LOBO - mid semester exam PDF

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This is my personal mid-semester exam work. It got 29/35 for this assignment....

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Short Answer questions (12 marks). 1. Explain what factors are considered in determining whether a partnership exists. (4 marks). In order to determine whether the partnership has successfully established, statutory requirements under S1 Partnership Act 1892 (NSW) must be satisfied, which are “carrying on a business”, “in common” and “with a view to profit” (Harris 2017). According to Harris (2017), the term “business being carried on” means any trade, occupation or profession that is continuously active, which excludes isolated transaction or any single venture. “Carrying on business” is not satisfied for partnership to form if there is no repetition of acts (Smith v Anderson 1880). Secondly, the term “in common” expresses agency relationship between partners in the business where each person can act on behalf of others to bind any transactions under the name of the business but such employee and owner relationship does count (Momentum Productions Pty Ltd v Lewarne 2009). Lastly, “a view to making profit” conveys that there must be demonstration of financial gain whether it is profit or loss (Harris 2017) 2. Why is agency an important concept in partnership law? (4 marks). Agency relationship is applied between partners since the knowledge imputation, responsibility for, acts performed within a scope of partnership make them become each other’s principal and also agent, which imposes liabilities between partners and on behalf of the firm. According s 5 Partnership Act 1892, a partner has a power to bind other partners and firms by carrying out acts that are under the scope of the business. For instance, Mercantile Credit Co Ltd v Garrod (1962) demonstrates such agency relationship where innocent partner was also liable as the acts fell within a scope of normal business activity. Moreover, partners are jointly liable for debts and contract as stated under section 9, and for wrongful act, both under common law and no limitation torts, by other partners acting on behalf of the firm. In Polkinghorn v Holland & Whitington (1934), the partner’s negligence bound the firm to compensate for the plaintiff’s loss. By imposing agency concept on partners, each member will be more responsible and aware of their own acts that could bind other’s partners and the firm, which encourages duty to act in good faith and with loyalty (Harris 2017) 3. Discuss the legal consequences flowing from the legal principle established in Salomon v Salomon & Co Ltd [1987] AC 22 House of Lords (UK). (4 marks). ( First, there is a separation of private and company debts. Founder, controller or anyone else who incurred debt, within a scope the company and under company’s name, is not individually liable for the debt but the company. However, this position from Salomon’s case in common law can be altered in statute law where director is personally liable under s 197 Corporation Acts in regard to trustee company (Harris 2017). Secondly, assets are also determined separately between company and members in the company. Section 124 has stated that separate legal entity has its own right to own property that is held in the company’s name. In Macaura v Northern Assurance Co Ltd (1925), the main controlling shareholder could not be compensated by the insurance company as the asset is under the company’s name. Furthermore, company is considered to be always in contractual relations with its members. Despite the fact that the member has passed away and the contractual relationship is formed (Lee v Lee’s Air Farming Ltd 1961). Lastly, company is liable in tort to a member, which means company owes its member a duty of care. Andar Transport Pty v Brambles (2004) has demonstrated that non-delegable duty of care places on the company, no matter the member is founder or director of the company.

Problem Based Questions (23 marks) Question 1: (8 Marks) ( Helen one of two original partners in a printing business that had grown over the years from a two-person partnership in 2001 into a very successful business with 15 partners. The business started on a very informal basis, with no formal partnership agreement ever being drawn up between the partners. Over the years Helena had drawn money from the firm account to pay for her personal debt, claiming she was repaying loans she had incurred for an on behalf of the firm. There is no evidence to suggest that this was the case and the other partners, while they were not happy with what she did, had not publicly complained in partner meetings. However, things came to a head when the partnership suddenly showed a significant decline in 2005 and it was apparent that Helena’s drawings were contributing significantly to the profit downturn. Advise the partnership. Answer: The first legal issue is that whether Helena can draw money of the firm to pay personal debt and be liable for the downturn profit? Under section 5 of Partnership Act 1892, a partner is an agent of the business that any action carried out or liability incurred under the scope of business binds the firm and other partners. Mercantile Credit Co Ltd v Garrod (1962) can be a demonstration of such agency relationship where innocent partner was also liable since the acts fell within a scope of normal business activity. In regard to the case of the question, Helena paid her personal debt by using money of the partnership and claimed that the repayment was on behalf of the firm. This can be further discussed under section 7(1) that unrelated activities from the firm ordinary course, which is undertaken under firm’s credit, will not bound the partnership but rather the member. This also falls under unusual transaction, such as Goldberg v Jenkins case where the rest of the members are not bound by transaction done beyond usual way of normal business activity (Harris 2017). Obviously, Helena’s personal drawing without any disclosure to the firm is not considered as under the scope of the business and also unusual. Hence, agency relationship could not apply to this case as Helena’s act did not fall under the scope of the business, which leads to personal liability for the downturn profit of the company Additionally, another issue has been raised if the partnership could expel Helena as she contributed to the downturn profit of the firm. Section 25 has stated that the expulsion is successful unless the contractual agreement between partners include this term. In this scenario, the partnership is established with informality of no such binding agreement between partners. Hence, Helena could not be expelled for the loss incurred upon the company. Question 2: (15 marks) Janice, Grace, and Aly who were fashion designers decide to form a company ‘Fashion Designs Pty Ltd’. They decided that they will be the only shareholders and directors of the company. Janice and Grace held 35% of the shares and Aly held the remaining 30% of the shares in the company. Aly is not involved in the process but is promised to get a $30, 000 from the creation of the company. Janice and Grace oversee the registration of the company. Janice oversaw finding a warehouse from which the company is to run the business. Grace gave instructions to Janice not to sign any lease without her approval.

Janice found the perfect warehouse for their business after two weeks and she becomes very excited. Besides Janice, there were five other interested parties wanting to rent the warehouse. Janice attempted to get in touch with Grace numerous times but was not able to as Grace on a business trip in Paris sourcing suppliers for their business and agents to market their product. Not wanting to lose the deal, Janice signs the lease with Samuel, the owner of the warehouse for and on behalf of ‘Fashion Designs Pty Ltd’ and as agents of Grace and Aly. The lease is for a period of four years. The company Fashion Designs Pty Ltd is registered after one week from the signing of the lease and on the first meeting of directors, a resolution is passed not to accept the contract because Grace and Ivy considered that a similar warehouse can be leased at a cheaper price. Advise Janice, Grace, and Aly on, i) their liability if Fashion Designs Pty Ltd decided not to go ahead with the contract after 1 month of the company’s creation; and ii) if the directors ratify the contract. Answer: i) In order to advise Janice, Grace and Aly on their liability to the contract corporation formation, the first legal issue has been raised is whether Janice, Grace and Aly are promoters of Fashion Designs Pty Ltd. According to the Twycross v Grant (1877), promoters are defined as any member who actively involves in the process of company construction such as planning and taking necessary steps to start the company with voluntary duties putting forward the project. Refer to the case of the question, both Janice and Grace were overseeing the company registration while Janice was also in charge of finding warehouse to run their business. This has clearly illustrated that both are active promoters of the company. Furthermore, the definition of promoters is even extended to which it includes inactive individual who share profits from the company creation (Harris 2017).Tracy v Mandalay Pty Ltd (1953) is the best demonstration for this legal principal where the court held that shareholders who took no active part but earned profits from the company are also promoters. Relevant to the case, Aly left the formation to others upon the understanding of receiving $30000 from the company establishment. Hence, Aly are considered as passive promoter. The second legal issue can be discussed in the case is whether the Fashion Design Pty Ltd is liable for the contract signed with no ratification from the company prior to its registration. Section 131(2) Corporate Act 2001 has stated that the person, who signed pre-registration contrast without company’s ratification in reasonable time after it is signed, will personally bind with the contracting party. Refer to the fact of Fashion Designs Pty Ltd’s case, Janice signed the lease contract with Samuel, owner of the warehouse, a week prior to company registration and without any authorisation as promises with Grace. Additionally, directors of the company did not accept the contract as they could find better contract to lease the warehouse. Consequently, there is no contractual ratification after company registration in a reasonable time of entering into the contract. Hence, this leads to the consequence that Janice would be personally liable for any damages to the contracting party as stated under section 131(2). ii) The legal issue in this case is how liability of the Fashion Designs Pty Ltd company on pre-registered contrast differs if ratification is made at different point of time after its incorporation. Section 131(1) from Corporation Act 2001 highlights the liability belongs to the company as long as ratification is made in either an agreed time or reasonable time. However, the term “reasonable time” is accordingly undetermined under s131 but rather differently judicial discretion exercise in each case (Harris 2017). Referred to case of Fashion

Designs Pty Ltd, there is no requisite time of contractual payment. For instance, if “reasonable time” fell within a month, the company is consider bound with the pre-registered contract. However, the court may consider if there is delay in contractual ratification after a reasonable time, Janice, the person who signed contract before incorporation, would be liable for the contractual amount incurred up to the day of ratification and the company may have to partially or fully of that amount to the person who entered into the contract (Harris 2017). Hence, different time of ratification after incorporation may cause different liability on both the company and the person who entered contractual agreement but there is more chance that company would be bound as long as ratification of contract is made.

Reference list: Harris, J 2017, Australian Corporate Law, LexisNexis Butterworths, Sydney, viewed 26 April 2021, ProQuest Ebook Central....