The provisions related to implied and expressed authority and common seal under section 126 and 127 of Corporation Act 2001
Discuss about the Analyze the Situation of Tim and Michelle.
In the given case the issue is to analyze the situation of Tim and Michelle who are the secretary and the director of the company Motorbikes Pty Ltd respectively, in relation with the contract that they have signed with John for buying his motorcycle.
- There is the question of having a valid or legal contract among the parties.
- If the contract is valid then do Tim and Michelle have an option to rescind the contract?
Section 126 of Corporation Act 2001 (Cth) explains that if any person has an implied or expressed authority and work on company’s behalf, then he or she carries the power to discharge, make or rectify the contract that is binding upon the company. There is no need of the common seal of the organization to exercise the power to work on it. There are no other laws that come in this section that is required to get the process completed for getting into the contract[1].
If there is no permission provided by the state or territory then the company cannot get into the contract or another thing is that if there are certain rights of the contract which is forbidden by the state laws is provided to the company then also the company cannot get into the contract.
An individual who is working with the organization as per the section 129 of the Corporation Act 2001, has the right to accept the individual who is chosen as the director by the organization and they have been employed by the organization and theseassumptions cannot be mentioned by the organization as incorrect[2].
According to the section 127 of the Corporation Act it has been mentioned that the document might be accomplished by the organisation if the Common seal of the companyis not used and the contract needs approval by the signatures of both the directors, a company secretary or a director of the organisation and the only secretary or director of the organisation[3].
As per the section 129 (5) of CA, it has been said that an individual can assume that the contract has been properly implemented by the organization if they have contracted in relation to the subsection of 127 (1)[4]. As given in the subsection 129 (5) in relation to dealing with the company if the document has been implemented as the way it has been discussed, the other party has the right to depend on the assumptions. An individual carries the right to assume that execution of the documenthave been done with the Common seal of the company and the individual is assumed to be sole secretary and director of the organization who must carry the right.
Section 129(5) provision and relevant case laws related to assumption of contract execution
The court has stated, that an individual who is dealing with the organization and making a contract with them must be bonafide and they must assume that contract is consistent and is in the powers of the company’s constitution as per the case Royal British Bank v Turquand (1856) 6 El & Bl 32[5].
It has been stated according to the case of Northside Developments Pty Ltd v Registrar-General (NSW)(1990) 170 CLR 146[6], that authority should be represented by an individual who is working on the company’s behalf and it must be done by the organization.
According to the section 124(2) of the Corporation Act 2001, company’s legal capacity to get in the contract is not harmed by the information that the contract might not give the best interest of the organization[7].
In the above situation, Tim and Michelle are the secretary and directors respectively of the above-mentioned organization. The company’s work is to sell, buy and repair the motorcycles. Tim and Michelle are very much in love with motorcycles.
The case states that a person named John wants to trade with his motorcycle and a contract was made to buy the motorcycle. The contract was signed by Michelle and Tim. Later on, it was realized that they want to get out of the contract as they have paid too much to buy that motorcycle.
Tim and Michelle, the secretary and director of the company respectively have signed a contract with the seller named Johnto buy the motorcycle and the company is bound by the contract.It has been said in section 127 of the act, the organization can make a document to put into effect that has been contracted by the company’s directors even after the document does not have the common seal of the organization. In this case, the assent is given by the company’s secretary and the director to the contract of another party as per the section 129(5) of the CA. The company might assume that the allowance has been given by the organization for the deal.
Tim and Michelle, cannot get out of the contract as it has been stated that the contract will not be mentioned as invalid as it does not serve the best concern of the organization as per the section 124(2).
Conclusion
It can be concluded that the contract that has been signed with John is bound on his company named Motorbikes Pty Ltd and they cannot move out.
The importance of organization’s constitution and directors’ authority in signing the contracts under sections 124(2) and 125 of the act
The issue that has been stated in this case is that whether George is legally bound by a contract that he has signed with Cakes Pty Ltd.
The word contract is an agreement that is legally bound by both the parties who has signed the contract. A contract cannot be withdrawn once formed until there is a breach of contract, frustration, fraud or misrepresentation by another party.
A judgement was stated by the court that if the contract has been signed by the directors of the organization without any problems then the organization is legally bound and if the contract has not been signed properly then it cannot be enforced by the organizationin the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103[8].
An individual has been provided with the right to assumption in a contract that is executed by the organization as per the Section 129(6) of the CA if the file is fixed with the company’s common seal in relation to the section 127(2).
Further, it has been observed that common seal is in relation to the section 127(2) of the Corporation Act. An individual has the authority to assume any such person observing the common seal and must state that they are the only secretary and the director of the organizationin relation to make assumptions and they are holding both the offices.In addition, the officer has been provided with the authority to authorize the document as the true copy.
A contract cannot be merely invalid if the company’s constitution does not permit the company to sign a contract as it is forbidden by the company’s constitution as per the section 125 of the CA[9].
As per the section 127(2) of the Act, it has been said that an organization that carries a common seal might execute the contract by fixing document’s seal and it must be seen by both the directors of the organization[10]. According to the section 127(2) of the act, a contract can only be put into effect by the organization if the parties who have signed the contract may depend on assumptions that have been provided by the section 129(6) to deal with the organization.
The situation is Gerard and Sylvia have taken a decision to purchase a cake shop as they are very much fond of cakes. Both of them have named their company as “Cakes Pty Ltd”. The company has been registered. The company was formed recently and the director of the organization was Gerard. There was no position that was given to Sylvia in her company. Gerard’s mother was made the other secretary of the company.
Another decision was to buy the cake shop from the owner named George through the organization. In order to buy that cake shop, they had to get contracted with George. Gerard stamped the contract and then George signed the contract as the witness. Sylvia was another witness of the company and she did not have any authority in the organization.
The provisions that have been provided in section 127(2) of the act, the seal must be witnessed by the secretary and the director of the organization to make the contract valid. In the given case it has been said that Gerard and Sylvia have only witnessed the contract and though Gerard is the only director of the company, he does not have the authority to alone give approval to the contract as stated in section 127(2). In the contract, it has been also stated that Sylvia has also witnessed the contract but there is no such importance of this because Sylvia does not hold any authority or position in the company. Moreover, the company has not presented Sylvia as the representative of this organization. The requirement of the case was Sarita and Gerard must witness the company seal as they hold the position of secretary and the director of the organization. Therefore, in the above-mentioned case, it has been mentioned that contract which was made between the company and George was not made properly. Such thing has been mentioned in the s. 127(2). According to the case Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd. such contracts are not permitted
Conclusion
This contract is not valid that has been formed between Cakes Pty Ltd and George and he is not legally bound.
Corporation Act 2001 (Cth) s 126
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103.
Northside Developments Pty Ltd v Registrar-General (NSW)(1990) 170 CLR 146
Royal British Bank v Turquand (1856) 6 El & Bl 32
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