FUNDAMENTAL OF BUSINESS AND CORPORATIONS LAW BLAW-5016

MODULE 9

Chapter 9 – Company’s Internal Rules, Management and Contracting

Question 1

Compute Ltd designs and manufactures mobile phones.

The managing director of Compute Ltd is Chip and the board of directors has given her the authority to undertake any transaction on behalf of the company up to a spending limit of $350,000. Any expenditure above this amount requires the approval of the board of directors. The other directors of the company are Walton and Lidia.

Chip meets Bertie Boffin, an inventor who has designed a new mobile device that could make the earlier phone version obsolete. Chip agrees that Compute Ltd will pay Bertie Boffin $400,000 to buy his invention. When Chip returns to Compute Ltd, the company’s scientists determine that Bertie Boffin’s invention is not a threat to the mobile phone’s previous version as Chip thought it might be. The other directors are angry with Chip for breaching their expenditure limit instruction and order that Compute Ltd should not pay Bertie on the grounds that Chip had no authority to act.

Required:

With reference to Corporations Act and case law, determine whether Bertie Boffin would succeed in enforcing the agreements against Computer Ltd.

Question 2

Leeming Ltd has a clause in its constitution which states that the company’s business is to develop residential properties. The directors of Leeming Pty Ltd wishes to sign a contract to develop commercial properties. The members of Leeming Ltd have shown their concern at this development and want the directors to comply with the company’s constitution.

Required:

Advise the directors of Leeming Ltd of the legal implications under the Corporations Act and case law of signing a contract to develop commercial properties.