Foundations of Company and Commercial Law - myassignmenthelp

Question: Discuss about theFoundations of Company and Commercial Law for Business. Answer: Issue: The key issue in this case revolves around which business structure the business of Mary, Fred and Chris is being carried on. Rule: There are different forms of business structures in Australia, which can be adopted for running the business and one of these is partnership. In a partnership form of business structure, two or more people come together to run a common business, in which the profits and losses are shared in an equal manner, and the objective is to run the business commonly. In a partnership, the people who run the business are deemed as partners and the business is known as the firm. The partnership deed is a document which covers the terms on which the partnership is based. And this is the document which provides the capital contributions, the manner in which the profits will be shared and the related details of running the business. Each jurisdiction in the nation has its own Partnership Act and they are more or less the same. The partnership act dictates that a partnership is formed when the profits are shared in an equal manner, or as is provided under the partnership deed. The act also provides that the partnership deed is to cover the details of the manner in which the partnership is to be operated, particularly regarding the capital contribution and other related matters. Application: In the given case study, Mary, Fred and Chris put down certain rules of running the business in a common manner. On the basis of rules stated above, this would be deemed as a partnership deed as more than two people came together to carry on the real estate business and created an agreement covering the rules of running this business. As they put in equal capital contribution and also decided to share the profits in an equal manner they would be deemed as partners. All the partners are working towards this business as they are passionate about it, thus confirming that a partnership form of business structure has been adopted in this case. Conclusion: On the basis of this, it can be concluded that Mary, Fred and Chris were carrying on a partnership form of business structure, for the reasons of presence of equal profit sharing, equal capital contribution, partnership deed being formed and more than two people running the business for a common objective. Issue: The key issue in this case revolves around the liability of Fred towards customer X for the negligent misrepresentation. Rule: Misrepresentation can be defined as a false statement made by one person, to another person, which is a statement of law or fact, and which results in the representee being included into entering of the contract. In order for a person to make a claim of misrepresentation, it is important to show that the false statement was one which was made of fact and did not contain estimation or an opinion regarding anything. In Bisset v Wilkinson, a farmland was purchased by the claimant and he enquired the landlord regarding the capacity of the land holding sheep. The seller had never kept sheep at the farm but gave out an estimation of 2000 sheep. Relying upon this statement, the land was purchased and when the land could not hold 2,000 sheep, the claimant sued the landlord for misrepresentation. The case was unsuccessful as the court held that the estimate was a statement of opinion, instead of one of fact. However, there are cases in which a statement of opinion can result in a case of misrepresentation can be upheld, particularly when the representor holds the position of knowing the facts. Smith v Land and House Property Corp was a case in which a hotel was bought by claimant and the tenant was described by the seller as the most desirable one. However, the seller was well aware of the fact the tenant was backing in his payments and was on the brink of bankruptcy. Holding this as a statement of fact, instead of that of opinion, the court held the seller liable for misrepresentation. It is also important that the other person had relied on the misrepresented fact for a claim to be upheld. Horsfall v Thomas was a case in which a gun had been purchased by the claimant and this gun had a concealed defect. Though, the action brought for the misrepresentation could not be upheld as the gun had not been inspected before the purchase was made. This meant that he was not induced into entering of the contract. There are different forms of misrepresentation and a leading one in this is the negligent misrepresentation. When a statement of fact is lied about without having the reasonable ground to believe in the truth of such statement, a case of negligent misrepresentation can be made. In such a case, the burden is over the representor that they have the genuine reasons to state that the made statement was one of truth. It is available for the economic losses. And there is a need to show that particular false information was provided in a negligent manner, on which plaintiff relied in a reasonable manner and damages were attained by the plaintiff owing to this false information. Howard Marine v Ogden is a helpful case in this matter. In this case, two dredging barges were hired by the plaintiff from the defendant for a price of 1,800 for every week in order to carry out certain excavation work. For making an accurate estimate for this tender work completion, the claimant asked the defendant regarding the barges capacity. The defendant checked on a register and stated that it was 850 cubic meters. However, this register was wrong and the capacity was way low. As a result of this, the plaintiff had to bear high costs and even the work was stretched. Consequently, an action for negligent misrepresentation was brought by the plaintiff; and on this, the defendant argued that there was a presence of reasonable grounds for believing the truth behind the statement as the same had been checked from the register. It was held by the court that the burden of proof had not being discharged by the defendant by showing that reasonable grounds were present for believing in the truth of the statement as they had the registration document where correct capacity was stated and there was no need of relying upon the register. For the acts undertaken by the partners, partnership act provides that the partnership firm is liable. This is because the partners carry on the work for partnership as per Lang v James Morrison Co Ltd, and the partners have to act for each other, thus giving rise to liability for acts of partners towards the firm and towards each other. Application: The first requirement in this case is to show that a case of misrepresentation was present, before a claim of negligent misrepresentation can be analysed. In this case, Fred gave an advice to customer X, which was false one and turned out to be a costly affair for customer X. Applying the case of Bisset v Wilkinson, this would be deemed as an opinion and not a statement of fact for which Fred can be made liable. However, when the case of Smith v Land and House Property Corp is applied, Fred would be liable for misrepresentation as he was a tax consultant and he was in position to know that he rulings of ATO being changed from time to time. His position was such that it made him liable for misrepresentation as the statement of estimate here became a statement of fact. It is very clear that customer X relied on the statement of Fred as he would not have purchased the property had he known that the advice was wrong. The purchase of property, on the basis of Horsfall v Thomas proved that customer X relied on the false statement. Hence, a case of misrepresentation is clearly present in this case. A case of negligent misrepresentation can easily be established in this case. A false statement was made by Fred in this case without checking the truth behind the statement, on which the customer X relied and economic loss was caused to the customer as a result of this. And as took place in Howard Marine v Ogden, Fred failed to check the updated rates and gave the estimate which was costly for the customer. As a result of this, a case of negligent misrepresentation can be made by customer X against Fred. Based on Lang v James Morrison Co Ltd, the partnership firm and Mary and Chris can also be made liable for negligent misrepresentation of Fred. Conclusion: On the basis of this, it can be concluded that Fred indulged in negligent misrepresentation for which an action can be made by customer X not only against Fred, but also against the remaining partners and the partnership firm. Issue: The key issue in this case is whether Fred or the business partners can be made liable for the damages which were suffered by Y. Rule: As stated earlier, a partner can be made liable for the acts of other partners. However, this is limited to such conduct which is undertaken during the course of partnership, or within the scope of authority of the partner. Mercantile Credit Co Ltd v Garrod was a case in which the partners were made to be liable towards acts of each other. The court stated the reason for holding the partners liable as the sale which was undertaken was during the usual course of commerce and trade in the specific partnership, which required the partners to be liable towards the sale which had been undertaken. National Commercial Banking Corporation of Australia Ltd v Batty was a case in which the court held that the partnership firm was not to be made liable for the acts undertaken by the partners as the acts were done in a wrong manner and also exceeded the scope of authority, which the partners had been imparted with. Apart from this, the money of the firm was obtained in a manner which was not in usually course of business of firm for which the partnership firm could not be made liable for being out of authority. Where an act has not been undertaken by the partner, the partners cannot be made liable. Further, negligent misrepresentation makes the person owe a liability to another and not for another person forwarding this information to a third party. In simple terms, the liability is owed towards the party to which the false statement has been made and not to a third party to which this information is forwarded by the second party. Application: In the given case study, the advice given by Fred was forwarded to Y by X without any knowledge of Fred. Fred is liable to X as he represented false facts to X and not to Y. Y never got the advice from Fred and so cannot blame Fred for his loss. Though, the same can be done by Y for X. Liability is only raised when the same is done within the scope of authority given under partnership, as per Mercantile Credit Co Ltd v Garrod, and not beyond it, on the basis of National Commercial Banking Corporation of Australia Ltd v Batty. Here, the act did not give rise to negligent misrepresentation towards Y as the advice was not given to him. And as this was not within the scope of authority of any partners, or carried on with any other partners, Chris and Mary cannot be made liable. Conclusion: On the basis of this, it can be concluded that Fred indulged in negligent misrepresentation for which an action can be made by customer x only against Fred, but not by Y against X, as the false representation was not made to Y, but X. Issue: The key issue in this case revolves around which business structure the business of Mary, Fred and Chris should now be carried on. Rule: Company is another famous choice of business structures in the nation. A company is deemed as a separate legal entity as a result of which, it is treated as a separate legal person from the person running its operation. As a result of this characteristic of the companies, the company can initiate legal actions against third parties and even towards its own directors or employees, as it gets a separate status. In Australia, the Corporations Act is applicable for the companies, where each and every aspect of the companies is give relevant provisions for in this act, including the incorporation, registration and winding up. The company form of business structure enjoys another advantage of raising funds from the general public, or from the acquaintances or friends, based on whether the company is a public company or a proprietary company. Unlike in a partnership form of business structure, the company form of business structure has limited liability. In other words, for the liabilities of the company, the shareholders cannot be made liable, save for the amount of unpaid shares. The investor pool can also be limited in a company sort of business structure by opting for a particular form of company type. In comparison to partnership, shares can be easily transmitted and there is no need to revalue the company on addition or deletion of a member as is the case in partnerships. Application: On the basis of these rules, Mary, Fred and Chris should operate under a company sort of business structure. This is because this would allow them to raise capital, which can be on the basis of their choice. In other words, if they want to raise capital from the public, they can opt for a public company and if they only want to raise shares from the friends and family, then they can opt for proprietary form of company. The company form of business structure would also limit their liability and would also help them in overcoming the drawbacks of the partnership form of business structure. Conclusion: On the basis of this, it can be concluded that Mary, Fred and Chris need to change their business structure from partnership to company form, as this would limit their liabilities and allow them to raise capital. Issue: The key issue in this case revolves around the liability of the company to pay for the car purchased by Mary. Rule: The data of the company, based on the Corporations Act, is to be kept updated at all times. The directors of the company are deemed as an employee of the company. This can be affirmed on the basis of Lee v Lee's Air Farming, in which the director died while he died on the job and where his widow made a claim of worker compensation. The court in this held that the director had to be deemed as an employee of the company. Vicarious liability is a principle whereby the superiors are held liable towards the third party, for the acts undertaken by their subordinates and is a concept which has its roots in agency law. This concept is particularly applicable on the employer employee relationship, where the employers are held liable for the acts undertaken by the employee, towards a third party, during the course of their employment. Panorama Developments (Guildford) Limited v Fidelis Furnishing Fabrics Limited was a case in which the company secretary of the company hired the cars for his personal use in a fraudulent manner, without bringing the same to the knowledge of the managing director of the company. There was a routine in which the company secretary used to enter into the contracts in the name of the company, apart from which, his administrative responsibilities gave him the apparent authority of hiring the cars. Due to these circumstances, it was held by the court that the company was liable for the acts of the company secretary. In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, the company was ordered to pay the amount to the plaintiff for the acts undertaken by the director of the company owing to apparent authority. Application: In the given case study, Mary is a director who decided to leave her job. She would be deemed as an employee of the company on the basis of Lee v Lee's Air Farming. And due to these reasons, the concept of vicarious liability would come into play here. The decision of Mary to purchase the car for herself as a gift to herself was undertaken without the permission of the other two directors. On the basis of Panorama Developments (Guildford) Limited v Fidelis Furnishing Fabrics Limited, the company would be liable for the car payment. This is because the company was required to keep the update data, but the same was not done, as a result of which Mary was still being shown as the director of the company. As she was still being held out as a director of the company, she appeared to have the authority to purchase the car. And so, on the basis of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, the company would have to make the requisite payment for the car purchase. Conclusion: On the basis of this, it can be concluded that the company would be liable to pay for the payment of car as the updated data was not maintained, which made it appear that Mary had the requisite authority to transact on behalf of the company. And as Mary was an employee of the company, for her acts, the company would be liable to make the payment for car.