Business and Company Law

Issue

  • If the business structure followed for the operation of FFS suitable for me?
  • If the business closes and Brain and Santosh are not financially able to contribute to repaying the outstanding debts, what will be the amount to be recovered by the creditors from me.
  • If Jenny can take an action against FFS for the inadequate advertisement.
  • Under which legislative provision the action of Jenny will proceed against the FFS.
  • If Jenny is successful in her action, what will be the consequence of the same.
  • If Jing’s parents can challenge the validity of the loan contract.
  • If there can be a challenge to the validity of the loan contract, what will be the most appropriate Principle of contract law to be applied concerning the matter.
  • If the order of 3 computers and a printer placed by Brian can be cancelled.
  • If Brain has already received an email from the electronic shops but has not retrieved the same, what will be the consequences in avoiding the for the liability.
  • If the provisions of the Electronic Transaction Act 1999 applicable in the matter related to order placed by Brian.

Rule(s)

Common law

Competition and Consumer Act 2010

Electronic Transaction Act of 1999

Principle of a non-est factum

Application

Business Structure of FFS and liability in the situation of closing down of business

Since all of the members of the FSS are involved in the management of the functioning of the entity and has contributed equally to the refurbishment of the face and then it got renamed to Friends Financial Services. Thus, this business structure is a general partnership arrangement where all the partners are active and participating in the management of the work of the FSS and are equally liable for obligation and debts associated with the functioning of FSS. It is considered as a traditional partnership in which two or more individuals or entities function together to operate a business to earn a profit (Adams and Nahme, 2015). The characteristics of the general partnership include flexibility of the terms, unlimited joint and several liabilities of the owners, decentralized management with the flexibility of distribution of profits between the partners. There is transferability of ownership interest provided with the final item of existence with this partnership. There are three elements which must be present to provide a partnership between two or more and they are fulfilled by the arrangement of the entity, FSS (Fletcher, 2018). The first to carry on the principle which has been provided in common law principle to improve all the surrounding circumstances and the activities of the persons concerning the functioning of the entity is considered and also the extent and degree with which the activities of the person are conducted within the organization is measured. Continuity and regularity for the activity will also provide determination to properly characterize it as carrying on the business. In the present case, all three members of FSS are actively participating in the management and decisions of the entity. The role of Brian where he works from home does not affect his position as a partner in this partnership arrangement as he has been taking active participation in the management of FSS from home only. The other element having some common thing existing between the members to consider them as a partner. There must be an existence of maturity of interest, obligation and rights among the partners towards the functioning of the entity to have the general partnership arrangement. Thus, the activities of the business must be carried on by or on behalf of all of the partners. Ultimate the last element is the necessity of having a context of profit between the partners which is leading to the proper management of functioning of the entity. All three members of the team of FSS are working together and have contributed and having profits shared among each other in an arrangement which suggest the existence of general partnership among this team of FSS.

If the business closes down with Brain and Santosh unable to contribute in the outstanding debts, owing to the fact of this business to be a partnership, each of them is fully responsible for debts and liabilities. The partnership has no legal identity and the members are liable for the debts and other responsibilities here, Thus, the remaining partner has to incur these outstanding debts personally concerning this arrangement.

Inaccurate advertisement by the FSS and the action of Jenny

Jenny is in a situation where she has been promised through an advertisement of the FSS provided fast service with the team of three accountants whereas only one of them is qualified in real. As far as the legislation is considered under which jenny can take an action against FSS for the inaccurate advertisement displayed by them, she can file a suit under the Competition and Consumer Act 2010 (the Act). The three important rules concerning the application of misleading principle concerning conduct on advertisement are the overall impression, intent and potential audience.

As provided in Section 18 of the Act, any commercial conduct must not lead to any mislead or deceive or potential to mislead or deceive the consumer. Also, it has been provided that the business must not make any misleading or false representation concerning any characteristic of services or goods which may include price place of origin sponsorship guarantees buyers need for goods and availability of spare parts (section 29 of Act). The inaccurate representation made by the FSS for the profession and qualification of the team members is constituting a false or misleading representation in the context of section 29 of the Act. One such case where the misleading advertisement concerning the offering of an internet company has been held deceptive and misleading is an evident example of such acts. In this case, the company offered unlimited download plans for the users who have signed for a particular service offered by the company. The consumer, later, found that the given plan was subjected to major limitations in which the speed of the data gets reduced after the use of the certain amount of data (Singtel Optus Pty Ltd v Australian Competition and Consumer Commission). The court dictated in this case that the use of the term unlimited concerning the plants offered by the internet company has not disclosed all the information and was misleading and deceptive in this regard. In another case of Australian Competition and Consumer Commission v TPG Internet Pty Ltd., the High Court held that the advertisement and the “dominant messages” sent by those advertisements are significant considering the rights of the consumers. The court said if the dominant message of the advertisement has not represented fairly the offer, then it will be considered to be a misleading advertisement. The Court in this case provided judgment and considered those consumers as well who do not enter into a contract under the influence of such advertisements of the company which are misleading. The court found that even if the consumers do not get into such contracts after getting influenced by the misleading advertisement, a breach of the law has been targeted the very moment where the consumer of the targeted audience has been lured into the “marketing web” providing the incorrect information through the advertisement.

Jenny can find an action against the FSS in Australian Competition and Consumer Commission where she can get compensation by FSS considering the misleading advertisement and its impact on the consumer. The FSS can be fined with a huge amount over the deceptive or misleading advertisement suggesting the wrong qualification of the members of the team and the resulting delay in service.

Principle of contract law and validity of the contract between Jing's parents and Super Money Lenders Pty Ltd

The most appropriate Principle of contract law that can be applied concerning the validity of the loan contract made by the parents of Jing in his absence is non-est factum. The non-est factum is a defence exclusively provided to a party who is not able to understand the nature of the document and their impact because of illiteracy or blindness and not carelessness. In the present case, the parents of Jing but elderly and not able to fully understand the language of English. This suggests that they were not in the position to understand the class and nature of the document as both of them were unable to read and write English properly and understand the terms of the contract.

In the case of Saunders v Anglia Building Society, the principle of non-est factum got its boundaries upgraded and redefined. The House of Lords provided the following to get the defence of this doctrine:

  • The person seeking the defence of this doctrine must prove that he was completely unaware of the class of the contract because of non-voluntary disability like blindness or illiteracy which does not allow them to understand the nature of the agreement. There must be no fault on the part of the party seeking defence but the disability which does not allow them to understand it completely (Barclays Bank plc v Schwartz).
  • The second aspect of this doctrine drawn was that the person seeking this defence must have signed the document with a fundamental mistake as to nature of the document. The impact of the document must be different from the one mistaken by the party (Saunders v Anglia Banking Society, 1971).

In the present case of Jing's parents, they were aware of the nature of the contract to be a contract of loan. Although, due to the involuntary disability of not understanding the language of English, they were unable to understand the terms of the contract. Thus, this Principle of contract can be fairly applied in this case.

In Lloyds Bank plc v Waterhouse, The Court provided the defence of non-est factum to the father considering his disability of illiteracy which led him to sign the contract without understanding the very nature of the contract.

Thus, it can be claimed by Jing in the challenge of the validity of loan contract that his parents were able to understand the terms and nature of such terms due to disability of not having the skill of English language and thus the validity of the contract in question is to be declared void.

Status of Order placed by Brian under the Electronic Transactions Act 1999

For a contract to be valid in any mode, few elements must be met to have a valid contract and develop such liability on the other party. The first requirement is concerning the offer made by one party to another and the fair validity of such offer. A valid offer must be communicated to the other party to develop a valid contract. In furtherance, the offer must be accepted by the other in consensus ad idem (same thing in the same sense). Then, the other requirement is regarding the intention of the party to create a legal relationship after getting into contract. It is also provided that the promise made by one party in the contract is for consideration as well. And lastly, it is provided that the contract must have terms of certain nature (Carlill v Carbolic Smoke Ball Company). Now, in this case, Brian has made an offer to the Election shop to buy 3 computers and a printer worth $9,000. Hence, he has made a valid offer through the medium of mail intending to create a legal relationship with the other party, Electronic shops. It is also noticeable that he has not got any response yet. The considerable point in this regard is the no mail of acceptance of such offer has been yet received which suggest that there is no valid contract yet. To have a valid contract with the mail, the basic contractual requirement of having an offer and acceptance of the same with the meeting of minds is a must (Ready, 2015). Hence, no valid contract has been made between Brain and Electronics Shop yet and another mail with the information of ignoring the earlier offer and the intention to not get into any legal relationship can be sent to the Electronic shops which will lead to the rejection of the offer made by Brain for buying goods from Electronic shops. Thus, the order can be cancelled here.

Another situation is considered that Brain has received an email in response to his offer made to buy the goods of Electronic shop. As one of the requirements to have a valid and enforcement agreement through the mail is to have offer and acceptance by both the parties and the communication of the same received by the parties. And with the facts of the case, it is clear that there is consent for receiving response electronically as well (Section 9(2) Electronic Transactions Act 1999) There is a valid contract, in this case, binding on both the parties and formed through electronic communication (Section 5(1) of Electronic Transaction Act 1999) even if the same has not been yet retrieved by Brain. Here, the place of electronic communication is the place where the mail has been received which is Brian’s house. As per Australian and international law, the electronic signature and electronic communication is binding and will have validity to the contract formed. Also, it has been provided under the Electronic Transaction Act 1999, that the time of receipt of the electronic communication is the time when the other party can retrieve the same on their address and is capable to do so and thus it is binding upon the parties as well (Section 14 (b)(i) of Electronic Transaction Act 1999). Thus, Brain is bound by this contract formed and legally binding under the Electronic Transaction Act 1999.

Conclusion

The case analysis suggests that the business of these three members including me is the partnership of general partnership nature. Also, if Brain and Santosh are not able to pay the outstanding debts, the remaining member has to pay the same to creditors. Concerning the action of Jenny, she can claim against FSS for misleading advertisement and can have compensation over the same. Lastly, with the principle of the non-est factum, Jing can challenge the validity of the loan contract between his parents and the Super Money Lenders Pty Ltd.

References for Friends Financial Services

Legislations/ Acts

Common law

Section 14 (b)(i) of Electronic Transaction Act 1999

Section 18 of Competition and Consumer Act 2010

Section 29 of Competition and Consumer Act 2010

Section 5(1) of Electronic Transaction Act 1999

Section 9(2) Electronic Transactions Act 1999

Cases

Australian Competition and Consumer Commission v TPG Internet Pty Ltd. [2019] FCA 1677

Barclays Bank plc v Schwartz (unreported, English Court of Appeal, 21 June 1995).

Carlill v Carbolic Smoke Ball Company) [1893] 1 QB 256.

Lloyds Bank PLC v Waterhouse (1993) 2 FLR 97, 101 (Purchas LJ).

Saunders v Anglia Banking Society (1971) AC 1004, 1020, 1034.

Saunders v Anglia Building Society (1971) AC 1004.

Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20 (7 March 2012)

Websites/ Other

Adams, M. & Nahme, M. (2015). Business Organisations Law Guidebook (2nd edi), Australia Oxford University Press.

Fletcher Law. (2018). Conducting business as a partnership. Retrieved from: https://fletcherlaw.com.au/2018/03/conducting-business-as-a-partnership/

Ready, K. (2015). Australia: Email contracts – Who, What, When and Where – The formation of binding agreements through email exchanges. Retrieved from: https://www.mondaq.com/australia/contracts-and-commercial-law/431732/email-contracts-who-what-when-and-where-the-formation-of-binding-agreements-through-email-exchanges

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