Rights and Liabilities in Corporation Law

This article discusses the rights and liabilities in corporation law, including the tort of negligent misstatement and the concept of promissory estoppel. It provides case studies and applications to illustrate these concepts. Find study material and expert assistance on Desklib.

Running head: CORPORATION LAW
CORPORATION LAW
Name of the Student:
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Author Note:

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Question 1:
Part A:
Issue:
This issue involved in this case is what are the rights and liabilities of Magnolia in the
present case study analysis.
Laws:
The tort of negligent misstatement can be defined as an inappropriate and inaccurate
statement made honestly by a person with special skill and knowledge to the other who does not
have such skill or knowledge, without taking reasonable care while giving any advice as
observed in the case of Esanda Finance Corporation Limited V Peat Marwick Hungerfords
[1997] 142 ALR 750 by the High Court of Australia.
To prove the tort of negligent misstatement, it is required to show that the elements of
negligence have been breached too. Such elements include element of fault, presence of actual
damage and element of having remedy as seen in the case of Esanda Finance Corporation Ltd v
Peat Marwick Hungerfords (1997) 188 CLR 241 (HCA).
Firstly, there must be element of fault, that is, it is needed to show that one party has
committed a tort either negligently or intentionally by providing an inappropriate and inaccurate
statement intentionally or negligently.
Secondly, the plaintiff in the cause has the burden of proof to show that he has suffered
from certain loss, damage or injury due to the tortuous act of the tort feasor.

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Thirdly, there must be an option available to the court to place at a position where he
would have been if he would not been subjected to the tort. The reason behind this is law of torts
believes to compensate the victim instead of giving punishment to the tort feasor.
Another aspect to be considered in this regard is the negligently inflicting economic loss
to the plaintiff as seen in the Council of the Shire of Sutherland v Heyman [1985] HCA 41.
When economic loss is caused due to misstatement given by a party carefully, it results in to tort
of negligent misstatement as observed in the case of Perre v Apand (1999) 198 CLR 180.
Further, the court will take into account additional factors that will make the tort feasor
liable for the result of his tortuous acts. These factors include the presence of duty of care of the
wrongdoer to the plaintiff in the light of reasonable foreseeability, proximity test of the tort and
the harm caused and vulnerability.
Application:
In the present case, it is seen that Laura, an accountant and financial advisor, advied
Magnolia to expand her business and for which she asked her to borrow money. As per the
advice, Magnolia borrowed 69000$ from Usurer’s credit. She then signed 5 year lease and
bought thermomixers and hired a designer to design a webpage for her.
Later on, things changed. Laura admitted that she did not consider the pre existing debts
and thus underestimated the establishment cost which amounts to a misstatement as being a
financial advisor is expected to provide accurate ideas as seen in The Owners -Strata Plan No
61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317 case. Magnolia suffered loss
due to this misstatement due to the negligent act of Laura resulting in to economic loss.

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Conclusion:
Thus, from the above discussion, it s clear that Magnolia has the right to recover damages
from Laura for her act of committing tort of negligence by providing misstatement causing
economic loss to her.
Part B:
Issue:
The issue involved in this case is whether the Blue Mountain City Council has any
liabilities towards Jake.
Laws:
This case study also dealt with the concept of negligent misstatement by the tort feasor
giving wrong advice or opinion to the plaintiff causing economic loss to him. Misstatement
means giving a wrong advice carelessly and without taking reasonable care by a person having
special skill or knowledge on the matter of advice to the plaintiff as seen in the case of Esanda
Finance Corporation Limited V Peat Marwick Hungerfords [1997] 142 ALR 750 by the High
Court of Australia.
In this regard, the landmark case of Shaddock V Parramatta City Council (1981) ALR
385 has to be referred where the High Court of Australia held that the local government body
was liable for the wrong information it supplied to the general public who suffered a loss by
relying on such erroneous information supplied to them innocently but negligently.
In order to prove the tort of misstatement, the plaintiff must show that the he has suffered
from losses by relying on the statement made by the defendant. Moreover, it is required to show

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that the elements of negligence have been breached too. Such elements include element of fault,
presence of actual damage and element of having remedy.
Another aspect to be considered in this regard is the negligently inflicting economic loss
to the plaintiff as seen in the Council of the Shire of Sutherland v Heyman [1985] HCA 41.
When economic loss is caused due to misstatement given by a party carefully, it results in to tort
of negligent misstatement as observed in the case of Perre v Apand (1999) 198 CLR 180.
Application:
In the present case it is seen that Jake, Magnolia’s boyfriend has intented to buy a large
property for re-development purpose. He contacted the defendant Blue Mountain City Council
requesting relevant statutory certificates related to such property. He specifically requested for
the road widening proposal in respect of his property. Council notified him by a letter that there
was no such road widening proposal on the basis of which he purchased the property. However,
after two months, he came to know a road widening proposal is being approved that requires one
half of his property, the remainder property remained unsuitable for any purpose. It is seen that
the council is liable for giving misstatement to Jake. He relied on such advice due to which he
incurred loss of 1,600,000 $ in addition to financial difficulty.
Conclusion:
From the above facts, it is seen that the Council has committed a tort of misstatement and
is liable to compensate for the loss suffered by Jake.
Question 2:
Issue:

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The issue involved in this case is to consider the contractual rights and liabilities of
Donald Frump arising in different situations.
Laws:
As per the Australian contract law, to constitute a valid contract, a legally enforceable
agreement must be present between the parties to the contract. An agreement consists of an offer
made by one party and its acceptance by the other as seen in the case of R v Clarke [1927] HCA
47. A collateral contract is generally a single term agreement where one party makes a promise
without giving regard to the main contract to which the consideration consists of the other party
entering in to the main contract.
A collateral contract must satisfy the following criteria; the first is it has to be promissory
in nature as seen in JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 case (Martin,
2016). secondly, it has to be made with an intention to make the other party to enter into the
contract as found in the case of Evans & Sons Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078,
thirdly it must be consistent to terms contained in the main contract and finally, it must be made
prior to or at the time of contract formation as observed in the case of Hoyt's Pty Ltd v Spencer
(1919) 27 CLR 133, 147.
Another important feature of the Australian Contract law is the concept of promissory
estoppel. In Australia, this principle of promissory estoppel can be used as ‘sword and a shield’.
It will be applicable to the promise with a cause of action in the following circumstances; when
the promisor makes a promise, promisor makes or encourages an assumption that a contract is
about to be made or a promise is to be executed, relying on this the promise proceeds to the
contract that may be detrimental to the latter. In these situations, the promissory is estopped or

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prohibit the promise. It has been discussed elaborately in the case of Waltons Stores (Interstate)
Ltd v Maher High Court of Australia (1988) 164 CLR 387 [1988] HCA 7; (1988) 76 ALR 513.
Another important aspect of the contract law is the doctrine of unconscionability or
unconscionable conduct which denotes the terms or conditions that are so unjustified or highly
one sided in favour of a particular party who has higher bargaining power that such terms are
gainst the principle of good conscience and justice. The leading case where the court has
emphasized on this doctrine is the case of Commercial Bank of Australia Ltd v Amadio [1983]
HCA 14, (1983) 151 CLR 447, High Court (Australia). This concept is generally focused on the
use of undue influence or coercion of one party on the other and the fact that the stronger party is
taking advantage of the fact that the consumer had not sufficient knowledge or understanding of
the contract or is unable to make decision independently as observed in Louth v Diprose [1992]
HCA 61, (1992) 175 CLR 621, High Court (Australia).
Application:
In the present case study, it is seen that Donald meets Margarita who owns a dairy farm.
She offers to sell Donald 200 kgs of beef for 3500 $ and also informs that the offer is open fir 24
hours. Donald calls 3 hours later to inform her that he accepted the offer. However, prior to
receiving call, Margarita receives another call from Carlos whose order at 3700 $ she accepted
immediately. Here the offer was kept open for 24 hours by Margarita and he has not revoked it
too. Hence the contract with Donald is binding on her.
Now, Donald decided to buy a new truck for home delivery service. He approached
Mario’s Trucks and Motors Pty Ltd and agreed to buy a Pantech 2018 for 60000 $. After the
contract is created, he asked the sales manager Jeff whether they will provide 1st free of cost

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service to which Jeff agreed. After two months, the car is needed to be serviced but Jeff was
reluctant to perform his promise. In this scenario, the promise to 1st free service by Jeff accounts
to collateral contract to the main contract of the purchase of the vehicle. Hence Jeff is bound by
it.
Again, Donald began some negotiations to lease out some commercial premises to be
used for his new restaurant. The negotiation included Donald’s ability to demolish a wall to
renovate the interior and make an oven. The landlord Nacho agreed to such negotiation and
asked Donald to start the renovation process. After 4 weeks, Donald received a letter from Nacho
that he did not want to execute the lease with him. But Donald had already invested 150,000 $ on
the basis of the negotiation though he did not receive a signed lease yet. He even hired 2
international chefs to cook in his restaurant. The negotiation made by Nacho with Donald
amounts to a promissory estoppel which is binding on him and he cannot deny it.
In this part, it is seen that Donald’s parents have limited education, knowledge and poor
language skills, they came to Australia to stay with Donald and his brother Ricardo. Their
income is pension and they own a home of 750,000 $. Ricardo misleads his parents to act fir his
guarantor to take loan from bank for his business. He misleads them to secure the loan but the
Bank was unaware of it and looking at their financial condition agreed to make them guarantors.
But Ricardo’s business failed miserably and his company became insolvent. This act of Ricardo
acts as an unconscionable conduct in the contract and when the bank wants to recover money
from his parents, they have the option to deny it as it was an unconscionable conduct.
Conclusion:

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Thus from the above discussion, it can be concluded that Donald has the right to sue
Margarita, Mario’s Trucks and Motors Pty Ltd on behalf of Jeff and Nacho for the breach of
contract. Moreover, his family can deny their obligation to the bank ob the basis of the
unconscionable conduct of his brother Ricardo.

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References:
Andy Gibson, Business Law (Pearson Australia, Custom Edition, 2018).
Commercial Bank of Australia Ltd v Amadio [1983] HCA 14, (1983) 151 CLR 447, High Court
(Australia).
Esanda Finance Corporation Limited V Peat Marwick Hungerfords [1997] 142 ALR 750.
Evans & Sons Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078.
Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133, 147.
JJ Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435.
Louth v Diprose [1992] HCA 61, (1992) 175 CLR 621, High Court (Australia).
Martin, P. (2016). Estoppel: Binding promise without a contract: Court of appeal considers
proprietary estoppel. LSJ: Law Society of NSW Journal, (23), 93.
Perre v Apand (1999) 198 CLR 180.
R v Clarke [1927] HCA 47.
Shaddock V Parramatta City Council (1981) ALR 385.
Shire of Sutherland v Heyman [1985] HCA 41.
The Council of the Shire of Sutherland v Heyman [1985] HCA 41.
The Owners -Strata Plan No 61288 v Brookfield Australia Investments Ltd [2013] NSWCA 317.

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Waltons Stores (Interstate) Ltd v Maher High Court of Australia (1988) 164 CLR 387 [1988]
HCA 7; (1988) 76 ALR 513.