Legal Studies: Contract Law and Agency Relationship

Legal Studies
Student’s Name
18

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Contents
Question 1 (a)..................................................................................................................................2
Issue.............................................................................................................................................2
Rules.............................................................................................................................................2
Application...................................................................................................................................4
Conclusion...................................................................................................................................5
Question 1 (b)..................................................................................................................................5
Issue.............................................................................................................................................5
Rules.............................................................................................................................................5
Application...................................................................................................................................6
Conclusion...................................................................................................................................6
Question 2........................................................................................................................................7
Issue.............................................................................................................................................7
Rules.............................................................................................................................................7
Application...................................................................................................................................9
Conclusion.................................................................................................................................10
References......................................................................................................................................11

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Question 1 (a)
Issue
Whether AFS Grocery Wholesalers Co. Pty. Ltd. has the right to obtain payment of $45000
from John with respect to goods sold to John’s supermarket.
Rules
The contract is a legal relationship of two parties where both of them can held each other liable
to perform the promises as made out in a contract (Legal Dictionary, 2018). In general, people
who enter into a contract are a party to the contract; however, some other circumstances are also
there. These circumstances are those where a person enters into a contract on behalf of others.
The person who enters into a contract on behalf of other is named as agent and the person on
whose behalf an agent develops a contract is termed as principal (Online Libarary, 2018). The
relationship between an agent and principal is commonly known as an agency. An agency
relationship is very popular in business transactions where an agent develops a commercial
contract on behalf of the principal.
Authority given to agent under an agency contract can be of various types such as expressed,
implied, and apparent/ostensible (BPP Learning Media, 2014). As the name implies itself that in
an expresses authority, a principal expressly gives authority to an agent to for a particular
conduct. Such expressed authority van be vocal or written. On the other side, an implied
authority is not expressly granted to the agent, but an agent uses such as authority to meet out the
requirements of expressed authority. It was held in the case of Australia and New Zealand Bank
v Ateliers de Constructions Electriques de Charleroi (1966) 39 ALJR 414 that implied authority

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exist in those cases where an agent does some task which is incidental to complying with his/her
expressed authority.
Apparent/Ostensible Authority
This authority is closely connected to the doctrine of estoppel. This authority exists in those
situations where a person by his/her conduct, actions or behavior make the other person believe
he/she has a level of authority and is acting as an agent on behalf of his/her principal (Lindgren,
2011). Similar to every other kind of authority, this authority also put an obligation on the
principal by making his/her liable for the conduct of agent. Whether a person can have an
ostensible authority or not depends on his/her position. For example, it is normal that senior
employees of a business organization are agents of their organization and they have ostensible
authority. Any person cannot be assumed to have such kind of authority (Patterson Law, 2018).
For the establishment of ostensible authority, there must be some valid supportive actions.
This is necessary to understand that regardless of the type of authority, in every agency contract,
a principal will be held liable for the tasks and deeds of his/her agent. Nevertheless, this is to
state that a principal can only be held liable for those actions of agents that an agent does within
the zone of prescribed and given authority. According to the decision provided under the case of
Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] 2 QB 480, a principal will be liable
to ratify the actions of the agent in an ostensible authority.
The court always provides justice to an innocent party. This is the reason that the court makes the
principal liable for the actions of the agent in an ostensible authority. If a person acts as an agent
by the virtue of his/her ostensible authority then the principal will be held responsible for the act
of agent towards the third party who deals with the agent. It was held in the case of Tooth & Co v