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Common Law Case Study Contracts

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Added on  2020-04-07

Common Law Case Study Contracts

   Added on 2020-04-07

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Running Head: Law 1Law
Common Law Case Study Contracts_1
Law2Answer 1Issue: Whether contract signed by Bob on behalf of Sunshine Scooter Art Pty Ltd (SSA) with computerSupplies Pty Ltd and Plastica Pty Ltd bound the SSA? Rule: Generally, company is bound by only those contracts which are signed by the person authorizedby the company. In number of cases, authority of the person is denied by the company forignoring its obligation under the contract. Because of these issues it becomes important foroutsiders to confirm the authority of the person who is acting on behalf of the company and alsothe compilation regarding internal rules of the company before entering into any transaction withthe company. However, those companies which have more than one or two directors imposed the managementpower not to the single director but to the board collectively for the purpose of managing theaffairs of the company and entering into contract with outsiders. These powers are imposedeither through the constitution of the company or replaceable rules. In other words, completemanagement power does not imposed in single director. Board of directors of the company has power to pass resolution for the purpose of entering intocontract on behalf of the company, but it must be noted that these powers are subject to somerestrictions also. In other words, board has power to enter into contract but some matters arestrictly reserved for shareholder’s approval.
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Law3It must be noted that this concept of law is not fair because it make the outsiders liable to checkwhether company and authorized person complied with all the necessary requirements or not.Therefore, it becomes necessary for law to protect the interest of outsiders. Common law which protects the outsider’s interest is introduced for balancing the competingpolicy issues. Two interests are balanced through this law, and both the interests are statedbelow:First interest is related to the convenience of business which can be affected outsiders areforced to investigate the internal regulations of the company for the purpose of checkingthe actual authority of the person acting on behalf of the company. Second interest is related to the protection of the shareholders and creditors interest in thecompany. according to the Mason CJ, while applying the first interest it is necessary toprevent over extensive application of the first interest for the purpose of preventing thefacility of the fraud and unjust favor to those who deal with the companies at the cost ofinterest of creditors and shareholders. Common law introduced doctrine of indoor management and section 128 and 129 of theCorporation Act 2001 for the purpose of protecting the interest of the outsiders while dealingwith the company (Krawitz, 2002). High Court of Australia approved the rule of Indoor Management in case of Albert Gardens(Manly) Ltd v. Mercantile Credits Ltd, and make the comment on this matter in case Northside
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Law4Developments Pty Ltd v. Registrar-General. Both the cases are considered as importantreference for understanding the doctrine of Indoor management. This doctrine is introduced for those outsiders who are dealing with the company in good faithand they do not have any sufficient reason to believe that person is not authorized to act onbehalf of the company and management fails to compile with the internal rules of the company.Outsider who is dealing with the company in good faith is not under obligation to confirmwhether person complied with all the rules and regulations or not. Therefore, it is the right ofoutsider to make assumption that person acting on behalf of the company is duly authorized bythe company and compiled with all the rules and regulations of the company. This assumptioncan only be made regarding the internal matters of the company. If outsider wants protectionunder doctrine of indoor management then subject matter must be related to the internalmanagement of the company (ILO, 2014). Following things can be assumed by the outsider while dealing with the company:There is no procedural defect on the part of the company while appointing the company’sdirector.Resolution passed in the board meeting fulfills all the necessary requirements of thecompany, and meeting held as per the norms of the company and constitution. Any required approval either board or member has been obtained. This doctrine is applicable only in those case in which outsider is involved, and it providesguidance to the person who is dealing with the company. However, this doctrine is not applicableon public corporation only but it also applied on private corporations also.
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