Group Assignment: Business and Corporate Law Case Studies Analysis

This assignment addresses two case studies in Business and Corporate Law. Part A examines a minor's capacity to enter contracts, focusing on the purchase of tools and the sale of shares, analyzing whether the contracts are binding under the law and considering exceptions related to necessaries and beneficial contracts of service. It explores the rights of the minor, the broker, and the liquidator. Part B delves into company law, focusing on pre-registration contracts, the liability of promoters, and the assumptions third parties can make regarding a company's actions. It examines the validity of contracts signed before incorporation and the application of sections 126, 127, 128, and 129 of the Corporations Act, considering the roles of directors, company seals, and the ability of third parties to rely on company representations. The assignment aims to provide a comprehensive understanding of contract law, company law, and the rights and obligations of parties in various commercial contexts. The solution uses relevant case laws and legislations to support the arguments.

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BUSINESS AND CORPORATE LAW

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PART A
ISSUE
The issue which is presented in the first case is whether John is legally bound to purchase
the tools? Another issue is whether John has the right to enforce the contractual terms on
the broker to receive the profits from the sale? Lastly, whether the liquidator has the right
to enforce John in order to recover the unpaid money from John for the share of
BuzzTools?
RULE
The element of capacity in contract law provides that a valid contract cannot be
constructed if the parties of the contract did not have the capacity to create a legal
relationship. As per this provision, a person who is minor, insolvent or unsound mind
cannot have the right to create a legal framework (Poole, 2016). Under common law, a
person who attained the age of 21 years; however, as per legislation, a person who attains
the age of 18 years acquire the right to form a contractual relationship. As per this
provision, a person below the age of 18 years cannot form a legal relationship through a
contract (Fitzpatrick, 2017). Nevertheless, exceptions to this general rule are available. A
minor can form a legal relationship for the purchase of ‘necessaries’ and also create a
legally binding relationship for ‘beneficial contracts of service’. All other contracts that did
not fall within these two types are referred as ‘trading contracts’ which gives the right to
minor that they can repudiate the contractual relationship or they can ratify the contract
after they attain the age of 18 years until then it is considered as voidable. In order to
understand the definition of ‘necessaries’, the judgement given by the court in the case of
Chappie v Cooper (1844) 153 ER 105 can be evaluated.
In this case, it was held by the court that necessaries include things which are important
for a person to reasonably exist such as food, transportation, clothing and others. It was
also held by the court that things which are required for proper cultivation of the mind such
as intellectual, art, trade, moral and religious life also comes within the scope of
necessaries (Turner, 2013). Furthermore, it was established by the court that luxurious
articles did not come within the scope of necessaries for minors. In this regards, another
relevant judgement was given by the court in the case of Ryder v Wombwell [1868] LR 4
Ex 32. In this case, minor purchase a gift to offer a friend; the court held that the gift did
not come within the scope of necessaries. In the judgement of Roberts v Gray [1913] 1 KB

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520, the court provided that education and other services come within the scope of
necessaries. In the case of a beneficial contract of service, the objective of these contracts
is to provide the minor means of self-support such as providing instructions or means or
education or both which ultimately gives the opportunity to the minor to earn a living and
ply a profession or trade. In the case of Proform Sports Management Ltd v Proactive
Sports Management Ltd [2007] 1 All ER 542, the court provided that trading contracts,
even when they are in the benefit of the minor are not enforceable. However, the beneficial
contract of service is enforceable which are contract made for services such as
apprenticeship or education.
APPLICATION
In the given case study, John is minor because he is 16 years old; thus, he cannot enter
into a valid contract except for certain exceptions. In order to determine whether John can
be bound by the contract formed for the purchase of tool, it is important to determine
whether the tools comes within the scope of necessaries as discussed in Chappie v
Cooper. It would be argued in the case that at the time John purchased the tools, they
were necessaries because John required them for his apprenticeship. Thus, it can be
considered as a contract of beneficial services since the tools of education constitute as
necessaries as held in Roberts v Gray.
In the case of sale of AppTools shares, the contract formed between the parties was valid,
and it is binding upon the parties unless it is repudiated by John. As discussed in Proform
Sports Management Ltd v Proactive Sports Management Ltd, it was a beneficial contract
of services that is binding upon both parties based on which John has the right to claim the
profit from the sale. The contract is voidable which means that John has the right to
terminate the contract or enforce the same. Lastly, in the case of liquidator or BuzzTools,
the contract is voidable. It means that the liquidator can claim money from John unless the
contract is repudiated by John after which the liquidator cannot enforce the application of
the contract.
CONCLUSION
In conclusion, the tools purchased by John come under the definition of necessaries when
he purchased them due to which he is bound by the contract. The contract with the broker
is a beneficial contract for service under which John has the right to claim the profit from
the same of the shares of AppTools. Lastly, John has the right to repudiate the contract
with BuzzTools after which the liquidator will not be able to recover the money from John.

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REFERENCES
Chappie v Cooper (1844) 153 ER 105
Fitzpatrick, J., Symes, C., Velijanovski, A. and Parker, D. (2017) Business and
Corporations Law. 3rd ed. Chatswood, NSW: LexisNexis Butterworths Australia.
Poole, J. (2016) Textbook on contract law. Oxford: Oxford University Press.
Proform Sports Management Ltd v Proactive Sports Management Ltd [2007] 1 All ER 542
Roberts v Gray [1913] 1 KB 520
Ryder v Wombwell [1868] LR 4 Ex 32
Turner, C. (2013) Contract law. Abingdon: Routledge.

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PART B
ISSUE
The key issue is whether Irish Linen Ltd can hold Master Plate liable and what
assumptions are Carvers Pty Ltd is entitled to make regarding the company?
RULE
A company is able to contract under its name after its incorporation; however, the
Corporations Act 2001 (Cth) provides various provisions under which promoters have the
right to enter into a contract with third parties under the company’s name even before its
incorporation (Fitzpatrick et al., 2017). Section 131 (1) provides the in case promoters of a
company enter into a contract on behalf of the company with third parties with an objective
to benefit the company, then the corporation is bound by such contract when it is
incorporated, or it can ratify the contract after its incorporation within a reasonable time
(Austlii, 2019). The provisions gave under this section only applies if a non-existing
company is later registered by the ASIC and ratifies or agreed to be bound by the term s of
a pre-registration contract that was formed by its promoters earlier on its behalf. In the
judgement of Commonwealth Bank of Australia v Australian Solar Information Pty Ltd
(1987) 5 ACLC 124, the court provided that the provisions given under section 131 did not
apply when a company was registered at the time the contract was made, and it later
decided to change its name.
However, if the company is incorporated and it ratifies, then the provisions of section 131
apply. Section 131 (2) imposes an obligation on the promoters of a company regarding the
pre-registration contract. It provides that in case the company is not incorporated or if it is
incorporated but failed to ratify the provision of the contract within a reasonable timeframe,
then the promoters can be held liable for paying damages to other parties of the contract.
As per this section, there are two different scenarios in which the liability can be imposed
on the promoters (Legislation, 2019). The first scenario is when the company is not
registered at all and the second scenario is when it failed to ratify the terms within a
reasonable timeframe. In both of these scenarios, the liability will be imposed on the
promoters which will be similar to the damages which the company would have paid if it
did not perform the contractual terms after incorporation. Section 131 (3) provides
provisions to protect the interest of innocent parties. This act provides that if the company
did not ratify the contract after incorporation or enter into a substitute contract, then it may

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order the company to pay for the damages for which promoters are liable, transfer the
property which was received under pre-registration contract or pays the amount of
damages to contractual party (Law Central, 2018).
A company’s power regarding the formation of contracts is given under section 126 and
127 of the Corporations Act. As per the provision of section 126 (1), a company can enter
into a contract by a person who has expressed or implied authority to act on behalf of the
company and without using a common seal that is considered as an agent of the company
(Australian Contract Law, 2019). Section 127 provides that a company can also execute
contracts in two ways. The first is using a common seal on a document and fixing such
seal in the witness of two directors or a director and a company secretary. In case a
company did not have a common seal, then it can enter into a contract if it is signed by two
directors or a director and a company secretary. As per section 128 (1), a third party that is
dealing with the corporation has the right to make assumptions that the person who is
acting on behalf of the company has fulfilled provisions given under the constitution or
replaceable rule, such person is duly appointed, and they have the authority to sign the
contract (Austlii, 2019). Furthermore, section 129 provides that third parties can make the
assumption that internal procedures of the company are complied with and the person
acting on behalf of the company is acting in good faith while acting inside their authority.
Furthermore, section 129 (6) provides that the common seal which is affixed to the
document must be witnessed as per the provisions of section 127 (2) in which the third
party can assume that the document is duly executed (Fitzpatrick et al., 2017).
APPLICATION
Adam and Poh signed a pre-registration contract on behalf of Master Plate with Irish Linen
Ltd under which comes within the provisions given under section 131 (1) and (2). As per
these provisions, the company is bound under the contract that is formed on its behalf
since it is receiving the benefit of the contract. Furthermore, the company can also refuse
to pay for the contract based on which the court can determine which promoter would be
held liable for the contractual liability. Adam and Poh have the right to file a suit in order to
hold the company liable for refused to ratify the contract. Thus, Irish Linen will be able to
hold the company liable or its promoters to receive compensation. Furthermore, while
forming the contract with Carvers Pty Ltd, the requirement given under section 127 (2) of
the signature of two directors is not fulfilled. However, Carvers can assume that the
provisions given under the company’s constitution are fulfilled as per section 129. Even if
the seal has been corrected affixed as per provision gave under section 128, Carver has

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the right to make an assumption that the documents are correctly prepared under section
129. In the contract that was formed on 1 April, Carver cannot assume that the provisions
given under section 127 (2) are fulfilled because two witnesses were not present as per
section 129 (6) (b). It was necessary that Adam and Poh must have signed the contract in
case Carver wanted to make an assumption that the requirements are fulfilled; however,
still, Carver can assume that the contract is property execute under section 128 and 129.
CONCLUSION
In conclusion, Irish Linen can hold the company liable, or it can claim damages from the
promoters of the company under section 131. Furthermore, Carvers can make an
assumption under section 128 and 129 that the provisions given under the constitution of
the company and other relevant provisions of the Corporations Act are fulfilled.

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REFERENCES
Austlii. (2019) Corporations Act 2001. [Online] Available at: http://www.austlii.edu.au/cgi-
bin/viewdb/au/legis/cth/consol_act/ca2001172/ [Accessed 20/04/2019].
Australian Contract Law. (2019) Legislation | Corporations Act 2001 (Cth). [Online]
Available at: https://www.australiancontractlaw.com/legislation/cthcorporations.html
[Accessed 20/04/2019].
Commonwealth Bank of Australia v Australian Solar Information Pty Ltd (1987) 5 ACLC
124
Corporations Act 2001 (Cth)
Fitzpatrick, J., Symes, C., Velijanovski, A. and Parker, D. (2017) Business and
Corporations Law. 3rd ed. Chatswood, NSW: LexisNexis Butterworths Australia.
Law Central. (2018) The Enforceability of Pre-Registration (Pre-Incorporation) Contracts.
[Online] Available at:
http://lawcentral.com.au/LCNewsArchive/LCNewsIssueDetails_Public.asp?
NormalViewIssueNumber=651 [Accessed 20/04/2019].
Legislation. (2019) Corporations Act 2001. [Online] Available at:
https://www.legislation.gov.au/Details/C2018C00424 [Accessed 20/04/2019].