Associations Cases Materials Corporations Essay

Question:

Discuss About The Associations Cases Materials Corporations.

Answer:

Introduction

All the above discussed issues are subjected to the provisions of the Corporation Act 2001 (Cth).

It has been provided through the provisions of s. 125 of the Act that a transaction which have been entered on behalf of an organization will not be legally invalid only because of the fact that the transaction is not within the scope of the Constitution of the organization[1].

In addition it has been provided by the provisions of section 124(2) of the Act that when a company gets into a contract through a person who is acting on behalf of it, the contract is not liable to be declared invalid merely because it is not in the best interest of the organization[2].

It had been ruled by the court in the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd[3] that where a contract has been signed according to the provisions of section 127 of the Act (by two directors or one director and one secretary) the contract is binding on the company. In the same way where the provisions of section 127 have not been followed the contact does not bind the company[4].


The other party to the contract has the right to rely on the assumptions provided under s. 129 of the Act if the contract has been signed under the provisions of s. 127 of the Act[5].

Section 128 of the Act state that a person who is dealing with the company has the right to make assumption under section 129 of the Act. The company is not legally entitled to submit before the court that the assumptions made under the section 129 are incorrect.

Third party has the right to make an assumption under section 129(1) of the Act that the transaction which has been entered into by a director or company secretary complies with the provisions of the constitution of the company[6].

However, as provided through the provisions of section 128(4) a person cannot rely on the assumptions provided in section 129 of the CA if at the time the assumptions had been made the person knew or had reasonably suspected the assumptions not to be true[7]. These provisions had also been discussed in the landmark case of Royal British Bank v Turquand[8]

It has been provided through the provisions of s. 136(2) of the CA that the company has the right to modify or alter its constitution through the passing of a special resolution[9]. A special resolution can only be passed if at least 75% of the total votes have been casted in favor of the resolution[10].

There are certain restrictions which have been imposed on a company in relation to making changes to the constitution. One of such restrictions is in relation expropriation of shares of the minority shareholders[11]. One of the leading cases in relation to the issue is the case of Gambotto v WCP Limited[12]. It this case it had been ruled by the court that the constitution of the company can only be altered in relation to the issue of expropriation of share where the it is for a proper purpose and it would be oppressive for the minority shareholder[13].

As per the provisions of s. 203C of the CA a proprietary company may by a resolution remove a director from its office. The resolution to be passed in this situation is only an ordinary resolution. It depends on the constitution of the company if it does not follow the replaceable rules that how a director may be removed[14]. If the constitution does not provide any specific rules in relation to the removal of directors and does not follow the replaceable rules as well prior agreement between the members is taken into consideration[15].

Application

Whether Jack and Jill have the right to enforce the contract they had with Four Friends Pty Ltd

According to section 124(2) of the Act that when a company gets into a contract through a person who is acting on behalf of it, the contract is not liable to be declared invalid merely because it is not in the best interest of the organization. Thus even where the contract with Jack and Jill is not beneficial for the company it is entitled to be a valid contract.

It according to s. 125 of the Act that a transaction which have been entered on behalf of an organization will not be legally invalid only because of the fact that the transaction is not within the scope of the Constitution of the organization. Thus even where the purpose of the organization specifically states through the constitution that the company only conducts business in relation to vegetarian dishes, the contract with Jack and Jill would not be merely void as it is against the purpose of the constitution and is for catering meat.

Through the application of the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd where it has been stated that if a contract has been signed according to the provisions of section 127 of the Act (by two directors or one director and one secretary) the contract is binding on the company. Thus if Maxwell has signed the contract with Jack and Jill it is binding upon the company.

In addition it has been provided through section 128 of the CA that the other party to the contract has the right to rely on the assumptions provided under s. 129 of the Act if the contract has been signed under the provisions of s. 127 of the Act. In the situation Jack and Jill also has the right to make an assumption under section 129 of the CA and Four Friends Pty Ltd cannot state that the assumption is incorrect. The assumptions which Jack and Jill are entitled to make as per the provisions of section 128 is that of section 129(1) according to which the transaction which has been entered into by them with Maxwell complies with the provisions of the constitution of the company and has been done by taking into consideration the required procedure. This means that they have the right to assume that there is no provisions of the constitution of the company which prevents Maxwell from getting into the contract with them. Thus the restriction of no getting into a dealing above a value of $1000 would not prevent the contract from being invalid.

The above assumption cannot be falsified by the company and therefore a valid contract has been formed between the company and Jack and Jill for the catering services which include non-vegetarian dishes and the company would be liable for breach of contract if the contract is not carried out in the prescribed manner.


Could Jackson, Ellie, Macie and Will have been able to prevent the expansion if they knew about Maxwell’s plans

It has been provided through the provisions of section 128(4) of the CA that a person cannot rely on the assumptions provided in section 129 of the CA if at the time the assumptions had been made the person knew or had reasonably suspected the assumptions not to be true. In the given situation if Jackson, Ellie, Macie and Will would have prior knowledge in relation to the expansion plans of Maxwell they would have made it clear to Jack and Jill that Maxwell does not have the right to get into the contract without the permission of the board of directors. After such information would have been provided to Jack and Jill if they would have still continued to deal with Maxwell than they would have no right to make an assumption under the provisions of section 128(4) and subsequently the provisions of Turquand case would come into the context and the contract with Jack and Jill would have been declared not binding in the company by the court.

Do Jackson, Ellie and Macie have the right to dismiss Maxwell and Rupert as directors of the company

The constitution of the company does not provide for any provisions in relation to how a director is to be removed from his office. If the replaceable rules as provided in section 135 of the Act is applied in the situation, Jackson, Ellie and Macie then Maxwell and Rupert may be removed from their office as directors by merely passing a special resolution. However the passing of the resolution would require more than 50% votes which three of them do not possess as they merely have 45% of the shares. They can only remove Maxwell and Rupert from the office under section 203C if they have will by their side. On the other hand the court may take into consideration any agreement between the parties where the replaceable rules are not applicable. In the given situation as Maxwell and Rupert only provided the investment so that they can be board of directors and thus in the light of the agreement it would be difficult to remove them as directors of the company.


Can Jackson, Ellie and Macie prevent Will to sell his shares to Maxwell by altering the constitution

As discussed above it is clear that the constitution of a company may be changed through the application of section 136(2) of the CA. However as per the provisions of section 140(2) of the Act unless it has been agreed in writing by the members the modification of constitution would not affect them if it imposed in relation to restricting their rights to transfer their shares. There is no provision in the constitution of Four Friends Pty Ltd in relation to restricting the right to transfer shares by a member. Thus of the constitution is changed it would not affect the rights of Bill. In addition constitution can only be amended by a special resolution which requires 75% of voting and Jackson, Ellie and Macie do not posses such percentage and therefore they would not be able to amend the constitution. Further as per the provisions of the Gambotto v WCP Limited case as the restriction upon the rights of Will to transfer his shares would be unfair it would not be allowed by the court.

Conclusion

  1. The contract between Four Friends Pty Ltd and Jack and Jill is binding and valid legally.
  2. Jackson, Ellie, Macie and Will would have been able to prevent the expansion if they knew about Maxwell’s plans
  3. Jackson, Ellie and Macie cannot remove Maxwell and Rupert from office
  4. Jackson, Ellie and Macie cannot alter the constitution

References

Austin, RP & Ramsay IM, Ford’s Principles of Corporations Law, (16th ed, LexisNexis, Butterworths, 2015)

Baxt R, Fletcher K, Fridman S, Corporations and Associations: Cases and Materials, (10th ed, LexisNexisButterworths, 2008)

Cassidy, J, Concise Corporations Law (5th ed, Federation Press, 2006)

Chapple et al, Company Law: An Interactive Approach (Wiley, 2017)

Ciro, T &Symes, C, Corporations Law in Principle, (9th ed, Thomson Reuters, 2013)

Corporation Act 2001 (Cth)

Gambotto v WCP Limited [1995] HCA 12

Hanrahan, P, Ramsay, I, &Stapledon, G, Commercial Applications of Company Law, (17th ed, Oxford University Press, 2016)

Harris, J, Company Law: Theories, Principles and Applications, (2nd ed, LexisNexis, Butterworths, 2015)

Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103

Royal British Bank v Turquand (1856) 6 El & Bl 327

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