LAW 6000 Business and Corporate Law- Mighty Motors Pty Ltd

Instructions:

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.

Case Study 1

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?

Case Study 2

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?

Case Study 3

Felix a uni student aged 20 is keen to earn some income during the summer holidays. He is employed as a casual to pick lavender.
He will be paid $25 cash per bag.

One Sunday Xiaojing tells him that he is doing such great work she will pay him an extral $100 for work he did yesterday clearing
garden beds.

She reneges on her promise and Felix is outraged. He wants to know if he can sue Xiaozing for the $100.

Advise Felix.

Answers

Case Study 1

In this case study, the issue is if the partnership is bound by the contract created by Lance with Mighty Motors Pty Ltd for the purchase of a new Ute at a price of $25,000, while the partners have agreed that Lance should not spend more than $20,000 on the purchase. Hence, it has to be seen if this contract is binding and is the other partners and if the other partners can take action against Lance.

According to the partnership law, the authority of a partner for creating a binding contract needs to be measured, keeping in view the ability of the partner to bind the firm with the contracts formed by the partner. According to law, a contract formed by a partner will be treated as being enforceable against the other partners if one partner has entered into a contract and the circumstances are such that it can be said that the other partners are bound by it. As is the case with the company, a partnership is not treated by the law as a distinct legal entity. Consequently, a partnership cannot create a contract in its own name. Therefore, while forming contracts with third parties, a partnership should act through its partners. But sometimes an issue may arise that the other partners will be treated as bound by the contract if the partner has acted beyond the authority of the partner.

It may be claimed by an outsider that the other partners should be held to be bound by the contract formed by a partner but when such partner is not in a position to carry out the contract (Freeman & locker v Buckhurst Park Property (Mangal) Ltd, 1964). It is required by the law that the outsider should be in a position to establish that such a partner had the authority to bind the firm with the contract created by him. Similarly, when a partner has acted beyond the scope of authority, the other partners can ratify the contract and such a contract is adopted by the partnership (Kelner v Baxter, 1866).

In order to deal with decision, it has been provided by the Partnership Act that all the partners are tainted by the law as being the agents of the other partners. The result is that when a particular act as being done by a partner in the furtherance of the business of the partnership that is generally conducted by the partnership, such an act is treated by the Lord to be binding against the partnership, unless the partner who has created the contract did not have the authority and at the same time, the other party was aware of this lack of authority (Re Agriculturist Cattle Insurance Co (1870).  

In the present case, a new Ute has been purchased by Lance from Mighty Motors Pty Ltd. However, the other partners have authorized Lance to enter into a contract up to $20,000 only. However, the new vehicle was purchased by Lance at the price of $25,000. Mighty Motors Pty Ltd was not aware of the fact that such a purchasing limit has been imposed on Lance. As a result, it cannot be said in this case that the partnership is not bound by the contract formed by Lance. Therefore, the contract is enforceable against the firm by Mighty Motors. On the other hand, the other partners of the business can take legal action against Lance for acting beyond the scope of authority provided to him.

Case Study 2

The issue in this case is if the businesses involved in unconscionable conduct. In this regard, generally unconscionable conduct reference to the conduct that is so harsh that the conduct goes against good conscience. According to the Australian Consumer Law also, a prohibition has been imposed. According to which the businesses should not be involved in unconscionable conduct, while they're dealing with their customers or other businesses. Such a conduct is related with the transitions that take place between dominant party and a weaker party. Such conduct is prohibited by equity also. Equity intervenes when a party has taken undue advantage of the special disability like age, illiteracy or lack of education held on part of the other party (Commercial Bank of Australia v Amadio, 1983). Generally it is required that the resultant transaction should be harsh/oppressive for the party with a disability. Where unconscionable conduct has been established, the law allows the weaker party to shun the deal (Blomley v Ryan, 1954).

While some of the statements made in the advertisements can be considered as mere 'puffs', the other statements can be treated as representations. For example in the present case, it has been stated in the advertisements that the moisturizer has the effect of slowing the process of aging while this claim was false. As a result, in this case, it can be said that the business was involved in unconscionable conduct that has been presented by the Australian Consumer Law also.

Regarding the other issue when they have sold the car to Saqlaim, with a refugee from Syria and had little knowledge of English, it can be said that if the transaction was particularly harsh for Saqlaim, it can be said that this transaction was unconscionable and the business had tried to take advantage of the weaker position or the visibility of Saqlaim.

The result is that in this case, if a loss has been suffered by Saqlaim as a result of entering into this transaction, a remedy is available to Saqlaim, and he can avoid the transaction. The reason is that this transaction can be described as unconscionable and the business of Xiaojing had tried to take advantage of the disability of Saqlaim as he had little knowledge of English language. On the other hand, a remedy is available to the consumers under the Australian Consumer Law, which prohibits the businesses from making false claims in the advertisements and involving in unconscionable conduct. Such a conduct has been described in section 21 of the ACL.

Case Study 3

In this case, a university student Felix has entered into a contract to pick lavender and in return the employer Xiaojing was going to pay him $25 per bag. However, one afternoon Xiaojing tells Felix that he had done a good job by clearing the garden beds yesterday and as a result, he promised to pay Felix $100 extra. However, later on, Xiaojing refuses to abide by this promise. Under these circumstances, the issue arises if Felix can enforce this promise against Xiaojing.

In this way, the issue in the present case is related with past consideration. Under the law of contract, consideration is the price asked by the promisor in lieu of the promise. Therefore, it is required under the common law that a binding agreement is created only if the elemental consideration is present. As a result of this requirement, gratuitous promises are generally not considered as enforceable under the law. In the same way, there are certain rules related with consideration. One such rule states that past consideration is not a good consideration. Consequently the law of contract requires that the consideration should arise either alongside the promise or subsequent to the promise. Conversely, if the consideration fixed by the parties exists before the promise, it is not treated by the law as good consideration. If A has made a promise to B to transfer the ownership of his car in return of the help supplied by B to A in the last month, such promise is not legally enforceable. Every such a case, although there can be a moral duty to fulfill this promise, but there is no legal duty and similarly this promise cannot be enforced in a court of law. In Roscorla v Thomas (1842), a horse was bought from the defendant. At that time, the defendant promised regarding the soundness of the horse. The reality was that the horse was not in a sound condition. Under these instances, the plaintiff brought a claim against the defendant for breach of contract. It was stated by the court that in this case, no consideration has been provided in return of the promise regarding the soundness of the horse. The consideration alleged was the contract for the sale of horse but this contract has preceded the promise made by the defendant.

In the present case also, the consideration supplied by Felix has preceded the promise made by Xiaojing to pay $100 extra to Felix. Therefore, the promise made by Xiaojing cannot be enforced by Felix.

References

Blomley v Ryan (1954) 99 CLR 362

Commercial Bank of Australia v Amadio (1983) 151 CLR 447

Freeman & locker v Buckhurst Park Property (Mangal) Ltd (1964)2 QB 480

Kelner v Baxter (1866) LR 2 CP 174

Re Agriculturist Cattle Insurance Co (1870) LR 5 Ch App 725 at 733

Roscorla v Thomas (1842) 3 QB 234