Legal Contracts And Corporate Authority In Australia

Is Motorbikes Pty Ltd bound by the contract with John?

A business when registered acquires the status of a company which is governed by Corporation Act 2001. A registered company is a legal person in law and acquires all the powers that of a normal person. One of the prime elements of a registered company is separate legal personality.

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Now, in Saloman v saloman, the House of Lords submitted that every company is distinct in its own capacity and has the power to make contract, sue or be sued, hold property and thus has an existence of a Separate legal Personality which is established in section 124 of the 2001 Act. The acts of the company are considered to be its own and not that of the directors even when the same are carried out by the directors. The officers can seek authority from the company constitution and replaceable rules as per section 134 of the 2001 Act.

Now, since a company is artificial person and thus it is the directors who are assigned with the task of carrying out the functions of the company and this authority is defined under section 198A of the 2001 Act which was also affirmed in Hely-Hutchinson v Brayhead Ltd. When a company has single director/shareholder then he can act on company’s behalf unless he is restricted under the general meeting as per section 198E of the Act and is analyzed in Imperial Hydropathic Hotel Company Blackpool v Hampson. The authority of directors to bind the company is also highlighted under section 126 of the Act.  

Normally the authority that is possessed by any person are of several kinds:

  1. When any agent acquires the power to bind the principal by an express undertaking given by the principal himself then it is an express authority. An express authority can be granted by document, deed or orally and is analyzed in Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd;
  2. Authorities gained by implication are implied authorities.
  • When any agent acquires the power to bind the principle when an overt representation is made by the principle which makes the third party believe that the agent does have the power to bind the principal then it is an ostensible authority.

Now, when a company wants to make a contract then the power to do so lies with the board of directors of the company. But, if the board delegates the power to an individual director then he has the power to make contract which have the binding effect and is held in Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd.  In the same manner a secretary can also bind the company by entering into contract that is established by him with in his authority and is analyzed in Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd.

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Michelle and Tim have keen interest in motorbikes and they own a company called Motorbikes Pty Ltd which deals in sell and repair of bikes. The director is Michelle and company secretary is Tim.

Can George cancel the contract made by Gerard and Sylvia for Cakes Pty Ltd?

John meets Tim and shows his interest to sell his bike to them. Tim bought the bike for $5,000 and the contract was signed by both Michelle and Tim.

It is submitted that Motorbikes Pty Ltd is a company and as per section 125 of the act, it has its own personality and can make contracts. But as per section 198A and E the power to make contract lies with the directors, that is, Michelle as he is the only director of the company and has per section 198E he can make contracts.

So, Michelle has the express authority to bind Motorbikes Pty Ltd by his acts.

Also, Tim is the secretary of Motorbikes Pty Ltd and by applying the law in Panorama Developments (Guildford) Ltd  he is also authored to make contracts.

Thus, the contract that is made by Michelle and Tim with John is within their respective authorities.

To conclude, it can be thus submitted that the contract that is made by Michelle and Tim are within their respective authorities as the agents of the company and thus they cannot cancel the contract with john as the same is binding on the company.

When any person intends to initiate business in the form of company, then, in Australia, it is necessary that the same must be registered under the provisions of the Corporation Act 2001. In Saloman v saloman, the House of Lords submitted that every company is distinct in its own capacity and has the power to make contract, sue or be sued, hold property and thus has an existence of a Separate legal Personality which is established in section 124 of the 2001 Act.

But, the acts of the company are carried out by the directors of the company. In Hely-Hutchinson v Brayhead Ltd it was held that the Corporation Act 2001 itself has granted power to the director to act on behalf of the company and enshrined this power under section 198A of the Act. the directors are the company agents which was also affirmed under section 126 of the Act. In Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd it was held that an agent thus has the power to make contract for company even without common seal.

However, there are times when the agent who is making contract with parties has no authority; in such cases the outsider faces the brunt as the company can cancel the contract on the basis of lack of authority.

Separate Legal Personality and Corporate Authority in Australia

To protect the outsiders section 128 and 129 of the Act are normally opted by the outsider.

Section 128 (4) submits that the outsider has the capacity to raise assumption under the corporation Act 2001 provided he himself comes in front of court with clean hands, that is, acting in good faith. The assumptions upon which an outsider can rely is mentioned under section 129.  

Section 129 (1) submits that it can be assumed that the rules of the company are comply with;

Section 129 (2) and (3) submit that the directors, officers and secretary are appointed adequately;

Section 125 (6) submits that the documents executed by officers are valid if section 127 (2) is complies that is, the document is signed with common seal by 2 directors OR 1 director an 1 secretary. But, if section 127 (2) is not comply with then the outsider cannot raise the presumption of section 125 (6).

George is selling cake shop to Gerard and Sylvia. Before buying the cake shop from George they formed a registered company. Gerard was held to be the director of the company and Sarita was appointed as the company secretary of the company. When the contract was made, then, the company seal of Cakes Pty Ltd was stamped and Gerard and Sylvia signs the documents.

Now, it is submitted that George cannot terminate the contract that is made with Gerard and Sylvia on behalf of Cakes Pty Ltd.

It is submitted that since George is an outside then he has the availability to rely on the assumptions of section 129 of he is acting in good faith, that is, as pee section 128(4).

He can presume that the contract that is signed by Gerard and Sylvia is executed by them validly since it was a contract that was signed with common seal. Thus, to consider the document a valid it must be signed by two director or  director or secretary.

But, the contract was actually signed by Gerard (director) and Sylvia (shareholder). Thus, the requirements of section 127b (2) are not met so George cannot rely on the assumption is section 125 (6).

Bit, considering section 126 of the Act, that the agents are the authorized signatories of the company unless barred and as established under Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd a contract made by the company agents is binding. So Gerard and Sylvia are the agents of the company and thus the contract that is made by Gerard and Sylvia with George has binding effect.

Conclusion 

It is submitted that the assumptions that are mentioned under section 12 of the Act cannot be relied upon by George as he is aware of the discrepancies that are undertaken by Gerard and Sylvia while signing the contract. but considering section 1276 and the law in Knight Frank Australia Pty Ltd the contract is binding and George cannot cancel the contract.

Reference List

Bourne N (2013) Bourne on Company Law, Routledge.

Gilliers, P. 2004. Business Law. Federation Press, .

Krawitz, A. 2002. Protecting Outsiders to Corporate Contracts in Australia. Murdoch University School of Law. Volume 9, Number 3.

Maisto, G (2009). Residence of Companies Under Tax Treaties and EC Law. IBFD.

Mugambwa, J; Amankwah, H; Haynes, V. 2007. Commercial and Business Organizations Law in Papua New GuineaI. Routledge.

Tomasic, R; Bottomley, S; McQueen, R.  2002. Corporations Law in Australia, Federation Press.

Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991).

Const ruction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) .

Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964].

Hely-Hutchinson v Brayhead Ltd [1968].

Imperial Hydropathic Hotel Company Blackpool v Hampson (1882) 23 Ch D 1.

Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd[2014] SASCFC 103.

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd (1971).

Salomon v. Saloman & Co. Ltd. (1897) (AC) (22)