Corporations and Business Law: Contract Law and Corporations Law Questions

This document discusses contract law and corporations law questions related to misrepresentation, ratification of contracts, and assumptions made by outsiders dealing with a company.

CORPORATIONS AND BUSINESS LAW
Corporations and Business Law
Name of the Student
Name of the University
Author Note

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PART A: CONTRACT LAW QUESTIONS
Issue
Whether Jane has rights under common law and under statute law.
Rule
A valid contract needs to possess the following elements, namely,
• Existence of an offer, which has been followed by an acceptance.
• The parties entering into the contract must be competent to contract.
• There must be a consideration for both the parties of the contract.
• There must be an intention to create legal relations
• The consent of the parties must be obtained without the deceptive and misleading
representation about the terms of the contract.
However, the person who after reading the terms of the contract agrees to it, cannot
repudiate it because of the terms being unfair. This is because he has already agreed to the
same.
Under common law, misrepresentation implies a statement made during the formation of a
contract, which is misleading and false, made in order made to obtain the consent of one of
the party to the contract. Misrepresentation generally relates to a statement of facts, which is
material to the contract. The party to the contract, whose consent was obtained by such
misrepresentation, has the option of either repudiating the contract or claim damages.
However, to prove the commission of misrepresentation, the aggrieved party has the onus to
establish the following elements:

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 Misrepresentation must have been committed relating to a fact, which is material
to the contract. Misstatement of a fact, which is not material to the contract does
not amount to misrepresentation.
 The person whose consent was thus obtained by the misrepresentation must prove
that his consent to the contract was a result of the misrepresentation.
 A misrepresentation must be express, mere silence does not amount to
misrepresentation.
The person aggrieved of misrepresentation has the option of either repudiating the contract
or claim damages. The options that an aggrieved party will avail will depend on the
circumstances of the case. In case of the claim for damages, the quantum of damages will be
decided considering the loss caused by such misrepresentation.
Misrepresentation may be of three types, namely fraudulent, innocent or negligent. In the
case of innocent misrepresentation, a contract cannot be rescinded by the aggrieved party.
The same can be illustrated with the case of Seddon v. North Eastern Salt Co Ltd [1905] 1 Ch
326. The same was also followed in the case of Svanosio v. McNamara [1956] HCA 55.
A contract obtained by misrepresentation is voidable at the option of the aggrieved party.
A contract obtained on the basis of misrepresentation may confer upon the aggrieved party a
right to avail contractual remedy. The remedy can be availed either under common law or
under the Competition and Consumer Act 2010.
In the case of Shaddock & Associates Pty Ltd and Another v Parramatta City
Council (No 1) (1981) 36 ALR 385; (1981) 150 CLR 225, it was held that liability for
misrepresentation will arise, if a person has made the misstatement, being aware of the fact
that the other person will base his decision to enter into the contract on that statement.

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In the case of With v O’Flanagan [1936] Ch 575, misrepresentation was made by the seller
regarding the worth of a medical practice to the purchaser. The court held that failure to
disclose the proper worth is a misrepresentation of material facts.
The Competition and Consumer Act 2010, also contains provisions relating to
misrepresentation. The Australian Consumer Law recognises misrepresentation as an offence.
Under this Act, misrepresentation may incur a penalty for the person making the
misrepresentation. The penalty incurred may extend to a maximum fine of $1,100,000 for a
body corporate and $220,000 for individuals.
Application
In the present case, Allan made an offer to Jane to sell his travel agency. In that offer he
presented the turnover of his business to be $500,000 but furnished an evidence that
presented the turnover to be $450,000. Jane’s decision to buy the business of Allan was in
response to the presentation made by Jane. However, the consent of Jane was also influenced
by the belief on her capability to perform better.
The contract for sale contained no mention of the turnover of the company. It was also
mentioned in the contract that the representation made by the seller will not be considered
binding, if not expressly mentioned in the special conditions of the contract. However it was
found that the business turned out to be unprofitable and the turnover was hardly $250,000.
At this situation it can be stated that, Allan made statement presenting the turnover to be
$500,000 was untrue but he has also furnished the evidence that the turnover was $450,000.
Therefore, it can be stated that the previous statement was a misrepresentation but the
evidence was true. Moreover, the decision was based on the later statement and not on the
former one and being supported by the evidence, the later statement was considered to be
true. Thus, it can be stated that the first requirement of misrepresentation was not present.

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The statement, which obtained the consent of the aggrieved party to the contract, was not
false or misleading.
The decision of Jane to enter into the contract to buy the business of Allan was based on
the information provided by him but as the statement made by Allan was true, the
dependence of the consent to the contract on the statement is not relevant. The dependence of
the consent of Jane on his belief upon his own capability to prosper in the business is also
irrelevant.
Moreover, after few months the business turned out to be unprofitable and the turnover
was $250,000. Therefore, applying the decision of the case of With v O’Flanagan [1936] Ch
575, it can be stated that misrepresentation about a worth of a business while making a
contract to sell it may incur a right to rescind to the aggrieved party. However, the statement
made in the present situation cannot be based on evidence and cannot be regarded as
misrepresentation. Moreover, the unprofitability of the business is more related to the
capability of the person handling it.
Therefore, it can be stated that the present situation does not comes under the purview of
misrepresentation owing to the fact that statement made was true. It does not create any right
in favour of Janes.
Conclusion
Jane has no rights under common law or under statute law as in the present situation the
representation made by Allan was true and does not amount to misrepresentation.
PART B: CORPORATIONS LAW QUESTIONS
Issue
Assumptions that Carvers Pty Ltd is entitled to make. Who needs to be held liable for the
payment to Linen Ltd. for the supply of tablecloths.

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Rule
The Corporations Act 2001 contains provisions relating to contracts, which were entered
into by a company before it was registered. Section 131(1) of the Act renders all the contracts
entered into by a company prior to its registration to be binding on the company. A person,
who entered into a contract under the name of the company or to for the purpose of the
company, binds the company with the contract, making the company entitled to all the rights
assured under the contract. However, for availing the same the company needs to ratify the
same after being registered (Harris, Hargovan and Adams, M., 2015). The time within which
the ratification needs to be done after the registration of the company is
 By the time mentioned by the parties to the contract,
 In case of no such agreed time, the ratification needs to done within a reasonable
time.
According to section 131(2), in case the company fails to ratify the contract after being
registered or in case the company failed to register after making the contract, the person
making the contract must pay the damages to the other party.
The quantum of damages that the person is liable to pay in case of the company’s failure
to ratify the contract, will be the same amount, which would have been paid by the company
in case of ratification and non-performance of the same by the company.
Section 131(3) of the Act confers a discretionary power upon the Court while deciding the
amount of damages that is payable by the person in case of the Company’s failure to ratify
the contract. Section131(4) requires a company to pay damages in case the company ratifies
contract but fails to perform it. The same can be illustrated with the case of Knight Frank
Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103.

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Section 127 of the Corporations Act contains provisions relating to the execution of
documents by the company. A company may execute a document with or without an official
seal but the same needs to be executed and signed by two directors of the company or a
director and the company secretary or in case of sole proprietorship company by the sole
director of the company.
section 128 of the Corporations Act empowers a person to make assumptions while
dealing with the company. Section 129 of the Act lists the assumptions made by the person in
dealing with the company. A person being an outsider to the company and dealing with the
company is conferred with the power to assume that all the articles of association, bylaws and
other regulations of the company are complied with. The outsider does not have a power
question the internal affairs of the company. This rule is also called the indoor management
rule (Hanrahan, Ramsay, Stapledon 2017).
Application
In this present situation, Adam and Poh entered into a contract with Irish Linen Ltd. for
the purchase of tablecloths on behalf of their company, Master Plate Pty Ltd., which was
proposed to be registered. This makes the contract to be entered into prior to the registration
of the company. The company has two options available under section 131 of the
Corporations Act of either ratifying the contract or not ratifying it. In case the ratification has
been done the company will be bound by the contract and is liable to perform the same. In
case the company fails to ratify the contract, the person making the contract are liable to pay
the damages to the other party.
In this case, the company failed to ratify the contract within reasonable time. This makes
the contract automatically ratified by the company owing to the elapsing of reasonable time
within which it needed to be rescinded or ratified. As the company has by default accepted

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the contract, the terms of the contract are binding on the company. The company has two
option in this regard. It can either perform the contract or pay damages to the other party.
Again, the Irish Linen Ltd. has made the supply of the tablecloths performing their part of
the contract. The company received the delivery but denying payment for the same. With the
delivery of the tablecloths the company was incurred with the liability of performing their
part of the contract. Therefore, it makes the company liable to pay for the tablecloth.
Again, the company entered into a contract with the Carvers Pty Ltd. While executing that
contract, the company affixed its seal in the contract and signed the same. This attracts
section 128 and 129 of the Corporations Act. The Carvers Pty Ltd is entitled to make certain
assumption regarding the company by virtue of this section. The Carvers Pty Ltd is conferred
with the right to assume that the company has complied with all the requirements that has
been provided under the doctrine of indoor management. That the company has developed a
set of rules regulating its internal affairs.
However, the company has failed to adopt a constitution. But Carvers Pty Ltd has the right
to assume that the company has adopted a constitution and may assume that the company has
instituted the contract in compliance with the same.
Conclusion
Carvers Pty Ltd is entitled to make relating to the indoor management of the company.
The company needs to be held liable for the payment to Linen Ltd. for the supply of
tablecloths.

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Reference
Seddon v. North Eastern Salt Co Ltd [1905] 1 Ch 326
Shaddock & Associates Pty Ltd and Another v Parramatta City Council (No 1) (1981)
36 ALR 385; (1981) 150 CLR 225
Svanosio v. McNamara [1956] HCA 55
The Competition and Consumer Act 2010
With v O’Flanagan [1936] Ch 575
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103
The Corporations Act 2001
Harris, J. Hargovan, A. Adams, M., 2015,Australian Corporate Law LexisNexis Butterworths
5th edition.
Hanrahan, P., Ramsay I., Stapledon G., 2017, Commercial Applications of Company Law.
Oxford 18th edition.