Theories of Contract Law - Free Sample

Application:

• Tom - In the given case study, Steve assures Tom that his truck is capable of carrying 12 tons of cargo without checking the specifications that were available. Resultantly, Tom entered into a contract with Steve suffering a loss of 5000 dollars profits in one day. The relevant rule that is invoked here is Tom may hold Steve liable for misrepresentation as Tom acted on the assurance that was given to him by Steve and consequently suffers loss. However, Steve may rely on the defenses available against misrepresentation that is he acted in good faith and as per his knowledge the trucks that he had been all capable of carrying 12 tons of cargo. The legal position of Steve in this case is not strong and he may have to pay compensation to Tom for his loss.
• Pamela – The contract that was initiated between Pamela and Steve was informal in nature. Informal contracts are legal in nature as long they fulfill all the requisites of the valid contract. Hence, the contract that was formed between Steve and Pamela was valid. However, in this case Pamela may face difficulties as it becomes difficult to prove the validity of an informal contract, as they are verbal in nature. Hence, in the case of Pamela the legal position of Steve is strong as Pamela may face difficulties to prove the contract valid between them.
• Danny – In the case of Danny, Steve can be excused by applying the doctrine of supervening impossibility. One of the rules of this doctrine relates to the damage of the subject matter of the contract without the knowledge of any of the parties to the contract. In such a case, the contract is discharged and none of the parties may have to face any legal consequences as it was beyond the control and knowledge of both the parties to the contract. In this case Steve can be excused and he cannot be held liable as he was unaware of the fact that the subject matter is not in in existence at the time when he entered into a contract with Danny. In this case, the legal position of Steve is strong.
• Cool It Aircon Ltd – Applying the postal rule in the case of Steve and Trisha, Steve cannot excuse himself on the ground that he was not aware at the time of posting his acceptance and he made a mistake. Trisha after receiving his acceptance, acted on the belief that Steve has agreed to the terms of the contract and that he has agreed for the delivery of the air condition for which Trisha invested money. Hence, Steve cannot use the defense of the fact that he acted on mistake and he may be held liable for payment of compensation to Trisha or Cool it Aircon Ltd. In this case, the legal position of Steve is not strong.

Conclusively, it may be stated that Steve can rely on the defenses that are available to him as per the law of contract. The legal position of Steve in each of the cases have been clearly related to based on the facts and by applying relevant rules to the case study the issue in question has been answered.

Issues

• Whether the firm and Peter and Adrian be held liable for the payment to Tom?
• Whether the firm and Peter and Adrian be held liable for the payment to Edgar?

Relevant Rule of Law

To answer the question with respect to the whether there is a payment liability, it is important to understand the nature of the transaction that is in existence. The Partnership Act (Cth.) , Section 5 states that the partners of a firm are its agents and as well as agents of each other for the purposes of the partnership’s business; and the act which is undertaken by any of the partner for the carrying out of the business which is the business’ usual way which is being carried out by the partnership firm, of which the partner is a member, shall be binding upon the firm as well as the firm’s partners, unless there is in fact that no authority on the part of the person to be acting in the firm’s authority in the said matter, and the person with whom the dealing is being made either knows that the person has no authority, or is not aware or does not believe that he is the partner. Since there is fiduciary duty that is owed between the partners, when one of the partner acts as the agent of the firm, the this partner will own a duty to the other partners and similarly the other partners shall also owe duty towards the said partner, Phillips-Higgins v Harper [1954] 1 QB 411 (Phillips-Higgins v Harper, 1954). When there is an act by one of the partners without there being an authorization for the same, it is required that the four requirements which have been stipulated under section are required to be fulfilled for the firm to be held liable. The first requirement is that it was a partner who had entered into the transaction or act. The second is that the transaction or the act should be within the scope of business of the firm. The third is that it must be in a usual way that the transaction or the act must be effected, and the last being that the third party should either believe or know that the individual is a partner of the firm or the individual’s lack of authority must not be known to him (Fletcher, Coles, & Higgins, 2014).

It is to be noted that there may be a liability on the firm for a transaction which has been entered into by the partner notwithstanding the fact that the said type of transaction is not entered into by the firm. It is in the case where the transaction entered is the type which is entered into firm usually in the same industry this may be the so, Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103 (Mercantile Credit Co Ltd v Garrod, 1962). However if the transaction made is such which is beyond the firm’s usual way then in that case the firm will not be bound towards the transaction as had been opined by the court in the case of Goldberg v Jenkins (1889) 15 VLR 36 (Goldberg v Jenkins, 1889).

Further in the case of Watteau v. Fenwick 1 QB 346 (Watteau v. Fenwick, 1893) it was opined by the court that once it is established that the principal is the defendant, then in that case the doctrine of agent and principle shall be applicable, all the agent’s acts the principal shall be held liable for the same which are within the usually confided authority to an agent of the said character, notwithstanding the fact that there might be limitations, between the agent and the principle (Fletcher & Fletcher, 2007).

Also in the case of National Banking Corporation of Australia Ltd. v Batty it was opined by the High Court that even if there is an act which has been done by a partner without the partner having any authority actually, the other partners will still be held liable for it (National Banking Corporation of Australia Ltd. v Batty, 1986).

Application of Law

Tom: In the case of Tom, the contract of sale and purchase entered between Tom and Adrian will bind Peter and Aidan as well and they will be required to pay Tom the amount that is due. Since the act which was done by Tom was during the firm’s ordinary course of business which is of accounting and since there was no reason for Tom to believe that Adrian did not have the authority to enter into such a contract hence making the other partners liable for the payment. Though Adrian in this case had not acted in a manner which was under the authority the contract would still be binding on the other partners as well. As opined in the case of National Banking Corporation of Australia Ltd. v Batty it was opined by the High Court that even if there is an act which has been done by a partner without the partner having any authority actually, the other partners will still be held liable for it. The legal position of Tom is strong.

Edgar, in the his case the contract of sale and purchase may be proved to be a transaction which was not the type which was used generally in the similar business as that which the firm was in and was beyond the usual way of the firm as had been held in the case of Goldberg v Jenkins (1889) 15 VLR 36. Hence the legal position might be weaker than Tom’s for making the firm liable for the payment

Conclusively it can be stated that Tom has a better defense in making the firm liable for the payment as compared to Edgar. However, in both the cases since Adrian is a partner of the firm and thus an agent and there is no way that either of the party could have known that he was not authorized to make such a transactions an action can be brought against the firm and argued in favour of Tom and Edgar.

Issue

The issues are:

• Whether the restraint clause which was applied on Richard reasonable and could an injunction be obtained by Nu-Slim for the operations of Fat-Away?
• Could United Bank Limited sue Richard for the default made by the Company for the payment of the loan?

Rule of Law

To answer the question with respect to the validity of the restraint clause, it is necessary the understand restraint clause. In employment restraint clause are essential for the protection of the employer’s legitimate business after the termination of the employer by the employee. Since restraint of trade clause are against the public policy of ensuring that there exists competition in the market hence they are void prima facie. However, in the case where in they are reasonable and for the protection of the employer’s legitimate interest in the business it may be upheld by the court (Epstein, 2013).

The factors which the court may place regard to which assessing whether a reasonable and fair trade clause include that the interest of the employer should be capable of protection. It includes work’s nature and the seniority that the employee had in the business of the employer including whether there was exposure or involvement of the employee to information that was confidential (Jackson, n.d.). It also includes the benefit that the employee and the employer had for agreeing on the restraint.  It further includes the duration and scope of the clause of restraint, including the area and time which are included for the restraint. Finally it includes for assessment whether the trade’s restraint is providing nothing more than that which is essential for the protection of the legitimate business interest of the employer.

In the situation where it is purported by the restraint clause to do more than that which is essential for the protection of the legitimate interest of the employer in the business, than it more like that the clause would be found unenforceable and void by the Court.

If clause of restrain is unreasonable with respect to the interest of the public and the parties then it would be in contradiction to the public policy and thus be held as void as opined in the case of Buckley v Tutty (Buckley v Tutty, 1971). There is no protection that is entitled to the employer against competition. In the case of Littlewoods Organization Ltd. v. Harris (Littlewoods Organisation Ltd v Harris, 1977) it was opined by Lord Denning that there cannot be a stipulation by the master for there to be freedom from any kind of competition all that he can do is to ensure that his information which is confidential and any trade secret is not transferred to any rival in the trade.

Further for answering whether there can be a case against Richard for the default by the company of the loan taken from United Bank, it is necessary to understand the concept of independent legal entity (Waqas & Rehman, 2016). The company once it is incorporate becomes an independent and new legal entity. This entity is separate completely from the subscribers who had formed the corporation as well as those who manage. As in the case of Salomon v. A. Salomon & Co. Ltd [1897] AC 22 where it was opined that generally only the company can be sued by the creditor for the recovery of the damages and not the members of the company. It was opined in this case initially be Vaughan Williams J. that it was merely as the agent and nominee of Salomon that the company was acting and therefore as the principal it was required that indemnification be made by him personally to the creditors of the company. The Court of appeal further rejected the appeal made by Salomon and held that he was the company’s trustee and this company was only his shadow ("Contracts. Restraint of Trade. Validity of Restrictions against Competition in Employment Contract", 1914). Finally the house of Lord on appeal from Salmon rejected the rulings from the lower courts. It was further opined by Lord MacNaghten in this case that at law company is an altogether different from its memorandum’s subscribers and though even after incorporation these subscribers are only the managers and receiving profits it does not make the company a trustee or an agent. Thus there is no liability on either the members or the subscribers to compensate the damages of the creditors ("Directors' liabilities when things go wrong | ASIC - Australian Securities and Investments Commission", 2016).

Application of Law

Richard v. NuSlim, in this case there was a stipulation by the employer for there to be freedom from any kind of competition and such a freedom cannot be granted under restriction clause. This type of freedom is against public policy and thus prima facie void. The restriction clause unreasonable and curbs competition by not allowing Richard to sell any sliming product in Australia. There is no use of confidential information or legitimate business interest which is being protected by this clause. Hence in the given situation the case of legal position of Richard is strong and NuSlim cannot obtain a injuction against Richard’s company.

Richard v. United Bank Ltd, in this situation the company is a separate legal entity than Richard and as held in the case of Salomon v. Salomon the members of the company cannot be sued by the creditors of the company. Thus United Bank Ltd. cannot sue Richard personally and make him liable for the default by the company. In this situation as well legal position of Richard is strong.

Conclusion

Conclusively it can be stated that Richard has a better legal position in the given scenario against both NuSlim and United Bank given the fact and application of law to the given facts.

Reference

Adams v Lindsell 1 B & Ald 681

Andrews, N. (2016). Sources and General Principles of English Contract Law. In Arbitration and Contract Law (pp. 165-175). Springer International Publishing.

Ayres, I., & Schwartz, A. (2014). No-Reading Problem in Consumer Contract Law, The. Stan. L. Rev., 66, 545.

Buckley v Tutty, 125 CLR 353 (1971).

Contracts. Restraint of Trade. Validity of Restrictions against Competition in Employment Contract. (1914). Harvard Law Review, 27(7), 680. https://dx.doi.org/10.2307/1326469

Directors' liabilities when things go wrong | ASIC - Australian Securities and Investments Commission. (2016). Asic.gov.au. Retrieved 15 August 2016, from https://asic.gov.au/for-business/your-business/small-business/small-business-resources/asic-guide-for-small-business-directors/directors-liabilities-when-things-go-wrong/

Epstein, R. (2013). Contract - Freedom and Restraint. Hoboken: Routledge.

Fletcher, K. & Fletcher, K. (2007). The law of partnership in Australia. Pyrmont, NSW: Lawbook Co.

Fletcher, K., Coles, S., & Higgins, P. (2014). Higgins and Fletcher the law of partnership in Australia and New Zealand (4th ed.). North Ryde, N.S.W.: Law Book Company.

Goldberg v Jenkins, 15 VLR 36 (1889).

Hillman, R. A. (2012). The richness of contract law: An analysis and critique of contemporary theories of contract law (Vol. 28). Springer Science & Business Media.

Jackson, R. Post-employment restraint of trade.

Landa, J. T. (2014). A theory of the ethnically homogeneous middleman group: an institutional alternative to contract law (with an Afterword).Handbook of East Asian Entrepreneurship, 82.

Littlewoods Organisation Ltd v Harris, 1 WLR 1472 (1977).

McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK).

Mercantile Credit Co Ltd v Garrod, 3 All ER 1103 (1962).

National Banking Corporation of Australia Ltd. v Batty, HCA 21 (1986).

Phillips-Higgins v Harper, 1 QB 411 (1954).

Puil, J. V. D., & Weele, A. V. (2014). Contract Law and Tort Law. InInternational Contracting: Contract Management in Complex Construction Projects (pp. 285-292).

Robinson v Davison (1871) LR 6 Ex 269

Salomon v. A. Salomon & Co. Ltd, AC 22 (1897).

Waqas, M. & Rehman, Z. (2016). Separate Legal Entity of Corporation: The Corporate Veil. Int J Soc Sci Mgt, 3(1), 1. https://dx.doi.org/10.3126/ijssm.v3i1.13436

Watteau v. Fenwick, 1 QB 346 (1893).