Sample Response to a Problem Question (this student received a mark of 26 out of 30) This response identifies the legal

issues and states the relevant law, both case law and statute law, and applies these laws to the key facts. The legal reasoning involves the interweaving of the law with the facts, with the student applying the relevant law to the key facts in the case study. This has been done very effectively and is assisted by the regular use of linking words and phrases (please note that these linking words and phrases have been italicized). As a result, this assignment flows fluently and logically, with the legal arguments being presented very clearly. In addition, relevant case law and statute law are integrated successfully into the discussion to support the students legal arguments. Notice too, how the student shows the relationship between case law and statute law.

The very point of establishing a company is to carry out business ventures. To do this requires the company to enter into contracts with outsiders. Because a company is an artificial entity it must be
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represented by individuals. The legal question which must be addressed is who in the company is able to enter into these contracts on its behalf? To answer this question, one of two theories needs to be applied, the organic theory or the law of agency.
This introduction signals the main issue of the question which is : who in the company is able to enter into contracts on its behalf? The student also signals the two relevant areas of law which relate to this issue, organic theory and law of agency.

The organic theory involves the company carrying out business in its own name. A company is divided into two parts or organs those being, the board of directors and the general meeting of members. The board of directors has a lot of power relating to the management of the company and their actions or state of mind are considered to be the actions or state of mind of the company itself. Similarly, the actions or state of mind of the members in general meetings are considered to be the actions of the company. However it is unlikely for outsiders to deal directly with either of the two parties stated above. Instead, agents or employees are able to deal with outside parties on a company's behalf and under s126 the company is able to be bound by the acts of those agents in the same way as natural persons. In such cases, the law of agency comes into play. However the law recognises that the organs of the company are more than mere agents. The organs are said to be directing the mind and will of the company.
The student outlines the important aspects of the two relevant areas of law and indicates how they apply to the main issue of the question. Notice the effective use of linking words and phrases: Similarly, However, Instead, In such cases. These linking words and phrases connect the students ideas together and provide a logical flow to the discussion.

In this instance, Annie is not an agent but rather a director of the board of Positive Computer Games Ltd. (refers to facts in question) The law states that 'an individual director does not have customary authority to bind the company in contract with outsider. Dawson J stated in Northside Developments Pty Ltd v Registrar-General (1990) 8 ACLC 611 that 'The position of director does not carry with it an ostensible authority to act on behalf of the company. Directors can act only collectively as a board and the function of an individual director is to participate in decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it.'
student states relevant law in relation to directors authority to bind company to a contract, citing decision from a case as authority to support argument

In this case study, Annie entered into the contract with Funky Games Pty Ltd by herself as an individual director and as such she has no ostensible authority to do so. Rather the board as a collective must reach an agreement prior to entering into a contract with outsiders. In this case, the board of directors of Positive Computer Games Ltd did not, as a collective, enter into the contract with Funky Games Pty Ltd. Only Annie did. Annie was not formally appointed to the position of managing director by the board allowed under s201J, nor were any specific management powers delegated to her under sl98D.
student applies law to the facts (including statute law) and develops a legal argument

This means that she acted beyond the scope of her powers
(conclusion)

Notice again how student uses linking phrases to develop a coherent argument, for example, In this instance.The law states, In this case study, In this case, This means

However, even though the customary authority of individual director is limited 'they will bind the company if they have actual authority or been held out as having greater authority than is customary for individual directors. (relevant law stated) In applying this to the facts, (clear signalling of application of case authority to facts) even though Annie did not have actual authority, the question must be considered as to whether Annie was held or represented by the company as having greater authority than was normal for an individual director. To answer this question, it is useful to analyse the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480. (student applies law to facts,
citing a relevant case as authority to support legal reasoning. The discussion of this case and its relevance to the facts in the question are clearly signalled by the phrase To answer this question, it is useful to analyse the case of )

In this case, Kapoor and Hoon formed a company for the purpose of developing a property. They and two other candidates formed the board of directors and both Kapoor and Hoon held half the issued shares. Kapoor acted as the Managing director although he was not formally appointed, however, he had the approval of the board to act in such a position. The issue arose when Kapoor entered into a contract.with a firm of architects and surveyors and refused to pay them for their services they performed.(facts of case) It was held by the court that the company had held out Kapoor to be its managing director and, as such, they were bound by his actions
(decision).

Kapoor in this instance had apparent authority to hire the firm of architects and surveyors, as this was the customary authority of a managing director. As such, the outsiders relied on the apparent authority of the managing director to assume that Kapoor was acting within his scope of authority. The important fact in this case is that, even though the board had made no formal decision to make Kapoor their managing director, the representation arose due to the fact that they failed to prevent him from acting as if he was the company's managing director (legal reasoning supporting decision).
This is an excellent example of a case summary which is integrated very effectively into the discussion.

Applying this reasoning to Annie, although it is stated that she is a director, her actions are those of a managing director. Therefore, it can be stated that Annie like Kapoor was held by the company, Positive Computer Games Ltd., to be its managing director even though the board had not made any decision to that effect or prevented her from assuming the role as managing director. As a result of this, Funky Games Pty Ltd is able to argue that they relied upon the apparent authority Annie exercised as the managing director. As such, this would make Positive Computer Games Ltd bound to the contract with Funky Games Pty Ltd.
(student cites details of relevant case to support legal argument, applying the decision and reasoning of the case to this particular case study and comes to a conclusion. Note again, the effective use of linking phrases and words: Applying this reasoning, Therefore, As a result of this, As such.)

However, the issue as to whether Positive Computer Games Ltd is bound to the contract with Funky Games Pty Ltd requires further deliberation (legal issue). Historically a company's object clause was the most important part of a company's constitution. . 'Any contract or transaction by a company that was not within the scope of one of its objects was referred to as ultra vires or beyond the power of the company' therefore, any contracts entered into with outsiders were void. Coupled with the doctrine of ultra vires is the doctrine of constructive notice. This doctrine protected corporations as it states that outsiders were to be aware of a company's objects as they were set out in its constitution and lodged with ASIC.and therefore available to the public. Basically what this means is that the company was not bound by the acts of the agent if their actions were beyond their authority, because the third party should have had knowledge of the companys constitution.
(discussion of relevant law again the student uses linking words and phrases effectively to connect ideas together; for example, therefore, Coupled with, Basically what this means is )

Taking these two doctrines into account (signalling the application of the law to the facts), Annie did enter into a contract that was not within the scope of the objects clause as the computer games she purchased were violent and not genuine and thus not suitable for PCG's clientele (application of law to facts). However, the doctrine of ultra vires has now been abolished and under s 125(2) 'an act is not invalid merely because it is contrary to or beyond any of its objects.' (relevant law stated again, including statute law) This means that under this section, PCG is still bound to the contract entered into with Funky Games Pty Ltd even though Annies actions were contrary to the objects clause (application of law to facts). Furthermore, the doctrine of constructive notice has too been abolished by s130 (relevant statute law stated) Section l30 (1) states that a third party, in this case, Funky Games Pty Ltd, is not assumed to have knowledge of the company's constitution. What this means is Funky Games Pty Ltd is not presumed to have known that Annie did not comply with the constitution and breached clause 6 in particular, as they do not need to know what the companys constitution states. (application of law to facts). Also, under s129 (1), a third party is able to assume that there has been compliance with a company's constitution. (relevant statute law stated) Therefore, Funky Games is able to think that Annie has complied with the constitution (application of law to facts).

The other issue which is raised is the fact that David went away on holiday and, as a result, Eddie sold the CDs to Annie. The question which stems from this is whether the knowledge David possessed is the knowledge of Funky Games Pty Ltd (legal issue stated). The answer to this question is yes. Bray CJ, in the case of Brambles Holdings Ltd v Carey (1976) 2 ACLR 176 stated that '. . . it is a fallacy to say that any state of mind to attributed to a corporation must always be the state of mind of one particular officer alone and that the corporation can never know or believe more than that one man knows or believes. This cannot be so when it is a case of successive holders of the office in question or of the holder of the office and his deputy or substitute during his absence. (statement of relevant law
drawing on judges decision and reasoning).

According to this judgement, even though Eddie was not aware of Positive Computer Games constitution, the fact that David did means that their corporation, Funky Games Pty Ltd also knew about that information (application of law to facts) This would mean that Positive Computer Games is not bound by the contract entered into with Funky Games Pty Ltd.(conclusion) Finally, the likely outcome in this case study is that Positive Computers Games Ltd would not be bound by the contract that they entered into with Funky Games Pty Ltd. This is based on the fact that David had read PCG's constitution and therefore possessed the knowledge that Annie breached her company's constitution by buying the software. However had David not read PCG's constitution PCG would be bound to the contract entered into with "Funky" because "Funky" could argue that they relied upon the apparent authority that Annie possessed as a managing director (overall conclusion is
reached, by applying legal reasoning to facts).

In this case study, it is not stated that the board of PCG appointed Annie to the position of managing director, however, she is a person
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with whom Cash Supply Ltd arranges the loan. Therefore, it can be assumed that she is the managing director but whose appointment was defective in the sense that she was not actually appointed by the board (application of law to facts). This occurred in the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480. In this case, Kapoor, one of the directors, acted as the managing director with the approval of the board, although like Annie, he had not been formally appointed. In this case, Kapoor hired a firm of architects and surveyors on behalf of the company but refused to pay for their services. It was held by the court that Kapoor was considered by the company to be its managing director and therefore bound by his actions. Kapoor had apparent authority to employ the firm of architects as this was within the customary authority of a managing director. Consequently, the outsiders did not have to study the company's'constitution because they relied on Kapoor's apparent authority (student uses case as
authority to support legal reasoning)

In this particular case study, it can be said that PCG Ltd represented Annie to have the authority to enter into the contract with Cash Supply Ltd on the grounds that the board failed to prevent Annie from acting as managing director even though the board had made no formal decision about her appointment. This is the same conclusion that was reached in Freeman and Lockyer v Buckhurst Park Properties (Mangal) (1964) 2 QB 480. As a consequence, PCG would be bound by Annie's actions because Cash Supply Ltd would have relied upon her apparent authority (application of law to facts, drawing
on case authority to support legal reasoning and conclusion).

The bibliography has been included below.

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Notice how the bibliographical details are set out, with family name first, and in alphabetical order. Also, the student has only used three texts. When answering problem questions, extensive research is not required because you are focusing on applying the case law and statute law to the key facts in the question. Whereas, with research essay assignments, the expectation is that you will read widely and draw on a range of ideas and information, to support your discussion of legal concepts.

Bibliography: Ford, H A & Austin, R P & Ramsay I M, 1997, Ford's Principles of Corporations Law, 8th ed., Butterworths, Australia. Hanrahan, P & Ramsay, I & Stapledon, G, 2002, Commercial Applications of Company Law, 4th ed., CCH Australia, Sydney. Lipton, P & Herzberg, A, 2000, Understanding Company Law, 9th ed., LBC Information Services, Pyrmont NSW.

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