Overview of the Case

The issue in the given case study is to identify that whether the AFS Grocery Pty Ltd, can claim the payment of $45000 from the John’s Supermarket. The payment in question is in relation to a purchase order placed by Linda, the manager of the supermarket.

The case study is based on the law of Agency. According to the said law, the agency is defined as a contract where one party confers the right and authority on the other party to do acts on his behalf, the acts include entering into contracts. While the party who confers such right and authority is known as the principal, and the one on whom such right and authority are conferred is known as the agent of that principal. Some of the significant elements of an agency relationship are the consent of both the parties, mode of creation of such an agency and the type of the authority involved. Employer and employee relationship is one of the examples of popular principal-agent relationship.

Referring to the first important element, while the agency relationship is created, it is crucial that both the agent and the principal agree to the arrangement with free consent. The importance of this has been widely highlighted as stated in the case law of Carnac Grain Co Inc v HMF Faure & Fairclough Ltd & Bunge Corp.

Referring to the second element, the agent-principal relationship can come into existence through both the signing of an express contract and validating the same under a seal, or it can be created through an implied condition. Implied condition refers to a situation where the parties do certain acts, which are of nature of the agency, and the same is later ratified. In addition, there can be three types of agents namely, a specific agent, a general agent and a universal agent. As clear from the name itself, specific agents are the agents for specific purposes only, and the same has been agreed to beforehand. The general agent refers to the agents whose authority is to do a particular category of transactions, or a class. The universal agents are the one who can act on behalf of the principal but is having almost the same authority as that of the principal.  

The third important element of an agency is the types of the authority involved. The authority of an agent can be either of the following types.

The Law of Agency

Actual Authority: The actual authority is the one that is mentioned in the terms and conditions of any contract of agency, which is entered between the principal and agent. Thus, it is also known as the express authority, as stated by the principal either orally or in written terms. Sometimes the position of an individual also covers the scope of his or her express authority.

Apparent authority: This type of authority is also known as the ostensible authority. When the words or action so the agents lead the third parties to have the belief that a person is an agent of another, in such case a principal is estopped from denying the authority of such an agent. Thus, the apparent authority arises in the event of the representation being made by that principal.

Authority by necessity: The authority by necessity arises when there is an immediate act or an expense on the part of the agent, in order to protect the property of the principal. Thus, when due to some unavoidable reasons a principal cannot be contacted and the agent undertakes to do something, in the best interest of the principal and the property, it is known as the authority by necessity. The same has been established under the case law of Great Northern Railway Co. v Swaffield 

On applying the rules of an agency relationship as have mentioned above, the following points can be stated.

Linda was the manager of the John’s Supermarket and she has been managing the affairs of the supermarket on behalf of the principal John Miley. It is important to note that though John Miley is the owner of the supermarket, he makes certain visits to the supermarket to sign the necessary orders, and the duty to maintain the required stock in order to further the sales contract is on Linda only. Thus, although John is the signatory to the purchase orders, to further the sale order, Linda makes the actual dispatch of the sales orders. Therefore it can be stated that Linda had an ostensible authority to maintain the stock levels and the management of the supermarket.

Linda entered into the purchase contract in the capacity of the employee of the entity. In absence of the owner and no contact details, she had no other option, to save the customers. Further, the vitality of the said contract is to retain the customers and protect the goodwill and operations of the entity. Thus, then acts of Linda were in the nature of the authority of necessity and in the best interests of the John Miley, her principal and his business.

Elements of Agency Relationship

Lastly, through Linda was not expressly stated to make the purchase orders, however, the duty to maintain the stock, to make the sales possible was on Linda only. In addition, there was no express authority of denial for Linda to not to enter into said purchase contracts, which were further necessary to maintain the stock level. Had John expressly stated for Linda to not to enter into any authority except the conferred, he could have denied the liability on account of the acts done by Linda.

On application of the rules as stated above, it can be established that in the absence of an express condition to denial of Linda’s authority to not to make the purchase contracts, the contract between the AFS Grocery Wholesalers Co Pty Ltd and Linda is valid. Linda acted in her scope of the express authority which included the retainment of the customers and the overall management of stores. Thus, as she could not contact the owner, her acts in best interest cannot be denied. John Miley would be liable for Linda’s contract of $45000, with AFS Grocery Wholesalers Co Pty Ltd. 

What rights AFS Grocery Wholesalers Co Pty Ltd (AFS) have against John with respect to the payment of $45,000, in that circumstance where John informed Linda about her restricted rights.

Ostensible authority developed under an agency where a third party think that a person is acting similar to an agent and has all the rights to do so. An outsider or a third party can never be aware of the rights and duties of an agent until and unless they are expressly informed about the same. Further, an agency denotes a mutual relationship between an agent and principal that make a principal liable for the conduct of an agent. However, a principal can sue his/her agent in that situation where the agent acts something of the boundaries of provided authorities. The decision was given in the case of Watteau v Fenwick is a significant one to detail here. In this case, a principle informed his agent about his authority and also restricted the same for the number of tasks, yet agent has done those acts. A third party was not aware of agent’s restricted rights. Therefore in the decision of this case, the court held the principal liable towards the third party. Hence this is to conclude in this area that if a third party is not aware of the authority level of an agent then principle will be liable towards the third party.

Assessment of the Agency Rules

In this case, Linda was acting as an agent of John. All the outsider and customers of John’s supermarket had reason to believe that the same is an agent and John will be liable for her conduct. Now, John decided the authority of Linda and restricted her to enter into any purchase transaction on behalf of John’s supermarket. The notable fact is that all the outsider still would have reason to believe that Linda has an authority and she can develop the purchase transaction on behalf of John’s supermarket. Applying the provisions of the case of Watteau v Fenwick, John will be held liable as he did not inform to AFS about the limited authority of Linda and AFS  could not check the fact that whether Linda has the authority or not.

John will be liable to make the payment of $45000 which was mentioned in an invoice that was generated for the sale of goods to John’s Supermarket.

The issue in the case study is to examine whether there is any legal right on the part of Bruno to be free from the contract entered into by him with the company Moreslybo Pty Ltd, because of the sale of the property worth $ 160000.

The given case study is covered under the scope of the Australian Contract Law and the provisions mentioned therein with respect to the necessary elements for the validity of the contracts. According to the Australian Contract Law, an agreement to be validly regarded as a contract must possess the following necessary components, namely the existence of the consideration and the intention of the parties, the parties must be capable to enter into contracts, there should be s genuine consent, and the legality of the contract. The absence of any of the above conditions would regard the contract to be invalid.

Out of the above critical elements, one is the presence of genuine consent of the parties to a contact. For a consent to be genuine and free, it must not be obtained by exercising undue influence, mistake, misrepresentation, duress, and the unconscionable conduct. The full knowledge of the terms and the conditions is essential on the part of all the parties to the contract. Only when there is full awareness of the terms and conditions of the contract, the same can be agreed to in real, free, and genuine terms by the other party or the parties.

Ostensible Authority and Third-Party Liabilities

Referring to the consent of the parties, the parties must not be under the pressure of undue influence. The existence of undue influence comes when either of the parties to a contract is in more power than the other party. This means when a party is in a dominant position and the other is not, the former one can influence the decisions of the other in terms of the emotional and the physical vulnerabilities of the latter party. The undue influence can be further categorised into two types that are the actual undue influence and the presumed undue influence. The actual undue influence arises when the stronger party exercises so much pressure on the other to affect his or her will altogether to agree to the terms of the contract. The presumed undue influence arises out of a type of the relationship shared between the weaker and the stronger party, which has been developed out of the trust and the confidence. These relationships are known as the fiduciary relationships. These involve relationships like a parent and a child, a religious teacher and the follower, a client and a solicitor, a doctor and a patient and many such types. However, each of the relationships is examined under the light of the supporting circumstance and the nature of the situation, and thus there can be more such fiduciary nature relationships than mentioned above.  

The significant facet of the presumed undue influence in a contract is that there was an impartial advice granted by the stronger party to the weaker party before entering into the terms of the contracts. In order to prove the non-existence of the undue influence the burden lies on the stronger party to prove that the weaker party was aware of the all the terms, conditions and the consequences of the contract and agrees to it as a reasonable person would do so.

Both the nature of the undue influence makes the contract voidable at the option of the weaker party as stated in Johnson v Buttress.

On application of the provisions of the contract law in terms of the undue influence, on the given case study it can be stated that Bruno was an illiterate farmer belonging to Italy. He was currently settled at Australia and he agrees to sell his farms worth $ 220,000 to Slybo, the managing director of the property development company Moreslybo Pty Ltd, for $ 160,000. The contract was entered into on the advice of the managing director himself and was taken by Bruno when he was under the influence of alcohol and the prolonged depression.

Legal Rights Against Restricted Authority

Further, on an evaluation of the nature of the relationship, it can be said that while one party is economically and physically weak, and the other party is in a dominant position to influence the decision of the former one. As Bruno is distressed and devastated, he shares his family conditions with Slybo. Slybo in spite knowing that Bruno is suffering from the influence of alcohol and depression, he advises him to sell the property worth $ 220000 for $ 160000. A reasonable and a person of sound mind would never agree to such an arrangement.  As stated in the case law of Commercial Bank of Australia Ltd v. Amadio, the court of law had held that illiteracy and not being fully conscious at the time of contract gives the other party benefit of the position in the contract.

Further to add, as stated in the case of Johnson v Buttress, it can be said that in the events when the weaker party under the undue influence of stronger party has entered into the contract, the same is invalid and is voidable at the option of the former.

As per the discussions held in the previous parts, conclusions can be drawn that Slybo exercised undue influence over Bruno for his personal benefit and enrichment. He did the same because of his stronger position and economic disabilities of Bruno. The consent in the given case on the part of Bruno was not free and was obtained under the influence of alcohol, prolonged depression and not a fully conscious state. Else, a reasonable person would not agree to sell his property worth $ 220000 for $ 160000.

Thus, as the consent of Bruno for the said contract was not genuine, real and free, the contract is regarded as an invalid one. The same can be avoided by the weaker party Bruno, by regarding as voidable at his option, Thus, Bruno can legally choose to opt out of the contract with Slybo.

References

Carnac Grain Co Inc v HMF Faure & Fairclough Ltd & Bunge Corp [1967] 2 All ER 35.

Commercial Bank of Australia Ltd v. Amadio (1982-1983) 151 CLR 447

Great Northern Railway Co. v Swaffield (1874) LR 9 Ex 132.

Johnson v Buttress (1936) 56 CLR 113

Watteau v Fenwick [1893] 1 QB 346

Andy Gibson and Douglas Fraser, Business Law 2014 (Pearson Higher Education AU, 2013)

Kevin E. Lindgren, Business Law of Australia  (LexisNexis Butterworths, 12^th  ed. 2011).

Lucy Jones, Introduction to Business Law (Oxford University Press, 2017).

Sean Kearns, Legal Studies (Southern Cross University, 2017).

William T. Allen and Reinier Kraakman, Commentaries and Cases on the Law of Business Organization (Wolters Kluwer Law & Business, 2016).