Issue: Are Axel, Paul, or Fine Food Fine Wine Pty Ltd liable to pay for the

tablecloths and aprons?

Law:

S 131 (1) (b);

Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) P/L;
S 131 (4).

Application:

Fine Food Fine Wine Pty is liable to pay for the tablecloths and aprons, because:

In accordance with the section 131 (1) (b) CA, if a person enters into a
contract for the benefit of a company before it is registered, the company
becomes bound by the contract if the company is registered and ratifies the
contract within a reasonable time after the contract is entered into. On the
22nd of February Axel executed the contract with Irish Linen Ltd to buy 24
monogrammed tablecloths and 12 aprons in the name of Fine Food Fine
Wine Pty Ltd. The contract did not stipulate the time during which the
contract should be ratified after the registration of the company. On the 24th of
February, the company was registered with ASIC and on the 30th of March the
contract was ratified. Thus, between the entry into the contract and the
ratification of the contract, 36 days had passed, which in this case is entirely
acceptable, since this product is not perishable, unlike foodstuff for example,
and where a small delay in time would not result in any losses for parties.
Also, if we look from the point of view of the supplier's settlement terms, then
this time interval also does not seem to be unreasonable, as often the
payment for the purchase of non-perishable goods occurs at the time of
receipt of the goods and with full compliance of this product with terms and
conditions. Thus, it is reasonable to assume that the time difference between
entry into the contract and the ratification of the contract corresponds to the
definition reasonable time. Further, since Axel, as one of the promoters,
bought these tablecloths and aprons for the restaurant, wanting the business
 to be operational as quickly as possible, we can say, that he entered into the
contract for the benefit of the company. Also he executed the contract in the
name of Fine Food Fine Wine Pty Ltd. Thus, taking into account all of the
above, Fine Food Fine Wine Pty Ltd is liable to pay for the tablecloths and
aprons (Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) P/L).

Axel will be liable to pay for the tablecloths and aprons, if Food Fine Wine Pty Ltd will
not pay for it, because:

In accordance with the section 131 (4) CA if the company ratifies the pre-
registration contract, but fails to perform it, the court may order the person to
pay all or part of the damages that the company is ordered to pay. It is now
1st of May, by this time the tablecloths and aprons have been delivered, so
Irish Linen Ltd fulfilled its obligations under the contract, whereas Fine Food
Fine Wine Pty Ltd still has not paid for the purchase. If Food Fine Wine Pty
Ltd will not pay for the tablecloths and aprons, this would mean, that the
company does not fail to perform the pre-registration contract, so Axel will be
liable to pay for the tablecloths and aprons that the company is ordered to
pay.

Paul is not liable to pay for the tablecloths and aprons, because:

Paul did not enter into contract with Irish Linen Ltd, so he cannot be bound by
it.

Conclusion:

Fine Food Fine Wine Pty Ltd is liable to pay for 24 monogrammed tablecloths and 12
aprons (s 131 (1) (b) CA); and if the company will not pay, then Axel will be liable to
pay (131 (4) CA). The court will decide what amount will be paid by Axel. Paul is not
liable to pay for the tablecloths and aprons.
Issue: Are Axel, Paul, or Fine Food Fine Wine Pty Ltd liable to pay for the table and
chair settings?

Law:

S 127 (2) CA;

S 127 (2) (a) CA;
S 127 (2) (b) CA;
S 119 CA;
S 124 (1) CA;
Salomon v Salomon & Co Ltd.

Application:

Axel and Paul are not liable to pay for the table and chair settings, because:

In accordance with the section 119 a company comes into existence as a

body corporate at the beginning of the day on which it is registered. Fine
Food Fine Wine Pty Ltd was registered with the ASIC on the 24th of February.
The contract for the purchase of 10 tables and 4 chair settings was concluded
on the 1st of April, i.e. this contract was concluded after a company comes into
existence.
In accordance with the section 124 (1) CA a company has the legal capacity
and powers of an individual both in and outside this jurisdiction and a
company also has all the powers of a body corporate, including the power do
anything that it is authorised to do by any other law (s 124 (1) (h) CA. So Fine
Food Fine Wine Pty Ltd is a legal person, which entered into the contract with
Domestic Bliss Pty Ltd and any debt under this contract is the debt of Food
Fine Wine Pty Ltd. The shareholders of the company, who are Axel and Paul,
are not liable for this debt (Salomon v Salomon & Co Ltd.).

Fine Food Fine Wine Pty Ltd is not liable to pay for the table and chair settings,
because:
 In accordance with the section 127 (2) CA a company with a common seal
may execute a document if the seal is fixed to the document and the fixing of
the seal is witnessed by 2 directors of the company (127 (2) (a) CA) or a
director and a company secretary of the company (127 (2) (b) CA)). Axel
affixed the company seal to the contract and signed it. Paul did not sign it.
Thus the seal is witnessed only by one person; therefore Fine Food Fine Wine
Pty Ltd cannot be bound by this contract and it is not liable to pay for the table
and chair settings. *

Conclusion:

Neither Axel, nor Paul, nor Fine Food Fine Wine Pty Ltd liable to pay for the table
and chair settings in accordance with the sections 127 (2) and 124 (1) CA.

* It can be challenged in accordance with the section 127 (4) CA, in which it is said
that this section does not limit the ways in which a company may execute a
document (including a deed). Arguments can be given that this contract was the first
contract since the company's existence and that Fine Food Fine Wine Pty Ltd has
not yet chosen the way in which a company will execute a document. Thus, the
company seal and signature of one director of the company can be considered as
the way in which a company will execute a document, so Fine Food Fine Wine Pty
Ltd is bound by the contract with Domestic Bliss Pty Ltd and it is liable to pay for the
table and chair settings.