HI6027 Business & Corporations Law: Case Study on Contract Law

This assignment provides solutions to two legal questions. The first question concerns a pre-incorporation contract and the potential liability of Adam and Master Plate Pty Ltd. It concludes that Adam is personally liable due to the company's failure to ratify the contract. The second question examines agency law, focusing on the liability of SwimmingPool Co Ltd for the actions of its sales manager, Martin. It determines that SwimmingPool Co Ltd is responsible for Martin's actions within his scope of authority, even if he deviated from instructions. Furthermore, Martin may be liable to SwimmingPool Co Ltd for losses caused by his negligence and breach of duty, including setting up a competing business.

Question 1
Issue: The issue in this question is related with the liability regarding the contract created by
Adam with Irish Linen Ltd. Similarly, it needs to be seen if Master Plate Ltd can be held liable
for the contract that was created by Adam with Carvers Pty Ltd.
Rule: The first issue is concerned with the enforceability of pre-incorporation contract. The
Corporations Act, 2001 deals with the issue of pre-registration contracts in Part 2B.3. The
relevant sections in this regard section 131, 132 and 133. It has been clearly mentioned in section
133 that the purpose of part 2B.3 is to replace any rights or liabilities that any person may
otherwise have regarding pre-registration contracts (Burnett, 2001). Consequently the earlier
statutory provisions as well as the common law provisions in this regard are no longer available
to the parties for establishing rights and liabilities (Cassidy, 2001).
Therefore it has been provided by the Corporations Act that a company is to be considered as
being bound by the contract if the company that can be reasonably identified with the contract,
has been registered and ratified the contract within the agreed time or if no such time has been
agreed by the parties, within reasonable time of creating the contract (Aztech Science v Atlanta
Aerospace, 2005). In case the company has not been registered or if the company has registered
but it fails to ratify the contract or enters a substitute of the contract, in such a case the agent who
was entered into the contract on the off of the unregistered company may be held responsible for
the damage that may be suffered by the other party (Commonwealth Bank of Australia v
Australian Solar Information Pty Ltd., 1986).
Application: In this case, Adam had entered into a contract with Irish linen Ltd. The contract was
for the purchase of 18 monogrammed tablecloths. This contract was executed by Adam in the

name of Master Plate Pty Ltd. However, this contract was created by Adam on 22 February,
while the proposed company has registered on 24 February. As there was a dispute between
Adam and Poh, Master Plate failed to ratify the contract. Under these circumstances, as
mentioned above, it has been provided by the law that if the company fails to ratify the contract
within a reasonable time or within the time agreed, the contract cannot be enforced against the
company. However, in such a case, the agent or the promoter was entered into the contract on
behalf of the company can be held personally liable for the loss that may be suffered by the third-
party.
Therefore in the present case, Irish Linen, Ltd. had supplied the table cloths, but the company
was not paid for. Under these circumstances, due to the reason that Master Plate failed to ratify
the contract, Adam can be personally held responsible to pay Irish Linen Ltd.
Regarding the second issue, the contract has been created by Adam, using the company seal. In
this context, it has been provided by the law that did this several days in which a document may
be signed by the company (Fisher, 2001). There provides executing a document, it is necessary
that either the company should execute them according to the Corporations Act, 2001 or the
provisions mentioned in the Constitution of the company regarding the execution of documents
(Ford, 2001).
Section 127 provides the ways in which the document may be exhibited by a corporation.
Therefore, the Act provides that a document may be exhibited by the company by fixing its
common seal, where it has been witnessed by:
 Two directors;
 A director and company secretary;

 In case of proprietary company having sole director, who is also the sole secretary by
such director.
On the other hand, if the company still has not been used for executing a document, such
document may be executed by two directors, director and company secretary, and sole director in
case of propriety company having sole director and sole secretary (ANZ Banking Group Ltd v
Australian Glass and Mirrors Pty Ltd., 1991).
It is also been provided by the Corporations Act that certain assumptions can be made by the
people while dealing with corporations that a particular document has been duly exhibited by the
corporation if it appears that the document has been signed according to section 127. In this
regard, it has been mentioned in section 128 that a person dealing with a corporation is entitled to
make the assumptions that have been mentioned in section 129 (Barclays Finance Holdings Ltd v
Sturgess, 1985).
In this case, after the incorporation of the company, Adam decided to order restaurant quality
cutlery. This order was given to Carvers Pty Ltd. While entering into the contract on behalf of
Master Plate, Adam affixed the company seal and signed the contract. But in this case it needs to
be noted that Master Plate has two directors, Adam and Poh. On the other hand, the law requires
that in order to be valid, in the present is the document should have been signed by two directors
of the company or by a director and company secretary. The result is that in the present case,
Carvers cannot rely on the statutory launches that have been mentioned in the corporations act in
s. 129. As a result, in this case the contract created by Adam with Carvers cannot be enforced
against Master Plate Pty Ltd.

Conclusion: Hence it can be concluded that Carvers Pty Ltd cannot recover the price of rest and
quality cutlery from Master Plate Pty Ltd. However, Adam may be held personally liable to pay
for the cutlery.
Question 2
Q 1
Answer:
Issue: question the issue arises if SwimmingPool Co Ltd is liable for the actions of Martin, the
sales manager appointed by the company.
Rule: according to the law of agency, when the agent appointed by the principal acts within the
scope of authority, the principle is considered to be bound by the actions of the agent. However,
in such a case it needs to be stated that the principal may have authorized the agent regarding a
particular action or if it appears to the other parties that the agent has the authority regarding
such purpose or if the authority available to the agent advises due to the agency relationship
(Fridman, 1996). In the same way, the principal may be held liable for the laws that may be
suffered by a third party, on account of the actions of the agent (Fishman, 1987,).
Application: as a result of the relevant rules of the law of agency, it can be decided in the present
case that Martin was an agent of SwimmingPool Co Ltd. The company has provided authority to
Martin expressly according to its Martin can form contracts on behalf of SwimmingPool. At the
same time, Martin also gave advice regarding the location of the swimming pools of the

customers. Therefore, it is clear that the actions of Martin fall within the scope of authority that
has been conferred on him.
Conclusion: as a result of the legal position, it can be concluded that SwimmingPool Co Ltd can
be held responsible for the actions of Martin. As a result, the consumers may hold the
Corporation responsible for the loss suffered by them on account of Martin's actions.
Q2
Issue: here the issue arises if SwimminPool Co Ltd is in a position to deny its responsibility for
the actions of Martin, particularly due to the reason that Martin did not follow the instructions
given by the company.
Rule: by applying the rules of law of agency, it needs to be loaded the generally the principle is
held responsible for the actions of the agent. But for this purpose it is necessary that either the
acts of the agent should follow the scope of authority or the principal should have ratified the
actions. Similarly, a principal can also be held legally liable for the acts of agent, you can view
of the circumstances it can be reasonably believed by a third party that agent indeed had the
authority provided by the principal to act in a particular matter (Gregory, 2001). Therefore, in
such a case, the principal cannot deny its responsibility, if the acts of the agent are within the
purview of the apparent authority. Hence, it can be presumed that the principal is bound by the
representations made by the agency even if it is false.
Application: in view of the apparent authority given to the agent, a third party may reasonably
assume that power has been given to the agent for making such representation that the generally
made by the parties during demonstrations in case of such contracts. As a result of the above

discussion, in this case also it can be said that Martin has been appointed as an agent by the
company.
Conclusion: in this case, the company cannot be allowed to claim later on that cannot be held
liable for the actions of its agent, Martin even if the agent failed to follow the instructions given
by the company.
Q3
Issue: here the issue is related with the possible liability of Martin for the loss that has been
caused to SwimmingPool Co Ltd. Because Martin had given wrong advice to the customers,
several swimming pools started to sink. A number of customers also complained that the
swimming pools have not been made according to the contract.
Rule: in such cases, the common law provides that if an agent has acted beyond the scope of
authority, the principal may still be held responsible for such actions. However, in such a case,
the agent may be held liable to the principal for the loss that has been caused to the principal if
the actions were beyond the authority conferred on the agent or if the agent failed to follow the
instructions given by the principal. It also needs to be stated that certain duties have also been
prescribed for the agents by common law (Hynes, 2001). According to these duties, it is required
that an agent should always consider the best interests of the principal.
Application: hence, under the circumstances where there is possibility has been given to the
agent for negotiating the contract, it is required that the agent should always keep in mind the
interests of the principal. In this case, Martin collected some money from the customers, but
failed to deposit this money with the company. It can also be considered as the breach of duty

imposed on the agents worried which they should not make any secret profit. Hence, it is clear
that there has been a breach of duties by Martin.
Conclusion: in this case, Martin is responsible to cover the loss suffered by the company as a
result of his actions.
Q 4
Issue: Here the issue is if there has been a breach of the law in his Martin decides to set up his
own business that will compete with the business of the company.
Rule: the law imposes a responsibility on the agents worried which they should ensure that they
set up a business only after giving information to the principal. The law also requires that agent
should make sure that there should be no conflict of interest present between the business
established by the agent and the business of the corporation.
Application: As Martin is an agent of SwimmingPool Co Ltd. it is required that Martin should
avoid any conflicts of interest with the company. At the same time, there may be a restraint of
trade clause. According to which the agent cannot establish a business competing with the
business of the corporation.
Conclusion: hence, if Martin decides to set up his own business that competes with the business
of the company with a breach of his duties as the agent.

References
Burnett B, 2001, Australian Corporations Law, Australia: CCH
Cassidy J, 2001, Concise Corporations Law, 3rd ed, Australia: The Federation Press
Fisher S., 2001, Butterworths Tutorial Series: Corporations Law, 2nd ed, Australia: Butterworths
Fishman, S. 1987, "Inherent Agency Power - Should Enterprise Liability Apply to Agents'
Unauthorized Contracts?" Rutgers Law Journal 19
Ford H, 2001, Ford's Principles of Corporations Law, 10th ed. Australia: Butterworths
Fridman, G H L., 1996, The Law of Agency (Butterworths, 7th ed.), 304
Gregory,W. A. 2001.TheLaw of AgencyandPartnership. 3d ed.St.Paul,Minn.:WestGroup.
Hynes, J. D.2001.Agency,Partnership,andtheLLC in a Nutshell. 2d ed.St.Paul,Minn.:WestGroup.
Case Law
ANZ Banking Group Ltd v Australian Glass and Mirrors Pty Ltd (1991) 4 ACSR 14
Aztech Science v Atlanta Aerospace (Woy Woy) [2005] NSWCA 319
Barclays Finance Holdings Ltd v Sturgess (1985) 3 ACLC 662
Commonwealth Bank of Australia v Australian Solar Information Pty Ltd (1986) 11 ACLR 380