Legal Rights Of AFS Grocery Wholesalers Co. Pty. Ltd. And Bruno's Contract With Moreslybo Pty Ltd.

Introduction and Objective

1. Linda is the manager of a supermarket named John's Supermarket, which is located in a large country town on the north coast of NSW. The store was named after the owner, John Miley, who lived in Sydney. On his frequent visits to the store, John would discuss the purchase of replacement stock and sign the necessary orders for Linda to dispatch to the suppliers. 

As a rule, sufficient stock was ordered during John visits so that Linda had no need to order further stock. 

Shortly after John's visit in December, Cathy, the sales manager of AFS Grocery Wholesalers Co Pty Ltd, called at the store and showed Linda the orders she had taken from a nearby supermarket with which John's Supermarket was in direct competition. 

Linda was in a dilemma. John was overseas for the next two weeks and had left no contact details. Faced with the absence of John and very worried about losing customers to his competitor, Linda placed an order for $45,000 worth of goods for the lucrative Easter trade. 

Three days later Linda received the goods and immediately placed them on sale. Unfortunately, the next day John had a large consignment of similar goods delivered to the store. In a note he apologised for not informing Linda of this consignment but said he had been busy with other retail business matters. 

On his return to Sydney, John received an invoice for $45,000 for the goods supplied by AFS Grocery Wholesalers Co Pty Ltd to his north coast store. He immediately informed the company that he would not pay. In a letter to the company he said:" I will not pay because Linda the manager of my store had no authority to order those goods." 

You are required to: Advise AFS Grocery Wholesalers Co Pty Ltd: 

1. Of any legal rights they may have in order to obtain payment of $45,000 for the goods they delivered to John's Supermarket (9 marks). 
2. Would your advice differ if John informed you that Linda was expressly prohibited from ordering any goods without his authority? (4 marks). 
In your answer, you are required to refer to relevant legal authority. 

2. Bruno was a peasant farmer in Italy and had very little education. In 2010, he and his wife migrated to Australia. Soon after his arrival in Australia, he purchased a small farm on the south coast of NSW for $220,000. 

In early 2012, Bruno's wife who had never wanted to migrate to Australia left him to return to Italy. Bruno was devastated as a result of his wife's departure and entered into a prolonged depression. This was compounded by an excessive consumption of alcohol. 

In mid-2012, Brno was approached by Slybo, the managing director of Moreslybo Pty Ltd, a company that was involved in property development. Slybo told Bruno that the company was keen to purchase his property. Bruno in several conversations with Slybo told him of what had happened since his wife had left him. Slybo suggested that Bruno should return to Italy and try to patch things up with his wife. Slybo then said that, in order to help Bruno, Moreslybo Pty Ltd would purchase Bruno's property for $160,000. Bruno was so happy that he could go back to Italy and be with his wife again and so he agreed to sell his property. Next day a contract between Moreslybo Pty Ltd and Bruno was prepared by the company's solicitor and signed in the solicitor's office. 

A few weeks later, and before the sale of his property was concluded, Bruno was pleasantly surprised when his wife returned to Australia. She told Bruno that she could not live being separated from him. She said "I want to live with you and work the farm so that we have a future together. If things go well we can eventually make regular trips to Italy ". Bruno was delighted with his wife's plans for their future. 
Bruno told her of the contract he signed for the sale of the property. She became very upset at the news and pleaded with him to keep the farm. 
Bruno now wants to keep the farm. He wants to get out of the contract with Moreslybo Pty Ltd. 

Advise Bruno of any legal rights he may have in order to be released from liability under his contract with Moreslybo Pty Ltd. 
In your answer, you are required to refer to relevant legal authority. 

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.

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 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).

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 stock and the signing of the necessary orders. However, the actual dispatch of the order is made by Linda herself.

Principles of Agency Relationship

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 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.

Duties and Authority of an Agent

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.

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.

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.

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.

Applying Agency Relationship Rules to the Case

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 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.

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.

Factors Determining Legality of Bruno's Contract

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.

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.

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 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.

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: https://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: https://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) 12^th 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. 3^rd. ed. Australia: Lawbook Co.