Business Law Assignment: Analysis of Agency and Contract Law Issues

This business law assignment presents two case studies. The first case examines the agency relationship between a supermarket owner, his manager, and a wholesaler, focusing on implied and apparent authority. It analyzes the manager's actions in ordering goods and the wholesaler's potential to claim payment. The second case study explores contract law, specifically undue influence, where an individual contracts to sell property. It analyzes the elements of a valid contract, including genuine consent and factors like undue influence, and advises on potential legal recourse. Both cases apply Australian contract law principles, providing a detailed analysis of legal rights and liabilities.

BUSINESS LAW

BUSINESS LAW 1
Answer 1
Part 1
Issue
The issue in the given case study is to identify and examine the existence of any
legal rights of the entity AFS Grocery Wholesalers Co. Pty. Ltd, in order to claim the
payment of $45000 from the John’s Supermarket. The payment is for delivery of the
goods to John’s Supermarket that was ordered by Linda, the manager of the said
supermarket.
Rule
The given case study is based on the law governing the agency relationship. An
agency relationship is referred to as the relationship in which one party acts on the
behalf of the other and with the authority of that another party (Allen and Kraakman,
2016). An agency is a fiduciary relationship, where the agent is subject to the
principal’s control and must act according to the instructions given by him or her. The
most significant element of an agency is the consent of the both the parties, which is
essential and agency cannot be created without the same as held in the case
Carnac Grain Co Inc v HMF Faure & Fairclough Ltd & Bunge Corp [1967] 2 All ER
35. The real test of an agency is the nature of the underlying relationship.
In addition, some of the various aspects of an agency are the nature, mode of
creation and the terms and conditions of an agent-principal relationship. There are a
number of ways in which an agency relationship can be created. These are firstly by
means of an express contract, i.e. under seal by means of written or verbal contract.
Secondly, it can be created by means of an implied condition, such as through the
existence of any condition or situation of the parties concerned and by means of
ratification thereon. Some of the widely known principal agent relationships are that

BUSINESS LAW 2
of the employer and employee, financial advisers and the persons hiring them, and
more.
Some of the main duties of an agent are to follow the instructions of the principal, to
act in good faith and in person, to exercise due care and diligence, and to serve to
the best of the skills to the principal.
In addition to the creation and the duties, there are various aspects of the authority
as well. There exist different types of authorities, which have been described as
follows.
 Actual Authority: An actual authority can be further of two types, namely the
express actual authority and the implied actual authority. An express actual
authority refers to the one that is expressly prescribed as a part of the terms
and conditions of the contract (Lindgren, 2011). An implied authority refers to
what is reasonably necessary to carry out the performance of the duties.
 Apparent or ostensible authority: This kind of authority arises when the
principal’s acts or the words lead the third parties to believe that an agent has
been appointed to act on the principal’s behalf. Thus, a principal in this case is
generally estopped from denying the agent’s authority (Lindgren, 2011).
Application
On application of the rules as stated above, the following points are noteworthy.
Firstly, Linda has been hired as the manager by the owner of the John’s
Supermarket, Mr John Miley. In spite of being the owner of the supermarket, John
does not have much of role to be played in the business activities. His role is
confined to frequent visits to the store, discussion of the purchase of the replacement

BUSINESS LAW 3
stock and the signing of the necessary orders. However, the actual dispatch of the
order is made by Linda herself.
Secondly, as part of being in an agent principal relationship by the virtue of the
employer employee relationship, it was the duty of the manager Linda to exercise
actions that are necessary for the performance of the duties on behalf of the owner
John. In the absence of John, it was her duty to retain the customers and to serve
the entity to the best of her skills. As stated in the given case, owner is out of the
town and has not even left and contact number for the agent Linda to communicate
with him. But as she is worried of losing the customers, she enters into a contact with
AFS Grocery Wholesalers Co Pty Ltd, and accordingly places an order worth $
45000 in the best interest of the entity.
Thirdly, it can be stated that although no express authority was given to the manager
Linda to enter into the contract to purchase the goods from AFS Grocery
Wholesalers Co Pty Ltd and to sell the same, there existed an implied authority to do
the acts best suitable to the entity to retain the customers and thereby acting as a
part of the contact of her employment.
Lastly, it can be said that as she was the only person available in the super market in
the absence of the owner and to carry out the sales, the third party has reasons to
believe that she is having the enough authority to enter into the purchase contracts,
necessary for the furtherance of the sales contracts. Thus, the apparent or the
ostensible authority existed for the third party to regard her as an appropriate person
for the contract.
Conclusion
Thus, as per the discussions in the previous parts on the basis of the rules of an
agency relationship, it can be concluded that as Linda was the employee and

BUSINESS LAW 4
thereby the agent of John Miley, it was her duty to do the best acts for the entity
John Supermarkets. In addition, she had an implied and an apparent or ostensible
authority to enter into the purchase contract to carry out the terms of her
employment, to retain the customers and to carry on the sales contract effectively.
Thus, by virtue of her authorities, principal John Miley would be bound by her
actions. Accordingly, the AFS Grocery Wholesalers Co. Pty. Ltd can sue John to
realise the payment of $ 45000, on account of the purchase invoice.
Part 2
Issue
The issue in the given case is whether John would have been liable, had John
informed that the manager Linda was expressly prohibited from entering into
purchase contracts without the authority of John.
Rule
The rule of agency states that when the agents act on the behalf of their principals,
either by virtue of an implied authority or by virtue of an expressed authority, the
principals are bound by their actions (Law quarter, 2018). Further, to add, it can be
stated that a third party is not bound to know the terms and conditions of the agent
principal relationship on their own, and can be aware of the same only when
informed about the same. In case the third parties are informed about an express
authority, which has not been granted to the agent by the principal, then the principal
cannot be held for the acts done by the agents on the same lines. Thus, as widely
stated in the popular case law of Tooth & Co v Laws (1888) 9 LR (NSW) 154, a
principal can only be held liable for acts done by an agent in the normal course of the
business and within the framework of the express and the implied authorities of the
agents.

BUSINESS LAW 5
Application
On applying, the rules as discussed above, it can be stated that if the AFS Grocery
Wholesalers Co Pty Ltd, is expressly informed about the agent Linda not having the
authority to make purchases on behalf of him, he would be saved by any purchase
contracts entered into by Linda. When the third party is aware of a condition of agent
principal relationship, they are dealing with; the principal cannot ratify the acts done
by the agent on breaching the said conditions. Thus, the third parties must carefully
analyse if any information supplied to them in the course of the business changes
the nature of their understanding of the agent’s authority; they are dealing with.
Conclusion
Thus, as per the discussions conducted above it can be said that John can
safeguard himself against the acts done by Linda by expressly mentioning her
authority to the third parties. In event of the express mention of the said authority, the
third party cannot held the principal liable for the agent’s actions. Accordingly, the
principal John cannot be sued in this scenario.

BUSINESS LAW 6
Answer 2
Issue
Bruno enters into a contract with the entity Moreslybo Pty Ltd., for the sale of his
property worth $ 160,000. The issue in the given case study is to identify and
analyse the existence of any legal rights of Bruno to be released from the liability
under the above contract with the entity Moreslybo Pty Ltd.; and to advise Bruno
about the same.
Rule
The Australian Contract Law governs principles of the agreements and contracts in
Australia. According to the same, a contract comprises of a number of elements for it
to be regarded as legally enforceable in the courts of law. These elements are listed
as follows.
 Agreement
 Consideration
 Intention
 Capacity
 Genuine consent, and
 Legality
Thus, existence of a genuine consent is one such crucial element of the agreements
to become legally enforceable contracts. By the term genuine consent, it is meant
that all the parties to a contract must agree to the terms and conditions stated
therein, by their own free will (Findlaw Australia, 2018). At times, there may be

BUSINESS LAW 7
situations when a person enters into a contract without the knowledge of the vital
information of the transactions. The absence of the knowledge of the vital
information cannot regard the consent of the contract to be real, valid, or genuine
(Kearns, 2017).
A consent to be regarded as genuine must be free from certain factors. These
factors are undue influence, mistake, misrepresentation, duress and the
unconscionable conduct (Jones, 2017).
The factor undue influence exists in the circumstances when there is a parity of
power between the parties to a contract (Vout, 2017). This means one of the parties
to a contract is in comparatively dominant position to influence the decisions of the
weaker party, out of the emotional or the physical vulnerabilities. The existence of
the same makes the contract voidable. The undue influence is of two types, namely
the actual undue influence and the presumed undue influence. The actual undue
influence is the act of dominating the weaker party so much so that he or she is
unable to exercise his or her own free will (E-law Resources, 2018). The presumed
undue influence refers to a circumstance where there is a relationship of trust and
confidence with the party against whom the undue influence is alleged. Such
relationships are known as fiduciary relationships. Some examples of the above-
mentioned relationships are that of a parent and a child, a solicitor and a client, a
doctor and a patient, trustee and beneficiary, and many more. Each of the situation
is individually examined to evaluate whether the fiduciary relationship existed or not,
and therefore the above list cannot be regarded as an exhaustive list of the fiduciary
relationships.

BUSINESS LAW 8
The evidence to the presumed undue influence is that there existed an independent
and an impartial advice before entering into a contract, at the plaintiff’s end. In cases
of the undue influence, the burden is on the dominant party to prove that the
pressure has not been exerted on the weaker party. In order to prove the same, the
dominant party is required to show that the weaker party had an access and the
knowledge of the all the terms, conditions, nature and the consequences of the
transactions in question. The various facets of the presumed undue influence and
said burden to prove have been widely established in various cases; one of such
case is that of Johnson v Buttress (1936) 56 CLR 113.
In the event of existence of undue influence, a contract becomes voidable at the
option of the weaker party. Accordingly, the party being influenced can breach the
contract at his option and he or she would not be required to make good the
damages sustained by the dominating party.
Application
On application of the rules stated above, in relation to the validity of the contracts,
following points are critical to note.
Firstly, Bruno, the illiterate farmer is new to Australia and he along with his wife had
migrated to Australia from Italy. In order to sustain the living, Bruno had purchased a
farm worth $ 220,000, which he later agrees to sale to Slybo for $ 160,000. Slybo
was the managing director of the property development company Moreslybo Pty Ltd.
Thus, while the one party to the contract in question is illiterate, the other party is
well versed and acquainted with the nature of the transaction, by virtue of his
profession, i.e. being the managing director of the property development company.

BUSINESS LAW 9
Secondly, on further examining the economic and the physical conditions of the
parties, it can be stated that while entering into the agreement to sell the property in
question, Bruno was under the effects of excessive consumption of alcohol and the
prolonged depression, because of his wife leaving him. The other party’s state of
mind was fair and sound unlike that of Bruno. The fact that Bruno even agreed to sell
the property at lesser than the amount at which he had brought the same, very well
depicts how devastated and unstable he was at the time of agreeing to the contract.
A reasonable person would not have entered into such a transaction of loss to
himself and enrichment to the other party.
Lastly, the several conversations undertaken indicates that there had built a
relationship of trust and confidence between both the parties, where Bruno disclosed
about his family details and devastation. Thus, while entering into the contract in
question, Slybo was well aware of the fact that Bruno’s wife had left him and that he
wanted to go back to his wife and live with her. The information was utilised by the
managing director of the company to exercise the undue influence over the
depressed and illiterate farmer. Thus, on application of the principles of the case law
of Johnson v Buttress, it can be stated that Slybo has exercised an undue influence
for his own enrichment. The existence of the interest from the business point of view
is evident in the transaction, on the part of Slybo. Moreover, the physical and the
economic conditions of Bruno, contributed towards the same.
Thus, it would be right to state that the consent of Bruno was neither free, nor
genuinely obtained in the contract, for the contract to be regarded as complete and
legal. In order to regard a contract as valid, genuine consent is crucial. Further to
add, a breach of a valid contract results in a civil liability at the end of the party who
has breached the same. However, the same is legally enforceable only when there

BUSINESS LAW 10
exists a valid contract. A valid contract cannot come into existence when the consent
of a party is not genuine.
Conclusion
Thus, as per the discussions conducted in the previous parts, with respect to issue of
the case and the rules applicable, it can be said that the contract between Bruno and
Slybo is voidable at the end of Bruno, the weaker party. This is because; his will was
influenced due to the emotional and the physical circumstances and due to Slybo
being in the benefiting position, he making the use of such circumstance and the vital
information shared by Bruno. As a result, absence of the valid contract makes the
contract unenforceable in the courts of law. This gives the farmer Bruno an
opportunity to release himself from the liability to the contract of selling his property
for $ 220,000 to the entity Moreslybo Pty Ltd.
Thus, Bruno has the legal right to regard the contract voidable at his option.

BUSINESS LAW 11
References
Allen, W. T. and Kraakman, R. (2016) Commentaries and cases on the law of
business organization. Wolters Kluwer law & business.
Australian Contract Law. (2018) Johnson v Buttress. [online] Available from:
https://www.australiancontractlaw.com/cases/johnson.html [Accessed on
17/09/2018].
E-law Resources. (2018) Undue influence. [online] Available from: http://e-
lawresources.co.uk/Undue-Influence.php [Accessed on 17/09/2018]
Findlaw Australia. (2018) Undue Influence and equity: what happens if one patty is
stronger than the other? [online] Available from:
http://www.findlaw.com.au/articles/5500/undue-influence-and-equity-what-happens-
if-one-par.aspx [Accessed on 17/09/2018].
Jones, L. (2017) Introduction to business law. UK: Oxford University Press.
Kearns, S. (2017) Legal Studies. NSW : Southern Cross University.
Law quarter. (2018) who represents your business? Agency law in Australia (part
one). [online] Available from: https://lawquarter.com.au/represents-business-agency-
law-australia-part-one/ [Accessed on 17/09/18].
Lindgren, K. E. (2011) 12th ed. Business Law of Australia. NSW: LexisNexis
Butterworths.
Tooth & Co v Laws (1888) 9 LR (NSW) 154
Vout, P. (2017) Unconscionable Conduct. The Laws of Australia. 3rd. ed. Australia:
Lawbook Co.