Contract Law Scenarios Analysis

This assignment examines three distinct contract law scenarios. The first involves Joan purchasing a car from Frank that requires major repairs, potentially constituting a breach of contract. The second explores the legal implications of a minor entering into a contract, focusing on the concept of necessities. Finally, the assignment analyzes a scenario where Karl and Marie sign a contract under undue influence due to their parent-child relationship.

Running Head: Law 1
Law

Law 2
Answer 1
Question:
In the present case, Vera is the famous painter and she paints scenes of the landscapes of high
artistic merit. Recently, she made one painting and named her painting Dawn. She considered the
dawn as her best painting in last 10 years. She appoint agent for the purpose of selling her
painting, and she wants to sell that painting for $40000. She further instructed him not to sell the
painting for less than $32000, without her written approval.
Part A- Siddo sold the painting for $20,000 to Queenie?
Part B- Painting was purchased by Siddo from Vera for himself for $32,000, and after sometime
he sold the painting for $38000 to his friend Elly?
Part C- Painting was sold by Siddo to Isobel for $32,000, and Isobel was completely in love with
the painting of Vera. She was thinking that she gets the painting in discount, and because of over
excitement she gave extra $3000 to Siddo for himself.
Answer Plan:
Part A:
Contract of agency
Duties of agent
Liability of principal
Remedies available to third party
Part B:
Liabilities of the Principal:
Remedies available to principal
Liability of agent towards the third party
Fiduciary duty
Part C:
Secret Commission

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Answer:
Part A
Contract of agency involves three parties that are principal, agent, and third party. As per this
contract authority is passed by principal to the agent for the purpose of giving effect to the legal
relations between principle and third parties. Any person who possessed contractual capacity can
appoint the agent. It must be noted that, agent does not have similar powers like principal.
Relationship of agent and principal can be created by three ways that are by express/actual
authority, authority implied by conduct, by principle of estoppel, and by operation of law.
There are three types of agent that are special or limited agents- (these agents are appointed for
the purpose of entering into particular contract), general agents (these types of agents are
authorized to make contracts related to particular task), and universal agents (these types of
agents possess similar power possessed by their principles).
Agents have various authorities to act on behalf of the principle and these authorities are stated
below:
 Actual/Express authority- principle passes the authority to the agent but with specific
terms, such as don’t sell this flat below $7000.
 Implied and actual authority- this authority occurs when any act was performed by agent
for the purpose of fulfilling the actual/express authority granted to them.
Duty of agent:
Agents are under obligation to perform various duties which they owned towards principal as
well as towards the third party also, and some of these duties are stated below:

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 It is the duty of agent to follow the terms related to his/her authority and instructions
given by principal.
 It is the duty of agent to perform their operations with due skill and diligence. This can be
understood through case law Mitor Investments Pty Ltd v General Accident Fire and
Life Assurance Corp Ltd and Australian Insurance Brokers (WA) Pty Ltd [1984]
WAR 365. In this case, owner of the hotel employed Australian Insurance Brokers for
the purpose of getting the hotel insured against the damage caused by storm, tempest and
flood. Broker appointed by owner get the insurance with General Accident Fire and Life
Assurance Corp Ltd against the flood, but they did not include the damage caused by the
sea. Later, damage caused to hotel by cyclone, and because hotel was not secured against
damage caused by sea claim made by owner was failed. Owner file claim against the
broker that broker fails to follow the instructions of agent. In this case, Court held that
brokers are liable towards the owner because they failed to follow the instructions made
by owner, and they are also liable under negligence.
Liabilities of Principle:
Following are the liabilities of principal on behalf of the agent:
 It is the duty of principal to perform the promise made by agent to the third party while
acting as an agent of the principal.
 Principal is liable towards the third party in case agent does not act within the scope of
their authority, but agent must act in the ordinary course of agency.
Remedies Available to principal:

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In case, agents breach their duty then following remedies are available to principal against the
agents, such as principal has right to recover damages from agent in lieu of care, skill, and for
not following the mandatory instructions of principal.
Remedies available to third party:
Generally, agent is not liable towards the third parties, but there is an exception to this rule which
states that agents are also liable under the contract towards the third party if they acted:
 Without the authority given by principal, and
 Acted as they were the principal.
Application:
In the present case, Siddo does not act in the scope of their authority and also fail to follow the
instructions given by Vera. Siddo breach his duties while acting as agent, as he fails to follow the
instructions given by Vera and not perform his work with due care and skills. Therefore,
following remedies are available to the parties:
Vera- she has right to recover damages from Siddo in lieu of care, skill, and not following the
mandatory instructions.
Queenie- Siido is also liable towards the Queenie as he fails to act within the scope of their
authority. Vera is also liable towards the Queenie, as she is bound to perform the promise made
by Siddo.
Part B
Duties of an agent:

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Fiduciary duty- it must be noted that there is fiduciary relationship between the agent and
principal. This can be understood through case law, Hospital Products Ltd v United States
Surgical Corporation (1984–85) 156 CLR 41. In this case, court stated that there were number
of decisions which recognized that some particular classes of people were fiduciary responsible
towards one another, such as principal and agent, director and company, master and servant,
solicitor and client.
Other factor related to fiduciary relationship is that agent must act in good faith in the interest of
the principal and must not take any advantage of the principal or make any secret profit. In other
words, if there is any fact which is material for the principal then gent must disclose such fact,
and agent must not consider his own interest at the expense of the interest of the principal. This
can be understood through case law, Hewson v Sydney Stock Exchange [1967] 87 WN [Pt 1]
NSW 422. In this case, Hewson was a stockbroker who deals in shares from his own account,
and situation was not good because he was not trading for his client but in competition with
them. He failed to compile with the fundamental principal of commercial morality. Court further
stated that agent was not allowed to put himself in the position, because of which his interest
conflict with the interest of client.
Liabilities of the Principal:
 Principal are also liable for the torts committed by their agent while working as an agent.
 Vicarious liability.
Liability of agent towards the third party:
Warranty related to Authority- in case agents act on behalf of the principal, then they impliedly
give warranty to the third party that they have authority to act in specific matter. If agent does

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not have authority, then third party can sue the agent under breach of warranty related to
authority. This can be understood through case law, Collen v Wright (1857) 120 ER 241. In this
case, Willes J stated that in his opinion if person induce another person to enter into contract with
such person as the agent of the third party, but in actual that person was not authorized as agent
then such person was liable towards the third party.
It must be noted that, action under warranty related to authority can be taken only against the
agent, and not against the principal. Claim made under warranty related to authority can be
defeated if third party has the knowledge related to lack of authority of agent.
There is one more case law Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 3 All
ER 511. In this case, Court held that agent was protected against the liability if contract between
the parties entered in such circumstances which states that agent does not provide warranty
related to their authority.
Remedies available to principal:
 Principal has right to get account and payment related to secret profits made by agent
while acting as agent on behalf of the principal.
 Principal has right to resist the claim made by agent related to commission and for
indemnity against the liability rise by agent if they acted as an principal themselves and
not as an agent.
In this case, siddo share fiduciary relationship with Vera, and breach his fiduciary duty by
making secret profit. On the other hand, Siddo breach the warranty of authority given to Elly by
behaving that he has authority to sell the painting for $38000. Therefore, following remedies are
available:

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Vera- Siddo is liable towards the Vera and she has right to get account and payment related to
secret profits made by Siddo that is $ 4000, and she can also resist the claim made by Siddo for
commission.
Elly- Elly can file claim against the Siddo for breach of warranty related to authority.
Part C
Secret commission:
When agent receives any money or valuable consideration from third party and principal does
not have knowledge related to such consideration then agent:
 Is liable towards the principal for civil wrong, and
 Liable towards principal under both State and Commonwealth legislation.
Remedies available to principal:
Principal has right to resist the claim made by agent related to commission and for indemnity
against the liability rise by agent if they acted as an principal themselves and not as an agent.
In the present case, Siddo made secret commission of $ 3000 from Isobel without the knowledge
of Vera. Therefore, Siddo is liable towards Vera for civil wrong under both State and
Commonwealth legislation.
Conclusion:
Part A- Siddo is liable for breach of duty towards Vera and Queenie for breach of duty and act
outside the scope of authority respectively.

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Part B- Siddo is liable towards the Vera and she has right to get account and payment related to
secret profits made by Siddo.
Elly can file claim against the Siddo for breach of warranty related to authority.
Part C- Siddo is liable towards Vera for civil wrong under both State and Commonwealth
legislation.

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Answer 2
Question:
In the present case, Joan is 17 years old and wants to purchase the car and for this purpose she
contacted to Frank’s Used Cars Pty Ltd, and discussed about her requirements with the owner of
the company named as Frank. Later, she buy second-hand Swift sedan for $49,000 and paid
deposit of $ 4000. She further requested loan for the balance amount from the company of Frank.
Frank stated to Joan that Car would give services for the period of 12 months without the need of
any major repairs.
Frank asked for security for the loan, and asks for guarantee from the parents of Joan that is Karl
and Maria. Both, Karl and Maria join her daughter, 12 months ago in Poland. Karl has good
knowledge of English, but Maria is not able to read or speak English.
Joan stated to her parents that amount of loan is only $25000, and repayments will not extend
beyond 3 months. She further stated, that Bank was agreed to provide her finance in 3 months,
but in actual she did not approach any bank for finance. Frank knows about this conversation
between Joan and her parents. Karl and Maria provide the guarantee, and copy of guarantee was
given to them for their records.
After 6 months, car needs major repairs and Joan stopped making payments as per the contract.
Letter was sent by Frank to the parents of Joan.
Answer Plan:
Terms of contract
Discharge by breach
Undue influence

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Answer:
Joan: the terms of the contract are very important, and they are considered as the most essential
part of the contract. Whether the term is condition or warranty, it can be determine by the
intention of the parties.
Term is considered as condition if it is related to the root of the contract, which means if party
fails to perform any term which results in cancellation of the contract. It must be noted that, thing
must be different from fact for which innocent party enter into contract. This can be understood
through case Blackburn J in Bettina v Gye (1876) 1 QBD 183 at 188. In this case, Court stated
that term was a condition if such term was so important that party would not sign the contract if
such term was not present. Breach of condition gives right to innocent party to cancel the
contract or continue the contract but claim for damages or both.
On the other hand, warranty is considered that term of the contract which is of subsequent nature
to the principal term of the contract. Warranties are of lesser importance as compared to
conditions. Therefore, when warranties are breached by party then innocent party has only right
to claim for damages. This can be understood through case law Poussard v Spiers &Pond
(1876) 1 QBD 410. In this case, P entered into contract with S for the purpose of appointing her
as chief female singer at their theatre in an opera for the period of 3 months. P falls sick, and was
not able to join the final rehearsals and also first four performances of the Opera. When she
recovered from illness she asks for singing in the fifth performance, but S refused. P file claim
against S for wrongful dismissal. Court held that claim made by P was not right because she

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breach the condition by fail to perform agreed performance. This decision of the Court justified
the cancellation of the contract by S.
In the present case, car demand for major repairs and it is considered as breach of condition,
because Joan purchased the car on the basis of this term only. Therefore, Joan has right to claim
for damages or terminate the contract, or both.
Frank (Frank’s Used Cars Pty Ltd):
Common law state the general rule that any contract entered with minor is voidable in nature.
Minor is the person who is under the age of 18 years. In other words, if any person enters into
contract with minor then such contract is voidable on the part of the minor. This rule has some
exceptions also, and these exceptions are stated below:
Contracts for necessities: any contract with minor which is related to the necessities is binding on
both the parties. Necessities are determined on the basis of existing lifestyle of the minor. It must
be noted that necessity must be necessary for the purpose of maintaining the lifestyle of minor.
This can be understood through case law Nash v Inman, [1908] 2 KB 1. In this case Court held
that minor have limited capacity to enter into contract. For succeeding the case it was necessary
for plaintiff to prove that contract fall in the limited capacity of the minor. For defining the
limited capacity, Buckley LJ stated that minor can enter into contract for the supply of goods at
reasonable price, if those goods are necessary for support in his life, and if minor does not have
sufficient supply of the goods. For the purpose of making the good necessity, following two
conditions must be satisfied:

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 Contract must be related to the goods which were necessary for providing support in the
life of the minor.
 Minor does not have sufficient supply of the goods.
In the present case, both the conditions are not satisfied which means contract is not for
necessity. Therefore, this contract is voidable at the option of Joan.
Karl and Marie- The doctrine of undue influence is used for the purpose of seeking relief from
a transaction with a person who is on the ascendancy position or has influence over them. It must
be noted, under this position of influenced party seriously affected the consent of the weaker
party. In other words, consent of weaker party is unduly influenced by the ascendant party.
This relationship related to influence arises between the parties when one party holds the position
towards another party, which involves ascendancy or influence over the other. It includes state
related to dependence or trust by that other person. This can be understood through case law
Johnson v Buttress (1936) 56 CLR 113.
Undue influence are presented in some special relationships such as parent and child; solicitor
and client, etc.. In these relationships, Court stated that undue influence is present, and this
presumption can be rebutted by the party who receives the benefit in dispute. This can be
understood through case law, Allcard v Skinner (1887) 36 Ch D 145.
In the present case, both Karl and Marie sign the contract under undue influence because
relationship of parent and child exists in this case. Therefore, they have right to rescind the
contract on this basis.
Conclusion:

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Joan: Joan has right to claim for damages or terminate the contract, or both because there is
breach of condition.
Frank: Frank has right to terminate the contract because Joan breach the contract.
Karl & Marie: they have right to rescind the contract on the basis of undue influence.