Contract Law Analysis: Obligations of LLA towards Glitz Cruisers

Running head: CONTRACT LAW
CONTRACT LAW
Name of the Student
Name of the University
Author Note

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Answer 1
Issue
The issue to be put to analysis is whether LLA has any obligations towards Glitz
Cruisers.
Rules:
Under the common law of agency, a relationship of agency is created where one party
called the agent is empowered as well as authorized by the other party called the principal by
means of which the former can act on behalf of the latter (Bennett, 2014). This type of relation is
frequently found in the course of business as it becomes difficult for a business to work in an
efficient manner without his agents.
A relationship of agency is formed through mutual agreement between by the parties and
such agreement empowers and authorizes one party to act on behalf of the other (Dal Pont,
2018). Agency relationship is usually created by means of agreement like employment contract,
partnership agreement and others.
As this type of relationship is created by means of contract, the duties and rights of the
agent is provided in the agreement terms. However additional duties are also provided under the
law of agency unless such duties are expressly excluded or modified by the contract. The agency
relationship arises from the confidence and trust and these provide the basis of the agency
relationship. These are called the fiduciary duties that are owed by the agents towards the
principal which can be construed in the decision of the Re Agriculturist Insurance Co (Baird’s

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case) (1870) LR 5 Ch App 725 at 733 case. Under the law of agency, the agents have the
following fiduciary duties which are discussed below;
 Duty of being loyal to the principal:
The agent must be loyal to the principal and shall not act in a way that will affect
or frustrate the interest of the principal. He must not involve in any act that will be in
coalition with the interest of the principal. Further the agent must not compete with the
principal. This also includes the duty of acting in honesty and good faith as seen in
Cameron v Murdoch (1986) 63 ALR 575 at 587.
 Duty to follow instructions:
Since the agent is authorized to act on behalf of the principal and under his
authority, the agent has the duty to follow and obey the instructions given to him by the
principal.
 Duty to act skillfully and carefully:
An agent is bound to perform his obligations by ensuring same level of skill and
care as any other person in that situation will do while exercising the same duty.
 Duty to inform:
The agent also has the duty to notify the principal in a prompt way regarding the
matters that are in relation or associated with the matter of interest of the business of the
principal.
 Duty to account:
Further the agent has the duty to account for all the money and records to the
account of the principal during the course of agency relation as observed in Wilson v
Carmichael (1904) 2 CLR 190 at 195.

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The agent can be authorized by the principal with mainly two kinds of authority; actual
authority and the ostensible or apparent authority. An actual authority is given when the agent is
authorized with authority expressly either by a written or oral agreement. Such authority can be
implied from the agreement in writing or made orally, conduct of the parties or trade and
custom usage. Actual authority can be given either expressly or impliedly. Implied authority is
present which is possessed by an agent due to his reasonable necessity for carrying out the
express authority as observed in the judgment given in the case of Rosenbaum v Belson [1900]
2 Ch. 267.
Another type of authority is the ostensible or apparent authority. In this type of the
agency, authority is depicted when it is seen that a person is acting as an agent without having
any actual authority and makes transactions or contracts with outsiders called the third parties
with the knowledge of the principal. This is enumerated in the case of Hely-Hutchinson v
Brayhead Ltd [1968] 1 QB 549 at 583. Here the principal knows about it and instead of
preventing him, he allows him to continue such transactions. In this type of situation, the
principal later on cannot deny the agent’s authority. Moreover, the principal will be held liable
for the transactions made with the outsider third party.
This type of apparent authority arises in two types of circumstances; firstly, when it is
seen that the principal by means of his conduct or words makes other party to believe that the
agent is authorized to make such transaction or contract on his behalf. But, such authority will
not have any effect if the agent is found to make contract without the knowledge of the
principal. Secondly, this type of apparent authority arises when previously the agent was
authorized to act on behalf of principal but later on he was terminated without giving notice to
the outsiders. In such situation, the third party may claim that the principal will be bound by the