HI6027 Business and Corporate Law Case Study Report T2 2019

This report presents a comprehensive analysis of a business law case study, addressing two key scenarios. Part A focuses on contract law, specifically exploring the formation of a unilateral contract in a promotional context. It examines the legal implications of an offer, acceptance, and revocation, using the case of SOO Burgers' competition as a central example. The analysis evaluates the validity of claims made by two customers, Mickey and Brett, considering the rules of offer, acceptance, and revocation. Part B delves into corporate law, examining the application of the Corporations Act 2001 (Cth) and the doctrine of indoor management. The scenario involves a company, Sparkling, and its managing director, Sarah, who secured a loan from Costello Bank. The report assesses the validity of the loan and the actions of the managing director, considering the limitations imposed by the company's constitution and Sarah's employment contract. It also considers the implications if the loan was used for different purposes and if the bank officer knew about the souring relationship between Sarah and the company. The report concludes with a detailed application of relevant legal principles to determine the legal outcomes in both cases.

 
Business law

Part A, option 1:
issues:
 The main matters of dispute involved in the
present case study are that whether:
 SOO burgers are required to give Mickey the CX-
9s model car,
 SOO burgers are required to give Brett the CX-9s
model car.

Relevant rules of law:
 The contract can be denoted as the agreement
which can be validly as well as legally enforced in
the court of law between two or more individuals or
persons who can be referred as the parties of such
contract.
 In order to complete an agreement, lot of
negotiations occur among the parties and until and
unless, the parties are satisfied with the negotiations
among them, no agreement can result. The method
used to reach such starts from an offer given by one
part called the offeror to the other called the offeree
who does the acceptance of the offer made to him.

Relevant rules of law
(Contd.):
 The offer generally consists of an indication showing the intention of
the offeror to contract on certain terms. In response if the offeree
shows his eagerness to agree on those terms, this forms the
acceptance of the offer. In the case of Ermogenous v Greek
Orthodox Community of SA Inc (2002) 209 CLR 95, it was decided
that the agreement can be considered to be a contract.
 However, offer must be distinguished from the invitation to offer.
Advertisements showing services or goods cannot be considered to
be offers. It was entrenched in Partridge v Crittenden [1968] 2 All ER
421 where it was decided that advertisement is not an offer.
Similarly goods displayed in shops are invitations to treat or offer
and not offers as in Pharmaceutical Society of Great Britain v Boots
Cash Chemists (Southern) Ltd [1953] 1 QB 401. In the invitation to
treat or offer, the invitation is made to any particular party but to
public at large. Moreover, an offer results from the acceptance of an
invitation whereas an agreement results when offer is accepted.

Relevant rules of law
(Contd.):
 To form a valid agreement, the offer has to be accepted
unconditionally. Moreover the acceptance must correspond to the
offer and it has to be communicated to the offeror. The case of R v
Clarke (1927) 40 CLR 227 shows that there cannot be any
acceptance when the offer is not known to the offeree.
 Another type of contract is known as the unilateral contract in
which no exchange of promises in mutual manner is present when
the agreement is made. In such contract, one party makes a
promise to do something when the other party does some
particular and specific task. Here the court considers the promise
to provide a reward not as a future consideration but as executed
consideration which is a good consideration to make an
agreement legally binding as in Carlill v Carbolic Smoke Ball Co
[1893] 1 QB 256.
 Revocation of an offer means an offer is withdrawn by the offeror
either orally or in writing . But it will be considered valid only when
it is communicated to the offeree before he accepts it. If the
offeror wants to withdraw the offer after it is accepted, then it

Application:
 It is observed that a hamburger chain of restaurants
operate in New Zealand and Australia in the name of
SOO Burgers. As the sales slowed down, the SOO
Burgers planned to run a competition in the name of
‘Fair Dinkum deal’ promotion whose rules stated that
the wrapper of every double decker emu burger will be
having a token attached to it. Any customer who
collects minimum 50 such tokens will be eligible to
redeem a golden ticket that when scratched if reveals a
car then such customer will win a new Mazda CX-9
model car after depositing the ticket to the head office
of the SOO burger. This amounts to a unilateral contract
as observed in Carlill v Carbolic Smoke Ball Co.

Application (Contd.):
 A customer named Michael was eager to win the new car. Hence, after knowing the
promotion, he rushed to the restaurant and placed an order of 50 burgers. After
finishing them off, he passed out due to exhaustion and was immediately sent to
an emergency of the nearby hospital for pumping out from his stomach. However
before this, he redeemed the tokens and got the golden ticket.
 But due to some mistake, instead of one ticket, several tickets got printed with cars
due to which many customers become eligible to win the car. Hence the restaurant
planned to withdraw the competition and announced the withdrawal news over
radio, online and newspaper. Mickey did hear it directly but it came to his notice
from conversation of the nurses. This showed that the revocation of the offer was
successful as it was communicated before its acceptance.
 Mickey after hearing it, scratched the ticket thus the acceptance was valid as the
offer was revoked before it is accepted. Hence no agreement is there.
 On the other hand, Brett instead of buying burgers collected about 100 tickets from
the wrappers thrown inside the dustbin. He also redeemed the tickets and got two
scratch cards which when scratched revealed 2 golden cars. But the acceptance
was not valid as it did correspond to the offer as in Tinn v Hoffman (1873) 29 LT
271.
 Hence, no valid agreement was formed between Brett and SOO burgers.

Conclusion:
 From the rules discussed above and its
application in the present case scenario, it can be
inferred that SOO burgers is not required to give
Mickey and Brett the CX- 9s model car.

Part B, option 1:
Issues:
 The matters in dispute arising in the present case
study involve the following issues;
 What can the result in the present case,
 What the result shall be ideally,
 Whether the result will vary in case the loan was
sought for refurbishing the cloth shops and if it
was known to the loan officer that the relation
between Sarah and the company has turned sour.

Rules:
 The Corporations Act 2001 (Cth) is an important
legislation of Australia that governs the
formation, administration, governance and
functioning of a corporation. Section 125 of the
Act sets out the role played by constitution of a
company. Subsection 1 of section 125 states that
where there exist a constitution of the company,
such constitution possesses the power to impose
restriction expressly or even may impose
prohibition on the company while exercising any
of its powers. However, if it appears that the
company has performed against the provision of
such constitution such act of the company will not
be regarded as invalid.

Rules (Contd.):
 Again, subsection 2 of the said section enumerates that the
constitution of the company can set out objects. However,
similar to subsection 1, an act will not be regarded as invalid if
it is found to contradict or beyond the scope of such object as
laid in the constitution.
 Section 126 of the said Act discusses the capability of an agent
of a company to authorize an agent. Subsection 1 of the
section states that the company has the power to employ an
agent who will be working on behalf of the company. Such
agent has the power to cause ratification, modification,
variation or discharge of any contract on company’s behalf.
The agent may be authorized by the company expressly or by
implied terms. Such power can be exercised even without
making use of the seal. However it does not have any impact
on the operation of law.

Rules (Contd.):
 Under the common law principle, any person who
deals with a corporation may assume that he is
acting in good faith without having any
knowledge of irregularities and is not required to
make enquiry about the internal matters of the
company. He is entitled to assume that the
corporation has complied with the articles and
relevant bylaws. This is called the indoor
management rule which was laid down in the
famous case of 19th century called the Royal
British Bank v Turquand (1856) 6 E&B 327. As
per this rule, any persons like shareholders or
third parties are not needed to make enquiries
about the internal management of the company

Application:
 In the current case study, it is seen that Sparkling runs three
cloth shops in Tasmania. Sarah was appointed as the managing
director on a contract of two years. Her appointment was
lodged with ASIC indicating the date of her joining. When such
contract expired after 2 years she continued to act as the
director of the company although the contract was not
renewed. Her appointment contract has expressly set out that
she cannot cause borrowing of any amount that exceeds
20000 $ and transactions involving an amount higher than
20,000 $ is conditional on approval from the board of directors.
 On December 20, 2010 Sarah on behalf of Sparkling took loan
of 30,000 $ by means of a loan contract from Costello Bank for
establishing a plantation of eucalyptus trees. She did not ask
for permission for this from the Board.

Application (Contd.) :
 A close perusal of the rules of law discussed above it is found
that the seeking the loan of 30000 dollars as well as the object
behind it were not as per the constitution of the corporation.
Moreover, Sarah has no authority to make such transactions as
she is barred by her employment contract. Plantation of
eucalyptus trees will never be within the scope of constitution of
a company whose business involves selling of children clothes.
 Here the Costello bank being an outsider has no information of
these irregularities. It is not possible for the bank to know about
the information related to the internal affairs of the corporation.
The interest of the corporation was protected by the doctrine of
internal management where the outsiders are not needed to
know the internal matters of the company and must assume that
the corporation has complied with the articles and bylaws.

Application (Contd.) :
 The company when becomes aware of this stopped the loan to
be repaid to the bank. This contradicts with the doctrine of
indoor management. Hence, the bank can sue the company for
non- repayment of the loan advanced to Sparkling. In addition
to this, the plantation of eucalyptus trees does not come within
the company’s constitution. However according to sections
125 and 126, the contract is valid. Further if Sarah took loan on
behalf of the company from the Costello bank for refurbishing
the shops, then also the impact will be same because it is too
valid u/s 125,126 of the Act like the eucalyptus plantation.
 The bank officer if has knowledge of the souring relation of
Sarah with the corporation, no different result will result due to
the application of the doctrine of indoor management as laid
down in Royal British Bank v Turquand.

Conclusion:
Hence from the rules and the application made
above, the following results can be concluded;
 The bank can successfully sue the Corporation for
the recovery of the loan amount,
 The result will be same ideally,
 The result will not vary in case the loan was
sought for refurbishing the cloth shops and if it
was known to the loan officer that the relation
between Sarah and the company has turned sour.

References:
 Carlill v Carbolic Smoke Ball Company [1892]
EWCA 1, [1893] 1 QB 256.
 Corporations Act 2001(Cth).
 Ermogenous v Greek Orthodox Community of SA
Inc (2002) 209 CLR 95
 Partridge v Crittenden [1968] 2 All ER 421
 Pharmaceutical Society of Great Britain v Boots
Cash Chemists (Southern) Ltd [1953] 1 QB 401.
 R v Clarke (1927) 40 CLR 227
 Royal British Bank v Turquand (1856) 6 E&B 327.
 Tinn v Hoffman (1873) 29 LT 271.

Thank you