DISCUSS THE FOLLOWING QUESTIONS

Q1 (i) The content of the articles of association create a contract between the company and

its members. Nonetheless, provisions in the articles which confer rights on outsiders are

not enforceable by the outsider. Thus Mr. William will not succed in suing Fastmode Bhd

in failling to continue his service

However if there is a separate contract between Fastmode Berhad and Mr William and

the contract contains the same terms as contained in the articles, Fastmode Berhad

cannot avoid its contractual obligations under the separate contract by altering its

articles of association. Hence Mr William can sue Fastmode Bhd for damages for

breach of contract. See: Southern Foundries (1926) Ltd v Shirlaw (1940). The House of

Lords held that the company was in breach of the separate contract it made and liable to

pay damages.

Q(ii) According to section 31(2) CA 1965, the alteration of an article will take effect on the

day the special resolution is passed or a later date mentioned in the resolution itself. Its

effectiveness does not depend on the lodgement of the resolution with the ROC. Once

the alteration is effective, the new article will bind all members of the company, including

those who voted against the resolution.

(e) A Pre-incorporation contract simply is a contract purpotedly entered into on behalf

of a company before its incorporation. It must be noted that before incorporation, a

company has no contractual capacity.

Prior to Songket Sutera Sdn Bhd registration in 2010, a company as a legal entity

does not exist. At this stage, neither Songket Sutera Sdn Bhd can enter into

contracts nor can it appoint any person (Amira) to enter contract on its behalf. Hence,

contract made between Amira and Bakri on 15 May 2009 its called pre-incorporation

contract.

Therefore, at common law, a company is not bound to any contract made prior to its

incorporation - Newborne v Sensolid (Great Britain) Ltd. At common law, a company

is also not capable to ratify any pre-incorporation contract - Kelner v Baxter.

The common law position discussed above have been modified by Section 35(1) and

(2) of Comapnies Act 1965.

Section 35(1) - outsiders (Bakri) may enforce the pre-incorporation contract against

the company (Songket Sutera) after it is registered, but only if the company has

ratified the contract after its registration.

Section 35(2) - outsider (Bakri) may enforce the pre-incorporation contract against

the person (Amira) who executed the contract on behalf of the non-existent company

and that person (Amira) shall be personally liable if the company fail to ratify the

contract after its registration.

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The Act is silent on how ratification of pre-incorporation contract should be made.

However, in Ahmad Bin Salleh v Rawang Hills Resort Sdn Bhd, it is suggested that a

board resolution that has the effect confirming that the company has adopted the preincorporation contract will suffice.

Section 35(2)

This provision indirectly ensures that the promoter shall cause the company to ratify

the contract. If not, he will be personally liable unless there is an express agreement

to the contrary.

As for Hamzah, a contract entered on 17 December 2012 between him and Amira on

behalf of the Songket Sutera Sdn Bhd was made after the company's incorporation

on 16 November 2012. Hence Hamzah's claim against Amira Sutera Sdn Bhd might

be successful.