Research assignment II

COMMERCIAL LAW

8/15/2023

SUBMITTED BY: CHARU JINDAL

SUBMITTED TO: UPEKA PARERA
VICTORIA UNIVERSITY, AUSTRALIA.
TABLE OF CONTENTS

Table of Contents.......................................................................................................................1

ISSUE I: Evaluate the validity of the contracts entered into with ‘Spuds’ by Dave on behalf of
‘IT 4 U’.......................................................................................................................................2

Sub-Issue 1: Whether Contract between IT4U and Spuds contains all elements of contract?
................................................................................................................................................2

Rule of Law........................................................................................................................2

Applicability of Rule of Law to Present Scenario.............................................................2

Sub- Issue 2: Whether Dave had an authority to enter into contract with Spuds as an agent
of IT4U? If so, then to what extent?......................................................................................3

Rule of Law........................................................................................................................3

Applicability of Rule of Law to Present Scenario.............................................................3

Sub- Issue 3: Whether and if yes, when was the act of Dave entering into contract with
Spuds is ratified by IT4U?.....................................................................................................4

Rule of Law........................................................................................................................4

Applicability of Rule of Law to Present Scenario.............................................................5

CONCLUSION......................................................................................................................6

ISSUE 2: Analyse whether Lydia’s withdrawal posted on 4 July 2021 is valid?......................6

Rule of Law applicable..........................................................................................................6

Applicability of Rule to Law to Present Scenario..................................................................6

CONCLUSION......................................................................................................................7

BIBLIOGRAPHY......................................................................................................................8

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ISSUE I: EVALUATE THE VALIDITY OF THE CONTRACTS ENTERED INTO WITH ‘SPUDS’
BY DAVE ON BEHALF OF ‘IT 4 U’.

The validity of contract entered into with ‘Spuds’ by Dave on behalf of ‘IT 4 U’ depends
on Dave’s authority to act as an agent of behalf of his principal.

Sub-Issue 1: Whether Contract between IT4U and Spuds contains all elements of
contract?

Rule of Law

Key elements of contract under Australian Law-

Offer and Acceptance- Offeror makes and offer and offeree accepts the offer in whole
without any modifications or attached conditions.1

Intention to create legal relationship- Parties must have an intention to create a relationship
which is legally binding i.e., rights and duties arise in such relationship.2

Consideration- It is something that has value and given by each party for something in
return.3

Capacity- Parties must be of sound mind and legal age to enter into contracts.4

Free consent- Consent of parties must be free from duress, undue influence, fraud or
misrepresentation.

Legality- Scope and purpose of forming a contract must not be illegal or contrary to public
policy

Certainty- Terms of contract must be clear, and free from any vague or ambiguous terms.5

Applicability of Rule of Law to Present Scenario

In the present scenario, Dave (on behalf of IT 4 U) is the offeror, who makes an offer to
provide $700,000 worth of IT Sales Equipment and $300,000 worth of after sales IT service,
Lydia (on behalf of Spuds) is the offeree who accepts the offer immediately. So, there is offer
and acceptance. There is intention to create legal relationship as it is a pure commercial
nature contract. $1million constitutes consideration in return for $700,000 IT equipment and
$300,000 worth of after sales service. There is no question or indication as to legality,
1
Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256.
2
Balfour v Balfour (1919) 2 KB 571.
3
Ward v Byham (1956) 1 WLR 496.
4
Blomley v Ryan (1956) 99 CLR 362.
5
Codelta Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.

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uncertainty, free consent or legal capacity of the parties to contract. So, all necessary
elements of valid contract are fulfilled, hence, it's a valid contract and the only issue that
arises is the authority of Dave to act as an agent for IT 4 U.

Sub- Issue 2: Whether Dave had an authority to enter into contract with Spuds as an
agent of IT4U? If so, then to what extent?

Rule of Law

Agency can be defined as a relationship wherein a person (agent) is given the authority to
create legal relations between the person giving the authority (principal) and third parties. 6
The most important question in the domain of agency is ‘What authority the agent had on
behalf of the principal and to what extent this authority stretched when he did the act?’ 7 The
existence and extent of authority can be expressly given or it can be given impliedly or
ostensibly by the principal.8

Implied authority means authority not expressly given but inferred from the peculiar facts of
the case. It is also called incidental authority. Any authority implied from an actual authority
must not be inconsistent with the substantial character of the agency.9

On the other hand, ostensible authority is neither express nor implied authority but created
from the conduct and words of the principal towards the third party. It involves the principal
intentionally or negligently holding out (or representing) another to be their agent through
words or conduct. It is based on the principle that where the acts of the principal make the
third party believe that the agent has authority to act even though he has no actual authority, it
could lead to the detriment of the third party and the principal should be liable for such acts.

Applicability of Rule of Law to Present Scenario

In the instant case, even though Dave as the Sales Manager of IT4U is its agent and had the
authority to contract with Spuds, but his authority was limited only the contracts pertaining to
the sale of IT equipment. So, the $700,000 contract regarding sales of IT equipment is based
on express authority of agency given to Dave. The act of contracting for the after sales
services for $3,00,000 was outside the scope of authority given to him by IT4U. Such
authority cannot be inferred as implicit authority as it would contradict the explicit powers
given to Dave. Furthermore, the authority to contract for aftersales services is given to Kate.

6
International Harvester Co. of Australia Pt. Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644.
7
Petersen v Moloney (1951) 84 CLR 91, at 94.
8
Investec Bank (Aust) Ltd v Colley (2012) 91 ACSR 597.
9
Marriott v General Electric Co Ltd (1935) 53 CLR 409.

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Such authority is not covered even under ostensible authority as Karen (the principal) never
represented to Spuds (third party) that Dave had the authority to contract for aftersales
services. Therefore, it is concluded that the Dave’s act of making a contract for 1 million
dollars was partly under his authority (supply of IT equipment for $7,00,000) and partly
outside his authority (aftersales services for $3,000,000).

Sub- Issue 3: Whether and if yes, when was the act of Dave entering into contract
with Spuds is ratified by IT4U?

Rule of Law

The acts of agent bind the principal only if they are under the ambit of the agent’s authority
given by the principal. This rule has two exceptions: ostensible authority given by the
principal, and the acts rectified by the principal.

The effect of rectification of acts by the principal is that the acts fall within the agent’s
authority retrospectively.10 All unauthorised acts of the agent are capable of ratified. 11
Rectification is done when: An unauthorised agent does an act like contract with third party
for the principal. The principal is pleased with the contract and rectifies it even though agent
had no authority. Therefore, the contract is considered valid and binding as if it was made
with prior authority.

Essentials of a valid ratification are:

1. Agent should have purported to act on behalf of the principal i.e., third party should
know or able to ascertain the principal.,
2. Principal should be competent to perform the act himself when it was done by the
agent; and
3. Principal should be competent to perform the act himself at the time of ratification. 12

In the instant case, all three conditions are met as Dave was acting as an agent of IT4U, the
company was competent to enter into contract at both times – when contract was formed,
and, when it was ratified, and the third party (Spuds) was aware of the principal’s identity.

10
Attorney-General (NSW) v Wylde (1946) 47 SR (NSW) 99, at 109.
11
Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil (1985) QB 966, at 985.
12
Lyell v Kennedy (1889) 14 App Cas 437.

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This leads to the question, did Karen as the owner of IT4U ratify the contract made by Dave
on 1st July? Validity of ratification is a factual question. 13 The law emphasises on considering
all the surrounding circumstances related to the act in question.14

Rectification can be shown by giving evidences (acts and words) purporting the election to
ratify the acts either by the principal or by someone else for his benefit or in his name.
Knowledge is a necessary element of ratification 15 and the principal should be aware of the
material terms.16

Furthermore, it is not necessary for the principal to communicate their ratification to the third
party.17 It is based on the doctrine explained in Harrison’s & Crossfield Ltd v. London &
North-Western Railway Co18 that ratification does not rest upon estoppel. Ratification is a
unilateral act of the will, namely, the approval after the event of the assumption of an
authority which did not exist at the time. It can be explicit or implicit.

The earlier decisions of the courts interpreted the doctrine of ratification strictly like in the
case of Bolton Partners Ltd v Lambert,19 wherein the principal ratified the contract after the
third party withdraw the offer. The court held that doctrine is applicable and upon ratification
the contract is valid retrospectively and withdrawal of offer does not matter. It distinguished
20
these facts from the case where the principal agrees to the withdrawal of offer. Such
interpretation is criticised as it is prima facie detrimental to the interests of the third party. To
remedy this the courts have laid down some conditions on its application:

 Principal should ratify the act within reasonable time from its inception.21
 Ratification must take place at a time, and under circumstances, when the ratifying
party might themselves have lawfully done the act which they ratified.22
 Ratification should not lead to unfair prejudice of the third party.23

Applicability of Rule of Law to Present Scenario

13
Borg v Northern Rivers Finance (2004) QSC 29, at 43.
14
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) VR 607, at
617.
15
Freeman v Rosher (1849) 13 QB 780.
16
Suncorp Finance & Insurance Corp v Milano Assicurazioni Spa (1993) 2 Lloyd’s Rep 225, at 235.
17
Rowe v B & R Nominees Pty Ltd (1964) VR 477.
18
Harrison’s & Crossfield Ltd v. London & North-Western Railway Co (1917) 2 KB 755, at 758.
19
Bolton Partners Ltd v Lambert (1889) 41 Ch D 295.
20
Walter v James (1871) Law Rep 6 Ex 124.
21
Managers of the Metropolitan Asylums Board v Kingham & Sons (1890) 6 TLR 217.
22
Bird v Brown (1942) 148 Pa Super 534.
23
Zeeman J Adams v Elphinstone (1993) 2 Tas R (NC) N14, at 26.

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In the instant case, it can be concluded that Karen ratified the contract made by Dave on 1 st
July by implication even though she did not convey her ratification to Spuds. She was angry
upon being informed that Kate would have got $2,00,000 more for the year’s services but she
did not express her unwillingness to perform the contract. Further, her ratification of the
contract can be implied from the fact that she promoted Dave to the post of Sales Director
upon realising that the contract is extremely favourable to her.

CONCLUSION

Hence, even though the contract made by Dave on 1 st July was outside his authority as an
agent and should have been invalid, it is valid because Karen ratified the contract giving
Dave the authority to make the contract retrospectively.

ISSUE 2: ANALYSE WHETHER LYDIA’S WITHDRAWAL POSTED ON 4 JULY 2021 IS

VALID?

The validity of contract entered into with 'Spuds' by Dave on behalf of 'IT 4 U' depends on
Dave's authority to act as an agent of behalf of his principal.

Rule of Law applicable

General rule of law regarding withdrawal of offer is that it’s valid when such revocation has
been communicated to offeror before the offer has been accepted by the other party. 24 Once,
there is offer, which has been accepted by another party, and there is due consideration
involved, it is a valid contract unless there are any exceptions applicable. 25 Once a valid
contract has been formed, any party wanting to withdraw their offer or acceptance is termed
as breach of contract, unless the other party allows such withdrawal.26

Ratification will not operate to invest Agent, Principal and Third party with the same rights as
if agent had been authorised where the agreement between A and T was made subject to
ratification. Here, there will be no contract unless and until ratified/accepted. 27

The postal rule in contract law is not applicable to withdrawal of offer, such withdrawal is
only valid upon receipt by another party.28

Applicability of Rule to Law to Present Scenario

24
Payne v Cave (1789) 3 TR 14.
25
Dickinson v Dodds (1876) 2 Ch D 463.
26
Poussard v Spiers & Pond (1876) 1 QBD 410.
27
Watson v Davies (1931) 1 Ch 455.
28
Byrne v Van Tienhoven (1880) 5 CPD 344.

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In the present scenario, Since the contract between IT 4 U and Spuds is valid retrospectively
from 1st July 2021 as discussed, so Lydia’s withdrawal posted on 4 th July 2021 will be treated
as revocation of acceptance after the contract has been formed. She posts the letter on
Monday 4th July 2021, which is well after the date of contract being formed. Although,
ratification was not communicated to ‘Spuds’, but since the contract was not made subject to
ratification, it is a valid contract and Lydia’s withdrawal will be invalid and amount to
breaching of the contract. So, IT 4 U can seek remedy against Spuds for breach of contract.

In this case, postal rule will not apply as withdrawal was posted well after contract has been
validly formed and by the time it receives the other party, it has also been ratified by IT 4 U.

CONCLUSION

It can be well concluded, from above discussion that, contract entered by Dave on behalf of
IT 4 U with Spuds will be deemed to be valid from 1 st July 2021 itself, i.e., when it was
initially made because of fulfilling all elements of valid contract, ratification by the principal
and its retrospective nature. And Lydia’s withdrawal posted on 4 th July 2021 is not valid, it
will be a breach of contract.

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BIBLIOGRAPHY

BOOKS:

 Samantha Traves, Commercial Law (Lexis Nexis, 5th ed. 2020).

 Fitzpatrick et al, Business and Corporation Law (Lexis Nexis, 4th ed. 2020).

CASES:

 International Harvester Co. of Australia Pty. Ltd. v. Carrigan’s Hazeldene Pastoral Co.
(1958) 100 CLR 644.
 Petersen v. Moloney (1951) 84 CLR 91.
 Investec Bank (Aust) Ltd. v. Colley (2012) 91 ACSR 597.
 Marriott v. General Electric Co. Ltd. (1935) 53 CLR 409.
 Attorney-General (NSW) v. Wylde (1946) 47 SR (NSW) 99.
 Bedford Insurance Co Ltd v. Instituto de Resseguros do Brasil (1985) QB 966.
 Lyell v. Kennedy (1889) 14 App Cas 437.
 Borg v. Northern Rivers Finance (2004) QSC 29.
 Crabtree-Vickers Pty. Ltd. v. Australian Direct Mail Advertising & Addressing Co.
Pty. Ltd (1975) VR 607.
 Freeman v. Rosher (1849) 13 QB 780.
 Suncorp Finance & Insurance Corp v. Milano Assicurazioni Spa (1993) 2 Lloyd’s Rep
225.
 Rowe v. B & R Nominees Pty. Ltd. (1964) VR 477.
 Harrison’s & Crossfield Ltd v. London & North-Western Railway Co (1917) 2 KB
755.
 Bolton Partners Ltd. v. Lambert (1889) 41 Ch D 295.
 Walter v. James (1871) Law Rep 6 Ex 124.
 Managers of the Metropolitan Asylums Board v. Kingham & Sons (1890) 6 TLR 217.
 Bird v. Brown (1942) 148 Pa Super 534.
 Zeeman J Adams v. Elphinstone (1993) 2 Tas R (NC) N14.
 Carlill v. Carbolic Smoke Ball Co. (1893) 1 QB 256.
 Balfour v. Balfour (1919) 2 KB 571.
 Ward v. Byham (1956) 1 WLR 496.
 Blomley v. Ryan (1956) 99 CLR 362.

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 Codelta Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149
CLR 337.
 Payne v. Cave (1789) 3 TR 14.
 Dickinson v. Dodds (1876) 2 Ch D 463.
 Poussard v. Spiers & Pond (1876) 1 QBD 410.
 Watson v. Davies (1931) 1 Ch 455.
 Byrne v. Van Tienhoven (1880) 5 CPD 344.

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