LAW6000 Business And Corporate Law

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13-04-2021

Question:

Explain the historical foundations of the Australian legal system and the current sources of law.
Describe the essential elements required to create, manage and discharge a contract and the remedies available for breach of contract.
Explain the different ways in which a business may be carried and the advantages and disadvantages of each method.
Identify the reasons for choosing one business structure over another.
Explain the processes for incorporating, managing and winding up a company

There are three case studies that you are required to critically analyse.

With respect to each case study:

Identify the legal issue(s) arising from the facts of the case study
Identify the appropriate legal principles that requires discussion in the case study
Apply the law to the facts of the case study
Reach a conclusion/ give practical advice to your client.

Your analysis should refer to appropriate cases and statutes and be referenced using the Harvard Reference system. You will be assessed in accordance with the Assessment Rubric.

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?

Answer:

Issue

Whether the Partnership will be bound by the contract made between Lance and Lynton?
Is there any action that can be taken by the partners against Lance?

Partnership is one form of business which can be operated in Australia. To establish a valid legal partnership, the main essential requirements include: (Krawitz A, 2002)

There must be two or more than 2 persons to form a valid partnership;
The persons must come together to fulfill a common objective and is held in (Smith v Anderson(1880);

The objective is achieved by carrying on a business;

The purpose to form the partnership is to seek profits and share losses.

Compliance of all the elements results in partnership. the persons who form the partnership are called the partners. As per Lang v James Morrison & Co Ltd (1911), the partners are the firm’sagents and are the agents of each other. Thus, any act taken by the partner will bind upon the firm and all the other partners and vice versa. (Egert 2007).

The authority within which the partners can bind the firm and the other partners can be distinguished as:((McLaughlin 2013)

Actual authority – The authority sought by the partners directly from the firm or the partnership agreement is an actual authority ([Hely-Hutchinson v Brayhead Ltd[1968]. It can be
Express – The authority imposed on the partners directly either orally or in written form is an express actual authority.
Implied – The authority which is required and which are attributed to the partners along with the express authority is an implied authority, they are required to comply with the express authority and thus are based on implications and is held in Australiaand new zealand bank, ltd. V. Ateliers de constructions electriques de charleroi. [1966].
Ostensible authority –When the firm or any partners to the firm on behalf of the form makes a representation to an outsider making him believe that a person is the authored representative of the firm and has the power to bind the firm by his acts, then, any contract made amid such an outsider and the person is binding upon the firm and the other partners under the ostensible authority and is held in Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd[1964].

The partners are required to comply with several duties which includes the duty to avoid conflict of interest not to make secret profits, to act within authority, to act with honesty, etc. If any partners exceed his authority then, the other partners can sue the defaulting partners personally for the loss so suffered by the firm.

The Herbal Product Business has three partners, one of them is Lance. The Lance power to establish contract on behalf of the business was limited to $20,000. Thus, the actual authority of Lance was to establish contract but is limited to worth $20,000.

But, Lance exceeded his authority and enters into contract with Lynton (sales person of Mighty Motors Pty Ltd) for the purchase of ute which is worth $ 25,000. Thus, Lance exceeded his authority.

Now, the contract amid Lance and Lynton is valid and is binding upon the Herbal business. It is submitted that Lynton is not aware that the power of Lance to enter into contract is limited to worth $20,000. It is assumed that Lynton is of the belief that Lance has the power to take contract on behalf of the firm and has no reason to believe regarding the restriction of the powers of Lance. Thus, Lance has the ostensible power to take contract on behalf of herbal business. Further, since all the partners are agents of each other, thus, the acts of lance will bound the other partners and the contract is binding in herbal business as well;
Lance has violated his duty to cater is actions within his authority. Thus, he is personally liable for the loss that is incurred to the firm and the other partners because if his actions.

Thus, the contract between Lance and Lynton is valid and is binding upon herbal business. Also, Lance is personally liable for the loss to the firm as he has violated his duty to act with diligence and within his authority.

Whether Saqlaim can cancel the contract with Lance regarding the purchasing of the car?
Whether the consumers has any claim regarding the moisturizer which is advertised by Xiaojing ?

Australian Consumer Law is the enactment that is framed for the protection of the interest of the consumer. Some of the important provisions include: (Paterson JM & Wong, 2014)

As per section 18 of the Act, every person dealing in trade/commerce should not behave in such a manner which is misleading or deceptive in nature. Any such acts are misrepresentations and the contract based on such are void and is held in (Australian Competition and Consumer Commission v TPG Internet Pty Ltd[201] and (Commercial Bank of Australia v Amadio [1983]).
As per section 20 of the Act, when there are two parties, one superior and one inferior, then, if the inferior party take unnecessary advantage to himself at the cost of the inferior because of lack of knowledge, understanding etc, then, the acts are not valid as they are unconscionable actions and is held in Blomley v Ryan[1956]). (Vout P, 2013)

As per section 29 of the Act, the contracts based on misleading and false representations makes the contract void;

As per section 33-34, when the misleading information regarding the suitability ot quantity or process or characteristics of the product is made, then, such contract are invalid and is held in (Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4)[2015] )

The violation of the above provisos will grant right to the consumer to cancel the contract and sue for damages and compensation.

The facts are now applied.

Xiaojing sold the car to Saqlaim, but, Saqlaim has the right to terminate the car and sue Xiaojing for inducing in unconscionable acts. Lance the sales person of unconscionable acts is aware that Saqlaim is hard of understanding English but Lance with his charismatic and fast English enters into a contract with him. Thus, Lance took advantage of his superior position and take undue advantage of the inferiority of Saqlaim. So, the transaction is invalid.
The moisturizer sold by Xiaojing was advertised as a slow effect of ageing which was a false statement. The statement was made within trade and is misleading, thus, there is breach of section 18. Also, the statement is misleading and thus there is breach of section 29. There is breach of section 33-34.

The contract amid lance and Saqlaim is invalid as it is suffering from unconscionable acts. The consumers can also sue Xiaojing for breach of Australian consumer acts provisions.

Can Felix has the right to sue Xiaozing for the promise made by the company to him?

A contract is the combination of few contractual elements which includes an offer which is then reciprocated by an acceptance resulting in the formation of an amendment. The agreement is then combined with consideration making it enforceable in law. The parties making the promises must have legal intonation and must be capable to establish a contract in law. (Clark J, 2013)

The consideration is one of the significant elements which are required in any contract formation for making it enforceable in law. a consideration is anything of value which has some significance and value in law (Chappel v Nestle [1960] AC 87. It is very much required as it makes the agreement enforceable ion law. If the contract is not supported with consideration, then, it is gratuitous in nature and is held in Coulls v Bagots Executor & Trustee Co Ltd. (1967)).

A consideration is valid provided it is made for present or future promises. That consideration which supports past promises are invalid in nature and is thus not enforceable in law and is held in Roscorla v Thomas (1842). However, at times the promisor assures to give consideration for the past promises then, in such cases, such consideration is enforceable [Pao On v Lau Yiu Long [1980].

Application

Felix is the student of twenty years of age. A contract is made amid Felix and Xiaojing wherein Xiaojing is paying $25 for picking up of the lavender. This is a valid contract made amid the two.

But, later, Xiaojing promises to Felix that he is so impressed by his work that they will pay him extra $100 for the work he did yesterday. Now, as per Roscorla v Thomas (1842), the consideration is made for the work already done by Felix, thus, the consideration is invalid and is not enforceable.

But, as per Pao On v Lau Yiu Long [1980], if Felix has acted as per the desire of Xiaojing, then, the consideration would have been valid.

Conclusion

So, Felix cannot sue Xiaojing as the promise made by Xiaojing is a past consideration.

Reference List

Krawitz A (2002) Protecting Outsiders to Corporate Contracts in Australia, Volume 9, Number 3 (September 2002).

Paterson JM & Wong (2014) Fine Print Disclaimers May Not Protect Advertising from being Misleading: Australian Competition and Consumer Commission v TPG Internet Pty Ltd.

Vout P (2013) Unconscionability And Good Faith In Business Transactions - 21 OCTOBER 2013 - NATIONAL COMMERCIAL LAW SEMINAR SERIES.

McLaughlin S (2013) Unlocking Company Law 2nd Edition, Routledge.

Case Laws

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54.

Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (No 4) [2015] FCA 1408

Australia and new zealand bank, ltd. V. Ateliers de constructions electriques de charleroi. [1966] 1 Lloyd's Rep. 463.

Blomley v Ryan [1956] HCA 81.

Chappel v Nestle [1960] AC 87 .

Coulls v Bagots Executor & Trustee Co Ltd. (1967)).

Commercial Bank of Australia v Amadio [1983] HCA 14

Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.

Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 .

Lang v James Morrison & Co Ltd (1911) 13 CLR 1.

Pao On v Lau Yiu Long [1980] AC 614.

Roscorla v Thomas (1842).

Smith v Anderson (1880) 15 Ch D 247

Egert G (2007) Defining A Partnership: The Traditional Approach Versus An Innovative Departure ? Do Queensland Appeal Court Decisions Point To The Need For A Review Of The Traditional Approach To Interpretation Adopted By Australian Courts? 19.1 BOND LAW REVIEW.