Legal Strategies for Business
Sources of NZ Laws • Legislation (Statute Law) – NZ Parliament supremacy – UK laws before 1840 (unrepealed) – UK laws adopted since 1840 • Cases (Common Law) – Precedents decided by NZ or other courts – Higher courts usually bind lower courts in precedents
Business Forms • Sole Trader – “John Wayne Gunsmithing” • Partnership – “Woods and Norman Golf School” • Incorporated Company – “Robert Redford Agency, Ltd. ” • Miscellaneous – Trusts, Foundations, etc.
Proprietorship/Sole Trader • • • Unincorporated business Usually one principal operator Personal, unlimited liability IT IS SILLY TO OPERATE THIS WAY! There is no reason to use this business format, EVER!
Partnership • Two or more partners – Carry on as a business – Must be with view to a profit – Must be in common • • Personal, unlimited liability Can be informal Each partner taxed personally Complex issues arise when partners leave/join
Corporations • A corporation is a separate legal person. It is separate from its shareholders. (s 15 Companies Act 1993) – Can enter into contracts – Can sue and be sued – Can be convicted of a crime – Has no natural lifespan and dies through removal from the register
The “Corporate Veil” • Protects shareholders, directors and others from liability for acts done on behalf of the company. • Lifted by the courts in the event of fraud. • Different treatment for groups of companies.
Separate Entity Principle • Is there injustice? • Is there fraud? • Is there knowledge? – “The position of the brain of the company”
Case Study Mr Ivory instructed the plaintiff to use a certain grass herbicide, but failed to instruct on proper protection of their raspberry crop. The crop was lost and Mr Ivory and his company were sued. Trevor Ivory Ltd v Anderson (1992) 6 NZCLC 67, 611 in Understanding Commercial Law, Gerbic/Lawrence 4 th Edition
Case Study The Court held that Mr Ivory had acted as the company, and to hold him personally liable would interfere with the principle of corporate personality. Mr Ivory made it clear to the world that he was trading as a company and there was no reason for personal liability. The Court further stated that in order to establish a personal duty to a third party, the breach of which might entail personal liability, it was necessary to see whethere was an implied or actual assumption of the duty of care. “Something special is required to find personal liability” Trevor Ivory Ltd v Anderson (1992) 6 NZCLC 67, 611 in Understanding Commercial Law, Gerbic/Lawrence 4 th Edition
Incorporated Corporation • Shareholders own in perpetuity • Limited liability for shareholders • Corporate structure with director(s) and operator(s) • Transferable ownership, usually with some restrictions in small firms • Taxed as a whole • Shielded by a Corporate Veil • Annual/special meetings
Advantages of Incorporation • • Ease of investment/divestment Ease to increase scale of operation Perpetual life Separation of ownership and control Limited liability Borrowing Acceptance Corporate Veil
Corporate Liability • Some criminal liability, except were prohibited by statute (manslaughter: “the killing of one human by another…”) • Civil liability – Contracts – Torts, for employee/agent actions (“vicarious liability)
Fiduciary Duty • “A duty to act for someone else’s benefit while subordinating one’s personal interests to that of the other person. It is the highest standard of duty implied by law. ” • A promoter owes a fiduciary duty to the company.
Incorporation • Minimum Requirements: – Name – 1 shareholder – 1 director – 1 share – Registered Office/Address for Service
Incorporation • Name Selection – Must include “Limited” – Certain words excluded (“Crown”) – May not be in use, misleading, prohibited, offensive – Anyone can select a name • Name Reservation • Application for Registration • Funding
Incorporation • Name Selection • Name Reservation – Pay the Companies Office – Anyone can reserve a name – No incorporation without name reservation • Application for Registration • Funding
Incorporation • Name Selection • Name Reservation • Application for Registration – – – Shareholder consent Director consent Name approval/reservation Constitution (if any, not needed) Registrar MUST issue certificate • Funding
Incorporation • • Name Selection Name Reservation Application for Registration Funding – May trade immediately after incorporation certificate is issued – Loans (repayment by its terms) – Shares (dividends, no scheduled repayment, right to sell with restrictions, surplus at liquidation)
Registered Office • Anywhere in NZ • Street address required • Indicates good address for communication, does not have to be trading location • Mail to the Registered Office is “good” notice • Can change address at any time with notice to Companies Office
Case Study: Valid Service? The plaintiff served a s 218 notice of demand under the Companies Act 1955 at the defendant’s registered office and a copy was sent to the defendant’s place of business. Subsequently, a notice of an application to wind up was served at the defendant’s place of business. The winding up order was granted and the defendant applied to set it aside on the basis, inter alia, that it had no notice. Kensington Swan v New Zealand Fisheries Ltd (1990) 5 NZCLC 66, 186 The Law of Business Organizations, Watson, 3 rd Edition
Case Study: Name Confusion A company called Stanley-Hunt Earthmovers Ltd appealed against the decision of the Registrar not to require a company called Stanley-Hunt Earthmovers (1996) Ltd to change its name. Stanley-Hunt Earthmovers v Registrar of Companies (1997) 9 NZCLC 261, 403 The Law of Business Organizations, Watson, 3 rd Edition
Case Study: Name Confusion Flight Centre (NZ) Ltd objected to the use of the name Rotorua Flight Centre (NZ) Ltd v Registrar of Companies (1994) 7 NZCLC 260, 612 The Law of Business Organizations, Watson, 3 rd Edition
Case Study: Name Confusion Taylor Bros Ltd had a well-established dry cleaning business in Wellington. Taylors Group Ltd operated similar businesses in Auckland. Taylors Textile Serbices Auckland Ltd v Taylor Bros Ltd (1988) 2 NZBLC 103, 032 (CA) The Law of Business Organizations, Watson, 3 rd Edition
Fundraising • Public – Securities Act controls – Extensive Disclosure Statement/ Investment Statement required – Liability for incorrect, misleading, boastful statements • Private
• Public • Private Fundraising – Investors look out for themselves – Relatives/close business associates – Professional investors – Selected other than from public – Founding shareholders – Need to have all necessary information to make an informed decision
Agency • Corporations act through others – Employees – Shareholders – Officers • • Fiduciary relationship General, Special, Estoppel Agency Apparent Agency Agent’s Duties
Agency • Corporations act through others • Fiduciary relationship – An Agent acts on behalf of a Principal – Powers of the Principal are assumed, no more, can be less • General, Special, Estoppel Agency • Apparent Agency • Agent’s Duties
Agency • Corporations act through others • Fiduciary relationship • General, Special, Estoppel Agency – General: Authority in matters of particular business – Special: Narrowed to fit purpose – Estoppel: Principal ‘estopped’ from denying agent’s authority • Apparent Agency • Agent’s Duties
• • Agency Corporations act through others Fiduciary relationship General, Special, Estoppel Agency Apparent Agency – Principal must make/support the representation of agent’s authority – Would a reasonable person understand that the agent is authorized? • Agent’s Duties
• • • Agencyothers Corporations act through Fiduciary relationship General, Special, Estoppel Agency Apparent Agency Agent’s Duties – Act by instruction and only within the scope of authority – Act with due care – Cannot sub-delegate – Has a right to compensation
Contracts • Legally recognised promises or bargains made by two or more persons including all rights and duties resulting from the promises or bargains.
What is a Contract? • • • An Agreement Between Parties Which defines Rights and Duties Resulting in Obligations Of a specific Subject Matter • Same contract rules apply from handshake agreements over pennies to complex Billion $ transactions
Enforcement of Contracts • None, if against specific statutory provisions • None, if against public policy • Specific performance if practical, desired and possible • Damages, if ascertainable
The Offer • Without a valid offer, there cannot be valid acceptance • “Yes, I have a 2001 VW Bug for sale, and I want $2, 000” is not an offer • The intended person must receive the offer, including all terms • Offers terminate when accepted, rejected, lapsed or revoked • Inquiries as to changes are not rejections
Communication of Offer • C offers a reward to anyone who finds her wallet. B finds and returns it, but does not know of the reward until he arrives at C’s house and sees the “Reward” posters. B cannot claim the rewards, as there was no offer when B found the wallet.
Termination of the Offer • By acceptance • By rejection – By words or by conduct – No subsequent acceptance allowed • By lapsing – After specified time lapse – After reasonable time lapse • By revocation (must reach offeree)
Revocation • Offeror holds the power of life and death over the offer. • Offers can be revoked even if an express promise is made not to revoke. • Promises are not binding until all contract elements are satisfied. • No consideration = no contract.
Byrne v Van Tienhoven (1880) 5 CPD 344 1 October: Van Tienhoven posted an offer to sell to Byrne. 8 October: Van Tienhoven posted a letter of revocation to Byrne. 11 October: Byrne received the offer and telegraphed back an acceptance. 20 October: The letter of revocation reached Byrne sues for breach of contract.
Revocation • Any words or conduct can serve as revocation • Revocation must be communicated to the offeree • A revocation is not possible if there is an option contract (a paid for option)
Option Contract • If payment is made to hold an offer open, a binding agreement is created = Option. • Consideration is needed, and, when given, the Option becomes a contract in itself.
Acceptance • Absolute and unqualified assent to all terms of the offer, only by offeree • Overt act is needed, can be oral, in writing, or by conduct • An offer must be received before it can be accepted • Acceptance must reach the offeror • Inquiries, counter offers and conditional acceptance are invalid
Can Silence be Acceptance? • Offeror may bind himself • Silence is an acceptance if offeree reasonably fails to speak up and reject • If the offeree solicits the offer, must let the offeror know within reasonable time of intent to reject
Operation of Acceptance • General principle: Mailbox Rule, acceptance is effective when sent • Offeror may not know when acceptance occurred • “Proper Dispatch” is required • “Reasonable Time” is required
Eliason v Henshaw (1849) 4 Wheaton 225 Eliason made an offer to buy flour from Henshaw. The offer arrived in a wagon and stated that the answer be sent in the wagon, which was returning to Eliason. Henshaw sent his acceptance by post, because he thought that it would be quicker. The acceptance arrived after the return of the wagon. Eliason refused to be bound by any contract.
Is there Acceptance? Jeffrey calls Mary and offers her his 1976 Triumph Stag for sale at $9, 500. She tells him she can’t afford an old car like that and makes a date with him for the following Friday. Meanwhile she talks to her friend Brittany who mails Jeffrey a cheque for $9, 500 and writes “This is for your 1976 Triumph Stag, I will pick it up on Friday. ” Jeffrey tells Brittany he doesn’t want to sell anymore, and she sues him.
Is there an Offer? Jim and Louise are chatting after school. Jim says “I am thinking of selling my computer for $500. What do you think? ” Louise replies: “That is a great price, I would very much like to buy a computer like that. ” Next day, Jim bring over his computer and Louise throws him out of the house. Jim sues Louise.
Meeting of the Minds • Was there an agreement to all terms? • Were all terms meaningful? • Look at regular conduct between the parties
Is there Meeting of the Minds? • Harry writes to Bob and offers to buy all of the TV sets Bob has coming in on his next container from China, for $120 each. • Bob agrees. When the container arrives, it contains 15, 000 TV sets and Harry tells Bob he thought there would only be 5, 000 TV sets on board, so he will only take 5, 000. • Bob sues Harry to take all TVs.
May & Butcher v The King (1934) 2 KB 17 The plaintiff made an arrangement to buy surplus war tentage from the government at “a price to be agreed upon from time to time”. Difficulties in setting the price occurred and the parties went to Court.
May & Butcher v The King (1934) 2 KB 17 There was no contract, because the parties had failed to agree on essential terms. The parties had ‘agree to agree’, and this was insufficient to show that the parties had intended to be bound by the arrangement.
Must a Contract be in Writing? • No, except where statutes require it: – Real Estate commissions – Hire purchases • Contracts Enforcement Act – Sale of land/mortgage on land – Debts of Third Party/Guarantees – Verbal contracts are valid, but unenforceable
Consideration • Giving up something = forbearance • Consideration must have some value – A benefit to the promisor, or a detriment to the promisee • Consideration offered after performance is not enforceable
Is there Consideration? • I will continue to go to school until age 16, if you pay for my new piano. • If you mow my lawn for 2 weeks next May, I will let you use my car until then, for free. • I will tell my sister Anne to babysit for you tomorrow, if you pay me $6 per hour.
Sale of Goods Act • • Applies to property/goods sales Informal contracts are enforceable Major Breach: Repudiation or damages Misrepresentation: Rescisssion Term Breach: Rescission Warranty Breach: Damages Can only sell with good title Fitness for a particular purpose
Fair Trading Act • Prohibits business conduct – Misleading/deceptive conduct – False/misleading representation – Unfair practices • Commerce Commission enforces • Breach of the Act is a crime
Consumer Guarantees Act • Guarantees and remedies for: – Goods and services – From a supplier/manufacturer – To a consumer • Must be ‘in trade’ • Goods/services must be of a kind ordinarily acquired for personal use • Guarantee as to acceptable quality • Goods to be fit for particular purpose stated
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