Cat Contract with Feline Fertility Pty Ltd - Assignment Example

COMPANY LAW CASE ANALYSIS al Affiliation COMPANY LAW CASE ANALYSIS (i) Is the cat contract with Feline Fertility Pty Ltd enforceable? Your answer should include an analysis of the reason put forward by Lassie Ltd for terminating the contract. The corporation’s act of 2001 explains how companies can form contracts and the enforceability of any contract or agreement within the law.1 An enforceable contract is one in which the court can intervene when one of the parties in the contract brings the matter to their attention2. According to section 124 of the law, a company may make an agreement the same way an individual owner of a company can make such agreements3. In section 125, the law provides that the performance of a contract, including entry into an agreement, by a company will not be invalid merely because it is beyond the power of the company’s constitution4. This means that when a company makes an agreement, they must honor this agreement even if the terms are beyond the constitution. In this case, the cat contract with Feline Fertility Pty Ltd is enforceable since company willing entered the contract while understanding that the their constitution did not allow them to trade in cats. Lassie Ltd argues that since the company constitution does not allow the company to trade cats, the contract was invalid and unenforceable. However, going by the law, the fact that the company entered the agreement with Feline Fertility Pty Limited, it remains valid even if this goes beyond the constitution. Therefore, Feline Fertility can move to the court to have the contract enforced and to avoid termination. Alternatively, Lessie Ltd should finance any losses that the other company may incur as a result of this termination. (ii) Will Lassie Ltd.’s constitution prevent Willy Woof from entering into a lease with Hot Ltd? The Company act of 2001 states that a director of the company must act within the constitution while conducting business on behalf of the company. Since the director of the company conducts the business on behalf of the stakeholders, the constitution limits their actions.5 However, this must be in tandem with the requirements of the constitution. In this case, Willy Woof has the power to make decisions regarding the business process, as long as these decisions do not infringe the constitution. The company current constitution allows the director to enter the lease with Hot Ltd.6 However, the other company directors intends to include a new clause that requires that “the establishment of any store outside the state of Western Australia requires the approval of all the directors.” If the amendment is successfully integrated in the constitution, Lessie will not be able to enter into the agreement with Hot Ltd since the constitution will empower other directors to object such a move7. Therefore, changes in the constitution will help prevent the managing director from entering into this agreement that other directors are opposed to. (iii) Do you consider a court would order the reappointment of Gary as General Manager on the grounds he has put forward? According to the Australian law, the director within a company acts as an independent party and possesses power to make decisions that they deem necessary for the stakeholders. 8However, section 80 of the Company Act requires that a director who makes business decision must make judgments in good faith and for a proper purpose. They must not have any material interest in the matter of judgment. Secondly, he or she must be reasonably inform himself on the matter and ensure that the judgment the make is to the best interest of the company. In Lessie Ltd case, the director, Willy Wolf feels that Gary Growl poor management strategies led to the failure of the cat trade business in the company. Consequently, he demotes Gary Growl, the company manager, who moves to court to sue for reinstatement. Evidently, the company’s constitution has a clause that states that Gary Growl is the company director. However, the Company director has the power to override the constitution as long as he does so at the best interest of the company.9 Therefore, in the court, the Company director would have to table evidence that Gary was costing the company and that demoting him to a sales manager position will be to the benefit of the company10. If there is enough evidence, then the court would not reinstate Gary Growl. The argument of Gary Growl that the Lessie, by demoting him breached the constitution is not valid since the law provides the director with such powers. To regain his position, he must prove that the director has other motives rather than the company in mind while demoting him. (iv). Gary has a clause in his employment contract with Lassie Ltd that he must not compete with the company’s business during his appointment or after termination of his appointment. After leaving Lassie Ltd, Gary sets up a company called ‘Poodle Pty Ltd’ to sell different types of dogs. Lassie Ltd brings an action seeking to restrain Gary and Poodle Pty Ltd from engaging in a competing business. Gary argues that Poodle Pty Ltd is a separate legal entity and it can do what it likes. Discuss whether Lassie Ltd is likely to be successful in its action. Case Law is part of the Australian Legal system that is used in various circumstances to handle similar cases. According to the doctrine of binding precedent, any decision made by higher courts must be used to handle similar cases unless higher or the same court decides to reverse the decision. In various instances, the court has handled cases in which a manager of the company decides to form a competing company even when they have a clause preventing them from competing the company.11 A good example is the Gilford Motor Co v Horne, in which the court order Mr Horne, a former director of the Gilford Motor to stop competing with the company on the ground that he was bound by his clause while still within the company.12 If the same is to be applied in the case between Lessie and Mr Gary, it is likely that Gary would lose in the case and Lessie would emerge the winner. Since Mr Gary had a clause preventing him to form a competing company, then it would be illegal to operate Poody Pty Ltd after leaving the company. Since the company is involved in trade of the dogs, just like Lessie, it is evident that the company competes with the earlier company. Therefore, if Case Law applies and the doctrine of the binding precedent is upheld, Lessie would be successful in convincing the court to stop the operations of Gary’s company13. v. Advise Gary of his responsibilities and any liability arising from the incorporation of Lassie Ltd and his sale of the pet store business to that company. Gary, being the manager in Lessie Ltd has limited liability in the company and is independent from the company. According to the company act, a company operates as an independent entity and the directors and other officers are workers with specific duties within the company. Therefore, Gary has an obligation, under section 184 of the company act, to act in good faith for the benefit of the company and to avoid any actions that may be detrimental to the company14. Secondly, they have an obligation to treat the information they access, by virtue of their position, as confidential and not to use for their selfish benefits.15 In this case, Gary sold the pet business to the company at a higher price that he had bought the company16. Therefore, one of the shareholders, Mary Meow, feels that Gary took advantage of the company by selling them the company the pet business at a higher price. A number of issues may arise in this case which may attract legal actions. First, the company may sue if there is reasonable evidence that the company purchased the pet business at an inflated price and that this may be detrimental for the company. However, to engage a legal course of action, Mary Meow must provide that Gary had a duty to sell the company to the business at the current market price. The case may sail through only if Gary used inside information as the manager of the company in the knowledge that the company was willing to buy a pet business. However, Gary has no liability to in the trade since he acts as an independent person and does not pay any role in the transaction. The law cannot hold him accountable for any ordinary commercial transaction that the company engages in17. Therefore, the company acted independently and willing bought the business at the offered price.18 Therefore, the company is to blame for purchasing the business at an inflated price. The company had the obligation to conduct market analysis and understand the current market price to ensure that they buy the pet business at the best price. Therefore, Meow’s case is likely to be unsuccessful. (vi). Two years after Lassie Ltd started trading, there was a real decline in the demand for dogs and Lassie Ltd went into liquidation. Lassie Ltd still owes $50,000 to a company called Doggy Pty Ltd. Advise Doggy Pty Ltd as to whether it might be able to recover any amount from Lassie Ltd, its directors or its shareholders? The Corporate Act 2001 provides the liability of the company and the directors when there is liquidation and the company has debt.19 According to section 588, a company is liable for its debts and must use its finances to pay its debts during liquidation20. Therefore, Doogy Pty Limited must pursue the company first and not the stakeholders to recover the debt of $50,000. If the company is not capable of paying the debt, then it is likely that the company may fail to recover this amount21. In such cases, the company is blamed for engaging in risky business with a company that was at the risk of failing22. Therefore, the company willingly engaged in the agreement while clearly understanding the position of Lessie Ltd. However, section 558G provides instances when the company may recover the debt from the directors of the company.23 According to this section, the directors may have to compensate the company if the company is, or becomes insolvent as a result of the director’s careless actions24. Secondly, if the director were aware that the company was in the verge of getting into bankruptcy and did not disclose this information, then it is possible to pursue the director and require them to pay for the debt.25 Therefore, Dogy Pty Ltd needs to establish whether the directors of the company were responsible for the insolvency in which case they may use the court to compel them to pay the debt on behalf of the company26. Therefore, the liability of the directors during insolvency clause allows, in some occasions the company to pursue its debt from the directors.27 Bibliograpy Andrews, Georgina. "The Veil of Incoporation–Fiction or Façade?." Business Law Review 25.1 (2004): 4-7. Audrey, Williams June. 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