Case Studies For Business And Corporate Law

Partnership law and liability

Discuss about the Case Studies for Business and Corporate Law.

• Is the partnership bound by Lance’s contract with Mighty Motors Pty Ltd?
• Can the partnership take action against Lance?

Rules: The law, under the Partnership Act, sets out various tests on the effect of a partner’s relationship with outsiders on the partnership as a whole. Generally, the acts of one partner authorised to act or carrying on the usual business of the partnership bind the partnerships as a whole. The exception is where the acting partner lacks authority and the third party on whom he has undertaken a contract is aware that such authority is lacking (Gibson & Fraser, 2013). As such innocent partners can be held liable where an agreement between one partner and an outsider falls through as held in Watteau v Fenwick (1893). In this case, the defendants were partners who owned a hotel together. The hotel was managed by one partner who had his name on the hotel door as well as on the hotel license. The partners had forbidden the manager from purchasing cigars on credit; however, he went ahead to purchase them from the plaintiffs. The plaintiffs later sued the partnership to recoup the price after they had not been paid for. The courts held that the defendants as a whole were liable as the plaintiffs were unaware of the partner’s lack of authority and the cigars were such as those that would be supplied and sold in a similar establishment.

Additionally, there exists a fiduciary relationship between partners to act in the best interest of the partnership as a whole and each of the partners as well. This relationship was outlined in Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) where court recognised that the existence and operations of a partnership were dependent on the mutual confidence and trust among partners. Breach of this trust or fiduciary relationship can result in termination or the relationship or a claim for damages to the extent of the said breach (Latimer, 2012).

Application: In the case study provided, Lance was acting as an agent of the partnership and on its authority to purchase a vehicle. He had a duty to ensure the purchase was in the best interest of the partnership and limited to the amount stated. Lynton, the salesperson, was aware of Lance’s authority but was unaware of the limitation to the purchase. With this in mind, it is clear that the partnership is bound by Lance’s contract with Mighty Motors Pty Ltd because, in so far as Lynton was aware, Lance had the authority to make the purchase of the vehicle and as such the partnership is liable to pay the full amount agreed on. However, the partnership can file a claim for breach of fiduciary duty against Lance to recoup the amount in excess; Lance’s knowingly exceeded his authority and this was not in the best interests of the partnership.

Trade practices and consumer protection

Conclusion: The partnership is bound by Lance’s contract with Mighty Motors Pty Ltd to purchase the Ute, however, it can sue Lance for breach of duty and recover the exceeding as indemnification.

• Do consumers have a remedy regarding the false advertisement claims of the moisturiser to slow ageing effects?
• Will Saqlaim be bound by the contract?

Rules: According to section 29 of the Australian Consumer Law, it is an offence for a person or business in the course of trade to make any false or misleading claims on their commodities. False or misleading claims on the standard, values, grade, quality, use or any other characteristic of a product or service that would induce a party to purchase are considered unlawful. In ACCC v NuEra Health Pty Ltd (in liq) (2007) a clinic purported to be selling a system and products which it claimed could cure cancer and prolong the life of a cancer patient. These claims were false and found to be a breach of the Trade Practices Act 1974 which preceded the Australian Consumer Law s.29.

The law provides for various forms of mistake that would avail contractual remedies for parties who enter into a contract with a mistaken impression of a certain aspect of the agreement (Clarke, 2010). One of these forms, although rare, is non est factum; it is established where once of the parties to the contract can prove that they were mistaken as to the nature of the agreement they signed or entered into and that this mistake is not of their fault or negligence. Illiteracy, foreign language, or visual impairment can be one of the factors relied on to prove lack of understanding (Chew, 2009).  In Petelin v Cullen (1975), Petelin was identified as illiterate and had limited knowledge of the English language. Cullen convinced him to sign a document which he believed was the receipt of $50 when in fact it was an option to purchase his land. Cullen sued for specific performance but the court held that Petelin was mistaken out of no fault of his own and could rely on non est factum as a defence.

Application: Firstly, the provisions of the Australian Consumer Law, avail a remedy to consumers who were misled by the false representations of the partnership with regard to the ability of the moisturiser to slow down ageing. This misrepresentation falls under the scope of offences outlined in the act and bears a penalty on the fraudulent party. As such, aggrieved consumers can rely on this provision for recourse. Secondly, with regard to Saqlaim, the contract binds him only in so far as the partnership can prove he understood the nature of the agreement he was entering into. As per the facts provided, Saqlaim is a recent migrant with little understanding of the English language. Additionally, Lance has been described as fast-talking and charismatic. It is likely that these attributes induced Saqlaim, who understood little of what was discussed to purchase the vehicle. Saqlaim can rely on the defence of non est factum if he can prove that, based on his foreign language, he did not understand the actual nature of the agreement and that the partnership took advantage of this to sell him the car.

Contract law and specific performance

Conclusion:

• Customers have a remedy in the right to sue and recover damages as compensation for fraudulent misrepresentation.
• Saqlaim is bound by the contract in so far as he understood the terms and conditions presented by Lance if he can prove he was mistaken as to the very nature of the contract he can rely on the defence of non est factum.

Issues: Can Felix sue for the extra $ 100 promised by Xiaojing for work done on Sunday?

Rules: Contract law provides the doctrine or specific performance as an equitable remedy; where a party to a contract is obligated to perform certain tasks but fails to do so, the aggrieved party can rely on this doctrine to petition the court to enforce the contract (James, 2015). This is an English common law remedy which was inherited into the Australian system and is applied by courts today. There are certain requirements that must be satisfied for a party to rely on this doctrine, firstly there must be consideration and damages would not be an adequate remedy (Finnane, 2013). It is important to note that past consideration does not suffice as good consideration (Valente, 2010). In Roscorla v Thomas (1842), the plaintiff purchased a horse from the defendant; after the purchase, the defendant promised that the horse was sound. It was discovered that the horse was in fact not sound and the plaintiff sued, it was held that there was no consideration for the promise of a sound horse; past consideration was not good consideration. Past consideration incorporates a promise made in gratitude after a previous service; as such this promise is essentially and expression of gratitude holds no consideration; meaning it cannot be enforced (Andrews, 2015).

Application: In the case study in question, the promise of $100 from Xiaojing came after Felix had already cleared out the garden beds. As expressed by Xiaojing, he had been doing impressive work for which she took it upon herself to show gratitude. The $100 was separate to the contract agreed on to pay $25 per bag of lavender collected. As such, guided by the provisions of law above, there was no consideration from Felix with regard to this promise. As it stands, past consideration is insufficient and as such Felix cannot rely on the doctrine of specific performance so as to have Xiaojing pay him the promised $100. Xiaojing’s statement was only an expression of gratitude for something that had already been done and would essentially be covered under the basic contract agreed on. The promise is therefore not enforceable; Felix can only rely on specific performance where the partnership fails to pay him the $25 per bag previously agreed on.

Conclusion: Felix cannot sue for the extra $100 as there is no consideration and past consideration is not good consideration.

Reference List

ACCC v NuEra Health Health Pty Ltd (in liq) (2007) FCA 695.

Andrews, N., 2015. Contract Law. 2nd ed. Cambridge: CUP.

Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) HCA 24.

Bob Guiness Ltd v Salomonsen (1948) 1 KB 42.

Chew, C. Y. C., 2009. The application of the defence of non est factum: An exploration of its limits and boundaries. UWSLR, Volume 13, pp. 83-100.

Clarke, J., 2010. Mistake. [Online] Available at: https://www.australiancontractlaw.com/law/avoidance-mistake.html [Accessed 23 April 2017].

Finnane, E., 2013. Contract Law: a practical guide. [Online] Available at: https://www.13wentworthselbornechambers.com.au/wp-content/uploads/2014/02/Finnae-2013-contractlawremedies.pdf [Accessed 23 April 2017].

Gibson, A. & Fraser, D., 2013. Business Law 2014. NSW: Pearson Higher Education AU.

James, L. A. M., 2015. Specific performance or rectification. [Online]  Available at: https://www.kottgunn.com.au/updates/specific-performance-or-rectification/
[Accessed 23 April 2017].

Latimer, P., 2012. Australian Business Law. Sydney: CCH Australia Ltd.

Petelin v Cullen (1975) 132 CLR 355.

Roscorla v Thomas (1842) 3 QB 234.

Valente, D., 2010. Enforcing Promises: Consideration and Intention in the Law of Contract. [Online] Available at: https://www.otago.ac.nz/law/research/journals/otago036314.pdf[Accessed 23 April 2017].

Watteau v Fenwick (1893) 1 QB 346.