Advise adam that he had no authority to enter into lease

Assignment Help Accounting Basics

Reference no: EM133538125

PROBLEM-BASED QUESTION

Food 2U Pty Ltd decides to expand its takeway shop by acquiring a mobile cafe van worth $100,000. Adam and Rachel are directors and the only shareholders of Food 2U Pty Ltd. Adam enters into a contract with Finance Ltd to pay for the vehicle. Finance buys the vehicle and then leases it to Food 2U Pty Ltd under a five-year lease. It is anticipated that Food 2U Pty Ltd will buy the van at the end of the lease
(or enter into a new lease with Finance).

Adam's son John also works for Food 2U Pty Ltd as the company's Chef. John joins Adam to collect the vehicle and sign the documents. Adam tells Finance Ltd that John is also a director (even though John has not been appointed as director).

Finance Ltd usually deals with Rachel but accepts Adam's word. Adam and John sign the contract as Directors of Food 2U Pty Ltd.
Adam does not ask Rachel to sign, and he does not ask her permission to enter into this contract, although he has previously discussed the possibility of providing mobile cafe services with her.

Adam plans to drive this van to local football matches on Saturday to earn extra income for the business. Adam uses John to help him operate the mobile cafe van on weekends. Adam is aware that there is an issue with the gas bottle in the van but doesn't tell John. Unfortunately, John turns the gas bottle on and it explodes and badly burns a customer.

The victim (Sally) wants to sue Food 2U Pty Ltd and Adam for $50,000 for her injuries.

Rachel claims that Adam was not authorised by Food 2U Pty Ltd to operate the van or enter the lease with Finance Ltd. Rachel states Food 2U Pty Ltd is not liable for the damages.

Required

Consider and discuss Food 2U Pty Ltd corporate liability in tort to Sally. Refer to relevant case law.

Now, assume that Adam and Rachel have a disagreement over the mobile cafe van and Rachel advises Adam that he had no authority to enter into the Lease and Food 2U Pty Ltd will cease paying the finance arrangement with Finance Ltd.

Required
Consider and discuss whether Finance can enforce the Lease with Food 2U Pty Ltd. Refer to relevant cases and sections of the Corporations (Answer must use the IRAC structure with relevant case law.)

Reference no: EM133538125

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