Your clients incorporated Easy Fit Shoes Pty Ltd in 2005. Anastasia, Malcolm, Kevin and Phillip are the directors of Easy Fit Shoes Pty Ltd which manufactures ladies' shoes. Anastasia is the manager of manufacturing and Phillip is the managing director of the company. Phillip has been running the day-to-day operations of the company for the last 6 years.

The company has a constitution with an objects clause and also uses RR's.

1. Objects Clause 'Easy Fit Shoes Pty Ltd can only manufacture ladies' shoes.'
2. 'All contracts over $250,000 require approval and signature of the managing director.'

Whilst Anastasia is on a business trip she meets Annette Crumby who has invented a machine that could increase output by 20%. Anastasia is very interested in this machine and asks Annette to give her more details and the price of the machine. Annette gives Anastasia detailed information on the capabilities of the machine and says that the price of the machine is $500,000. Furthermore, Annette tells Anastasia that this machine can also manufacture men's shoes with some slight adjustments.

Anastasia is very excited about this machine. Not only can the productivity of ladies' shoes be increased by 20% but the company can now also manufacture men's shoes. The next day without consulting Phillip the managing director, Anastasia signs a contract agreeing to buy the machine on behalf of Easy Fit Shoes Pty Ltd for $500,000.

Phillip believes that Easy Fit Shoes Pty Ltd cannot afford to buy this new machine for $500,000 at this time and does not want to go ahead with the purchase. Phillip also is aware that Easy Fit Shoes Pty Ltd has an objects clause stating that the company can only manufacture ladies shoes, therefore manufacturing men's shoes would be beyond the objects clause.

REQUIRED:

With reference to the relevant provisions in the Corporations Act 2001 (Cth) and case law, discuss whether Easy Fit Shoes Pty Ltd will have to honour the contract for the purchase of the new machine which has not been approved and signed by the managing director.

Note: You are required to use the 4-step process in answering this question.