Validity of Contract between Fitness Fiend Pty Ltd and Prestige Properties Ltd

Discuss about the Organization Prestige Properties Ltd.

The question is related to the powers of a company to get into a contract. Section 124 of the Corporations Act 2001 (Cth) (CA) provides that an organization can get into a contract in the same way as an individual[1]. In addition it has also been provided through Section 125 of the CA that although the constitution may limit the powers of the companies to get into the contract with any third party, such limitations are not enough merely to be able to declare a contract outside the scope of the corporation as invalid[2]. In addition section 128 of the CA states that a person has the right to assume that the constitution of the company has been complied with[3].  The issue which has been identified in the given situation is that whether the contract of Fitness Fiend Pty Ltd (FF) with Prestige Properties Ltd (PPL) is valid or not. In the given situation it has been stated that fitness fiend had got into a contract with PPL for the purpose of leading 11 sites for expanding their business. The total value of the contract which has been got into by the FF with PP was approximately $240000 (4000 per month for five years). It has been provided by the constitution of FF that if the value of the contract is more than $200000 it has to be stipulated by the board. However in this case the responsibility of the contract has been delegated by Biceps who was the managing director of FF to Slim who was the director of FF as he thought that Slim is capable enough to handle the matter.

In addition it has already been discussed above that a contract t merely does not get invalid if it is not in accordance to the constitution of the company. The corporation act further stipulates trough section 127 that a document is only executed by a company if it has been signed by at least one director and one company secretary or two directors of the company. In the given situation the contract can be said not to be valid[4]. This is because not only has the contract is outside the scope of the constitution but also have not been executed in a proper manner. This is because the contract in order to be duly executed must have been signed by at least two directors or one director and a company secretary of the company as FF does not have a sole director or a common seal to execute contract. However it has been provided in Section 126 of the CA that a person who is acting on behalf of the company binds the company to his acts[5]. Therefore it can be evidently provided that FF has entered into a valid contract with PP in relation to the lease of 11 sites. In this case although the contract of lease can be extend to a further five year period it would not be considered as the value of the contract as the situation is still in contingent.

Validity of Contract between Fitness Fiend Pty Ltd and Frenetic Franchising Pty Ltd

The issue in this part of the report is to identify whether a valid contract have been formed between FF and frenetic Franchising Pty ltd or not. It has been provided through the scenario that Flex who is the company secretary of the company has got into a contract with Frenetic which is of a value of $60000. The contract is related to the obtaining floor space along with marketing expertise with respect to fitness fiend in relation to the convention. The convention was related to targeting franchises which would be operating in the 11 new sites obtained by FF. It has been expressly provided by the CA that any act which a person enters onto on behalf of the company is binding on the company as per section 126. A Secretary of the company would be seen as the agent of the company by any their party[6]. The contract is also within the powers which are provided to the agents of the company by its constitution. This is because the value of the contract is only $60000. The contract therefore does not require to be stipulated by the board.

However it has also been provided through the scenario that flex has gone into a contract with Abs-solute solution which is of a value of $440000. The combination of the contract flex has entered with Frenetic and Abe accounts to a total of $500000. It had been provided by the constitution of FF that they any agent, director or managing director of the company is not allowed to execute contract is total or $500000 or more. In this case the total value of contract which has been executed by Flex is $500000. Thus Flex is restricted from doing so. However it has been provided by Section 128 that a their party in relation to a company can make an assumption that the rules of the constitution of the company has been complied with if an agent of the company enters into a contract on behalf of the company[7]. The assumption cannot be stated as incorrect by the company in relation to a legal proceeding. Therefore it can be provided that FF under this section as a binding contract with both Frenetic and Abs-solute.

The issue in this part of the report is to analyze that whether a valid contract has been entered upon between FF and the 11 franchise. A responsibility had been imposed on Biceps who was the managing director of FF to get into a contract with the 11 required franchises. Each of the contracts was worth $650000. All of these contracts had to be executed by Biceps on the behalf of the company. It has been provided by the constitution of the company that an agent or director even the managing director of the company does not have the power to execute contracts which have a value of more than $500000 in total. In the given situation the contract which biceps have been directed to execute have a value of over $7150000.

Validity of Contract between Fitness Fiend Pty Ltd and 11 Franchises

It has been provided by section 125 of the CA that the constitution of the company can restrict the powers of the members of the company towards getting into a contract[8].  However it has also been provided by the section that the validity of the contract of the company with any third party is not limited by the provisions provided in the constitution. The provisions have been discussed further in the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd[9], where it was held by the court that the company is bound to the contract entered upon by its agents even if the contract is not in the best interest of the company, not in accordance to the purpose of the company or is restricted by the provisions of the constitution of the company. In addition even of Biceps had been directed to get into the contract with the franchises by the board it was necessary for the board to amend the constitution through a special resolution.  Therefore it can be provided in this case that the contract which Biceps as entered into with the franchises are binding on FF as the franchises believe that FF has the authority to do so and under section 128 the provisions of the constitution of the company has been complied with by Biceps. However the assumption would not have been valid in case it was known to the potential franchises that the constitution restricts the power of Biceps to get into the contract.

In this part of the report the situation in relation to the class action by the users of the health care services have to be discussed in the light of the rules of agency. In Australia a principal is liable for the actions of his agent with respect to a third party. In the same way as provided by the case of Esperance Cattle Company Pty Ltd v Granite Hill Pty Ltd[10] a business would also be liable for the loss which has been suffered by its clients because of its agents or employees. It has been provided by the scenario that in order to incorporate a unique feature into their business FF decided to provide additional services to the client. For this purpose they had incorporated personal trainers into the gym.

The employees have been hired by FF by appointing Reliable Recruiting Pty Ltd. It was later found that the customers were facing various injures in relation to the exercise. It was found upon investigation that the employees had qualification in relation to construction and building and not physical trainers. In the given situation it s the right of FF to initiate a claim against RR because of the breach of contract and negligence committed by them with respect to the recruitment of trainers. However the clients who had suffered from the injury caused to them while exercising because of the unqualified trainers have the right to initiate a class action against the company. This is because the employees were working for FF and the clients have no relationship with RR. In the given situation the company is liable to face prosecution in relation to the class action according to the provisions of agency discussed above. However it has to be noted in this case that through the application of contract law and the provisions of negligence FF would be able to make a successful claim against RR for the negligence and breach of contract committed by them and also claim any losses faced by FF in relation to the class action[11].

Liability for Actions of Agents and Employees

The issue which has to be determined in relation to this scenario is towards the deficiencies in relation to the register of members marinated by FF. After the events in relation to the class action the chair person of FF got serious in relation to how the other matters of the organization are being handled by the management. Thus an investigation with respect to the financial records in relation to the organization had been commenced by Slim and Joy. It was found during the investigation by the directors of the company that register of the company did not have any details in relation to employees who participate in the employees share scheme of the organization. According to this scheme the employees are required to subscribe to class E ordinary shares of the organization.

Section 168 of the CA provides the provisions in relation to the maintenance of registers[12]. Section 169 of the CA further provides that the register of the organization must contain details in relation to name and address if the members along with the date on which the entry in relation to the names have been made in the register[13]. The register must also have details in relation to class of shares, shares held by every member and the amount which is yet to be paid in relation to the to the shares. According to section 178 changes can be made to the register of the company by providing due notice in relation to such changes to the ASIC[14]. A person who has been affected due to the incorrectness in a register has the right off seeking remedy form the court in relation to any loss which have been suffered by them. The court may order the company to correct its registers if its finds it appropriate as per section 175[15]. Such notice of change is also to be provided to the ASIC in the required time as per section 179 of the CA. therefore in the given situation the absence of the names of the employees under the employee share scheme from the register is a strict liability office for the directors of the company and thus correction has to be done as soon as possible according to the provisions of the CA, in addition the notice of such correction has to be lodged by FF with the ASIC in the required time.

Corporation Act 2001 (Cth)

Esperance Cattle Company Pty Ltd v Granite Hill Pty Ltd (2014) 47 WAR 318.

Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd 2014] SASCFC 103

McKendrick, Ewan. Contract law: text, cases, and materials. Oxford University Press (UK), 2014.