Contract and Business Ethics - Terrence - Assignment Example

Name of the Student & Student Number] [Seminar Day & Time] [Seminar Lecturer’s Name] [Word Count] CONTRACTS AND ETHICS I QUESTION ONE A company developed a drug for combating rheumatism and paid some scientists to investigate the side effects of this drug. Subsequent to receiving the report from these scientists, the Board of Directors decided to conceal information regarding its side effects, as this drug was expected to increase the profits of their company substantially. For assessing the ethical issues of the above company regarding its failure to divulge essential information, the following issues need to be considered. A Issue Whether the Board of Directors breached any fiduciary duties imposed upon them with regard to the affairs of the company. B Rule of Law In Australian Securities & Investments Commission v Macdonald (No 11), the High Court held that seven of the former non- executive directors of the company had made a misleading statement regarding the company’s asbestos compensation fund, thereby breaching the law.1 C Application The following are directors’ fiduciary duties. A company director has to be, and diligent, careful and well informed regarding its affairs. Moreover, reasonable expectations from a director will be determined on the basis of the specific experience, skill or knowledge pertaining to his function. Furthermore, directors have to circumvent conflict or possible conflict of personal interests with that of the company, unless the company consents to it. 2 Directors have to act in good faith at all times. As such, the common law enjoins that a director has to always act in good faith in conducting the business affairs of the company. Thus, the director has to act in good faith, in the best interests of the company, avoid a personal interest or duty that conflicts with his duty towards the company, and utilise company property solely for the latter’s benefit.3 In our problem, the directors should have disclosed the side effects of their new drug, irrespective of the outcome on the future profits of the company. Australian Securities & Investments Commission v Macdonald (No 11), related to the lung cancer, asbestosis and mesothelioma caused by asbestos and its fibres that had been released into the atmosphere. This had been taking place from the 1920s, when asbestos products manufacture had commenced on a large scale in Australia. The James Hardie group of companies had been the principal perpetrator of this great harm to the Australian public. The effects of this pollutant were linked to the above mentioned diseases, only in 1960. In his judgment, Gzell J, held that the directors and officers of this group had breached their duty of care and diligence, by approving a false and misleading public announcement. This had pertained to the payment of legitimate claims for the damage caused by the asbestos products.4 Similarity, in our case, the board of directors chose to conceal information regarding the harmful side effects of the drug. This constitutes breach of duty of care and diligence, due to making a false public announcement. D Conclusion The company directors have breached the duty of care and diligence and good faith in conducting the affairs of the company, by pronouncing a false statement to the public. II QUESTION TWO A Part One Bill, the owner of a restaurant, promised to pay the university fees of his son, Quentin, for the first year. However, he required Quentin to work in his restaurant every Sunday. Quentin, being a highly talented tennis player, had been offered a scholarship to undergo coaching from a famous tennis coach, on every alternate Sunday. As he could not forego the payment of the university fees by his father, Quentin did not attend the tennis coaching. Thus, Quentin relied on his father’s promise to work every Sunday at the latter’s restaurant. After completing the first year of the course, Quentin decided to travel abroad. This upset his father, who refused to pay the first year’s university fees. 1 Issue Whether Quentin possess any rights against his father for non- payment of his university fees. 2 Rule of Law When there is a domestic or family relationship, it is generally presumed that there need not be any payment for services rendered. Significantly, the emphasis is upon family relationship and not blood relationship.5 3 Application The intention to create legal relations is a major condition for the formation of a contract. Any interpretation of the contract law by the courts, accords considerable importance to the intention of the parties to a contract.6 As such, in Balfour v Balfour, a husband employed overseas consented to send his wife maintenance payments. Subsequently, their relationship became extremely strained and the husband discontinued the payments. The wife approached the court to enforce the agreement. The latter held that the agreement was a domestic agreement and that there was no intention to be legally bound.7 Moreover, in Woodward v Johnston,8 a wife consented to help her husband in his business, and the latter promised her a tenth of the business. Subsequently, for a year and a half, the wife performed substantial work in the business. However, the husband refused to pay her the promised remuneration. It was held by the court that this was not a contract and a mere family arrangement. In domestic relationships, it is presumed that there is no legal intention. Similarity in our present case, Quentin’s father refused to pay his university fees on the premise that the former would discontinue his studies for a year. 4 Conclusion According to the above case law and discussion, Quentin’s father need not pay the university fees, since the agreement was a family agreement and there cannot be any legal intention to be bound, between the parties. B Part Two 1 Issue Whether Quentin at the age of 17, would have any rights against his father, if the latter refused to pay his university fees. 2 Rule of Law If the agreement is out of a family relationship, payments need not be made for the services rendered, since there is no intention to be legally bound by the parties. This was the ruling in Woodward v Johnston.9 3 Application If Quentin’s age is 17 years, he will be a minor. This has no significance for claiming legal rights against his father, as the agreement is within the family relationship. 4 Conclusion According to the decision in Woodward v Johnston, Quentin cannot claim any rights against his father, if the latter failed to pay his university fees, since the agreement is only a family arrangement. This situation will not differ, even if Quentin had been 17 years old. Thus, Quentin has to continue his studies without any break, if he wants his father to pay his tuition fees. III QUESTION THREE Samantha advertised the sale of her car for $15,000, and Terrence responded to it. He specifically enquired about the suspension of the car from Samantha, and told her that one of his acquaintances had faced an issue with the suspension of a car of the same manufacture. Samantha replied that the vehicle had an excellent suspension. Thereafter, Terrence formed the contract of sale and paid the amount to her. Subsequently, he discovered that the car’s suspension was badly rusted. A Issue Whether, Terrence has any rights against Samantha for the loss caused to him due to the defective car that did not correspond to its description. B Rule of Law A sale of goods contract contains the implied term that the goods will correspond with their description as provided by the seller to the buyer. 10 C Application According to the norms of sale of goods, there are certain implied terms relating to a contract for the sale of goods. Thus, the sale of goods contract will have an implied term that the goods sold shall correspond with their description provided by the seller. As such, where the goods do not correspond to their contractual description, the buyer can reject the goods on grounds of breach of an implied contractual term. However, such goods should have been sold by description, and it is sufficient for the buyer to have relied upon their description even if he had not seen them. With regard to a buyer who has seen the goods, this implied term applies, provided the buyer had purchased them as corresponding to a description. In general, the implied term of sale by description applies to statements that identify the goods. It is inapplicable to sales pertaining to just the quality of the goods.11 In our present problem, Terrence purchased the car, relying on the description provided by Samantha. Subsequently, the car was found to be not in correspondence with this description. D Conclusion According to the above discussed principles, Terrence can reject the car and claim damages for breach of contract, irrespective of the fact that the contract was silent about the suspension. This is because, Terrence had purchased the car, relying on the description provided by Samantha, specifically, with regard to the suspension of the car. BIBLIOGRAPHY A Articles/Books/Reports Ciro, Tony, Vivien Goldwasser and Reeta Verma, law and business (Oxford University Press, 3rd, 2011) Graw, Stephen, David Parker, Keturah Whitford, Elfriede Sangkuhl and Christina Do, Understanding Business Law (LexisNexis Butterworths, 7th, 2014) B Cases Australian Securities & Investments Commission v Macdonald (No 11) [2009] NSWSC 287 Balfour v Balfour [1919] 2 KB 571 Woodward v Johnston [1992] 2 QdR 214 Read More