In-Depth Case Study: Contract Law, Company Law, and Foss v. Harbottle

This case study delves into various aspects of business law, beginning with an analysis of contract law through a scenario involving misleading advertising of vitamin pills and potential breach of contract. It explores the rights of consumers and remedies available for contract violations under UK law, referencing relevant legal precedents. The study then shifts to company law, examining the principle of a company as a separate legal entity and the circumstances under which courts may look beyond this veil. Finally, it critically discusses shareholder litigation, contrasting the rule in Foss v Harbottle with the statutory derivative action introduced by the Companies Act of 2006, highlighting the rights and responsibilities of shareholders and directors within a company.

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Contents
INTRODUCTION.....................................................................................................................................2
MAIN BODY.............................................................................................................................................2
Part 1..........................................................................................................................................................2
Part 2..........................................................................................................................................................4
Part 3..........................................................................................................................................................5
CONCLUSION..........................................................................................................................................7
REFERENCE............................................................................................................................................7
INTRODUCTION
Business law is a civil body that includes regulations for the efficient operation and management
of businesses and the individuals who work for them. As a result, it is needed for every
organization to comply with the norms of numerous business laws in order to ensure the
effective and seamless operation of the business. Furthermore, because business law is such a
broad term, it encompasses a variety of other laws such as company law, employment law, and
contract law. Because the country does not have codified laws, the legal structure of the United
Kingdom is made up of both common and statutory laws(Marson and Ferris, 2018). Contract law
is a branch of law that deals with all types of agreements and contracts that occur between
parties. Furthermore, in order for contracts to be legally enforceable, both parties must fulfill all
of the needed criteria, which include the offer, acceptance, consideration, and legal intention.
The report will go over the three parts that pertain to the various circumstances. The first section
of the report delves into the fundamentals of contracting. The second section discusses the extent
to which firms can exercise the title of an independent legal entity, while the third section
explains the rules established in the Foss v. Harbottle case.

MAIN BODY
Part 1
Beauty & Health Ltd. Is a manufacturer of vitamin pills. One of the most popular product
is a pill aimed at boosting hair growth. After seeing a commercial for this product, which
stated that the regular use of these pills makes your hair grow 10 cm in just a month,
Karen buys a box. However, despite taking the pills every day for a month , Karen's hair
has only grown 2 cm. Can Karen sue the manufacturer for breach of contract?
In the given case, the advertisement promoting hair vitamins pills not only mislead the
consumer but also violates several basic rights of consumers such as right to consumers, right to
information and right to choose etc. Advertisements which encouraging their products put great
influence on the consumer therefore, should be fair and trustful. Any advertisement misleads
and falsely representing the products are not just unethical but immoral as well. Especially,
products promoting solution of health related issue which may directly or indirectly affects the
human body has to follow certain criteria of agreed standards of good practice. It should not
contain any substance that cause serious injury to the health and risk the safety of the consumer.
In the United Kingdom, a contract is a legally binding agreement that meets the key elements of
a valid contract)(Davidson and Forsythe, 2020). In the situation at hand, an advertising was
created to entice customers to buy hair-growing tablets, but it was unsuccessful in increasing hair
growth. In this circumstance, neither the product's efficiency nor its accuracy are met in the
tablets. As a result, the descriptive language in the advertising are meant to tie the customer to
the conditions and are seen as an invitation to treat under contract law. This is known as
advertising, which is often an invitation to treat in which the customer makes a purchase offer to
the vendor.
As a result, accepting such an invitation creates a legal contract between the parties.
Karen is entitled to sue the manufacturer for breach of contract due to a product flaw. There is a
possibility of bringing a product liability case to court and claiming damages. According to EU
legislation, the final consumers are protected from deceptive advertising and malpractice by a
variety of rules and regulations. The UK regulation attempts to protect consumer safety by
introducing safe products to the market, and the General Product Safety Directive's principles
deal with minimizing product risk. In addition, company law contains a variety of statutes and
provisions for obtaining redress. The goal of contract law is to allow parties to seek redress for
the breach of their legal rights, including damages, specific performance, injunctions, money
refunds, and a variety of other remedies(Eisenberg, 2018).
The following are some of the remedies provided for violation of contract:-
• Rejection: Consumers in the United Kingdom have the right to reject to purchase products and
ask for a refund within a reasonable time frame.
• Damages: Under common law, a consumer can seek reimbursement for repairs caused by
defective products, and he also has the right to sue the manufacturer for damages.
• Fix & Replacement: The customer can also request that the manufacturer repair or replace the
product he purchased within a reasonable time frame.

• Return: A customer can seek a partial or complete refund of the product price.
In addition, the United Kingdom has severe rules against false and misleading
advertising, and the maker is accountable under civil and corporate law. Companies can be held
personally accountable under California law (California Business and Profession Code) if any
state discovers them to be breaking advertising rules. In order to establish his case under
advertisement law, plaintiff must offer factual facts to substantiate the company's culpability.
Misleading or harassing customers is absolutely forbidden under the Consumer Protection and
Unfair Trading Regulations. Manufacturing businesses in the United Kingdom are not authored
to make misleading representations that provide the wrong impression(Klee, 2018). The legal
systems of the United Kingdom are founded on common law and serve as precedent in many
matters. Carlil v. Carbolic Smoke Ball Co [1892] EWCA, is one of many legal precedents that
marked a change in the legal system of UK legislation. In this case, a company sold the remedy
known as "Carlil smoke ball" which cured influenza flu through an advertisement campaign, and
the buyer purchased that medicine but used it for months, catching the flu. The Court determined
that this is a broad offer and not a legally binding agreement between the parties, and that it was
not accountable for it.
Moreover court in the other case of O'Keefe v. Lee Calan Imports, Inc, held that there
lies no mistake on the part of manufacturer with respect to the invitation he made as it was mere
an invitation to offer rather than the actual offer. Also the advertiser can be held liable only for
the fault which he made by the way of not delivering the actual knowledge to the recipient at the
time of purchasing. Further in other case of Craft v. Elder & Johnston Coo, where an
advertisement was made by the seller for the purpose of selling the sewing machine for $26
while also mentioning the words Thursday only special. In this particular case the could
conferred that the general contract can be taken back by the offerer at any time before the
acceptance has been made to the same(Graziano, 2019).
Part 2
A Company is an entity distinct from its shareholder is the fundamental principle of
company law which is, however, not absolutely. But, referring to the relevant case law,
discuss the circumstances under which the court can go beyond the entirely and look to
those controlling it.
In United Kingdom, there lies the various types of companies which comprise of the title of
separate legal entity hence it is justified in saying that the companies enjoys the title of being free
and are treated separate from their owners. Moreover, the title of separate legal entity is one of
primary essential feature of the company which differentiates their legal existence as well as
their obligation for the offenses different from that of their shareholders and directors.

Every company in accordance of their form comprises of the different process with respect to
both its incorporation and dissolution. Other than this it also binds the various compliance which
has been laid down under the company’s law of the country. Moreover, the said legislation also
specifies the fact that it is require on the part of every company to have the existence of require
number of shareholders, their promoters, directors which makes distinct from that of the
company. Furthermore, company is a legal body which comes into legal existence by the way of
legal procedure and is comprising of features such as one common legal seal and limited
liability. The said aspects are the components which makes the institution a distinctive body.
In general terms the company is addressed as the association of the various individuals and the
corporate body which joins together for the purpose of attaining certain common objective and
the desired goals. Moreover, the company because of the said title is entitled to sue and also can
be sued in its own name. Other than this the company also comprises of the various other titles
such as the perpetual succession, etc. In United Kingdom as per the principles of common law
the company is considered as the separate legal entity which stands capable of surviving own its
on even after the death of its members. The institution comprises of its own separate name,
common seal, rules and regulations in their own name while always enjoying the different
identity from that their directors and shareholders. Thus, as a result of which the shareholders are
addressed as the owner of the company and always separable from their company and therefore
can be sued as well as can sue in their own name(Pargendler, 2018).
Moreover, the Company is considered as the living, entity that will not cease to exist until it is
dissolved by the way of legal means. The rights and responsibilities of the companies varies with
that of its shareholders and directors.in one of the famous case of Salmon v. Salmon, which
became a landmark decision on separate legal entity, Mr. Salmon was the owner of the shoe
business and included his family members as shareholders. After which, the company was
liquidated and the business was made to be wound up within a year. The case was heard in court,
and it was decided that the existence of the company is independent and distinct from its owner,
and on the basis of the said grounds the plea of creditors was denied. In this case the court also
contended that the as per the principles of the law, the company stands different from its
subscribers which are being made by the way of memorandum of the company and thus acts an
independent body.
Part 3
In the context of shareholder litigation, critically discuss the main differences between the rule in Foss
v Harbottle and the statutory derivative action introduced by the companies act of 2006.

In UK, the people who possess interest in the company or the other related member lies at the
option or are free an action into the notice against the acts of the company. Every person whose
name appears in the company's share register as a holder of shares in the company is referred to
as a shareholder. The shareholder has various rights under both company legislation and the
company's constitution. Furthermore, the company's directors have responsibilities for the
management of the company's affairs. Companies are typically managed by their directors and
owned by their shareholders. As a result of this division, directors are not required to act as
directors, and shareholders do not acquire any rights to act in the capacity of directors unless the
article expressly states that such rights exist. Also, according to the general rules, shareholders
do not own any of the company's assets. However, the majority of the questions revolve around
the issue of who controls the company. The fact that the company and its shareholders are
separate legal entities from the time of their incorporation must be considered. Where the
concept itself depicts that a company can sue to enforce its legal rights and can also be sued for
breaching legal obligations. However, this does not give individual shareholders the authority to
act on behalf of the corporation. Furthermore, each and every member of the company is equally
bound by the company's articles and memorandum, according to section 33 of the country's
contract Act. This act also establishes the legal relationship between the company and its
shareholders.
The previous common law position was founded on the principle of majority rule, which was
primarily established in the case of Foss v Harbottle. It was agreed that the decisions and
choices made by the majority of the group would take precedence over those made by minorities.
Because minorities have a significant amount of power, minority shareholders are required to
follow the majority shareholders' decisions under the majority rule(Schulze, 2018). The basic
facts of the case are that two members of the Victoria Park Company filed a lawsuit against the
company's other five directors and shareholders. They complained on the grounds that the
defendants engaged in certain actions with the intent of defrauding the company by selling the
land at inflated prices. In this case, the court determined that the board of directors, rather than
the claimant, should be the ones to call the general meeting to initiate the claim. The main
concern is determining who is a legitimate claimant. In the case of Foss v Harbottle, two major
rules were outlined. The first is that in the event that the company commits any wrongdoing, the
company is considered the proper plaintiff. Individual shareholders do not have the right to sue
because the company is the only one who can. (Yin, et.al., 2020).
Furthermore, the principle established in Foss v Harbottle appeared unjust and harsh, particularly
in regard to minority shareholders. Even though they are entitled to certain rights, they are
unable to obtain justice because, in the end, the majority shareholders are the ones who control
the company's major decisions. In order to limit the use of the harness, the courts established a
number of exceptions. The illegal or ulttavires act is the first exception. The court argued that if
the wrongful acts are committed in ultravires, the law will not apply because the majority of the
members will fail to confirm the transaction. The member also has the power to set aside the
unlawful act by bringing a derivative action under their right. The other exception is the
determination of whether or not an individual's personal rights have been violated. The person

seeking to bring an action must overcome two issues: the difficulty in enforcing outsiders' rights
and the difficulty in predicting the fact with respect to the provision of breach.
Furthermore, the country's laws aim to strike a balance between minority and majority
shareholder rights. However, based on the foregoing information as well as exceptions, it can be
concluded that the law provides minorities with a variety of remedies in the event of power
abuse. As a result, the company Act of 2006 was enacted to determine whether the position of
minority shareholders had improved or remained unchanged. This act includes a variety of
remedies aimed at assisting minority shareholders. The rules of common law, as well as the
principle enshrined in the case of Foss v Harbottle, have been replaced from section 260 to
section 269 of the Companies Act for the application of the same as derivative claims(Stewart,
Swain and Fairweather, 2019). The term "derivative claims" is defined in section 260 of the Act
as proceedings brought by a group of companies in connection with a cause of action vested in
the company and concerned individuals seeking relief on the company's behalf. Furthermore,
section 260, clause 3, specifies the grounds on which individuals may bring derivative claims. It
section states that a claim can be brought only if the cause of action arises from a real or
proposed act or omission by a company director, such as negligence, default, breach of duty, or
trust. The derivative claims can also be brought against third parties who dishonestly assist the
directors in breaching their fiduciary duties, according to section 263 of the act(Decock, 2021).
CONCLUSION
From the following report, it can be summarized, the country's business laws include a variety of
other related legislation that cover and govern every aspect of a company. The report also
discusses the contract's essential elements that must be fulfilled by the concerned parties
itodetermine the contract's legal enforceability. The report also discusses the rules established in
the case of Foss v Harbottle and the Companies Act of 2006 about minority shareholder rights of
action.
REFERENCE
Marson, J. and Ferris, K., 2018. Business law. Oxford University Press.
Davidson, D.V. and Forsythe, L.M., 2020. Business law: Principles and cases in the legal
environment. Wolters Kluwer Law & Business.
Eisenberg, M.A., 2018. Foundational principles of contract law. Oxford University Press.
Klee, L., 2018. International construction contract law. John Wiley & Sons.
Graziano, T.K., 2019. Comparative contract law: cases, materials and exercises. Edward Elgar
Publishing.
Pargendler, M., 2018. The role of the state in contract law: The common-civil law divide. Yale J.
Int'l L., 43, p.143.
Yin, K.,et.al., 2020. Contract Law. Cambridge University Press.
Stewart, A., Swain, W. and Fairweather, K., 2019. Contract law: principles and context.
Cambridge University Press.

Decock, W., 2021. Contract Law. In A Companion to the Spanish Scholastics (pp. 432-447).
Brill.
Schulze, R., 2018. Consumer Law and European Contract Law. In The Yearbook of Consumer
Law 2007 (pp. 153-166). Routledge.
subscribers made through memorandum and acts as independent body.