?

Explanation / Answer

Fleur is an employee in Max’s Accounting Services. Max is an accountant and running the firm. He is in charge of making all purchases for the business.

When somebody incorporates a business legally it is having its separate identity, means no one can sign a contract in its personal capacity except authorized representatives.

Fleur is in no capacity to sign a contract with the third part, Fleur had represented the firm and not gone to purchase the specific software on her personal level.

As she had purchased on behalf of the firm it was binding on the salesman Mr. Carl to see her authority, or whether she had been issued any power of attorney to purchase in a specific instance. As in this case, Max was unavailable.

Max is correct as he has not given any authority to fleur written or inclined. Mr. Carl has done the sale in good faith, but negligence. As the purchase is done on the firm's name it was his duty to ask for authority letter or power of attorney to satisfy himself that he is making the contract that will be binding the company.

The fault is on the part of Fleur and Carl both in certain cases a misguided employee may sign a contract on behalf of the company without permission, and this can lead to legal hassles, and Carl is guilty of negligence, as a salesman he should know that an employee without authority cannot make and sign a contract on behalf of the legal entity that is the business (Firm)

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.