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Lance purchases a new ute from Mighty Motors Pty Ltd for $25,000. He tells Lynton, the car salesperson that he is a partner in a herbal products business. Lynton is aware of the business as he has read an article about it in the local newspaper.

The three partners had agreed that a car would be purchased for the business but Lance was instructed not to spend over $20,000. Lynton is completely unaware that Lance has a purchasing limit.

Will the partnership be bound by this contract? Can the other partners take action against Lance?

Xiaojing is keen to sell her products. The business produces a lavender and Echinacea moisturiser. The business produces an advertising flyer that states the moisturiser will ‘slow the effects of ageing’. This is false.

The partnership is not happy with the Ute – they think they have bought a ‘lemon’. They decide to sell the car to Saqlaim a refugee from Syria who has little understanding of English. Fast talking and charismatic Lance talks him into purchasing the car. He enters a contract with a finance company to purchase the car.

Will Saqlaim be bound by the contract? Do consumers have a remedy regarding the claims re the moisturiser?

Felix a uni student aged 20 is keen to earn some income during the summer holidays. He is employed as a casual to pick lavender. He will be paid $25 cash per bag.

One Sunday Xiaojing tells him that he is doing such great work she will pay him an extral $100 for work he did yesterday clearing garden beds.

She reneges on her promise and Felix is outraged. He wants to know if he can sue Xiaozing for the $100. Advise Felix.

Case Study 1

The legal issues

  1. Does a decision to contract made by a single partner in a partnership bind and amass liability to the other partners?
  2. Can the other partners take action against Lance?

There are three notable legal principles stemming from the foregoing case in relation to partnerships. First is the question of partners as agents of partnership, then unlimited liability and finally the nature of partnership agreements.

Every partner is an agent of a partnership and thus, any obligation or contract gotten into by a single partner is legally binding on all partners (Spadaccini, 2005). Agents have the legal capacity to contract on behalf of their principles (in this case, the partnership). They have the power to bind their partnership to a contract. The restriction to this rule is that the agreement is made on an item within the scope of the partnership’s venture.

Every partner in a general partnership has unlimited liability over the debts of the partnership (Department of Industry, Australian Government, 2017). In this sense, one can sue a partnership for all business debts regardless of which partner was at fault. The whole partnership is liable for all the business debts and one can seek court order for the partners to pay for the debts.

Partnerships are considered to be unique business relationships. This is to say while other business relationships would require documented and signed evidence for agreements, partnerships do not necessarily require written agreements. If parties agree on how to go about their business, their investments, their division of tasks and even their budget, it need not to be in writing, as it is enough that an agreement has been reached by the partners (Radan, Gooley & Vickovich, 2017). Therefore, the partners are bound by the agreement and a contravention will be considered a breach of contract and accrue liability to the contravening partner.

Lance was given the responsibility of purchasing a new Ute by the partnership but under a strict budget of $20,000. However, he decided to disregard the partnership’s terms and purchased the car from Mighty Motors for $25,000, a $5,000 increment on the advised budget. The question is whether there is a liability of $5,000 imposed on the other partners in the partnership as a result of being bound by the contract. Drawing from the principle of partners as agents of partnership, it is certain that the contract entered into by Lance –an agent to the partnership- was binding to all the other three members of the partnership. As a result, –and also borrowing from the principle of unlimited liability in general partnerships- they were all liable for the contractual obligation set with Mighty Motors. 

Partners as Agents of the Partnership

The other partners’ legal standing on whether they can take action against Lance is dependent on the nature of partnership agreements. An agreement by partners in a partnership, whether written or oral, is binding to all partners and a breach of the agreement will accrue liability on the breaching partner (Poole, 2016).

Conclusion

All the three members of the partnership have a contractual obligation to pay the excess $5,000. Lance’s contractual decision was made on behalf of the whole partnership and bound the other two partners. However, the two partners can go ahead and sue Lance for a breach of a partnership agreement for $5,000 in damages.

The Legal Issues

  1. Whether Saqlaim will be bound by the contract
  2. Whether customers have a remedy for claiming remedy regarding Xiaojing’s moisturizer.

The following legal principles are evident in the case:

Anyone who runs a business has the mandate to act in good faith when promoting their goods or services. A contract is not considered valid but for the parties agreeing on the terms. If the terms are expressed inaccurately based on a false premise, then the contract is void. False misrepresentation occurs when a party knowingly makes false statements in a bid to promote product or service (Paterson, Robertson & Duke, 2012). For it to suffice, the plaintiff has to show that a representation was made, it was false, the statement was made either knowingly or recklessly, it was made with the intention of the other party relying on it and the plaintiff relied on it and the other party suffered damages as a result. The remedies for false representation are rescission and damages.

It is fraudulent to get a non-English speaker to sign a contract in English if the fluent speaking party intends to gain undue advantage. The plaintiff has to prove that he or she entered the contract because of an undue advantage which was exploited or deceptively used by the defendant (Duffy, 2008) However, if the plaintiff fails prove that the defendant exploited his language advantage in the signing of the contract, then there is no basis for fraudulent misrepresentation. A mere advantage with regard to language does not render the contract invalid or voidable. Agreements can be enforced despite language barrier.

In relation to the case, Xiaojing’s advertisement of the mosituriser amount to false representation. She knowingly makes the representation that her products would “slow the effects of ageing,” despite knowing that the statement is false and intended to gain more customers from the statement. Similarly, there is an aspect of fraudulent misrepresentation on the part of Saqlaim relating to the issue of language barrier. In this case, fast talking and charismatic Lance talks Saqlaim into buying the car, disregarding and exploiting his language barrier.

Unlimited Liability

Conclusion

Saqlaim will not be bound by the contract to purchase the car. The contract will be voidable due to fraudulent misrepresentation and thus Saqlaim can choose to sue for damages. Similarly, consumers purchasing Xiaojing’s moisturizer after relying on his false representation will have a remedy regarding the contract. They will be subject to rescission which will allow both parties to be at the position they were prior to getting into the contract.

My Advice to Felix

It is not strange that sometimes people will make verbal agreements in the name of promises and think that it is not binding. Indeed, not all verbal agreements will be valid and legally binding to amount to a contract. But can an employer neglect a promise made to an employee because it was a mere “verbal contract” and get away with it? Can Felix successfully sue Xiaojing for the extra $100 she promised him for a work done the previous day clearing garden beds? There are certain elements which make verbally made promises legally enforceable. These include the following:

First, there has to be an offer and acceptance (Hillman, 2004). The promisor makes the proposal –in this case Xiaojing’s $100 promise- and the promisee accepts the proposal (by a mere reply in the affirmative). The promisor’s offer is deemed to be accepted after the promisee has transmitted an acceptance to him (Carter, Harland, & Lindgren, 1996).

Secondly, there is the consideration principle. The court will consider a promise to be legally binding if the person set to receive it has provided something valuable in exchange. In the foregoing case, Xiaojing’s promise was motivated by Felix’s performance. She told him that “he is doing such great work, she will pay him an extral $100 for work he did.” This statement qualifies as a consideration. While the promisor’s (Xiaojing’s) consideration was the extra $100, the promisee’s (Felix’s) was his good performance at work. The promise was made because he had given out something of value in exchange to the promise.

Another aspect that will be assessed by the courts is the intention of both parties: whether they showed an intention to be bound by the promise. Courts will recognize promises that have shown parties intended to be legally bound by it. While the court will use its discretion in determining the parties’ intention by looking at the surrounding circumstances, it is a general presumption that where there has been an exchange of something valuable, parties intend to be bound. Xiaojing made her promise because she was pleased with Felix’s performance and thus intended to be bound by it. 

Lastly, the court will look at the promisee’s position after the promise. A party that makes a promise which causes another party to rely on it in such a manner that he or she may be financially injured by the reliance is bound by his or her promise. This position encompasses aspects of consideration and intention as the court will only look at the effect of the promise on the promisee. The only proof needed is that the detrimental reliance of the promise was reasonable and the promisor foresaw such a reliance. In this case, Felix financial situation would be affected by Xiaojing’s defection considering that he is keen to earn some income during the summer holidays and would have heavily relied on the promise. Additionally, considering the nature of work and the wages paid to him, Xiaojing ought to have foreseen that a promise of $100 would create an excitement on Felix and definitely mean a reliance on the promise.

References

Carter, J. W., Harland, D. J., & Lindgren, K. E. (1996). Contract law in Australia. MICHIE.

Department of Industry, Australian Government. (2017). Partnership. Retrieved from https://www.business.gov.au/info/plan-and-start/start-your-business/business-structure/business-structures-and-types/partnership

Duffy, S. P. (2008). Agreement can be enforced despite language barrier, the legal intelligencer. Retrieved from https://www.law.com/thelegalintelligencer/almID/1202424141454/Agreement-Can-Be-Enforced-Despite-Language-Barrier/?slreturn=20180703075131

Hillman, R. A. (2004). Principles of contract law (p. 305). St. Paul: Thomson West.

LawTeacher. (n.d.). Acceptance must be communicated. Retrieved from https://www.lawteacher.net/free-law-essays/contract-law/acceptance-must-be-communicated-contract-law-essay.php

McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK).

Partnership: Unlimited Liability Concerns. (2018). Retrieved from https://obliviousinvestor.com/partnership-unlimited-liability-concerns/

Paterson, J. M., Robertson, A., & Duke, A. (2012). Principles of contract law. Thomson Reuters (Professional) Australia.

Poole, J. (2016). Textbook on contract law. Oxford: Oxford University Press.

Radan, P., Gooley, J. V., & Vickovich, I. (2017). Principles of Australian contract law. Chatswood, N.S.W.: LexisNexis Butterworths.

Spadaccini, M. (2005, June 02). The legal ins and outs of forming a partnership. Retrieved from https://www.entrepreneur.com/article/77980

When Will a Promise or Statement Be Considered a Binding Contract? (n.d.). Retrieved from https://smallbusiness.findlaw.com/business-contracts-forms/when-will-a-promise-or-statement-be-considered-a-binding.html

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