Reference no: EM133211930

Monster Road Equipment Inc, a Canadian company headquartered in Winnipeg, has been very successful in the Australian market. Exports of its heavy road-building equipment have been increasing at a very healthy rate. However, the constant travel to Australia to attend to the marketing and sale of its products has taken its toll on the marketing manager of Monster and is diverting too much time from the company's North American operations and the development of other overseas markets. Monster decides to appoint an agent in Australia so that it can continue to expand its market in Australia while reducing the need for its employees to travel there. Monster identifies a suitable individual in Sydney, a Mr Foster. The average cost of a single unit of Monster equipment is Cdn$100,000. Wanting to authorize Mr Foster to make contracts on Monster's behalf but not wanting to authorize him to make commitments that would unduly stretch the company's resources, Monster decided to limit Mr Foster's authority to contracts having a value of less than Cdn$400,000 and that contain certain provisions for the benefit of Monster. The agreement between Mr Foster and Monster provided for these limitations. Mr Foster had been Monster's agent for more than two years, and the relationship had been very satisfactory to both sides, when Mr Foster was approached by Outback Construction Co, which had just been awarded a contract to build a new highway to Alice Springs. Outback required a number of specialized units to complete the job and negotiated a contract with Mr Foster for eight units at a total cost of Cdn$824,000. Mr Foster executed the contract on Monster's behalf, notwithstanding that it did not comply with Monster's agency agreement with Mr Foster.

Mr Foster was delighted that he had obtained such a la rge order, but Monster was already operating at peak capacity and was unable to deliver the units to Outback on t ime. The result was that Outback fell behind in its contractual obligations to complete the new highway on time and sued Monster for breach of contract- that is, failure to perform to agreed-on deadlines. Monster defended the case on the basis that t here was no contract, because Mr Foster had exceeded his actual authority in agreeing to such a large order. Monster took the position that Mr Foster was solely responsible for the damages for breach of contract because he knew about the limitation in the agency agreement.

In this case, Outback would likely succeed in its claim for damages against Monster, because Mr Foster was acting within his apparent authority and Monster had done nothing to inform Outback, as a third party, of the limitation of authority. Monster would have a good chance of suing Mr Foster successfully for breach of a condition of the agency agreement, but Mr Foster might not have the resources to pay a large judgment. What do you think Monster could have done to avoid this unfortunate situation?