Two cousins, Sean and Rochelle, decided to transfer their partnership business, which supplies commercial cookware to restaurants, to a newly formed company.

They registered Cookwell Ltd as a limited liability company and arranged for it to purchase the partnership business. Shares in Cookwell Ltd were allotted equally to Sean and Rochelle. Both were also appointed as the company’s directors. Neither was appointed managing director although in practice, day-to-day decisions on running the business are left to Sean. Sean’s ex-wife, Delilah, was appointed as the company’s accountant.

Recently, Sean saw an acrylic painting by a well-known New Zealand artist for sale for $150,000. He thought the painting was particularly suitable for the board room and that the price being asked was a bargain.

There was no time to contact Rochelle so Sean decided to go ahead with the purchase without informing him. The vendor insisted that Sean sign a written agreement. Rochelle, on learning of the purchase, is upset and seeks your legal advice.

Required:

a.) Now assume that Cookwell Ltd’s constitution has a provision in it requiring all contracts over $100,000 to have board approval and to be executed by both directors. If Sean and Delilah both signed the purchase agreement, as directors of Cookwell Ltd, but did not tell Rochelle of the purchase, would the company be bound by the agreement? Explain why or why not

b.) What difference, if any, would it make to your answer to (a) if, prior to entering into the contract, the vendor overheard Sean telling Delilah that Rochelle was unaware of the purchase?

Answer rating: 100% (QA)

Answer a Yes company will be bound under the agreement because when you are in partnership with a se... View the full answer