Business Law

This document provides an analysis of contract law and corporation law in the context of business. It discusses the capacity of parties to contract, assumptions made by companies, and the enforceability of contracts. The document also includes case studies and relevant legislation.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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Table of Contents
PART A: Contract Law...................................................................................................................2
Issue.............................................................................................................................................2
Rule..............................................................................................................................................2
Application..................................................................................................................................4
Conclusion...................................................................................................................................5
Bibliography....................................................................................................................................6
PART B: Corporation Law..............................................................................................................7
Issue.............................................................................................................................................7
Rule..............................................................................................................................................7
Application................................................................................................................................10
Conclusion.................................................................................................................................11
Bibliography..................................................................................................................................12

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PART A: Contract Law
Issue
The issue in the given case is to advise john whether:
a) He is bound by the contract to buy the tools;
b) He could enforce the contract to gain the profit from the sale of his AppTools shares; and
c) The liquidator could sue John to recover the remaining money that he owed on the
BuzzTools shares.
Rule
A valid contract not only depends on an offer, an acceptance and a consideration, but also
on another extremely essential factor, which is the capacity of the parties to contract. Some of the
classes and categories of person are refrained from entering into a contract as they lack the
capacity, for the subsequent contract would not be enforceable against them. Such restricted
category includes minor, lunatics, intoxicated people and bankrupts. Both common law and
statutory law restrict minors from entering into contract, only to safeguard them from being
cheated or defrauded. The common law states that a contract entered by a person below the age
of 18 years is to be treated as voidable. However, there are a number of exception to this rule,
some of which even have the confirmation of a statute.

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Contract for necessities
When a minor enters into a contract with a person for meeting necessities, then such
contract would be held as legally binding on both the parties. Here, necessities have been defined
as the basic goods or services that the minor require in accordance to his existing lifestyle and it
would be indispensable for the minor to sustain. Section 7 of the Goods Act 1958 (Victoria) has
given this notion a statutory support1. In the case of Nash v Inman, it was held by Lord Buckley
that a minor may enter into an agreement to fetch commodities which are necessary for him to
sustain a life of comfort, things which he does not already own in abundance2. In this case, the
following two conditions were introduced to prove the presence of the contract of necessities.
These are: a) the minor must have entered into the agreement for collecting his basic needs
essential for a comfortable life, the way he has been living; and b) the minor must not be having
a sufficient supply of the same things for which he has entered into the agreement.
Beneficial contract of employment
A minor is eligible to enter into a contract with another for providing employment of care
to such other person. However, such contract can be repudiated when the minor attains
adulthood.
Contracts that are beyond the scope of the above two exceptions are considered to be
voidable. The court treats the term voidable differently in terms of deciding the obligation of the
minor in a contractual matter. Unless it involves the acquisition of a property permanently or
carrying out an unavoidable legal obligation, minors cannot be made legally bound to execute a
1 Goods Act 1958 (Victoria), s 7
2 [1908] 2 KB 1

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contract3. For a contract to be enforceable against a minor, he or she needs to ratify such contract
on attaining adulthood. No other contractual agreement would be enforceable against a minor.
In addition, it is to be noted that a minor does not have the capacity to invest in a stock
market. However, a minor can take the assistance of a legal guardian in order to open an online
trading account, who would act as a guarantor of the minor for the subsequent stock market
trading.
Application
In the given case study, John is only 16 years old, which makes him a minor in the eye of
law and this fact bars him from entering into any contract, except for the ones that are essential
for fulfilling his necessities and for the purpose of employment.
John bought the set of tools for pursuing an apprenticeship in plumbing after he finishes
school. This gives a subtle hint that such purchase would aid John in building a future career for
himself, after he graduates school. This reason behind the purchase could be considered as a
Contract of Necessity for him. Thus, it can be held that the purchase of the tools could be
enforced against him.
John would not be able to enforce the contract to derive the benefits from the sale of the
AppTool shares that performed well in the stock market while the BuzzTool shares sank. It is a
fundamental rule of trading in a stock market that a minor cannot indulge and invest in share
market trading. However, the minor can take the help of a guardian for opening an online trading
3 Roberts v Gray [1913] KB 520

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account, who would be a guarantor of the minor for the subsequent activities of trading and its
risks. Therefore, the agreement between John and his broke to invest in stock market does not
stand strong and is void.
Similar to the above analysis, John being a minor, cannot sue and cannot be sued in the
context of stock market trading, for he was on the first place not eligible to invest in stock market
trading. The companies offering their shares to the public bears a duty to check the capacity of
the party purchasing such shares. John could be sued only if it is found that he has been trading
with the assistance and support of one of his legal guardians who would act as his guarantor.
This such scenario, BuzzTool could sue John’s legal guardian cum guarantor for recovering the
remaining money that he owed for purchasing the shares.
Conclusion
Therefore, it can be concluded that John could be made bound by the contract for buying
the tools. However, neither can he enforce the contract to gain the profit from the sale of his
AppTools shares; nor can the liquidator can sue John to recover the remaining money that he
owed on the BuzzTools shares.

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Bibliography
Cases
Nash v Inman [1908] 2 KB 1
Roberts v Gray [1913] KB 520
Legislation
Goods Act 1958 (Victoria)

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PART B: Corporation Law
Question 2
Issue
The issue in this given case is:
a) To determine the assumption that Carver’s Pty Ltd is supposed to make regarding Adam's
affixation of the company seal to the contractual documents; and
b) To ascertain the party who may be liable to pay Irish linen Ltd.
Rule
A) Assumptions made by the other party
Section 127(1) of the Corporations Act 2001 states that a company can execute a
document devoid of common seal, only if such document is: a) signed by two of the directors of
the company; or b) one of the directors and a company secretary appointed by the company; or c)
the sole director for a proprietary company who also happens to be the sole company secretary4.
It is directed that in case a company execute document in the above-mentioned way, people or
other companies would be liable to make assumptions in accordance to Section 129 (5) of the
Act while dealing with the company5.
4 Corporations Act 2001, s 127(1)
5 Corporations Act 2001, s 129 (5)

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Section 127 (2) of the Corporations Act 2001 has laid down that when a company
execute a document under its common seal, and there should be witness to observe such fixing
of the official seal6. The following witnesses allowed in this situation are: a) two directors of the
company; b) one of the directors and a company secretary of such company; or c) A sole director
in case of a proprietary company who also happens to be the sole company secretary. Other
companies or people would be liable to rely upon the assumptions made in section 129 (6), if the
company in question execute a document7.
While Section 128 (1) of the Act entitles a person to make assumptions pertaining to the
operations or functioning of the company under section 1298. However, the company is not
eligible to assert regarding the proceedings relating to the dealings of the company and that the
assumptions are false. Sub section 2 of section 128 of the Act states that a person can make
assumptions regarding section 129 pertaining to the dealings with another person who acquires a
position or property title in the company9. The company or any other person related to the
company, has no authority to assert relating to the fact that the assumptions of the other person
were in correct.
However section 128 (4) states that a party should not assume something to be correct if
at the time of the dealings it suspected something to be wrong10.
6 Corporations Act 2001, s 127(2)
7 Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103
8 Corporations Act 2001, s 128(1)
9 Corporations Act 2001, s 128(2)
10 Corporations Act 2001, s 128(4)

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Section 129(3) of the Corporations Act helps to presume that a person who appears
available to the public from ASIC, would be assumed to be the director of the company secretary
of such company11.
While, Section 129 (6) holds that a person may presume a document to be executed and
authorised by the company, when: a) the document bear common seal of the company which was
fixed as per the section 127 (2); also b) there has been witnesses of the fixing of the common seal
of the company in accordance with law12.
B) Contracts signed before registration
Section 131 (1) of the Corporations Act states that when a company or any authorised
person related to it enters into a contract, before the company is registered, in such case, the
company becomes legally bound by such contract13. It would be liable to register and ratify the
contract, either within the time that has been agreed by the parties to the contract, or within a
reasonable amount of time of the signing the contract in case there is no agreed time.
Section 131 (2) says that when a company fails to register or ratify a pre-registration
contract within the agreed time or within a reasonable time, then in that case the company or the
person who acted on behalf of the company shall be held liable to pay damages14.
11 Corporations Act 2001, s 129(3)
12 Corporations Act 2001, s 129(6)
13 Corporations Act 2001, s 131(1)
14 Corporations Act 2001, s 131(2)

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Section 131 (3) of the act says that when a company which registers is itself however fails
to ratify a pre-registration contract, the court may order the company to: i) make payment of the
entire or portion of the damages that the other company or its representative deserve to receive15.
Application
In the given case, Adam and Poh named their restaurant ‘Master Plate Pty Ltd’ and enter
into a contract with Irish linen limited to purchase monogram tablecloths. At this point of time,
the company was not registered nor did it have a constitution. After getting the company
registered on a later date, Adam and Poh took the post of directors by taking up 50% of the
issued capital each. However, they did not ratified the contract that they had signed with Irish
linen Ltd. In addition, Adam signed a contract with Carvers Pty Ltd by fixing the company seal
onto the contract document.
A)
As per the provisions under section 127 of the Corporations Act, Master Plate Pty Ltd
having a common seal must sign the contractual documents under the witness of either two
directors of the company or under a director or a company secretary or under the supervision of
the sole director of a proprietary company16. It would be just as reasonable for Irish linen to rely
on the assumption of master plate when they have executed the document in the above
mentioned way. A party to a contract is therefore free to assume that the company that have
affixed its common seal on a contractual document would be legally bound to executed, however
15 Corporations Act 2001, s 131(3)
16 Corporations Act 2001, s 127

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the fixing of the common seal must be carried out in the presence of the following people as
mentioned under section 12717.
B)
In this part of the case, Master Plate entered into the contract with Irish linen while it was
not registered and naturally, the agreement was non-ratified. Therefore, as per section 131 of the
Corporations Act, Master Plate was supposed to ratify the contract with Irish Linen as per their
mutually agreed time or within a reasonable period after registering the company18. On failure to
ratify the pre-registration contract, the defaulter company i.e. Master Plate would be directed by
the court to carry out either one or more of the following actions. These are: a) the court may
direct Master Plate to make a payment of the entire or a portion of the damages that Irish linen
deserves; b) the court may order Master Plate to return the tablecloths to Irish linen for not
ratifying the contract; c) it may also ask Master Plate to make the legitimate payment of Irish
linen for the tablecloths that is supplied.
Conclusion
Therefore, Carver’s Pty Ltd is supposed to make an assumption of a prevalence of a valid
agreement, in context to Adam's affixation of the company seal to the contractual documents.
Additionally, Master Plate Pty Ltd would be liable to pay Irish linen Ltd.
17 Ibid.
18 Corporations Act 2001, s 131

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Bibliography
Case law
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103
Legislation
Corporations Act 2001