Introduction
The modern society is business-oriented. However, not everyone proves to be honest. This results in Company Law being one of the most applicable statutes. This work aims at considering a case of a pre-incorporation contract and concealment of benefits which have been gained from a transaction, analyzing this case and arriving at conclusion.
Issues in the case
This is a case of a businessman called Martin and the company Martin’s Properties Ltd. Martin had a house for rent which was worth £250,000. Later, he bought another house for £300,000 and used it for rent. He was willing to set up a company with the name of Martin’s Property Ltd. On September the 1st, he signed a contract with Furnishing Supplies Ltd to be supplied with furniture. On November the 1st, the company Martin’s Property Ltd was founded. The houses were sold to this company for £400,000 and £600,000 accordingly. Martin did not reveal the benefit which he had received on the deal. Besides, Martin’s Properties Ltd got the bill to pay for the above-mentioned furniture. Hence, this paper is supposed to answer two questions: 1) whether the company is entitled to ask for the repayment from Martin concerning the benefits which he happened to have received from the sale of the houses, 2) whether the company Martin’s Properties Ltd is obliged to pay the contractor for the furniture.
Overview of the literature
In the context of the case in question, it might be reasonable to start with dwelling upon the capabilities of the company and any questions which are connected with them. Apart from the capabilities of the company, it is necessary to speculate on the authorities of the director to impose any duties on the company. It is stated that the legal force of any action which is taken by the company does not appear to be subject to be questioned due to the lack of its capability because of any statements in the incorporation documents of the company (Sime & Taylor 2015). In the interests of any person who cooperates with the company bona fide, the authorities of the director to impose any duties on the company or empower other persons to do so appears to be free of any limitations in accordance with the incorporation documentation of the company. Due to this purpose, the person who is the party of the transaction or any other deal which the company is involved into is acknowledged to cooperate with the company. Besides, the person who cooperates with the company does not found bound to require any information on any limitations to the authorities of the directors to impose any duties on the company or empower other people to do so. Apart from that, the person who cooperates with the company is presumed to be acting bona fide if the contrary has not been proven. Moreover, the person who cooperates with the company is not found to be acting mala fide only due to the fact that the person knows that the action can be considered as the abuse of authorities by the director in accordance with the incorporation documents of the company (Roach 2016). Since potential limitations to the authorities of the directors have been mentioned above, it is necessary to note that these probable limitations might include the following issues in accordance with the incorporation documents of the company. First, limitations are possible due to a resolution by the company or any shareholder. Second, limitations are possible due to an agreement between the incorporators of the company or any group of the shareholders (Hannigan 2016).
This fact does not affect any rights of the incorporators of the company to undertake any procedural actions in order to restrain the implementation of any action which can be considered as the abuse of authorities by the directors (Andrenas 2000). None of such procedural actions can be initiated in related to the action which has been taken due to the accomplishment of the legal obligation which has appeared because of the previous action of the company. This fact does not influence any liabilities which have been assumed by the director or any other person due to the abuse of authorities by the director. This fact can be applied to the transaction if and insofar the validity of this transaction depends on the fact that the authority of the director can be considered free of limitations in accordance with the incorporation documents of the company in the interest of the person who cooperates with the company bona fide. Nothing in this situation could be considered as an exception to the application of any other statutory act or provision of law due to which the transaction can be called in question, or any liabilities of the company can appear (French, Mayson S, Mayson S W & Ryan 2014). The transaction happens to be voidable if the following conditions are fulfilled. First, if the company gets involved in such a transaction. Second, if the parties of the transaction are the directors of the company or its parent company or any person who is connected with any director of the company (Sime & Taylor 2015).
Regardless any situation whether the transaction has been cancelled or not, any parties who have participated in the transaction and any directors who have approved of the transaction are obliged to report any profits which have been gained directly or indirectly in the course of the transaction to the company. Besides, any parties who have participated in the transaction and any directors who have approved of the transaction are obliged to pay back any losses and damaged due to the transaction to the company (McKendrick 2014). The transaction ceases being voidable in the following cases. First, it does not prove possible to reconstruct the funds or other assets which have been the subject of the transaction. Second, the company has been paid back any losses and damages which have been entrained by the transaction. Third, its cancellation can influence any uninvolved party’s rights which have been acquired bona fide for adequate consideration and without any notification to directors who happen to have exceeded their power. Finally, the transaction has been approved by the company (Hannigan 2016). Any persons who are not directors of the company incur this responsibility if they prove that at the moment of the transaction the directors exceeded their power. However, upon an application from the company or any other party, the court is able to issue an instruction which is supposed to affirm, cancel, or suspend the transaction. Besides, the conditions for this are determined by the court based on the principle of fairness. It is important to note that the word “transaction” stands for any action (Twigg-Flesher 2001).
Question 1
Taken into account statements from the overview of the literature, it is possible to arrive at the conclusion that the company is entitled to ask for the repayment from Martin concerning the benefits which he happened to have received from the sale of the houses. It is possible to apply the following rule here: the director who has taken part in the deal and received the profit is liable to report the profit to the company. Besides, the concealment of the benefit can be considered as a loss of profit (Worthington 2016). Therefore, the director who has taken part in the deal is liable to repay the losses and damages.
Question 2
Taken into account the statement from the overview of the literature, it is possible to arrive at the conclusion that the company Martin’s Properties Ltd is obliged to pay the contractor for the furniture. It is provided that since the contract was signed before the company was set up, the company is not responsible for the provisions in this contract. The most vivid example of the similar situation is the case of Kelner v Baxter dated 1866. Hotel promoters signed the contract to purchase the wine on behalf of the company which had not been set up yet. When it came to payment, the company existed. So, the contractor claimed that it should settle the bill. However, the wine was drunk, and the promoters were not going to pay back the contractor. In the long run, the court found the promoters guilty, whereas the company did not appear to be liable for the repayment (Fox 1991, Perkin 2000). The same issue is contained in the case of Northumberland Avenue Hotel Co which is dated 1886 (Pennington 2002). Besides, the identical situation occurred in the case of Phonogram v Lane in 1982: the pre-incorporation contact was signed on behalf of the company. The party which initiated the contract was found liable (Savirimuthu 2003). Apart from that, there is a recent case of Brockington v Maughan in 2008. A doctor bought some expensive equipment on behalf of the company which did not exist. After that, he incorporated the company and sold the equipment to it. When the contractor who supplied the equipment billed the company, there was a refusal to pay. The contract had to apply to the court to get the payment. The doctor was found guilty (Sime & Taylor 2015). Some other examples of the same state of affairs are as follows: Peach v Hal which is dated 1952 and Nandu v Lomesh which is dated 1978. In the both of them, the contract was signed before the incorporation of the company, and the promoter was sued (Sime & Taylor 2015).
Conclusion
To sum up, it is necessary to point out that this paper has considered the case of a businessman called Martin and the company Martin’s Properties Ltd. Besides, this paper has managed to answer the two case questions: 1) whether the company is entitled to ask for the repayment from Martin concerning the benefits he happened to have received from the sale of the houses, and 2) whether the company Martin’s Properties Ltd is obliged to pay the contractor for the furniture. The following conclusion has been drawn: 1) the company is entitled to ask for the repayment, and 2) the company is not obliged to pay the contractor.
Reference List
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