Legal Advice for Frank

The assignment content discusses the legal advice for Frank in two scenarios where Gemma sells a dishwasher to her niece without informing Frank and Bob enters into a contract with Angela while having express authority. The key concepts include agency law, principal-agent relationship, fiduciary duties, and common law. It is concluded that Frank can sue Gemma for breaching fiduciary duties and recover the damage of $50, while Frank is bound to complete contractual obligations with Angela due to Bob's express authority.

BUSINESS LAW
Assignment
Student id
[Pick the date]

Question 1
Issue
The central issue in the present case is to offer a legal advice to Frank in the given two scenarios.
 When Gemma has sold a dishwasher for $300
 When Bob has entered into a legal contract with Angela
Law
Agency is a special type of agreement between the two parties where one party called as
principal has extended some legal authority to other party called agent to create legal contract
with the third party on behalf of the principal. Hence, it can be said in agency law mainly three
parties are involved i.e. Principal, agent, third party (Pont, 2008). When agent with sufficient
authority has enacted a contract with the third party, then in such cases the contractual obligation
becomes binding on the principal. The principal is liable to fulfill the contractual duties for the
third party only when the agent who has enacted the contract with the third party has the
requisite authority (Cassidy, 2013). If any of the below highlighted authority exists with the
agent, then the contractual liability is valid on principal.
 Customary / Actual authority (Express – Implied authority)
 Authority of necessity
 Ostensible/apparent authority
 Actual authority
1

When the principal has extended the authority to agent in written form or in oral form, then it
would be termed as express authority. Further, when the principal does not actually express the
authority but has extended the position/designation/ title to perform some work, then in such
cases it has been assumed that agent has the authorization to perform the work on behalf of the
principal (Edlin, 2007). The leading case in this regards is Watteau v Fenwick [1893] 1 QB 346
case.
In such cases, it is essential that the respective principal has informed the third parties regarding
the level of authorization of the agent (Harris, 2014).
 Ostensible/apparent authority
In such authority, the principal does not aim to give authority to agent but due to his action the
third party assumes that the agent has authorization. The conduct represents that the agent has
legal authority to enact the contract with third party and hence in such cases, the contractual
obligation is applicable on principal. Freeman & Lockyer v Buckhurst Park Properties [1964] 1
All ER 630 case is the testimony of this aspect (Pathinayake, 2014).
 Authority of necessity
The agent has performed some acts with the third party in order to protect the interest of the
principal. The judgment given in Great Northern Railway Co. v Swaffield (1874) LR 9 Ex 132
case is the example of agency of necessity.
When any of the above authority is not extended by the principal to the agent, then in such cases,
principal is not liable to complete the contractual obligation with the third party. The Yonge v
Toynbee [1910] 1 KB 215 case is the testimony of this.
2

There are some duties of the fiduciary parties of the agency relationship which are furnished
below (Pont, 2008):
Duty of agent towards the principal
 Follows the instruction of principal
If not then the principal has legal rights to recover the damages from agent or sue agent)
 Fiduciary duty
It is pivotal that agent’s conduct must indicate good faith of the principal. The main factors are
shown below (Harvey, 2009):
 If it has been found that agent has made contract for his own interest, then principal can
sue agent and claim for damages as given in Christie v Harcourt [1973] 2 NZLR 139
case.
 Agent is not supposed to make secret profit on behalf of principal as highlighted in
Bentley v Craven (1853) 52 ER 29 case.
 Misuse of confidential information by the agent as per Robb v Green [1895] 2 QB 315
case.
If the agent has breached the fiduciary duties, then principal has the rights to sue the agent and
recover the losses. It is noteworthy that when the principal has not informed the third party
regarding the withdrawal of any authority from the agent and the agent has enacted the contract
with the third party, then in such cases the interest of the third party would be protected under
common law. Also, the principal is liable to satisfy the contractual obligations directed towards
3

the third party. If principal denies doing so, then the third party can sue the principal or claim for
the damages (Edlin, 2007).
Application
Case 1:
It is apparent from the case facts that Frank (the “principal”) has appointed Gemma as a
salesperson for his shop. Gemma is working as a sales agent for Frank which means she has the
authority to sell the appliances to customers on behalf of Frank. Also, Tom is the customer who
is ready to buy a dishwasher for $350 has informed Gemma about the same. However, Gemma
has called her niece and has sold her dishwasher for $300. She does not inform Frank about this
case and later on Tom has informed about the same to Frank. It can be seen that Gemma’s has
conducted the work for personal interest and has breached the fiduciary duty. Therefore, Frank
can recover the damage of $50 from her.
Case 2:
It is apparent that Frank has authorized Bob to sell washing machines and to enact contract with
laundries. However, due to Bob’s late coming and drinking habit, Frank has fired Bob from job.
Further, Frank has forgotten to inform the third party Angela regarding the withdrawal of duties
from Bob. Hence, Angela was not aware that Bob does not have the requisite authorization and
hence, she enacted the contract under good faith thereby transferring $10,000. Also, it is
noticeable that Bob has the express authority to act according to Angela. Therefore, Frank has to
complete the contractual responsibility or else Angela can sue him for breaching the contract.
4

Conclusion
It can be concluded from the above that Frank can sue Gemma for breaching the fiduciary duties
and working for furthering her own interest. Hence, Frank can recover the damage of $50 from
Gemma. In second case, Frank does not inform Angela regarding the withdrawal of authorization
from Bob. Therefore, Frank is bounded with the contractual obligations with Angela which was
entered by her in good faith.
5

Reference
Cassidy, J. (2013). Corporations Law Text and Essential Cases (4th ed.). Sydney: Federation Press.
Edlin, D. (2007). Common law theory (4th ed.). Cambridge: University Press Cambridge.
Harris, J. (2014). Corporations Law (2nd ed.). Sydney: LexisNexis Study Guide.
Harvey, C. (2009). Foundations of Australian law (2nd ed.). Prahran, Vic.: Tilde University
Press.
Pathinayake, A. (2014). Commercial and Corporations Law (2nd ed.). Sydney :Thomson-Reuters.
Pont D.E.G. (2008) Law of Agency (2nd ed.). Sydney: Lexis Nexis Butterworths.
6