Worldwide Galleries Online Ltdlegal qns.docx

1、Worldwide Galleries Online Ltdlegal qnsWorldwide Galleries Online Ltd. Question 1: Could any action be taken against Candy about the gift of Rex 2010? If so on what grounds and by whom? Give reasons for your answer.Candy was declared a bankrupt pursuant to a court order dated 23rd June 2011 therefor

2、e, her legal capacity is restricted. She cannot take any part in the promotion, formation or management of a limited company without the permission of the court.Therefore, a person wishing to take any action against her on the basis of her actions as a promoter would be able to point out this fact a

3、nd use it to void any contracts she concluded on behalf of the Company without Court permission, whether or not they were later ratified. Consequently, in addition to highlighting the fact that the Company had not been formed by 19th September 2011 when he signed the contract, Yuenshiu can adopt thi

4、s argument to deter further efforts by Worldwide Online Galleries Ltd. to enforce the contractual obligations. Since he does not seem interested in recovering the Rex 2010 and has even suggested that Becky and Asif as the directors of Worldwide Online Galleries Ltd. retrieve the painting that he gav

5、e to Candy and use it as compensation, then action against Candy does not lie here. Notwithstanding the foregoing, it is clear that Asif and Becky proceeded to work with Candy whether in ignorance or defiance of her legal incapacity and allowed her to negotiate and conclude contracts on behalf of th

6、e Company that was yet to be formed as well as to participate in its formation. Candy is presently a shareholder in Worldwide Galleries Online Ltd. but at the time of her negotiations with Yuenshiu, the Company was not in existence and thus she was a promoter. Cockburn CJ in the case of TwyCross v.

7、Grant defined a promoter as a person who “undertakes to form a Company with reference to a given project and to set it going andtakes the necessary steps to accomplish that purpose”. It was in her position as a promoter that Candy concluded the contract with Yuenshiu and also received Rex 2010. The

8、question then arises as to whether she is liable to any party for receiving and keeping the Rex 2010 for herself. A promoter starts to work for a company before it comes into existence. However, in the absence of contract, which cannot be concluded by the company before its registration, the promote

9、r cannot be considered as an agent, trustee, official or employee of the Company.Nevertheless, due to the trust and confidence inherent in their position relative to the company to be formed as well as its investors, they are considered to owe fiduciary duties. These include the duty to act in good

10、faith, engage in fair dealing and ensure full disclosure, not to make any secret profit and to declare any interest or profit arising of any transaction involving the company. In the case of Erlanger v. New Sombrero Phosphate Co. it was held that if the Company enters into a transaction in which the

11、 promoter was interested, then it is voidable if it was not properly approved by the company after full disclosure. In the instant case, Candy entered into a contract on behalf of the yet to be formed Company with Yuenshiu to market and sell his artwork, which decision was later ratified through a b

12、oard resolution. However, this decision remains voidable at the option of the Company due to the fact that Candy did not make full disclosure and failed to tell its Directors, Becky and Asif, that she had received a valuable painting after signing the agreement with Yuenshiu. In view of the fact tha

13、t she was acting as a promoter at the time, she owed a fiduciary duty to the Company which can take action to recover the painting or its value from Candy on the grounds that it was a secret profit that was not disclosed thus barring informed approval by the Board. In the case of Gluckstein v. Barne

14、sthe Plaintiff and three others were the promoters of a company who bought a property that they later sold to the latter at a profit but failed to fully disclose the profits they had made from dealing with it. There was no independent board to examine the dealings of the promoters and when the compa

15、ny later went into liquidation, the liquidator sought to recover from the Plaintiff who had made an extra profit that was completely undisclosed. It was held that the Plaintiff had to account for the undisclosed benefit that he had obtained while acting as a promoter of the Company owing fiduciary d

16、uties. Therefore, it emerges that Candy can indeed face legal action over receiving the Rex 2010. This is because at the time, she was acting as a promoter and ought to have made full disclosure to the Company through its Board and shareholders, namely Becky and Asif. However, she failed to do so an

17、d this amounted to secret profit, which was brought to the Companys attention by Yuenshui. He also has an opportunity to sue for the recovery of his painting, claiming that it was offered because of the contract that had been concluded between him and Worldwide Online Galleries Ltd. otherwise he wou

18、ld not have offered it. Notwithstanding this fact, he expresses no interest in enforcing his rights. Becky and Asif can only act through the Company in order to get their interest in the painting as individually they would have no locus standi, and it would not be counter-productive to do so. This i

19、s because it would emerge that they knew or ought to have known about her incapacity to contract. However, the company is uniquely placed to enforce its rights as against Candy. Question 2: Is the option contained in the agreement of 19 September 2011 enforceable against Yuenshiu?If so by whom and g

20、ive reasons for your answer. Yuenshiu concluded a contract with a gallery company that was yet to be formed. While this is common in negotiations, problems can arise primarily due to the fact that non-entities cannot have legal rights or duties. A company is a legal entity that has its own separate

21、and artificial personality. This rule was established in the case of Salomon v. Salomon &Co.whereby it was held that a company is distinct from its members and directors, has limited liability and acts in its own right. Further, that it has the capacity to enter into contracts, own property, sue and

22、 be sued. However, where the company has not yet come into existence, none of these rights and duties accrue and in the event that contracts are concluded on its behalf before it comes into existence, the Board of Directors has to see to it that the contracts it wishes the company to continue with a

23、re novated. This must be on the same terms as the old one in order to be effective. Therefore, in determining whether the option signed off on by Yuenshiu is valid and enforceable against him, it is important to establish that all the requirements of a valid pre-incorporation contract are met and th

24、at its terms were subsequently novated by the board of Worldwide Online Galleries Ltd. The first issue is whether the person who concluded the contract on behalf of the company to be formed had legal capacity to do so. This is a key consideration because as shall be subsequently discussed, they may

25、be held personally liable for the contract, thus they have to be in a position to create legal relations. It has already been established herein that a declared bankrupt cannot engage in the formation, promotion or management of a company. Candy had just been declared a bankrupt a few months prior,

26、and she did not have the legal capacity to conclude the contract on behalf of Worldwide Online Galleries Ltd. The general principles of contract law also provide that undischarged bankrupts do not have legal capacity to enter into a contract to bind another person. Further, since the Company has no

27、legal existence before incorporation, it cannot enter into a contract either by itself or though an agent, thus requiring that the promoters who are involved in forming it, incur personal liability where they signed in their own name. This was the decision in the case of Kelner v. Baxter where Erle

28、CJ was of the view that in a situation in which a person signs as an agent for a principal that is not yet existing or where a contract would be wholly inoperative unless the parties are held liable, then it is conceivable that a promoter incurs personal liability. This rule is upheld even where the

29、 Company ratifies the contract as this does nothing to diminish or take away the responsibility of the promoter who personally signed before incorporation. In applying the foregoing rationale to this case, it is apparent that Candy, being the one who signed the agreement with Yuenshiu is the one who

30、 would incur liability. Therefore, in a legal suit in which the issue for determination is whether the option contained in the agreement is enforceable, then Candys lack of capacity would operate as a vitiating element that summarily disposes of the matter. Yuenshiu would be able to argue that no va

31、lid contract is formed by a person who has no capacity to create legal relations, consequently, he cannot be bound to the obligations contained in such a voidable contract. In the subsequent case of Newborne v. Sensolid (Great Britain Ltd.) the central issue was whether a company promoter who signed

32、 a contract for the sale of goods, but indicated that it was on behalf of the Company could be held personally liable. At the hearing, the Defendants contended that when they signed the contract ostensibly with the Company, it was not yet in existence and as such neither it nor the promoter could en

33、force the same. In finding for the Defendant, the Court was of the view that the contract was a nullity because the promoter had signed on behalf of a company that did not yet exist and in so doing, he could not claim personal liability and invoke his right to enforce the contract. In the instant case, Candy did not sign the contract on behalf of the Company, even tho