Is Lakeview Developments Pty Ltd Bound to the $750,000 Contract for the Sale of Nicoles House - Case Study Example

Name Course Lecturer Date Agency: Indoor management Rule Issue Is Lakeview Developments Pty Ltd bound to the $750,000 contract for the sale of Nicole’s house? Law Section 769B of the Corporation Act 2001 (cth) asserts that corporations are “responsible for the conduct of their agents, employees etc”1. This means that when officers or employees enter contracts on behalf of their company, the company (principal) is bound by the contract made by the employee or officer (agent). This doctrine is well established in common law and is known as the “indoor management rule”. As set out in Royal British Bank v Turquand (1856), 6 EL & BL 327, an outsider dealing with a corporation is not required to find out if the agent of the company he is dealing with has been authorised to act on behalf of the company by the company’s by-laws, articles, contracts, resolution or policies2. However, the principal cannot be bound if the outsider is aware that the agent has no authority to act on behalf of the corporation. Application Under agency law, a principal is bound by the actions of an agent that are within the agents apparent, actual or deemed authority. In this case, Nicole dealt with an employee of Lakeview Developments Pty Ltd who was designated by the Corporation as its developments manager. In Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502, an applicant can rely on the indoor management rule if3; 1. A company holds out the person as an agent of the corporation; 2. If the holding out is done by somebody with actual authority; 3. If the outsider relied on the representation to enter into the contract. In this case, Nicole can bind Lakeview Developments Pty Ltd to the contract they made with Anthony Blunt as she can rely on the indoor management rule. In their business card, Lakeview held out Blunt as their developments manager and thus Nicole relied on this representation to enter into the contract to sell her house to the company. As seen in Royal British Bank v Turquand (1856), 6 EL & BL 327, an outsider should not be concerned about the limitation of agent’s authority agreed between agent and principal4. The outsider can rely on the authority of the agent as it appears or is held out by the corporation. As seen in Section 769B of the Corporation Act 2001 (cth), corporation are bound by the action of their agents who act on behalf of the corporation5. Nicole’s ability to bind Lakeview to the contract cannot be limited as she was not aware that Blunt lacked the authority to act on behalf of the corporation. Both the Corporation Act and the common law cannot bind the principal to contracts entered if the ousider knows the agent has no authority to act on behalf of the principal. In conclusion, Lakeview Development are bound by the contract made by Antony Blunt to buy Nicole house for $750,000. Lakeview had designated Blunt as their development manager and made a representation he was their development manager in their business card, Nicole relied on this holding out to enter into a contract with the company. Property: Rental Lease Legal Issue Can a lease agreement contract be avoided on the basis of economic duress, undue influence and/or unconscionable conduct? Law The Sibeon and The Sibotre [1976] 1 Lloyd's Rep 293 established grounds for setting aside contracts on grounds of economic duress6. Economic duress is considered when the pressure exerted means the weaker party does not enter into the contract voluntarily. Undue influence was established in Johnson v Buttress (1936) 56 CLR 113. Contract with can be set aside where parties with a special capacity or opportunity take advantage to affect the weaker parties free will and judgment. The burden of proof is on the weaker party to show that there were deprived of free will as result of the dominant party’s position of influence. Residential Tenancies Act 1997(Vic) allows for the Rent tribunal to set aside or vary terms of a rental contract if they are found to be harsh or unconscionable7. Section 20 of the Australian Consumer Law also prohibits unconscionable contract in trade and commerce. Application Pat and Polly can succeed to have the lease contract set aside on grounds of economic duress. As seen in The Sibeon and The Sibotre [1976] 1 Lloyd's Rep 293, the fact that Sam’s Arcade was the only Shopping Centre in town allows for the two to plead economic duress. Sam had made a point of reminding them his was the only building they could set up their business in the town. Pao On v Lau Yiu Long [1980] AC 614 found that economic duress is present where the weaker party does not have a viable alternative, is independently advised and takes steps to avoid an unfair contract term8. In this case, Pat and Polly had tried to avoid the increase of rent by renegotiating the contract with Sam. However, Sam told them that the contract was “ a take it” or “leave it” situation. Pat and Polly can also argue for the lease to be terminated on grounds of undue influence. Sam is in a position of power over the two as they can neither read or write. Johnson v Buttress (1936) 56 CLR 113 asserts that in situation where a stronger contractual party takes advantage of his position of power to influence the free will of weaker parties to enter into contract, the contract in question can be set aside on grounds of undue influence9. Under the Residential Tenancies Act 1997(Vic) section 28, Pat and Polly can show that the increase in the lease by 200 per cent is harsh and unconscionable10. In Blomley v Ryan (1956) 99 CLR 362, unconscionable conduct is established where one contractual party takes advantage of a weaker parties 'special disability' like age, lack of education, illiteracy, or a combination of factors to bind them in a harsh and unconscionable contract11. Section 21 of the Australian consumer law considers “unwillingness to negotiate” as an indicator of unconscionable conduct12. In this case, Polly and Pat were in a position of “special disability” as they could not read and write. In addition, Sam was unwilling to negotiate the 200 per cent increase in rent with the two. In conclusion, Pat and Polly can successfully apply for the lease to be set aside on either grounds of undue influence, economic duress and unconscionable conduct. Negligent Misrepresentation Issue Is Daniela liable for negligent misrepresentation? Law Hedley Byrne & Co Ltd V’s Heller & Partners Ltd [1964] AC 46513 established a basis for bringing action against people who give advice negligently and cause the party relying on the advice damage in term of pure economic loss. Since Negligent misrepresentation is based on the tort of negligence the elements of negligence have to be present14: The plaintiff is owed a duty of care by the defendant as regard the advice given; The defendant negligent breached the duty of care identified; The applicant suffered pure economic loss as a result of relying on the defendant’s negligent advice. In addition, development in negligence has seen reasonable foreseeability considered as an element of negligence. A defendant is liable for negligence if he/she could have reasonably foreseen that his action will cause harm to the plaintiff. Duty of care in negligent misrepresentation is more complicated than ordinary negligence as additional elements are need to be proved for statements to be considered negligent15. According to Barbara Hocking and Smith, Negligent misrepresentation is established when it is proved: When a special relationship between plaintiff and defendant exists when advice is being sought; The defendant understands the gravity of the situation advice is being sought for; The applicant’s reliance on the advice defendant causes him/her a loss. Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) and L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) holds people with skills, competence and judgement to a higher standard of care as regard advice on economic matters16. Analysis Sarah has to first prove the four elements of negligence to succeed in a case for negligent misstatement against Daniela. The first element is concerned with proving Daniela owed a duty of care to Sarah. This element is easy to prove as Sarah had approached Daniela in his position as an accountant and therefore this was a professional relationship. This situation is consistent with Hedley Byrne & Co Ltd V’s Heller & Partners Ltd [1964] AC 46, which asserts that a duty of care is present when a person “possessing special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skills17. Daniela was obligated to provide advice to Sarah that could be relied upon to start a business. However, Daniela breached her duty of care by omitting information about the bad debt situation of Sarah’s business idea18. Daniela should have committed to making all information that was relevant to investing in the business available to Sarah19. As seen in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] 142 ALR 75020 it is not necessary for a person to claim reliability of advice to be held liable for negligent misstatement. Sarah can also show that Daniela could have reasonably foreseen that her reliance on her advice would cause a loss to Sarah. Daniela knew that the bad debt situation of Sarah’s business increased the risk of its failure. Sarah can also prove reliance on Daniela’s advice as she gave her a report which proclaimed the investment to be a profitable and secure venture. Advice to David Jones Issue What is David Jones liability towards Elvis and his Son? Law Under section 138(1), a business that supplies or is involved in the supply of defective products to consumers is held liable under Australian Consumer Law21. Donoghue v Stevenson [1932] AC 562 holds manufacturers liable for any injuries or damages caused by any person who come into proximity with their products22. It establishes the duty of care for manufacturers of products to anybody who uses or has their products used in the vicinity. Bibliography A. Books/Articles/Reports Barbara Ann Hocking and Alison Smith, Liability for Negligent Words (Federation Press, 1999). Sharon Christensen, W. D. Duncan, Tamara Walsh, Professional Liability and Property Transactions (Federation Press, 2004). B. Cases Blomley v Ryan (1956) 99 CLR 362 Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd [2004] FCA 853 Donoghue v Stevenson [1932] AC 562 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] 142 ALR 750 Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 Hedley Byrne & Co Ltd V’s Heller & Partners Ltd [1964] AC 465 Hedley Byrne & Co Ltd V’s Heller & Partners Ltd [1964] AC 465 Hyde v Wrench (1840) Beav 334 Johnson v Buttress (1936) 56 CLR 113 L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) Mutual Life & Citizens' Assurance Co Ltd v Evatt [1970] HCA 46 (Privy Council), Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) Pao On v Lau Yiu Long [1980] AC 614 Residential Tenancies Act 1997(Vic) section 28, Royal British Bank v Turquand (1856), 6 EL & BL 327 Royal British Bank v Turquand (1856), 6 EL & BL 327 The Sibeon and The Sibotre [1976] 1 Lloyd's Rep C. Legislation Australian Consumer Law (cth) Corporation Act 2001 (cth) Residential Tenancies Act 1997(Vic Read More