Commercial Law Case Study Analysis: Contract and Company Law

This document presents a comprehensive analysis of four case studies, addressing various aspects of business and commercial law. The first case examines a contract dispute, evaluating the formation and enforceability of an agreement, including issues of offer, acceptance, and the impact of conditional clauses. The second case delves into company law, focusing on the responsibilities and liabilities of company directors, including issues of wrongful trading and the application of the business judgment rule. The third case explores agency law, analyzing the authority of agents, the enforceability of contracts made by agents, and the duties of agents to their principals, including issues of confidentiality and disclosure. The fourth case examines product liability, assessing the legal implications of defective products and the potential claims for damages arising from product-related injuries, including the application of safety regulations and the assessment of compensation for economic and non-economic losses.

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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company and yet didn’t took actions that can reduce the possible amount of credit that could
have been done (Legislation.gov.uk 2019).
Business judgement rule states that there are different complicated and controversial
decisions that are to be taken by a person who holds the position of director in a company and
hence this business judgement rule has been established. The business judgement rule states
that in case there is no concrete proof that the director is personally responsible for the loss
faced by the company. Than the Director is not going to be held personally responsible for
their decision making.
Application
(a) The section 172 that makes it mandatory for a Director to act in the best faith of the
company has been violated by the Director of LightsBright Pty Ltd. So the director can be
held personally responsible for this violation however there can be a lack of adequate
evidence in this case which can result in the implementation of business judgement rule.
(b) In the section 214 of the Companies act 2006 it has been stated that in case of liquidation
of the company a Managing Director can be held personally responsible in case the Managing
Director even after being aware of their financial condition doesn’t take necessary steps to
reduce the amount of credit. The managing director of CheapCheap Pty Ltd was aware of the
fact that they are unable to pay their debt at times and hence have lost market image yet he
decided to take up an order post which the company went down to liquidation. So the
Managing Director increased the credit of the organisation (Morrison and Wilhelm 2007).
Thus according to sector 214 the managing director can be held personally responsible.
(c) The business judgement rule can be applied in the first case in case the opponent is unable
to prove that the relation of the managing directors of BrightsLight Pty Ltd and CheapCheap
Pty Ltd has been the chief reason for the formation of the contract. But in the second case the
application of this rule is less likely to take place (LegalVision 2019).
Conclusion
In conclusion it can be stated that even though the Managing Director of an organisation is an
employee and does possess the authority to take decisions on behalf of the organisation but
there are some fiduciary duties that are associated with it. The wrongful violation of the
fiduciary duties can result in generating personal responsibility. The responsibility of the
director also involves ensuring that in case of liquidation of the company the Managing
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Director should take personal effort to ensure that the credit of the company can be
minimised. In case of violation of that the company can make the director personally
responsible for the action. However in case there is no evidence that is present which proves
violation of the duties of the director the benefit of doubt is given to the director according to
the business judgement rule.
Question 3
Part A
Issue
A contract was formed between Allan and Rick who is a agent of Francis and is forming the
contract on behalf of Francis. Francis instructed Rick to purchase 3 items with $ 25,000 but
Rick formed a contract with Allan on $ 32,000. Francis refused to pay now first issue is (a)
whether Allan can enforce the contract and (b) what can be done to Rick in case Francis
accepts the contract or in case Francis refuses the contract.
Rule
The contract law recognises three kind of authority of the employee in case of the formation
of a contract. The three types of authority are actual authority, implied or apparent authority
and ostensible authority. These three types of authorities provide the employees with the right
to form a contract on behalf of the organisation. In case an employee of the organisation
forms a contract on behalf of the organisation and they are holding any form of authority of
the three forms that has been stated before than the organisation is liable to execute the
contract. In case an employee gets to make a contract on behalf of the company than the
employee gets the authority to make subsequent contract on behalf of the organisation.
However in case there is a specific instruction that has been given by the employer to the
employee of the organisation than the violation of that specific instruction can result in the
termination of the employee. However the regulations for making the termination of
employment have to be followed by the employer (Legislation.gov.uk 2019). The employer
cannot terminate on the ground of making the contract but for the violation of instruction.
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Application
In this case the employer that is Francis have to adhere to the contract and in case she refuses
to do so there can be legal action that can be brought against them. So Francis will have to
pay the sum as a contract has been formed by the employees. In case Francis doesn’t have to
undertake the contract than there is a chance that Rick will be sustained by the employer and
in case the contract amount has to be paid by the employer than the chances are even higher
that Rick will be terminated. However Francis does have the authority to terminate in either
case on the ground that Rick has violated the specific instruction that has been given to her by
Francis.
Conclusion
In conclusion it can be stated that (a) Allan have the capacity to enforce that contract because
Rick had the implied authority given by her employer for the purpose of the formation of the
contract. And (b) Francis can dismiss Rick depending on the ‘other substantial reasons’ for
dismissing a staff under fair dismissal. As Rick has not followed the specific instructions that
has been given to her and she has also violated her common law duty as an agent (Pigott
Stinson 2019).
Part B
The common law prescribes that there is a duty of confidentiality that has to be adhered to by
an agent for conducting their business dealing. Rick has violated the duty of confidentiality
and has disclosed the information regarding the task that has been given to her to three of her
friends which has ultimately been communicated to the competitors of Francis. Secondly it is
the responsibility of the agent to inform the principal in case there is a change that has
occurred during the formation of the contract. These two violations can result under the tort
law to bring litigation against her (Pigott Stinson 2019). The punishment of which can be
termination of employment to punitive damages.
Question 4
Issue
The issue in this case is that Prue who is a famous supermodel for Slapiton Ltd. She is a
model and actor. She ordered a gown from RuPeter and Gladrags. She ordered a gown and
wore it which resulted in immediate skin reaction. She also met an accident on the affect of
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the chemical. This resulted in her losing her income, film contract and career. Her income as
model was $ 10 million, she signed a movie for $ 5 million which was also lost and lastly she
paid a hospital bill of $ 15,000. (a) The key issue is whether she can case against the dress
makers and (b) what is the amount of claim that she can have.
Rule
The General Product Safety Regulations 2005 section 5 states the general safety requirements
that are to be followed. The rule states that that it is the responsibility of the producer to
ensure that the product that is marketed should be safe (Beale et al. 2008). The producer
should not bring a product in the market unless the producer is sure of its safety.
Application
(a) So in this case Gladrags, RuPeter can be sued by Prue but they cannot sue the hotel for
bringing the product to her. In case of an injury that has been faced by a person because of
the lack of safety standards that are being practiced by the producer than the level of
punishment that can be done should be equal to the amount of damages that has been caused
by product. The company can have to practice even stricter rules for the production of their
clothes. (b) The total amount of damage that has been caused to Prue is likely to involve $ 10
million which is her income, the $ 5 million movie and contract and most definitely $ 15,000
hospital bill. Even more can be charged as her career has been damaged because of this
accident.
Conclusion
In conclusion it can be stated that the gown that has been produced by Gladrags and RuPeter
is in violation of the generate product safety regulation 2005 section 5 (Rocket Lawyer 2019).
Thus the model can sue the company and get repair for the damages that have been caused to
her by the use of the product.
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