Question 1
During the period 2009-16 David was employed as a sales representative for Nu Shampoo Pty Ltd, a company which distributes hair-care products throughout South Australia. A term of his contract was that if he should leave the company, he could not engage in the hair-product industry for five years.
In 2017 he left Nu Sampoo Pty Ltd and registered a company called Hair-Glo Pty Ltd. David owns 99% of the shares in the company
David comes to you for advice after receiving two letters: One from Nu Shampoo Pty Ltd requiring him to cease the operations of Hair-Glo Ltd in South Australia, the other from Standard Bank Ltd threatening to sue him personally for $ 100 000. Advise him as to his position, citing all relevant legal authority.
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Solution 1:
Before going to give a solution to David's situation one should know about what is Law of Contract? And what are the elements present in it?
Law of Contract: This is an Agreement written by two persons who are entering into business partners or who are delivering a product or who are going to serve in an organization. (Trietel, 2001). It may be written in a format by hand or in a preprinted Format. Mainly there are six elements which help us to know in detail about the law of Contract (Furmston, 2012).
Offer
In an agreement, the element that is having more importance is Offer, as there exists no contract without an offer. According to the Contracts, Act1950 Offer is the offer is the first element as makes the contract acceptable legally or to make it as a valid one. To make an offer acceptable two or more parties must be there who enters into a contract and the contract is legally valid only when the parties who are involved in the contract give their acceptance for the order.
According to this element, David has accepted an offer of NU Shampoo Pty Ltd and he has given them the agreement that if he leaves the company he will not work in any Hair products industry for 5 years. As per Law of Contract, he should follow this agreement as it was written in the contract, but immediately after leaving his job in 2016 from NU Shampoo Pty Ltd in 2017, he registered for a new company Hair-Glo Pty Ltd.
Acceptance
For a contract to become valid acceptance should be there from the other party. Once if they are very clear about all the rules and regulations mentioned in the agreement of the contract they can give their acceptance to provide a service or to deliver a product to the other party. In case if they are discussing or negotiating regarding the offers and rules which are given in the agreement in those situations the contract will no longer a valid one.
As per this Element, David Accepted the agreement of Nu Shampoo Pty Ltd that he will not join in any other Hair cares Product industry for 5 years after he leaves the job.
Consideration
For any contract to become a valid one legally, the important element that should present is Consideration. Here Consideration means the other party should be get benefitted by taking service from the next party.
As David Considered the agreement of Nu Shampoo Pty Ltd he has accepted for the job, and in return, he should be able to provide his work efficiently for them such that there is no complaint regarding his work.
Intention to Create Legal Relation
This element is essential in a Contract because if the person acts against to the agreement that was given in the law of Contract then the other party has the right to approach legally and in this situation court of law will take a decision regarding this.
In the given case we can observe that David has taken a decision which is unethical and which is not correct legally. So as per the Law of Contract, the other party can approach the court against David and the court has a right to take a decision against David.
Certainty
Here Certainty means having clarity regarding the rules and regulations given in the agreement. This is a very important one that's the reason one should mention all the rules and regulations that they want to keep in their contract should be clearly mentioned in an understandable language to the other party. In the absence of certainty, the contract will not become a valid one.
In David's Case, he knows very well about all the rules and regulations given by the Nu Shampoo Pty Ltd, but still, he acted against them. Also when taking a loan from a bank there will be terms and conditions for a customer who is taking a loan and they should pay the interest and principal amount to the bank timely. But David was wrong in these two situations even after signing an agreement.
Capacity
In a contract Capacity is nothing but the ability of a person to sign the agreement of a contract. People with mental disorders, or behavioral disorders, persons with less than 16 years of age, Bankrupts, prisoners, and corporations are not allowed to enter into a contract as they will not a good capacity to follow the rules and regulations.
In case if any person enters into a contract when he is minor then the contract will be valid officially only when he has become as a major and these all things should be expressed orally or should be in a written form officially. Even when the person is on drink the agreement which was given by him will become invalid because in that situation he will be not in a state of able to think about the rules and regulations given in the agreement.
But here David is in proper condition to take a decision regarding his agreement as he is not mentally impaired. In case if David wants to escape from this situation and if he wants to be in safe side the only element which will help him is capacity. He can show some reports to the court that he is not mentally fit when he has accepted a contract from NU Shampoo Pty Ltd. But here the problem arises when he proved like this is the court, in turn, will ask him that how can be able to manage as a Manager to a sales department in the company if he is mentally unfit.
Law of Consent:
Generally, the law assumes that a competent party freely consents to a contract. However, if consent was obtained on the premise of strain or by force then the party's consent is taken into account involuntary and also the contract is void.
This is also one more element which helps David to escape from his problem. He can show some evidence that without his consent he joined forcibly into Nu Shampoo Pty Ltd and later he registered into another company as he is not satisfied with the financial benefit that he is receiving from Nu Shampoo Pty Ltd.
But one thing he should consider is according to the law he has done a mistake by registering into another company and working on it, also from the side of Nu Shampoo Pty Ltd it is not very fair to restrict a customer from the service for 5 years if he leaves a job in their company. But as the companies will have some trade secrets and they don't want to disclose them by any of their employees to other competitors they will keep rules like this and takes an agreement from them. Due to this reason it is important for every individual who is joining in a service or who is starting a business in partnership have to read all the terms and conditions and should give their acceptance, if they are not satisfied with the terms given they have to search for a job which will have the terms suited for them.
In this case, David left that company and registered a new company with another's name and marketing products for his benefit he even takes a loan from the bank which he has not cleared it timely. From a legal point of view, it is understood that he has done all these wanted against law and done the things unethically. But as he approached a professional to give a suggestion the suggestions from my side I can give is one is as per the agreement he should stop the operations of Hair Glo Ltd in South Australia and show all the accounts to a bank that he is incapable to pay the loan amount. Other option is As per Capacity and Law of Consent he can show a evidence that he is incapable to think at the time when he signed the contract for Nu Shampoo Pty Ltd and also as per law of consent he can show that he signed the agreement forcibly due to the strain he received from the company, by showing like this he can cancel his agreement by approaching the court and work hard towards Hair-Glo Products in order to pay his loan.
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Question 2
Four friends - Anne, Mary, Jane and Sarah - who met at university graduate as medical practitioners in the same year. Because they all get on so well and trust each other's judgement, they decide to form a partnership of general practitioners in Western Sydney, which they call Your Local Doctor. They sign a partnership agreement in terms of which they are all equal partners. The agreement also states that each partner will have authority to enter into contracts of up to $ 10 000, but that contracts in excess of that amount require the agreement of all the partners.
Advise Anne and Mary as to what liabilities arise from the above facts, citing relevant legal authority
Solution 2:
In this Case Anne, Mary, Jane, and Sarah entered into a contract as medical Practitioners and named it as Your Local Doctor. As the four members have signed the agreement they should follow all the terms and conditions given in the agreement. But here we can observe that in the absence of Anne and Mary, Jane has purchased a printer with $2000 whereas they can get from their supplier for $1200 only. Jane has looked for her benefit individually and did like this but according to the fourth element of Law of Contract the partners who are starting a business should know all the rules and regulations and they should clearly understand them before signing an agreement and also they should not use the money from the business as they like without any information to the other partners. Also, Anne and Mary noticed invoices against their agreement.
According to the Law of Contract, this is legally called a Breach of Contract. If one person deviates from the rules which they kept in the contract and the person don't accept for such kind of deviation then the person who has deviated from the rules is known to breach the contract (Martijin, 2014).
If they have deviated from the agreement unintentionally then the problem can be solved by convincing the other party or by paying some penalty. But if the person deviated rules waiting for the personal benefit then the other partners can approach the court to take a decision on the other party legally.
Some of the Remedies for the breach of Contract are Paying some penalty in the form of Money is the most common remedy for the breach of Contract, if the other party doesn't accept this according to Law of Contract the person who deviated from the agreement of Contract should lose his partnership voluntarily from that business. Sometimes the money taken from the accused one to seal the loss that is contributed by him and this punishment is given in order to correct his conduct and not to make him feel ashamed.
So in this case according to Breach of Contract money should be levied as penalty on Jane and Sarah as they have deviated from the rules they have written in their agreement. As the case is not much heinous they can again consider Jane and Sarah into business by taking the money in compensation to reconstitute the loss. It is also important to Anne and Mary that they should not take any decision quickly by seeing like this situations first they have to go thoroughly regarding the rules they have kept in their agreement and take the decisions, and the second thing they have to do is they should let Jane and Sarah that they have deviated the rules of contract and have to inform them to verify once regarding the issue and the third step they have to follow is they should discuss about the situation with the other Party or with a lawyer to take a proper effective decision as they can give more suggestions regarding the issue. Taking suggestions from Lawyer or another party is important as they think about the issue from all the aspects and gives a decision which will be correct legally. They also should think that whether the breach of contract they are facing is material or immaterial to search for a proper solution.
As per my suggestion, in this case, Anne and Mary have to first inform Jane and Sarah about the things they are deviating and ask for an explanation for their deviation. Later they should not give a chance for them to repeat the mistakes again and should rewrite each and everything in their agreement and also have to mention the consequences if they are violating the rules.
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