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Section 16.2 Corporate opportunity

The doctrine of corporate opportunity requires a

corporate director to further the interests of the

corporation and give to it the benefit of his

uncorrupted business judgment. He may not take a

secret profit in connection with the corporate

transactions, compete unfairly with the corporation or

take personally profitable business opportunities

which belong to the corporation.

The basic test is a two-part test. The first part requires

a determination of whether the opportunity falls

within the line of business of the corporation; if this is

so, then the second part examines the circumstances

under which the director is nonetheless permitted to

exploit the opportunity.

The 'line of business' test compares the closeness of

the opportunity to the areas of business in which the

corporation is engaged. Other factors may be relevant

to this consideration, such as (i) whether the director

became aware of the relevant opportunity as a result

of his or her position, (ii)whether the director utilised

property belonging to the company to take advantage

of the opportunity, (iii)whether previous discussions

were held regarding the opportunity within the

corporation, and (iv)whether the opportunity was

presented to the director as an agent of the


The second part of the test allows for a justification to

relieve liability from an affirmative answer to the first

part of the test. In this part, courts examine whether

the director had a persuasive reason to take

advantage of something which was in the company's

line of business. Some examples of situations that

courts have considered to be fair are that the

corporation is incapable of taking advantage of the


Case Study 1: Company law




ng 1: I on on

This text givesanoverviewof someof the mostimportant conceptsandterminology

related to what constitutes a legal contract and when it is enforceable.

1 Read through the text quickly. Then match these questions (a-e) with the

paragraphs that answer them (1-5).

a What form can an enforceable contract take?

b When do third parties possess enforceable rights in a contract?

c Upon which grounds related to the formation of a contract may its validity be


d What are the elements of an enforceable contract?

e What are the essential terms of a contract?

lit should be noted that, in the United States, contracts for the sale of goods are governed by the Uniform

Commercial Code (UCC)and in the United Kingdom by the Sale of Goods Act, and therefore the above

common law contractual principles may have been supplemented or replaced by these statutory provisions.



. n on

2 Match these defences (1-4) with their definitions (a-d).

1 illegality of the subject matter

2 fraud in the inducement

3 duress

4 lack of legal capacity

a when one party does not have the ability to enter into a legal contract,

i.e. is not of legal age, is insane or is a convict or enemy alien

b when one party induces another into entering into a contract by use or threat

of force, violence, economic pressure or other similar means

c when either the subject matter (e.g. the sale of illegal drugs) or the

consideration of a contract is illegal

d when one party is intentionally misled about the terms, quality or other aspect

of the contractual relationship that leads the party to enter into the transaction


n n9

Lawyers are usually involved at the formation stage of a contract, which includes

advising, drafting and negotiating. Drafting is commonly carried out with the help of

contract templates or forms. Nevertheless, legal counsel must advise on the inclusion or

omission of clauses and their wording. To do this, familiarity with common clause types

and the language typically used in them is necessary.

3 Match these types of contract clauses (1-10) with their definitions (a-j).

1 Acceleration

2 Assignment

3 Confidentiality

4 Consideration

5 Force Majeure

6 Liquidated Damages

7 Entire Agreement2

8 Severability

9 Termination

10Payment of Costs

a clause stating that the written terms of an agreement may not be

varied by prior or oral agreements because all such agreements have

been consolidated into the written document

b clause designed to protect against failures to perform contractual

obligations caused by unavoidable events beyond the party's control,

such as natural disasters or wars

c clause outlining when and under which circumstances the contract

may be terminated

d clause concerning the treating of information as private and not for

distribution beyond specifically identified individuals or organisations,

nor used other than for specifically identified purposes

e clause in a contract requiring the obligor to pay all or a part of a payable

amount sooner than as agreed upon the occurrence of some event or

circumstance stated in the contract, usually failure to make payment

f clause setting out which party is responsible for payment of costs

related to preparation of the agreement and ancillary documents

g clause expressing the cause, motive, price or impelling motive which

induces one party to enter into an agreement

h clause referring to an amount predetermined by the parties as the

total amount of compensation a non-breaching party should receive if

the other party breaches a part of the contract

i clause prohibiting or permitting assignment under certain conditions

j clause providing that, in the event that one or more provisions of the

agreement are declared unenforceable, the balance of the agreement

remains in force

2 (US) a/so Merger (The term Parol Evidence is used in both the UK and the USA.)

Unit 5 Contracts: contract formation


4 Add the name of each clause type (or its nearest equivalent) in your language

to the list in Exercise 3.

5 Identify the type of clause listed in Exercise 3 exemplified by each of these


1 The seller's liability for damages shall in no case exceed the purchase price of

the particular quantity delivered with respect of which damages are claimed.

2 Whenever, within the sale judgment of Seller, the credit standing of Buyer

shall become impaired, Seller shall have the right to demand that the

remaining portion of the contract be fully performed within ten (10) days.

3 Neither party shall be liable in damages or have the right to terminate this

Agreement for any delay or default in performing hereunder if such delay or

default is caused by conditions beyond its control including, but not limited

to, acts of God, government restrictions (including the denial or cancellation

of any export or other necessary licence), wars, insurrections and/or any

other cause beyond the reasonable control of the party whose performance

is affected.

4 This Agreement may not be assigned without the prior written consent of the

other party, except that Buyer may assign the Agreement to a subsidiary or

related corporation so long as the owners of at least seventy-five per cent

(75%) of the stock of such corporation are either Buyer or the shareholders

of Buyer.

S In the event Operator defaults in the performance of any covenant or

agreement made hereunder, as to payments of amounts due hereunder or

otherwise, and such defaults are not remedied to the Supplier's satisfaction

within ten (10) days after notice of such defaults, the Supplier may

thereupon terminate this agreement and all rights hereunder of the Operator

but such termination shall not affect the obligations of the Operator to take

action or abstain from taking action after termination hereof, in accordance

with this agreement.

6 This Agreement, including the Schedules and Exhibitsattached hereto,

constitutes and contains the entire agreement of the parties with respect of

the subject matter hereof and collectively supersedes any and all prior

negotiations, correspondence, understandings and agreements between the

parties respecting the subject matter hereof. No party is relying on or shall

be deemed to have made any representations or promises not expressly set

forth or referred to in this Agreement.

6 Inyour own words, explain the following words and expressions in italics from

the clauses in Exercise 5.

1 liability for damages (clause 1)

2 within the sale judgment of Seller (clause 2)

3 delay or default (clause 3)

4 prior written consent (clause 4)

S In the event Operator defaults in the performance... (clause 5)

6 abstain from taking action (clause 5)

7 Schedules and Exhibits (clause 6)

8 deemed (clause 6)


The text on this page and the next is an example of the previously mentioned type of

document known as a contract form, which is often used by lawyers at the formation

stage of a contract.

7 Briefly scan the agreement and answer these questions.

1 What kind of agreement is it?

2 Why does the text have gaps in it?

8 Read the text more carefully. What types of clauses are 2b, 3, 5 and 6?

Date: 2015-12-11; view: 1557

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