Compensation Claim Against Airbus and Liability of Frank as Principal

The assignment content discusses two legal issues: the first is a technical failure by Airbus airlines that led to a breach of warranty and entitles Qantas to claim compensation. The second issue involves Frank's liability regarding washing machines sold to Angela through Gamma, his salesperson. It is established that Gamma committed fraudulent misrepresentation, inducing Frank to sell the dishwater at $300 instead of $350. As a result, Frank can claim compensation from Gamma. Additionally, it is determined that Frank is liable for the contract with Angela regarding the washing machines, and he must deliver them, although he may claim compensation from his agent, Bob.

Running head: BUSINESS LAWS
Business Laws
Name of the student
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Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................5
Reference List..................................................................................................................................9

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Question 1
Issue
Whether Qantas Airlines Ltd (Qantas) is entitled to claim compensation from Airbus Corporation
Ltd (Airbus)
Rule
A valid offer and acceptance is necessary to form a contract and are two of the most
essential elements to make it enforceable in the court of law. Another essential element of a
contract is legal intention of the parties to become legally bound by the contract as was held by
the court in Harvey v Facey [1893. The person making an offer is known as the offeror and the
person accepting it is the offeree. When the offer is made to the offeree, the offeree must accept
the terms of the offer as it is offered and cannot incorporate any additional or new terms. After
the formation of the contract, both the parties to the contract becomes legally bound by the
contractual terms as was held in Riches v Hogben [1986.
In case, the offeree incorporates any additional or new terms to the offer made by the
offeror, it would amount to a counter offer, which implies that the original offer shall become
invalid as was ruled in Hyde v Wrench [1840. The parties to the contract may include an
exclusion clause to limit the contractual liability of either party to the contract. An exclusion
clause refers to the terms that limits the liability of a party to a contract provided such clauses are
explicitly expressed incorporated into the contract. In L’Estrange v Graucob [1934] 2 KB 394, it
was ruled that if an exclusion clause was incorporated into a written contract it shall be effective
even if either party is unaware of such inclusion.

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In Chapelton v Barry Urban District Council [1940], for a contract to be considered as
valid, it is sufficient that the offer proposed had been accepted validly and is legitimate.
However, the party incorporating the exclusion clause must inform the other party about such
inclusion otherwise the exclusion shall not be considered as a valid contractual term. In
Thornton v Shoe Lane Parking Ltd [1971], the court held that if an exclusion clause is
detrimental to the other party who is unaware of such inclusion, the party must notify the
ignorant party about such clause otherwise the clause shall be rendered as invalid.
A condition is a contractual term, which may be immediately repudiated on its
infringement by the party who is affected by such infringement, and the aggrieved party becomes
entitled to claim compensation from the party committing such infringement. The court shall
grant damages to the aggrieved party in the form of compensation for all the losses sustained due
to such breach of the contractual term. The compensation amount is determined to restore the
parties to the position as they were before the violation of the condition.
A warranty is a term of a contract that prohibits the aggrieved party to repudiate the
contract neither the contractual liability can be exempted. A warranty is not considered as an
essential term of the contract as it does not form the subject matter of the contract. In case, either
parties to a contract fails to act in compliance with the warranty stipulated in the contract, the
aggrieved party might claim compensation for the damages sustained due to the breach of the
warranty.
Application
As per the given case, the both the Airbus airlines and Qantas Airlines have agreed on the
545 terms that have been incorporated into the contract. This establishes the fact that the

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companies have entered into a contract as the agreement between the parties with respect to the
contractual terms implies there has been a valid offer and acceptance. Hence, the parties to the
contract are legally bound by the contractual terms. Airbus provided several documents to
Qantas that also included liability clause, which was originally not included in the original
contract. According to the liability clause, the contractual liability of Airbus is restricted to
$300000 and as discussed above, an exclusion clause may be incorporated in a contract.
However, as held in Thornton’s case, the incorporation of any exclusion clause must be
notified to the ignorant party by the party incorporating such clause for the clause to be valid. In
the given case, the Airbus has not notified Qantas about the incorporation of such exclusion
clause. Further, the subject matter of the contract to provide a good quality plane with
accessories of good quality and a video system having 36 channels. Airbus provided a video
system with 34 channels only as a result of certain technical failure. This failure on part of the
Airbus airlines amounts to a breach of warranty because the breach was in relation to the subject
matter of the contract. Since a breach of warranty prohibits the parties to exempt from its
contractual liability, but allows the aggrieved party claim compensation for the damages, Qantas
shall be entitled to claim compensation from the Airbus airlines.
Conclusion
loss suffered by the Qantas airlines is more than $300000 but since Airbus had failed to
notify Qantas regarding the incorporation of the exclusion clause it shall be held liable to pay
compensation to the Qantas even if the loss exceeds $300000 and the exclusion clause shall be
considered as invalid.

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Question 2
Issue
To determine legal position of Frank with respect to Gamma
Is Frank liable to deliver the washing machines to Angela?
Rule
In Edgington v Fitzmaurice [1885] 29 Ch D 459, misrepresentation is defined as false
statements of facts that induces an individual to enter into a contract and become legally bound
by the contractual terms of the contract. The term puffery refers to the self-evident statements
that are used for the purpose of advertising. Since puffery has no legal significance, no claim
cannot be made against it whereas in order to establish a claim against misrepresentation, the
aggrieved party must establish that the person causing misrepresentation has made a false
statement with a view to induce the person to enter into a contract and become legally bound by
the contractual terms.
Further, in order to make a claim with respect to misrepresentation, the aggrieved party
must establish that he/she was not aware of the false nature of the statements and that their
judgments shall not be affected by it. In Hill v Rose [1990] VR 129, it was observed that the
false nature of the statement made by the person committing misrepresentation must be
established and that the aggrieved was induced by such person who entered into the contract by
relying on such false statements.
In Lockhart v Osman [1981] VR 5, it was observed that silence cannot be considered as
misrepresentation and the aggrieved person must establish that he/she was convinced by the

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person committing misrepresentation to enter into the contract. However, when the party causing
such misrepresentation is aware of the fact that he is making false statements and still induce the
aggrieved party to enter into a contract, such misrepresentation may be termed as fraudulent
misrepresentation. Under such circumstances, where the party committing misrepresentation
amounts to fraudulent misrepresentation, the aggrieved party is entitled to claim compensation
from the person committing such fraudulent misrepresentation was held in the Derry v Peck
[1889] 14 App Cas.
Again, according to the rule of agency, the principal is bound by the actions of the agent
as was held in Pioneer Mortgage Services Pty ltd v Columbus Capital Pty Ltd [2014] FCAFC
78. However, if an agent has an apparent, expressed or implied authority, the principal is bound
by the actions of the agent or for the activities carried out within the course of employment. In
Watteau v Fenwick [1983] 1 QB 346, the court held that even if the agent is not authorized by
the principal and the principal-agent relationship does not exist, the principal shall be liable for
the actions of the agent, if the agent deal with any third party who is unaware that the agent is
unauthorized.
Application
In the givens scenario, Gamma works as a sales person in Frank’s Appliance shop and
there was dishwater worth $350 present in the shop. Tom a customer after seeing the dishwater
told Gamma that she would inform her whether he would purchase the dishwater at the stipulated
price. Gamma was aware that her niece Frances needed a dishwater and told her that she could
sell the dishwater at $300. She convinced Frank that the dishwater would not sell at $350 and she
could arrange a customer who would buy it for $300. Frances was induced by Gamma and relied

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on her statements as she was salesperson and authorized her to sell it for $300 to Frances.
Gamma was aware that she was making false statement that the dishwater could not be sold for
at $350 where Tom said if he can, he would buy it for $350.
Under such circumstances, it is established that Gama had committed fraudulent
misrepresentation by making false statement regarding the sale of the dishwater at $350 and
induced Frank to sell it for $300 to Frances. Later, Frank found that Tom would have purchased
the dishwater for $350 only. Hence, Frank is entitled to claim compensation from Gamma of $50
for committing fraudulent misrepresentation.
In the subsequent scenario, the Bob is a sales person who was authorized to sale washing
machines and he often dealt with Angela for selling the washing machines. Bob was often
careless about his work and came to office while drunk, due to which Frank had suspended Bob
from the job. Bob ceased to have any authority to act on behalf of the principal, Frank. However,
Bob sold the washing machines at $1000 each for which Angela had deposited $10000 in the
bank account of the Home Appliance Specialists bank accounts. Bob takes the amount from the
account and goes overseas.
Under such circumstances, Frank did not ensure whether Bob had actually left the
workplace after being suspended. Here, while Bob entered into a contract with Angela, she was
not aware of the fact that Bob was suspended and does not have any authority to deal with third
parties on behalf of the principal, Frank. Since Angela had dealt with Bob regarding the sale of
washing machines so she was not aware of the authority of Bob to deal with third parties.
As was observed in Watteau’s case, if any third party has entered in to a contract with an
agent who does not have the authority to enter into contract with third parties on behalf of the

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principal because the agent ceased to have any authority, the principal shall be liable by the acts
of the agent. The principal shall be held accountable for the acts or omissions of the agent despite
the fact that the agent, while dealing with the third parties was aware that he is not authorized to
make such deal with the third party. The principal is bound by the actions of the agent owing to
the implied authority that is conferred upon the agent by the principal.
Here, Bob was aware that he was no more authorized to enter into any contract or deal
with respect to the third parties on behalf of his principal, Frank. However, he still entered into a
contract with Angela with respect to the sale of the washing machines for $1000 each and
usurped the deposit amount of $10000 from the Home Appliance Specialists bank account.
Moreover, sine Frank had an implied authority he was bound by the actions or omissions of his
agent , Bob. The subject matter of the contract was to sale washing machines to Angela for
which she had already paid an deposit amount of $10000. If the washing machines are nit
delivered it would amount to a breach of the contract.
Conclusion
Since Angela was not aware of the fact that Bob did not have any authority to sell the
washing machines while she entered into the contract, Frank is liable for the contract and he
must deliver the washing machines. Nevertheless, Frank is entitled to claim compensation from
Bob.

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Reference List
Edgington v Fitzmaurice [1885] 29 Ch D 459
Hill v Rose [1990] VR 129
Lockhart v Osman [1981] VR 5
Derry v Peck [1889] 14 App Cas.
Pioneer Mortgage Services Pty ltd v Columbus Capital Pty Ltd [2014] FCAFC 78
Watteau v Fenwick [1983] 1 QB 346
Harvey v Facey [1893
Riches v Hogben [1986
Hyde v Wrench [1840
L’Estrange v Graucob [1934] 2 KB 394
Chapelton v Barry Urban District Council [1940]
Thornton v Shoe Lane Parking Ltd [1971]