Corporate Law Assignment: Pre-Registration Contracts and Obligations

This assignment solution addresses two key issues in corporate law: pre-registration contracts and company obligations. The first question examines whether a company is bound by a contract entered into before its registration, focusing on Section 131 of the Australian Corporations Act. It analyzes the roles of promoters, ratification, and liability for damages, referencing cases like Kelner v Baxter. The second question explores a company's obligations under its constitution (Section 136 of the Corporations Act), discussing adoption, modification, and enforceability of the constitution. The solution applies these legal principles to scenarios involving Downunder Wines Pty Ltd and Asian Epicurean Delights Ltd, assessing Peter's actions as a promoter and the company's contractual responsibilities. The assignment emphasizes the importance of disclosure, fiduciary duties, and the consequences of non-compliance with the Corporations Act.

Running head: CORPORATE LAW
CORPORATE LAW
Name of the Student
Name of the University
Author Note

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Question 1
Issue
The issue that is to be discussed in this present scenario is whether the company is
considered to be bound by the contract and along with such what are the remedies they can seek
from Peter against the actions.
Rule
Section 131 (1)1 of the Australian Corporations Act2 discusses that if an individual or a
person enters into any agreement or is intending on entering into an agreement or a contract on
the behalf of the company prior to being registered as a company then the company would
become bound by such contract and along with such would also be entitled to the benefit. Only if
the company ratifies such contract. Under this section, it has also been stated that within the time
that has been agreed by the parties to the contract also needs to be specified. Along with such,
there is no agreed time within such reasonable time after such contract has been entered into. It
can be understood from the case of Commonwealth Bank of Australia v Australian Solar
information Pty. Ltd. (1987) 5 ACLC 124 3where the promoter wanted to or attempted to change
the company name during the time the company was considered to exist or prevail before the
contract. In this section, the ratification of the contract is considered to be significant. If a
contract has been entered into then the company has to follow the contractual duty.
Under section 131 (2)4 the individual or the person is considered to be responsible to pay
for damages to each party for the pre-registration of contract if such company is not considered
1 s. 131 (1) Corporations Act 2001 (Cth).
2 Corporations Act 2001 (Cth).
3 Commonwealth Bank of Australia v Australian Solar information Pty. Ltd. (1987) 5 ACLC 124.
4 s. 131 (2) Corporations Act 2001 (Cth).

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to be registered or the ratification of the contract has not been done. Such would be within the
prescribed time, which has been agreed upon by all the parties to that contract. Along with such
if there has been no time agreed upon by the parties then within any reasonable time it needs to
be entered into after the contract. The amount is also considered to be paid where the party
would be responsible or liable for such payment. It would be similar to that if the company had
ratified such contract and did not perform their duties at all which had been prescribed during the
time of the contract. It can be understood from the case of Bay v Illawarra Stationary Supplies
Pty Ltd (1986) 4 ACLC 429 5where an accountant among the promoters were considered to have
entered into some contract for the proposed corporation or company. The liability would be on
the creditors and there have been no ratification. There have been separate reimbursement
against any of the promoters since they were acting under the instructions.
Under section 131 (3)6 if there have been any proceedings that have been brought in order
to recover any of the damages under the above subsection because of the company’s registration
and if the contract is not considered to be ratified then the pre-registration contract or the
substitution of such contract would be decided by the court and whatever the court considers to
be appropriate would be provided in the circumstances. It might include ordering the company to
pay to pay all or pay part of the damages that the individual is responsible to pay. It might also
include transfer of any property that such company has received due to the contract or any of the
party to a contract or on the other hand, pay any amount to the party of the contract.
Under section 131 (4)7 if the company is considered to ratify the pre-registration of the
contract but also considers to fail in order to perform any part of the contract then the court may
5 Bay v Illawarra Stationary Supplies Pty Ltd (1986) 4 ACLC 429.
6 s. 131 (3) Corporations Act 2001 (Cth).
7 s. 131 (4) Corporations Act 2001 (Cth).

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also order any individual or person to pay all kinds of damages which has been ordered by the
company to be paid.
It can be understood from the case of Kelner v Baxter (1866) LR 2 CP 1748 where the
advocate agreed to sign the contract on behalf of any unregistered company and therefore was
considered to be liable. The company in this case had not been formed or created and the
approval, which was given by the advocate to the contract, was not considered to be seen as the
agent of the company. Subsequently, it was found by the court that the advocate was liable
personally. However, it had been demonstrated in this case that the advocate had known about
the contract and that the company was not considered to be existing.
There needs to be a full disclosure of the facts as the promoters as well as the directors of
the company have fiduciary relationship towards the company and have a duty to disclose any of
the dealings of the company. It can be understood from the case of Twycross v Grant (1877) 2 C
P D 469 at 5419 where the promoter is considered to be an individual or a person who undertakes
to create a company which would be in reference to a project which would be set to be going.
There would be necessary steps, which would be required to accomplish such purpose.
Application
In this present scenario, there were two brothers named Henry and William and they had
been thinking of forming a company, which was under the name of Australian Wines Pty Ltd.
The business was considered to be for the distribution of Australian made wine, which would be
provided both locally as well as overseas. In order to ensure that the company is operating within
the six months’ time period they had called their cousin Peter who was considered to be a
8Kelner v Baxter (1866) LR 2 CP 174.
9Twycross v Grant (1877) 2 C P D 469 at 541.

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solicitor. Peter had entered into a contract on behalf of the proposed company with Asian
Epicurean Delights Ltd. Peter is also considered to be a major shareholder as well a director of
the company. Such a fact had not been disclosed during the time of the contract, which was
entered into. The intention of the Asian Epicurean Delights was to make a substantial profit from
this contract. After the contract had been entered into The Australian Securities and Investments
Commission had advised Peter to change the name of the Australian Wines Pty Ltd as such had
already been reserved. The company was considered to eventually incorporate the name
Downunder Wines Pty Ltd. In this present scenario, it can be understood that according to the
above-mentioned rule a company can enter into a contract before the registration. If they do so
then the company would be liable as it would have been during the time of a normal contract. As
it can be understood from the case of Kelner v Baxter (1866)10. It had also been understood from
section 13111 of the Corporations Act that a contract if entered into needs to be ratified. In this
current scenario, Peter had entered into a contract on behalf of the company. In this scenario
there had been no ratification therefore, the contract had been entered into but not ratified. As per
the above rule and section 131 (2)12 of the Act if the contract has been entered into and ratified
then an amount needs to be paid by the individual for such but if there has been no ratification
even then the amount is to be paid as if such would have been ratified. Therefore, in this
scenario, due to Peter entering into a contract on behalf of the company the amount for not
fulfilling the contract would have to be paid by the company even if it has not registered itself. It
can be understood that the promoters have the duty to disclose every dealing of the company.
They have certain fiduciary duty and they need to inform about the dealings of the company,
which would aim to make some kind of profit. Therefore, in this scenario, Peter had a duty to
10 Kelner v Baxter (1866) LR 2 CP 174.
11 s. 131 Corporations Act 2001 (Cth).
12 s. 131 (2) Corporations Act 2001 (Cth).

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disclose everything as a part of their dealing as he had certain fiduciary duty towards the
company. In this scenario, there had been no effective disclosure therefore, they were liable or
responsible to account for the profit which had been made out of the promotion. Since, there had
been certain duties which needed to be performed and such had been failed Peter was liable to
pay for the amount of damages even if the contract had not been ratified. On the other hand, the
company even though, had not been registered had entered into a contract. Therefore, they were
bound by such contract and also entitled to get some remedy against the actions of Peter.
Conclusion
Therefore, it can be understood from the above discussion, that the company would be
legally bound by any contract they had entered into even if they had not been registered. On the
other hand, the company was entitled to get remedies against the actions of Peter because he had
not informed the promoters of such contract and also had not disclosed information as a part of
the dealing. Therefore, Peter was liable to pay for damages under the Act.
Question 2
Issue
The issue that is to be discussed in the present scenario is whether the company is
considered to be bound by any obligations under the contract.
Rule
Under section 136 of the Corporations Act 2001 (Cth)13 the constitution of a company is
considered to be dealt with. Under Section 136 (1)14 a company or a corporation is considered to
13 s. 136 Corporations Act 2001 (Cth).
14 s. 136 (1) Corporations Act 2001 (Cth).

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adopt a constitution. After the registration of a company all, the individuals are considered to be
specified in the application of that of the company’s registration as any individual who would
provide consent to become a member after such is agreed upon or complied with in writing to the
various terms of the constitution before some kind of application is lodged. It has also been
stated that after any registration if the corporation is considered to pass any kind of special
resolution which would be in relation to adoption of a constitution or due to a court order which
has been made under section 233 which would require the corporation to adopt the constitution.
It can be understood from the case of Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218
CLR 451; 2004 ALJR 1045; 208 ALR 21315. The decision of this particular case was provided
by the High Court where it was estopped from being denied by any authority which would be for
its manager to sign various documents which would be on the behalf and such would be
considered to be a relief to the third parties who depend on several documents which have been
signed for and on the behalf of various financial institutions. Especially those financial
institutions who are involved in the shipping industry who would seek for the letters of
indemnity, which are in connection to the discharge of various cargo without any kind of
production of the bill of lading.
Under section 136 (2)16 the company or the corporation was considered to modify or
repeal the constitution as well as the provision of the constitution through some kind of special
resolution.
Under section 136 (3)17 the company or the corporation is considered to provide that the
special resolution is not considered to have any kind of effect until and unless there had been a
15 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451; 2004 ALJR 1045; 208 ALR 213.
16 s. 136 (2) Corporations Act 2001 (Cth).
17 s. 136 (3) Corporations Act 2001 (Cth).

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further requirement which would have been specified in the constitution in connection to the
modification or through repeal needs to be complied with. It can be understood from the case of
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 16518.
Under section 136 (4)19 the company or the corporation is considered to modify or repeal
the further requirement unless the constitution provides such as it has been provided in
subsection (3) only after the requirement which had been provided further had been complied
with.
Under section 136 (5)20 any public company is considered to lodge a copy of special
resolution with the ASIC for adopting or for modifying and repealing the constitution within the
fourteen days time period after such has been passed. The company should also be able to lodge
such with the ASIC within the specified time period. If such corporation or company adopts any
constitution then a copy of such constitution needs to be given. If the corporation also modifies
or changes its constitution the copy of that modification is also necessary.
Under section 140 21of the above-mentioned Act it deals with the effect of the
constitution and the replaceable rules. Section 140 (1)22 discusses that a company or a
corporation’s constitution is considered to have any replaceable rules which are considered to be
applicable to the company and such would have an effect as a contract. It may be between the
member of the company or the company. It might also be between the director, the company
secretary and the company. It can also be between two members of a company. These needs to
18 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.
19 s. 136 (4) Corporations Act 2001 (Cth).
20 s. 136 (5) Corporations Act 2001 (Cth).
21 s. 140 Corporations Act 2001 (Cth).
22 s. 140 (1) Corporations Act 2001 (Cth).

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be agreed upon by each person or individual and the rules and regulations need to be performed
which would be applicable to any individual.
Under section 140 (2)23 if any member is considered to comply with or agree to such in
writing then such would be binding. They would not be bound by any modification or changes of
the constitution which has been made after any date to which they had been a member after the
modification. It requires the member to take up some additional or extra shares or increase any of
the members liabilities or responsibilities in order to contribute such to the share capital or
otherwise they have to pay the money to the company. This might also impose or increase any of
the limitations that have been provided which would be on the right to transfer the several shares,
which had already been held by the members until and unless such modifications had been made.
It would also be in connection to or in relation with the change of the from being a public
company to a proprietary company and there might also be insertion of the proportional takeover
for any kind of approval provisions which would be into the constitution of the company.
The directors as well as the company secretary of the company have certain duties, which
needs to be performed. If there were a breach of such duty then they would be liable or
responsible for their actions.
Application
In this present scenario, Tom is considered to be the company secretary of the Midas Ltd.
The company or the corporation is considered to require all kinds of contracts, which are to be
entered into, by any of the company, must formally have to be approved by the Board. The
constitution of the company is also considered to provide that the company secretary and the
director of the company should sign the contract if they have been entered into after the
23 s. 140 (2) Corporations Act 2001 (Cth).

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approval. Tom is considered to find an appropriate site for the business of the company. In order
to not lose out on the opportunity he convinces the director to sign a contract along with him on
behalf of such company. Therefore, after such the contract is considered to be signed by the
director as well as the company secretary without the approval of the Board. After learning such
Mary and Benson who were considered to be the members of the board did not approve of such
and used their votes in order to reject the motion in order to ratify the contract. In this current
scenario it can be understood that the director as well as the company secretary had breached
their duties and had not complied with the Constitution of the company. Therefore, they would
be liable to pay for the damages as the Constitution of the company was not complied with as per
the above-mentioned rule. As it has been mentioned in the above rule that the constitution in the
company would be considered to be effective and if there would be any modification of the rules
laid down in the constitution then such would be decided upon by the members and a copy of it
needs to be provided with. On the other hand, the company had entered into a contract but not
ratified it due to the rejection of the motion to ratify such was made by the Board. However, if a
contract is considered to be entered into by the company then they are bound by the contract and
in this particular scenario they did not ratify to such. The obligations of the contract needs to be
fulfilled as such had been signed by the director as well as the company secretary. Therefore, it
can be understood, that the company was bound to be perform the duties and obligations of the
contract.
Conclusion
Therefore, it can be understood from the above discussion, that the company in this
particular scenario would be liable to perform their obligations under the contract that had been
entered into. The director and the company secretary would be liable for their actions, as they

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had entered into a contract without the approval of the Board as per the constitution of the
company.

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Bibliography
Case Laws
Bay v Illawarra Stationary Supplies Pty Ltd (1986) 4 ACLC 429.
Commonwealth Bank of Australia v Australian Solar information Pty. Ltd. (1987) 5 ACLC 124.
Kelner v Baxter (1866) LR 2 CP 174.
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451; 2004 ALJR 1045; 208 ALR
213.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.
Twycross v Grant (1877) 2 C P D 469 at 541.
Legislation
Corporations Act 2001 (Cth).
s. 131 (1) Corporations Act 2001 (Cth).
s. 131 (2) Corporations Act 2001 (Cth).
s. 131 (3) Corporations Act 2001 (Cth).
s. 131 (4) Corporations Act 2001 (Cth).
s. 131 (5) Corporations Act 2001 (Cth).
s. 136 (1) Corporations Act 2001 (Cth).
s. 136 (2) Corporations Act 2001 (Cth).