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Business Law Assignment
Business Law Assignment
In the case of Tan Hee Juan v Teh Boon Keat (1934), plaintiff an infant
executed transfers of lands in favor of the defendant. The transfer were witnessed and
subsequently registered. Plaintiff applied to the court for an order setting aside the
transfers. The court held that the transfers are void and ordered the land to be restored to
the minor.
In effect of section 10 and 11 of Contracts Act 1950, the courts held in the cases
of Mohori Bibee V Dharmodas Ghose (1903) and Tan Hee Juan V Teh Boon Kiat
(1934) that all such agreements are void. Therefore, all contracts entered by a minor is
generally void and a minor cannot sue or be sued on such void contracts. In both cases,
the contract can be enforced by the minor although he would not normally be entitled to
obtain specific performance of the contract, but can only recover damages for breach.
This is because specific performance will not be granted by the court where it is not
prepared to enforce the contract at the suit of either party. Since the contract could not be
enforced against the minor, equity will not allow a minor to obtain specific performance
against the other party. In the United Kingdom, the Infants Relief Act 1874 has been
repealed by the minors’ Contracts Act 1987.
Under section 69 of Contracts Act 1950, it is said that “if a person, incapable of
entering into a contract, or anyone whom he is legally bound to support, is supplied by
another person with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable
person.” Necessaries are referred to as essentials in which it brings reasonable comfort
to the infant. However, the exceptions are only valid to basics necessities and luxurious
items are excluded. Normal clothing is not considered as necessaries if the infant already
own enough herself. In cases of Scarborough v Sturzaker(1905), a bicycle was a
necessary because the minor had only one and used it to travel to work. Sturzaker, a
minor, cycled 19 kilometers to work each day. He traded in his old bicycle to
Scarborough and made a part payment on a new one. Sturzaker repudiated the contract
and refused to pay the outstanding amount. The Tasmanian Court held that the bike was a
necessary. Therefore, the contract was enforceable and Sturzaker had to pay the money
owing. The classification of necessaries depends on the minor’s need and condition of his
life.
In the cases of Nash v Inman(1908), Nash was a tailor on Savile Row, entered
into a contract to supply Inman (a Cambridge undergraduate student) with, amongst other
things, 11 fancy waistcoats. Inman was a minor who was already adequately supplied
with clothes by his father. When Nash claimed the cost of these clothes Inman sought to
rely on lack of capacity and succeeded at first instance. The plaintiff argued that the
waistcoats were in the category of necessaries. As the defendant was already amply
supplied with clothing appropriate to his station in life the clothing purchased could not
amount to necessaries. An infant may contract for the supply at a reasonable price of
articles reasonably necessary for his support in his station in life if he has not already a
sufficient supply. To render an infant's contract for necessaries an enforceable contract
two conditions must be satisfied which the contract must be for goods reasonably
necessary for his support in his station in life, and he must not have already a sufficient
supply of these necessaries. The plaintiff was unable to enforce the contract. It should be
noted that necessaries is not confined to goods only but include services and other
necessaries. In Chapple v Cooper(1844) an undertaker sued a widow, who was a minor,
for the cost of her husband’s funeral. It was held that this was a necessary service, and so
the young woman was obliged to pay. Minor can be bound by contract if the goods and
services are considered necessary. Necessaries were described in such things without
which a person cannot reasonably exist. However, if the agreement contains unfair terms,
the minor are not to be bound even though it was a necessary in the case of Fawcett v
Smethurst (1914), a minor was held not to be bound by a contracts for the hire of a car,
even though it was a necessary service in this case, because the contract included a term
making him liable for damage to the car ‘in any event’ that is whether or not the damage
was his fault. Where there is a binding contract for necessaries, the minor is only bound
to pay a reasonable price for them, which need not to be the contract price.
In some instances, automobiles are considered necessaries. The minor’s and his or
her parents’ economic status can be considered in determining whether an item is
considered a necessary. Some courts will enforce the contract as originally written while
others may require the minor to pay the fair market value for the goods or services
provided. For example, if the minor exited the interstate during a torrential downpour and
the hotel was $150 for the night although the fair market value was $100, some courts
would impose the $150 price while others would impose the $100 price.
Under the Insurance Act 1972, an infant over the age of ten may enter into a
contract of insurance. However, if he is below the age of sixteen, he can only do so with
the written consent of his parents or guardian. A minor can enter contract and it is
voidable at his option. In Stapleton v Prudential Assurance Co(1928), the court held
that the contract made by minor was a continuing contract and the minor can refute it but
it was bound to do so within a reasonable time.
There are four different types of business structures in Malaysia. The types of
business structures are sole proprietorship, partnership, privated limited company, and
limited liabilitite partnership. Before we advise Kenny Chew and Dominic Ter which
entity to choose, we may need to explain each entity in details and further advise to
Kenny and Dominic
Sole Proprietorship
Sole proprietor is the simplest economic and legal unit. The business is owned
solely by one individual, where his liability is unlimited. The owner can be made
personally bankrupt for his business debt, if he chose to register as sole proprietor as
there is no separate between the business and his personal assets or obligations. (Sole
Proprietorship, 2017)
Partnership
“(3) An association or partnership shall not be formed for the purpose of carrying on any
business which has for its object the acquisition of gain by the association or partnership
or the individual members thereof unless—
(a) it is an association or partnership formed for the purpose of carrying on any
profession or calling which is declared by the Minister to be a profession or calling
which is not customarily carried on by an association or partnership incorporated under
this Act;
(b) in the case of any other association or partnership, it consists of not more than twenty
members;
All partners in partnership are similar to sole proprietor in sole proprietor business
as they are entity liable for any losses the partnership business suffered. One of the
advantages of form a partnership is that partnership can be formed quickly and early
without any great legal formalities where it can be formed by signing a partnership
agreement. As it needed at least 2 or more members, the capital available will definitely
larger than a sole proprietorship. Besides that, for those who actually wanted to have
more control to the operation of the business partnership will be a good choice for them
as each partner can have a say in management of the business and can share profit, they
shared the burden of management together. (ZeePedia, n.d.)
In partnership business, partners bound to one another. They owe each other
fiduciary duties which they have to act in almost good faith. As partnership is often small,
it is an advantage to the business as the partners may be closer or response or act fast to
clients or customers. Similar to sole proprietor, partnership have more privacy as
partnership need not disclose their account to the public. Less cost needed to form a
partnership compare to companies. Partnership can be easily dissolved by mere consent
of its partners or by death or bankruptcy of its partner. (ZeePedia, n.d.)
In the case Keith Spicer Ltd v Mansell [1970] 1 All ER 462, two individuals, X
and Y hoped to establish a restaurant. They intended to form a company for this purpose.
Prior to the company's formation and while they were looking for suitable
premises, X purchased furniture from a third party and had them delivered to Y’s
premises. The furniture was not paid for and the third party there upon sued Y on the
basis that he was in partnership with X. The court said there was no partnership as X and
Y were not carrying on business in common but were preparing to do so as a company.
Acts carried out in contemplation of a business being undertaken in the future did not
point to a partnership. Further, the holding of property jointly did not change things.
(Kiran, 2017)
Unlike sole proprietorship and partnership, a private limited company can only be
created by certain prescribed methods; it must be registered under the Companies Act
2016. Compare to partnership this is more troublesome as partnership can be created by
express or implied agreement of the partners. Formation of a company also incurs more
cost compare to the sole proprietorship and partnership. Members of company are not
entitled to take part in management of the company unless they are also directors of the
company. (Advanced Corporate Resources Sdn Bhd, n.d.)
There are strict formalities to be followed and power and duties of members of
company are governed by the Companies Act 2016 and by its own constitution. In
partnership, there are less formalities as discuss earlier, partners may alter nature of
business by agreement and make their own arrangement while operating the business.
The account of a company must be available for public inspection which is different with
partnership and sole proprietor. As setting up a company is not easy to dissolve also the
same. (Asiacorp.asia, n.d.)
One of the biggest advantages of incorporation is that company has separate legal
entity from its members. Its members will not be personally liable or oblige for debts and
losses of the company. Apart from that, there is no restriction on number of members of
company. It can have either only one member or unlimited number of members. These
provide more flexibility compare to partnership which requires at least 2 members and
limited to only 20 members. Shares in a public company are transferable. Compare to
partnership, shares cannot be transferred without the consent of all the other partners.
(Asiacorp.asia, n.d.)
Apart from that, member of the company is not bound by the act of the others
members. This is difference with partnership which partner bound by act of all other
partners. A company can also create a floating charge which allows it to raise funds
without impeding its ability to deal with its assets. Unlike partnership and sole proprietor
who cannot creates a security over its assets. Shareholders of a company also allow
claiming from the company any debts owe by the company to the shareholders same as
other creditors. However, a partner in a partnership who owed money by the partnership
cannot claim payment in competition with other creditors. A company cannot normally
be wound up on the will of a member, upon death of its member, bankrupt and/or insanity
of its member. (Asiacorp.asia, n.d.)
Held in the case law of Salomon v Salomon & Co that a company is regarded as
a distinct legal entity with its members and management. In the case of Salomon v
Salomon & Co, Mr. Salomon was the proprietor of a small but successful leather business.
He had later incorporated his business as limited company in accordance with the
registration provision contained in the Companies Act 1862. The law also provides that 7
or more persons could incorporate a business provided that it was associated for a lawful
purpose. The 7 subscribers to A Salomon Ltd were Mr. Salomon, his wife and their 5
children. The incorporated company later bought Mr. Salomon’s business in a solvent
state for a consideration to the value of approximately 39,000 pound. Mr. Salomon
received 20 thousand fully paid up 1 pound shares, an issue of debentures to the value of
10 thousand pound. The debenture was secured against the assets of the company; by
means of floating charge. The remaining members of the family were each allotted one
pound share in the company. Unfortunately, A Salomon Ltd did not prosper. Mr. Saloon
debentures were transferred to a Mr. Broderip in return for a loan of 5000 pound. This
amount was then pumped back into the company by Mr. Salomon. Despite further efforts
on part of Mr. Salomon to keep the company afloat, less than a year after its
incorporation, the company had fallen into an insolvent state. The company could not
meet Broderip’s debentures interest payment and fearful that his investment would be lost,
Broderip sought to realize his security by appointing a receiver. The company which had
other creditors was subsequently put into liquidation. The liquidation of the company’s
assets realized sufficient funds to meet the company debts to Broderip but not the debts
owed to the company’s other creditors.
In this case although both High Court and Court of Appeal recognized that
A Salomon Ltd having complied with the registration provisions of the Companies Act
1862, was a corporate entity, they had not contemplate the fact the once incorporate the
company could not be considered as anything other than an independent entity, totally
distinct from its founder, Mr. Salomon.
Limited liability partnership can have their limited personal liability. A limited
liability partnership is rendered a separate legal identity in Malaysia. Thus, a limited
liability partnership can own property, sue or be sued. The partners of the limited liability
partnership will not be held personally liable for any business debts incurred by the
limited liability partnership or wrongful acts of another partner. A partner may, however,
be held personally liable for claims from losses resulting from his own wrongful act or
omission. (Mansor, 2013)
Next, it can lead to perpetual succession. Any changes in the limited liability
partnership, for example, resignation or death of partners does not affect its existence,
rights or liabilities.
Henry v. Masson
Henry and Masson were partners in an orthopedic surgery practice. They formed their
practice as an LLP in 2001, and personal dispute led to litigation in 2003. During a
hearing in the case, they agreed in principle to wind up the LLP and sever all ties between
them. Additional disputes and issues arose, and another suit was filed. In an attempt to
resolve all their differences, they executed a settlement agreement. Litigation ensued over
alleged breaches of the settlement agreement. Among the issues addressed in this appeal
was a claim by Masson that the trial court erred in ordering Henry and Masson to make
capital contributions to the partnership to allow the partnership to pay out fund it had
taken in that actually belonged to two new entities formed by the parties. Masson based
his argument on the act that the partnership was a LLP and the provision of the Texas
Revised Partnership Act providing that partners in a LLP are protected from individual
liability for debts and obligations of the partnership incurred while the partnership is a
LLP. The court stated that neither the partnership agreement nor the statute prevented the
trial court from ordering contributions to the partnership during winding up. According to
the court, the payments the trial court ordered Henry and Masson to make were capital
contributions to discharge debts of the partnership during winding up, not an adjudication
of individual liability for the debts or obligations as contemplated by the statute. The
court relied upon the partnership agreement, which provided that if no partner agreed to
lend funds needed to discharge the partnership’s debts, obligations, and liabilities as they
came due, each partner was required to timely contribute the partner’s proportionate
share of funds needed. Masson argued that this provision was not intended to apply in the
winding up process and the reference in partnership agreement to payment of the
partnership’s debts upon dissolution “to the extent funds are available” evidenced the
partners’ intent that they would not require to make additional capital contributions
during the winding up. The court stated that the phrase relied upon by Masson appeared
in a section referring to steps to be taken after sale of the partnership property, and the
funds mentioned are funds received from the sale of partnership property. The court did
not interpret the agreement to mean that sale of partnership property was the only source
of funds to pay debts. The court also rejected Masson’s argument that the reference in the
capital contribution provision to payment o debts as they become “due and payable” was
evidence that the parties did not intend to require capital contributions during winding up.
The court stated that “due and payable” simply modified the type o debt to be paid and
did not limit the provision to “operational” status of the partnership.
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