Is Freehills Antiques Pty Ltd bound by the contract made with Prudent Bank Ltd?

Essay by savs_rUniversity, Bachelor'sC+, September 2006

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The central legal issue in this question is whether Freehills Antiques Pty Ltd is bound by the contract made with Prudent Bank Ltd, by Freddy and Felicity.

Other related legal issues are whether the loan documents were executed by persons authorised by the company and whether the provisions in the constitution were up-held. Also, whether Freddy was able to remove Fiona temporarily from her position, whether Felicity had any authority to lease a new Ferrari, whether Freddy should be disqualified from being a managing director and whether Felicity committed a fraud.

The relevant areas of law which can be applied to these legal issues is the law of agency, execution of documents, criminal liability-fraud, appointment of directors/secretaries, disqualification from managing corporations and capacity to make a contract.

Firstly the meaning of officers must be examined to determine the authority and roles of both Freddy and Fiona Freehill. Section 9 states that an officer includes any director or secretary of a corporation.

As further information in the problem question states, Freddy is the managing director and Fiona is the company secretary, therefore Freddy is seen to have more power and authority when it comes to decision making. From this it could be interpreted to mean that Freddy acts as an agent to the company and makes decisions on behalf of the company. Therefore when making the contract with Prudent Bank Ltd, Freddy was simply acting as an 'organ' on behalf of the company . This notion is backed up by the "organic theory". The "organic theory" means, individuals are treated as being the company itself, when they act within the ambit of powers conferred on them by the company's constitution or replaceable rules . This would mean that the company itself would be liable to Prudent Bank Ltd. However managing directors...