Business Law Assignment: Contract, Agency, and Liability Analysis

This business law assignment addresses two primary issues: the legal position of Qantas Airlines regarding a faulty airplane entertainment system and the legal rights of Frank in two agency scenarios. The first issue involves contract law, focusing on breach of contract (warranty vs. condition), exclusion clauses, and potential damages. The second issue delves into agency law, exploring actual, apparent, and authority of necessity, along with the agent's fiduciary duties. The assignment analyzes scenarios where agents act on behalf of a principal, examining the enforceability of contracts and the liabilities of both the agent and the principal. The solution provides advice to Frank on recovering losses and fulfilling contractual obligations based on the principles of contract and agency law, referencing relevant case law and legal principles to support the conclusions.

Business Law
Assessment item 3
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Question 1
Issue
The key issue is to advice Qantas Airlines on the legal position with regards to the delivery of the
air place with faulty entertainment software.
Law
During the negotiation of a contract, there are representations with regards to the products from
the seller directed at the buyer. However, all these representations do not form part of the
contract. The ones which are considered important by either of the parties is drafted into the
contract and hence called the contractual terms. It is imperative that there must not be violation
of the terms of the contract by either of the parties (Carter, 2012).
The result of the violation of the term would be dependent on the fact whether the given term is a
condition or a warranty. The conditions are typically those clauses which are so essential for the
contract that in the absence of these, one of the parties would not enter the contract only. As a
result, violation of any condition provides the right to the innocent party to declare the contract
as void and also claim damages. This has been highlighted in the verdict of the Poussard v Spiers
(1876) 1 QBD 410 case (Gibson & Fraser, 2014). However, if the term breached represents a
warranty, then the innocent party cannot declare the contract as void and instead can only claim
damages to the extent of the losses suffered due to the breach of warranty. This is in line with the
verdict of the Bettini v Gye (1876) 1 QBD 183 case (Harvey, 2009).
One of the ways to minimize the liability of a contractual party is through the insertion of an
exclusion clause. This tends to either waive the complete liability or limit the same (Carter,
2012). In order for this clause to be applicable, the following conditions would need to be
fulfilled.
 Communication of the clause before contract enactment
The exclusion clause would be valid only when the clause has been brought to notice or
communicated to the other party. In this regards, the party inserting the clause is expected to take
reasonable efforts to put across the same to the other party irrespective of the fact whether the
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other party takes notice of the same despite sincere efforts (Lindgren, 2011). The exclusion
clause which are inserted after the enactment of contract are not considered as enforceable which
has been made apparent in the decision given by the honorable court in Thornton v Shoe Lane
Parking [1971] 1 All ER 686 and Olley v Marlborough Court [1949] 1KB 532 case (Paterson,
Robertson and Duke, 2015).
 Legality of the underlying clause
It is pivotal that the concerned exclusion clause must not be used as a defense against any
misleading and deceptive conduct which is required so as to safeguard the interest of the
consumer (Davenport & Parker, 2014).
 Exclusion clause related to negligence
In relation to potential negligent conduct it is necessary, that the party which inserts the
exclusion clause regarding liability limitation or waiver in case of negligence must take
reasonable measures to communicate to the other party that the clause has been inserted only
with the intent of escaping or minimizing liability in case of negligence being exhibited
(Gibson and Fraser, 2014).
Application
Based on the given facts, it is apparent that there has been a contract between Airbus and Qantas
with regards to supply of the airplane which would lead to daily savings to the extent of
$800,000. There were a number of terms included in the contract with one being that the in-flight
video system would have 36 channels for the entertainment of the passengers. There were other
terms related to the engine and the distance that could be covered in a single flight. The plane
that Airbus provided to Qantas had only 34 channels in the inflight video on account of software
error on account of confusion. Clearly, the number of in-flight video channels would be termed
as a warranty as it is not so essential to the contract. As a result, Qantas can only claim damages
from Airbus since it is at fault for complying with the contractual term but cannot cancel the
contract.
With regards to the quantum of liability, the exclusion clause which limits the liability of Airbus
to $ 300,000 would not be applicable as during the contract negotiation or in the contract, there
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has been no mention of this exclusion clause and hence in line with the verdict prescribed in
Olley v Marlborough Court [1949] 1KB 532, the exclusion clause would not apply and hence
Qantas can claim all the financial damage which would be caused on account of the time delay
and loss of savings.
Conclusion
Based on the above discussion, it would be fair to conclude that the Qantas can recover monetary
losses to the extent that it suffers the loss due to negligence on part of Qantas as the exclusion
clause would not be held enforceable. Further, Qantas cannot cancel the contract as the term
violated is a warranty and not a condition.
Question 2
Issue
The issue is to determine the legal position and rights of Frank for the two cases shown below:
Case 1: Frank hired Gemma as salesperson who has sold a dishwasher to her niece at lower
price ($300)
Case 2: Frank has appointed Bob to sell washing machines who has enacted a contract with
Angela on behalf of Frank irrespective of the withdrawal of authorization.
Law
Agency law would come into existence when principal has appointed a person (agent) to execute
contracts with the third party. As per this law, it is the main responsibility of the agent to follow
the instruction of the principal and work accordingly. This is because the third party would enter
into legal relationship with the agent by considering the fact the agent has sufficient
authorization. Further, these agreements would be enforceable on the principal and the third
party has the legal position to claim for damages or sue the principal for not satisfying the
contractual obligations (Gibson & Fraser, 2014).
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The enacted contract would be enforceable on principal only when any of the following authority
is possessed by the agent and the agent acts within the scope of the same (Harvey, 2009).
1. Actual authority
In this authorization, the principal would provide the authority either orally or through written
mode. This is the case of express actual authority. While, the principal does not express the
authority directly but has entitled the agent with respective profile/position to conduct the act,
then this is termed as implied actual authority. The Watteau v Fenwick [1893] 1 QB 346 case is
the evident of actual authority. The requisite aspect is that the principal must notify the agent’s
authorization to the third party (Paterson, Robertson and Duke, 2015).
2. Authority of necessity
When the agent has enacted contract with third party in order to safeguard the interest of the
principal irrespective of the requisite authority, then this is called authority of necessity. The
Northern Railway Co. v Swaffield (1874) LR 9 Ex 132 case provides evidence in this regard
(Davenport & Parker, 2014).
3. Apparent authority
In this case, the principal’s objective is not to extend any authority to agent, but because to the
agent’s existing authority and related work, the third party presumes that the agent has sufficient
authorization. In this case also, the enacted contract by the agent would be enforceable on the
principal. The judgment given in Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All
ER 630 case provides evidence in this regard (Carter, 2012).
Absence of any of the above authority would not lead to the enforceability of the contract on the
principal. Therefore, in this scenario, the principal is not liable to fulfill the obligations of the
contract enacted by the agent with the third party. The verdict of Yonge v Toynbee [1910] 1 KB
215 case is the witness of this aspect (Lindgren, 2011).
There are set of responsibilities/duties that must be adhered to by the agent in regards to the
conduct towards the principal.
1. Fiduciary duty
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It is the responsibility of the agent to act in good faith and safeguard the interest of the principal
(Gibson & Fraser, 2014).
 Agent must not conduct a work on the name of principal for his own personal interest as
per the decision of Christie v Harcourt [1973] 2 NZLR 139 case.
 Agent must not make any secret money from principal as highlighted in Bentley v
Craven (1853) 52 ER 29 case.
 Agent must not use the confidential information of principal for his own work as per
Robb v Green [1895] 2 QB 315 case.
2. Work as per the authority provided by the principal
Agent must be conduct the work based on the instruction offered by the principal.
Therefore, it is essential that agent must work as per the above highlighted facts or else the
principal can sue agent and recover the damages. It is imperative to note that if the third party
has enacted a contract with agent in good faith and the agent does not have necessary authority,
then also the contract is binding on the principal. However, it is vital that the principal has not
informed the third party regarding the level of authority or withdrawal of authority of agent. If
principal denies, then the third party can sue the principal (Harvey, 2009).
Application
Case 1:
Principal – Frank
Agent – Gemma
Frank is a sole trader who runs a shop which sells appliances. Gemma is working as a sales
person for Frank. There is an old dishwasher in the shop with a cost of $350. Tom a customer
wants to purchase this for $ 350 and he goes home to find the suitable space for dishwasher. At
that moment only, Gemma called her niece and sold the dishwasher for the price $300 by
misleading Frank that the true value is $ 300 and not higher. It is apparent that she has performed
the work of her own interest because Tom is ready to pay $350 for the dishwasher. Therefore,
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the breach of fiduciary duty would extend the right to Frank that he can recover the damage of
worth $50 from Gemma.
Case 2:
Principal – Frank
Agent – Bob
Frank has employed Bob in his shop as a salesperson. Bob’s duty is to sell large quantities of
washing machines to laundries. Also, he has negotiated with Angela many times. Further, due to
the bad habits or Bob (late coming to work and drinking), Frank has withdrawn all the authority
from Bob and fired him. However, he does not notify this to Angela and later on, Bob sent an e-
mail to Angela and offer 10 washing machines for $10,000. Angela accepted the offer and
entered into contract with Bob and also made the contractual payment of $10,000. It is apparent
that Bob has performed the act after the revocation of the authority and therefore, Frank can sue
Bob for behaving fraudulently and can recover the damages. Also, Angela does not know that he
has fired Bob and hence, enacted the contract in “good faith.” Therefore, the contractual liability
would be enforceable on Frank and he has to deliver the ten washing machines to Angela at $
10,000. If Frank refuses to deliver the order, then Angela can sue Frank and claim damages.
Conclusion
Advices to Frank for the cases are highlighted below:
Case 1: Gemma has breached fiduciary duty and therefore, Frank can recover the loss amount
($350 – $300 = $50) from Gemma.
Case 2: Bob has enacted the contract irrespective of authority and hence, Frank can sue Bob and
recover the amount of $10,000. Further, Frank has not notified Angela about the revocation of
the authority from Bob and hence, Frank is accountable to complete the contractual liability.
References
Carter, J. (2012) Contract Act in Australia. (3rd ed.) Sydney: LexisNexis Publications.
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Davenport, S. & Parker, D. (2014) Business and Law in Australia (2nd ed.). Sydney: LexisNexis
Publications.
Gibson, A. and Fraser, D. (2014) Business Law (8th ed.) Sydney: Pearson Publications.
Harvey, C. (2009) Foundations of Australian law (3rd ed.) London: Tilde University Press.
Latimer, P. (2005) Australian business law (24th ed) Sydney: CCH Australia Ltd.
Lindgren, K.E. (2011) Vermeesch and Lindgren's Business Law of Australia (12th ed.) Sydney:
LexisNexis Publications.
Paterson, J. Robertson, A. & Duke, A. (2015) Principles of Contract Law (5th ed.) Sydney:
Thomson Reuters
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