Legal Issues in Partnership and Company Law

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Contents
Solution 1.........................................................................................................................................2
Issue.............................................................................................................................................2
Applicable Law............................................................................................................................2
Application of Law......................................................................................................................3
Conclusion...................................................................................................................................4
Solution 2.........................................................................................................................................4
Issues............................................................................................................................................4
Applicable Law............................................................................................................................4
Application of Law......................................................................................................................5
Conclusion...................................................................................................................................6
Bibliography....................................................................................................................................7

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Solution 1
Issue
Whether Thor Mining Machinery Limited (Thor) and Volvo Trucks (Australia) Ltd (Volvo) can
sue Steve Jones for the breach of contract?
Applicable Law
In Australia, when any company is formulated then it is considered as a separate legal entity in
law. A separate legal entity signifies that the company is an independent legal person in the eyes
of law. the directors, shareholders and officers of the company are distinct and the acts that are
carried on by them are carried on behalf of the company and bind the company itself and is held
in the leading case of (Salomon v A Salomon and Co Ltd, 1897). (Cassidy, 2006)
There are numerous contracts that can be established by the company on its own behalf ad the
company must company with its contractual obligations. If there is any breach of any contractual
relationship then it will bound the company and no officer of the company can be held liable for
the same.
But, at times, there are needs to formulate contracts for the company even before the
incorporation of the company. The contracts that are established by the representative or the
promoter of the company before the registration of the company are called pre-registration
contracts. Generally, such contracts are not considered as enforceable in law and the parties who
formulate such pre-registration contracts faces consequences. (Harris, Hargovan, & Adams,
2011)
Section 131 of the Corporation Act 201 is enacted to deal with such pre-registration contracts.
The section 131 of the Act simply submits that generally the pre –registration contracts has no
validity in law but if the company after its registration desires to ratify the contract and actually
ratifies the same then such contracts are enforceable in law and are binding upon the company.
But, if the ore registration contracts are not ratified by the company after its registration with a
specific time frame then as per (Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty
Limited , 2004)such contracts are not enforceable against the company but will make the
promoter liable for the same personally.
Section 131 of the Act will apply for those contracts that are established before the registration of
the company. If the contracts are made after its registration, then, section 131 has no application
and is held in (Commonwealth Bank of Australia vs. Australian Solar Information Pty Ltd,
1987). (Hossain, 2013)

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Likewise, in common law, the contract which are made before the registration of the company
are considered as void. The company has no power to ratify the contract after its incorporation
and is held in (Kener v Baxter, 1866). (Easson & Soberman, 1992)
Application of Law
As per the facts,
Steve Jones was an entrepreneur and learned that there were gold deposits in Western Australia.
in order to exploit the opportunities he flew to Perth on 6th July and established a contract with
Thor Mining Machinery Limited to purchase a drilling machine. As per the terms of the contract
the drilling machine is to be supplied and the payment of $125,000 would fall due on 30th July.
The contract was signed by Steve Jones on behalf of WA Gold Exploration Ltd.
It is submitted that the contract that was formulated by Steve Jones with Thor Mining Machinery
Limited was on 6th July and he signed the contract representing WA Gold Exploration Ltd.
however, the commonly was not registered when the contract was formulated by Steve Jones.
It is submitted that WA Gold Exploration Ltd was registered on 10th July wherein Steve Jones
hold 90% of the shares. On 11 July he and all the shareholders of the company met and 5
directors were decided wherein Steve Jones decided not to become the director of the company
because of the lack of expertise.
On 25th July, the board of WA Gold Exploration Ltd decided that the company will now buy the
machinery from United Mining Machinery Limited for $100,000. The company also contacted
Thor Mining Machinery Limited communicating that they no longer intent to abide by the
contract.
It is submitted that as per section 131 of the Corporation Act 2001, the contract that was
established by Steve Jones was a pre –incorporation contract such contracts have no value in law
unless they are ratified by the company on its incorporation. It is submitted that WA Gold
Exploration Ltd decided not to ratify the contract that was formulated by Steve Jones established
with Thor Mining Machinery Limited. So, such contract has no validity in law and thus Thor
Mining Machinery Limited cannot sue WA Gold Exploration Ltd for the breach of any
contractual obligations (Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Limited ,
2004).
However, Thor Mining Machinery Limited has the right to sue Steve Jones in his personal
capacity for the loss that is sustained by Thor Mining Machinery Limited for the non compliance
of the contractual obligations.
However, the contract with Volvo is established by WA Gold Exploration Ltd after its
incorporation and thus any contract with Volvo must be comply with by the company. The non