Question

1500 words

Question 1 – 10 Marks

Michelle and Tim are passionate about motorbikes. In fact, they own a company called Motorbikes Pty Ltd. Michelle is a Director and Tim is the company secretary. They buy and sell motorbikes and repair them.

John wishes to sell his motorbike. John approaches Tim and Tim agrees to purchase John’s motorbike for $5,000. Tim and Michelle both sign the contract to purchase John’s motorbike.

Two days later, Michelle thinks they have paid too much for John’s motorbike and wants to get out of the contract.

Is Motorbikes Pty Ltd bound by the contract? Provide reasons for your answer. You must cite relevant Australian case law and the Corporations Act 2001 (Cth).

Question 2 – 15 Marks

Gerard and Sylvia love cakes and have recently decided to buy a cake shop from George.

Gerard and Sylvia register a company “Cakes Pty Ltd” with the Australian Securities and Investments Commission. Gerard is listed as a Director and his mum, Sarita, is listed as the company secretary.

On the day of signing the contract to buy the cake shop from George, Gerard stamps the contract with the Cakes Pty Ltd company seal and signs as a witness. The other witness is Sylvia.

A few days pass and George thinks he should have not sold his cake shop. He now wants it back.

Is George bound by the contract? Provide reasons for your answer. You must cite relevant Australian case law and the Corporations Act 2001 (Cth).

Answer 1

Question 1

Issue

In this instance of Motorbikes Pty Ltd and John, it is clear that there is a problem with the contract involving the parties. John who is the owner of the motorbike approaches Tim who is the secretary of the company which they own with Michelle. Tim agreed to pay $ 5000 for the motorbike, and after the agreement, he and Michelle sign the contract to purchase the motorbike. Later Michelle who had signed the contract want to get out of the contract thinking that they had paid much for the motorbike. Therefore from the above case could Michelle be breaching the contract (Corporations Act 2001 (Cth)?

Law

As defined in the introduction, a contract is said to be an agreement between two or more parties which is legally enforceable. In our case, we have the parties as Michelle and Tim who are the Motorbike Pty Ltd owners and John, the motorbike owner. Also, both sides assume a legal obligation which they must complete. When one party to the contract fails to perform the legal obligation it has agreed to, legal issues involving contracts arise. In cases where a party breaches a contract, the other party can sue on the basis of money damage or may plead with the court to request the other party to honor the promise. When the contracts are not written clearly, they become a source of legal disputes (AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454).

Various terms are frequently used when solving issued related to Contract law.

They include:

Contract. According to the Australian Contact Law, it is termed

as an agreement between two or more parties that builds in each party obligation to do something or not do it, and the right to performance of the other party’s obligation or a solution in case a breach arises (Scammell v Ousten [1941] AC 251).

Offer . A proposal for a contract that another party may agree upon the recipient to form a contract which is legally binding.

Acceptance.   An approval of an offer of a contract which is legally binding. It is required to be written.

Breach.    Breach of contract is the act of not performing a duty or obligation created by contract or a promise without justification.

The statute of frauds.   A law of a state that prohibits enforcement of certain contracts unless they are in writing.

Performance.  The action or omission needed to fulfill a promise or duty.

Also, the contract law is discussed in Corporation Act 2001 (Cth) which regulates corporations and financial services and products in Australia. The Act consists of 6 volumes. The Act set out laws which deal with business entities in interstate and federal level in Australia.

Application

In the case of Motorbikes Pty Ltd and John, Michelle who is a party to the contract wishes to terminate the contract. Michelle is one of the owners of Motorbikes Pty Ltd, and the company director is bound to the contract so do the company. The fact that both company owners signed the deal during the purchasing of John’s motorbike makes the company bound by the contract.

If the parties wish to terminate the contract or modify the contract, it is required of them to agree to the termination or modification. The right to terminate a contract law a rise in three instances.

• The renunciation or repudiation of the agreement by either party
• A satisfactorily serious breach of a non-essential term
• A violation of a crucial term

In our case, if the right to terminate the contract arises John will decide whether to affirm the contract and claim damages for the breach or he may terminate the contract and claim full loss of bargain damages. Motorbikes Pty Ltd also should justify the termination on the basis that they have a legal right to do so and whether they were aware or not at the time of contract signing. As seen in the case of Frumar v Guilfoyle Developments Pty Limited (2014) NSWCA 225. An important factor in defining whether parties to contract to have the intention of being bound immediately by a variation to a contract is the presence of essential by one of the parties to a speedy agreement to another variation (Crown v Clarke (1927) 40 CLR 227). The difficulty of proving oral agreement is also illustrated in this case.

Conclusion

From the above analysis, Michelle who is one of the company owners had signed the contract. These meant Michelle had agreed to the terms of the contract. For Michelle later wanting to get out of the contract does not make the Motorbikes Pty Ltd not a party in the contract. Therefore Motorbikes Pty Ltd is bound by the contract.

QUESTION 2

Issue                               

In this case, George is the owner of the cake shop in which Gerard and Sylvia wish to buy. They have also registered the company as Cakes Pty Ltd. During the contract signing, the seal which is stamped is for the company which means that George is with a contract with Cakes Pty Ltd. Sylvia and Gerard are witnesses to the contract signing. The issue, in this case, is that George wants the cake shop back, but he had signed the contract to sell it. From the case above is George breaching the contract (Crown v Clarke (1927) 40 CLR 227)?

LAW

A contract is simply an agreement to do or not to do something. The contract should be enforceable and legally binding for it to be valid. The agreement also should be outlined to prevent disputes. In our case, George who had signed the contract to sell the cake shop want it back after he thinks it was a bad idea to sell the cake shop. He now seeks to terminate the contract. For George to be bound by the contract, he must have the legal ability to form a contract. This is known as the capacity to contract. Also improper persuasion, false statement, threats, and coercion should not have been used to force George to sign the contract (Balfour v Balfour [1919] 2 KB 571).

Both parties, in this case, George and Cakes Pty Ltd must have made a mistake on the core assumption on which the contract is based on to cancel a contract for a mistake. Also, George must not have contractually assumed the error or the risk. It also important to that a person who signs a contract is presumed to understand it is bound to its terms.

Application

George having signed the contract during the selling of the cake shop is bound by the contract. By signing meant that he was acutely aware of the term the agreement. Also, there is no evidence telling us that there was improper persuasion, false statement, threats or coercion by either Gerard or Sylvia to force George to sign the contract. Also in our case there no evidence which might show us that there was a mistake in the basic assumption on which the contract is based for the contract to be canceled. Therefore George is presumed to have understood the contract, and he is bound by the contract. As seen in the case of ABN Amro Bank NV v Bathurst Regional Council (2014) FCAFC 65. ABN Amro promised to a financial product with certain features for Local Government Financial Services Pty Ltd. What the Federal Court considered was if the term should have been implied by s 12ED of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) which required ABN Amro to come up with a note having a degree of security commensurate with an AAA rating (Beaton v McDivitt (1987) 13 NSWLR 162).

Conclusion

In conclusion based on the fact that George agreed to sell the cake shop on free will and went on to sign the contract, he is therefore bound by the contract. By George signing the contract it shows that he had read and understood the terms of the contract.