PROBLEM QUESTION ASSIGNMENT (40%)LEGL2002 Tri 1, 2024

BACKGROUND FACTS

Ludwig, Elisa, Franz and Cosima are extremely talented musicians. They decide to form a company to run a music teaching business. They decide to call the company Symphony Pty Ltd and when they register the new company with ASIC, they list themselves as the only directors and only shareholders. As the initial shareholders, they each receive twenty-five ordinary shares entitling the holder to one vote in a general meeting of members.

The company has a constitution that includes the following two articles:

Article 1 - Subject to any rules and procedures set out in this constitution, the business of the company is to be managed by or under the direction of the directors.

Article 2 - The company cannot enter into any contract that will require the company to pay more than $15,000 in any calendar year unless that transaction has been approved by ordinary resolution in a general meeting of members.

The constitution does not exclude the replaceable rules. The replaceable rules therefore apply to the company, with the exception of any replaceable rule that conflicts with an article in the company's constitution.

At their first board meeting, the directors pass a resolution to appoint Cosima as Chief Executive Officer (CEO) of the company, 'effective immediately'. They decide that they will prepare a formal written employment contract for Cosima at a later stage but in the meantime, they encourage her to start working as CEO. Cosima asks whether the board would be happy for her to order business cards for them all and whether it would be okay if her own business card indicates that she is CEO. The others all agree to this.

Napoleon works in a musical instruments warehouse and is a good friend of Cosima. Cosima tells Napoleon about her position at Symphony Pty Ltd and mentions that she feels like a very powerful businessperson even when she is not allowed to enter into any contracts over $15,000 on the company's behalf. Napoleon tells Cosima that he has been trying to sell a Grand Piano and it would be a great acquisition for the music teaching company. Napoleonshows Cosima the Grand Piano and lets her play all sorts of music for one hour. Cosima agrees that the piano would be a great investment for the new company and the price of $20,000 is a once-in-a-lifetime opportunity. She provides Napoleon with a copy of her newly printed business card indicating that she is the CEO of Symphony Pty Ltd and Napoleon drafts a contract for the sale of the Grand Piano. She mentions that she will need to get approval at a general meeting of members of Symphony Pty Ltd.

Cosima then goes home and sends Ludwig, Elisa and Franz an email telling them that a general meeting of members of Symphony Pty Ltd will take place at 8 am on the following day at her home. Her email explains that the purpose of the meeting will be to vote on whether the company should sign the contract for the sale of the Grand Piano. She attaches a copy of the contract to the email.

Cosima then calls Ludwig, Elisa and Franz to tell them to check their emails and to ask whether they can attend the general meeting. Only Ludwig is able to attend. Elisa and Franz are not available at the proposed time and they both complain to Cosima about the short notice and request that she re-schedule the meeting at a later time so that the proposed resolution can be properly considered and debated. Cosima ignores their requests and the next day she and Ludwig meet at the scheduled time and place and they both vote in favour of the resolution to sign the contract.

After Ludwig leaves, Cosima drafts the minutes of the meeting, recording that the resolution has been passed. She has heard that company contracts should be signed by two directors, so she signs her own name and forges Ludwig's signature. She indicates under the signatures that she and Ludwig are directors of Symphony Pty Ltd and that they are signing on behalf of the company.

Cosima then visits Napoleon and gives him the signed contract. Napoleon expresses surprise that Cosima was able to organise a shareholders' meeting in such a short time period. Cosima explains that there are only four shareholders in the company and that they are all very flexible, so it is quite easy to organise a meeting at short notice. Napoleon thinks Cosima looks a bit guilty when she says this, and he suspects Cosima may not be telling the truth about the shareholders' meeting. Nevertheless,Napoleon thinks to himself that, since the contract has been signed by two of the directors of Symphony Pty Ltd,he should have no problem in holding Symphony Pty Ltd to the contract.

At the next board meeting of directors of the company, Elisa and Franz express considerable disappointment that Cosima went ahead with the contract for the acquisition of the Grand Piano without properly consulting with them. They tell Cosima and Ludwig that they do not think that the meeting at Cosima's home was a valid general meeting of members. They propose a board resolution stating that Symphony Pty Ltd is not bound by the contract for the Grand Piano and that the company will not make any payments under the contract. Ludwig, who is disappointed that Cosima forged his signature, votes with Elisa and Franz and the board resolution passes by threevotes to one.

Cosima then contacts Napoleon to let him know that Symphony Pty Ltd wants to cancel the contract. In the meantime, Napoleon had turned down the possibility of selling the Baby Grand Piano to another corporate customer who offered $15,000. Napoleon is convinced that he is bound by the contract with Symphony Pty Ltd. Napoleon tells Cosima that Symphony Pty Ltd must honour the contract and threatens legal action to hold the company to the contract.

THE QUESTION

Cosima comes to see you for advice. Advise Cosimaregarding the likelihood that a court would require Symphony Pty Ltd to honour the contract with Napoleon.

HINTS:

In the process of working your way through answering this question, you should make sure you always state the source of the relevant legal rules (e.g. a section of legislation or a court case) and apply those legal rules to the facts. A possible structure for your assignment would be as follows:

- First - consider whether there were any procedural irregularities in relation to the purported general meeting of members and, if so, whether this means the court would find that the resolution passed by Cosima and Ludwig at that meeting was invalid.- Second - consider whether a court would require Symphony Pty Ltd to honour the contract with Napoleon on the basis of the common law rules and the statutory assumptions.

In the course of writing your answer, you may find it useful to argue 'in the alternative'. For example, if you argue that the court would likely find that the resolution passed by Cosima and Ludwig at the purported general meeting was valid, then (in addition to exploring the legal implications of this) you may want to write something like:

While I have argued above that Cosima and Ludwig's resolution was valid, it is also worth considering the legal implications if the court determines that it was invalid. In that case ...

Conversely, if you argue that a court would likely find the resolution invalid, then you might like to discuss the legal implications if the court instead finds that it was valid.