Contract Formation and Liability

Case Study
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Question 1
Part A
Issue
The issue in this case is that Jeff is a business owner who owns a brand of peach brandy. Jeff
procures from local producers. There is a certain amount of land that is also owned by Jeff.
Jeff wanted to sell the business to Tina. There is a head of agreement that has been signed
both by Jeff and Tina. The clauses that has been addressed in the agreement involves
purchase of the brandy business along with the land, purchase price is $ 2.5 million, suppliers
to be transferred to Tina, fixtures and fittings were included in the sale, employees are to be
transferred, negotiation was left open for decision of business name on a separate price and
lastly the agreement was stated to be subject of a formal contract and sales deed which is
acceptable to a solicitor that is appointed by Jeff and Tina.
Rule
The English contract law suggests that contract can be formed between at least 2 parties.
Contract can be oral or written or a combination of each of these. For a contract to be valid
there are four key components that are needed to be covered. These four elements are
agreement, capacity, consideration and intention. First aspect is the agreement which have
two parts. The two parts of the agreement is offer and acceptance. Second part is the capacity,
a contract cannot be considered if the person entering the contract is less than 18 years, in
case they do not have the mental capacity or is under the influence of drugs and alcohol. The
third aspect is the consideration a contract can only be considered as valid if there is an
exchange of consideration or value. This aspect makes the contract binding (McKendrick,
2014). The fourth aspect of the contract is that parties involved in the contract should have
the intention to enter the contract (Eaa.org.hk 2019). It is stated that the person who intends
to make the agreement a contract is responsible to provide evidence that the parties are
actually willing to enter into the contract.
Application
In this case all the agreement is signed by both the parties hence there is a proof that the
agreement is legally enforceable. The 7th term of the contract states that the agreement is
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subjected to the formation of a formal contract (Kourosh, 2019). So both the parties have
admitted to form the formal contract hence this can be considered as legally enforceable.
Conclusion
In conclusion it can be stated that Jeff who wants the agreement to become a contract can
produce document supporting his claim that Tina has accepted the terms of the contract
through signature in the agreement. Thus the agreement can be considered as legally binding
and Tina can be penalised for not abiding by the contract.
Part B
In case the contract stated that the agreement is subject to Tina obtaining suitable finance
than the contract would not be legally enforceable. It would only be enforceable when Tina
would have had the required amount of fund (Lexology.com 2019).
Question 2
Issue
(a) The first issue is the responsibility of the managing director of LightsBright Pty Ltd. For
the inability of CheapCheap Pty Ltd to pay back the debt.
(b) Personal liability of Managing director of CheapCheap Pty Ltd.
(c) The relevance of the ‘business judgement rule’ in this particular case
Rule
The companies act 2006 states the liabilities of the director. The companies are considered as
fictional entities and thus the contracts that are signed by the company have to be done by the
responsible employees of the organisation. The first article of the company act 2006 states the
responsibilities and duties of a director. The English common law has contributed in
developing definitions of the role of the director. Section 172 of the company makes it
mandatory for the director “to act in good faith of the best interest of the company” (United-
kingdom.taylorwessing.com 2019). This section specifies the fiduciary duty of the Director to
promote better relation with the suppliers and customers.
Section 214 which deals with the concept of wrongful trading states that the director can be
considered as personally responsible in case they are aware of the financial situation of the
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