QUESTION FOUR

Rainbow Ltd is a company that manufactures and sells house paint. Bill Berger is the Sales Manager responsible for a team of sales representatives.

Last week one of the sales representatives was visiting a hardware store when they telephoned Bill to ask if Rainbow Ltd would pay the cost of taking the owner of the store to lunch. Bill gave his approval.

Later that afternoon another sales representative telephoned Bill to advise that he had learnt of a new chemical process that would reduce the cost of manufacturing paint. Bill discussed this development with Wally Wattyl, Rainbow Ltd's Managing Director. Wally told Bill to check the process out and if he considered it suitable for the company he should buy it. Bill purchased the chemical process on behalf of Rainbow Ltd.

The following week Wally went on holiday and the directors asked Bill to look after anything important that may arise in Wally's absence. Bill signed a lease for a new factory whilst Wally was away.

The Board of Directors consider the above transactions.

(i)They advise that the company will not pay the restaurant invoice for the lunch as it is company policy that only the Managing Director can approve entertainment expenses and Bill had no authority.

(ii)The chemical process hardly reduces the cost of paint and Bill had no authority to purchase it.

(iii)The company will not comply with the factory lease as it is of a value that requires Board approval and in any event, Bill had no authority to sign it, being only the Sales Manger.

REQUIRED:

(a)Briefly describe the ways in which a company is able to contract with outsiders.

(b)Separately analyse items (i) to (iii) above, describing for each the type of authority (if any) that Bill may have had and whether the company would be bound by each transaction.