Agency Law And Unconscionable Conduct In Contract Law Essay.

Liability of John with respect to the goods sold to John's supermarket worth $45,000

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 

2. Would your advice differ if John informed you that Linda was expressly prohibited from ordering any goods without his 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.
 

1.Issue

Whether AFS Grocery Store has any rights to seek payment from John with respect to goods sold to John’s supermarket that was worth $45000.

A person can enter into a contract with the help of his/her agent. In commercial transaction mostly, it does not remain possible for an owner of a business to get personally involved in every transaction, hence they opt option of the agency. A person, who has authority to enter into a contract on behalf of other, is termed as agent and the person on whose behalf an agent act is known as the principal. Under an agency law, a principal is responsible for the acts of his/her agent (USlegal, 2018). However, this is necessary to know that a principal will be held liable for those acts of the agent, which the agent do within the boundary of authority provided by principle. Under an agency, the authority can be of various types such as expressed, implied, or ostensible and so on. An expressed authority is what a principal clearly gives to his/her agent, whereas an implied authority is what an agent deemed to have because of the nature of work under expressed authority (BPP Learning Media, 2017).

An ostensible or apparent authority is related to the doctrine of estoppel (Witnesseth, 2018). In such a situation, a principal does not provide any expressed authority to the second person but shows some actions that lead a reason to believe for others that the second person is acting on behalf of the first one (Miller and Jentz, 2010). For instance, an employer at a senior position such as manager is deemed to has ostensible authority from his/her employer. Similar to any other authority, a principal is liable for the act of agent even in the cases of ostensible authority. The reason behind this is to provide a safeguard to other people who are not aware of the fact that in actuality there is no authority exists in actual. It was held in the case of Tooth & Co v Laws (1888) 9 LR (NSW) 154, that an outsider who deals with a person considering him/her as expressed agent of a second party (principal) will be eligible to seek remedies from that second party, until unless he/she was informed with the actual conditions. If a person informs to the third party that another person is looking like his/her agent but is not in actual, then such first person will not be held liable towards the third party for any conduct of another person.

Impact of unconscionable conduct on contract law

In the given case, Linda was the sales manager of John’s Supermarket. She was the only person who used to deal in sale matter of supermarket. People who were dealing with supermarket were used to communicate with Linda and therefore they had reason to believe that Linda is an authorized agent of the supermarket. Further, as per the internal practice of their business, John was the only person who was engaged in purchasing stock for sale. Once, when John left for Sydney, Linda was in need to order some stock to sale the same further. Here, she had an implied authority as ordering the goods for sale was a necessary task to meet out the requirement of her expressed role that was of a sales manager. As mentioned under rule area, Linda was a sales manager and therefore seems to have an ostensible authority.

Linda has ordered some type of goods worth $45,000 from AFS Grocery wholesalers Co. Pty. Ltd (AFS) and AFS raised an invoice on the name of John’s supermarket. As Linda was acting on behalf of the supermarket that was named as “John Supermarket,” applying the provisions of Tooth & Co v Laws a third party had reason to believe that Linda is given an authority to act on behalf of John’s Supermarket. In addition to this, if John did not want to be responsible for any purchase transaction by Linda, he was required to inform the third party that he would not be liable for such purchase transaction, but he has not done so. As there is an ostensible authority, John seems to be liable for the act of Linda and AFS can claim the payment of goods $45,000 that has been supplied to John’s supermarket.

In conclusion, this is to be stated that an agency relationship was there between John and Linda because of ostensible authority. John did not inform to AFS about the true situation of Linda and therefore he is liable to make the payment of invoice worth $45,000 of goods that Linda purchased on behalf of John’s Supermarket.

The issue is to check John’s liability in that situation where he has expressly prohibited Linda from ordering goods in the absence of his permission.

In the cases of ostensible authority, a third party cannot be aware of the internal settlement, dealing, and the relationship of principal and agent. An outsider can only be aware of the fact that there is an authority given to the agent. What level of authority an agent has can only be checked by looking after the expressed arrangement of agent and principal? As per the decision was given in the case of Watteau v Fenwick [1893] 1 QB 346 a principal will be held liable for a deed of an agent under ostensible authority if not clearly states to an outsider that no such authority is available with an agent.

Remedies for voidable contracts

As mentioned in the case, that John has clearly prohibited by ordering any goods for the supermarket, it was the responsibility of Linda to not order such goods as her this action was outside of the boundary of authority. By ordering goods on behalf of John’s supermarket, Linda has breached the term of agency contract that has developed between Linda and John. However applying the provisions of Watteau v Fenwick, John also might inform to AFS that Linda has no authority to buy any goods on behalf of John’s supermarket. As John has not informed this to AFS, he will continue to be liable towards AFS because AFS has reason to believe that John will ratify the act of Linda and will make the payment of the raised invoice.

Regardless of the mutual discussion of Linda and John, John will be liable to make the payment of the invoice raised by AFS and cannot deny from his liability as an ostensible authority was there

Do Bruno has any right against Moreslybo Pty Ltd using which he can escape from his liability of performance under the subjective contract.

An offer and acceptance are two most basic element of a contract. In addition to offering and acceptance, consideration and intention of the parties are also necessary elements that must be there in a valid contract (E-Law Resources, 2018). Now, moving towards another aspect, this is to mention that only presence of an offer and acceptance is not enough. It is required that they both must be valid according to the provisions of contract law. For acceptance, it is required that the same must be free from any unethical factor such as fraud, undue influence, unconscionable conduct and so on (The Law Handbook, 2018). In a situation, where these factors do exist a consent cannot be treated as independent. Before looking after the remedies against these factors, this is required to know that what an unconscionable conduct is.

Unconscionable conduct:- It is a conduct which is not fair to one of the parties of the case. In a contract, an offeror does such conduct in against of offeree to seek his/her consent to develop a contract. Where a person holds a superior position and uses the same over another one in an unfair manner, this situation is known as unconscionable conduct (Australian Contract Law, 2018). Such conduct generally exists in those situations where the victim party does remain in an inferior situation, because of his/her less knowledge, old age, and disability or for any other such special disadvantages (Gibson and Fraser, 2013). Further, such conduct also presents in that situation where being a part of the business one party has well-established knowledge of the industry and another one being a consumer forced to rely on the knowledge of the first one. An unconscionable conduct makes a contract unconscionable. It was held in the decision of the case of Bridgewater v Leahy (1998) 194 CLR 457, that an unconscionability will be there in those cases where an offeree consumes the heavy amount of alcohol.

Case study of Bruno and his transaction with Moreslybo Pty Ltd

In addition to this, undue influence is also another aspect of a similar kind. This is a situation where one party carries a relationship that puts unfair pressure over another to seek his/her consent in a contract (Senior Rights Victoria, 2018).

Impact of unconscionable conduct:- Because of the existence of an unconscionable conduct, a contract becomes voidable at the end of the innocent party. As an independent and fair consent is a pre-requisite of a contract, therefore a contract cannot be held valid when the consent given by offeree is influenced by the unconscionable conduct of the offeror (Legal Match , 2018).

Remedies:- As stated above that an unconscionable contract is voidable one, hence the same does not put any obligation on victim party to perform his/her obligation under as required by the contract. The innocent and victim party can rescind the contract (McBride, 2017)

In the given case, Bruno was a farmer who moved to Australia with his wife. He was very little educated. In Australia, he was intended to do work of the farm and therefore purchased a farm for $220,000 in the area of south coast in New South Wales. Bruno’s wife in the case was not happy about their departure to Australia, as she was never been there before. As she was not happy with the decision of Bruno, she returned to Italy. Because of this whole incident, Bruno went into a stage of depression and started consuming a heavy volume of alcohol. In mid-2012, a person whose name was Slybo and was managing director of Moreslybo Pty Ltd approached Bruno to purchase his farm. This company was engaged in the business of property development and being the managing director of this company Slybo had very good knowledge of this industry. Bruno informed Slybo about the incident of his and his wife. Slybo suggested Bruno that he must sell his farm and return to Italy.

As Slybo was a part of the property development industry, he was in a position to do unconscionable conduct in against of Bruno. He was aware that the mental status of Bruno is not sustainable because of much use of alcohol and depression. Applying the provisions of Bridgewater v Leahy, this can be stated that Slybo took unfair advantage of the situation of Bruno and suggested him to sell the farm because this transaction was fruitful for his company. Bruno has entered into a contract with the Moreslybo Pty Ltd to sell his farm. As Slybo was in a position to influence the decision of Bruno, this is to state that he has done unconscionable conduct and therefore the consent given by Bruno was not an independent one. Although all the other requirements of a valid contract such as consideration and intention of parties were there, an independent consent was missing. According to the terms of the contract, the sell was made for $160,000 and the same was expected to conclude in coming weeks. In the meanwhile, Bruno’s wife returned from Italy and now she wanted to reside in Australia and to do work of the farm. As the contract developed between Moreslybo Pty Ltd and Bruno is unconscionable, the same will be held voidable.

In the conclusion, this can be stated that the contract developed between Moreslybo Pty Ltd and Bruno can be held voidable. Bruno has the right to rescind the same. In such a situation, he would not be required to perform his obligation. It means he can deny giving possession of his farm to Moreslybo Pty Ltd and in this manner; he will be able to set aside his liability under the contract 

References 

Australian Contract Law. (2018) Unconscionable Conduct. [online] Available from: https://www.australiancontractlaw.com/law/avoidance-unconscionable.html [Accessed on 16/09/2018]

BPP Learning Media. (2017) ACCA F4 Corporate and Business Law (English). London: BPP Learning Media.

Bridgewater v Leahy (1998) 194 CLR 457

E-Law Resources. (2018) Intention to create legal relations. [online] Available from: https://e-lawresources.co.uk/Intention-to-create-legal-relations.php [Accessed on 16/09/2018]

Gibson, A., and Fraser, D. (2013). Business Law 2014. Austrlia: Pearson Higher Education AU.

Legal Match. (2018) What Is an Unconscionable Contract? [online] Available from: https://www.legalmatch.com/law-library/article/what-is-an-unconscionable-contract.html [Accessed on 16/09/2018]

McBride, 2017) Key Ideas in Contract Law. UK: Bloomsbury Publishing.

Miller, R., L.,  and Jentz, G., A. (2010) Cengage Advantage Books: Business Law Today: The Essentials (9^th ed.). USA: Cengage Learning.

Senior Rights Victoria. (2018) Undue influence & unconscionable dealing. [online] Available from: https://assetsforcare.seniorsrights.org.au/relationship-breaks-down/equity/undue-influence-unconscionable-dealing/ [Accessed on 16/09/2018]

The Law Hand Book. (2018) Elements of a Contract. [online] Available from: https://www.lawhandbook.org.au/2018_07_01_03_elements_of_a_contract/ [Accessed on 16/09/2018]

Tooth & Co v Laws (1888) 9 LR (NSW) 154

USlegal. (2018) Rights, Duties, And Liabikties Between Principal and Third Parties. [online] Available from: https://agency.uslegal.com/rights-duties-and-liabilities-between-principal-and-third-parties/ [Accessed on 16/09/2018]

Watteau v Fenwick [1893] 1 QB 346

Witnesseth. (2018) Estoppel to Deny Agency. [online] Available from: https://witnesseth.typepad.com/blog/estoppel-to-deny-agency.html [Accessed on 16/09/2018]