Case Study on Contract Law and Corporate Law

Running Head: CASE STUDY
CASE STUDY
Name of the Student
Name of the University
Author’s Note

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CASE STUDY
ASSIGNMENT 1:
Issue
The first issue in the case is whether Michael is responsible for the breach of contract as
sued by W A Lithium refineries.
The second issue in the case is whether Michael is responsible for 250000$ to AES
Limited.
Rules
The principle of pre-registration contract means that the contract has been entered into by
the company even before its registration. Such principle has been recognised under the common
law principle. However the ratification of such contracts has not been recognized under the
common law rules because the ratification of contract involves the application of retrospective
aspect of ratifying the contract whereas the common law rules is more of the prospective nature
involving situation analysis in future aspects (Tomasic, Bottomley and Queen 2002).
Sections 131 (1), 131 (2) and 131 (3) of the corporations act of Australia has been clear
about the replacement of rights and liabilities of a person or company with respect to the pre-
registration contract. This means that any previous statutory regulations and the common law
principles have no effect ability upon the establishment of rights and liabilities of such person
and the such circumstances under section 131 subclass 1 of the act it has been explained that the
pre-registration contracts shall not be applicable if the company has been incorporated before the
contract is made. The leading case law in this aspect is Commonwealth Bank Australia versus
Australian Solar Information Pty Ltd. (1986) 11 ACLR 380. In the given leading case law it was

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CASE STUDY
held by the court that the pre-registration contracts shall not be applicable when the company
enters into the contract before it was renamed to serve the purpose of the business. The provision
of the Act also states for the limitation upon the applicability of the rights and liabilities of the
person entering into the contract before its registration. It states that the company should be
register before it can be ratified. In addition the contract entered into by the company prior to its
registration is subject to the procedure of ratification. It has been outlined in Aztech Science vs,
Atlanta Aerospace (Woy Woy) [2005] NSWCA 319. Such ratification can be express or implied.
According to Section 131 (2) of the Act it can be detailed that the person who has entered
into the contract prior to the registration of the company shall be personally liable for all the
contracts and dealings entered into by search and registered company. However the intention to
ratify is not recognised by the act. In other words this means that if the rectification has been
duly completed within the stipulated time then and there the process of ratification shall be
identified. The idea behind such personal liability of the person in the pre-registered contract of
the company is that because a company is not registered its accountability cannot be identified.
Hence, the person entering into the contract prior to the registration shall be providing his or her
guarantee for the accountability and genuineness of the company which has not been registered.
Under section 598 CA it can be stated that in case the promoter breaches his or her duties
following remedies can be provided.
 Pay money
 Transfer of Property to the title of the company
 Payment of compensation for the loss or damage incurred