Topic: Law of agency Summary of Facts: Company Star Boat employed Tom as the manager for marketing and sales department. Being an agent for Star Boat, Tom frequently concluded contracts with a number of suppliers for acquiring certain parts to manufacture boats. Smooth Sailing was one of the suppliers. Tom resigned from Star Boat in July 2012 upon being offered a better position in Star Ferry. However, he acquired 4,000 parts from Smooth Sailing in August and manager of Smooth Sailing did not notice that in the contract Tom indicated his signature as “manager, Star Ferry” and thought they were dealing with Star Boat as usual.
When Smooth Sailing later notified Star Boat to make payment, Star Boat wanted to ratify the contract. Legal Issues: First, Star Boat wants to ratify the contract, we must know that whether there is any valid contract formed. There are six elements to create a valid contract including intention to create legal relation, an offer and acceptance, consideration, privity of contract, capacity of contract and legality of contract. The first element – intention to create legal relation is not fulfilled. As Smooth Sailing intended to deal with Star Boat but not Star Ferry.
However, the contract now is dealing with Star Ferry. Smooth Sailing has no intention to deal with Star Ferry. As there is no intention, no valid contract is formed. Second, there is a unilateral mistake in this contract. Unilateral mistake involves only one party mistaken. To be operative, it must be known to the other party. Normally involve fraud on the part of the non-mistaken party. In the above case, Tom was dealing with Smooth Sailing before July. However, in August, Tom did not tell the truth to Smooth Sailing that he is the agent of Star Ferry but not Star Boat now.
Therefore, Smooth Sailing thought that he was dealing with Star Boat as usual. In the following paragraph, we list two relevant cases which are similar to the present case. Cundy v. Lindsay (1876) HL, L & Co, a linen manufacturer, received an order for a large number of linen handkerchiefs from Blenkarn, who signed his name in such a way that it looked like ‘Blenkiron & Co’, a well-known respectable firm. L & Co dispatched the goods on credit to Blenkarn, who resold 250 dozen to Cundy. Blenkarn did not pay for the goods. L & Co sued Cundy to recover the handkerchiefs.
It was held that the contract between L & Co and Blenkarn was void for unilateral mistake. L & Co intended to deal with Blenkiron & Co, not Blenkarn. Cundy was liable to return the handkerchiefs to L & Co because no right of ownership had passed to him. Lewis v. Avery (1971) Lewis sold his car to a man who claimed to be Richard Greene, a popular star. The man paid by cheque, providing a film studio pass as a proof of his identity. He sold the car to Avery. The cheque had been taken from a stolen cheque book and was later dishonoured. Lewis sued Avery to recover his car.
It was held that this contract cannot be voided as the plaintiff cannot show the importance of identity. The mistaken belief to the credibility of act is not sufficient. Comparison: Comparing the legal issue between Cundy v. Lindsay (1876) and our case, both cases have the unilateral mistake. Cundy v. Lindsay can be voided because the identity was vital for them to form a contract. For the second case Lewis v. Avery (1971) compare with our case, both are also have the unilateral mistake. But the case Lewis v. Avery cannot be voided as it cannot show the importance of the identity.
In our case, Smooth Sailing was dealing with Star Boat in the past and it shows that the identity is very important. Conclusion: In our case, Smooth Sailing thought it was dealing with Star Boat as usual and the identity is very important as it affects the credibility. In fact, Smooth Sailing always deals with Star Boats. We apply the case law, the contract should be voided because Smooth Sailing mistakes the identity and the identity is vital to the contract. Moreover, Smooth Sailing has no intention to deal with Star Ferry. Therefore, no valid contract exists and Star Boat cannot ratify the contract.