Commercial Bank of Australia Limited v Amadio - Assignment Example

Business Law and Ethics Name Course Institution Date 1. Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 1. Flow chart on the legal parties and progress of the case The legal parties’ flow chart Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 Defendants Commercial Bank of Australia Plaintiff The Amadios The progress Flow chart The amadios guarantee their son for an overdraft through a mortgage The Son's business collapses The bank tries to enforce the mortgage The Amadios sues the bank claiming that the guarantee was unenforceable The high court rules that the guarantee is unenforceable The bank makes an appeal against the ruling court of appeal gives the same ruling that the case is not enforceable 2. Area of the case The case is dealing with the Unconscionability, under the Law of Contract, where one party takes advantage of an innocent party and the innocent party is not able to make an informed decision that would be of his own interests. 3. The facts of the case The Amadios undertook the responsibility of guarantying their son's loan to the Bank by providing a mortgage over a property. The parents or any outsider had the impression that Vincenzo, the son was going through economic prosperity due to the kind of life he was living. The son was in frequent communication with the bank, which chose which bill to be paid, and which ones would wait, when they discovered that the business was going through some financial difficulties. The bank manager, Mr. Virgo assured them that in mortgages, and there were no limits as to the amount of money or period of time. Soon after, the son's business collapsed and the bank tried enforce the guarantee. However, the Amadios argued that the guarantee unconscionable, and thus, would be not be enforceable (Tomasic, 2002, p.142). The court accepted the case as unconscionable, and the bank could not rely on the guarantee for several reasons. First, the Amadios did not understand English well. Secondly, the bank failed to encourage them to search for independent counsel; thirdly, the bank was aware that the Amadio's son's business was wavering and they were aware that the Amadios did not have any information about this and lastly, the bank failed to inform the Amadios that their liability was unlimited under the terms of the guarantee (Carter, 1996, p. p.117). Legal issues The first legal issue relating to this case was whether the documents the Amadios signed were binding. This is because the bank misled them as to the terms of the mortgage, and also, the fact that they were not told that their son's business was having some financial problems. In addition, they understood very little English and did not read the contents of the documents they were signing. The second legal issue was whether the bank would enforce the mortgage to recover the overdraft Amadio's son had taken. This is bearing in mind the fact the bank manager did not disclose all facts that related to the case. Moreover, the bank manager lied about the six months limit when Mr. Amadio asked about it. The manager also did not tell them about the limit of the amount. The Amadios had assumed it was $50000. The other legal issue was whether the bank intended to take advantage of the fact that the Amadios were not educated and would not have knowledge of the terms of the contract. The bank also had indirect interest in the business through a subsidiary and so they may have wanted to protect their interests since they knew the business was having some financial problems (Allan, 2007, p.124). 4. Majority rule The judgment made was on the majority view. Deane J representing majority views held the Amadios were at a serious disadvantage. Mr. Virgo, the agent of the bank had not taken any precautions to advice the Amadios and failed to act in a morally reprehensible manner. He simply assumed the vulnerability and disadvantage facing the Amadios. It was obvious that the Amadio were not aware o what they were getting themselves into, and the bank manager failed to advice them accordingly. Deane concluded that the bank transactions were not reasonable, just and fair. 5. Reason for the ruling The court ruled out that the guarantee was not enforceable by the bank, because, it failed to disclose all the information relating to the guarantee. The bank had taken advantage of the special disability of the Amadios for its own interests. Part B Reflective Questions 1. The process of finding the cases listed above The first step I took in finding the above cases was determining which area of law I wanted to analyze. This being a Business Law and Ethics class I preferred to analyze a case that related to law of contract. Having identified this, I visited the AustLII website and checked their database. This is where I chose the cases from (Harris, 2009, p.98). 2. factors considered in choosing the case for analysis I chose the case Commercial Bank of Australia v Amadio because I felt that the case had several issues that relates to the law of contract. The case is wide enough to cover most of the issues in the law of contract and this would allow me to understand the topic better. The following are some of the issues dealt with in the case; i. Unconscionability- this is a case in the law of contract where one party takes advantage of a disadvantaged party for their own benefit. In this case, the bank took advantage of the fact that Amadios did not have formal education and did not know much about the mortgages. ii. Misrepresentation- this is case where on party fails to give all the information regarding a contract or a certain line of business. In this case, the bank failed to give all the relevant information to the Amadios, leading them to make uninformed decisions. 3. Problems encountered in answering the questions. The major problem experienced in answering the problems was splitting the case into a hierarchy/ progress through which the case went through. The other problem related to selecting which of the cases to analyze because all of them appeared to have detailed information on the areas I was interested about. The cases had interesting facts and choosing which to analyze proved a little problematic. 2.0 business structures 1. Essential characteristics of a company. i. Legal entity and registration- every company must be registered under the registrar of companies before it starts its operations. When the company completes the registration process, it becomes an artificial person and a legal entity. The company is distinct from its members and owners and as such it is treated differently. ii. Limited liability- members have their liability limited to the value of the shares they hold. Thus, members cannot be called upon to pay more than the value of the shares they hold in the company. iii. Separate property- the company, being a legal person has the rights to acquire and transfer property under its own name. No member of the company has any rights over the company's property. iv. Perpetual succession- continuity of a company is not affected by change in membership or leadership. The company remains even after people have left the company. v. Common seal- every company has a company that acts a signature on contracts. The common seal has the name of the company, the place and date of incorporation. vi. Shares transferability- shares of a public company can be transferred freely. vii. Companies have the ability to sue and be sued in their own names. viii. Corporate personality- the corporate personality summarizes all the characteristics of the company. In the eyes of the law, a company is an artificial person with rights and obligations like a natural person. 2. There was no specific place to check whether the business name already existed and so I conducted several checks. The first check I conducted was through the internet search. I carried out a research on the internet to check if there was any company in Australia or around the world with the same. The next step I took is to visit the Australian Securities & Investments Commission's website to check whether my proposed named already existed. The website provides a section where one enters the proposed business name and if the name is already registered, the name appears on the screen. In this case, I got a message that at the time of the check, the name of my company was not regarded as identical to other business names that are protected by the provisions of the corporations Act 2001. I therefore considered my business name as available (Maxwell, 2007, p.64). 3. Internal governance of the company The company will be governed by replaceable rules that originate from the Corporations' Act 2001. Below are the rules. 1. If a director of the company has some personal interests relating to the operations of the company, the director should disclose the scope and the nature of such interest during a board meeting. 2. The board of directors will have the power to manage all the operations of the company apart from those required by law to be conducted in a general meeting. 3. The directors of the company are allowed to accept, sign, reject, or endorse negotiable instruments. 4. The directors have the power to confer or revoke powers to the managing director. 5. With approval of the other directors, the managing director can appoint an alternate director to act in the position of the managing director for a specified period of time. 6. The company will determine the remuneration and allowances of directors through resolution. 7. The company directors will permit shareholders to examine the company books. 8. Directors can call meetings with other directors by providing notice to all other directors. 9. The directors may elect one of them to be the chairman of meeting, the director, who must be present. 10. The quorum of directors is 2 directors and it must be retained throughout the meeting. 4. The company will be a limited liability company, with their liability limited to the nominal values of the shares they hold in the company. The members of the company will be shareholders who will have shares in the company, necessary to make investments and to check the performance of the director. The other members will be the directors who will undertake to day to day running of the company. For any member to qualify, they must be of age, eighteen years and above and a have sound mind. The members will also have the ability to buy shares and be readily available for general meetings. For the directors, only academically qualified people with vast experience as directors will be part of the board of directors. 5. Responsibilities of the office holders The directors of the company have the following responsibilities 1. Duty of due diligence and care- It is the responsibilities of directors to make decisions relating to the performance of the organization. They should seek all sources of information necessary to make informed decisions with relations to the running of the company. 2. Duty of loyalty- The director has the duty to avoid any conflict of interest between them and the company. The directors should not take part in any activities that compete with the activities of the company. 3. Duty to work within their scope of work- directors should only work within their powers and should not exceed them. 4. The directors will have the duty of promoting the success of the company. 5. The directors will have the duty of acting with integrity by ensuring that they do not accept benefits from other benefits for their own good. Duties of the company secretary 1. The secretary has the responsibility of the directors' appointments are carried out effectively. 2. The secretary also has the responsibility of availing all the information required by the directors in Board Meeting. 3. The secretary has the responsibilities of compiling minutes and board papers and filing them in the right order. 4. The secretaries should ensure that the company complies with all statutory regulations. 5. The secretary has the duties of connecting the shareholders of the company with the company. They should send relevant information and meeting notices to the members in time. 2. Law of Contract Part A 1. Legal issues relating to Ms Jones Ms Jones faces several legal issues with relation to the contract she presumed to have entered with Fashion Afloat Ltd. The first legal issue was to whether the contract existed between the two parties or not. To create a contract, whether formal or simple contracts, three components are necessary; i. Is there intension to create the contract? - From the given case, there were intensions to create a legally binding contract. This is evidenced by the fact Ms Jones and Fashion Afloat Ltd entered into a negotiation where the company would lease the Ms Jones Commercial premises. On her part, Ms Jones was to refurbish all the floors of the building and make considerable renovations (Ellis, 2008, p. 77). ii. Is there agreement? In this case, the parties had reached an agreement on the deal, where Ms Jones would Refurbish and renovate the building while the company would lease the premises. iii. Is there consideration? For any contract to be legally binding there has to be a consideration, unless the contract is under seal. This is the amount the promisor is willing to pay the promisee for the contract. In this case, Ms Jones and the company did not come into any agreement as to the amount they would pay for the renovations or refurbishment. Moreover, they did not agree on the rental amounts once the company leases the premises. Lack of consideration makes contracts void. However, the estoppels, the Fashion Afloat Ltd can be compelled to complete the contract, because Ms Jones acted based on the expected interest resulting from the negotiations. 2. The contract between Ms Jones and Fashion Afloat Ltd never became abiding since the contract did not have any consideration value attached to it. However, the contract was legally binding through the principle of estoppels. This makes a contract binding to both parties in cases where the parties did not agree on consideration. Therefore, Ms Jones has the right to sue the Fashion Afloat Company for damages and breach of contract. The second legal issue was whether Fashion Afloat Ltd was bound by the contract based on the implied promise that they would lease the building. This is because; the two parties didn’t come into any written agreement. The third legal issue was to whether Ms Jones had any action against the company since there was no written agreement as evidence of the contract. She had acted on the assumption that the company would honor the contract after they finished the negotiations. The last legal issue related to whether Ms Jones would use the principle of estoppels to compel the company to honor the contract. This is because, she only embarked on the renovation and refurbishment of the premises after they completed negotiations with the company, and otherwise, she would not have done so. Case Law Walton Stores (Interstate) Ltd v Maher Mr. and Mrs. Maher owned some property and entered into negotiations with Walter Stores that the latter would lease the building. The Mahers were to demolish the building and construct a new building that would fit the specifications of the Walter stores. The solicitors of the store drafted an agreement and sent it to the solicitors of the Mahers on 21st October 1983. They discussed the proposed amendments and the solicitors of Mahers informed the solicitors of the Stores that the demolition of the building had begun and construction of the new one had begun and would be completed in February of the following year (Barker, 2000, p.112). On 7th November 1983, the solicitors of the Mahers informed the solicitors of the stores that they needed to reach an agreement within a few days so that the construction would end in time. They also informed them that they needed to reach a clear agreement before they would demolish the newer section of the property. The solicitors of the store responded that they would approve the amendments and inform them incase of any difficulties. The Mahers sent the amendments on 11th November and started demolishing the remaining part of the building. The store knew about this on 10th December. The Walton Stores felt that they did not have the obligation to continue with the arrangement and informed their solicitors to go-slow on the contract. On 19 January, the Walter Stores informed the Mahers that they did not want to continue with the arrangement. By this time, the Mahers had started the construction of the new building and was 40% complete. The solicitors of Maher sued for damages. The judgment made enstopped the Waltons from withdrawing from the contract's promise. Although the Waltons did not sign the lease, they were enstopped from withdrawing because the exposed the Mahers to the risk of taking action based on the implied assumptions that the contract would be concluded. The Mahers were awarded damages to protect their expected interests. Part B 1. Legal relations with relation to Joseph Ms Jones invited Joseph, Who is a builder to assist her refurbish and renovate the premises that would were to be leased out to Fashion Afloat Ltd. Ms Jones invited him so that she would save on costs of renovating the premises. Joseph left a full time job for this project meaning, he expected some pay, else, he would not have left his job. Under the law of contracts, family arrangement and other domestic arrangements are not considered as enforceable. This is the situation that Joseph is in. He entered into an arrangement with his aunt to assist her refurbish the premises, but after the company fails to lease the premise, the aunt refuses to pay him. Joseph had left a gainful employment, and therefore, was hoping that the aunt intended to establish a binding agreement by making him quit his job. The other legal issue facing Joseph is establishing whether there was any intention to create a binding contract. The aunt may have wanted to use him to cut costs of renovating the premises while Joseph wanted to work for payment. This results to problems establishing the intentions of the contract between the two. The other legal issue is determining how much Joseph would seek as damages as a result of loss of earnings. He left his permanent job to work for Ms Jones but she failed to pat him when the company failed to lease the premises, yet he had worked for her. 2. Rights that Joseph has Joseph has the right to damages for the loss of employment and for the period of time he worked. He has the right to be paid for the time he worked for his aunt. Though this was a family arrangement, the court should consider the case as enforceable as the arrangement had serious consequences. 3. Relevant case Parker v Clarke (1960) Mrs. Clarke was the aunt to Mrs. Parker. They entered into an arrangement for the Parkers to sell their house and move in with the Clarkes. They would live together and share the bills for the household, eventually; the Clarkes would give the Parkers the house and live elsewhere. Mrs. Clarke wrote the details of the arrangement and sent it to the Parkers. Consequently, the Parkers moved in after selling their own house. After some time, Mr. Parker altered the will that had the details that they would leave the house to the Parkers. After some time, the two couples had disagreements and the Parkers had to leave the house. The sued the Clarkes and sought for damages due to the breach of the contract (Pengelley, 2001, p.72). The swap of correspondence illustrate that the two couples intended the contract to be legally binding. In addition, the Parkers sold their house in honour of the arrangement but the Clarkes changed their will. It was held that though the contract was a social arrangement, they intended to create a binding contract. 3. Negligence i. In determining whether Debbi have any action against Matt and the night club, we go through the steps of proving negligence. The first step in proving negligence is determining whether she exercised duty of care. Debbie stayed in a club until late night when the club was closed, as a time when she could not get a cab to home. The fact that she stayed to the time when would not get a cab home shows failure to exercise duty of care. As a result, Debbie had to accept a lift from a friend who was so drunk. She knew well enough that Matt was drunk but took the risk. This is also failure to exercise duty of care, even though she did not have another way to get home (Biskup, 2004, p.78). The second step is determining breach of duty of care by the defendants. In this case, there were risks foreseeable when Matt took the responsibility of driving while so drunk. He was swerving on the road and to make it worse, it was raining heavily. This increased the risks of them getting an accident. The third step is determining whether the plaintiff (Debbie) suffered any damage. In this case, Matt lost control of the vehicle and they all sustained serious injuries. This means that Debbie suffered some damages. The fourth stage is determining whether the negligence was contributory or voluntary. In this case, Debbie understood the risks she was putting herself into by getting into the vehicle with a drunk driver. This amounts to voluntary assumption of risk. In this case, Debbie will not recover anything because she understood and accepted all the risks, of staying in the club until late as she would not get a cab home and secondly, getting into a vehicle being driven by a drunk person, and she knew it, but chose to take the risk (Mann, 2009, p.113). ii. The Case study. Anderson v Cooke [2005] Anderson and Cooke had known each other for several months before they had the accidents. They first met in a car park where people meet to talk about cars. They were both used maxed.ie.net, a website through which they would communicate and arrange on how to meet. On a certain occasion, they exchanged phone numbers and would communicate frequently. On the day the accident happened. The defendant called the plaintiff and made an agreement to meet. The plaintiff recommended that they use the defendant's car so that he would see the speed of the car, a Toyota Corolla Twin Can GTI. The aim of the ride was to get a photo of the speedometer, which they would post on the internet (Goulding, 2009, p.56). On the night of November 18, 2001, they met as agreed and headed for a deserted road. The defendant started the car and set the highest speed the car would reach. The plaintiff untied his safety belt on the first run so that he would take a photo of the speedometer, with an excess of 125mph. on the second run, the car did not attain the same speed. On the third run, they had the accident when the car lost control and hit a pole. The estimated speed level at this time was 110mph In this case, the defendant built-up three specific defenses. The first defense, the plaintiff knew the risks involved and voluntarily assumed them, thus lost his legal rights under Civil Liability Act. Secondly, both of them were taking a criminal activity together which was driving above the speed limit. Thirdly, claimed that the plaintiff had contributory negligence by removing his safety belt (Groves, 2007, p.89). 4. Reflection on the experiences in answering the questions. Answering of the above questions has been very interesting in the sense that each questions entailed dealing with new concepts of law and analyzing them separately. Answering the questions has been very educative and informative, since I had to thorough research and consultations to be able to answer the questions completely. The questions enabled me to analyze different questions from different perspectives. Through the questions, I was able to understand that in law, every case can be argued out through different principles, even in cases that appeared to have no grounds, for instance, the case on Ms Jones. Under this case, my initial thought was that she should do nothing since they did not have any written agreement and they did not agree on consideration. After the research and analysis, I discovered that it is possible for Ms Jones to take action against the Fashion Afloat Ltd, through the principle of enstoppel. In answering the questions, I encountered a few difficulties. For instance, in analyzing some cases. Some of the cases do not have direct or the expected results and it required extra research to be able to analyze the case correctively and comprehensively. To overcome these problems, I constantly referred to the lecture notes and slides and made reference to the rulings made by the judges handling the cases. The lecture slides, rulings and the listed references assisted me in answering questions and deal with all the problems facing me. References Allan, D. E., 2007, Law of contract in Australia, Sydney, CCH Australia. Barker, D., 2000, Essential Australian Law, London, Routledge. Biskup, P., 2004, Australian law: an introduction for senior students, Sydney, McGraw-Hill. Carter, J., 1996, Contract law in Australia, Sydney, Butterworths. Ellis, E., 2008, Principles and practice of Australian law, Sydney, Lawbook Co. Goulding, S., 2009, Company Law, Sydney, Routledge. Groves, M., 2007, Australian administrative law: fundamentals, principles, and doctrines, London, Cambridge University Press. Harris, J., 2009, Australian Corporate Law, London, LexisNexis Butterworths. Mann, T., 2009, Australian law dictionary, London, Oxford University Press. Maxwell, C. F., 2007, The Australian law times, Volume 26. New York, Harvard University. Pengelley, N., 2001, Researching Australian law: an update, New York, Sage. Tomasic, R., 2002, Corporations law in Australia, Sydney, Federation Press. Read More