Contract Law Analysis: Case Study of Forthryrt's Publishing Deals

Desklib offers solved assignments and past papers to help students succeed.

Contents
Part A: Option 2..........................................................................................................................................2
Issues.......................................................................................................................................................2
Law..........................................................................................................................................................2
Application of Law..................................................................................................................................2
Conclusion...............................................................................................................................................4
Reference List.............................................................................................................................................4
Part B - Option 2.........................................................................................................................................4
Issues.......................................................................................................................................................4
Law..........................................................................................................................................................4
Application of law...................................................................................................................................5
Application..............................................................................................................................................6
Conclusion...............................................................................................................................................7
Reference List.............................................................................................................................................7

Part A: Option 2
Issues
i. Can Picwick or Boswold sue Forthryrt for breach of contract?
ii. Whether Havoc Films have entered into a valid contract with Forthryrt regarding the
film making rights of The Day of the Yokel?
Law
A contract can be established between two or more person by complying the contractual
elements. There are five main contractual elements which include, an offer, an acceptance,
consideration, and party’s capacity and legal intention. (Collins, 2003)
Every contract can get started by an offeror by making an offer to the offeree. An offer is the
transfer of the proposal by an offeror containing his desires and expectations which he requires
to get approved by the offeree. As per Carlill v Carbolic Smoke Ball Company [1892] an offer
can be made orally, in written form or by conduct but the offer must reach the offeree to hold it
to be valid in nature.
When the offeree receives the offer then the confirmation of the offer by the offeree is called an
acceptance in law. As per Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (NSW)
(1988) an acceptance can be made orally, in written form or by conduct but as per Felthouse v
Bindley (1862) the acceptance must reach the offeree to held to be valid in nature. As per
Stevenson, Jaques, & Co v McLean [1880] if the offeree is making queries etc then it is not an
acceptance in law.
Further, at times the offeree gave his consent by posting the letter, then, in such case, there is no
need that the letter should reach the offeror to hold the acceptance valid. But, as per Adams v
Lindsell (1818) the acceptance is deem to be comply with when the letter is posted. If the letter is
not posted and is not put to transit , then, the acceptance is not said to be made.
Also, when the offer includes his own term in the offer while making the acceptance, then as per
Hyde v Wrench (1840) such acceptance is invalid and is called counter offer. The old offer
negates with the counter offer and the counter offer must then be accepted by the old offeror to
make a binding contract amid the parties.
Application of Law
Frederick Forthryrt is an author by profession and has written a bestselling novel ‘The Day of the
Yokel’. The book was published by Metro Publishers with whom Forthryt was not happy. He is
now finished his 2nd book ‘The Fourth Pretzel’ and is not much willing to get the same published
by Metro again.
Issue i
Position of Boswold
Boswold is one of the publishers of the books and is the head editor of Boswold Books. In one of
the parties, Forthryrt communicated with Boswold and said that he is interested that Boswold
must publish his book but that he is expecting an amount of at least 40 grand.
Now, as per Stevenson, Jaques, & Co v McLean the communication that took place the two is
neither an offer nor any kind of acceptance but mere exchange of ideas and thus there is no
initiation of any contract. Boswold considered the same as genuine price but said nothing to
Forthryrt.

Later on 3rd March, a telephonic communication took place between Forthryrt and Metro wherein
Forthryrt affirmed that he is interpreted in selling the rights of the book to the person who is the
highest bidder. At this point an offer of $50,000 was made by Metro to Forthryrt. Now, as per
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (NSW) a genuine offer was made.
But a contract would incur amid the two provided Forthryrt has accepted the offer of Metro. But,
Forthryrt did not accept the offer and took time to think.
So, there was no contract between Metro and Forthryrt.
Now,
On 10th March, a letter was received by Forthryrt wherein Boswold has enclosed a cheque of
$40,000 with respect to the publication of the second book of Forthryrt. Now, a standard form of
contract was sent by Boswold setting out the terns of the offer. The contract was received by
Forthryrt and thus as per Carlill v Carbolic Smoke Ball Company the offer is in the knowledge of
Forthryrt and is completed.
Forthryrt communicated with Boswold and Boswold agreed to pay $45,000 instead of $40,000.
So, a new offer was made by Boswold to Forthryrt and Forthryrt amended the contract.
Now, Forthryrt signs the contract and intends to send his acceptance by post. As per Adams v
Lindsell the acceptance by post is complete when the letter is put into transit.
Forthryrt handed over the letter to the worker of local post office but took it back prior the same
is pout into transit.
Thus, the acceptance was not complete as the letter was never posted.
So, the offer of Boswold was never accepted by Forthryrt and thus there is no contract between
the parties.
Position of Pickwick
Picwick is a publisher and offer to publish the second book of Forthryrt for $45,000. The offer of
Picwick was affirmed by Forthryrt as they shook hands. An acceptance was made by Forthryrt
by conduct and there is a contract between the parties.
Issue ii
On 4th March, Havoc offer $45,000 to Forthryrt for purchasing the right in The Day of the Yokel
into a film. According to Carlill v Carbolic Smoke Ball Company the offer was made in written
form and has reached the acquaintances of Forthryrt and thus is a valid offer.
A letter was written back by Forthryrt accepting the offer and is held to be invalid as the
acceptance was not the mirror image of the offer. A new term was included as per which
Forthryrt reserves the rights of the selection of casting of the film.
Thus, the acceptance is not in compliance with the terms of the offer and as per Hyde v Wrench
is a counter offer which has cancelled the offer of Havoc.
There was no acceptable by Havoc to the counter offer of Forthryrt and thus there is no contract
between the parties.

Conclusion
There is no contract with Boswold as the letter of acceptance by Forthryrt was never posted.
Forthryrt has a contract with Pickwick when he accepts the cheque and shook hands. Further, a
counter offer was made by Forthryrt to the offer of Havoc which was not affirmed and thus,
there is no contract amid the two.
Reference List
Books/Articles/Journals
Collins, H. (2003). The Law of Contract. Cambridge University Press
Case law
Adams v Lindsell (1818) 1 B & Ald 681
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (NSW) (1988) 14 NSWLR 527
Felthouse v Bindley (1862) 142 ER 1037
Hyde v Wrench (1840) Beav 334
Stevenson, Jaques, & Co v McLean [1880] 5 QBD 346
Part B - Option 2
Issues
A. Violation of Mercedes duties
a. Whether Mercedes is in violation of her legal duty of care and diligence? If yes, can
she protect herself under the defense of section 180 (2) of the Corporation Act 2001
with respect to the purchase of the new premises?
b. Is there breach of section 588G by Mercedes if Joytronics becomes insolvent?
B. Violation of Gregg duties
Whether Mercedes is in violation of her legal duty of care and diligence under section 180 of the
Act and the duty to avoid insolvent trading under section 588G of the Act?
Law
If any person wants to start any corporation, then, the same can be done by incorporating a
company. When any company is incorporated then such a company is considered to an artificial
personnel and is held in Salomon v A Salomon & Co Ltd [1896]. It implies that the company has the
power to enter into contract like normal person, act on its own behalf, etc but still is considered
to be artificial as is not a natural human being.
The officers of the company who run the company are called the directors of the company and
are the persons who carry on the functions of the company on companies behalf. As per section
9 any person who is carrying out the acts of a directors is called the director of the company. The
non executive directors are also company directors. The directors has power to manage the
company affairs as per 198A-C of the Act. (Tomasic, 2006)
But, there are various duties that must also be fulfilled by the directors of the company. If the
director fail to fulfill such duties then there are civil and criminal penalties that must be faced by
such company director. Two of the most prominent duties includes:
i. Section 588G of the Act – section 588 G of the Act deals with the duty as per
which the directors of the company must avoid any kind of insolvent trading in
the company. When any liability is incurred by the directors of the company

which is the main reason to bring the company into liquidation, then, all such
directors who have taken the debt or who are the part of the management when
the debt was taken are held to be incurring insolvent trading and have violated
their duties under section 588G of the Act. The breach of section 588G of the Act
may impose fine, compensation and disqualification of the directors (Woodgate v
Davis [2002].
ii. Section 180 of the Act – section 180 (1) of the Act deals with the duty of care and
diligence which must be comply with the officers/directors of the company. The
level of precaution that must be taken by the officer/directors of the company
should be such which must be equivalent to what a reasonable prudent man would
have done in the like circumstances. As per ASIC v Cassimatis (No. 8) [2016] the
breach of section 180(1) of the Act may impose fine, compensation and
disqualification of the directors.
Now a company director is not always found to be in breach of section 180 (1) of
the Act if he has the capacity to prove the defense that is enshrined under section
180 (2) of the Act. If it can be established that the decision that is taken by the
directors are for the benefit of the company alone and there is no material
personnel interest that is part of the transaction, then, the acts are not in breach of
section 180 (1) of the Act. If the acts are carried on with full diligence, under
expert advice, sound judgment is taken by the directors are for the benefit of the
company alone and there is no material personnel interest that is part of the
transaction, then, the acts are not in breach of section 180 (1) of the Act. If the
acts are carried on with full diligence, under expert advice, sound judgment, full
disclosure, then, the director can be protected under section 180 (2) of the Act.
Application of law
Joytronics Pty Ltd is in the business of retail store of electronic appliances. The three
directors/shareholders of the Joytronics:
i. Felix reports to the head store of Joytronics and is also involved in the operations on
daily basis.
ii. Mercedes is the non executive director. There is no proper experience of operating or
managing the company.
iii. Gregg has not completed his high school certificate. He is intelligent and is aware of
the particular product range of the company. He deals with the warehouse of the
company.
After seven years of operating the store, Joytronics is in loss as a competitor, Primepoint Car and
Audio, has opened a new store which is hampering the business of Joytronics.
Felix has involved himself in an activity to which both Mercedes and Gregg has agreed and
which was the basis of the breach of the duties on the part of both Merced and Gregg.
Felix was only carrying out the daily activities of the company and is the director of the
company. Now, Felix without taking any consent of Gregg and Mercedes inspects warehouse
store and is impressed with the same (only one warehouse is inspected). The board agreed to the
decision of Felix.

Now, the above scenario has resulted Gregg and Mercedes to be in the violation of some of the
duties that are made part of the Corporation Act 2001.
Application
Issue A
i. The duty of care and diligence is casted on the shoulders of Mercedes as she is the
non executive director of the company. The non executive director is considered as
one of the prime players in the management of the company. The non executive
directors of the company are held to the directors who must comply with all the
statutory duties of the company
Thus, Mercedes must have comply with the duty of care and diligence however the
said duty was not comply with by him in any manner.
Even though Mercedes is the non executive directors of the company still she has no
experience in managing and operating the company in any manner. She simply rely
on the conversation that is made by Felix without enquiring the truth of the matter.
The level of care and diligence that is shown by Mercedes is not equivalent to what a
reasonable person would have done in the similar situation.
There is no inquiry that is made to the statements of Felix when he submitted that the
warehouse must be purchased quickly as the other company wants to buy the same
which was a total lie and it was the only property that was inspected by Felix.
Thus, there was breach of section 180 of the Act
Section 180 (2) of the Act
It was her duty that she must get herself involved in proper scrutiny before agreeing
to the proposal but nothing was done. Merced was not convinced with the statements
of Felix and wanted time for looking for options, but, instead of doing the same she
agreed with the decision of Felix.
Thus, no proper care was taken by Mercedes. There was no expert opinion or rational
judgment on the part of Mercedes and thus section 180 (2) is not applied.
ii. Mercedes was not part of the management and the operations of the company.
However she was the non executive director of the company. She must not involve
any kind of financial burden that results in insolvency of the company,
However, the price of warehouse was quite high and was not in the financial range of
Joytronic. Now, if because of the raise of debt, the company results in insolvency
then Mercedes would be held liable for insolvent trading as she was the director when
the dent was raised.
C. Gregg was only conversant with a particular product range of the company but is still
the director of the company. Now, before agreeing to the proposal of Felix it is his
duty to take proper precaution, expert opinion and all resemble manners before
agreeing to the proposal that can impact the company, since nothing was done by him

thus as per ASIC v Cassimatis (No. 8) [2016] there is clear breach of section 180 of
the Act.
Gregg was not fully aware of the financial aspects of the company. However he was
the director of the company. He must not involve any kind of financial burden that
results in insolvency of the company. However, the price of warehouse was quite
high and was not in the financial range of Joytronic. Now, if because of the raise of
debt because of the purchase of the warehouse, the company results in insolvency
then Gregg would be held liable for insolvent trading as she was the director when the
dent was raised.
Conclusion
So, both Gregg and Mercedes are in breach of section 180 of the Act. Mercedes cannot take the
defence of section 180 (2) as no proper precautions are taken by her.
If because of the purchase of the company it does became insolvent then Gregg and Mercedes
would be held under section 588G of the Act.
Reference List
Books/Articles/Journals
Tomasic, R. (2016). Insolvency Law in East Asia. Routledge.
Case law
ASIC v Cassimatis (No. 8) [2016] FCA 1023
Salomon v A Salomon & Co Ltd [1896] UKHL 1
Woodgate v Davis [2002] NSWSC 616