LAW504 Business and Corporations Law

You must write an answer to the problem-type question below, using the ILAC (Issues, Law, Application, Conclusion) format, a worked example of which is in the Resources folder.In this subject, assignments are marked on-line, using an adapted MS Word programme.

You therefore MUST submit your assignment in Word format, NOT as a PDF document. If you submit in PDF it will not be able to be marked.If you think you may need and extension for this assignment, please read the rules relating to extensions in the Subject Outline before applying for an extension. 

Q: Richard has a specialist car dealership. He buys old cars, refurbishes them and then sells them. He also hires out cars. Richard is restoring an old jeep. It requires a special type of shock-absorber to enable it to travel over rough ground. Richard phones Shocks Are Us. He says to Emma, the manager: “I need four shock absorbers which can be used for off-road driving” Emma consults a brochure published by the shock absorber manufacturer and “Says the D200 shock absorber can be used for off-road driving.”. Richard then agrees to buy four D200 shock absorbers for $ 120 each.

When he installs them on the jeep and takes it for a test drive over rough country, the shock absorbers give way and the jeep crashes down, causing $ 2 000 worth of damage to its body. It turns out that when Emma gave Richard the information over the phone, she had been looking at the wrong page of the brochure. Had she looked at the correct page, she would have seen that the D200 is not suitable for off-road driving. Richard operates his business from a premises which he has leased from George for $ 5 000 per month since January 2016.

The lease specifies that the rent is to be paid to George every six months and that it will increase every year by 10%. Richard pays George $ 30 000 in June 2016 and December 2016, but then tells George that he is having financial difficulties and needs every dollar he can to buy equipment. George says “OK, I will let you off paying the increase this year”. Richard is pleased with this, and uses the money he would have had to spend on the rent increase to buy new tools. In June 2017, Richard pays $ 30 000 to George, but George contacts him demanding an additional $ 3 000. When Richard refers to their earlier conversation, George says “Whatever I said, the lease you signed specifies that the rent will go up by 10% each year”. Tom is a collector of vintage cars.

He sees that Richard has a 1979 Mercedes 450SEL for sale on his website, priced at $ 20 000. Tom sends Richard an email saying “I offer to buy the 1979 Mercedes 450SEL for $ 18 500”. Richard sends an email back saying “Sorry, that is not enough, but I will sell it to you for $ 19 000”. Tom sends an email back saying “No, I can’t pay that”. Richard then sends an email saying “OK, I accept your original offer of $ 18 500”, but when he brings the car to Tom’s house, Tom refuses to accept it or to pay the money. When Richard goes on holiday, Martin looks after his car lot. Martin doesn’t have a car. However, a friend of Martin’s is about to visit town and he wants to be able to drive her around. Martin goes to Richard and says “Can I hire one of your cars?” Richard says “The usual price is $ 50 per day, but because you looked after my car lot in August, you can hire it at no cost. You can pick it up on Monday”.

Martin is very pleased and readily agrees, but when he comes to pick up the car, Richard says that he has hired it out to a customer. Martin says that Richard has breached their agreement. Advise Richard of his legal position in relation to each of these four scenarios. You should assume that all facts given would be provable if the matters came to court. You should also assume that when any of the people mentioned conduct business, they do so as sole traders, not through corporations.

Issues

Law

In Australia, in any intending person who wants to commence business then the same can be carried out in the form of sole traders, partnership or company. Whatever may be the form of person; there are always requirements of employee who carry work on your behalf.

An employee can be employed by undertaking contract of service wherein the employee acts on behalf of the employer. This relationship is governed by the law of agency. Law of agency implies that the principal appoints an agent and entrust with him the authority and an agent must act within such authority to bind the principal with the outsiders. Thus the main elements to establish agency are:

Now, a Principal may delegate authorities which can be:

Application of Law

Terence was the student of Charles Sturt University and has studies jeweler design. He formulated a business called Terry Terrific Designs. There are two students, Peter and Sara, who are employed by Terence.

It is now important to understand whether the transaction undertaken by Peter and Sara are binding upon Terence after applying the law of agency.

Issue 1

 Sara was employed as a designer in Terry Terrific Designs. She creates designs and shares the same personally to Terence. Thus, the task that is allocated to Sara is only of designing.

Terence has made an express authority in favor of Sara wherein she is only permitted to create designs for Terry Terrific Designs. Thus, as per Consolo v Bennett Sara cannot indulge herself into any other work apart from designing and sharing the same with Terence.

Now, Sara had an interaction with Gabby who is willing that Sara must design a brooch for him. after viewing several design executed by Sara, Gabby asks her to create a particular kind of brooch for $1000.

But, during the entire communication, Sara forget to tell Gabby that she is working with Terence. Thus, Gaby is under the impression that Sara is independent and is not an agent of Terence. There was also no representation that was made by Terence which makes Gabby believe that Sara is the agent of Terence.

Thus, when Terrence phones Gabby and submits that the order is received by him  and is delivered in 2 weeks, then, it is rightful for Gabby to submit that he has a contract with Sara and not Terence.

Sara has exceeded her authority that is provided to her by Terence and thus the contract is not binning upon Terence.

Issue 2

 Peter was employed as a supplies purchaser. So, an actual express authority is granted to Peter according to whom he can purchase metals on behalf of the business.

But, Terence has expressly has limited his authority and submitted that he must buy silver only as the business has too much of gold.

Mary was one of the gold dealers who had already dealt with Peter many times and is aware that Peter is authorized to buy the gold., But, Mary is not aware that this author is limited by Terence as the same was not communicated to her either by Terence or by Peter. So, by not disclosing the fact a representation is made to Mary that peter is still authorized to buy gold and is held in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd.

So, the contract amid Peter and Mary, that is, Peter buys 50 grams gold at $1500 is a valid contract and is binding upon Terence under ostensible authority.

Also,

Terence fired Peter on Monday but does not shut off Peter’s access to the business’ email system until Thursday. On Wednesday, Peter placed diamonds from Gordan against an order which is received by Gordan on Tuesday from the Terence’s email system.

Thus, when Terence forgets to shut off Peter access to the system, then, Pater is actually making a representation to his clients that Peter is still the part of the business. under such representation Gordan has entered the contract with Peter under the said representation and on the belief that Peter still possesses the required authority.

Thus, the contract with Peter and Gordan is binding upon Terence under ostensible authority.

Conclusion

There is no contract amid Terence and Gabby as Sara was not authorized to enter into contract with Gabby.

Both, Mary and Gordan can sue Terence as the contract with them by Peter is valid under ostensible authority.

Issue

Law

A company is one of the businesses forms which are carried on by the persons in Australia. A company acquires its legal status only when the same is incorporated as per the provisions of the Corporation Act 2001.

When a company is registered then it is a non-natural person in law. A company has its own personality and acquires all the powers and rights that are normally acquired by a living and natural persons. In Salomon v A Salomon & Co Ltd the court held that a company is distinct and has a personality of its own. The main elements of a company are:

Thus, a company formation is thus in of the most advantageous business formation as the members are not associated with the conduct of the business and it is the company which is held responsible for the same.

But, the separate legal personality of the company is disregard by the court many times and the veil which brings a distinction amid the company and its members can be lifted and the company and members are treated as one. In such situation, the acts of the members are not the acts of the company and the members are held personally liable. The veil is lifted mainly because:

Application of law

The facts submit that a company is formulated by Roger smith in the name of United Chemicals Pty Ltd. Roger holds 92/100 shares and Mary (wife and company secretary) holds 8/100 shares. The Managing Director of the company is Timothy Smith.  

From Industrial Machines Ltd, the United Chemicals Pty Ltd purchased a phosphate processing machine for $ 600 000, payable in three equal installments in 2015, 2016 and 2017. The contract was signed by Timothy under the authority of the Managing Directors.  The contract of 2015 and 2016 goes well. But a default is made in 2017.

It is settled as per Salomon v A Salomon & Co Ltd that a company has a separate legal entity in law after incorporation.

So, when Roger establishes a company in the name of United Chemicals Pty Ltd, then, it is an artificial person in law and thus can enter into contracts on its own behalf.

Thus, the contract of United Chemicals Pty Ltd with Industrial Machines Ltd is entered in its individual capacity and not by Roger personally.

Thus, Industrial Machines Ltd cannot sue Roger as the contract was with United Chemicals Pty Ltd and not with Roger.

Issue 2

 The facts submitted that one of the portions of the Common wealth law was that no person is permitted to grant with a license dealing with explosive manufacturing if the person has a criminal convention.’

Roger was convicted on 2005 for theft and thus is restrained by the Commonwealth Provisions. In order to defeat this common wealth provisions, Roger in 2016 in order to improve his business fortune decided to make explosive. He incorporated a company, Explosive Industries Pty Ltd, in which he holds 99/100 shares and Mary holds 1/100 shares.

It is submitted that the company that is incorporated by Roger was against the Common Wealth provision. The company was formed to defeat the law and thus the veil of the company must be lifted and the company and roger should be treated as one. By applying Re Darby, ex parte Brougham , the company was a sham and an act of fraud on the part of Roger and thus the veil is lifted and Roger must be held to be convicted and thus not capable of incorporating a company that deals in explosive manufacturing.

Conclusion 

Thus, the contract amid Industrial Machines Ltd and United Chemicals Pty Ltd will not make Roger personally liable because the contract by United Chemicals Pty Ltd is an independent contract on its own behalf and Roger is not associated with the company.

Further, the veil of Industrial Machines Ltd must be lifted and Roger was held to be the owner of the company. So, the Common wealth provisions will apply and will restrain Roger from dealing in explosive manufacturing.

Bibliography

Books/Articles/JournalsBottomley, S; Hall, K and ‎ Spender, P. 2017. Contemporary Australian Corporate Law. Cambridge University Press.Gibson, A and Fraser, D. 2013. Business Law 2014, Pearson Higher Education AU.Latimer, P. 2011. Australian Business Law 2012. CCH Australia Limited.

Case laws

Consolo v Bennett [2012] FCAFC 120.Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.Hely-Hutchinson v Brayhead Ltd [1967] 1 QB 549 .Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711.

Re Darby, ex parte Brougham [1911] 1 KB 95.Smith, Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116.Salomon v A Salomon & Co Ltd [1896] UKHL 1.

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