Legal Study: Contractual Obligations in AFS Grocery Wholesalers Case

This case study delves into two legal issues concerning AFS Grocery Wholesalers Co. Pty Ltd. The first issue examines whether AFS has the right to obtain payment from John for goods sold to his supermarket, focusing on agency principles, specifically expressed, implied, and ostensible authority. The analysis applies relevant case law such as Tooth & Co v Laws and Freeman & Lockyer v Buckhurst Park Properties Ltd. The second issue addresses whether AFS can obtain payment from John when he prohibited his manager, Linda, from making purchases, considering the precedent set by Watteau v Fenwick. Additionally, the study explores Bruno's rights to waive his liability under a contract with Moreslybo Pty Ltd, discussing contract discharge methods and the impact of unconscionable conduct, referencing Chappell v Nestle. The study concludes with detailed applications of legal rules and findings for each issue.

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Legal Studies
Student’s Name

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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

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Laws (1888) 9 LR (NSW) 15, that where a third party has reason to believe that a person is
acting as an agent of another person, he /she can held such another person liable for the act and
deeds of agent considering him/her principal. Further, it was decided that if a business name
consists the name of the owner, the person dealing on behalf of the same would be treated as
business’s agent in general. It was also given in the decision of this case, that the estoppel of
agency relationship will not be established if principal states to the third party that the person
who is acting on his/her behalf is not an agent in actual.
Application
In the given case, John was the owner of the supermarket. As the name of the supermarket was
John’s supermarket, an outsider had reason to believe that he/she is going to deal with John
while dealing with the manager over there. As Linda was a sales manager of John’s supermarket,
she was dealing all the sales affairs over there. People knew that Linda is a sales manager and is
acting on behalf of John’s supermarket. The issue of the case started when once John left for
Sydney. The sales manager of AFS Grocery Wholesalers Co Pty Ltd (AFS) told Linda about the
stock she purchased from one of the competitors of John’s Supermarket. In such a situation,
Linda was required to purchase some goods to sale the same further. It was practiced in John’s
supermarket that John was used to purchasing the stock for his supermarket that Linda was used
to selling further. However, this time Linda had to purchase goods for the supermarket, as she
was not able to contact John. In addition to this, Linda was in a dilemma as if she would not have
purchased the goods for resale she could lose a customer.
Applying the provisions of Tooth & Co v Laws, Linda will be treated as an agent of John’s
Supermarket as the name of the business consisted name of the owner and a, therefore, a third
party had reason to believe that Linda is an agent of John’s supermarket. However, the authority

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regarding the purchase of goods, in this case, is not expressed one. Implied authority can be seen
in the case as Linda has purchased the goods from AFS in order to meet out the actions as
required under her expressed authority i.e. selling of goods on behalf of the supermarket.
Ostensible authority can also be seen in this case, as Linda was not granted any authority, yet she
was behaving as an agent. Further, as she was a senior employee, she can be considered an agent
under Ostensible authority. As John has not stated anything about the authority or no authority of
Linda, the third party can make him liable for the act of Linda. An ostensible authority was
required to deny by John in order to escape any further liability.
Conclusion
AFS had reason to believe that Linda was acting on behalf of John’s supermarket and the same
has required a level of authority. John did not state anything about no authority of Linda at the
first stage, now he cannot escape from his liability and therefore liable to ratify the contract
developed by Linda for the purchase of goods. AFS can initiate an action against John to obtain
the amount maintained in the invoice mentioned.
Question 1 (b)
Issue
Whether AFS Grocery Wholesalers Co Pty Ltd (AFS) can obtain the payment of $45000 from
John with respect to the goods sold to John’s Supermarket. However, John prohibited Linda for
such purchased and also informed her about such prohibition.
Rules

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Under an agency contract, a principal remains liable towards the third party until unless the third
party is aware of actual authority level of an agent. The case of Watteau v Fenwick [1893] 1 QB
346 is a significant one to study in this area. It was given in the decision of this case that even in
those circumstances where the principal informs the agent about his/her no authority; such
principal will continue to be held liable towards the third party. The main motive behind such a
rule is to protect the rights of a third party. An outsider cannot be aware of actual authority and
mutual agreements of principal and agent and therefore will be granted remedies in those
situations where he is not aware of the no authority status of an agent.
Application
In the given circumstances, John informed Linda that she cannot enter into any purchase
transaction on behalf of his supermarket but did not inform to AFS. AFS is still in the same
situation as the same has reason to believe that Linda is acting on behalf of John’s supermarket.
Applying the provisions of Watteau v Fenwick, AFS will be eligible to claim payment of a raised
invoice from John and John will be held liable to make the payment of the same. As AFS could
not be aware of Linda’s authority, John will be held liable irrespective of the fact that he
informed Linda about her limited or no authority.
Conclusion
To conclude the involved issue, this can be stated that John will be held liable for a contract
made by Linda with AFS. In such a situation, he seems to be responsible to ratify the subjective
contract and to make the payment of goods purchased by Linda from AFS on behalf of John’s

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supermarket irrespective of the fact that he informed Linda that she is not eligible to develop any
such contract.
Question 2
Issue
What rights do Bruno has to waive out his liability under the contract that he has developed with
Moreslybo Pty Ltd.
Rules
A contract can be discharged by in many ways, such as by performance, by the breach, by
rescindment and so on (E- Law Resources, 2018) In which mode a contract will be discharged
depends on the circumstances of the case and validity of a contract. Only a valid contract can are
discharge by way of performance. For a valid contract, an offer, acceptance intention of the
parties to create and develop legal relation and consideration must be there (The University of
New Mexico, 2018). As given in the decision of the case of Chappell v Nestle [1960] AC 87 a
consideration must be sufficient and the same is not required to be adequate. If a valid and
sufficient, consideration is there in a contract then the same cannot be challenged based on the
adequacy. Further, for an offer and acceptance also, some rules are defined under the Contract
Law and it is required that an offer and acceptance in a contract must abide by those rules. For
acceptance, this is necessary under contract law that the same must be communicating to offeror
within the specified time. Further, independence of acceptance is a concern itself. Contract Law
demands acceptance to be independent and free from unfair practices and factors like fraud,
Duress, mistake, undue influence, unconscionable conduct and many more. These factors affect

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the independence of acceptance of an offeree under a contract and therefore a contract does not
remain valid anymore. Unconscionable conduct is the most problematic concern. The issue and it
impacts over a contract are detailed below.
Unconscionable Conduct
This conduct refers to the action of an offeror, which he/she takes in an unfair mode to seek the
acceptance of an offeree under a contract. In this situation, a person holds bargain/superior power
over another party of the case and another party is a victim of special disabilities such as
Illiteracy, mental disability, lack of knowledge, old age and so on. Such disability must be there.
Because of such special disability, a person (offeree) do not remain in the condition to think and
act like a reasonable person. An offeror uses his/her bargain position in an adverse manner to
seek the approval for the contract. This is a situation where one party takes unfair advantage of
the position of others.
Unconscionable Contract:- All those contracts where any of the factors of Unconscionable does
exist is treated as an Unconscionable Contract (USlegal, 2018). As a valid acceptance is a basic
requirement of a valid contract, therefore it can be stated that in the lack of an independent
consent, a valid contract cannot be developed. An Unconscionable contract is a voidable one at
the end of the innocent party (Bryan, Vann and Thomas, 2017).
Remedies:;- As mentioned earlier that an unconscionable contract is treated voidable contract,
hence the innocent party can rescind the contract and can also deny to perform his/her pending
promises under a contract.

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Application
In the provided case, Bruno is a farmer who is very less educated. He moved towards Australia
from Italy with his wife and decided to be in Australia only. For the livelihood, he purchased a
farm in the New South Wales state of Australia. In the early year of 2012, his wife got frustrated
and told him that she cannot reside in Australia anymore. She went back to Italy. Because of all
these things and incidents, Bruno became distressed and started consuming alcohol in heavy
amount. In the middle of the same year i.e. 2012, a managing director of the company named
Moreslybo Pty Ltd. visited Bruno and offered him to purchase his farm for $160000, that Bruno
purchased for $220000. The managing director of the company was Mr, Slybo who has done
many of the meetings with Bruno. He became aware of Bruno’s mental and physical illness.
The company in this case i.e. Moreslybo Pty Ltd. was engaged in the business of property
development and Slybo being the managing director of the company had reasonable and bargain
authority. By looking after an important element of a contract, this can be understood as follow:-
1. The existence of offer: - An offer is the basic requirement of every contract. A valid
offer was there in the contract. By offering the purchase of Bruno’s farm, the company
has completed this step of a contract
2. Consideration:- Although consideration was inadequate according to the purchase price
but this factor does not affect the validity of a contract. Applying the provisions of
Chappell v Nestle , $160000 was a valid consideration.
3. Intention to Create legal relationship:- As this was a commercial transaction, yet this is
to assume that both of the parties had the intention to create a legal relationship.
4. Acceptance:- The issue involved in the case of is non-independent consent of Bruno. It is
very clear that Bruno could not act as a reasonable person because of overuse of alcohol.

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In addition to this, he was sad also. Slybo took unfair advantage of the condition of
Bruno. A factor of unconscionable conduct seems to be there in this contract because of
the condition and position of both the parties.
Impact: Because unconscionable conduct was there, this contract will be treated as an
unconscionable contract. As any other unconscionable contract, this contract will also be held
voidable.
Further, in the case, when Bruno has developed this contract with Slybo, his wife came back
from Italy. She was so happy to return and informed Bruno that she is willing to do the work of
farms. Bruno already sold out his property; only the actual sale was pending to perform.
Remedies:- In remedies, a rescindment of a contract is opened to Bruno. If he wants then he can
cancel out the contract because of the presence of unconscionable conduct.
Conclusion
When Bruno’s wife returned to Australia and shown her willingness to do the work of farms,
Bruno wants to keep the farm with him. In conclusion, this is to be stated that Bruno can keep
the farm with him. The reason behind this is that an acceptance given by him at an earlier stage
was not an independent one as Slybo manipulate his decision by providing a kind of advice.
Hence, this is to conclude that Bruno can held the contract cancel and is not liable to hand over
his farm to Moreslybo Pty Ltd.

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References
Australia and New Zealand Bank v Ateliers de Constructions Electriques de Charleroi (1966) 39
ALJR 414
BPP Learning Media. ACCA Skills F4 Corporate and Business Law (English) Study Text 2014.
London: BPP Learning Media.
Bryan, M., Vann, V., and Thomas, S., B. (2017) Equity and Trusts in Australia. Melbourne:
Cambridge University Press
Chappell v Nestle [1960] AC 87
E- Law Resources, (2018) Discharge of a contract. [online] Available from:
Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] 2 QB 480
http://e-lawresources.co.uk/Discharge-of-a-contract.php [accessed on 17/06/18]
Legal Dictionary. (2018) Contracts. [online] Available from: https://legal-
dictionary.thefreedictionary.com/Contracts [accessed on 17/06/18]
Lindgren, K., E. (2011) Vermeesch and Lindgren's Business Law of Australia. NSW: LexisNexis
Butterworths.
Online Libarary, (2018) The realationship of Pricipal and Agent. [online] Available from:
https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1468-2230.1954.tb02143.x [Accessed on
17/06/18]

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Patterson Law. (2018) The Doctrine of Ostensible Authority . [online] Available from:
http://pattersonlaw.ca/NewsArticleView/tabid/179/ArticleId/169/The-Doctrine-of-Ostensible-
Authority.aspx [Accessed on 17/06/18]
The University of New Mexico. (2018) Elements Of A Contract. [online] Available from:
http://jec.unm.edu/education/online-training/contract-law-tutorial/contract-fundamentals-part-2
[accessed on 17/06/18]
Tooth & Co v Laws (1888) 9 LR (NSW) 15
Translegal. (2018) Contract law: invitations to treat (1). [online] Available
from:https://www.translegal.com/lesson/7073 [accessed on 17/06/18]
USlegal, 2018) Unconscionable Contract: Everything You Need to Know. [online] Available
from: https://www.upcounsel.com/unconscionable-contract [accessed on 17/06/18]
Watteau v Fenwick [1893] 1 QB 346