Bud informs you that the contracts set out below have been made on behalf of Shoemart. He wants to know whether the following contracts are binding on the company.
(i) Contract with BankEast. (2.5 marks)
Peggy agreed to borrow $100,000 on behalf of Shoemart from BankEast. Peggy told BankEast that the money was needed to purchase an interest in a pine plantation which would give the company substantial tax benefits. In fact she was going to use the plantation as her holiday retreat. She signed the contract as Managing Director of Shoemart.
(ii) Contract with Saddlers (1 mark)
Al Bundy signed a written contract on Shoemart’s behalf for the supply of $8,000 worth of shoes from Saddlers (a new supplier). Al informed Saddlers that he was the Chairperson of Shoemart.
(iii) Contract with Ickea (2.5 marks)
Bud entered into a contract which he signed “Company Secretary, Shoemart Pty Ltd” to buy a sofa for his office as he likes to take naps in the afternoon. The sofa was custom-made and costs $11,000.
(iv) Contract with Retrovision (2 marks)
The Board of Directors had agreed that the company should buy a $14,000 Sound System from Retrovision. When the agreement was sent by Retrovision, Peggy was alone in the office. She knew that she required another signature to make the contract binding. She signed her name and also signed Al's name on the document as directors of Shoemart. As sounds systems have fallen in price, Shoemart wishes to get out of this contract.
Part B. Advice to Al (10 marks)
Al is unhappy about the following events:
(i) Kelly questioned why the business and the building were bought at such an overvalue. When she confronted Bud and Peggy, they said that they were not informed of the inflated price and that they had followed Al’s instructions as they had trusted him. They went on to say that it was too late now and that she should not begrudge her father the overpayment. Kelly plans to take action against Al on the Company’s behalf. Advise Al on her chances of success. (5 marks)
(ii) Kelly also requested the Board for an extraordinary general meeting, which was refused. She conducted a General Meeting on 20th August 2015, which was attended by Bud and herself. She named herself Chairperson and declared that two resolutions were passed at the meeting. Bud did not vote on either of the proposals. The first resolution deleted Clause 2 from Shoemart's constitution, and the other dismissed Al from his directorship. Advise Al on the validity of his dismissal as director and whether he can receive any compensation. (5 marks)
Part C. Advice to Kelly (12 marks)
Kelly seeks your advice on the following matters:
(i) On 2nd April 2015, Kelly was asked by Al to purchase some computers for the new company that he planned to incorporate. She negotiated a contract with Officeworks. She had signed the contract “for and on behalf of Shoetrade Pty Ltd”. When the company was incorporated, Al decided to change the name to Shoemart Pty Ltd. The computers were delivered to Shoemart in June but as yet, there has not been any payment. The computers are in use by the company. Kelly is worried that Officeworks will sue her. (2 marks)
(ii) On 23rd August 2015, in retaliation for Kelly’s actions in dismissing Al, Peggy and Bud held a Board meeting and dismissed Kelly from her post as consultant. Kelly wants to sue for compensation. (2 marks)
(iii) Kelly wishes to give 1 share in Shoemart to Elle. On 25th August, Peggy and Bud inform Kelly that they refuse to register the transfer as they feel that the shareholders should be family members. Advise Kelly on any action that may be taken to have the share registered in Elle’s name. (3 marks)
(iv) In early September, Kelly decided that she needs to take charge of the company and plans to hold another extra-ordinary general meeting to pass several resolutions. The first proposal is to change the name of the Company to “Kelly’s Shoes Ltd”. The second proposal is to remove Peggy and Bud as directors of the company and to appoint Elle and herself as directors. The third proposal is to amend Shoemart’s Constitution to enable “any owner of more than 75% of the shares in the company to compulsorily acquire the shares of other members for fair market value”. Discuss whether Kelly will be successful. (5 marks)