Legal_Issues

COURSEWORK FOR Legal Issues for Accountancy DATE - 2nd April 2009 SEMINAR GROUP - Group 4 SEMINAR TUTOR - Charles Holleyman SCHEME - BAF1 PAGE LIMIT FOR THIS COURSEWORK - 10 pages I certify that this piece of work is my own work, that it has not been copied from elsewhere, that I have not colluded with another in the preparation of this work (unless permitted) and that any extracts from books, papers or other sources have been properly acknowledged as references or quotations. I also certify that I have checked the settings of my work before submission to ensure that I have complied with the template instructions. If this is untrue I acknowledge that I will have committed an assessment offence. Signature: Describe the process of formation of a contract via offer and acceptance. Having done this, advise whether Di has concluded a binding contract with either Whizzo, EasyWidget or both. Please advise on the duties that Di would have held as a Director, and how she may be in breach of these This essay will firstly explain the process of formation of a contract through offer and acceptance. Secondly it will advise whether Di has completed a binding contract with Whizzo, EasyWidget or both. It will then also advise the duties that Di would have held as a Director along with how she may be in breach of these. Finally this essay will conclude on whom Di had made a legal binding contract with, as well as making the right decisions as a Director and if she was in breach of her duties. A contract is an agreement between two or more parties; it is legally binding and determines what the parties will or will not do. Contracts can be written or oral. An agreement comes into existence when one party makes an offer to be contractually bound by certain terms and conditions to another party, who then accepts the terms and conditions. They then communicate this to the offeror and the communication of the acceptance is what makes the agreement binding. The formation of a contract includes two parties, this is when two people have to agree with the offer in order for the contract to be accepted. Legality is when the contract has to be legal and abide by the laws. Capacity is the formation which includes both parties who have to both be legally capable in order to make the contract, for example someone under the age of 18 cannot enter certain contracts i.e. a gym contract. Consideration is the part of the contract were the promises made cannot be broken. Intent is where the offeror makes sure that they have an intention to set up the contract. Offer is the promise that is formed by both parties before the acceptance is made. Finally acceptance is the part of the contract were both parties accept the terms and conditions. Although Di had considered the offer with Whizzo, she did not have a binding contract with them as she had only left a message on the answer phone for the sales director. When Di rang back to cancel the order she was told by the assistant that the director will be checking the messages shortly and she will also take note of Di’s cancelation. This is not a binding contract because instead of talking directly to the sales Director, Di has subsequently left a message with his assistant who originally didn’t have a part in the contract. Even though Di had considered the offer EasyWidget had made, while speaking to the EasyWidget representative she realised that the actual cost was higher than the original price she was willing to pay, so she decided not to accept the offer and therefore Di had not concluded a binding contract with either Whizzo or EasyWidget. The offer that EasyWidget were promoting was an invitation to treat, as they were advertising there software which would not exceed the price of £2500, for example Harvey v Facey. This is an invitation to treat because Facey agreed to sell a property in Jamaica and at the lowest price of £900. Harvey then offered to pay this sum of money and requested that he send the deed in order to get early possession. However Facey refused to sell at that price even though he had asked for £900 in the first place. This then mislead Di because she was not aware that the installation cost would exceed the advertised price, causing Di to turn down the offer. When a contract is made the offeree has to make sure that the acceptance is communicated to the offeror verbally because if messages are left with other people or on answer phones then the offeror may not be aware of the acceptance as he/she may not have heard the message. On the other hand if the acceptance is written then the offeree has to make sure that the offeror has received the acceptance. A verbal contract is often used as an agreement between two parties. Although one of the main problems with verbal contracts are any issues that may arise, there are no witnesses when it comes to the agreement and the outcome is reduced to one parties word against the other. An example of a verbal case law is Mendelson v. Ben A. Borenstein & Co. The owner entered in to a verbal contract with another contractor, for the construction of a shopping centre. Afterwards both parties drafted a written contract that showed the terms and conditions of their verbal agreement, although it was not signed by either party. In Di’s situation she had accepted the offer by leaving a message on Whizzo’s answer phone for the sales director stating that she will go ahead with the offer of £3000. Although the next day Di changed her mind and instead of speaking directly to the offeror her call was answered by the receptionist who told her that the answer phone message had been passed on to the sales director. The case law that applies to this is Entores v Miles Far East Corporation because the offer was accepted via telex the acceptance was not picked up due to a poor line, Miles Far East assumed that Entores did not accept the offer. Overall this shows that the communication between EasyWidget and Di was very poor because instead of getting in direct contact with the sales director, messages were left with the receptionist instead. In addition when Di applied for the job at Welwyn Widgets Ltd she only held a Level 2 Certificate in Health and Safety Awareness, whereas the advertisement clearly stated that the candidate will hold a Level 3 Diploma in Health and Safety Awareness. As Di lacks certain skills needed for the job role, she may not have the right authority to make certain decisions in the company. Therefore when Di chose to purchase new equipment for the department, she did not get permission or ask anyone if she had the rights to enter the contract. This part of the essay will examine the main roles and duties that are understood in being a director, and as a result compare them to Di Saster to see whether Di Saster has breached any of their requirements. Although a company is within its own separate legal identity, there is still a need for agents to act on it behalf. Shareholders don’t often have enough time or sometimes do not wish to be involved in the day to day management of the company therefore this is the reasons of directors. The pure task of directors is to ensure the company’s prosperity by collectively directing the company’s affairs, whilst meeting the appropriate interests of its shareholders. Therefore, directors are key to the success of the business, meaning they hold significant authority and power. In order to achieve the same desires of the shareholders’, directors are expected to establish the mission and values that is promoted throughout the company, also to review the companies goals whilst at the same time maintaining their polices. Directors have a very dominant position within any business. They take majority of decision on behalf of the company, plus are very involved with the cash flow. These are the reasons to the assembling of the Companies Act 2006 (s.170); to impose various duties on them to ensure the companies’ interests are best protected. Theses duties include:- * to act within powers (s.171); * to promote the success of the company (s.172); * to exercise independent judgment (s.173); * to exercise reasonable care, skill and diligence (s.174); * to avoid conflicts of interest (s.175); * not to accept benefits from third parties (s.176); * to declare interest in proposed transaction or arrangement (s.177). Another essential feature of being a director is the periodical amount of board meetings attended. Non-executive directors are not bound to give continuous attention to the affairs of their company, therefore “nor need he/she attend all board meetings”. However, as being a main director within a specific sector of the business, it’s in their interest to attend. Directors are in a position of trust and confidence and exert considerable power. As consequence, directors have a duty to act bona fide in the interests of the company as a whole. Directors owe a fiduciary act to the corporation and the corporation alone. Directors have to be loyal to their corporation and must not put their personal interests before the duty plus not profiting from their position as a fiduciary. An example of a case law that applies to this is the Item Software (UK) Ltd v Fassihi [2004]. Fassihi was both a director and employee of Item Software (IS) which was a distributor of products for Isograph. In November, 1998, the company was in renegotiations with its distribution agreement with Item Software. When in negotiations, Fassihi approached Isograph with the idea of starting up a new business to take over the distributor’s agreement, whilst advising he’s own company Item software to take an aggressive stance. As a result negotiation broke down between Item Software and isograph as the entered in business with Fassihi business. When found out, Fasshi was breached of his duty as a director and act bona fide to his company. Directors also have a duty to exercise reasonable skill, care and diligence. It is said that a director is suppose to exercise the skill and care which may be reasonably expected from someone in their position. Any professionally qualified director should act with the diligence expected from their profession. The appropriate degree of skill and care required by directors has emerged solely through case law of 1991 Norman v Theodore Goddard. Within this case a business had appointed a director who had no knowledge of company law or offshore financial matters. Due to this, the director was able to be persuaded by an administrator who specialised in tax and trust to invest money from the business into another company to avoid tax costs. In actual fact, the money was being invested into a business already owned by the administrator. When awareness rose about stolen money within the business the director was then prosecuted for breach of duty of care and skill. This case has been regarded as a benchmark when assessing whether directors has exercised duty of skill and care in the course of their normal duties. Within the scenario, Di could have been seen to have shown breaches within her line of duty as a director. One of feature of this could be the duty of care act, by Di Sater’s non attendance of board meetings. As being a director of health and safety, she holds an significant part within the business and therefore has a key interest within the business, unlike silent directors who are not bound to give continuous attention to the affairs of their company. Still, within the case Cardiff Savings bank v Marquis of Bute’s [1892], Marquis was a president and a director of the bank and had only attended one board meeting in 38 years after receiving notices. Yet, Marquis was held not to be in breach of his duty of care/diligence, this being because the company appeared to be managed normally, and he only could not be the cause of the company being liquidated. However, this case could be distinguished by Jackson v Munster Bank Ltd. Jackson was seen to be in breach of the duty of due to him being made aware of the wrong doings but still was reluctant to attend. Another breach of duty could be seen as Mrs Di Saster obtained a pecuniary advantage by deception. By Di Saster not clarifying that she only possessed a level 2 health and safety awareness certificate, she mislead the company to believe she had the knowledge to carry out the director’s position. However, it could be seen as it was Welwyn Widgets plc had their part to play in the misinterpretation of the matter. If they had done additional thorough request for information from Di Sater then this misapprehension would not have occurred. Lastly, Di Saster failing to remember to renew the companies’ publics’ liability insurance may be perceived as a lack of diligence/care, this could also be due to the lack of skills that Di possess. . BIBLIOGRAPHY Books Michael Ottley Briefcase on Company Law. Routledge Cavendish, 2002 T. Henry Ellis. Modern company law. Jordans, 2001 Philip Stiles, Bernard Taylor. Boards at work: how directors view their roles and responsibilities. Oxford University Press, 2001 Cases Arbitrate. Entores v Miles Far East Corporation case law. Available at: http://www.arbitrate.org.uk/nvsep02/acceptance.htm [Accessed: 17 March 2009] Duhaime (2007) Harvey v Facey. Available at: http://www.duhaime.org/LegalResources/Contracts/LawArticle-89/Part-4-Offer--Acceptance.aspx [Accessed: 26 March 2009] Ramco Insurance Services (2001). Mendelson v. Ben A. Borenstein & Co. Available at: http://www.ramco-ins.com/resource-library/risk-management/verbalagreement.html [Accessed: 26 March 2009] Other Sources Corporate Director (2008). The Board of Directors-roles and responsibilities. Available at: http://www.corporatedirector.co.uk/directors_roles_and_responsibilities.html [Accessed: 25 March 2009] Hamilton Lawrence (1999). A directors’ duty of care. Available at: http://www.hamiltonlawrence.co.uk/pr03.htm [Accessed: 24 March 2009] Nolo (2009). Definition of Contract. Available at: http://www.nolo.com/definition.cfm/term/5477BBD7-40E0-492E-9A623482AE9D47FC [Accessed: 16 March 2009] Online Lawyer Source (2009). Verbal contract information. Available at: http://www.onlinelawyersource.com/contract/verbal.html [Accessed: 26 March 2009] -------------------------------------------- [ 2 ]. Harvey v Facey [1893] AC 552 [ 3 ]. Mendelson v. Ben A. Borenstein & Co [1992] 240 Ill [ 4 ]. Entores v Miles Far East Corporation [1995] QB 327 [ 5 ]. Item Software (UK) Ltd v Fassihi [2004] [ 6 ]. Norman v Theodore Goddard [1991] BCLC 1028 [ 7 ]. Cardiff Savings bank v Marquis of Bute’s [1892] 2 CH 100 [ 8 ]. Jackson v Munster Bank Ltd [1885] 15 LR Ir 356