Corporation and Contract Law Case Study 2022

CORPORATION AND
CONTRACT LAW
Essential Elements of a Valid Contract and
Director’s Duties

CONTRACT LAW ISSUE
 Whether any legally valid and enforceable contract has been
created by Forthryt.
 If any such contract has been created exactly at what point of
time it has been created and with whom.

CONTRACT LAW RULE
 The need for the essential requisites to be present in a valid contract to render it enforceable can be explained in
lines with the case of Appleson v Littlewoods 1939.
 The institution of a valid contract that has been compliant with all the requisites of a contract binds the parties to
be legally responsible and any contravention of their responsibilities of the contract would land them in legal
consequences. This can be explained with the case of Rose & Frank Co. v JR Crompton & Bros Ltd. [1923] 2
K.B. 261.
 Agreement also requires to be accompanied with and objective of the formation of legal connection between the
parties and created upon terms that are clear and certain as can be supported by the case of George Hudson
Holdings Ltd v Rudder (1973) 128 CLR 387.
 The acceptance of an offer needs to be made with respect to every term of the offer and no disagreements should
be presented with respect to any of the offers as has been seen in the case of Smith v Hughes (1871) LR 6 QB
597.
 As per the principles established in the case of Hyde v. Wrench (1840) 3 Beav 334 an offeree is required to
accept the terms pertaining to the offer in this entirety and without any alteration in the terms. Such acceptance
which has been qualified by some alteration in the terms would result in counter offer which is required to be
accepted by the other party the same can be treated as the rejection of the prior offer.
 However, according to the principles that has been established in the case of Adams v Lindsell (1818) B & Ald
681, in case of postal rule, the time of communication of an acceptance creating a valid contract is the time at
which the letter has been posted containing the communication.
 As the per principles that has been established in the case of Ermogenous v Greek Orthodox Community of
SA Inc [2002] HCA 8, social agreements should not be given the status of a valid contract.

APPLICATION
 At a party held in February he met another publisher named Boswold and expressed his desire to sell his book to
Boswold for a price more than 40 grand.
 This has been agreed to be a reasonable price by Boswold. This is required to be considered as an agreement as the
same has not been made with a wish to engage in a legal relations and is more of a social agreement.
 On being approached by Metro Publishers, he has expressed his desire to sell his book to the highest bidder, which is
more of an invitation to make an offer and not an offer itself. However, in response to the same, Metro made an offer of
$50,000 which Forthryt has avoided by claiming that he will consider the same which cannot be treated as an
acceptance .
 Another offer has been received by Forthryt by Havoc films who wanted to make a film on his book for $45,000, which
has been accepted by Forthryt with altered terms to have the discretion of selecting the lead cast of the film. This makes
the acceptance to be considered as a counter offer rejecting the prior offer.
 On the other hand, Forthryt has been approached by Boswold for an offer to buy the book for $40,000, which on being
asked by Forthryt has been increased to $45,000 effecting which a form has been sent to Forthryt. Forthryt put his
signature on the same and went to the post office to post the same and handed over the envelop to a postal clerk for the
purpose of posting. By that time he got an offer from Pickwick who made another offer to purchase the book for $45,000
which Forthryt agreed owing to the reputation of Pickwick in treating the authors good. He would be entitled to form the
contract has the form to Boswold has not been posted yet and no contract has been formed and he has recovered the
envelop before it court have been posted as can be concluded from the case of Adams v Lindsell (1818) B & Ald 681.
The time at which both Boswold and Pickwick has effected the offer and acceptance to sell the book, the contract has
been concluded.

CONTRACT LAW CONCLUSION
 Legally valid and enforceable contract has been created by
Forthryt with Pickwick.
 The time at which both Boswold and Pickwick has effected the
offer and acceptance to sell the book, the contract has been
concluded.

CORPORATION LAW ISSUE (PART A)
 Firstly, whether there has been any breach on the part of
Mercedes relating to the statutory as well as general law duty
that she has as a director of a company.
 Secondly, whether the decision that she has taken to agree
with Felix in the purchase of the premises can be extended
protection u/s 180(2) of the Corporations Act 2001 (Cth)
(CA).
 Thirdly, whether her acts can be brought under the purview of
the contravention of s 588G of the CA, in the event of
Joytronics being declared insolvent.

CORPORATION LAW RULE
 Any person designated as a director of a company has been imposed with a duty to exhibit care and
diligence while discharging his functions as a director as per the provisions provided u/s 180(1) of the
CA.
 The level to which the duty and diligence is to be exhibited by the director is to be of the same level as
that would be exercised by any person of reasonable conscience would exhibit under identical
conditions.
 Any director who has been alleged to have been contravened the provisions that has been contained in
the s 180(1) of the CA can seek resort under the business rule that has been provide u/s 180(2) of
the CA, which requires such an action of the director to be inflicted under good faith to ensure a
beneficial position for the company and serving a legitimate purpose for the company.
 Any director who has made a company to incur debt while it was already in financial distress and has
been on the verge of insolvency or has failed to prevent such company from indulging into such a debt
would be held liable u/s 588G for promoting insolvent trading.
 Again, it has been provided by s 588H that any such director who has been alleged of engaging into
insolvent trading may evade liability on proving his action to be taken under the genuine belief that the
company has not been suffering from the probability of being rendered insolvent by the action he has
been taking.

CORPORATIONS LAW APPLICATION
 It has been evident from the provided scenario that Felix has not expressed the fact he has
inspected only one of the stores.
 However, Mercedes has been under the contention that the expansion needs to be kept on
hold and other alternatives needs to be explored however, she has failed to act upon the
contention and agreed with Felix.
 This can render her to be in breach of s 180(1) of the CA as she has not been diligent
enough while dealing with the situation and agreed with Felix.
 The act of agreeing with Felix inspite of having a doubt regarding the same can be treated as
a failure in exercising the best judgement rule as has been provided u/s 180(2) of the CA.
 Moreover, it has been pretty clear to Mercedes that the company has been in financial
distress and any decision taken hastily might lead the same towards the verge of insolvency
and yet she failed to prevent the same.
 Hence she would be held liable contravening s 588G of the CA and does not have a remedy
u/s 588H of the CA.

CONCLUSION
 Hence, there has been any breach on the part of Mercedes
relating to the statutory as well as general law duty that she
has as a director of a company.
 The decision that she has taken to agree with Felix in the
purchase of the premises cannot be extended protection u/s
180(2) of the Corporations Act 2001 (Cth) (CA).
 Her acts can be brought under the purview of the
contravention of s 588G of the CA, in the event of Joytronics
being declared insolvent.

CORPORATION LAW ISSUE (PART B)
 The concerns that can be drawn from the given situation is
whether Greg has incurred any liability for the contravention of
his duty of care as a director of a company.
 Whether he has any liability in case Joytronics is declared
insolvent.

CORPORATION LAW RULE
 Any person designated as a director of a company has been imposed with a duty to exhibit
care and diligence while discharging his functions as a director as per the provisions provided
under s 180(1) of the CA.
 The level to which the duty and diligence is to be exhibited by the director is to be of the same
level as that would be exercised by any person of reasonable conscience would exhibit under
identical conditions. The application of this section has been found in the case of ASIC v
Healey [2011] FCA 717.
 Any director who has made a company to incur debt while it was already in financial distress
and has been on the verge of insolvency or has failed to prevent such company from indulging
into such a debt would be held liable u/s 588G for promoting insolvent trading.
 Again, it has been provided by s 588H that any such director who has been alleged of
engaging into insolvent trading may evade liability on proving his action to be taken under the
genuine belief that the company has not been suffering from the probability of being rendered
insolvent by the action he has been taking. The application of this provision has found in the
case of The Bell Group Ltd (in liq) v Westpac Banking Corporation & Ors [No 9]
[2008] WASC 239.

CORPORATIONS LAW APPLICATION
 Owing to his lack of knowledge in the matter of financial
affairs for the inadequacies in this formal education Greg does
not have much of an opinion to prevent the insolvent trading
from being committed.
 He has been relying upon the decisions that have been taken
by Mercedes and Felix, which is the only option he has been
left with. Therefore, he cannot be held liable for the breach of
s 588G or s 180(1).

CONCLUSION
 Greg has not incurred any liability for the contravention of his
duty of care as a director of a company.
 He has no liability in case Joytronics is declared insolvent.