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.

Please answer using the following structure

Issue: State the legal questions

Rules: Explain the test established by the law to resolve that legal question.

Application: apply the fact to the rule.