Hear-Say Mobile Phone Dealers Business Structure - Assignment Example

BUSINESS LAW AND ETHICS [Student’s Name] [Course Title] [Tutor’s Name] 15th August, 2011 BUSINESS LAW AND ETHICS QUESTION ONE: Business Structures Name of the business: Hear-Say Mobile Phone Dealers. The name Hear-Say suggest that communication is two way and therefore everybody is encouraged to purchase a phone to “Hear” from their callers and then “Say” something in response. 1. Choice of Business Structure Hear-Say Mobile Phone Dealers takes the form of sole traders’ type of business structure. Sole trader is the simplest of all types of business-structure (Davis, et al., 2009). The decision to start Hear-Say Mobile Phone Dealers as a sole trader was arrived at putting into consideration several factors. The factors that came into play while making this decision included the sources of finance. This greatly determines the availability of capital for starting a business venture. The sources of finance at my disposal were not large enough to start other forms of business structures which requires huge amount of capital outlay. The major sources I had was personal savings, donation from friends and relatives and some inheritance from my parents. Sole traders requires small amount of capital and therefore the best choice for my business. Weighing the advantages of starting Hear-Say Mobile Phone Dealers as a sole trader against the disadvantages helped in arriving at a rational decision. Apart from incurring the low cost in starting the business, the sole trader exercises independence and have complete control of the affairs of the business. 2. Business Name All business entities must have a name for identification purposes. The business name Hear-Say Mobile Phone Dealers is available. Business names registration is the responsibility of ASIC. Business names with national registration status are found in the national system. A sole trader must check against national business names to ensure that there is no existing business using a similar name. The process of registering a new business name starts with obtaining an ‘Australian Business Number’, ABN. Registration of national business names uses online services. During the online application of a business name, a trademark search link should also be included. 3. Characteristics of a Company Company can be described as a relationship of a group of people that make contributions of money to a stock in common which is employed to some trade and they share the profits and losses therefrom. A company has some essential characteristics that distinguish it from other forms of business structure. These characteristics are explained as under: It is an artificial legal person in the eyes of the law. A company comes into existence by law. It cannot act on its own but acts so through a board of directors elected by the shareholders. Separate legal entity: a company has a separate legal existence separate from its shareholders. Perpetual succession: Old shareholders may go and new ones may join in and the life of the company is independent from that of its members and hence its existence is continuous. Common seal: a company being an artificial person cannot sign documents. Australian law provides for a “common seal” which has an engraved company’s name on it substituting its signatures. Limited liability: a shareholder shall be liable to contribute towards the debts of the company during its life or at winding up only to the extent of shares taken by him to the balance of his shares or up to the guarantee given by him or her or both. Capacity to sue or be sued: the suits of a company are suits of the company and not of the shareholders. As such in the suits of the company, the company is the proper plaintiff and where the company has been sued, the proper defendant. Separation between ownership and management: the number of shareholders who are the owners of the company is fairly large. Therefore, all of them cannot partake in its management. The law therefore provides for the “Board of Directors” (BOD) elected by members in a general meeting of the company to manage its affairs. Ownership of property: being a legal person, a company is capable of owning, enjoying and disposing of property in its name. Transferability of shares: members of public limited companies are free to transfer the shares held by them to anybody through the stock exchange (Hanrahan, et al., 2011). 4. Internal Management of the Company Each company must have a form of internal constitution known as the “Article of Association” (AoA). AoA are company’s rules and regulations that are intended for internal management. The articles regulate the manner in which the affairs of the company will be managed for the attainment of the objects laid down by “Memorandum of Association” (MoA). Thus, the AoA play a part which is subsidiary to the MoA and hence accepting the memorandum as the chatter of its incorporation. The articles define the duties, the rights and the powers of the governing body as between themselves and the company at large, and the mode and form in which business of the company is to be carried on (Halbert and Ingulli, 2011). It also defines the mode and form in which changes of the internal organization of the company may from time to time be made. The rules and the regulations framed should not go beyond the powers of the company itself as contemplated by the MoA. Some of the rules used for the internal management of the company relate to: The share capital Rights of the shareholders and variation of such rights Payment of commission Rights on shares, Call on shares, transfer of shares and forfeiture of shares Alteration of capital General meetings and proceedings thereat The voting rights of members Issues to do with the directors of the company – their appointment, remuneration, qualification and disqualification Powers and proceedings of the BOD. Issues to do with the company’s secretary Dividends and reserves Accounts, audits and borrowing power Profits And the winding up processes among others. Promoters and later members of the company can indicate any rules they may wish to have so long as such rules are permissible in law 5. Duties of Officeholders of the Company Due to the size and nature of the company, the shareholders (owners) of the company cannot run the companies on their own. They delegate the responsibility to run the affairs of the company to a BOD who they elect during the general meeting of the company. The company has many officeholders among them being the chairman, the CEO, managing director, directors and the company secretary. These officeholders have specified duties to the company which fall under the categories of duties in common law, equitable duties (fiduciary duties) and statutory duties as discussed hereunder: Duty to exercise utmost care, skill and diligence: officeholders must perform their duties with due skill, care and diligence. Duty to act in an honest way: the Directors must give to the company the benefits of negotiation on contracts into which they enter in respect of the company. Duty to prevent insolvent trading: officeholders must take care to avoid anything which has the appearance of undue influence or fraud. Duty to avoid insider trading: officeholders are not supposed to use the secrets of the company for their selfish gain. Not to make any secret profit: officeholders must not make either direct or indirect profit from his position at the expense of the company which they are serving Avoid instances of conflict of interest: an officeholder must make full disclosure of all the relevant facts including any profit and his or her personal interests in a transaction with the company (Yorston, 1954). Duty to exercise discretion in good faith: officeholders must not unreasonable use of their position. Duty to take action for right purpose: the Directors must see to it that the funds of the company are used for carrying on the authorized business as stated in the memo (avoid ultra vires transactions) QUESTION TWO: Case Studies PART A: Case Analysis Baltic Shipping Co. v Dillon (1993) 176 CLR 344 Areas of law, main facts, legal questions raised by facts This is a case of contract law specifically contract of carriage in which there is contract breach that requires award of damages. The case also has instances of incorporating exclusion clauses. In this case, Mrs. Dillon (a widow) purchased a cruise from a travel brochure of a charterer on MS Mikhail Lermontov (cruise ship). On December 6, 1985, Dillon obtained a booking form after paying the deposit. The ticket was to be issued under conditions in the booking form. Dillon received the tickets on January 24, 1986 which indicated that personal injury liability was limited. The ship struck a shoal got holed and subsequently sank. Mrs. Dillon lost some valuables and also sustained some injuries as a result of the accident. She was only compensated for the loss of her valuables but not compensated for the injuries she sustained. The company, however, offered her a sum (ex gratia) on condition that she signs a “release form” which Dillon accepted and made a sign in its respect. Later in 1987, Mrs. Dillon and the insurance company instituted a legal suit to recover personal injury damages and some other losses. The contract was instituted on December 6, 1985 and thereby each party acted in accordance with the terms of contract at that time. Incorporation of an exclusion clause which contained limitation on liability for person injuries as indicated on a ticket got by Dillon was uncalled for. This material fact was never brought to close attention of Mrs. Dillon at the time she entered into the contract and therefore, it could not hold. New terms of contract should not have been introduced at a later date when Dillon paid cruise fare balance. This constituted insufficiency in the notification of the terms of the contract (Cseres, et al., 2006). A flow chart of all the legal parties For a legally binding contract, there has to be an existence of the following elements: acceptance and offer, agreement, consideration, lack of illegality and an intention to create legal relationships (Prince, 2009). Therefore, a legal contract can only be enforceable in low courts if it is shown that there was an agreement between the parties concerned, promise to do something in the contract and implied or express intention to create a relation which is legally binding (Hausman and Parker, 2010). Intention to create legal relation no there is no contract can be formed Yes Agreement no no contract can be formed Yes Sufficient consideration no no contract can be formed unless agreement is made under seal Yes Simple contract Yes Capacity to contract no the contract is voidable Yes Consent of the parties no the contract is voidable Yes Legality of purpose no the contract is void ab initio Yes Qualified contract form no the contract is voidable Yes Existence of valid contract no the contract is voidable Yes Unilateral contract The trial court awarded Mrs. Dillon damages which amounted to $51,000 to compensate for the cruise fare, loss of valuables, compensation for distress and disappointment, personal injuries sustained and interest. It was held that the carriage contract was made before the ticket was issued. The ticket was contrary to the booking form of which had no provision for introduction of new terms and conditions in the ticket. The court observed that the carrier is precluded from relying on an exemption clause unless reasonable measures are taken to notify the passenger of the existence of such a clause. PART B: Reflective Question 1. Processes of Finding the Case The process of finding a case starts by considering a wide range of cases and then starts screening to arrive at a specific case. I first considered all the decided cases dealing in contract law area of law. Very many cases were investigated to arrive at those cases dealing with contract of carriage. The cases obtained are then classified according to the matter in question. The issues of law in the case were considered and then screened down to the breach of the contract. The cases were then sorted according to the plaintiff or the appellant’s name (Nelson, 2006). The resultant investigation brought about Baltic Shipping Co. v Dillon (1993) 176 CLR 344. 2. Challenges Encountered It was difficult to identify the specific areas of law the case was dealing with since many aspects were involved. For instance the general case dealt with carriage contract and not the contract in general. This determination helped to narrow down to the specific legal questions raised by the main facts of the case. It was also difficult to assess the reasons the judges made decisions and the reasons for making judgment in favor of one party. QUESTION THREE: Negligence PART A: Negligence is defined as the omission to do something which a reasonable man guided upon those considerations which ordinarily regulate the conduct of human affairs, would do or doing something which a prudent and reasonable man would not do (DeMitchell, 2007). It is therefore a breach of a legal duty to take care which results in damage, undesired by the defendant to the claimant. For the tort of negligence to have been committed, the claimant needs to show that all four criteria, that is, existence of duty, breach, causation and absence of remoteness are all present. Debbie has to prove the following in order to succeed in an action in negligence (prove negligence): i. That Matt or the Nightclub Owner owes (defendants) a duty of care to Debbie (claimant) For a claimant to succeed in an action in negligence, it must be shown that the defendant owes the claimant a duty of care. In a case Donoghue Vs Stevenson (1932), Mrs. Donoghue could not sue the vendor as there was no contractual relationship between them. Her only recourse was to sue the manufacturer on the grounds that the manufacturer owes a duty of care to subsequent users. ii. The defendant is in breach of the duty to take care Once it has been established that a duty of care exists, it is necessary to determine that the defendant is in breach of that duty. The law does not require perfect conduct from a person, but it uses the test of reasonable man. Therefore, if they can foresee the possibility of injury or damage from any action they are contemplating, then the law requires them to measure the risk and the likely severity of that injury against the consequence of not carrying out the act in question. In a decided case Roe Vs Ministry of Health (1954), the hospital was held not to have been negligent since at the time the accident happened, it was not known that phenol could seep into the small glass via invisible cracks. iii. The breach of the duty to take care has caused the serious injuries sustained by Debbie In order to succeed in an action in tort of negligence, Debbie must show that her injuries have been proximately caused by the activity of Matt or the Nightclub Owner. In deciding whether Matt or the Nightclub Owner action has caused injuries, the court will normally take a common sense approach as opposed to a scientific one. Any cause which is remote or otherwise ineffective will be discounted. In Barnett Vs Chelsea and Kingston Hospital Management Committee (1969) evidence was produced to the effect that even had proper treatment been given at the right time, the claimant was likely to have died anyway. It was held that the hospital had not caused the claimant’s death. iv. Debbie must show either that the type of injuries caused was foreseeable or that it comes within the exceptions to the basic rule of “remoteness of damage” Although Debbie may be able to show that the injuries she sustained has been proximately caused by the activities of Matt or the Nightclub Owner, she may not necessarily recover the full extent of her injuries as some may be considered too remote to be recoverable. In Wagon Mound No. 1 Case (1961) it was held that even though some damage could have been foreseen by the appellants, the circumstances were so peculiar that the extent of damage could not have been reasonably foreseen. PART B: Debbie voluntarily assumed the risk. She knew that Matt had been drinking while in the nightclub but decided to accept the lift so she could get home. There was enough evidence for a reasonable person to determine that Matt was not in a condition to drive as she was swerving on the road and smelled of alcohol. Moreover, it was a very wet evening and so late in the night. For one who is willing there can never be injury. Debbie could have as well waited for morning to travel back to her home when it is safe. By travelling at night and a wet evening for that matter, she contributed to her own injuries. Where a person suffers injury partly of their own fault, their claim will not be defeated but their damages will be reduced to such an extent as the court thinks equitable (Clarke, 2003). The onus of proof is on Debbie to show that on the balance of probabilities Matt or the Nightclub Owner was negligent. There are situations, however, where adequate information is not in the claimant’s position to allow them to discharge their burden of proof. This challenge is overcome by relying on the maxim “Res Ipsa Loquitor”, that is the thing speaks for itself. This will apply where the detailed facts cannot be proved but on the basis of known facts; The object that caused the injury is under the direct control of the defendant The injury must be such that in the ordinary course of things it could not have occurred without negligence. QUESTION FOUR: Law of Contract PART A: 1. Legal Issues in Relation to Ms Jones There was a contract between Ms Jones and Fashion Afloat Ltd, FAL. Refurbishing all three floors of the building and making substantial renovations constituted a sufficient consideration from Ms Jones. It is a requirement that all contracting parties must promise to do something. The negotiation between Ms Jones and Fashion Afloat Ltd was a simple contract which required a valuable consideration to make the agreement between them a contract. The consideration given by Ms Jones was a present consideration and hence it is enforceable. In Roscorla Vs Thomas (1842) it was held that the consideration was past and hence was not enforceable. The three building were to be refurbished and renovated for leasing. The lease was for commercial purpose. Therefore, it is presumed that the agreement between Ms Jones and Fashion Afloat Ltd had implied intention to create legal relations. FAL is in Breach of the contract they entered with Ms Jones. Ms Jones is the innocent party and as a result of the breach, she would substantially be deprived of the entire benefit that would have accrued from the contract. The contract between FAL and Ms Jones was created by agreement and therefore it could as well be discharged by agreement. FAL led Ms Jones into reasonably believing that strict refurbishing and renovation (strict performance) will not be insisted by FAL as it no longer wanted to lease the building. This is a waiver that constituted the discharge of the contract by agreement. The contract between Ms Jones and Fashion Afloat Ltd did not require being in writing. The absence of writing can therefore not affect the validity of the contract between them and hence it will be enforceable in the law courts (Hanrahan, et al., 2011). 2. Advice to Ms Jones on Her Legal Rights Ms Jones is a party to the contract between her and Fashion Afloat Ltd. Therefore, she has right of an action in the contract. The agreement in the contract was that Ms Jones will refurbish all three floors of the building and make substantial renovations so that Fashion Afloat Ltd could lease the building. A letter from Fashion Afloat Ltd informing Ms Jones that they no longer wanted to lease the building constitutes a breach of contract. A breach of contract discharges the contract. Ms Jones is therefore entitled for award of remedies since the failure by FAL to make performance of their obligation as per the agreement brought about the breach of the contract and thereby discharging the contract between them. Leasing the building was a condition to the contract. A breach of condition gives rise to a right to treat the contract as repudiated since it is a stipulation that goes to the root of the contract. Ms Jones can choose to relinquish the stipulation (condition) or can choose to regard the “breach of such a condition” as a “breach of warranty” consequently claiming damages instead of repudiating entire contract. However, Ms Jones is bound to treat the breach of condition as a breach of warranty since the contract is not severable. Information from FAL to the effect that it will not be leasing the building is essentially preventing Ms Jones from performing her obligation in the contract. Therefore, Ms Jones is entitled to remedies for partial performance. PART B: 1. Legal Issues in Relation to Joseph There was no contract between Ms Jones and Joseph. There was no any form of agreement between them and both parties do not promise to do something. In addition there was no intention between Ms Jones and her nephew Joseph to enter into legal relations. Therefore, the relationship between Ms Jones and her nephew Joseph would not be legally enforceable in law courts. Ms Jones merely asks her nephew Joseph to relocate from Brisbane to Sydney to help her make the substantial renovations in the three buildings. There is neither acceptance of the offer nor a consideration for the contract. There is no contract between Joseph and Fashion Afloat Ltd. The contract was between Ms Jones and Fashion Afloat Ltd and therefore, Joseph was a third party to that contract. The privity of contract demands that the rights in a contract can only be acquired by the parties to the contract. FAL is not a party to the contract between Joseph and Ms Jones. The decline of leasing the building by FAL was unforeseen event that neither of the parties contemplated. The declination was not in the control of the parties (supervening event) and its occurrence materially changed the parties’ obligations. In a case National Carriers Vs Panalpina (Northern) Ltd it was observed that it would have been unfair to contain the parties to the contract in their original contract. The contract between Joseph and Ms Jones was therefore discharged by frustration. 2. Joseph’s Rights Joseph has no right against the Fashion Afloat Ltd as he is not party to the contract. Joseph does not have any legal right to payment by FAL. According to a case Beswick Vs Beswick (1968) the rights to acquire and incur liabilities exists only to the parties in a contract. The contract between Ms Jones and FAL and the relationship between Joseph and Ms Jones are two different contracts and hence the performance of obligation by Ms Jones in their contract with Joseph is independent of any of her other contracts. In view of a case in Wakelin Vs Ripley (1951) the seriousness of possible consequences may be looked at by the courts to establish the conduct of the parties and hence determine if there was implied or express intention to enter into legal relations. Despite the fact that Joseph is a nephew to Ms Jones, he is a builder and had to relocate from Brisbane to Sydney for the purpose of renovation. Ms Jones cannot deny the existence of a contract between her and Joseph merely because it was a help. Joseph had to give up his full time job to move to Sydney for the specific performance of the contract. Joseph is an injured party in this contract. He has made specific performance in the contract. Therefore, he is entitled to remedies as a result of the breach of contract by Ms Jones. REFERENCES Clarke, A., 2003. Negligence: a practical learning approach. Butterworth: LexisNexis. Cseres, K. J., et al., 2006. Criminalization of Competition Law Enforcement. Northampton: Edward Elgar. Davis, D. et al., 2009. Companies and other business structures: commercial law. Oxford: Oxford University Press. DeMitchell, T. A., 2007. Negligence: what principals need to know about avoiding liability. Melbourne: Rowman & Littlefield Education. Halbert,T. and Ingulli, E., 2011. Law & Ethics in the Business Environment. New Delhi: Cengage Learning. Hanrahan, P., Ramsay, I. and Stapledon, G., 2011. Commercial applications of company law 2011. Australia: CCH Australia Limited. Hausman, J. and Parker, G., 2010. “Margin–Concentration Analysis in the UK Groceries Inquiry” journal of Competition Law & Economics, 6 (3): 687-704. Nelson, B. L., 2006. Law and ethics in global business: how to integrate law and ethics into corporate governance around the world. Sydney: Taylor & Francis. Prince, R., 2009. "Patrick McLoughlin, Camerons smell tester claims £3,000 for windows". The Daily Telegraph (London: Telegraph Media Group Limited). Yorston, R. K., 1954. Company law in New South Wales: a concise manual of the principles and practice of company law. Australia: Law Book Co. of Australasia. Read More