Company law Brian, who had decided to transfer his existing wholesale food busin
ID: 360011 • Letter: C
Question
Company law Brian, who had decided to transfer his existing wholesale food business to a private limited company called Brian Foods Ltd, delivered the necessary documents to the Registrar of Companies and received the Certificate of Incorporation (dated 1 April) on 6 April 2005. On 15 March 2005, Brian agreed to purchase a quantity of coffee from Benco Ltd ina letter which he signed ‘For and on behalf of Brian Foods Ltd, B Brian, Director. At the first meeting of the board of directors of Brian Foods Ltd the contract with Benco Ltd was approved and the company took delivery of the first consignment. The board later found that the Benco brand of coffee was more difficult to sell than had been anticipated and decided to cancel any subsequent consignments. (a) Advise Brian Foods Ltd on its liability to Benco Ltd. and (b) How far, if at all, will your answer to (a) differ if on 10 April 2005 the two companies re-negotiated the contract and agreed on a different contract price? and (c) How far, if at all, will your answer to (a) differ if in the letter of 15 March 2005 Brian expressly excluded his personal liability? (Glasgow Caledonian University)Explanation / Answer
a) There is a liability for Brian Foods Ltd., to Benco Ltd., as the contract was originally agreed whoever was the signing authority (In this case Brian) and in the first board meeting, the same contract was approved and the company took the first consignment. However, if it is decided that they are unable to further sell and cancel subsequent consignments, Brain Foods Ltd., need to compensate Benco Ltd., on the anticipated losses as per the contractual agreement.
b) The liability will not be applicable for Brian Foods Ltd. because both the companies have re-negotiated the contract and agreed on a different contract price which is a compromised solution which is brought to the consensus of both the companies. Hence, the liability for Brian Foods Ltd. is nullified.
c) If Brian has expressly excluded his personal liability, still the company Brian Foods Ltd., holds the liability as the necessary documents to the Registrar of companies were initiated and Brian received the certificate of incorporation on 6th April 2005. Though Brian may not be personally liable, the organization is liable as per the contract to the Benco Ltd.,
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