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?