Differences between Asia Books Pty Ltd and Business Education Ltd - Assignment Example

Assignment on Company Law in Business Name Institutional Affiliation Date a) The Legal Differences between Asia Books Pty Ltd and Business Education Ltd Asia Books Pty Limited enters a contractual agreement with Business Education limited. In this case, the purchasing director acts as an agent for the principal (Business Education Limited). Therefore, the two parties, Asia Books Pty Ltd and Business Education Ltd have legal obligations to illustrate in this case as expressed under different grounds and in compliance with the Company Act. First, the case manifests that Maria, who is Business Education Ltd’s purchasing manager, visits Asia Books Pty Ltd and signs an agreement to bind Business Education Ltd and Asia Books Ltd. However, the Managing director later notifies Asia Books Ltd by rejected the prior agreements entered into through the Purchasing Manager on the ground that such a contract violated Business Education Ltd’s constitution. The law offers several aspects that both parties must endeavor to illustrate while dealing with the legal differences in the case. Business Education Ltd must illustrate if it has a legal obligation to reject the contract that has been entered into through its agent. Further, it must illustrate that such an obligation can render the contract void and therefore, no liable for damages due to the breach or rejecting. Further, Asia Books Pty Ltd has the obligation of illustrating that Business Education Ltd is in breach of the contract for rejecting it on grounds that their company constitution does not allow. Asia Books Pty Limited can first illustrate the express terms in the constitution for Business Education Ltd and illustrate whether the knowledge of those terms can exonerate Business Education Limited from the contract that has been entered into through Maria, their purchasing manager. Asia Books Pty Ltd may first seek to illustrate whether fiction books are used for education purposes expressly or impliedly. What is more, the law provides for express and implied authority of an agent in entering into a contract on behalf of its principal and this can be achieved by fulfilling a number of conditions1. The conditions include illustration as to whether the agent (Purchasing Manager), had the authority to enter into the contract of this nature on behalf of its principle. The other condition is to illustrate whether this representation by the Purchasing manager was made by a person who had express or implied authority to do so and if such representation induced Asia Books Ltd or would be relied upon. Another significant to illustrate is whether Business Education Ltd is not deprived of its capacity to enter into a contract that Asia Books seeks to enforce and this can be done through an examination of Business Education Ltd’s constitution. Explanation of ‘LTD’ as used for company names The reference to the companies as Asia Books Pty Ltd and Business Education Ltd signify a specific notion of the structural design of the companies. The word ‘Ltd’, abbreviation for Limited, carries the meaning that these corporations are companies where workers, subscribers or members’ liability is limited to their investment in these companies. A limited company is limited by guarantee or shares. A further classification of companies limited by shares results in private and public companies. In the Australian context, variant forms of companies are available. Depending on one’s situation, it is vital to specify the company type. The Corporations Act in Australia, therefore, may register a company either as a proprietary or public company. Registered proprietary companies are of two major types while public companies are of four types2. Herein discussed are the variant types of limited companies found in Australia, which may have similar features with Asia Books Pty Ltd and Business Education Ltd. Public companies are those companies with the ability to raise finances from the public through sale of their shares to the public, as provided for by the law. The shares are presented on the share market for purchase. Such companies take the buyers of the shares as their shareholders. The law obliges public limited companies to have not less than three directors and 1 secretary. All public companies must have the word limited (Ltd) at the end of its name. The Asia Books Pty Ltd and Business Education Ltd corporations could be proprietary companies that are registered under the Corporations Act as Limited by Shares. Such corporations are mostly known as shelf or private companies. In comparison, they are slightly smaller in size as compared to public companies. These companies have a minimum of one and maximum of 50 shareholders. However, proprietary companies with limited shares do not raise money through auction of its shares to the public. The literal understanding of the clause ‘Limited by Shares’ is that the company’s liability is restricted to its share value. Such a company could have a single director. b) The rights of Asia Books Pty Ltd after considering the correspondence of Business Education Ltd’s Managing Director This case is based on illustrating the legality of company constitution where a contract is breached on the premise that the company constitution is not followed, and the third party becomes the injured party. Asia Books Pty Ltd is entitled to sue for breach of contract and, therefore, claim for damages suffered due to that breach. It is also entitled to treat the contract as legally binding unless stated otherwise by the verdict of the ruling. A breach of contract can only arise if Asia Books Pty Ltd illustrates the existence of a legally binding contract. For this to be achievable under law, the following elements must be substantiated sufficiently: if the objects of the contract are legal as expressed in the constitution, taking into consideration that the law cannot enforce illegal contracts; the contractual capacity of the parties including the agent’s express and implied authority; the formality adhered to in the execution of the contract agreement; and the loss suffered as a result of contractual breach. Corporations are separate legal entities and different from the individuals who operate or manage the company. This is clearly elaborated in the case of Solomon V Solomon Ltd3. As a consequent of the company’s legal entity status, the company has the legal powers and legal capacity to enter contracts and this power can be exercised through an agent whom the company has granted the authority. The dealing between Asia Books Pty Ltd and Business Education Ltd was done through an agent. The question arises as to whether that agent has been given the requisite authority to render the contract effectiveness and validity. The law requires that parties must be certain about the authority bestowed on the agents before dealing with them in doing business. However, the primary legal argument in this case is to illustrate whether Business Education Ltd has a legal obligation to declare the contract void on the basis that its constitution does not allow. Companies are created by law, and the individual personalities of the company are outlined in its constitution. However, because of the termination of the ultra vires rule, the constitution does not define the company powers any longer but will continue to offer primary source of internal company make up or structure. Corporations Act, Section 140(1) gives company’s constitution the contractual force by providing that a company constitution has impact on creation of contract between the company and each of its members or the each director and secretary and the company or between the members themselves. This follows the normal contract itself where the parties to contract create an agreement that is enforceable. However, the courts have shown some reservations in the past with regard to the general interpretations about the company constitution. With abolition of the doctrine of ultra vires by introducing section 124 & 125 of the Corporations Act, it weakness the constitution’s view where it is construed more strict than the commercial contracts. This was the case in Lion Nathn Australia Pty Limited v Coopers Brewery Ltd4 where the court made the interpretations that company constitution ought to give business efficacy and not pedantically or narrowly. Therefore, the validity of the constitution becomes ineffective when company is dealing with a third party and since the contract is valid, Asia Book Pty Limited can go ahead and claim seek court injunction to reinstate the contract or seek for damages for breach of the contract. c) Advice on the right of Tasmania warehouse based on the case The subject of legal argument here is whether Tasmania is entitled to sue for breach of contract arising out of the Managing director’s dismissal that Charles is not authorized to make such contracts on behalf of its principle (Business Education Ltd). In such a dispute, Tasmania should illustrate that the representation made by Charles is valid and therefore, the contract entered into should be honoured else constitute a breach. Consequently, after establishing such a breach, Tasmania is entitled to recover for damages arising out of the breach. A company can enter into contracts with third parties through an agent. It is the responsibility of the third parties to ensure that the agent professing to contract on behalf of the company has the requisite authority to do so. The difficult that arises in such a situation is to how third parties can ascertain if the agents are acting within their company’s powers. Thus, such difficulties are addressed by various doctrines with regard to actual authority, ostensible authority and the rule of indoor management. In purview of this case, Actual authority doctrine takes into consideration the specific people who have been appointed by virtue of the given corporate office such as the secretary, managing director or sales manager because they have implied or express authority to act as the company or for the company. When making a determination with regard to actual authority and the case at hand, the following shall be considered: Charle’s position in the company, whether Charles has been granted the actual authority, and how the company has conducted itself with regard to the subject of contention as discussed in the case of Freeman & Lockyer v Buckhurst Properties Ltd5. The doctrine of ostensible authority relies on the axiom of estoppels. Further, the doctrine of indoor management can be applied by Tasmania based on the precedent case of Royal British Bank v Turquand. It this case, it was held that the parties to the contract are bound to read the settlement deed and the stature and shall be bound to nothing more. d) Legal advice to Charles on the validity of his dismissal Charles is the Chief Accountant to Business Education Ltd. However, upon getting into a contract on behalf of the company with Asia Books Pty Ltd, the Board of directors dismisses him from the Chief Accountant position. Herein discussed is the legal advice given to Charles with regard to this dismissal. According to the constitution of Business Education Ltd, the Chief Accountant of the company is not to be dismissed, unless he makes a decision to resign. It, therefore, implies a lifelong responsibility to Charles to be the chief accountant unless he wishes to terminate his contract. Charles has a valid claim for breach of employment terms, as the Board of directors are doing so in breach of the company constitution. This act amounts to invalid dismissal by the board of directors. The dismissal of Charles as the chief accountant amounts to unfair dismissal. The Employment Tribunal has considerations for unfair dismissal of employees. Unfair dismissal claims can be made when an employee’s contract is terminated on unreasonable grounds, thus unlawful grounds. Unfair termination of employment occurs when there is no sufficient ground for termination, in addition to failure of an employee to adequately work according to set procedures of grievance. The board of directors formulates the decision to dismiss Charles on unlawful grounds. It is within the provisions of the constitution that Charles cannot be dismissed. He has the ability to decide when to terminate his employment contract. The Board of directors thus acts against the constitution which is the chief source of the powers and responsibilities bestowed upon them. Their decision, therefore, cannot be validated on the grounds that the board of directors is acting ultra vires6. Charles can as well claim to be subjected to constructive dismissal. It is similar to unfair dismissal, where the board of directors that the behaviour of an employee is in a deteriorating condition to levels of repudiated employment contract. There is justification of constructive dismissal as the board of directors has decided to exert unreasonable discipline on Charles for having entered into a contract with Asia Books Pty Ltd, which the board further cancels. Although Charles is immune to dismissal by the board of directors, the board has sufficient justification for the decision to dismiss Charles from the position of Business Education Ltd as the chief accountant, for the board of directors has the capacity to employ and terminate contract of employment. e) Charles starts a company that is to supply textbooks to bookshops of universities after moving from Business Education Ltd. However, this act is against his employment contract at Business Education Ltd, which had a clause stating that Charles was mandatorily not to be in competition against his Business Education Ltd while or after his service in the company. However, Business Education Ltd feels that they are in competition with Unitexts Ltd, Charles’ new company. There is a conflict of interest between Unitexts Ltd and Business Education Ltd. A conflict of interest arises when an entity gets involved in alternative interests that are based on finance or emotion, which ultimately leads to corrupted motivation of the entity. The starting of Unitexts Ltd presents a condition in which puts professional judgment at a risk, holding that the business interests of Business Education Ltd will be affected by the interests of the competitor Unitexts Ltd. The basic interest of Business Education Ltd is to ensure steady supply of educational books, which has a financial effect on the company. The interest of Unitexts Ltd is to supply textbooks to universities, which presents competition to Business Education Ltd. the action by Charles starting a company will affect the operations of Business Education Ltd since their sales will diminish and the primary financial interest of the company will be affected. Charles argues that his is a separate legal company with the freedom to operate in its selected business. However, this step amounts to conflict of interest since he is a former member of Business Education Ltd, thus any activity that puts the primary financial risk of the company at risk is treated as conflict of interest. Charles is also bound by the clause within his employment contract not to compete with Business Education Ltd. therefore, business Education Ltd can successfully claim and sue Charles for conflict of interest as he is a former employee of Business Education and he has started a company which competes with Business education Ltd, against his employment contract. f) Determination on whether the Board of Directors is required to follow the Decision passed by members and the options available in the event of Board not following the decision The roles of the members and the directors are completely different as far as limited companies are concerned. Members are the shareholders, and the directors are managers of the company. The Company Act separates the role of directors and shareholders for the purpose of reducing any confusion that may arise. Some decisions of the directors are made in board meetings, and some of these decisions may require the Board of Directors' consent of the board of directors. All this depends on the Company Act and the company constitution. In this case, members have already made the decision through a resolution. Therefore, directors must adhere to that decision. However, if the Board of Directors does not implement the resolution of the members, the members can apply a number of approaches to remove the director from office or apply for a court injunction for force the director comply. In so doing, the provision of the Company Act with regard to removal of the director should be applied. Bibliography Books Top of Form Burnett, B. A., and B.A. Burnett. 2007. A resource book in company law & corporate governance. Woollahra, NSW: B. A. Burnett. Bottom of Form Top of Form Lipton, P., and A. Herzberg. 2001. Understanding company law. Sydney: Lawbook Co. Top of Form Quilter, Michael. 2009. The company law notes. Pyrmont, N.S.W.: Thomson Reuters. Cases Freeman & Lockyer v Buckhurst Park Propertie Limited [1964] 2 QB 480 Lipton, P., and A. Herzberg. 2001. Understanding company law. Sydney: Lawbook Co. Bottom of Form Nathan Australia Pty Limited v Coopers Brewery Limeted [2006] FCAFC 144 Salomon v A Salomon & Co Limited [1897] AC 22 Bottom of Form Read More