Company Law Brief Synopsis of the Situation Essay

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Company Law

Brief synopsis of the situation

Jane is the Marketing Manager of Prints Pty Limited. She has recently made some purchases on company account including leasing a new car, a photocopier, a reconditioned printing press and photo copy paper supply. While all the other purchases were made by Jane on her own discretion, the printing press was co-signed by John, part owner of Prints Pty limited.

John tells Jane that while he would reluctantly accept the purchase of photocopier and paper, Jane will have to pay for her own car. Upon hearing this, Jane resigns immediately leaving Mark with the decision to look into the purchase of the printing press. The company wants to cancel this purchase as John had no authority to purchase anything on company account. Mark is now wondering if he is liable for any of these purchases.

Company policies:

The company constitution clearly indicates that no purchases can be made on company account without explicit permission of the senior management. The purchases have to be authorized by both directors or either director and the company secretary.

Every company has some policy on unauthorized purchases or unauthorized use of company funds and property. For example Penn University's policies clearly describe what constitutes an unauthorized purchase:

"An unauthorized purchase is a purchase made outside of one of the authorized buying methods shown on the Buying Decision Chart. "I didn't Know" is not an acceptable reason for making an unauthorized purchase outside to the University approved purchasing process.

Examples of unauthorized purchases include but are not limited to:

* Employee purchases product for the office, writing a personal check for the purchase;

* Employee calls a supplier and places an order for supplies without prior issuance of a purchase order or use of a Purchasing Card;

* Employee purchases a new computer for the office using a personal credit card;

* Employee signs a supplier contract for services or supplies." (

Even though Prints Pty did not have such clear description, it was enough to say that all purchases will have to be approved by directors. Since none of the purchases followed what the constitution said, Jane is in real legal trouble. As for the company, it will need to improve and revamp policies on unauthorized use of company funds and unauthorized purchases. This way the company will be better able to handle such situations in the future.

Problem in the eye of Law:

Apart from the fact that it is an ethics-related situation, it can also turn into a legal situation as what Jane did constitute breach of company law under the clauses of "unauthorized purchases" and "unauthorized use of company funds."

In this case Jane has made some serious judgment errors. For one she purchased the lease on a car for her own use without getting approval from any director. Secondly even when she asked for approval on the purchase of printing press, she commits fraud by signing the document as Company secretary when she is not the company secretary. This is fraud and Jane can easily lose the case if Mark chooses to take the matter to the court.

Is Mark liable to pay for these purchases?

This is the million dollar question that arises from this situation. Should Mark go ahead and pay for all these purchases since they were made by the company even if the seller had no idea what the company policy on purchases is.

From the side of the seller, yes Mark must go ahead and pay for these purchases because order was placed by his firm and it is not seller's duty to confirm who signed the document and to find out what the company policy is on approval of purchases. Since the seller had been contacted and an order was placed, it would be considered a mis-commitment on part of the buyer if they decide not to pay.

However Mark can always cancel the order if there is a time frame provided during which a cancellation can be made. He can go ahead and cancel and doesn't need to tell the seller that it was an unauthorized purchase because that is none of his concern. However the seller can decline to cancel the order if he had clearly mentioned the time frame during which an order could be cancelled. If John and Jane had been informed of cancellation process, then they need to follow it. In most cases, the cancellation process is clearly mentioned through the website or company literature and hence we can assume that both Jane and John knew if an order they had placed could be cancelled and if yes, in what time frame.

If the time for cancellation has passed or if the company had strictly disallowed cancellation once an order was confirmed, then Mark has to pay for these items since Jane used company name when making these purchases.

From the side of the employee and employer, Mark is under no obligation to pay for these items and Jane can be made to pay for all these items because she was the one who made unauthorized purchases on behalf of the company.

Ways to handle the situation

There are different ways in which such a situation can be handled. The company can drag Jane to the court; they can opt for out of the court settlement or they can simply let it slide.

If they take the matter to the court:

In option 1, they can simply take the matter to the court. Since Jane has already resigned, she cannot be terminated. So the question of termination is out of the possible solutions. Jane Miles can still however be taken to the court and asked to pay for all the unauthorized purchases including the printing press because she committed fraud when she declared herself the company secretary. The same goes for the lease on the car and other purchases. The court is likely to decide in favor of the company because the constitution states that all purchase documents had to be signed by the directors and Jane is neither a director nor the company secretary.

Out of Court settlement:

Most companies would prefer to opt for out of court settlement through mediation teams. This is when a company hired a mediator to resolve the conflict. The mediator helps in facilitating communication so each side can decide what they really want to do in a given situation. They are also explained the costs of going to the court. There are many examples of successful mediation which result in fair resolution of a given conflict.

Mediation is popular because it saves both parties the cost of going to the court. Secondly it is also good for the future of the defendant who might be refused jobs if a court case is on their record for unauthorized use of company funds. Mediation however can only be started with the consent of both parties. If Mark comes up with the idea of mediation and Jane refuses, then Mark cannot proceed and may have to resort to other options. However if she chooses to accept mediation then she will have to whatever it takes to resolve the conflict and avoid further damage to her future job prospects.

"Nationwide, mediation is soaring in popularity, mainly because it offers a risk-free way to settle legal disputes and, according to mediation firms, leads to successful resolution about 85% of the time. Although there is no central clearing-house of nationwide statistics on the use of mediation, its rising popularity can be seen in the growth of firms providing mediation services." (Kaufman, 1992)

However both Mark and Jane need to understand that in the case of mediation, there is usually no legal agreement at the end and no deal signing hence both parties depend on verbal settlement of the dispute. If however Mark chooses, they can both decide on hiring lawyers who would prepare a document for settlement terms and they can sign those documents to have a legal proof of mediation agreement.

Mediation is also good in such situation because it helps in protecting business relations and also doesn't taint the reputation of the firm or the employee involved. "According to some lawyers, mediation is gaining popularity as a way to resolve all types of business, disputes, partly because business people prefer the privacy of mediation over the possible publicity of lawsuits. "The only people who need to know about the dispute are the parties themselves," says Katini Leodas, a mediator in the Cambridge, Mass., office of Endispute Inc., which conducts alternative dispute-resolution procedures and is based in Washington, D.C. "Most businesses don't want their competitors, their customers, their suppliers, or their franchisees to know about their lawsuits. Why take the chance of setting an unpleasant precedent?" Leodas says mediation, unlike litigation, can also help keep business relationships from being shattered. "It's an important consideration," she says. "Preservation of a relationship in business often spells the difference between success and failure." (Kaufman,…[continue]

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