Legal Analysis of Afonso's Luxury Repairs Ltd and Rawene Motors Ltd

Background

Facts: Afonso is the sole shareholder and director of Afonso’s Luxury Repairs Ltd (Afonso’s Repairs). Afonso’s Repairs is based in Wairau Road in Auckland’s North Shore. It specialises in repairing and servicing luxury Portuguese cars. It was founded in 1910 by Afonso’s great grandfather. When incorporated, its objects clause was stated to be “The repair and service of horseless carriages powered by gasoline.” Afonso’s Repairs was reincorporated under the Companies Act 1993, and the original objects clause was retained. Afonso had always dreamed of selling Portuguese cars. One day he discovered that Rawene Motors Ltd (Rawene Motors), which owned the New Zealand rights to sell the Garanhao brand of cars, had its showroom wiped out in a landslide. Afonso immediately arranged for Afonso’s Repairs to buy Rawene Motors, so as to obtain its rights to sell the Garanhao. Afonso was appointed the sole director. Afonso then built a showroom next to the existing workshop of Afonso’s Repairs. He demolished a wall between the two businesses and built a common entrance. He erected a large sign by the entrance stating, “Afonso’s Luxury Repairs and Sales”. In small letters underneath the sign also stated “Incorporating Rawene Motors Ltd”. Both businesses were administered from a common office. However separate accounts were retained for the two businesses. Afonso employed his son, Billy Ray, to be the salesperson while Afonso attended to both repairs and sales. Billy Ray’s contract was with Rawene Motors. Afonso didn’t have a formal employment contract with either company. Both Afonso and Billy Ray had business cards. The top of both cards was the same as on the sign. Afonso was described as “Managing Director” on his card, while Billy Ray was described as “Sales Consultant”. One day Afonso discovered that he had a long-lost daughter, Miley. To help her he gave her a job as office manager. Her duties were to carry out the administrative functions of Afonso’s Repairs, and her employment contract was with that company. She also however acted as a receptionist for both businesses and worked in the common office. When she answered the telephone, she was told by Afonso to state “Afonso’s Repairs here”. She had no role or authority in carrying out repairs or selling cars. Her business card was the same as for Afonso and Billy Ray, but described her position as “General Manager”. One Sunday, while both Afonso and Billy Ray were away, a customer, Kylie, approached Miley and said that she was interested in purchasing the new Garanhao Aranha, which was a high-performance electric car. Kylie had actually been looking for Billy Ray, whom Kylie had previously talked to on the telephone. During that discussion Billy Ray had stated that he was the only authorised sales consultant, and then e-mailed Kylie his business card. Miley was doing accounts in the common office, but, eager to impress, Miley discussed the car with Kylie, took her for a test drive, and gave her her card. Kylie said she wanted to think about it. Eager COMLAW 203 Page 4 of 6 to close the deal, Miley telephoned Kylie later and said “Look, I’m actually the manager of the repairs division. As such I can offer you a lifetime service contract for free if you buy the car”. Kylie immediately rushed back and signed a contract to buy the car, and a separate service contract. While signing she noticed that the first contract was with Rawene Motors, while the second was with Afonso’s Repairs. Afonso later discovered that Miley had made a number of false statements when describing the car and is concerned about getting sued. He is also unhappy about giving away the lifetime service contract, and wants to get out of both agreements. Required: Advise Afonso if (i) the sales contract is binding on Rawene Motors; and (ii) the service contract is binding on Afonso’s Repairs. Total marks for Question One: 10 Marks COMLAW 203 Page 5 of 6 QUESTION TWO Facts: Following the events above, Miley quits her job, and starts a new business as a furniture refurbisher. Miley’s new business doesn’t do well, and, feeling guilty, Afonso offers to give Miley part-time work delivering cars to customers on behalf of Rawene Motors. Miley is paid $500 for each delivery. In addition to driving the cars to customers, she has to arrange for them to be cleaned and groomed (by another business), and she has to arrange for a new Warrant of Fitness, and to attend to registration of the cars with the Post Office. Miley doesn’t have an employment contract (You can assume that Miley is not an employee). Miley is instructed by Afonso that, to keep customers happy, she should never be late with a delivery. One day Miley has to deliver a car to Mangere (in South Auckland). She picks up the car from Rawene Motors in Wairau Road (in Auckland’s North Shore). However, she encounters numerous delays in getting the warrant and registration. Realising she is going to be hopelessly late, and afraid of Afonso’s reaction, she decides to give up, and instead arranges to meet a truck-driver friend at a bar in Warkworth. She drinks Woodstock Bourbon and Cola for several hours before driving back to Wairau Road. On the way she negligently runs into Kylie, taking her new Garanhao Serpente out for a drive, causing $100,000 damage. Required: Is Rawene Motors Ltd liable in tort to Kylie for the damage? (You may assume that, if sued, Miley would be personally liable in tort) Total marks for Question Two: 5 Marks COMLAW 203 Page 6 of 6 QUESTION THREE Answer ONE of the following questions (a) “The decisions in Subtropix v Cassandra Motels and Catley v Waipa are flawed in that even though stakeholders may think that they are acting in one capacity, the law may impute an intention to act in a completely different capacity from that which the stakeholders contemplated.” Critically discuss the above statement. (b) “The original intention of the New Zealand Law Commission was that persons should be able to simply look at the Companies Act to find out what the law was on any given question. Unfortunately, this intention has not been realised, and company law remains as inaccessible as it was under the 1955 Act.” Critically discuss the above statement. (c) “President Butler of Columbia University once stated that the limited liability corporation was ‘the greatest single discovery of modern times.’ That may be true in relation to large companies. However, for the vast majority of companies in New Zealand the limited liability corporate entity has no real advantages over other forms of business structure.” Critically discuss the above statement.