Melanie and Carol conduct a beauty salon business. Melanie is responsible for performing the beauty treatments and Carol is solely responsible for providing and packaging the beauty products for sale....

CORPORATE LAW

CORPORATE
LAW
SHORT CASE STUDIES
STUDENT’S NAME:
P a g e | 1
CONTENTS
1. Answer to question 1…………………………………..2-5
2. Answer to question 2…………………………………..6-9
3. Answer to question 3…………………………………..10-14
4. Answer to question 4…………………………………..15-18
P a g e | 2
Answer to question 1
A beauty salon business was being carried on by two people namely Melanie and Carol.
Melanie was responsible for performing the beauty treatments and Carol’s responsibility was
for providing and packaging the beauty products for sale. They had a common friend by the
name of Polly. Polly had agreed to lend them about $10000 for setting up the whole business.
It had been agreed that the profit sharing ratio between Melanie and Carol was to be in the
ratio of 1: 1.
Now Claire was a customer of this beauty salon and she had purchased a beauty lotion. After
a few days Claire came and complained about this lotion. According to her the lotion had
caused her severe facial burns, due to which she was unable to attend office for several days.
So the tests were performed to determine the root cause of the problem. These tests revealed
that the lotion contained certain harmful and harsh chemicals which are most likely to cause
harm in case it is applied directly to the human skin. Unluckily when Carol, the person
responsible for the packaging of the beauty treatments for the sale, was preparing the beauty
lotion for bottling, she had by mistake allowed quite a significant amount of corrosive
industrial cleanser to be mixed into the lotion.
Claire, the customer, was seeking damages worth $ 15000 from the establishment, for
covering all the medical expenses that she had to bear for the usage of the beauty lotion, for
the loss of her wages and for the personal suffering pains and trauma that she had to suffer for
the whole scenario. Now Carol who was responsible for the whole fiasco did not have any
money. So Claire wanted to claim from Melanie and Polly. However on the other hand
Melanie and Polly claimed that carol was responsible for the whole problem so she is the one
who should be penalized and not them. They claimed Carol against breach of contract as well
as negligence.
P a g e | 3
Now the question remains whether Carol is responsible for the whole thing or whether Claire
can recover the damages from her partner Melanie and friend Polly. Now in this kind of
scenario it is always best to consider the formal contract between the parties. Now in this case
the parties to the contract are the people who started the business together that are Melanie
and Carol together. Polly is an outsider to the business who had only agreed to loan them
money for setting up the business properly. So in any case she is not responsible for the way
the business is conducted or if any problems arise from the sale of the products. Now in that
case only Melanie and Carol can be held responsible for what had happened. Now in this
case Carol does not have any money to pay but according to the terms of the contract she was
solely responsible for the processing and the packaging of the beauty products sold in the
beauty salon. So in case she is bound by the contract then she alone has to fulfil the whole
share of loss of her own.
According to the Partnership Act 1891, section 5,
“(1) Partnership is the relation which subsists between persons carrying on a business in
common with a view of profit.
(1A) Partnership includes an incorporated limited partnership.
(2) However, the relation between members of any company or association that is—
(a) Incorporated under the Corporations Act; or
(b) Formed or incorporated by or in pursuance of any other Act of Parliament or letters
patent, or Royal Charter;
Is not a partnership within the meaning of this Act? “
P a g e | 4
Thus we can see that the definition is three fold. Firstly it explains that it must exist between
two or more persons who decide to carry on business with the intention of earning profits.
Secondly it tells about the nature of the partnership, about it being limited or not, etc. Next
for a partnership to be legal, it must be incorporated under the act and be formed in
accordance to the acts of the Parliament. The partners are bound by their partnership deed. In
case of any dispute, the case will be settled in accordance to this deed itself. One of the
biggest positive about the partnership business is that there is more than one person looking
after the business leading to specialisation. However there are certain disadvantages as well.
Like in a partnership the liability of the partners are unlimited. In the case of Tyler vs. Smith
in 1985 the features of the partnership form of business are elaborated and explained
carefully. The laws of partnership now days are based on that only.
Now the partners of a partnership are jointly and severally liable to the third parties. In case
there is a default by one of the partners in any case then the other partner or partners must
also do his bit of share to make up for the loss. This detail about the liability is mentioned in
the section 10 of the partnership act, 1891.
In the given case the two ladies Melanie and Carol are carrying out a beauty salon business.
The two partners are sharing their profits in the ratios of 1:1. Thus we can say that they are
carrying on a partnership business. Now, Polly was a friend of theirs who had loaned them
an amount for the running if the business. She is an outsider so she is not bound by the
partnership deed in any case. So when Claire sues the business for the damages then in that
case, the partners are jointly and severally responsible for the same and thus Melanie has to
take up the liability as Carol does not have the necessary cash to fulfil the damages.
Carol is the person responsible for the whole fiasco. Thus it is she who should bear the hit on
the business. It was specifically mentioned in the contract that she is solely and wholly
P a g e | 5
responsible for the making, packaging and sales of the beauty products in the beauty salon.
Thus when a customer, specifically Claire in this given case, was facing problems because of
a beauty product packaged and sold by Carol. Thus the reason for the problem faced by
Claire was solely due to the Carol and not anyone else. Again as mentioned above, it is
specifically mentioned in the partnership deed between the two parties, so reasonably
speaking the whole responsibility should go towards Carol. The fact that she does not have
any ready cash with her at the present moment excuses her from taking full responsibility for
her deeds and Melanie will have to pay up the damage charges on her behalf.
Hence after analysing these cases it can be concluded that Carol is responsible to Claire for
damages as she was engaged in the packing of products however, being in a partnership
Melanie is also jointly and severally responsible.
References
1. Corporations Act 1990. Available:
http://www.legislation.qld.gov.au/LEGISLTN/SUPERSED/C/CorpQldA90_02D.pdf.
Last accessed 31st August 2012.
2. Law lectures. Available: http://netk.net.au/Contract/02Formation.asp. Last accessed
31st August 2012.
3. Dr Robert N Moles. (). Law lectures. Available:
http://netk.net.au/Contract/04Consideration.asp. Last accessed 31st August 2012.
P a g e | 6
Answer to question 2
The Brodie Pty Ltd is the trustee of the Brodie Family trust. The trustee that is Brodie Pty
Ltd operates a liquor retail store in a building that is owned by the Brodie Pty Ltd as it has
come to be the trustee of the family trust. In the recent times Brodie Pty Ltd. and only
director Larry had ordered for wine and spirits of an amount equivalent to $ 15000 for their
liquor store. This order was placed to Winits Pty Ltd. This particular purchase was made even
though there was a serious financial crisis or crunch in the liquor store. Due to this on-going
cash crunch, the store was unable to meet its existing debts. It did not have sufficient cash to
pay off its already existing loans. During the signing of the partnership for the purchase,
Larry, the director made it clear that he was signing the sale contract as a “trustee of the
Brodie Family Trust”. Furthermore, due to a financial downturn as well as in the demand of
the consumers, the business owned by the family trust, has taken a turn for the worse and it is
unable to meet any of its debts. The $ 15000 that is owed to by the liquor store to the Winits
Pty Ltd has also been not paid, and along with this there are other outstanding mortgages and
many...