Contract Law: Essentials and Applications

This assignment delves into the core principles of contract law. Students will examine various contract types, delve into the legal framework governing contracts, and explore how contract law applies across different sectors like logistics, corporate governance, and international trade. The assignment emphasizes both theoretical understanding and practical applications, requiring students to analyze case studies and legal scenarios.

Legal Aspects of
business
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TABLE OF CONTENTS
Introduction......................................................................................................................................3
Main part..........................................................................................................................................4
Types of agent authority based on the consent............................................................................4
Types of agent authority not based on the consent......................................................................7
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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INTRODUCTION
Agency in English law is a vital part of commercial law which describes necessary norms
for the smooth functioning in business entities. Legal relationship between agent and principal is
governed as per the agency agreement and legal regulation (Forstenlechner and Lettice, 2008).
Agency law is important because it provides description about the rights and duties of principal
as well as agent in order to promote fairness and prevent unfair actions.
In legal terms, agency can be defined as consensual relationship between two parties. In
this relationship, principal provides authority to their agent to act on their behalf while dealing
with the third party. This relationship is fiduciary in nature and supported by contractual norms.
Main features of agency are agreement, implication (based on the practices of custom and trade)
and conduct of the principal (Goldman, 2013).
Agreement of agency creates relationship between three parties i.e. agent, principal and
third party. Therefore, agency agreement deals with the three different relationships: between
agent and principal, principal and third party as well as agent and third party.
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Illustration 1: Agency relationships
(Source: )

Present study is focused on the evaluation of different types of agent authority by
considering the aspect of presence and absence of consent. Study will include the description of
types of authority with its main features. This evaluation will be supported by previous case laws
for the better understanding (Kantarelis, 2008).
MAIN PART
In accordance with the provisions of agency law, agents are required to act within the
scope of authority that are conferred by their principal (Klass, 2010). This authority creates
obligation for the principal for the actions of agent with the third party (Lockwood, 2011).
Mainly, there are two types of authority in agency on the basis of consent of parties.
Types of agent authority based on the consent
Actual express authority
Definition and main features
Actual express authority can be defined as the power of agent to act on the behalf of
principal (Forstenlechner and Lettice, 2008). This authority is expressly granted through the
agreement of agent and principal. This authority may be general or special in nature. Actual
authority is said to be exist in situation where words of principal is the rational cause of belief
that agent is empowered to do such act. This authority can be provided in either oral or in a
written manner (Manuel, 2011). In accordance with the provisions of agency law, written
authority is comparatively preferable. It is because; there is absence of evidence in verbal form in
situation of dispute.
Scope of actual authority can be determined through oral and written agency agreement
of principal and agent. In addition to this, custom of relevant trade and course of dealing in
particular profession can also be considered (McKendrick, 2015). Use of actual express authority
by agent creates contractual rights and obligations between third party and principal. For the
better understanding of actual express authority, following cases can be considered:
Cases Ireland v Livingstone [1872] LR 5 HL 385: In this case law, Livingston who is a
principal and Ireland, who is an agent, had decided for the procurement of 500 tons of
sugar for shipping of maximum number of place in UK. This procurement can be reduced
or increased by the margin of 10%. However, in the market of Ireland, procurement of
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500 tons was next to impossible (Forstenlechner and Lettice, 2008). Due to this aspect,
Ireland had shipped 400 tons to Livingston which was rejected by him. In this case
scenario, main issue was the obligation of Livingston for the acceptance of sugar
provided by Ireland. By considering the provision of actual expressed authority, court had
held that Livingston is obliged for the acceptance of sugar procurement sent by Ireland
(Morris, 2010). It is because, agent has actual authority for the applicability of reasonable
interpretation in their agency agreement. On the basis of this provision, judicial party had
said that 500 tons were not available in the market, it was reasonable to make assumption
of supply of 400 tons for the procurement by Ireland.
 Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC
741: According to the facts of this case, contract of sale has been made by parties for
coffee beans. Consideration of this sales was required to be payable in pound sterling.
However, selling party had made mistakenly stated that consideration will be payable in
Kenyan Shillings (Olander and Norrman, 2012). At the time of contract, value of the both
currencies were equal due to which buyer had accepted the delivery and invoice without
making any objection. However, after some time, there was drastic reduction in the value
of pound in relation to Kenyan Shilling. As a consequence, buyer sought to revert to
pound sterling stated in the contract. In this case situation, court had held that acceptance
of invoice by buyer will be considered as an implied and unambiguous promise for the
acceptance of stated terms (Forstenlechner and Lettice, 2008).
In accordance with the cited case description, it can be said that expressed actual
authority is formed by the conduct or words of the principal (Ranking, 2010). This aspect
provides authority to agent to act on the behalf of their principal with third parties. Further,
principal are bounded by the act of agent and as a consequence they are required to accomplish
their contractual obligation and can assess their rights (Rosly, 2010).
Implied actual authority
Definition and main features
Implied authorities are not expressly defined or stated by principal in a written manner
but this authority is assumed for possession in order to conduct business activities. In situation,
where agent acts on the basis of implied authority then scope cannot be specifically determined
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as it will vary in accordance with the circumstances (Tomasic, 2011). Implied actual authority is
said to be exist in situation where conduct of principal is described the authority of agent.
Implied actual authority can be defined as an authority established other than words of
the principal (Twigg - Flesner, 2013). This authority is considered by individual for the
completion or conduct of their expressed authority provided by principal. Such authorities are
established by the virtue of position of agent. For this aspect, example of partnership agency can
be considered (Weiss, 2003). All the partners have authority to bind other partners as well as
business entity through their decision and actions.
Cases Hely Hutchinson v Brayhead Ltd: It is a company case law based on the provision of
agent authority for conduct in a company. In accordance with the case facts, defendant
(Lord Suirdale) had sued Brayhead Ltd for the losses that are occurred due to deal of
takeover. In this case, CEO and MD of the company had provided guarantee for the
indemnification of losses in against of injection of money in company of defendant (Zoll,
2012). On the basis of this guarantee, company of defendant was acquired by Brayhead
Ltd but due to non-recovery of cost, company went into liquidation. In this case, claimant
refused for the payment of losses by stating that CEO and MD do not have authority to
make guarantee. By considering this case scenario, court of law had held that directors
have implied actual authority to make decision regarding business as per the provision of
course of dealing in contract law. Judgement of this case was supported by facts of
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd.
Critical analysis explaining overlap of implied actual authority with usual authority
In various case scenarios, there is contradiction between implied actual authority and
usual authority. Generally, in such situation of contradiction, implied actual authority overlaps
usual authority (Hersch and Viscusi, 2014). It is because, in other terms implied actual authority
is known as usual authority and due to which both the terms get overlapped on each other.
Moreover, it has been criticized by some of the justice that this cannot be overlapped with each
other because. Implied actual authority is one which is described with the conduct of principal
(Twigg - Flesner, 2013). Whereas, usual authority is used to happen in a situation where agent
perform his duty in order to make his or her performance in an effective manner. While at the
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most of time there is a contradiction of implied actual authority with that of usual authority.
While, many times both the authorities are misrepresented by the people (Zhang, 2013).
 Rosenbaum v Belson [1900] 2 Ch 267: This case acts as a support for this criticism. In
this case, Plantiff hired an agent for selling his house and accepted that he will pay 2.5%
on the purchase price (Forstenlechner and Lettice, 2008). Through this, it gave an
authority to agent to make a binding contract which also included authority to sign an
agreement for sale. While, the question arises that it implied the authority to sign the
agreement of sale but it does not provided a clear and detailed information. Whether, it is
an implied actual authority of an agent or usual authority of an agent (Goldman, 2013).
Types of agent authority not based on the consent
Apparent authority
Definition and main features
This authority can be defined as a situation where a reasonable person should understand
that an agent had authority to act on the behalf of principal (Contracts, 2015). It means that a
principal is bound by the agent's actions even if the agent has no actual authority in terms of
express or implied. Moreover, it is a power to act on the behalf of another person till the certain
element exists. For instance, John wanted to purchase a car and he has been reached by Angelo,
who takes on the dealer, show him the car, take on the test drive and finalize the deal. This
makes them John understand that Angelo is a salesperson (Kantarelis, 2008).
Therefore, apparent authority makes the reasonable person or third party believe that
agent is working on the behalf of principal (Klass, 2010). Further, this can also be described as
an agent's power to act on behalf of a principal and this power arises only when a third party
inferred that principal has granted such power to the agent. Some of the features of this authority
is that agent possess the power to act on the behalf of principal and this power has been granted
by the principal itself (Lockwood, 2011). Moreover, the power can be given by employer by
providing an agent with the material that are stationery, forms, truck with company logo so that a
reasonable person could think that the person has an authority to act for the company.
There are basically three conditions which are to be met out in order to fulfil the apparent
authority (Busch, 2002). Three cases are discussed as follows:
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 First of all to become agent and fulfil this authority, a statement should be duly signed by
the principal (Hersch and Viscusi, 2014). It can be further explained that a principal
should state or conduct that agent has been appointed by him/her in regards with the sale
of goods. Without the statement or conduct by the principal, an agent cannot get the
power to act on the behalf of principal (Twigg - Flesner, 2013).
 Secondly, the condition is that the statement which has been provided to the agent must
induce third party to believe that agent has been authorized to carry out the act (Manuel,
2011). This means that, an agent should possess such evidence which can influence third
party or customers to believe that agent has the power to act on the behalf of principal.
For this purpose, an employer should provide the agent certain material, stationery, truck
with the logo of company, or letting him work out of the company. These things act as an
evidence which persuade third party that agent has been authorized enough to act on the
behalf of principal (McKendrick, 2015). Lastly, the third condition is that third party should be a reasonable person and must be in
good faith at the time of believing that the agent has been authorised to carry out the act.
Moreover, if person would not believe that the agent is an authorized person till than the
apparent authority could not be carried out (Morris, 2010). Thus, it can be said that until
and unless person will be in good faith, till than this condition will not be fulfilled than
there cannot be any fulfilment of apparent authority.
Cases
 The case of Freeman can provide support to this type of agent authority. This case was
fought between Freeman and Lockyer v Buckhurst Park Properties. In the year 1964, the
corporate director of Buckhurst employed the architectural firm of Freeman and Lockyer
on the behalf of company. The director employed the Freeman's firm in order to develop
plans for developing a property held by the company. Unfortunately, development failed
and due to which the company does not paid the architectural company for the rendered
services (Olander and Norrman, 2012). In return to that, Freeman and Lockyer filed a suit
against Buckhurst Company. During the lawsuit, court found that director had no actual
authority to hire plantiffs, the act was within his apparent authority and due to which act
was binding on the company.
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While, this authority is considered to be beneficial for the company whereas, in some
cases, this authority might create problems for the company. The problem related to this
type of agent can be explained by taking support from the case of Overbrooke Estates Ltd
v Glencombe Properties Ltd. In this case, the agent of Overbrooke hired an agent and on
the behalf of company auctioneer sold the properties to Glencombe. The agent stated that
The Local Authroity and Greater London Council has no plans for the said property while
in Condition R(b), it was mentioned that Auctioneers do not have any authority and do
make or give any representation or warranty in relation to the property (Ranking, 2010).
During the purchase process, Glencombe discovered that property might become subject
to a slum clearance scheme and due to which he refused to purchase and for that purpose,
Overbrooke sued the Glencombe for the partuicular performance. In return to that
Glencombe counterclaimed. During the court case, it was found that there was
misrepresentation of the statement under the section 3 of the Misrepresentation Act 1967.
Thus, it can be made clear that there is a problem of misrepresentation by the agent in the
case of apparent authority (Rosly, 2010).
Usual authority and necessity
Definition and main features
Usual authority is the authority of an agent who is acting on the behalf of another person
or an entity. This type of agent does what is reasonably required in order to perform his duty in
an effective manner (Tomasic, 2011). Furthermore, it can be explained that this authority is not
specifically expressed or defined in written format but in actual, it is that authority which an
employee or agent assumes to possess for conducting business on the behalf of an agency. Usual
authority is also known as implied authority. For instance, David visited a bar and there, a waiter
told him that free drink will be served if he orders any entree. This offer was communicated to
him in an oral format on the behalf of the bar (Twigg - Flesner, 2013). Thus, David assumes that
waiter has an authority to offer drink as he is an employee of the bar and acting on the behalf of
the owner. Thus, it was usual authority of waiter which was not expressed by the owner and it
was done in order to perform his duty in an effective manner (Weiss, 2003). Moreover, the
content of usual authority depends on the fact of cases and it is determined by the usage and
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customs of a trade, business or profession. Main feature of this kind of agency is that the
authority is not expressed in fact it gets arisen as per the situation.
Cases As per the case of Watteau v Fenwick, usual authority can be explained. In this case,
Watteau usually supplied cigar to the Beer house Victoria which was operated by the
Humble (Zoll, 2012). Later, he assigned this business to the Fenwick and company. This
company has not given any right to the Humble to act on his behalf. Therefore, palntiff
was unaware the relationship of Humble and Fenwick company. Therefore, when
Wattaeau was not paid 25 pound from Humble, he sued the Fenwick. Moreover, the case
was fought and result came out as it was the implied duty of Humble to pay the amount
for cigar which he had received for the Victoria Company (Tomasic, 2011).
Overlapping of usual authority with express implied and with apparent authority
Usual authority is basically refers to as the implied authority because usual authority is
one which comes out according to the situation (Hersch and Viscusi, 2014). Thus, it can be said
that usual authority overlaps with implied authority. Moreover, usual authority overlaps the
apparent authority because whatever is the duty of agent which has been powered to the agent
that can be overlapped by the usual authority. Further, this authority cannot be overlapped with
the express authority because in usual authority, statement cannot be in the written format
whereas in express authority, statement is assigned in a written format (Zhang, 2013).
CONCLUSION
After preparing this report, it can be concluded that it is very important to understand the
legal aspects of business. It is because in order to perform business activities in a smooth and
efficient manner. If, these aspects are cleared, then company could not face any legal actions on
account of their suppliers and buyers. Moreover, the types of agents without the consent get
overlapped with the usual authority because such situations get arise. Further, the apparent
authority is the most important authority which is normally required in the case of principal -
agent relationship. For this purpose, agents have to fulfil three conditions in order to perform the
apparent authority.
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REFERENCES
Books and journals
Busch, D., 2002. The Principles of European Contract Law and Dutch Law:A Commentary.
Kluwer Law International.
Forstenlechner, I. And Lettice, F., 2008. Well paid but undervalued and overworked: The highs
and lows of being a junior lawyer in a leading law firm. Employee Relations. 30(6). pp.
640–652.
Goldman, A., 2013. Business law: Principles and Practices. Cengage.
Kantarelis, D., 2008. Internalization of costs, liability and negligence, performance and reliance.
International Journal of Law and Management. 50(6). pp. 274–284.
Klass, G., 2010. Contract Law in the USA. Kluwer Law International.
Lockwood, G., 2011. The widening of vicarious liability:implications for employers.
International Journal of Law and Management. 53(2). pp.149–164.
Manuel, M. K., 2011. Contract Types: An Overview of the Legal Requirements and Issues.
DIANE Publishing.
McKendrick, E, 2015. Contract Law. Palgrave Macmillan.
Morris, J. R., 2010. The teaching of law to non‐lawyers:An exploration of some curriculum
design challenges. International Journal of Law in the Built Environment. 2(3). pp.232-
245.
Olander, M. and Norrman, A., 2012. Legal analysis of a contract for advanced logistics
services. International Journal of Physical Distribution & Logistics Management. 42(7).
pp.673–696.
Ranking, F. D., 2010. Mercantile Law. BiblioBazaar.
Rosly, A. S., 2010. Shariah parameters reconsidered. International Journal of Islamic and
Middle Eastern Finance and Management. 3(2). pp.132-146.
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Tomasic, R., 2011. Company Law Modernisation and Corporate Governance in the UK-Some
Recent Issues and Debates. DICTUM-Victoria L. Sch. J. (1). 43.
Twigg-Flesner, C., 2013. The Europeanisation of contract law: current controversies in law.
Routledge.
Weiss, M., 2003. Contract and industrial relations: the German case. Managerial Law. 45(3/4).
pp. 163-174.
Zoll, F., 2012. The binding power of the contract: Protection of performance in the system of the
Common European Sales Law. Journal of International Trade Law and Policy. 11(3).
pp. 259–265.
Online
Contracts. 2015. [Online]. Available through
<http://www.inbrief.co.uk/contract-law/contracts.htm>. [Accessed on 11 January 2016].
Hersch, J. and Viscusi, K. W., 2014. Assessing the insurance role of tort liability after calabresi.
[Pdf]. Available through: <http://scholarship.law.duke.edu/cgi/viewcontent.cgi?
article=4402&context=lcp>. [Accessed on 11 January 2016].
Zhang, M., 2013. Tort Liabilities and Torts Law: The New Frontier Of Chinese Legal Horizon.
[Pdf]. Available through: <http://rjglb.richmond.edu/wp-content/uploads/2013/03/rgl_10-
4_zhang.pdf>. [Accessed on 11 January 2016].
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