Question

You must answer the two problem-type questions below, using the ILAC (Issues, Law, Application, Conclusion) format, a worked example of which is in the Resources folder. Please note that the word limit of 2 000 words is a total for both questions (ie, it is not 2 000 words for each question). This is a firm limit - assignments with greater than 2 000 words will lose 1 mark for excessive length. I would however expect that students should be able to answer both questions in far less than 2 000 words. Your bibliography is not included in the word limit but in-text references are. **In this subject, assignments are marked on-line, using an adapted MS Word programme. You therefore MUST submit your assignment in Word format, NOT as a PDF document. If you submit in PDF it will not be able to be marked.

** Question 1 Road Measuring Professionals is a surveying firm based in Newcastle, NSW. Its major client is the New South Wales government, for whom it surveys roads that are under construction. Smith, Jones and Peters have been partners in the firm for some time. There is an agreement between them limiting the authority of the partners to contracts up to $ 10 000. Smith has often purchased surveying equipment on behalf of the firm from Sydney Engineering Supplies, dealing with its manager, Mary. Smith buys a surveying instrument costing $ 11 000 from Mary. It is delivered on 5 June, and the firm receives an invoice for the contracted amount. Smith has always wanted the firm to branch into road transportation, as he is also a qualified truck driver, but his partners have continually rejected such a move. Hoping to demonstrate to them the profitable nature of such work, Smith signs a contract on behalf of the firm to buy an old truck from Used Trucks Ltd for $ 8 500. The firm has received an invoice for the truck, which is due to be delivered on 6 June. Jones and Peters are angry when they see the invoices, and have told both Mary and Used Trucks Ltd that the firm will not pay them. Advise Mary and Used Tricks Ltd as to their legal position, citing relevant law.

Question 2 David Bradbury used to run a second-hand car yard as a sole trader. However, as part of a sentence for fraud imposed by a court two years ago, David was prohibited from “buying and selling new or used vehicles” for a period of five years. Breach of this order is prosecutable as contempt of court. David is however desperate to go into business again. He hears that a good opportunity exists to start a second-hand car dealership in a suburb of Sydney. He also hears that a vacant lot is available for lease. Because several other businesses are eager to lease it, he rushes to the owner of the site, Cenvest Real Estate Ltd, and signs a 1-year lease for $ 50 000 on 5 January. Occupation of the premises and payment of the $ 50 000 are due to take place on 1 February. He signs the lease “David Bradbury, as Managing Director, Sydney Auto Group Pty Ltd”. On 10 January he goes to ASIC and registers Sydney Auto Group Pty Ltd. On the ASIC documentation he is listed as sole shareholder and as Managing Director. Sydney Auto Group Pty Ltd starts trading the next day, operating from David’s back yard, buying two old Mercedes cars and selling them to vintage car collectors a few days later. All contracts are signed “David Bradbury, as Managing Director, Sydney Auto Group Pty Ltd.” On 15 January, David decides that the company needs extra capital, and so his three brothers, Christopher, Anthony and Richard each contribute $ 70 000 to the business in exchange for shares and a position on the board. When the board first meets on 17 January, Christopher is elected Managing Director. At the meeting Christopher, Anthony and Richard say that $ 50 000 is too much for the lease and decide that the company should lease a different lot for $ 30 000. They send a letter to Cenvest Real Estate Ltd stating that Sydney Auto Group Pty Ltd refuses to move its business to the vacant lot and refuse to pay the $ 50 000. David is facing prosecution for contempt of court and has been sued for breach of contract by Cenvest Real Estate Ltd. Advise him on his legal position, citing relevant legal authority.

Answer 1

Question – 1

Issues

In both the cases of purchasing equipment from Mary and purchasing an old truck from Used Trucks Ltd, Smith has exceeded his authority as granted by the agreement between the partners. In case of Mary, he has signed a contract for a value which exceeds the authority granted to him as per the agreement between the partners. In case of Used Trucks Ltd., he has entered into a transaction which has been continually rejected by the other partners.

Law

Both these transactions entered into by Smith would be governed by the regulations stipulated in the Partnership Act. Additionally, in case of Mary, the regulations governing the Sale of Goods Act would also be applicable.

Application

In case of Mary, Smith has expressly exceeded his authority which limits it to contracts up to $ 10,000. However, the Partnership Act states that in certain cases, the partnership firm can subsequently ratify this by methods which can either be express or implied. Since, the Vendor Mary has regular business transactions with the firm, this transaction would fall under the specified special cases. Accepting the delivery of the equipment in the above mentioned case would be implied as a subsequent ratification of the transaction by the firm.

In case of Used Trucks Ltd., the value of purchase is within the authority of Smith and although the other partners have rejected such proposals, there is no written limitation of entering into such transactions in the partnership agreement. Hence, the vendor, Used Trucks Ltd., cannot be aware of any such disagreement between the partners. The regulations of the Partnership Act entitle each Partner to act as an agent of the firm and the other partners. All such acts of the partner, expect which are illegal and expressly prohibited in the agreement between partners, shall be deemed legal and enforceable on the firm.

Conclusion

In case of Mary, the agreement to purchase equipment is enforceable since the delivery of the equipment was accepted implying that the partnership firm has ratified the transaction which was entered into by Smith in excess of his authority.

In case of Used Trucks Ltd., the vendor acted in good faith without being aware of the rejection by other partners. Hence, the transaction is legally enforceable on the partnership firm. However, the other partners claim to be indemnified by Smith for any loss they have suffered due to this transaction.

Question – 2

Issues

David Bradbury engaged himself in buying and selling of vehicles through Sydney Auto Group Pty. Ltd. in which he was the sole shareholder and he was prohibited by the courts to do so. He is also being sued by Cenvest Real Estate for breach of contract for not honoring the lease deed signed by him.

Law

The regulations stipulated in Contracts Act and the relevant Civil Court Laws as stipulated in the previous judgement by the Courts shall be applicable.

Application

David entered into the transaction of buying and selling vehicles through Sydney Auto Group Pty. Ltd. in which he was the sole shareholder. This is in breach of the court judgement prohibiting him to do so for a period of five years.

He signs a one-year lease contract on behalf of Sydney Auto Group Pty. Ltd. on a date which precedes the date of incorporation of the company. As such, the lease contract would be deemed to have been signed by him in his individual capacity. He was not prohibited by the court to enter into a leasehold agreement.

Conclusion

Since, by selling two old cars, David has breached the judgement of the court, hence, he is liable for prosecution for contempt of court.

David is not prohibited to enter into leasehold agreement, hence the contract entered into with Cenvest Real Estate is not void. Hence, Cenvest Real Estate has an enforceable contract and David would be liable to be prosecuted for breach of contract where he has been sued by Cenvest Real Estate.