LML's board is divided as to whether it would be advisable to acquire a thermal coal mine. However, the board is unanimous that LML cannot spare $2 million in cash anyway, and accordingly the board resolves not to acquire CoalCo.

After the board meeting, it occurs to Lionel that Betina may be willing to forgo receiving cash if offered a higher price. Lionel puts that to Betina, who agrees to sell CoalCo for the issue of LML shares worth $8 million provided the deal is signed immediately.

Lionel believes that LML's board would wish to accept the revised terms, given they preserve LML's cash and put more shares into Betina's "friendly" hands (making a hostile bid by AE even less likely). The agreement is amended to reflect these terms and is signed by Lionel as "CEO, for and on behalf of" LML, and by Betina (who holds all the issued shares in CoalCo).

When LML's board learns of this all directors are extremely disappointed that Lionel did not seek the board's approval of the agreement and decide to explore whether there is any way to avoid proceeding with the acquisition of CoalCo.

After further consideration, LML decides to go ahead with the acquisition of CoalCo, although some directors have reservations about appointing Betina as a director. LML issues shares worth $8 million to Betina and indicates that once Betina has transferred the CoalCo shares to LML, and satisfied the board that she is suitably qualified, they will appoint her to LML's board. Betina is incensed at the suggestion that she should justify her suitability as a director, and begins to have second thoughts herself about proceeding (heightened by an unexpected jump in the thermal coal price which makes her think she could now get more for CoalCo).

Question 1. LML seeks advice as to whether it is bound by the agreement with Betina.

Question 2. Betina seeks advice as to:

(a) whether she can argue that she is not bound to transfer the CoalCo shares to LML

(b) whether, if she refuses to transfer the CoalCo shares, LML can then simply cancel the LML shares it has issued to her?