Walden University - BTX 9500BTX9500 Exam Sem 2. All Answers

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QUESTION: Bingo Pty Ltd is the manufacturer of electrical goods. It entered into a contract with Melvin Pty Ltd, a large discount retailer. Under this contract, Bingo Pty Ltd was to supply its goods ... exclusively to Melvin Pty Ltd. The directors of Melvin Pty Ltd subsequently discover that a wholly-owned subsidiary of Bingo Pty Ltd (named S) is selling identical electrical goods to competitors at cheaper prices. It appears the subsidiary was incorporated to enable Bingo Pty Ltd to avoid the effects of the contract with Melvin Pty Ltd. REQUIRED: Advise, using relevant legal principles, the directors of Melvin Pty Ltd. QUESTION: Donna’s father promises Donna that if she studies hard and obtain a high distinction for her Business and Corporations Law course at RMIT, he will give her $1000.00. Donna and her father sign a written agreement to this effect. Donna tops the class and receives a high distinction. Donna asks her father for the money he promised but he refuses saying ‘you haven’t done anything that you’re not already required to do. Your high marks should be enough ‘reward’. Critically evaluate whether Donna can take successful legal action against her father? Practice Question Four Rocky was an importer of two types of material from India, jute and calico. Rocky’s price of jute was $100 a bale and the price of calico $300 a bale, and these reflected standard market prices. Maverick went to Rocky’s warehouse and placed an order of 100 bales of "Indian material" at the price of $200 per bale. Rocky assumed Maverick meant jute, and sent out 100 bales of jute, thinking that Maverick was ignorant of the market price. When Maverick received the jute, he refused to accept and to pay for the goods because he expected calico. Advise Maverick using relevant case-law. Practice Question One Mr and Mrs Eater, who conduct a catering business, read about an economy downturn in the newspaper and decide, to avoid personal liability, to incorporate their business using the name "Food Galore Pty Ltd“. It had previously been arranged that they were to provide catering services on the next Saturday, at a large society wedding. The bride, Pia, wants a main course of fish. On the Wednesday before the wedding, Mr Eater telephones a fish merchant (Fancy Fish Pty Ltd). After discussions and an exchange of faxes, Mr Eater opens an account with Fancy Fish Pty Ltd in the name of "Food Galore Pty Ltd" and submits a written order for one tonne of fresh fish for the wedding at a price of $10,000. One day before the wedding, Mr and Mrs Eater decide incorporation costs too much and abandon the idea of incorporating their business. Later that day, Pia telephones them to say that the wedding has been cancelled. No one tells the fish merchant that the wedding has been cancelled, and the he delivers the fish on Saturday as agreed. As the wedding has been cancelled, the fish is not eaten and due to a lack of refrigeration, becomes unfit for consumption. Later, the fish merchant rings Mr Eater and demands $10,000. Mr Eater says: "You had a contract with Food Galore Pty Ltd, not me. The company hasn't been set up and nor will it be. You can't get money out of the company, bad luck!” REQUIRED: Critically evaluate, using relevant legal principles, whether Fancy Fish Pty Ltd (and on what grounds) it can recover the $10,000 for the fish delivered on Saturday. *Feedback on Practice Question One Under Part2B.3 of the Corporations Act 2001 (Cth) (which replaces common law) – SEE SECTIOSN 131-133 AND IN YOUR ANSWER OUTLINE WHAT THE RELEVANT SECTION PROVIDES IN YOUR OWN WORDS 2008 Semester 2 Question 2 (a) Under s 256D, RSM Ltd could proceed with the share capital reduction provided it complies with the procedure set out in section 256B(1). Constitution compliance assumption s 128 entitles a person who dealing with a company to make assumption of regularity as set out in s 129 in relation to those dealings. Under s 129 (1), an outsider may assume that company have complied with its constitution or applicable replaceable rules in relation to the dealings. Therefore, even though in the company constitution it states that all purchases in excess of $ 5,000 must be authorised by the board of directors, Freda could rely on the assumption in s 129(1) to assume that the contract to buy oven has been complied with D Pty Ltd’s constitution even it excess the prescribed amount and have not authorised by the board. Holding out assumption Knew or suspect the incorrectness of the assumptions Contract entered into by Anne 2008 Semester 2 Question 4 Dividing shares into further classes Additional issue of preference shares Procedure need to be follow Consequences Carl’s possible statutory remedies Oppressive and unfair conduct Diversion of profit Diversion of corporate opportunity Director’s failure to act in the interest of the company Procedural Irregularity 2008 Semester 2 Question 5 Incurring debts Insolvency when the debt incurred Reasonable ground to suspect insolvency and failure to prevent Defence Section 588H(2) Section 588H(3) Consequence Breach of the duty not to prejudice creditor’s interest Question 1 Armtill CCFoods Ltd (Armtill) is a successful soft drink and snack foods manufacturer. Armtill has an issued share capital of 4 million $1.20 shares. It decides to sell its snack foods business for $1M and concentrate on its core beverage/soft drink business. Armtill has sufficient capital reserves to meet any further acquisitions or expansion plans for its business. As it has no present use of the proceeds of the snack food business the directors decide to return funds to its shareholders. This in part will make up for low dividend payments to shareholders in the last three years. Armtill seeks your advice as to how it can reduce its share capital and return these funds to shareholders under the Corporations Law. Explain the methods available under the Corporations Law for Armtill to undertake this transaction. An answer to question 1 would consider the following: A general discussion on the principles of maintenance of share capital. How and why companies may wish to reduce their share capital. This case is similar to Re:Fowlers Vacola. Give a summary of the decision and reasoning in this case. Discussion of the process under section 256A-256D. Students should set out and discuss the requirements of the section. Question 2 Star.Com Ltd is a successful Internet company. Star.Com Ltd needs to raise capital to expand its software research business. The Board is considering two possible ways of raising the capital. Firstly, the possible public issue of redeemable preference shares; and the second option is to borrow money from the Finance Group Ltd. a) Advise the Star.Com Ltd of the advantages and disadvantages of both methods of capital raising. b) Advise Finance Group Ltd what asset they should seek security over and advise whether they should seek security by way of a fixed or floating charge. Finance Group Ltd advance the funds under the security of a floating charge. Advise Finance Group Ltd of the requirements and the procedure for registering the charge. What would be the consequences for Finance Group Ltd if they failed to register the charge? a general discussion of share and loan capital. discussion of difference between redeemable preference shares – section 254A(3) and s254J; and a discussion of loan capital, debentures and charges – section 283BH Part b) would include: a discussion of the difference between fixed and floating charges. a discussion of the consequences of crystillization (consider possible cases) a discussion of registration of a charge under s262 and s263 and consequences for failing to register ie. loss of priority as a secured creditor. Part c) would include: a discussion of the two ways to appoint a receiver, that is, by order of the court or by private appointment and the differences between the methods. a discussion of the powers of the receiver under s420 and the rights to exercise power of sale under s420A-s420C. Question 3 Victoria Universal Limited (VUL) is a successful Melbourne based company running a number of different successful businesses. During its twelve years of operation it has generated significant profits and each year it has reinvested these profits back into the business. (i) Francis is a shareholder who complains that while the directors had decided to pay a dividend in late 2003, they have now reversed their decision. Francis seeks your advice in regard to his rights to recover the dividend from VUL. (ii) VUL sells one of its less profitable businesses and is seeking to focus on its core merchandising business. VUL has more share capital than it requires and Vincent and Ula, the directors of VUL, seek your advice as to the requirements that need to be satisfied in order to reduce the share capital by 15% and return this to all shareholders. (iii) Would it make a difference if the Board of VUL decided to engage in a share buy back of all “A Class shares in VUL and is reluctant to sell his share in a company he helped found. n answer to question 3 would consider the following: i) a discussion of s254V & W. Also discuss when the court may intervene for non-payment of dividend, s254U (Burland v Earle; Sandford v Sandford Courier Service). ii) a discussion of the process under s256A-256D. Students should set out and discuss the requirements of the section. iii) a discussion of the process under s257A-257J. Students should set out and discuss the requirements of the section. Sample Answer to Question 4 The first issue to deal with is the liability of Directors for payment of the interest on the loans to Friendly Bank Ltd. The courts will first decide whether or not the directors of the company have engaged in insolvent trading and breached s588G. There should be a discussion of s588G (1)(2)(3); whether a debt was incurred; suspicion of insolvency; what company insolvency means: s95 A (1) defines solvency as being able to pay debts as and when they fall due. S95 A (2) defines insolvency as not being solvent. In this situation it is highly likely that the company will be declared insolvent. When a company is declared insolvent the courts are prepared to lift the corporate veil and go behind the company to attach liability to the directors under s588G where the directors had a duty to prevent insolvent trading – an exception to the Separate Legal Entity Doctrine was established in Solomon v Solomon & Co Ltd. Once you can establish a prima facie case of insolvent trading by the directors you need to consider the defences under s588H Defences available to the directors are as follows:- 1) Colin would use the defence under S588H (4) which allows a director relief if he was ill at the time when the debt is incurred. Although not relevant here there are cases used for a defence under this section: Metropolitan Fire Systems v Miller [1997] 23 ACSR 699 Powell & Duncan v Fryer [2000] 18 ACLC 480 Tourprint International Pty Ltd v Bott [1999] 17 ACLC 1543 ASIC v Plymin, Elliot & Harrison [2003] VSC 123 (Water Wheel case) Southern Cross Interiors P/L v D Com Tax [2001] NSWSC 621 Also see appeal decision in DC of T v Clarke [2003] NSWSC 91 2. Given that Dina had abstained from voting, she may be able to use the defence under S588H (5) where a director may not be liable if they took reasonable steps to prevent the debt being incurred. If Diana had tried to talk the other directors out of proceeding with the loan and had voiced her concerns and had backed them up with positive action such as resigning her position as director then she may escape liability. However, simply abstaining from voting would not be enough to prevent liability (** But see s588H6) 3. If directors had reasonable grounds to expect solvency S588H (2) they may also be able to use this as a defence. Elizabeth could not use this defence as she had not attended any meetings and seemed to make no attempt to acquaint herself with the affairs of the company (CBA of Aust v Friedrich, Tourprint International Pty Ltd v Bott [1999] 17 ACLC 1543, ASIC v Plymin, Elliot & Harrison [2003] VSC 123 (Water Wheel case), Southern Cross Interiors P/L v D Com Tax [2001] NSWSC 621; also see appeal decision in DC of T v Clarke [2003] NSWSC 91). 4. Brian could not use the defence that he was no longer a director of the company as he was involved at the time the debt was incurred (S588G 5. Andrew appears not to fit into any categories outlined above and therefore would probably also be held liable under S588G to Friendly Bank Ltd 6. Also consider consequences where director is liable for insolvent trading and some of the orders that can be made under Sections 588J-588Q and s1317E. The second issue is that of Brian’s breach of directors duties which he owed to Gemsales P/L. Brian had fiduciary duties at common law as well as duties under S180-183. Common law duties as a fiduciary to Gemsales P/L include:- - duty to act bona fide and in good faith. - duty to act with care, skill and diligence. Statutory duties under S180-183 include:- S181 duty to act in good faith S180 (1) duty of care, skill and diligence. S182 & 183) duty not to misuse the position or make improper use of information gained whilst in the position of director. Breaches of these duties are discussed below:- I) Brian has a statutory duty to disclose material interests to the company (S191.) This includes when he has an interest in a contract being entered into with the co-Traders P/L contract with Gemsales P/L. As well as breaching this provision he has breached S181 by failing to act bona fide (in goods faith) and has also breached his common law fiduciary duty to avoid conflicts of interest – (Cook and Deeks) Question 5 James runs a single director proprietary company called Jamboos Pty Ltd. (a) Explain the rules that Jamboos must operate under and the powers of James under the Corporations Act. (b) James is considering bringing his brother into the company as a shareholder. Explain what difference that will make to the company. (c) James wants to raise more capital to increase the size of the company and expand its business. What options does James have in seeking to raise more funds? (d) Assuming James considers some form of capital loan, explain the types of debentures that can be issued by a company. (e) Explain the implications of Jamboos becoming a public company. [4x5=20 marks] Sample Answer to Question 5 Proprietary companies with one director may pass a resolution by recoding and signing the record S248(G). They may also do the same with declarations S248B(2). Under S708(1) there are offers to certain bodies that do not need disclosure. The other type of capital raising is by loan from a financial institution. Corporation-Carlos Mesacom Ltd Part a Agent authority Sub-issue: Carlos (C) has the authority to act as an agent of Mesacom Ltd (the company) under common law agency principles in taking out the loan? Rule & Application: C is an agent of the company as he is the managing director and the founder of the company. He is acting on behalf of the company. Conclusion: C has apparent authority under common law and the company is bound by the loan contract under common law agency principles. Part b Sub-issue: Is the company liable for a debt incurred by its director under Corporation Act? Rule & Application: Conclusion: As the bank might make an assumption that C had the customarily power to make the loan for $10 million, the company will be bound by the contract. Part c Duty of directors Sub-issue: Did C breach his duties as a director under the Corporation Act 2001? Rule & Application: S180 (1) states that directors should exercise a reasonable degree of care and diligence. In the case, Carlos has acted recklessly and incompetently by signing a $10 million loan contract to acquired Hasnet without obtaining an independent valuation and advising other director. Therefore, C has breached S180 (1). Under S180 (2), the ‘business judgment rule’ is mentioned which states that a director who makes a business judgment is taken to meet this standard if: (1) judgment in good faith and for a proper reason C’s decision that acquires Hasnet was in good faith and was for a proper purpose which to expand the company. (2) do not have a material interest in the subject matter C did not have any personal gain in this matter. (3) inform the matter to the extend he believe to be appropriate He did not inform the directors of the company of the loan and the acquiring of Hasnet at all. (4) rationally believe that the judgment is in the best interests of the corporation As C did not make any evaluation of Hasnet, he was not rational in making the decision and he might believe the judgment was in the best interests of the company. Only two defences are effective, C has breached s180 (1). Section 182 imposes on a director or other officer or employee of a company not to improperly use the position for personal gain, gain by a third party or detriment to the company. Cummings v Claremount Petrileum NL establishes that being a managing director of the company has a duty not to improperly use his/her position to cause detriment to the company. But in fact, C has improperly used his position as a managing director to get a loan from the bank without informing the board of other directors. And this caused detriment to the company suffers 30% decrease in shares and facing financial difficulties. Conclusion: C breached his duties under the Corporation Act. Question 6 Joe and Mary are shareholders of the Australian Conscientious Taskforce Pty Ltd (known as ACT). The company buys shares in Australian companies in order to pressure the company to act properly according to community standards. ACT has focused on companies which produce and market tobacco products, particularly Tobacco Products Ltd. Tobacco Products Ltd has been accused of marketing its products to underage smokers, which has resulted in substantial fines for the company. ACT believes that the directors knew of the illegal activities, or at least should have known. The company is refusing to take any action against the directors. Joe and Mary intend to go to the forthcoming general meeting. They seek your advice on the following: 1. Can they question the Board on the above matter? 2. Can they put a resolution to the meeting condemning the inaction by the Board? 3. What other actions might the group be able to undertake in order to have the company and the directors brought to account? [15 marks] Sample Answer to Question 6 Case Mei Ling entered R Pty Ltd’s shop. She said to a salesperson, ‘Look, I’m going climbing in the Himalayas and I need a tent. What have you got? ’The salesperson showed Mei Ling three tents, one of which is a tent manufactured by X Ltd. The salesperson was called away. Mei Ling selected X’s tent and paid the cashier $750. Mei Ling went to the Himalayas and suffered frostbite because the tent was totally inadequate. In fact, the tent was designed for use in mild climates. Mei Ling hobbled into R’s store and demanded an explanation and compensation. The manager said, ‘Well, you selected the tent and what’s more the sign at the cashier’s desk clearly states that R Pty Ltd makes no promises, warranties or conditions in relation to the goods sold and shall not be liable for any damages save and except replacement of goods proved to be faulty at the time of sale.’ Mei Ling remembered reading the sign at the time she bought the goods. Does Mei Ling have a good cause of action against R Pty Ltd? 1. Step. Contract There is a contract between ML and R 2. Step: Term 1. Applicability of the TPA a. seller X Ltd subject to the TPA? s 4 TPA: corporation = significant proportion of activities are trading or finance b. Is Mei Ling a consumer? • s 4B TPA • amount of service below $40.000 or if it exceeds service for personal, domestic or household use or consumption what if she was doing the expedition as part of her profession – i.e. explorer? • should not be for resale • goods transformed in course of commercial production/ manufacturing c. Goods provided in course of business? intended to exclude private business d. Step: Auction – auction not covered by TPA 2. Breach of Implied terms under TPA – Part V Division 2 – Remedies: DAMAGES!! • seller right to sale s69(1)(a) • buyer has quiet enjoyment – s 69(1)(c) • sold by description - match the description – s70 • sold by sample - s72 • merchantable quantity – s71(1) • purpose known to seller – must be fit for it s71(2) Sec 71(2) of the TPA states that if the purpose for which the goods are being purchased is made known to the seller in circumstances where the buyer shows that she relies on the seller’s skill and judgment and it was reasonable for the buyer to rely on the seller, the seller must supply goods that are reasonably fit for that purpose. Although Charlie made the ultimate choice she made that choice from a range selected by the seller. Charlie was entitled to expect that all three tents presented by the seller were fit for the purpose of being used in the Himalayas. There is no suggestion that there was anything about the salesperson that made it unreasonable for ML to rely on the person’s judgment. The tent was not fit for the described purpose. Consequently, ML can return the goods (s 75A TPA) and sue for damages for the consequential damages she has suffered. John operates a small sole trader retail electrical appliance business. He approached Everywhere Appliances Pty Ltd, a major retail chain to purchase five (5) Hoover refrigerators. Although Everywhere was a retailer, it was able to supply John at a lower price than the wholesalers could because of its bulk buying capability. John called at one of the Everywhere showrooms, briefly glanced at the refrigerators and said, ‘Yes, I will take those five units.’ The five units were delivered, but three were found to be faulty. John complained, but was referred to the following clause in the sales contract: ‘Due to this contract being at or near cost price, all warranties on these goods as described herein, are hereby expressly negatived and any faulty goods become the responsibility of the purchaser.’ When he complained, he was advised to seek legal advice. John has approached you. Advise him fully of his legal position with respect to the five units. 1. Step. Type of Contract This is clearly a contract for the sale of goods (refrigerators). As John is purchasing the goods for the purpose of resale it is not a consumer contract. Therefore, (assuming the sale occurred in Victoria) the Goods Act applies. 2. Step: Terms IMPLIED Terms: Sale of Goods Legislation 1. Applicability Sale of Goods Legislation (Victoria) • contract • non-consumer • Victoria 2. Implied Terms • seller has right to sell – s17 VGA • goods are free from encumbrance – s17 VGA • goods match description – s18 VGA • merchantable quality – s 19(b) VGA • fit for purpose – s19(a) VGA • match the sample – s20 VGA This means that there is an implied condition that the goods are of merchantable quality (s 19(b)). Broadly speaking, goods are of merchantable quality if they are reasonably fit at the time of sale for their normal purpose having regard to the circumstances of the case including the contract description and the price. EXPRESS Terms: Limitation or Exclusion Clauses However, the buyer’s rights arising out of the Goods Act are subject to any exclusion clause excluding, restricting or limiting liability. Exclusion clauses are permitted by virtue of sec 61 of the Goods Act (Vic). In this case there is an exclusion clause in the sales contract. (1) Exclusion Clause part of the contract • time: exclusion clause part of the contract • signed – unsigned: do not know – therefore Reasonable Notice Whilst there is no direct evidence that the term was brought to the attention of John prior to the sale, the fact that the document is a sales contract and that John is a retailer himself suggest that he must have been aware that the document contained contractual terms. Although the exemption clause is fairly destructive of the buyer’s rights, the better view is probably that the exemption clause is a term. (2) Breach covered If that is the case, then the important issue is whether the exclusion clause covers the breach that has occurred. Although there is insufficient evidence to completely determine the matter, it seems that three of the refrigerators are not of merchantable quality. There is no evidence that John noticed the faults when he looked at the fridges in the showroom. If the goods are not of merchantable quality, then Everywhere Appliances Pty Ltd is in breach of an implied condition of the contract. The exclusion clause refers to warranties and not to conditions. As courts interpret exclusion clauses contra proferentum, this means that the exclusion clause will be interpreted against Everywhere Appliances and in favour of John. A court would probably limit the exclusion clause to breaches of warranty and not conditions.. 3. Step Remedies Therefore, John could claim remedies for the three faulty refrigerators. This means that he could terminate the contract. He should refuse to accept the goods. John may also be able to sue for damages, although it is unlikely that he could claim loss of profits on the resale of the goods. The reason that he would not be able to claim loss of profits is that Everywhere Appliances is a retailer and would not have known that John was buying them for resale unless it had been specifically told this fact. Case Aix Ltd owns a chain of retail stores. NW Pty Ltd supplies networking systems to businesses. Aix and NW entered into a contract for the supply and installation of a computer network system linking all Aix’s stores. NW has completed 10 stores and there are another 50 to do. Aix has discovered that the system has a flaw which makes it relatively easy for outsiders to gain unauthorised access to Aix’s system. Already hackers have broken into Aix’s confidential data base. Aix wants to cancel the contract with NW, remove NW’s system and replace it with another system. On the other hand, NW argues that the flaw can be rectified and that NW should be entitled to fix the problem and complete the contract. (a) Does Aix have a right to terminate? The contract contains the following clause: ‘It is a condition of the contract that the system be as secure as current technology permits.’ (b) News of Aix’s network problems have caused Aix’s bankers to refuse Aix’s application for a loan. Aix has had to borrow from alternative sources at a higher interest rate. Aix calculates this will cost it $250,000. Assuming NW is in breach of contract, could Aix claim the $250,000 from NW? (a) Step 1. Contract  Contract between Associated Newspapers (AN) & Bancks:  Bancks will supply a full page comic strip of ‘Us Fellers’ each week & AN will publish the comic strip on front page of Comic Section each week.  AN published Bancks’ cartoon on page 3 for 3 weeks. Bancks complained & eventually told AN contract was terminated and signed a contract with a rival newspaper. H: The High Court said a condition was ‘the heart or essence of the contract’. The Newspaper’s undertaking to publish Bancks’ cartoon on the front page of the comic section was a condition of the contract. Step 3. Remedies Case Isabel settles with William on 5 March, and places orders to stock her new L’Apartment store on 10 March. Isabel orders from the wholesaler ABC Ltd. The contract is for $20,000 of home wares, including plates, glasses and cutlery, to be delivered on 25 March. On 15 March, ABC Ltd informs Isabel that it is unable to deliver the stock until 1 April, 4 days after Isabel had planned to open her store. As a result, Isabel will lose profit from not being able to open her store on time (estimated at $5000). Isabel is also unable to win the contract to furnish the newly-built Clayton Moderno Hotel, which was worth $100,000 in profit. Isabel is very upset and asks you whether she can terminate the contract with ABC Ltd and whether she can obtain any money? Answer This is an anticipatory breach by ABC Ltd. It will give Isabel the right to terminate the contract if the time stipulation is a condition. Termination: Must determine whether the time stipulation is a condition OR warranty. Mercantile contract – can presume that the time stipulation is a CONDITION: Bunge Corp of New York v Tradax Export SA Panama. Even a minor breach can give rise to a right to termination. Damages: Partnership – Debts and obligations: QUESTION 7 CHAP 11 Alan&Brianna Issue: Is Brianna liable for $60,000? R/A: S9 1. Agent 1) Actual Authority Alan has actual authority to buy for $30,000. However, he brought for $60,000. Thus, he did not have actual authority to buy $60,000. – Hely v Brayhead 2) Apparent Authority However, Alan may have apparent authority to buy the books if he appears to seller that he has authority to purchase for $60,000. – Freeman Locyker v Buckhust Therefore, the transaction is valid. 3) Estoppel Alan already appointed to buy and the seller delivered the books. Thus, Brianna cannot deny it. OR (It is reasonable for supplier to assume that Alan was held out by the partnership to buy the $60,000 books as a partner of the bookstore. Therefore, Peter cannot deny it.) 4) Ratification As Brianna did not return the $60,000 books, Alan’s action was ratified. 2. Kind of business The kind of business carried out by Alan and Brianna is a bookstore. 3. Usual way of business Alan’s purchasing of books is the usual way of running a bookstore, because it is reasonable for a business to provide such items at a bookstore. Hence, Brianna is liable for the $60,000 purchase of books. – Young v Lamb c/f Goldberg v Jenkins S13 Under S13 of the partnership act, both Alan and Brianna are jointly liable for the $60,000 debts and obligations of the bookstore incurred while they are still partners. Hence, Brianna is liable. S12 Under S12 partnership Act 1959, if the seller of books had noticed that Alan did not have authority to buy table, chairs and lights for $60,000, then Brianna would not be liable. However, the case did not mention it. Therefore, Brianna is liable for the $60,000 debts. Conclusion Brianna is liable for the purchases of $60,000 books. Partnership – Wrongful Act/Jointly several liabilities: QUESTION 9 CHAP 11 Bob&Sally Issue: Whether Bob and Meiling are liable for Mrs Plod’s claim for an amount of $10,000. Rules/Applications: Under S14 and S16 of partnership Act 1958, Sally and Bob are jointly several liable for wrongful acts or omission committed by a partner in the ordinary course of the business of the firm.- Polkinghorne v Holland et Whittington Under S14, 1) Bob is liable for sally’s wrongful act of allowing the corrosive industrial cleanser mixed into the lotion which caused injury to Mrs Plod. 2) It is an ordinary course that Sally and Bob providing pedicures and selling foot-care product. Therefore, Under S16, Sally and Bob are jointly and severally liable for injury of Mrs Plod. Under S6(3)(d), lending money does not means Mei Ling is a partner.- Re Megavand; Ex parte Delhasse. Mei Ling would be liable as a partner only if she did something more than what a lender does. In this question, Mei Ling only lent money for interest profit. Therefore, she was not involved in partnership and was not liable. Conclusion: Bob is liable but Mei Ling is not. Two doctors, Dr. Tran and Dr. Sarah, have formed a partnership in an outer suburb of Melbourne called the 'Caring Clinic'. Although they initially went into partnership on the basis of a handshake, six months later they formalised the partnership. The written partnership agreement mirrored the original oral terms as follows: Due to a large franchise medical practice 'Fast Track Medical' opening up in the suburb, fewer patients have been attending 'Caring Clinic'. While Tran is on annual leave, Sarah thinks the clinic needs to promote itself better. She engages a marketing company run by her friend Mike to commence a promotional campaign for the practice at the cost of $13,000. When Tran returns she is angry because Sarah did not consult her about this major expense. a) Advise Tran whether the partnership will be liable for the $13,000 marketing campaign. To make a little extra money, Sarah has been working at the 'Fast Track Medical' clinic on Saturdays. Sarah has been seeing some of Tran's patients at the clinic. b) Advise Sarah whether she has the lawful right to retain the profits derived from treating Tran's former patients at the rival 'Fast Track Medical' clinic. Tran and Sarah (Debt& Obligation) Chapter 10: Agency Issue 1: advise whether the partnership will be liable for the $13,000 marketing campaign. Introduction: Rules: S5(1) A partnership is the relation which subsists between persons carrying on business in common with a view of profit and includes an incorporation limited partnership within the meaning of part 5. Application: Sarah is one of the partners in the partnership business, which appear to Mike that she has authority to sign the contract. Holding out authority Partnership Louis, Eugene and Naomi own and operate a city restaurant in Melbourne called Eucalyptus which uses chemical-free (organic) ingredients whenever possible and specialises in ‘bush food’, including witchetty grubs (insects) and kangaroo steaks. All three owners have contributed equally to the costs of setting up the restaurant and have agreed in writing to share equally any profits or losses. Another written term of their agreement provides: a) Any purchase of goods or services greater than $5,000 must be authorised by all owners; b) On reasonable financial terms any two of us can remove the third owner or introduce another (incoming) owner to the business. Concerned that the restaurant is not attracting enough overseas visitors, Louis engages his friend Joseph to design an interactive website for Eucalyptus. The website has video links showing where the ‘bush food’ comes from and how it is cooked at Eucalyptus. The website costs $12,000. Eugene and Naomi are unwilling to pay Joseph for this work on the basis they did not authorise it and only Louis should be liable under the contract. If Louis will not pay the $12,000 they are considering excluding him from the business. Unfortunately the website guarantees that organic ingredients are always used, and that witchetty grubs and kangaroo steaks are always available. When a wealthy Korean guest is disappointed the restaurant has no witchery grubs, she complains to her hotel. The hotel is now considering bringing a civil action against Eucalyptus’ owners for misleading and deceptive conduct. Advise Louis, Eugene and Naomi on the following matters: a) Are Eugene and Naomi personally liable for the website? Would an incoming partner be liable? b) This is an issue that relates to the relationship between the partners themselves, and partners with third parties. Relationship between partners to each other The rights and liabilities of the partners with respect to each other are determined by three factors, as follows: (1) the contract between the partnership (s. 23 of P’ship Act) and the liability of partners to third parties (s. 9, 12, 13, Goldberg v Jenkins, Construction Engineering v Hexyl). The contract is supreme in determining the rights and liabilities of the partners between themselves, as in s. 23. In order to answer this question, it is necessary to look on at the agreement between the partners. It is agreed unanimously between L, E, and N that the express terms give arise their obligations and authority. As the partners have agreed on the express terms in doing their business matter, s.28 and s.29 of P’ship Act 1958 (Vic) is subject to the express terms. Under express term, then, it is agreed that ‘any purchase of goods or services greater than $5,000 must be authorised by all owners’. This will be relevant to the liability of partners to third parties. Relationship between partners to third party partner as a sole trader). Rules regarding incoming partners & application Under P’ship Act s. 21(1), it is clear that an incoming partner does not become liable for the debts of the firm incurred prior to becoming a partner. This would render liability due to frustration of the agreement or to the act as void to incoming partners. c) Whether Eugene and Naomi are entitled to remove Louis under their agreement and/or under the Partnership Act 1958 (Vic). This is an issue regarding the rights and liabilities of the partners with respect to each other, which would relate to: (1) the contract creating the partnership (s. 23); (2) the Partnership Act (ss.28-29); and (3) fiduciary duties of the partners. d) If the hotel successfully sued would Eugene and Naomi be personally liable for any damages resulting from the action? This is an issue that particularly can be related under the heading of ‘joint’ and ‘several’ liability for wrongful acts. As in ss. 14 and 16, partners are jointly and severally liable for wrongful acts or omissions committed by a partner in the ordinary course of the business of the firm. Wrongful acts may include torts, and also include misleading and deceptive conduct under TPA s.52 or ASIC Act s.12ED. ‘Acts in the ordinary course of the business of the firm’ ‘Joint’ and ‘several’ liability PLASTO: I: The legal issue here is whether the court can lift the “corporate veil” to make Plasto 2 Pty ltd.liable for damage caused by Plasto Pty Ltd to customers. R: According to Salomon’s case [1897] AC 22, the rule applicable here is that Plasto and Plasto 2 are two separate legal entities, which means Plasto is able to own property, enters contract, sue and be sued, and has responsibilities for its own debts all in its own name, therefore, Plasto 2 Pty ltd has no legal obligation to damages caused by Plasto. a) LIFTING CORPORATE VEIL BY COMMON LAW: R: However, there are certain exceptions where unfair consequences could occur when a company is created as a sham to avoid legal obligations. The court can “lift” the “corporate veil” making a person other than the company liable for the company’s contractual obligations. Basing on decisions made in the case . A C: as a consequence, the corporate veil between Plasto and Plasto 2 could be lifted in this case and the court would require Plasto 2 to be liable for debts of the original company – Plasto. b) LIFTING CORPORATE VEIL BY STATUTE: R: However, according to s 588G of the Corporation Act, directors can be personally liable for company’s debts if they fail to prevent the company from incurring those debts at the time knowing or having reasonable ground to suspect that the company is insolvent. A [Show More]

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