Legal Issues In Business Entities, Contracts, And Terms Of Contract Are Essay-worthy.

Issue

Madison owns a small bicycle repair shop in Bankstown which she has been operating for the past three years as a sole trader. In July 2018, she attended a small business conference in Barangaroo where she met Daniel, who also happened to be operating a small bicycle repair shop as a sole trader, with his shop being in Parramatta. The pair started discussing their respective businesses and decided to try to find ways to ‘work together’.

On 1 September 2018, after lengthy discussions and negotiations, Madison and Daniel came to the following agreement:

• As of today, they would begin working together under the new name Rolling Hill Bikes.
• Madison and Daniel would each contribute the materials, supplies and repair equipment that they currently hold to Rolling Hill Bikes.
• All customer contacts and supply agreements will be shared.
• Any costs would now be shared, including the rent on the two existing premises, Bankstown and Parramatta, currently used as repair shops.
• Profit would be calculated monthly and split 50:50 between Madison and Daniel.

On 15 September, Madison ordered 250 tyres from the bicycle part supplier Fast Bikes, before flying out to the south of Chile to commence a month long ‘voyage’ to Antarctica. The tyres were delivered on 17 September 2018.

On 25 September, Daniel received a letter from Fast Bikes, stating that the tyres were sold on 7-day trading terms and the full $5,000.00 is now due. Madison is still away and not contactable and Fast Bikes are now threatening to take Daniel to court to claim payment from him.

Using IRAC, advise Daniel of whether he would be considered a partner and his potential liability for the $5,000.00 owed to Fast Bikes. Make sure that you support your responses with relevant authorities from case law and statute.

Rupert owned a home in Vaucluse and wanted to have his front yard landscaped. He contracted with Bruce, a local landscaper, for the work to be done on the basis that Rupert would supply, at his own expense, all the necessary plants, materials and supplies, and that Bruce would supply the labour and any equipment and machinery necessary to do the job. Bruce’s fee under the contract was $40,000, to be paid upon completion of the work.

In the course of the work it was realised that Rupert had over-ordered a number of expensive and exotic palms. When Bruce asked what Rupert wanted done with them, he replied that Bruce could keep them. Bruce duly had the palms planted in his own backyard, thereby considerably enhancing the value of his own property.

A month later, when all the work was done, Bruce presented his account for payment to Rupert. Rupert asked if Bruce would accept $25,000 in full settlement of the account, explaining that he had just received a notice from the local council requiring him to fence his newly installed backyard swimming pool before it could be certified. Rupert further explained that, if Bruce accepted a reduction in his contract fee, the fencing work could be done the next day, and thus Rupert would be relived from having to approach his bank for a loan. This would take some time to approve, and would potentially delay the fencing work by about a month.

Bruce, who had earlier appreciated the palms that Rupert had given him, decided that he would accept the $25,000 in full settlement of the account. Rupert immediately paid Bruce the $25,000.

Five days later, Bruce received an unexpected courier delivery of a magnum of expensive French champagne. A note attached to it read:

You wouldn’t believe it, but two days after the fence was completed and paid for, I won over $500,000 on Lotto! My family and I plan to spend the next few months holidaying in Europe.

So, it’s live and let live. The champagne is a token of my appreciation for the excellent work you did.

Cheers

Rupert.

Bruce now feels that Rupert should pay him the full amount of his fee on the landscaping contract.

Using IRAC, advise Bruce on his prospects of recovering the $15,000, and in doing so, discuss fully all relevant legal issues that arise in these circumstances. Your answer must be supported with relevant case law authorities. 

Simon and Elizabeth are planning to open a new restaurant, Greentrees, in French’s Forest, and have located and secured a perfect site, subject to the local council approving their building and development plans.

After an extensive search, they have now decided on a building and shopfitting contractor that they want to use to complete the work. The contractor, Bricks & Mortar Pty Ltd, has sent over their standard contract for the job, and Simon and Elizabeth have asked their own solicitors to look it over.

The lawyers have identified three terms in the contract that they believe need to be reviewed more closely before Simon and Elizabeth commit to the agreement.

Between Greentrees Restaurant Pty Ltd (‘the Client’)

and

Bricks & Mortar Pty Ltd (‘The Contractor’)

4. The parties agree that time is to be of the essence in respect of all aspects of the construction and payments schedule of this agreement.  

19. The contractor will engage a landscape design architect to complete the formal exterior presentation of the building using suitable established trees and shrubs. All such plants are to be a minimum of 4 years old and native to the Sydney Basin.

26. The client agrees that the contractor will not be liable in the event of a breach caused by the actions of itself, its employees or sub-contractors, including actions that would otherwise constitute negligence, except as provided under statute.

• Explain what type of term it is, and discuss the characteristics of that type of term;
• Explain the consequences of a breach of that type of term.

The issue of the case is to check that whether Daniel is a partner in the partnership firm named Rolling Hill Bikes and owe a liability to make the payment of invoice raised by fast bikes.

The partnership is a business structure where two or more people perform commercial activities together in order to earn profits. One, more, or all the partners must carry business on behalf of each other. In Australia, every state has different legislation on the subject of partnership. The New South Wales, Partnership Act 1892 (NSW) (hereinafter referred as an act for this question), is there to provide provisions related to partnership businesses in this state and to regulate the same. Some basic elements are mentioned in section 1 of the act, which must exist in every partnership firm. The same are as below:-

• At least two people must be there.
• There must be a contract between them
• They must be agree to conduct some business activities
• Purpose of the contract must be earning and sharing profits

A document decides the mutual powers and liabilities of the partners of the firm, which is known as a partnership agreement. This is to state that a partnership agreement can be in written as well as well in oral format. Rest of the dealings of a partnership venture is regulated by applicable partnership Act. According to section 5(1) of Partnership Act 1892, a partner of a partnership firm has implied authority to act on behalf of the firm and in such a manner the same acts as an agent of the firm (New South Wales Government, 2018). Applying the provisions of agency law, a partnership firm is liable for the acts of partners. On the other side, partners are also liable for the acts of a firm as not similar to a corporation; a partnership firm does not have a separate legal entity. According to the case of Birtchnell v Equity Trustee, Executors & Agency Co Ltd (1929) 42 CLR 384, Partners in mutual have a fiduciary relationship with each other and therefore are liable for the acts of each other.

Section 24(5) of the act says that each partner of the firm performs managerial activities and a third party has reason to believe that a partner who is acting on behalf of the firm has required authority. Law in such a manner protects the interest of third parties.

In the given case, two people named as Madison and Daniel were doing their separate business as sole proprietors. Later on, as on 1^st September 2018, they both have decided to work together and started a new venture named as Rolling Hill Bikes. They have developed a contract to carry a business activity. The purpose of the contract was to earn and share the profits out of such activity as they have also decided the profit sharing ration. As all the essentials of a partnership were there, this is to state, that Daniel was a partner of the firm.

Further, Madison ordered 250 tyres from a third party named Fast Bikes for the firm and left for the south of Chile. According to the provisions of section 5(1) of the act, being a partner of the firm she was entitled to do so. About the authorities of partners, nothing is mentioned. The issue of the case arose when another partner of the firm i.e. Daniel received an invoice and letter from Fast bikes in which the same has asked Daniel to make the payment of bill worth $5,000.00  in against of sale of 250 Tyres. Applying the provisions of Section 24(5) of the act Fast Bikes had reason to believe that Madison is acting on behalf of the firm and therefore firm will be liable to make the payment. Being the principal of Madison, a partnership firm is liable to make the payment of the bill. Further, as Daniel is a partner of the firm and has a fiduciary relationship with Madison, the same will be held liable to make the payment of bill if the firm would fail to do so.

Rules

Conclusion

To conclude the issue involved in the case, this is to mention that yes, Daniel will be considered as a partner of the firm. Further, in respect of the payment of the bill, first liability is of firm but if the firm does not have enough sources to make the payment, then Daniel will be personally liable.

The issue of the case is to check whether Bruce is entitled to ask for the balanced money from Rupert or not?

A contract is a set of promises under which both the parties are liable to perform the acts that have been decided in the contracts (Collins, 2008). Further, a contract can be in oral as well as in written form. Once a valid contract is developed all the parties are liable to act in the manner prescribed under the various terms of that contract. However, another concept is also there which is well known as the Doctrine of promissory estoppel”.  It is a legal principle, which states that a promise is foreseeable by law even in the absence of formal consideration. In other words, this is to mention that according to the principle of promissory estoppel, some promises are there which are not a part of the contract yet, parties are bound with the same.

The doctrine provides a safeguard to a party who relies on the promise made by another party and act accordingly. The case of Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 is necessary to discuss here. In this case, the Central London Property Trust Ltd. (landlord) reduced the rent amount for the tenant because of the war situation most of the flats were vacant. As soon as the situation became normal and flats started being occupied, the landlord asked for the difference of original rent amount and reduced one from the tenant. Justice Denning J held the statement made by the landlord as promissory estoppel. He further stated that the tenant relied on the promise made by the landlord in respect of a reduction in rent amount and now the landlord asked the original rent with effect from a future date only. Even no consideration was there, yet being promissory estoppel, the statement of landlord prevent the same going back on the promise to accept the reduced amount as rent (Swarb.co.uk, 2018).

Therefore, it is clear that the promissory estoppel is a binding promise, according to which the party who made the same needs to act. Some pre-requisites are there which needs to be fulfilled for applicability of promissory estoppel. These requirements are mentioned below:-

• A pre-existing legal obligation must be there which is required to be modified later on
• The promise must be clear and unambiguous
• Change of position
• Allowing promisor to go back on the promise must be an inequitable situation for the other party (E-lawresources.co.uk, 2018).

In the given case, Rupert was the owner of a house and was willing to have the front yard of his house landscaped. To get the same done, he entered into a contract with a contractor named Bruce. As per the contract developed between Rupert and Bruce, Rupert was expected to purchase the materials required for the subjective work at his own expenditure, Bruce had to supply the equipment, machinery, and labour which were required to perform the work. It was a valid contract as all the essentials were there. It has been noted that Rupert made an order of raw material more than the requirement. Later on the same stated to Bruce that he can keep the balanced material with him.

Application

The issue in the case has been started when Rupert found himself unable to make the payment of total consideration i.e. $40,000. To make the payment he was required to ask for a bank loan as fencing work was also pending. As Rupert was facing the issue in making the payment, he requested Bruce to accept the $25,000 as full and final payment. Bruce became ready and made a promise to take $25,000 as final payment. Later on, after 5 days, Bruce received a bottle of champagne from the side of Rupert and came to know that Rupert won $500,000 in a game. Now, he wants to recover the balanced money i.e. the difference of $40,000 and $25,000 from Rupert. Applying the provisions of Central London Property Trust Ltd v High Trees House Ltd , Bruce will not be able to do the same as made a promise to accept the lower amount as final payment and Rupert relied on the same. Irrespective of the later situation, it was promissory estoppel and therefore the law does not seem to allow Bruce to go back on his promise.

Further, all the pre-requisites of valid promissory estoppel, such as the existence of a valid contract, modification in terms and others were there, Bruce is not allowed to go back on his promise.

Conclusion

In conclusion, this is to be stated that Bruce is not entitled to recover $15,000 from Rupert in respect to the landscape contract.

3. In the given case study, three types of terms are there. Nature, scope, and consequences of the breach of these terms are required to know. In the following part, all the three terms are defined and discussed.

Contracts which consist time frame comes to an end when such time lapses. When according to a clause of a contract, some acts need to be done within the prescribed time frame or given a limit, then such clause becomes an important term of the contract and therefore need to be fulfilled accordingly (Andrews, 2015). Non performance of any such term can lead an issue of breach of contract.

The subjective clause i.e. clause 4 is a term of a contract and according to the same, each aspect of payment and construction is required to be performed within the prescribed time limit. If either the client or contractor will not perform their obligations according to the requirement of this term, they can be held liable for the breach of contract. In other words, this can be stated that if parties would do the work and make the payment but would not follow the construction and payment schedule then this term will be deemed as breached and parties will, therefore, be liable.

Conditions are an important part of a contract, which decides the core of a contract. Breach of any condition gives a right to another party to cancel out the contract and to demand the damages. As per the decision was given in the case of Poussard v Spiers and Pond [1876] 1 QBD 410, breach of any condition termed as a breach of contract (Slideshare.net, 2018). Many times people misunderstood a condition with another term named warranty. According to the decision of the case Bettini v Gye 1876 QBD 183, warranties are minor terms. 

Clause 19 has a nature of the condition. If the contractor would fail to perform the work according to the condition mentioned under clause 19, then the client will be able to rescind the contract and the same can also ask for the damages.

An exclusion clause in a contract can be defined as a clause where one or both the parties states the things and aspects about which they will not be responsible (Schwenzer, Hachem and Kee, 2012). Such a clause gives addition securities to the parties of the contract. For the validity of an exclusion clause, certain factors are nee to be present there. Firstly, an exclusion clause needs to mention at the time of preparing the contract (Hough and Kirk, 2018). Secondly, the same must come into the knowledge of the party against which the same has been prepared. It was given in the case of L'Estrange v Graucob [1934] 2 KB 394 that if the parties signed an exclusion clause, then it is treated as valid irrespective of the fact that whether such parties have read the clause or not (Gibson and Fraser, 2014). Further, as per the decision of case of Curtis v Chemical Cleaning [1951] 1 KB 805, no misrepresentation of the term must be there in an exclusion clause.

The presented clause 26 is an exclusion clause as the same limits the liability of a contractor in respect of the acts of its employees, sub-contractors and actions of negligence except some of them provided under the statute. Here in order to check the validity of this clause, this is to mention that the same is a valid one as all the essentials of a legal and valid exclusion clause was presented there. The consequences of a breach of this clause are nothing as no penalties will be there.

References 

Andrews, N. (2015) Contract Law. 2^nd ed. UK: Cambridge University Press

Birtchnell v Equity Trustee, Executors & Agency Co Ltd (1929) 42 CLR 384

Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130

Collins, H. (2008) Standard Contract Terms in Europe: A Basis for and a Challenge to European Contract Law. The Netherlands: Kluwer Law International B.V.

Curtis v Chemical Cleaning [1951] 1 KB 805

E-lawresources.co.uk. (2018) Promissory estoppel. [online] Available from: https://www.e-lawresources.co.uk/Promissory-estoppel.php [Accessed on 28/12/2018] 

Gibson, A., and Fraser, D. (2014) Business Law 2014. 8^th ed. Melbourne, Pearson Education Australia.

Hough, T and Kirk, E.. (2018) Contract Law. Oxon: Routledge.

L'Estrange v Graucob [1934] 2 KB 394

New South Wales Government. (2018) Partnership Act 1892 No 12. [online] Available from: https://www.legislation.nsw.gov.au/#/view/act/1892/12/historical2004-04-05/full [Accessed on 29/12/2018]

Partnership Act 1892 (NSW)

Poussard v Spiers and Pond [1876] 1 QBD 410

Schwenzer, I., Hachem, P. and Kee, C., (2012) Global sales and contract law. New York: Oxford University Press.

Slideshare.net. (2018) Cases on the terms of the contract. [online] Available from: https://www.slideshare.net/ramonavansluytman/terms-of-the-contract-cases [Accessed on 28/12/2018]

Swarb.co.uk. (2018) Central London Property Trust Ltd V High Trees House Ltd: Kbd 1947. [online] Available from: https://swarb.co.uk/central-london-property-trust-ltd-v-high-trees-house-ltd-kbd-1947/ [Accessed on 28/12/2018]