Question

Sarah had a farm in Margaret River where part of the land was used for growing grapes. Her business involved growing the grapes and selling the crop to a local winery that was run by Jane. Two years ago, Sarah and Jane decided to go into business together and register a company Sarah Jane Pty Ltd, with the intention that Sarah would look after the growing of the grapes and Jane would extract the wine and promote the sale of the wine. Before the company was registered, Sarah’s accountant, Horace Rumpole, ordered some winemaking machinery from Joe Machinery Ltd under a contract, which he signed as “agent of Sarah Jane Pty Ltd.” Sarah Jane Pty Ltd issued 300,000 $1 shares to Sarah and 200,000 $1 shares to Jane. Both Sarah and Jane transferred their businesses to the company in exchange for the shares. Sarah and Jane were made the directors of Sarah Jane Pty Ltd. The business was very successful and required more capital, so a year ago Sarah and Jane decided to convert Sarah Jane Pty Ltd into a public company, ‘Sarah Jane Ltd’ with the following constitution:

“The provisions of the Corporations Act 2001 (Cth) shall apply to this company except for the following:

1.Horace Rumpole shall be the company’s accountant until 31 December 2016.
2.The company shall only grow grapes and operate a wine making business Sarah Jane Ltd now has a large number of shareholders through the issue of 1 million shares to the public and the directors of the company are Sarah, Jane and Kate.

Six months ago, the directors of Sarah Jane Ltd decided that since they did not require all the land for growing grapes for their winery, they would grow wild flowers on a portion of it. This decision was based on recommendations from Horace Rumpole. Being confident of the wild flower crop, Sarah Jane Ltd entered into a contract to supply Hilda Florists Ltd. However, the soil in the vineyard proved to be unsuitable for growing wild flowers and Sarah Jane Ltd could not supply Hilda Florists Ltd. Hilda Florists Ltd had to purchase replacement flowers at great expense and demanded compensation from Sarah Jane Ltd. The directors of Sarah Jane Ltd have argued that their company could not be liable as it was beyond its capacity to enter into such a contract and Hilda Florists Ltd should have known this. With reference to the relevant sections of the Corporations Act (2001) (Cth) and case law, answer the following four questions:

Question Three – 7 Marks

Discuss whether Hilda Florists Ltd has a claim against Sarah Jane Ltd?

Answer 1

Yes hida Florists Ltd has a claim against Sarah Jane Ltd.

As growing flower is also a farming activity which is same as growing grapes.

Hence both the activities are same in nature.

Sarah Jane ltd should be liable as it is a company registered.