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Corporations Law

Tute 3
by

Susan Lam

on 9 May 2013

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Transcript of Corporations Law

Tutorial 3 Prezi
Presented by: CORPORATIONS LAW Susan X is the promoter of X Pty Ltd, a company to which X proposes to sell some land for high-rise development. What would you advise X to do, and why? Question 2 Scenario Players High-rise not permitted Land for Zoning X Pty Ltd Buys X sells X Pty Ltd
Unregistered Block of land
to be developed X
Promoter copy paste branches if you need more.... Alex Kae Young Kate Becky Victorious Australian Direct Mail Advertising & Addressing Co Pty Ltd. Bruce Williams Senior Bruce Williams Junior Board Chairperson Part-time executive managing Director Full-time executive Peter Williams Resigned as director Full-time executive Peter Williams ... small Place an order on behalf of ADMA for purchase of some machinery with Crabtree-Vickers Crabtree-Vickers Crabtree-Vickers sued ADMA for damages of $45000 for purchases of unpaid machinery. Case: Freeman & Locker v. Buckhurst Park Properties (1964) Who Had Actual Authority? s.129 (3) Officers/agents held out by the company have been duly appointed, have the authority to exercise the powers and perform the duties customarily exercised for the company. (5) Sealing of documents was legally done in accordance with Corporations Act s.127;
Contract executed by two directors or one director and a common secretary (no common seal)
Common seal and signature of two directors (or one director and the company secretary)
The director if he/she is the sole director and sole company secretary of proprietary company Family Company ADMA defences was to deny that existence of the contract on the grounds that Peter lacked authority to bind the company Question 1 What is the relationship between the decision in Crabtree- Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co. Pty Ltd (1975) 133 CLR 72 and s.129 (3) of the Corporations Act? Alan and Bill are the only shareholders and directors of Sailaway Pty Ltd which distributes and sells yatchting clothing and equipment. As well as a warehouse and attached shop, Sailaway owns a large block of waterfront land which it uses for storage. Alan is also the chairman and majority shareholder of Broadacres Pty Ltd which buys rural land subdivision into hobby farms. Broadacres needs to borrow $1.5 million fund its latest purchase. It already has a large overdraft and has no unencumbered assets to use as security for another loan. Alan organised a loan of $1.5 million to Broadacres from ABC Bank on the basis that Sailaway would guarantee the loan by executing a mortgage over its waterfront land. Alan signed the mortgage documents as a director of Sailaway and forged Bill’s signature as the other signatory. Tom, the local manager of ABC Bank, had been involved in earlier dealings with Sailaway and knew that its business did not include property development. However, Tom was away at the time the documents and the transactions were organised by relieving manager who did not ask any questions about Sailaway’s involvement.

Broadacres is now in financial difficulties and has defaulted on the loan from ABC Bank. ABC bank is now seeking to enforce its rights under the mortgage against Sailaway.

Advise Sailaway whether it is bound by the mortgage. QUESTION 4 In favour of ABC Bank Thank you for listening!!! Promoter Ryan Thank you for listening!!! Sailaway What Should X do? question 3 Broadacres Pre-Registration Contracts:
**Common Law: ratification was not possible.
**Corporation Law: gives solution. Sell prereg? Sell postreg? Keep the land Bill Maybe kick his heels up? shareholder director X has fiduciary duty The Issue shareholder director Alan how can company be bound under such a lease chairman majority shareholder S131 (1) company after registration ratified the contract within reasonable time Advise Sailaway whether it is bound by mortgage company is bound Tom local manager of ABC Bank
involved in earlier dealings with Sailaway
knew that the business did not include property development
but he was away when document and transactions were organized Can Ryan avoid personal liability if the lease with the company doesn’t proceed? S131(2) Liability for damages if company does not ratify or register within the time agreed to by the parties to the contract or
if there is no agreed time-within a reasonable time after the contract is entered into a person is liable to pay is the amount the company would be liable to pay S132 Person may be released from liability but is not entitled to indemnity
**may release the liability by singing a release
**the person does not have any right of indemnity against the company. S 128(3):The assumption may be made even if an officer or agent of the company acts fraudulently or forges a document, in connection with the dealings.
s 129(4) : Officers and agents properly perform their
duties.
s 129(5) : Document duly executed. Ryan cannot avoid personal liability In Re Tummon Investment Pty Ltd (1993) 11 ACLC 1139
Northside Development Pty Ltd v Registrar-General (1990) 170 CLR 146 cases: Royal British Bank v Turquad (1856) case: Secret Fiduci-What? Fiduciary duty: The legal duty to act on behalf of a company for its benefit; a legally responsible agent Bay V Illawarra Stationery Supplies Pty. Ltd (1986) 4 ACLC 429 In this case, the company rescinded its contract with a promoter over the purchase of an island, that was found to be worth little money. Compare to X, he may sell the building but will likely not have his contract ratified.

See sections 131-133 Corporations Act Case: Erlanger v New Phosphate co [1878 Contracts before registration
(1) If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:

(a) within the time agreed to by the parties to the contract; or

(b) if there is no agreed time--within a reasonable time after the contract is entered into.

(2) The person is liable to pay damages to each other party to the pre-registration contract if the company is not registered, or the company is registered but does not ratify the contract or enter into a substitute for it:

(a) within the time agreed to by the parties to the contract; or

(b) if there is no agreed time--within a reasonable time after the contract is entered into.

The amount that the person is liable to pay to a party is the amount the company would be liable to pay to the party if the company had ratified the contract and then did not perform it at all.

(3) If proceedings are brought to recover damages under subsection (2) because the company is registered but does not ratify the pre-registration contract or enter into a substitute for it, the court may do anything that it considers appropriate in the circumstances, including ordering the company to do 1 or more of the following:

(a) pay all or part of the damages that the person is liable to pay;

(b) transfer property that the company received because of the contract to a party to the contract;

(c) pay an amount to a party to the contract.

(4) If the company ratifies the pre--registration contract but fails to perform all or part of it, the court may order the person to pay all or part of the damages that the company is ordered to pay. Corporations act s131 Apparent Authority
Where there is no actual authority, the need to fulfill conditions to enforce a contract is based on the apparent authority of an agent:

1. A representation had not made by an agent of the company that the agent had authority (Yes)
2. The contract was relied upon by the representation (Yes)
3. The representation came from a person with actual authority (No)
4. There are no articles that disallowed a representation to be made from such a party (Yes). Person may be released from liability but is not entitled to indemnity
(1) A party to the pre--registration contract may release the person from all or part of their liability under section 131 to the party by signing a release.

(2) Despite any rule of law or equity, the person does not have any right of indemnity against the company in respect of the person's liability under this Part. This is so even if the person was acting, or purporting to act, as trustee for the company. Section 132 This Part replaces other rights and liabilities
This Part replaces any rights or liabilities anyone would otherwise have on the pre--registration contract. Section 133 So, legally, X MUST disclose the situation to the board after the sale, in order to recieve his ratified contract, and be released from liability. Sailaway can argue on two aspects that it is not bound by the mortgage.
1.ABC Finance “knows or suspects” that they are incorrect, so ABC Finance cannot rely on S128,S129.
--S128(3): The assumptions may be made even is an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings.
--S128(4): A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect. Sailaway can provide evidences from:
1.Tom had been involved in previous dealling with sailaway and knew that it was not in the business of property development.
2.Contracts require a witness either a person related to the bank or a lawyer. Therefore, the contract is invalid due to the forged signature and Sailaway is not bound by the mortgage. 2.Alan did not have any express actual authority to execute the mortgage.
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