Business and Corporation Law

This article discusses the principles of business and corporation law. It covers topics such as duress, undue influence, unconscionable conducts, and pre-incorporation contracts. The article also provides case laws and their application to real-life scenarios.

Running head: Business and Corporation Law
Business and Corporation Law
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Question 1: Ann and Her Grandmother
Issue
The main issue is deciding whether a contract made under duress, undue influence and
unconscionable conducts can be enforceable in law. In particular, Can Anna’s grandmother ask
the court to set aside the transfers on the ground that she Ann exerted duress, undue influence,
and unconscionable conducts?
Law
In law, contracts entered following an exercise of duress, undue influence or
unconscionable conducts on the other party are voidable upon the choice of the weaker party
(McKendrick, 2017, p.78). What this means is that these contracts are valid after their formation,
but the court can set them aside upon the request of the other party. Duress is a principle in
common law which prevents the party from acquiring the benefits of the contract through the use
of threats, violence, coercion or economic duress. In Universe Tankships v. International
Transport Workers Federation, (1983) line 400, Lord Scarman's defined a test for duress that
uses two elements. For (i) pressure that amounts to the compulsion of a victim’s will; (ii) the
pressure must be illegitimate. In this case, the defendant prevented the plaintiff’s ship from
leaving port until he cleared the demanded payment. The court ruled that the payment was
acquired through unjust means. The same test has been affirmed by New South Wales Court of
Appeal in the case of Crescendo Management Pty Ltd v. Westpac Banking Corporation, (1988),
line 46. The court stated that duress involves illegitimate pressure which involves unlawful
threats. Again in Australia & New Zealand Banking Group v. Karam, (2005) line 68, it was held
that duress should involve threats or actual unlawful conducts.

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The principle of undue influence is developed through the doctrine of equitable fraud.
Undue influence exist either as actual or presumed undue influence. Actual undue influence
occurs where there is evidence that if not for the fact that the guilty party used improper pressure
while they were negotiating, the innocent party would not have accepted to form the contract.
This definition was given in the case of Johnson v. Buttress, (1936), it is the power to practice
domination which is not found in antecedent relation but rather in the tactics of the guilty party.
Presumed undue influence’ occurs in situations where the one party has higher status, dominant
position, or superior position than the victim. These circumstances are also called unequal
relationships which include teacher/pupil, solicitor/client, doctor/patient, trustee/ beneficiary etc.
In contrast, courts have been reluctant in regarding elderly adult/adult child relationship as an
unequal relationship (Mandelstam, 2008, p.224). So in such circumstances, the court is forced to
look at other factors of undue influences such as the age of the old adult, mental status and
intelligence among other things. In addition to these factors, the court also looks at improper
pressure, poor conducts of the benefiting party and substantive gift that he received.
Notably, these factors would only be applied on the basis of contractual capacity or
testamentary capacity. In general, undue influence looks at the power imbalance between the
contracting parties, and whether the influence used was ‘undue.’ The Australian High Court gave
a general definition that focuses on finding the consent of the weaker party, and then analyzing
the quality of that content to find whether it came out of free will Commercial Bank of Australia
Ltd v Amadio, (1983).
Unconscionability is also a principle within the doctrine of equitable fraud. This mainly
operates in bargaining where the stronger party takes advantage of the weakness of the weaker
party. In the case of Lloyds Bank Ltd v Bundy, (1975), Lord Denning defined unconscionable

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conducts as inequality when exercising the bargaining power. He then continued to say that the
law must provide relief to the person who having no independent advice, entered into the
contract as per the unfair terms provided by the other party. Either, he said that the law must give
relief to the party which transferred the property in exchange for a grossly inadequate
consideration due to impaired bargaining power.
Application
Applying the tests mentioned for duress, the elements of duress have been held as
pressure on the victim, and this pressure must be illegitimate. Illegitimate pressure must have
threats. As we can we can see, the facts of this case show that Anna was sometimes using threats
on her grandmother. The presence of threats in her action makes the case fail to pass the test for
duress (Contract was made under duress).
The second test is for undue influence, this test involves analyzing the quality of the
consent as explained in Commercial Bank of Australia Ltd v Amadio, (1983). To find the quality,
the court may look at the age of the grandmother to decide whether she has the contractual
capacity (Burns, 2005). This would also involve looking for instances of pressure and unfair
advantage. On that analysis, the court would first find that despite the fact that Anna was not the
favorites child, she is the one who acquire more benefits than Peter, and that alone will raise a
presumption of undue influence. Secondly, the age, and health status of the grandmother, as these
factors are likely to cause mental deterioration, this would create another proof of undue
influence.
The last test would involve looking for unconscionable conducts or unfair benefits. Some
of the elements include the innocent party’s weakness being taken as an advantage against her.

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As this is evident in Anna’s case, unfair bargaining would be present and the court will be
convinced to set the contract aside.
Conclusion
All the transactions and transfers made by the grandmother would be voidable. The
grandmother or Peter can request the court to set aside the transfers as they were made through
duress, undue influence, and unconscionable conducts.
Question 2: Adam and Poh; Master Plate Pty; Irish Linen Pty Ltd
Issue
The main issue is a question as to who bears the liability of the contract between entered
by Adam and Poh on behalf of Master Plate Pty. Two question arise from here are; (i) is an
unregistered company liable for contracts that were made before it was incorporated? The second
question is, if the company does not ratify pre-incorporation contracts, are the promoters liable
for the breaches?
Rule of Law
Every company starts with promoters or the founders planning of its incorporation.
However, due to the pressure to start a business quickly or the need to purchase some necessary
items, the founders find it worth to enter into a contract in the name of the company.
Nevertheless, the law of corporations does not recognize unregistered companies. Like a person,
registered companies are said to have legal personality to own property, sue and be sued. In the
formation of contracts, companies must have a legal capacity which is intertwined with their
legal personality (Jones, 2015, p.131). So, registration is what gives a company both legal
personality and contractual capacity.

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Once a company acquires its legal capacity and contractual capacity, the law allows it to
enter into agreements, and it does that through its agents. In agency law, agents are persons who
have the authority to act on behalf of their principal. Therefore, company directors, founders, or
employees with the authority are allowed to enter into the contract on behalf of the company.
Therefore, the principal must exist before someone acts on his behalf. This was the law
developed in the case of Kelner v. Baxter, (1866) which was one of the first cases that dealt with
the issues of pre-incorporation contracts. Applying the principles of common law, the court
affirmed that no agents can purport to act on behalf of a principal who does not exist. In this
times, the common law did not provide a way of ratification of contracts, so the court settled that
the promoters were the one to bare the all the liability of the contract but not the company.
Another case that applied the same principle was later decided on Newborne v. Sensolid
Co. Ltd, (1954). However, this case explained that the reasoning of Kelner v. Baxter was not just
based on ‘who made the contract,’ but the construction of the contract itself. This case ruled out
the presumption that there is always automatic turn-on promoters to take the responsibilities of
pre-incorporated contracts. This case arose from a contract where the plaintiff formed a contract
with the defendant for the purchase of a consignment. The entire construction of the contract
demonstrated that both parties intended to transact as Companies but not individuals. The
plaintiff himself had even indicated that he was signing on behalf of the company. Unfortunately,
the company was not incorporated. When the defendant breached the agreement, the plaintiff
sought to enforce it as an individual. The court decided that the construction of the contract
showed that both parties, including the plaintiff, intended to contract as a company.
The Australia court also examined the construction of the contract in Black v. Smallwood
and Cooper, (1964) while explaining that the principles brought by (Kelner v. Baxter, (1866)

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were not authorities for all situation. The defendants were planning to incorporate a company
named Western Suburbs Holdings Pty. Ltd. Before its incorporation, they entered into a contract
with Black for the sale of land. When the defendants breached the agreement, the claimant
elected an action for breach. Again, the court looked at the construction of the contract and found
that it was made intended to be made between companies but not individuals. Thus, the court
applied the principle in Newborne v. Sensolid Ltd and affirmed that individuals cannot be held
responsible for a contract that was intended to create with the plaintiff acting as a company but
not individuals.
The transformation in the corporation law of Australia has provided provisions for
ratifying contracts made before the registration of a company. These provisions are contained in
(Corporations Act, 2001. s131.). However, section 131(1) provides that ratification can only be
valid if the unregistered company becomes fully incorporated, and if it would accept the pre-
incorporation contracts upon its discretion. Also, a contract can only be ratified if it has not
passed the required time of performance (Australia, 2011, p. 192). On the other hand, where the
unregistered company is not registered, the promoters would take the responsibilities and
liability of the contract.
Application
The application of the rules stated above Adam and Poh scenario requires an examination
of these rules as set in Kelner v. Baxter, (1866), Newborne v. Sensolid Co. Ltd, (1954) and Black
v. Smallwood and Cooper, (1964). The first presumption is that promoters bear the liability of the
contract as provided by the case of Kelner v. Baxter. If we go by these rules, Adam would bear
the liability. As we move to the application of the formula in Newborne v. Sensolid Co. Ltd,
(1954), the rules would require the examination of the construction of the Contract. And like

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Newborne, Adam signed the contract not as an individual, but as Master Plate Pty. Therefore, the
formula will rule out the earlier presumption of automatically making the promoter liable. The
last case of (Black v. Smallwood and Cooper, (1964) also affirms the decision that neither the
Master Plate Pty nor Adam is liable for the contract. A confirmation of the exemption of Master
Plate Pty can also be deduced from the ruling of (Aztech Science v Atlanta Aerospace (Woy
Woy), (2005) where a company cannot be held liable for failure to ratify contracts that were
made before its incorporation.
Conclusion
Master Plate Pty will not be liable as the contract was made before its existence. Neither
Adam nor Poh would be liable since the contract was made with a non-existing company but not
them as individuals. On the part of Irish Linen Pty Ltd, this could only be a lesson that
companies should take the responsibility of confirming whether the companies represented by
the agents whether they really exist.

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References
Australia, 2011. Australian Corporations & Securities Legislation 2011: Corporations Act 2001,
ASIC Act 2001, related regulations. CCH Australia Limited.
Australia & New Zealand Banking Group v. Karam [2005] NSWLR 64.
Aztech Science v Atlanta Aerospace (Woy Woy) [2005] NSWCA 319.
Black v. Smallwood and Cooper [1964] NSWR 1964.
Burns, F.R., 2005. Elders and Testamentary Undue Influence in Australia" [2005] UNSWLawJl
8; (2005) 28(1) University of New South Wales Law Journal 145. [online] 28(1). Available at:
<http://www.austlii.edu.au/au/journals/UNSWLawJl/2005/8.html> [Accessed 11 Sep. 2018].
Commercial Bank of Australia Ltd v Amadio [1983] 151 CLR 447 1983.
Corporations Act 2001 (Cth).
Crescendo Management Pty Ltd v. Westpac Banking Corporation [1988] NSWLR 19.
Johnson v. Buttress [1936] CLR 56.
Jones, L., 2015. Introduction to Business Law. Oxford University Press.
Kelner v. Baxter [1866] CP 2.
Lloyds Bank Ltd v Bundy [1975] QB 326.
Mandelstam, M., 2008. Safeguarding Vulnerable Adults and the Law. Jessica Kingsley
Publishers.
McKendrick, E., 2017. Contract Law. 12th ed. UK: Macmillan International Higher Education.
Newborne v. Sensolid Co. Ltd [1954] QB 1.
Universe Tankships v. International Transport Workers Federation [1983] 1 AC 366.