Question 2:

Ramsay and Janet are two directors and shareholders of a company that runs a shop specializing in military memorabilia.Nicholas is the shop manager.

The company has a constitution and it states that the company can only run a business involving military memorabilia.

Mace decides to expand the business into selling computers.

To do so he goes to the NAB Bank and gets a loan of $85,000 on behalf of the company. The constitution states that any loans over $50,000 must be approved by all shareholders. The purpose of the loan is to purchase computers to sell.

Janet is away on holidays so approval of both shareholders was not obtained.

The Bank had always been the banker for the company and had always dealt with Ramsay.The bank manager was aware of the business of the company and had always encouraged Ramsay to expand the business.

Ramsay wanted Nicholas to be the computer technician and sales man. He asked Nicholas to look at courses relating to computer training. Nicholas did so and registered in a course costing $22,000.

Nicholas also ordered computer parts in worth $13,000 from Tech Supplies Pty Ltd.

Janet comes back from holidays and finds out about these activities.

Required:

Advise Janet whether the company is liable to pay the loan to the Bank, the course fee and the computer supplies.

Also advise Janet of the consequences for the company in not carrying on activities within its objectives.

(15 marks)

(30 minutes)

THE QUESTION IS CONCERNED ABOUT TWO ISSUES:

AUTHORITY OF NICHOLAS TO SIGN THE CONTRACT AS WELL AS THE CONTRACT ENTERED INTO BY RAMSAY

THE SECOND ISSUE IS THE APPLICATION OF THE ULTRA VIRES RULE AND S 125

BOTH CONTRACTS ARE ENTERED INTO BY ONE PERSON, SO THE ISSUES TO BE DISCUSSED FOR RAMSAY AND NICHOLAS ARE:

AUTHORITY TO ENTER THE CONTRACTS

DISCUSS

AUTHORITY OF AGENT

ACTUAL

EXPRESS (IN WRITING)

IMPLIED BY TITLE OR CONSENT OF THE BOARD

WITH RAMSAY WAS THIS IMPLIED BY HIS TITLE (IF YOU ASSUME HE IS THE MD)

IF HE IS JUST A DIRECTOR THEN CAN HE ENTER INTO A CONTRACT ON BEHALF OF A COMPANY

ONE DIRECTOR CAN NOT

WITH NICHOLAS WAS THIS IMPLIED OR EXPRESS? WAS THE BOARD CONSENTING TO ALLOW NICHOLAS ENTER INTO THE CONTRACT OR WAS IT APPARENT FROM THE CIRCUMSTANCES IE

NICHOLAS HELD HIMSELF OUT, APPROVED BY SOMEONE IN AUTHORITY IE RAMSAY AND THE THIRD PARTY ENTERED INTO THE CONTRACT.

DISCUSS THE APPLICATION OF THE CASES HELY-HUTCHISON V BRAYHEAD, ENTWELLS ENTERPRISES

THEN DISCUSS WHETHER THE INDOOR MANAGEMENT RULE APPLIES AND THE EXCEPTION TO THAT RULE (SEE THE CASE OF ROYAL BRITISH BANK V TURQUAND)

DISCUSS WHETHER THE EXCEPTIONS APPLY TO THE RULE AND THE CASES OF NORTHSIDE DEVELOPMENTS V REGISTRAR GENERAL AND STORY V ADVANCE BANK

THEN FINALLY DISCUSS THE STATUTORY PROVISIONS OF S 128(4) AND S 129

FINALLY DISCUSS THE OBJECTS CLAUSE AND S 125 AND THE DOCTRINE OF ULTRA VIRES AND THE CASE OF ASHBURY RAILWAYS V RICHE.