Explorer Ltd is a manufacturing company incorporated on 5 July 1981. The objects clause in the company’s Constitution stated the manufacture of speedboats. Due to a downturn in the demand for speedboats this year, Jaysson Wolff, the Managing Director of Explorer, contracted on behalf of Explorer with Duck Pty Ltd to produce orange juice. The Explorer equipment proved incapable of producing the orange juice and Explorer breached the contract. Explorer relied on the objects clause to deny liability under the contract. Discuss.
Step 1 Area of Law
The Corporation law is the area of law in which the situation can be found. It is called the Corporations Act of 2001. The law includes the general nature of a corporation. It describes its legal registration, features, officers, employees, shares, transaction, finances, liabilities and more aspects of the company. The law explains everything that is needed to be followed by a corporation.
Step 2: Discuss the Law
In Section 125(1) of the Corporations Act of 2001, it states that if the corporation has a constitution, then it could restrict or prohibit certain actions or use of power. The constitution may specify what object clause the company can be produce or manufacture. However, in Section 125(2), it is states that any act of the company that contradicts or overlaps its constitution is still considered valid. Therefore the constitution represents the guideline for the company and does not necessarily hinder it from doing any action that is beyond its constitution.
Section 126(1) says that a corporation’s power to formulate, disagree, approve a contract can be applied by an individual with implied authority or on behalf of the corporation. The decisions and actions of the corporation can be carried out by an individual that represents the corporation.
Section 208 defines that any contracts of the corporation with another entity must obtain the approval of both parties. It states that both parties must give and receive their financial benefit as stated by the contract. The contract must be made before or within 15 months after the approval of that contract. It also means that the members of both parties has approved of the contract once it has been implemented.
Section 209(1 ; 2) states the consequence when there is a breach of contract. It says that any contradictions made by any of the party do not invalidate the contract. Even though a corporation can no longer meet the requirements of the agreement, the contract is still legitimate.
Section 209(3) asserts that a person in a dishonest involvement in the breach of the contract is punishable by law. If it is proven that the person, representing the company, intentionally entered a contract aware that it will lead to its contravention, then that person faces an offense against the law.
Step 3: Apply the Law
Explorer Ltd is a corporation that has a constitution which states that their object clause would be the manufacture of speed boats. According to Section 125, any action contradicting or beyond the object of clause in a constitution is still valid. Therefore, it is legitimate for Explorer if they will not manufacture speed boats anymore.
Since speed boats had low demand, Explorer entered into a contract with Ducky Pty Ltd to produce orange juice. It is permissible for Explorer Ltd to enter a contract to produce orange juice with Ducky Pty Ltd even though it is a contradiction to the corporation’s constitutional object clause.
Jaysson Wolff was the Managing Director of Explorer and was its representative on behalf of the Explorer in the signing of the contract. According Section 126, Jaysson Wolff had authority in the company being its managing director. Therefore, it is legal for Jaysson Wolff to represent Explorer in the contract with Ducky Pty Ltd.
Later on, Explorer was proved incapable of producing orange juice and committed the breach of contract. The Explorer cannot rely on its object clause to evade the liabilities of their action. According to Section 125, it is unacceptable for the Explorer to reason their object of clause to deny their liability.
Also, Explorer cannot reason that they did not approve of the contract that Jaysson Wolff had signed. According to Section 208, it is implicit that the members of both parties had understood and agreed about the contract before it was signed. Even though there has been a violation of contract, the liabilities entailed by the contract are still observed as stated by Section 209.
If it is proven that Jaysson Wolff intentionally signed the contract, because he thought that the object clause would be their escape from the liabilities brought by the contract, then he will be punished by the law and put into trial.
Step 4: Conclusion
Explorer Ltd cannot deny the liabilities from the breach of contract. They cannot reason out that their object clause is beyond the contract or that the members of the corporation disagree with the contract. They will face the liabilities entailed with the contract even if they cannot produce the orange juice stated in the contract. Jaysson Wolff can be imprisoned if he is proven to have swindled the signing of the contract.
Corporate Law Website. (n.d.). Retrieved May 5, 2009 from Understanding Company Law: http://www.lipton-herzberg.com.au/corp-law-websites.html
Corporation Law. (n.d.). Retrieved May 5, 2009 from APLA: http://www.apla.com.au/law/corporation_law.php
Corporations (Consequential Amendments) Act of 2001. (2001). Retrieved May 5, 2009 from Victorian Bill: http://www.austlii.edu.au/cgi-bin/sinodisp/au/legis/vic/bill/cab2001422/cab2001422.html?query=^corporation%202001