Law of Contract Business Incorporate Company

Question: Describe about the Law of Contract for Business Incorporate Company. Answer: 1: In this question, Bob's daughter Alice informed him that if he incorporates the company, he can catch twice the quota of scallops that can be caught by each person in a single year. In this regard, according to Scallop Fishing and Marketing Act only 50 ton scallops are allowed to be caught by one person in a single year. But Bob has the capability to catch more scallops, and he also wishes to earn more, therefore Alice had told him that if he incorporates a company, it will be a separate entity under the law and in this way, he can catch twice the amount of scallops. In order to decide the above-mentioned issue, the application of the doctrine of separate entity needs to be considered. In Salomon v Salomon, the court had specified that a duly created corporation enjoys the status of a distinct entity that is distinct from the members who had formed the company. Generally this principle is followed by the courts. Due to this notion, a corporate veil is considered to exist between the company and its members. Hence it can be said that a duly incorporated corporation is to be considered as a different body and it is different from its members (Graw, 2011). There are some instances where it may be required that this corporate veil should be lifted by the courts to enforce liability on the members or for the purpose of revealing the real nature of the company. The justification after the instances where the corporate veil may be lifted by the court is that the regulation does not permit that the corporate veil should be misused by certain persons. Due to this reason if under the circumstances, it appears to the court that the corporate form is being distorted by the persons who have formed the company, the court might disregard the corporate veil and reveal the true nature of the corporation. Hence, these are the cases where the court may disregard the notion of isolated lawful character that has been provided in Salomon. According to the corporations law, it is believed that a distinct legal entity has been created when the company has been duly registered. But occasionally, the court might disregard the corporate veil for enforcing liability on the members who were behind this veil. Consequently, the court can disregard the legal fiction of separate entity (Latimer, 2016). The term used for such a situation is piercing the corporate veil. The result is that under the circumstances mentioned above, the court may arrive at the conclusion that the distinct lawful character of the organization should be overlooked and the true nature of the corporation should be revealed by the court. When it has been determined by the court that the corporate veil should be impaled, the court can ignore the companys structure for enforcing a liability on the members even if the notion of distinct personality is strictly applied, such liability can be imposed on the member of the company (Lipton, Herzberg and Welsh, 201 6). When it has been decided that the corporate veil should be lifted, the court may impose any liability of the company on its members. However there are very rare circumstances when the court is allowed to do so. Therefore it can be said that the general rule still provides that the obligations of a firm are enforceable only against the corporate. On the grounds of the above-mentioned legal provisions, in the present question also, the Scallop Fishing and Marketing Act states that every fisherman can catch 50 tons of scallops only. But Bob wants to catch more scallops. Therefore he is looking for the ways to escape these provisions and increase the quota of his catch. Under these circumstances, Bob's daughter Alice had stated that if he incorporates a company, he may double his quota of scallops. Alice believes that as the law considers that the company has its own distinct identity, Bob will be allowed to catch 50 tons of scallops in his personal capacity and 50 tons on behalf of the company. But by giving this advice, Alice had ignored the notion of piercing the corporate veil. As in this case, it will be clear that the new company is created only for escaping the legislative provisions mentioned in Scallop Fishing and Marketing Act, it may be available to a court to impale the corporate veil in this case and look behind the structure of the new corporation formed by Bob and impose liability on Bob Beech. On these grounds, it can be said that the advice given by Alice is not correct 2: In this question, the issue arises if the parent company, New Nirvana Ltd. can be responsible for the carelessness of its subsidiary, Nuclear Blast Sounds. The brief facts are that Nuclear Blast Sounds was responsible for setting sound at the performances of N/N. But owing to negligence, the sound was set at such a high level that certain persons in audience underwent hearing loss permanently. These members wanted to initiate a claim for negligence but they came to know that Nuclear Blast doesnt have the required funds for paying damages that the court may grant to these persons. This corporation doesnt have negligence insurance. Consequently the injured persons are willing to bring a claim against New Nirvana as this company can pay the expected damages. The basic rule of the corporations' law that is applicable in such cases provides that a parent company cannot be responsible for the acts of the subsidiary. This way, the basic rule clearly provides that parent company cannot be responsible for the actions of subsidiary. But an exception is also present to the general rule. According to this exception, in some cases, the court may resolve that the corporate veil needs to be pierced and consequently the parent company can be held accountable for the obligations of the subsidiary. In case of lifting the corporate veil, the court ignores the protection that is provided by the doctrine of limited liability entity (Vermeesch and Lindgren, 2011,). For the purpose of basing the corporate veil and to arrive at the conclusion that the parent company needs to be held responsible for the obligations of its subsidiary, the plaintiff has to establish that the corporation had an overt intention to disregard the corporate entity for the purpose of avoiding a duty that was owed towards the plaintiff. The law provides that in some cases, the court may left the corporate veil in case of a group of companies and treat them as partners. For instance in D.H.N. Food Products V. Tower Hamlets, DHN was the holding company and there were three companies in the group. The other two companies were the wholly-owned subsidiaries of DHN. One of the subsidiary companies owned the land that was used by DHN at the other subsidiary company retained the vehicles that were used by DHN. Therefore when this land was subjected to compulsory purchase, DHN wanted compensation for disturbing its business. While deciding the case, the court stated that the subsidiary companies were bound and therefore to the parent company and were required to do whatever the parent company wanted them to do. Therefore, this group can be considered as the same as a partnership and all the three companies can be considered as partners. The court stated that these three companies should not be considered distinctly so that t hey will be beaten on a procedural argument. The result was that the court stated that DHN was entitled to compensation. Therefore in this case, the court disregarded the principle of separate corporate personality. But it needs to be noted that such a decision is likely to be delivered by the court only when the subsidiary companies are wholly owned by the parent company and they have no other issue other than owning the assets of the parent company. On these grounds, in the present case, it can be said that the court can impale the corporate veil and determine New Nirvana as accountable for the negligence of Nuclear Blast. 3: The relevant provision that deals with the present issue has been mentioned in section 140, Corporations Act, 2001. For this purpose, section 140(1) mentions that the constitution of the company should be treated as having the effect of a contract that has been concluded between:- The corporation and each of its members (s140(1)(a)) The company and each director/company secretary of the corporation (s140(1)(b)) A member of the company and other members (s140(1)(c)). In this way, the constitution and the replaceable rules form of legislative contract created among the corporation and the members and officers, including the directors. In Hickman v Kent (1915), it was stated by the court that the corporation can enforce the provisions of its constitution against the members of the company. But at the same time, it has also been mentioned in Eley v Positive Life Assurance Co (1875) that the members cannot enforce the provisions mentioned in the Constitution of the company that appeared to confer rights on these members in some extra capacity except their capacity as the members of the corporation. In this way, concerning the contractual influence of the constitution and the replaceable rules applying to a company, it should be emphasized that this effect is restricted to the above mentioned situations. The result is that no rights are provided under common law to any person in any other capacity. The decision in Eley v Positive Life (1876) establishes this point. Mr. Eley was chosen by the company as its solicitor. Afterwards, he was also made a member of the corporation. His selection was stated in the articles. These also stated that Eley will act as the company's solicitor for his life. Under these circumstances, some time later, the company decided to remove Eley as company's solicitor. The result was that Eley started legal proceedings in the court, alleging breach of contract by the insurance company. But the court determined that the articles did not provide any rights to Eley in any other capacity except as companys member. The court stated that because these rights we re not affected; the action for breach of contract initiated by Eley cannot succeed. The position under the common law in this regard was also illustrated by Hickman v Kent (1915). The articles declared that if a disagreement arose between the company and its members, such a dispute needs to be brought before an arbitrator before starting any court proceedings. However, when a dispute arose between the company and Hickman, he direct away started proceedings in the court and did not refer the matter to an arbitrator as required by the articles of the company. As a result, the company could obtain a stay of the legal proceedings started by Hickman. Consequently, in this case also, it can be said that Don cannot successfully sue Millennium Pty Ltd for breaching the contract when some other person was nominated as companys solicitor. On the other hand, Millennium Pty may obtain a stay of the legal proceedings because these were started without referring to dispute to an arbitrator. References Graw, S. 2011, An Introduction to the Law of Contract, 7th Ed., Thomson Reuters. Latimer, P, 2016, Australian Business Law CC, 2016 Edition Vermeesch, R B, Lindgren, K E, 2011, Business Law of Australia Butterworths, 12th Edition Lipton P, Herzberg A and Welsh, M, 2016, Understanding Company Law, 18th edition, Thomson Reuters Case Law Adams v Cape Industries plc [1990] Ch 433 DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852 Eley v Positive Life Assurance Co Ltd [1876] 1 Ex D 88 Hickman v Kent or Romney Marsh Sheep-breeders Association [1915] 1 Ch D 881 Salomon v Salomon Co [1897] AC 22