LEGL2002 Enforceability of Contracts and Director Authority in Business Organisations, Singapore

Background Facts

Noble Grove Innovations Pty Ltd (NGI) is a family-owned company that specializes in eco-friendly packaging solutions for the modern consumer. NGI’s current constitution incorporates all the replaceable rules in the Corporations Act 2001 (Cth). NGI shareholding comprises 240 shares held by Aaron Noble (60 shares), who is also the CEO/MD (chief executive officer/managing director); Beatrice Noble (50 shares), who is the COO (chief operating officer); and Carol Noble (50 shares), who is the CMO (chief marketing officer). Other members of the Noble family hold the rest of the shares. NGI board of directors is composed of four directors, including Aaron, Beatrice, Carol and Willy Wonka, who has been with NGI for a long time and is a close friend of the Noble family.

NGI is currently considering the purchase of an advanced manufacturing machine for their biodegradable packaging line, the EcoPack Pro 5000. Aaron saw the machine for the first time at a technology expo in a neighbouring city and at the cost of $7 million. He firmly believes it is an exceptional investment that will elevate their production capabilities. Mr Musk, a sales agent of the vendor, tells him this is a once-in-a-lifetime opportunity, so Aaron calls a Board of Directors meeting for the next day.

Aaron emails the other directors with the big news, saying they will meet the next day at 8:00 AM to vote and sign off the corresponding board resolution to buy the EcoPack Pro 5000. Carol replies immediately and says she cannot attend the meeting and requests Aaron to reschedule the meeting for the next time available, in accordance with the law and the NGI constitution. Fifteen minutes later, Beatrice also replies she has a doctor’s appointment she cannot reschedule, so she will not be present either. Beatrice agrees with Carol that the meeting should be another day and reminds Aaron that all meetings need to observe the legal requirements and the company constitution for a valid directors’ board resolution.

Nevertheless, the meeting takes place the next day with Aaron and Willy, who then vote in favour of buying the EcoPack Pro 5000 with the utmost urgency. Hence, they authorise the signature of the corresponding contract in accordance with the law. Later in the day, after the meeting, Carol and Beatrice expressed their disappointment and complained that the meeting went on without their opinion and votes. Instead, Carol and Beatrice proposed a motion for the next directors’ board to hire a consultant to conduct a market and feasibility study to obtain the most value-for-money investment possible.

Questions

1. Would a contract to buy the EcoPack Pro 5000 be enforceable by the vendor, as duly represented by Mr Musk, if the contract was executed:
   • by being signed by Aaron Noble for and on behalf of NGI?
   • by being signed by Beatrice Noble for and on behalf of NGI?
   • by the NGI common seal being fixed in the presence of, and witnessed by, Beatrice Noble and Carol Noble?
   • by being signed by Beatrice Noble and Carol Noble?
   • by being signed by Aaron Noble and Willy Wonka, whose signature has been forged by Aaron as Willy had second thoughts regarding the validity of the directors’ board resolution?
2. Now the EcoPack Pro 5000 has been delivered to NGI premises, but Carol and Beatrice oppose paying for it. Advise Mr Musk as to whether the vendor company can enforce the contract against NGI.

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 the validity of the contract between NGI Pty Ltd and the Vendor company on the basis of formal and substantive authority to enter into contracts directly and indirectly with outsiders in the different given scenarios (questions 1 (a) to (e)).
• Second – consider whether there were any procedural irregularities in relation to the purported meeting of the board of directors and, if so, whether this means the court would find that the resolution passed by Aaron and Willy at that meeting was valid/invalid; therefore, NGI has/does not have to honour the contract with the vendor company.

In the course of writing your answers, you may find it helpful to argue ‘in the alternative’. For example, if you argue that the court would likely find that the resolution passed by Aaron and Willy at the purported meeting of the board of directors 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 Aaron and Willy’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.