Steve has decided he will register a company called Starky Computer Hire Pty Ltd which will offer for-lease computers to businesses around Perth. Before he is ready to register the company, he looks for computer manufacturers so that he may have a supply-chain of products to lease to his clients.

Steve signs a 2 year service agreement with Eternal Computers Pty Ltd, which states that Eternal Computers Pty Ltd will supply Starky Computer Hire Pty Ltd with as many computers as they need at a 40% discounted rate for the service period. Eternal Computers Pty Ltd is very proactive and sends Steve 10 computers in advance so that Starky Computer Hire Pty Ltd may begin leasing them immediately after registration. Eternal Computers Pty Ltd advises that another 10 computers are currently being manufactured and will be supplied in four weeks.

Before Starky Computer Hire Pty Ltd is registered, Steve is offered an attractive cash-in-hand offer for the 10 computers by his brother. Knowing that another 10 computers are on the way, Steve takes the money and gives his brother the computers.

Starky Computer Hire Pty Ltd is finally registered at the first directors' meeting, Steve is unanimously appointed as the managing director of the Company. The ratification of the service agreement with Eternal Computers Pty Ltd is also considered.

The directors opt for another computer manufacturer, Avenger Computers Pty Ltd, that they consider better suits the company's needs. The directors of Starky Computer Hire Pty Ltd instruct Steve to negotiate a service agreement with Avenger Computers Pty Ltd but note that any transaction over $1,000,000 requires board approval. This is stated in the company's constitution.

Steve visits the head office of Avenger Computers Pty Ltd and is offered champaign on arrival. The office is highly advanced and full of state-of-the-art technology. Steve is so impressed that he signs a $1,200,000 service agreement with Avenger Computers Pty Ltd that day.

The board of Starky Computer Hire Pty Ltd decide that this service agreement is not financially viable for the company. They advise Avenger Computers Pty Ltd that the company will not make payment under the service agreement as Steve did not have authority to sign contracts above $1,000,000.

Steve has come to you for advice.

He would like to know the likelihood of being held personally liable by Eternal Computers Pty Ltd in relation to the service agreement with them. (5 marks).

He would also like to know whether Starky Computer Hire Pty Ltd is bound by their service agreement with Avenger Computers Pty Ltd (5 marks).