Finished Flooring Ltd., a principal, arranged the agency relationship with Lumber Agents Ltd., an agent, to find the supply of the hardwood for its new product line. According to the agreement between the principal and agent, Lumber Agents Ltd. received the profit in relation to the flat commission rate based on the lumber purchased. However, Lumber Agents Ltd. also received the profit from those wood processing mills with which the supply contracts were arranged because of charging the mills a fee. Having discovered the fact, Finished Flooring Ltd. took legal actions against the agent. In this case, Finished Flooring Ltd. is the plaintiff, and Lumber Agents Ltd. is the defendant.
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The argument of Finished Flooring Ltd. as the plaintiff is based on the fact that the agent, Lumber Agents Ltd., violated the principles of the agency relationship, and the company enriched itself from the fact of agency without focusing on the agreement between the principal and agent. Moreover, the interests of the agent were put higher than the interests of the principal, and the agent’s actions caused damage to the reputation of the principal because of the fact the principal contacted with the third party as a result of the agent’s unfair actions in relation to receiving the double profit. Furthermore, the principal Finished Flooring Ltd. paid for the services provided by the agent Lumber Agents Ltd. according to the details of the agent-principal agreement and according to the principles of the agency relationship. Having followed the details of the agent-principal agreement, the Finished Flooring Ltd. as the principal can expect the definite compensation from the agent. The illegal actions of Lumber Agents Ltd. can cause the possibility of the principal’s being liable to third parties for the actions which were not fixed in the agreement between the principal and the agent. Thus, as a result of violating the agreement, the agent becomes also liable to the third party for charging a fee.
The defendant argument can be based on the fact that the actions of Lumber Agents Ltd. are caused by the necessity to guarantee receiving the profit from providing the principal with the definite service because according to the agreement, the agent can receive the profit only in relation to the flat commission rate based on the quantity of lumber purchased. From this point, the profits of the agent are dependent on the particular features of the agreement between Finished Flooring Ltd. as the principal and several wood processing mills as the third party.
The agent should inform the principal about all the changes in following the agreement, and all the agent’s action should be realized according to the terms of the agency agreement. The fact is the contract negotiated by Lumber Agents Ltd. as the agent and several wood processing mills as the third party binds the principal in the contract with the third party, but the aspects of the contract according to which Lumber Agents Ltd. charges the mills a fee violate the agreement between the principal and the agent. Thus, Lumber Agents Ltd. as the agent is liable to indemnify Finished Flooring Ltd., the principal, for breaking the principles of the agreement between the agent and principal, for engaging in self-dealing with the purpose to gain the double profit, and for acting without the actual authority in the situation of chagrining the mills a fee.