A group of four friends - Robert, Elisa, Andrew and Danielle -- who share a love for books and reading decided to form a
Posted: Wed May 04, 2022 11:55 am
A group of four friends - Robert, Elisa, Andrew and Danielle --
who share a love for books and reading decided to form a company to
run a vintage bookstore business. They decided to call the company
"READ Pty Ltd" by taking the first letter of their names. When they
registered the new company with ASIC, they listed themselves as the
only directors and shareholders. As the initial shareholders, they
each received one ordinary share, with each share entitling the
holder to one vote in a general meeting of members.
They also adopted a company constitution that has only the
following three articles:
Article 1 - The objective of the company shall be to buy, sale
and rent vintage books to customers. In furtherance of this
objective, the company shall endeavour to collect First Editions of
rare books.
Article 2 - Subject to any rules and procedures set out in this
constitution, the business of the company is to be managed by or
under the direction of the directors.
Article 3 - The company cannot enter into any contract that will
require the company to pay more than $3,000 in any calendar year
unless that transaction has been approved by ordinary resolution in
a general meeting of members.
The constitution does not exclude the replaceable rules. The
replaceable rules therefore apply to the company, with the
exception of any replaceable rule that conflicts with an article in
the company's constitution.
At their first board meeting, the directors passed a resolution
to appoint Elisa as Chief Executive Officer (CEO) of the company,
'effective immediately'. They decided that they will prepare formal
written employment contract for Elisa at a later stage but in the
meantime, they encouraged her to start working as CEO. Elisa asked
whether the board would be happy for her to order business cards
for them all and whether it would be okay if her own business card
indicated that she was the CEO. The others all agreed to
this.
Pete is a tour guide in the Hunter Valley and is a good friend
of Elisa. Elisa tells Pete about her position at READ Pty Ltd and
mentions that she feels like a very powerful business person even
when she is not allowed to enter into any contracts over $3,000 on
the company's behalf. Pete tells Elisa that he has been trying to
sell a First Edition of "Travels In Western India" by
Lieutenant-Colonel James Tod. He received the book as a gift from
an American tourist who visited the Hunter Valley five years ago.
Pete said it would be a great acquisition for the vintage bookstore
business they started and said he would sell if for AUD 5,000
because she is a friend. Pete shows Elisa the book and lets her
inspect it. Being a book lover herself, Elisa agreed that the first
Edition would be a great investment for the new company and the
price of AUD 5,000 was a once-in-a-lifetime opportunity for a book
whose current market value is USD 5,000. She provided Pete with a
copy of her newly printed business card indicating that she is the
CEO of READ Pty Ltd and Pete drafted a contract for the sale of the
First Edition of "Travels In Western India". Elisa mentioned that
she will need to get approval at a general meeting of members of
READ Pty Ltd.
Elisa then went home and sent Robert, Andrew and Danielle an
email telling them that a general meeting of members of READ Pty
Ltd will take place at 8 am on the following day at her. home. Her
email explained that the purpose of the meeting will be to vote on
whether the company should sign the contract for the purchase of
the First Edition of "Travels In Western India". She attaches a
copy of the contract to the email.
Elisa then called Robert, Andrew and Danielle to tell them to
check their emails and to ask whether they can attend the general
meeting. Only Andrew is able to attend. Robert and Danielle are not
available at the proposed time and they both complained to Elisa
about the short notice and requested that she re-schedule the
meeting to a later time so that the proposed resolution can be
properly considered and debated. Elisa ignored their requests and
the next day she and Andrew met at the scheduled time and place and
they both voted in favour of the resolution to sign the
contract.
After Andrew leaves, Elisa drafted the minutes of the meeting,
recording that the resolution has been passed. She has heard that
company contracts should be signed by two directors, so she signs
her own name and forges Andrew's signature. She indicated under the
signatures that she and Andrew are directors of READ Pty Ltd and
that they are signing on behalf of the company. Elisa then visited
Pete and gave him the signed contract. Pete expressed surprise that
Elisa was able to organise a shareholders' meeting in such a short
time period. Elisa explained that there are only four shareholders
in the company and that they are all very flexible, so it was quite
easy to organise a meeting at short notice. Pete thought Elisa
looked a bit guilty when she said this and he suspected Elisa may
not be telling the truth about the shareholders' meeting.
Nevertheless, Pete thought to himself that, since the contract has
been signed by two of the directors of READ Pty Ltd, he should have
no problem in holding READ Pty Ltd to the contract.
At the next board meeting of directors of the company, Robert
and Danielle expressed considerable disappointment that Elisa went
ahead with the contract for the acquisition of the First Edition of
"Travels In Western India" without properly consulting with them.
They told Elisa and Andrew that they do not think that the meeting
at Elisa's home was a valid general meeting of members. They
proposed a board resolution stating that READ Pty Ltd is not bound
by the contract for the First Edition of "Travels In Western India"
and that the company will not make any payments under the contract.
Andrew, who is disappointed that Elisa forged his signature, voted
with Robert and Danielle and the board resolution passed by three
votes to one
Elisa then contacts Pete to let him know that READ Pty Ltd wants
to cancel the contract. In the meantime, Pete turned down the
possibility of selling the First Edition of "Travels In Western
India" to another individual who offered $7,000. Pete was convinced
that he was bound by the contract with READ Pty Ltd. Pete told
Elisa that READ Pty Ltd must honour the contract and threatens
legal action to hold the company to the contract.
The Question:
Elisa comes to see you for advice. Advise Elisa regarding the
likelihood that a court would require READ Pty Ltd to honour the
contract with Pete.
Can you answer using common contract law.
e.g. offer, consideration, acceptance and intention and please
be detailed
who share a love for books and reading decided to form a company to
run a vintage bookstore business. They decided to call the company
"READ Pty Ltd" by taking the first letter of their names. When they
registered the new company with ASIC, they listed themselves as the
only directors and shareholders. As the initial shareholders, they
each received one ordinary share, with each share entitling the
holder to one vote in a general meeting of members.
They also adopted a company constitution that has only the
following three articles:
Article 1 - The objective of the company shall be to buy, sale
and rent vintage books to customers. In furtherance of this
objective, the company shall endeavour to collect First Editions of
rare books.
Article 2 - Subject to any rules and procedures set out in this
constitution, the business of the company is to be managed by or
under the direction of the directors.
Article 3 - The company cannot enter into any contract that will
require the company to pay more than $3,000 in any calendar year
unless that transaction has been approved by ordinary resolution in
a general meeting of members.
The constitution does not exclude the replaceable rules. The
replaceable rules therefore apply to the company, with the
exception of any replaceable rule that conflicts with an article in
the company's constitution.
At their first board meeting, the directors passed a resolution
to appoint Elisa as Chief Executive Officer (CEO) of the company,
'effective immediately'. They decided that they will prepare formal
written employment contract for Elisa at a later stage but in the
meantime, they encouraged her to start working as CEO. Elisa asked
whether the board would be happy for her to order business cards
for them all and whether it would be okay if her own business card
indicated that she was the CEO. The others all agreed to
this.
Pete is a tour guide in the Hunter Valley and is a good friend
of Elisa. Elisa tells Pete about her position at READ Pty Ltd and
mentions that she feels like a very powerful business person even
when she is not allowed to enter into any contracts over $3,000 on
the company's behalf. Pete tells Elisa that he has been trying to
sell a First Edition of "Travels In Western India" by
Lieutenant-Colonel James Tod. He received the book as a gift from
an American tourist who visited the Hunter Valley five years ago.
Pete said it would be a great acquisition for the vintage bookstore
business they started and said he would sell if for AUD 5,000
because she is a friend. Pete shows Elisa the book and lets her
inspect it. Being a book lover herself, Elisa agreed that the first
Edition would be a great investment for the new company and the
price of AUD 5,000 was a once-in-a-lifetime opportunity for a book
whose current market value is USD 5,000. She provided Pete with a
copy of her newly printed business card indicating that she is the
CEO of READ Pty Ltd and Pete drafted a contract for the sale of the
First Edition of "Travels In Western India". Elisa mentioned that
she will need to get approval at a general meeting of members of
READ Pty Ltd.
Elisa then went home and sent Robert, Andrew and Danielle an
email telling them that a general meeting of members of READ Pty
Ltd will take place at 8 am on the following day at her. home. Her
email explained that the purpose of the meeting will be to vote on
whether the company should sign the contract for the purchase of
the First Edition of "Travels In Western India". She attaches a
copy of the contract to the email.
Elisa then called Robert, Andrew and Danielle to tell them to
check their emails and to ask whether they can attend the general
meeting. Only Andrew is able to attend. Robert and Danielle are not
available at the proposed time and they both complained to Elisa
about the short notice and requested that she re-schedule the
meeting to a later time so that the proposed resolution can be
properly considered and debated. Elisa ignored their requests and
the next day she and Andrew met at the scheduled time and place and
they both voted in favour of the resolution to sign the
contract.
After Andrew leaves, Elisa drafted the minutes of the meeting,
recording that the resolution has been passed. She has heard that
company contracts should be signed by two directors, so she signs
her own name and forges Andrew's signature. She indicated under the
signatures that she and Andrew are directors of READ Pty Ltd and
that they are signing on behalf of the company. Elisa then visited
Pete and gave him the signed contract. Pete expressed surprise that
Elisa was able to organise a shareholders' meeting in such a short
time period. Elisa explained that there are only four shareholders
in the company and that they are all very flexible, so it was quite
easy to organise a meeting at short notice. Pete thought Elisa
looked a bit guilty when she said this and he suspected Elisa may
not be telling the truth about the shareholders' meeting.
Nevertheless, Pete thought to himself that, since the contract has
been signed by two of the directors of READ Pty Ltd, he should have
no problem in holding READ Pty Ltd to the contract.
At the next board meeting of directors of the company, Robert
and Danielle expressed considerable disappointment that Elisa went
ahead with the contract for the acquisition of the First Edition of
"Travels In Western India" without properly consulting with them.
They told Elisa and Andrew that they do not think that the meeting
at Elisa's home was a valid general meeting of members. They
proposed a board resolution stating that READ Pty Ltd is not bound
by the contract for the First Edition of "Travels In Western India"
and that the company will not make any payments under the contract.
Andrew, who is disappointed that Elisa forged his signature, voted
with Robert and Danielle and the board resolution passed by three
votes to one
Elisa then contacts Pete to let him know that READ Pty Ltd wants
to cancel the contract. In the meantime, Pete turned down the
possibility of selling the First Edition of "Travels In Western
India" to another individual who offered $7,000. Pete was convinced
that he was bound by the contract with READ Pty Ltd. Pete told
Elisa that READ Pty Ltd must honour the contract and threatens
legal action to hold the company to the contract.
The Question:
Elisa comes to see you for advice. Advise Elisa regarding the
likelihood that a court would require READ Pty Ltd to honour the
contract with Pete.
Can you answer using common contract law.
e.g. offer, consideration, acceptance and intention and please
be detailed