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David was in the business of manufacturing fibreglass boats. He decided to register a company named Dave’s Boating Pty Ltd and transfer his business to the company. In January 2016, David enters into...

David was in the business of manufacturing fibreglass boats. He decided to register a company named Dave’s Boating Pty Ltd and transfer his business to the company.
In January 2016, David enters into a contract to supply 5 boats to Perth Sea Rescue for $100,000 and signs the contract as “agent of Dave’s Boating Pty Ltd.”
In July 2016, Dave’s Boating Pty Ltd was registered.  David becomes the managing director and appoints Angela as the sales manager of the company. The following clauses are contained in Dave’s Furniture Pty Ltd’s constitution:
a)    The company will only manufacture fibreglass boats; and
b)    Angela will be the factory manager of the company and has a spending limit of $25,000 without the approval of the managing director.
Angela attended a trade expo where she saw a machine that manufactures boats from a high tensile plastic and she was so impressed with the machine that she placed an order for it for $40,000 from Bioplastic Ltd. Before the sale order was processed, Bioplastic Ltd had telephoned Dave’s Boating Pty Ltd, and asked to speak to the managing director. As David was absent, the phone call had been taken by a clerk who happened to be passing David’s office when the phone rang. The clerk did not describe himself to the caller and told Bioplastic Ltd that Angela was a senior executive of the company and the purchase would no doubt be in order.
Dave’s Boating Pty Ltd decides that the high tensile plastic machine will not be profitable as plastic boats will be suitable for lakes and shallow water ways and not for oceans. They advise Bioplastic Ltd that:
(i)    the  contract  is  to  be  terminated   on  the  grounds  that  it is invalid and unenforceable and because  the  company's  constitution  does  not  permit the company to engage in any activities other than manufacturing fibreglass boats, the company has no capacity to enter into such a contract; and
(ii)    Angela does not have the authority to purchase a $40,000 machine and therefore Dave’s Boating Pty Ltd is not bound by the purchase agreement.

REQUIRED:
With reference to the Corporations Act 2001 (Cth) and case law where applicable, you are required to answer the following questions:
1.    Discuss three main advantages for David of incorporating Dave’s Boating Pty Ltd compared with the type of business he was operating before registering the company.
[3 Marks]

2.    Discuss the procedure that David would have had to follow under the Corporations Act 2001 (Cth) to register Dave’s Boating Pty Ltd, including the creation of the company’s internal management rules.
[4 Marks]
3.    Discuss David’s liability if Dave’s Boating Pty Ltd could not fulfil the order to Perth Sea Rescue.  In answering this question, note that the contract was entered into in January 2016 and the company was registered in July 2016. You are required to use the 4 step process in answering this question.
[4 Marks]

4.    With reference to the purchase of high tensile plastic machine used for manufacturing boats, discuss whether the contract with Bioplastic Ltd will be enforceable. In answering your question, analyse separately each of the two grounds (i) and (ii) put by Dave’s Boating Pty Ltd for terminating the contract. You are required to use the 4 step process in answering this question.



Oct 07, 2017
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