Business Law For Corporation Law 2001 Essay.

Describe about the Business Law for Corporation Law 2001.

Required

What is the liability of David if Dave’s Boating Pty Ltd (Company) could not fulfill the order to Perth Sea Rescue?

The area of law involved in this question is the formalities of a Corporation law 2001, in particular the relevant topic is in respect to section 131 of the Act.

As per the facts, David is the person who initiated the formation of company and took actions on its behalf prior its registration, thus, David is the promoter of the company.

In law, a promoter is the person who forms a company and takes necessary steps for its establishment.[1] Normally, a company cannot make contracts before registration as it does not have a separate legal personality to make contracts on its own behalf.[2] In common, a pre-registration counteract has no value and are void[3] and the promoter can be held personally liable for the same. But, this common law principle has been abolished under the Corporation Act 2001 by the enactment of section 131.[4]

As per section 131 (1) of the Corporation Act 2001, if any person makes a contract on behalf/benefit of an unregistered company then such contracts are enforceable provided the contract is ratified upon companies registration.[5]

However, as per sub section 2, if the company does not ratifies the contract, then, the person who as established the contract on company’s behalf is liable to pay damages which the company would have been paid if the contract would have been ratified[6].

Further, as per section 131 (4), if the company ratifies the contract that was made before registration but the company is not able to perform its obligations in the contract, then, the court if may deem think fit, may order the person who has made the contract to pay all or some part of the damages which the company is ordered to pay.[7]

It is submitted that the contract was entered into in January 2016 and the company was registered in July 2016. Thus, the contract was made when the company was not registered.

So, as per common law, there is no value of any pre registration contract and David must be held liable for all the damages.[8]

But, the common law approach is nullified by Section 131 of the Act. As per section 131 (1), the contract is only enforceable provided the same is ratified after the registration. It is assumed that the contract was ratified.

Required

Now, as per section 131 (4), since the contract by David with Perth is ratified but is not performed, thus, the court may impose liability both on David and the company. But, the liability of David may vary depending upon the intent of the court. David can be held liable for all the damages or damages can be imposed upon both the company and David.

Conclusion

Since David is the promoter of the company thus, David can be held liable for $100,000 totally or can share his liability with the company jointly.

Required

Whether the contract with Bioplastic Ltd will be enforceable?

The area of law involved in this question is the formalities of a Corporation law 2001, in particular the relevant topic is in respect to section 124-126 and section 128-129 of the Act.

The contract with Bioplastic Ltd was considered not enforceable by Dave’s Boating Pty Ltd on two grounds, that is,

The constitution of the company does not permit to engage in any activities other than manufacturing fibreglass boats.

Angela does not have the authority to purchase a $40,000 machine.

The law that guides both the grounds is discussed herein under.

As per section 124 of the Corporation Act 2001, once a company is registered then it has a separate legal existence in the eyes of law and has legal capacity to cat on its own behalf.[9]

Section 125 of the Corporation Act 2001, further submitted that if a company has its own constitution then the powers of the company can be expressed in the constitution specifying the prohibitions and restriction on the company powers. However, section 125 (2) of the Corporation Act further submits that if any act is undertaken by the company which is outside the scope of its object clause then such acts are not invalid mere rely on the ground that it is against the express prohibition or restriction which is made part of the object clause. Thus, the acts which are ultra virus to the object clause of the company should still make the company bound and is enforceable upon the company.[10] 

Further,   

As per section 126 of the Act, if any express/implied authority is granted to any person then such person has power to make/vary/ratify/discharged the contract on behalf of the company. However, if any act is undertaken by any person without any express/implied authority then such contracts are not enforceable upon the company by virtue of section 126 of the Act.[11]

Area of Law

Authority is the power which is granted to a person (agent) under which an agent can act on behalf of the principal and the principal is liable for the entire acts that are undertaken by an agent within the scope of the authority. Authority can be express or implied or ostensible. An express authority is one wherein the authority is granted to an agent expressly by the principal. An implied authority is provided through implications by the principal. And an ostensible authority is something wherein the agent posses authority because he was presented in front of a third party as a person who has the requite authority to bind the principal.

However, when an outsider is dealing with a company then as per section 128 an outsider is empowered to make few assumptions mentioned under section 129 of the Act.  As per sub section 3, the assumptions under section 129 can be made even when the person with whom he is dealing is acting fraudulently[12]. But, no assumptions can be made if the outsider is aware that the person with whom he is dealing does not have any authority to bind the company and is held in section 128 (4) of the Act.[13] As per section 129 of the Act, an outsider can assume that all the provisions of the Act, replaceable rules are comply with. As per section 129 (3), an outsider can assume that all the officers and agents of the company are duly appointed and has authority to bind the company. In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd[14] it was held that an authority to any person can be assumed by an outsider if the situation exists so. [15]

The managing Director of the company was David and Angela was the Sales manager of the company.  There are two grounds upon which the contract was denied by Dave’s Boating Pty Ltd’s.

Ground 1

 It was argued by Dave’s Boating Pty Ltd’s that the contract with Bioplastic Ltd is not enforceable as it is outside the object clause of the constitution of the company.

It is submitted that though the main object of the company was to manufacture fiberglass boats but the contract by Angela was to manufactures boats from a high tensile plastic, thus, the object clause was violated.

But, by applying section 125 of the Act, it is submitted that even when the object clause is violated still a contract made by the company is still enforceable and is binding upon the company.

Thus, Dave’s Boating Pty Ltd’s cannot deny the enforceability of the contract on the ground that the same is violating the object clause as is valid under section 125 (2) of the Act.

Ground 2

Now, Angela has a spending limit of $25,000 without the approval of the managing director but she spent $40,000. Thus, she has no authority to bind the company. But, Bioplastic Ltd can take the shield of section 128 and section 129 and submit that when she telephone David to enquire about Angela’s authority, the same was received by a clerk. So Bioplastic Ltd has assumed that it was David who has approved the actions of Angela and Bioplastic Ltd is assuming that all internal management rules are comply with.

Conclusion

Thus, Dave’s Boating Pty Ltd’s cannot refuse the contract with Bioplastic Ltd can as the actions is though beyond object clause but is protecting under section 125. Further, the assumptions under section 128 and section 12 prevails and thus, Bioplastic Ltd can sue Dave’s Boating Pty Ltd’s

Reference list

Books/Articles/journals

Julian Bailey, ‘Construction law’ (2014) CRC Press, 04-Apr-2014. p 78.

Krawitz A, ‘Protecting Outsiders to Corporate Contracts in Australia’ (2009) Volume 9, Number 3 (September 2002).

Latimer P, ‘Australian Business Law’ (2012) CCH Australia Limited,Business & Economics.

Seddon N, ‘Government Contracts: Federal, State and Local’ (2009) Federation Press.

Legislation

Corporation Act 2001

Case laws

Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd [2004] NSWSC 967.

Bay v Illawarra Stationery Supplies Pty Ltd (1986) ACLR 429

Black v Smallwood (1966) 117 CLR 52. Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd  (1975) 133 CLR 72

Commonwealth Bank v Australia Solar Information Pty Ltd (1987) 5 ACLC 124.

Kelner v Baxter (1866) LR 2 CP 174.

Lyford v Media Portfolio Ltd (1989) 7 ACLC 271.

Salomon v Salomon & Co Ltd [1896] UKHL 1.

South London Greyhound Racecourses Ltd v Wake [1931] 1 Ch 496

Twycross v Grant (1877) 2 CPD 469.