Introduction to Business Law

This document provides an introduction to business law, focusing on the topics of agency and ostensible authority, as well as misrepresentation in contracts and consumer law. It discusses the definition and types of authority in an agency relationship, with a case example. It also explains the concept of misrepresentation in contracts and the obligations of sellers under consumer law. References to relevant cases and legal resources are provided.

Running Head: BUSINESS AND CORPORATION LAW 0
Introduction to Business Law
5/15/2019
Student’s Name

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Question (a)
Agency is a trustworthy relationship between two people where a person acts on behalf of others.
The person who acts is called as an agent and the other person to whom behalf an agent act is
known as the principal. Here to state that an agent has various powers as the same can enter into
a contract, can receive and make representation and statement, can pay and receive money on
behalf of the principal. Under an agency relationship, various types of authorities are there.
Ostensible authority is one of them, which is also known as an authority by estoppel or apparent
authority. Ostensible authority refers to a situation where an outsider believes that a person has
the authority to act as an agent on behalf of another person (principal). Such belief of the third
party must come out by words or conduct of principal and this dummy authority is ostensible
authority. It means the representation must be by the principal (Kershaw, 2012). In such a
situation, a principal becomes responsible for the act of an agent to the outsiders/third party by
the virtue of ostensible authority if the outsider do something in reliance of ostensible authority.
Here this is necessary to mention that ostensible authority exists in those cases where actual
authority does not exist. Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630
is an important case to discuss here. In this case, the board of directors of a corporation
knowledgeably presented its one of the directors to perform as managing director on many
events, whereas in actual he was not appointed on this position. Later on, the director entered
into a contract with third parties. Court held the company liable as a principal for the conduct of
director and provided in reasoning that the company represented as the same had authority to act
as managing director and therefore the third party came into this belief and entered into a
contract (Webstroke.co.uk, 2019).

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The other rule of this authority is that a third party cannot bind the principal in this situation
where the same has knowledge of the fact that the agent has no authority. Law recognizes
ostensible authority in order to provide justice to innocent third parties that know nothing about
the authority level of an agent. Under an agency relationship, the principal decides the authority
of the agent and therefore the party cannot check what and how much authority an agent has.
Imagine a situation where an outsider does a transaction with an agent believing on ostensible
authority and later on find his/herself unable to held principal liable for the same. Such a
situation seems to be very unjustified for third parties. In cases of ostensible authority, the third
party does a transaction with an agent, believing in the representation of principal and therefore
the law should protect their interest. This is the reasons because of that law give legal force to
contract that is created by or with agents who have apparent authority.
Question (b)
A contract is a legally binding agreement between parties that outlines the rights, liability of
parties, therefore such contract should be developed carefully, and parties should not hide
anything from each other. Misrepresentation is a situation under contract where a party makes a
false statement of law or fact to another party with the intention to induce such other party to
enter into a contract. In cases of commercial contracts, such kinds of statements are very
common. For the existence of misrepresentation, it is necessary that there must be a false
statement of law or fact. It is given in the case of Smith v Hughes (1871) LR 6 QB 597 and
Walters v Morgan (1861) 3 DF & J 718 that silence of a party cannot be treated as
misrepresentation. It means if a party is silent about a fact, which is not true, then another party
cannot bring an action of misrepresentation against the previous party. In other words, this is to

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say that in general party of a contract is not required to mention a fact if the same is not required
to do so under law.
This is about commercial contracts under contract law but Austrian Consumer law also states
liability of parties in commercial transactions and while developing any contract with a
consumer, sellers are required to consider provisions of ACL in addition to contract law.
According to section 18 of ACL, a person must not be a part of deceptive or misleading conduct
while performing trade or commercial activity such as advertisements, commercial agreements,
and other commercial negotiations. In general, passing wrong or misleading information is
treated as misrepresentation. Further facts about the future that are not correct also seem to be
misleading. In order to discuss silence as misleading conduct, this is to state that in some
circumstances silence can also be treated as misleading under ACL. There are some transactions
where it becomes the responsibility of the seller to disclose certain facts or matter. In such a
situation if the seller remains silent then his/her such conduct is treated as misleading and
deceptive. If a party wants to seek relief on this ground then the same is required to prove that
the other party had an obligation to disclose certain matters as they could assist to the innocent
party (consumer). This rule work on the principle that says hard bargaining is a commercial
reality and if parties entered into a contract voluntarily then there must be enforceable and valid
agreement. In order to conclude the discussion on this topic this is to state that under ACL,
silence can be regarded as misconduct in all those situations where it becomes the liability of the
seller to disclose some facts and he/she fails to do so (Legalvision.com.au, 2018).

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References
E-Lawresources.Co.Uk. (2019) Misrepresentation. [online] Available from: http://e-
lawresources.co.uk/Misrepresentation.php [Accessed on 15/05/2019]
Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630
Kershaw, D. (2012) Company Law in Context: Text and Materials. UK: OUP Oxford.
Legalvision.com.au. (2018) A Guide to Misleading or Deceptive Conduct. [online] Available
from:https://legalvision.com.au/guide-misleading-or-deceptive-conduct/ [Accessed on
15/05/2019]
Smith v Hughes (1871) LR 6 QB 597
Walters v Morgan (1861) 3 DF & J 718
Webstroke.co.uk. (2019) Freeman and Lockyer v Buckhurst Park Properties [1964]. [online]
Available from: https://webstroke.co.uk/law/cases/freeman-and-lockyer-v-buckhurst-park-
properties-1964 [Accessed on 15/05/2019]