Law6000 Business and Corporate Law – Assessment 2 Case study analysis

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    Question 1 (25 marks)

    Jeff owns a business which makes and sells a well-known brand of peach brandy (“the Business”). Jeff holds a business name, and a trademark for a logo, associated with the Business’s brand of peach brandy. The Business sources fruit from local producers. The Business is operated on land which is also owned by Jeff.

    Jeff decides it is time to sell the Business and is introduced to Tina who is interested in buying the Business. Jeff and Tina enter into negotiations and agree on a deal. Both Jeff and Tina sign the following document which Jeff prepared.

    Heads of Agreement between Jeff and Tina

    1. Jeff agrees to sell, and Tina agrees to buy, Jeff’s peach brandy business and the land it is on.

    2. Purchase Price: $2.5 million.

    3. All existing supplier agreements to be transferred to Tina.

    4. All fixtures and fittings, as inspected and agreed, are included in sale.

    5. All employees to be transferred as per solicitor prepared agreement.

    6. Parties to negotiate transfer of trademark and business name at a future date for a separately determined amount.

    7. This agreement is subject to the preparation of a formal contract of sale based on these terms acceptable to the duly appointed solicitors for Jeff and Tina.

    Jeff arranges for his solicitor to prepare a formal contract for sale and then sends the completed contract to Tina. When Tina receives the contract, she calls Jeff and says:

    “Jeff, I have changed my mind. I don’t want to buy your business anymore”.

    Jeff replies:

    “You have got to be joking Tina, it is way too late to change your mind, you have already signed the Heads of Agreement. You are legally bound to buy the business. Make this easy and buy it as we agreed for I will have to sue.”

    Part A (20 marks)

    you are Tina’s solicitor. Using the IRAC legal problem solving process give your conclusion on whether Tina is legally bound to buy the Business as a result of signing the Heads of Agreement.

    Part B (5 marks)

    what would be your conclusion if Tina had included in the Heads of Agreement a term stating:

    This agreement is subject to Tina obtaining suitable finance.

    Question 2 ( 25 marks)

    Phil is managing director of Lights Bright Pty Ltd. Phil has accepted a large order for electrical fittings from CheepCheep Pty Ltd on behalf of LightsBright.

    The order has been delivered to CheepCheep as per the agreed terms, however CheepCheep have not paid their $75 000 invoice.

    CheepCheep is in serious financial difficulty and this was well known or suspected across the industry. Consequently, at the time the order was made, CheepCheep was known generally as a bad credit risk in the industry. Phil was aware of this, however he is a good friend of Robert, the managing director of CheepCheep. Phil decided to provide the order in any event.

    CheepCheep has now been placed into liquidation and has still not paid the debt owed to LightsBright Pty Ltd.


    Using the IRAC legal problem solving process gives your conclusion on whether:

    (a) Phil, the managing director of LightsBright Pty Ltd is held personally liable for the unpaid debt, and if so why? (15 marks)

    (b) Could Robert, the managing director of Cheep Cheep Pty Ltd be held personally liable for the unpaid debt, and if so why? (5 marks)

    (c) Will the ‘business judgment rule’ be relevant to either Phil or Robert in these circumstances? (5 marks)

    Question 3 ( 25 marks)

    Francis collects music related merchandise, in particular she is a big fan of Kiss (American glamrock band) and Status Quo (English boogie band) merchandise. Francis appoints Rick as her agent and instructs him to purchase three specific Kiss related items from Allan, another collector of Kiss merchandise. Francis gives Rick a limit of $25,000 to spend, which Rick promptly deposits in his own personal bank account to “keep it safe” until it is needed.
    Francis also instructs Rick to keep the purchase of the three items confidential. Rick is very pleased about his appointment as Francis’s agent and tells three of his closest friends on the proviso the friends do not share any information with anyone. However, two of these friends work in the music industry and immediately tell their employers.

    Rick approaches Allan and introduces himself as Francis’s agent. Following negotiations it is agreed Allan will sell the three Kiss items to Francis for $32,000. When Francis is informed of the contract, Francis flatly refuses to pay and says:

    “Rick never had the authority to make any contracts involving this amount of money. I simply will not pay this amount of money for those three items.”

    Allan states the contract stands, wants to proceed with the sale and demands payment in 7 days or he will start legal proceedings for breach of contract.

    When Rick was inspecting the items, he noticed Allan also had 3 original Status Quo albums which Francis has always wanted for her collection. Rick also facilitates an agreement where Allan will sell the albums to Francis for $45,000.


    Part A ( 20 marks)

    Using the IRAC legal problem solving process give your conclusion on whether:

    (a) Allan can enforce the contract for the three Kiss items with Francis.

    (b) Francis is bound to go ahead with the contract to purchase the Status Quo albums from Allan, and the consequences for Rick if Francis is not bound to the purchase.

    Part B ( 5 marks)

    Describe the ways in which Rick is in breach of his common law duties as an agent, and any consequences of such breaches.

    Question 4 (25marks)

    Prue, a famous model, is the spokesmodel for the cosmetics firm Slapiton Ltd. Prue is also ambitious to become a screen actor. Prue is required to attend a public event at the Bilton Hotel as part of her contract and so she orders and buys a new gown made by the famous designer, RuPeter, from a trendy boutique called Gladrags.

    Prue did not try the gown on prior to purchase as there was not one in her size available, and so the gown was quickly made and delivered shortly before it was time for her to leave for her event.

    To Prue’s horror, about an hour after dressing in her new gown and arriving at the Bilton Hotel, she is in great pain. An extremely painful red rash of large boils has erupted all parts of her body in contact with the gown and she has a sudden extreme fever. Consequently, Prue is unable to complete her appearance. In addition, as she tries to leave the stage she becomes dizzy and falls of the stage and breaks her leg.

    Prue is rushed to hospital. After removing the gown made by RuPeter and receiving medical treatment in hospital for a period of six weeks, the boils reduce, but sadly they leave permanent ugly scarring on her body. Prue is no longer able to work as a model, representing a loss of income of at least $10million. In addition, Prue had been about to negotiate a movie deal with a major movie studio worth $5million. The movie studio no longer wishes to commence negotiations.

    Laboratory tests upon the gown reveal the fabric contained residue of a toxic chemical used in an associated manufacturing process. This chemical is supposed to be removed by a washing process before the gowns are released, however due to the rush nature of the order this was not done before the gown was shipped to Prue. This chemical reacted with Prue’s skin causing the violent condition. This toxic chemical could not be detected by normal visual inspection. The hospital bills total $15 000.


    With reference to the sections of relevant legislation and case law, use the IRAC legal reasoning model to advise Prue:

    (a) Whether she can take any legal action against Gladrags, RuPeter’s business and/or the Bilton Hotel, and (15 Marks)

    (b) assuming she is successful in an action, what damages she is able to claim and why (10 marks).

    LAW600 –Business & Corporate Law –Assessment 2- Case Study Analysis:

    This law assignment has four questions- 1, 2, 3 and 4. Each of the questions is based on a case study.  You have to read each of the case studies thoroughly and answer the questions which are provided in the question file.

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