Question 1 [10 marks] Peter, Aidan and Adrian are partners in an accounting firm. There is a partnership agreement which states that each partner may enter into contracts worth up to $ 10 000, but that any contract in excess of that amount requires the prior agreement of all partners. Peter and Aidan are away doing an audit when Adrian sees an advert for a set of accounting journals being sold by a local accountant, Tom, who is retiring. The set would cost in excess of $ 25 000 if all the back issues were bought from the publisher, so Adrian thinks that the asking price of $ 15 000 is very good, and he agrees to buy them for the firm. He also decides that because he studied surveying before he studied accounting, the firm would make money if it branched out into surveying, and so she buys a set of surveying instruments for $ 8 000 on behalf of the firm from Edgar. When Peter and Aidan return they are furious to find out what Adrian has done and refuse to accept delivery of the journals or the surveying equipment or to pay for them. Advise Tom and Edgar as to their legal position, citing relevant law. Issue Whether Accounting firm (Peter, Aidan and) liable $ 15 000 to Tom? Whether Accounting firm (Peter, Aidan and) liable $ 8000 to Edgar? Law As per (CSU LAW220 Modules, 2015, p99) Partnership is a relationship between two more people to start or run a profit oriented business. This can be a written, oral or verbal agreement between partners which specify what the exact authority limits they have. All partners are liable for contracts entered into by each partner to the limit of the authority they have expressed on partnership contract. (CSU LAW220 Modules, 2015, p103). As per section 5.1 CSU LAW220, Modules, 2015, p103, each partner acts as an agent for partnership and for all other members since the actions of each partner, bind and make liable the firm as well as other partners. They act as agents, governed by law of agency. The express authority is stated written or verbally by the principle whereas the implied authority not necessarily has to be expressed but receive due to a specific position in the partnership. Ostensible Authority is a relationship between two parties that reasonably leads a third party to believe that one is the agent of the other. (http://www.yourdictionary.com/ostensible-authority-or-agency#rl5xYItUxkhvjO2v.99) (CSU LAW220 Modules, 2015, p93-p95) As per section 5.1 partners are able to do transactions only within the nature of partnership business. If a partner act beyond the assigned authorities, but transaction lies within the nature of business, the firm and all partners are liable for the third party. Section 6.1 stated that assuming a transaction done within the express, implied or ostensible authority, each partner is bound by the other's act. As per section 8, the third party rights will only be affected if the internal limitations of partnership is aware by the third party. Example of the application of these rules is provided by Mercantile Credit Ltd v Garrod [1962] 3 All ER 1103. In this case two partners were running a garage business and partners were restricted to buy or sell cars. Be that as it may, one partner sold a car which was not owned by him and purchaser needs to give back the car to legitimate owner. The purchaser sued both partners. However, the partner who had not included to the sale, contended that he is not at risk since there were an internal limitations which restricted buying and selling cars. Yet, the court express that both partners are obligated since outsider had not mindful about the internal limitations and buy and sell car lies between ordinary businesses of a garage. According to section 9.1 joint liability for partnership, if a plaintiff remove one partner from the liability towards the plaintiff, all will be released. (CSU LAW220 Modules, 2015, p103 – p105) Application In this case, according to partnership agreement, partners are not eligible to enter into contracts which exceeds $10,000 without prior discussion with other partners. But Adrian agreed to buy a law reports from Tom for $15,000 which actually cost $25,000. The Peter and Aidan refused to pay for this transaction since this falls outside the contract limitations which was agreed. However this transaction falls within the nature of the business since law reports are commonly needed by law firms. Therefore as per 5.1 section, if a partner enters into a business within the nature of business, even if it exceeds the internal limits ($10,000), all other partners are liable for the transaction. According to section 8, Tom was not aware of the internal limits of the partnership contract, therefore his third party right will not be affected and all partners are liable for above mentioned transaction. At the same time, Adrian agreed to buy a movie surveying instruments from Edgar for $8,000 and Peter and Aidan refused to pay for this transaction as well. This falls under expressed limitations of the partners agreement since it's less than $10,000, but it doesn't fall in to nature business they do which is related to law not film making. As per 5.1 in the absence of express, all partners liable under implied authority, but it is relevant only if the transaction comes under nature of business. Therefore the contacts, that does not fall in to nature business, will not be able to make the other partners liable. Adrian is liable for this transaction personally to Edgar. Conclusion Accounting firm and all partners are liable to for the transaction happened with Tom because; • This comes under nature of business of a law firm and even though the it is outside agreed partner authority limit, third party was not informed about it neither aware about it. Accounting firm and all partners are not liable for the transaction happened with Edgar because; It is not transaction related to nature of business even though the amount was lesser than the partner authority limit. Adrian is personally liable for Edgar.   Question 2 [10 marks] Richard was employed selling slimming products in Victoria for Nu-Slim Pty Ltd from 2008-13. A term of his contract was that if he should leave Nu-Slim, he could not sell slimming products' in Victoria for three years. In 2014 he registered a company called Fat-Away Ltd. Richard owns 99% of the shares. The other 1% is owned by his sister, Frances, whom he elected as Managing Director and CEO. Fat-Away Pty Ltd operates out of Melbourne and sells slimming powder throughout Victoria. All sales are signed by Frances on behalf of of Fat-Away Pty Ltd. Frances also signs a contract on behalf of the company, taking out a loan of $ 500 000 from United Bank in 2014 as start-up capital. The company did well during 2014, 2015 and the first half of 2016, but in July 2016 was not able to repay a loan instalment of $ 40 000 owing to the bank. Richard comes to you for advice after receiving two letters: One from Nu-Slim Pty Ltd requiring him to cease the operations of Fat-Away Pty Ltd in Victoria, the other from United Bank Ltd threatening to sue him for $ 40 000. Advise him, citing all relevant legal authority. You should assume the validity of the terms of the contract entered into between Richard and Nu-Slim Pty Ltd. Issue Is Richard legally liable to stop the operations of Fat Away Pty Ltd? Is Richard liable to pay the arias $40 000 to United Bank? Law Corporations Act 2011 enacted by commonwealth parliament in 2001 now it is a single national corporation Act. Section 119 of the act stated that company can be identified as a separate legal entity through registration. The separate legal entity has the following characteristics; (CSU LAW220 Modules, 2015, p109 – p110) • Legal existence separate from its members • Perpetual succession • Capacity to own property • Capacity to sue and be sued in its own name According to section 516, Shareholder of a limited liability company does not liable for company's debts and liabilities. Shareholder's liability is limited to their share capital and also Company does not act as an agent of its shareholders. It acts behalf of its own (CSU LAW220 Modules, 2015, p109 – p110). The case of Salomon v Salomon & Co Ltd [1897] AC 22 is the conceptual base of the separate legal entity of operations. In this case Mr. Salomon started a company named Salomon & Co Ltd where he owned shares and debentures while running the business as managing director of the company. Salomon sold his debentures to a third party lately and company became insolvent. The creditors sue Salomon stating that he is personally liable to them, but court held that the company is a separate legal entity from its shareholder. This separation of company from the shareholders called as 'corporate vail'. This safeguard the shareholders lie behind a company's debts and liabilities. (CSU LAW220 Modules, 2015, 110). In special cases, the general rule of corporate vail will be lifted, that is called as lifting the corporate vail which enables the court to identify the controllers of the companies beyond the vail who actually runs the business. Gilford Motor Co Ltd V Horne [1933] Ch 935 is the example court case of lifting of corporate vail. In this case Horn was a former Managing director of Gilford Motor Pvt Ltd and according to his employee contract he is not eligible attract Gilford motor customers for 5 years after he leave the company. However he started a company with his wife his friend soon after he left the Gilford motor started advertising to the customers of Gilford motors. Gilford motor sued horn and he argued that he is not approaching customers personally it is done by the company. But court held that company was a sham and both company and horn liable for the Gilford motors pvt ltd. Application Richard was a former employee of Nu Slim pty Ltd Pvt Ltd for 6 years. According to his contract, when he leaves the company, he is not eligible for start or work in the same slimming industry for 3 years. However he left Nu slim pvt ltd in 2013 and started a new company with his sister, named Fat Away pvt ltd which does the same nature of business as Nu Slim. Richard owned 99% of the shares and 1% of it owned by his sister. Anyhow his sister was appointed as the CEO and sole director of the company. Richard received a letter from Nu Slim, informing to stop operations of Fat Away due to breaching the employee contract term that prevent him from working in the same industry for 3 years in Victoria. The Fat away pty ltd ltd can be identified as a separate legal entity and there is a shield of dividing shareholders from the company. It is called corporate vail. The corporate vail can be lifted by the court to identify the controllers of the Fat Away Pvt Ltd and it will clearly shows that Richard runs the business which he is legally cannot due to the contract he has with Nu Slim Pvt Ltd. At the same time, Richard received another letter from United bank threatening to sue him for unpaid loan instalment payment of $ 40,000, but the loan has been taken from the company Fat Away, not by Richard for his personal use. The Fat Away pvt ltd is identified as a separate legal entity and shareholders are not liable for company's liabilities and debts. Conclusion Richard is liable to cease the operations of Fat Away Pvt Ltd in Victoria due to breach of his contact with Nu Slim Pvt Ltd. The FatAway pty Ltd is not a separate legal entity because court lifted the corporation vail. Richard is not liable to pay due amount of the loan $40,000 since it was taken by the company and it's a separate legal entity which safeguard the shareholders from company's debts and liabilities.