Contracts and Corporations Law Assignment: Semester 1

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Contents
Part A: Contracts Law Questions.................................................................................................................2
Option 2.......................................................................................................................................................2
Relevant Issues........................................................................................................................................2
Relevant Law...........................................................................................................................................2
Application of Law..................................................................................................................................3
Conclusion...............................................................................................................................................4
Reference List.............................................................................................................................................5
Part B: Corporations Law questions............................................................................................................5
Option 2.......................................................................................................................................................5
Relevant Issues........................................................................................................................................5
Relevant Law...........................................................................................................................................5
Application of law...................................................................................................................................7
Conclusion...............................................................................................................................................9
Reference List.............................................................................................................................................9

Part A: Contracts Law Questions
Option 2
Relevant Issues
i. With whom Forthryrt enters into a valid contract, Boswold or Picwick?
ii. Whether there is a valid contract amid Forthryrt and Havoc Films for the rights to
make film on The Day of the Yokel?
Relevant Law
The law of contract is one of the most fundamental legal frameworks in every country. No
contract can come into existence unless and until all the basic requirements of a valid legal
contract are met with by the parties to the contract. The basic elements that must be present in
any contract are agreement (offer plus acceptance), consideration, legal capacity of the parries
and legal intention. When all the elements comprises together then a valid contract exists and is
enforceable by the parties. (Mitchell and Mitchell, 2008)
An offer is the primary element in any contract formation. An offer is the terms which are made
by the offeror and are communicate to the offeree. The offer is the intention of the offeror which
he desires to be complying with by the offeree. As per Carlill v Carbolic Smoke Ball
Company [1892] an offer must be made by the offeror and must reach the knowledge of the
offeree in order to hold the offer to be valid and enforce under law.
Once a valid offer is made, then, the offeror is bound by such an offer provided the same is
confirmed by the offeree. An acceptance is the confirmation or the approval which is provided
by the offeree to the terms of the offer. As per Stevenson, Jaques, & Co v McLean [1880] mere
communication or exchange of information is not an acceptance in law.
As per Crown v Clarke (1927) an acceptance is considered to be valid when the acceptance is
made without bringing any changes to the terms of the offer. If the terms of the acceptance are
varied or changed before giving the acceptance, then, it is not a valid acceptance in law and is
considered to be a counter offer and is held in Hyde v Wrench (1840). A counter offer has the
power to terminate the actual offer so made and the counter offer is the only new offer which
was held to be subsisting.
Also when an acceptance is made by post then the acceptance is complete as soon as the letter is
posted. Thus, as per Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH [1983]

the letter must be put to transit in order to consider the acceptance complete. If the letter is not
put into transit then the acceptance is not complete.
Application of Law
i. Contract amid Forthryrt – Boswold OR Pickwick
The Day of the Yokel is the bestselling novel written by Frederick Forthryrt. Metro Publishers
published the said novel last year. Now, a second book is completed by Forthryt, namely, The
Fourth Pretzel.
Forthryt was not satisfied with the treatment that was given by Metro. In Late February,
Forthryrt met Boswold. Boswold was the Chief Editor of the Boswold Books. Forthryrt asked
Boswold whether he would be interested in publishing his second book.
Now, at this stage, one of the conditions that is put forth by Forthryrt is that he would not settle
anything below 40 grand. Thus, as per Stevenson, Jaques, & Co v McLean there is only a
statement that was made by Forthyrt an there was no offer that was made.
Now, Boswold said that the price that was asked was a fair price. But, there was no offer that
was made.
Now, on 3rd March itself the editor of the Metro Publishers made an offer to Forthyrt and
submitted that are willing to pay him $5000. Now, a valid offer was made by the editor to
Forthyrt. Also, as per Carlill v Carbolic Smoke Ball Company the offer was said to be complete
as the same was communicated by the metro to Forthyrt.
However, Forthyrt has not made any approval to the offer. Thus, as per Crown v Clarke there is
no acceptance that is made by Forthyrt and thus there is no contract that is made yet.
Later on 10th March, Boswold send a letter to Forthryrt wherein Boswold has sent a standard
form of contract along with $40,000. He submitted that the contract is sent for the signatures of
Forthryrt. Now, the letter sent by Boswold must be considered as the offer.
Against the offer, Forthryrt submitted to Boswold telephonically that Metro is paying $50,000
for the book. This is a general communication that is made amid the parties and as per
Stevenson, Jaques, & Co v McLean there is no acceptance that is made by Forthryrt.
Now, based on the conversation, Boswold offered he price of $45,000. So, the new offer was
made @ 45,000. The contract was substituted by the sum $40,000 to $45,000 and Forthryrt
signed the contract.

Now, the signature by Forthryrt is the acceptance that is made to the offer of Boswold. Now, the
acceptance that is made must be considered to be valid only when it comes in the knowledge of
Boswold.
Now, Forthryrt take the contract to the local post office and handed over the contract to the
postal worker. As per Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH an
acceptance by post is valid when the acceptance is made in transit, however till now, the contract
is not made in transit and thus the acceptance is still yet to confirm.
Now, later Forthryrt returned and asked the worker to return the contract. Thus, the acceptance
made by Forthryrt is not complete as the acceptance as not put to transit.
Later, an offer was made by Pickwick for $45,000 and the same was affirmed by Forthryrt and
thus there is a concluded contract amid them.
There is no contract that is made amid Forthryrt and Boswold.
ii. Contract ami Forthryrt and Havoc Films
Now, Havoc Films sent a letter to Forthryrt on 4th March wherein it submitted that it would like
to make a film on The Day of the Yokel and that it would gave $45,000 for the rights to
Forthryrt. Now, there is an offer made which was complete as the offer was communicate to
Forthryrt.
On 4th March itself Forthryrt sent a letter to Havoc Films wherein he submitted that he accepts
the offer reserves the right as to who will play the lead role in the film. Now, the acceptance that
is made by Forthryrt is not a valid acceptance as per Hyde v Wrench Forthryrt did not accept the
terms of the offer but has changed the offer terms and incorporate his own new term. Thus, the
confirmation by Forthryrt is not valid acceptance.
Now, this counter offer is the new offer and if this new offer is accepted by Havoc Films then
there is a contract amid the parties otherwise not.
Since the counter offer was not accepted thus there is no contract amid the parties.
Conclusion
There is a valid contract that is made amid Forthryrt an Pickwick and not with Boswol. But,
Forthryrt did not made a valid contract with Havoc Films as Forthryrt make a counter offer
which was not accepted by Havoc Films.

Reference List
Books/Articles/Journals
Mitchell, C and Mitchell, P. (2008). Landmark Cases in the Law of Contract. Bloomsbury
Publishing.
Case law
Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH [1983] 2 AC 34
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.
Crown v Clarke (1927) 40 CLR 227
Hyde v Wrench (1840) Beav 334
Stevenson, Jaques, & Co v McLean [1880] 5 QBD 346
Part B: Corporations Law questions
Option 2
Relevant Issues
(a) with regard to Mercedes
i. Whether she has violated any general or statutory duty of care and diligence as a
director?
ii. Was her decision to agree to the purchase of the new premises protected by s 180
(2) of the Act?
iii. Is she liable for breaching s 588G of the Act if Joytronics becomes insolvent?
(b) with regard to Gregg
i. Whether he is in violation of his duty of care?
ii. Is he liable for insolvent trading if Joytronics becomes insolvent.
Relevant Law
The Corporation Act 2001 (Act) is one of the fundamental legal frameworks that is required by
any country to carry on the functions of the corporation smoothly. When any company is
incorporated, then, a company is an artificial legal person in law. However, a company does not

have a body and a soul and thus it needs some personnel to run the work of the company
effectively. Now, the directors are the mind and soul of the company and are the officers who are
responsible to carry on the functions and are held in section 198A of the Act. The directors have
the power to bind the company by their command as per section 124 of the Act. However, there
are several duties that are associated with the directors and the directors must comply with by
them in order to avoid any kind of penalties. (Anderson, 2008)
Duty of care and diligence
The duty of care and diligence is one of the common law duties that must be comply with by
every officer including the directors. This duty is also made part of the Corporation Act 2001
under section 180 (1) of the Act.
As per section 180 (1) of the Act, every company officer or director must carry on his duties with
all care and diligence like a normal prudent man would have acted in the like situation if such
reasonable person is the director of the company. In the leading case of AWA Ltd v Daniels
t/a Deloitte Haskins & Sells & Ors (1992) the basic standard of care and diligence was laid
down. It was held that the directors must carry on their tasks by undertaking adequate
understating of the business. Also, directors must acquaint themselves with the position of the
company. When the director is not able to comply with the duty of care and diligence , then, as
per 1317E, the director must face the civil penalties.
However, there is a defence under section 180 (2) of the Act and is also called the Business
judgement rule. If the defence is proved then director or the officer are not held to be violated
section 180 (1) of the Act and no penalties are imposed. Now, as per section 180 (2) if the
director can prove that the decision that is made by the director is in :
i. Proper purpose;
ii. There is no presence of material personal interest;
iii. Have tae advice or expert opinion on the matter;
iv. Rationally believe that the decision is in the interest of the company, then, the director
is out found to be in violation of is duty of care and diligence.
Duty to avoid insolvent trading – Section 588G of the Act

Another duty that must be comply with the directors is the duty to avoid insolvent trading. The
director is found to be indulged in insolvent trading if because of his decisions, the company
become insolvent. As per the section it is the duty of the director not to incur any debt when the
company is already insolvent or if because of the raise of the debt the company can become
insolvent and if the company does become insolvent then the director is said to have violated
section 588G of the Act (Commonwealth Bank of Australia v Friedrich (1991)).
Application of law
Joytronics is a retail store and a private limited company. Felix, Gregg and Mercedes are the
directors/shareholders of the company. Thus, all Felix, Gregg and Mercedes have the major role
to comply with their respective duties. The non compliance of the duties might result in imposing
consequences to the defaulting director.
The company is now suffering competition from Primepoint Car and Audio as a store was
opened by the rival company and the business of Joytronics was suffered
Felix manages the operations and reports to the main store. In order to improve the business
Felix looks for a new warehouse store, the cost of which is quite high and out of the budget of
Joytronics. Felix calls the board meeting and told Mercedes and Gregg that the new warehouse is
all the answers to the problems of Joytronics and that they must move to the new warehouse. He
also submits that the purchase must be made quickly and does not mention that it is the only
property that is inspected by him.
Now, there are few violations that are done by Mercedes and Gregg.
Issue I - Mercedes
Mercedes is the non executive director and is involved in the daily operations of the company.
The duties involve the statutory duties that are made part of the Act.
However, Mercedes has not complied with the said duties as:
i. Mercedes has violated the statutory duty of care and diligence as made part of
section 180 (1) of the Act.
There are many observations that are made by Felix at the board meeting
specifying that the purchase of the warehouse. Mercedes being the non executive
director holds a very important position and it is his duty that before agreeing to

the idea he must make sure that the information is correct and the decision of
porches would be in the best interest of Felix.
But, nothing was done on the part of Mercedes and driven by the excitement of
Felix, he agreed to the proposal.
Thus, the level of care and diligence that is expected from Mercedes was not met.
The acts of Mercedes were not what a normal prudent man would have acted in
the similar situation.
Thus, there is clear breach of duty of care on the part of Merceds.
ii. Mercedes cannot take the protection of section 180 (2), as the decision of
purchasing of the warehouse was not a sensible decision. Even Mercedes was not
sure with the proposal and thinks that she requires time to think, but, still she gave
nod to the proposal of Felix.
Thus, the decision was not rational nor the same was made on any expert opinion
or proper survey. Thus, the business judgment rule cannot be applied.
iii. Mercedes is liable for breaching section 588G of the Act as Joytronics was not in
financial position to purchase the warehouse. It is the decision of raising debt by
Mercedes that resulted in the insolvency and thus there is clear insolvent trading.
Issue II – Gregg
Gregg is in charge of the warehouse. He is not educated but is the director and thus he is also
obligated to comply with his directorial duties including the duty of care and diligence.
i. Gregg is in violation of his duty of care as he was not fully aware of the financial
matters and still agreed to the recommendations that are made by Felix. Thus, the
decision was not rational nor the same was made on any expert opinion or proper
survey. Thus, there is a clear breach of duty of care and diligence.
ii. Gregg is liable for breaching s 588G of the Act as Joytronics was not in financial
position to purchase the warehouse. It is the decision of raising debt by Gregg that
resulted in the insolvency and thus there is clear insolvent trading indulged by Gregg.

Conclusion
Thus, Mercedes and Gregg both have violated the duty of care and diligence and are involved in
insolvent trading. Thus, they must face the consequences and must be penalized for the breach of
the duties.
Reference List
Books/Articles/Journals
Anderson, H. (2008). Directors' Personal Liability for Corporate Fault: A Comparative
Analysis. Kluwer Law International B.V..
Case law
AWA Ltd v Daniels t/a Deloitte Haskins & Sells & Ors (1992) 10 ACLC 933.
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115).