Background Information
Whether the contract made amid Tim and John is binding upon Motorbikes Pty Ltd and John?
Any person who wants to indulge in any kind of business has the option to engage in sole trader ship, a part ship or a company. When a business is registered as per the provisions of the Corporation Act 2001 and ASIC then a company is formulated. A company is a separate legal person in law and has the power to act on its own behalf.
A company gains a status of an artificial person which signifies that it has the capacity on its own to make contracts, to acquire property, to indulge in legal proceedings, etc. In Saloman v saloman[ Salomon v. Saloman & Co. Ltd. (1897) (AC) (22).] a company is considered to be separate legal entity which implies that the officers of the company and the company itself are two different personalities and the acts that are taken by the officers are carried out in the name of the company and will bind the company alone. The acts are not binding upon the company officers and the officers are acting merely as agents of the company[ Andy Gibson and Douglas Fraser. Business Law 2014, 2013, Pearson Higher Education AU.].
The directors are the most important officers and have acquired the position under section 9 of the Act. Under section 198A of the Act, the directors carry the activities of the company by acting as its agents. Also, in any company which has only one director, then, as per section 198E of the Act, such director has all the powers to act on behalf of the company unless such acts are especially restricted by the company itself. Thus, the company directions are mainly the representatives of the company and can bind the company with their acts[ Imperial Hydropathic Hotel Company Blackpool v Hampson (1882) 23 Ch D 1.].[ Patricia Dermansky. Should Australia Replace Section 181 Of the Corporations Act 2001 (Cth) With Wording Similar to Section 172 of the Companies Act 2006 (UK)?., 2018.]
Further, under section 126 of the Act every company director is its agent and has the capacity to represent the company. The capacity includes the power to establish contracts on company behalf. Thus, any contract made under the common seal of the company and the document is signed by the company’s authorized representative, then, such contracts are binding on the company[ Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd[2014].].[ CGW. Has the company correctly signed the contract? Director’s personal liability for incorrectly signed contracts, 2018, < https://www.cgw.com.au/publication/company-incorrectly-signed-contract/.. ]
Now, the representatives of the company can be empowered to represent the company by granting them with authorities. Normally, authority can be granted by actual manner that is when the company either grants an authority expressly or impliedly; then, an actual authority is given to the officers of the company[ Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964].]. An authority can also be provided when the company makes a representation to the outsider and submits that ay officer has the power to bind the company by his acts, then, such authority that is possessed by such an officer is a ostensible authority and any act done under such ostensible authority will bind the company with the outsider[ Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) .].
Legal Principles Governing Company Contracts
In the leading case of Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd[ Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991).
], it was held that when a company is run by an individual director then such director is empowered to represent the company by his acts and such acts are binding on the company. A company secretary is also embowered to make contract for the company with the outsiders and such contracts are binding provided the acts are carried out by the secretary within the normal course of business, The law is now applied to the facts.
Tim and Michelle has started a company in the name of Motorbikes Pty Ltd. Michelle is the director of the company and the secretary of the company is Tim. The company deals in the sale and repairs of the bikes.
Tim and John both signed a document with John wherein John agreed to ell his bike to them @ $5,000. However, Michelle now wants to terminate the contract as he thought that he has paid too much for the bike.
It is submitted that as per section 126 of the Act, Michelle being the only director of the company has the power to take decision and make contract for Motorbikes Pty Ltd. as per section 198A, Michelle being the company director is also considered as its agent and as per section 198E has power to act for the company. Michelle has the authority to bind the company by his actions.
Likewise, Tim being the secretary of the company also has the power to act for the company provided his acts are carried within the usual course of the business. since the company is dealing in bikes, and Tim purchased bike on behalf of Motorbikes Pty Ltd thus the acts of Tim are within his authority.
Conclusion
Since the acts of both Michelle and Tim are carried out within their respective authority, thus, the contract is valid on behalf of Motorbikes Pty Ltd and thus a binding relationship is established amid Motorbikes Pty Ltd and John. So, Motorbikes Pty Ltd cannot terminate the contract with John.
Whether George has the power to terminate the contract made with Cakes Pty Ltd?
A company upon its incorporation gains the status of a separate legal entity in the eyes of law and is held in the leading case of Saloman v saloman[ Salomon v. Saloman & Co. Ltd. (1897) (AC) (22) ;]. A company gains a status of an artificial person which signifies that it has the capacity on its own to make contracts, to acquire property, to indulge in legal proceedings, etc.
But, it is the officers that acts on behalf of the company as the company is only an artificial person and it requires real minds to operate and achieve its objectives. As per section 126 of the Act every company director is its agent and has the capacity to represent the company and to make contracts on behalf of the company. The colony director is authorized by the corporation act 2001 under section 198A to deal with the day to day activities of the company. The acts which are within the authority of the agent is binding on the company and the company did not deny the same.
Scenario 1: Motorbikes Pty Ltd and John
But, if any act is undertaken by the company which is outside the authority of the director then the company is not bound by the same and can deny its existence[ Patricia Dermansky, n4.]. But, this might hamper the third parties who are dealing with the directors of the company in faith that the directors are having the capacity to bind the company and the third parties has no means to know the truth of the matter.
In order to project the position of the third parties who are dealing with the directors of the company in good faith, section 128 of the Act is formulated according to which if any third party to dealing with the company agents in good faith then he has the power to make few assumptions regarding such director of the company.
As per section 129 (1) of the Act the third party can assume that all the internal rules of the company are comply with. As per section 129 (2)- 3) that the detectors and secretary of the company are duly appointed.
The outsider can also assume under section 128 (5)-(6) that of the company documents are signed by the officers then the officers must be duly appointed provided section 127 (1) – (2) of the Act is comply with, that is, when any document is signed with common seal or without common seal then if such a document is signed by two directors or a director cum company secretary then such documents are valid.
A document id also binding if the document is executed by an authored person and is held in Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd.
Sylvia and Gerard form a company, Cakes Pty Ltd, and decided to purchase a cake shop from George. Now the company Cakes Pty Ltd. is an artificial legal person in the eyes of law and thus can make contracts on its own behalf. Gerard os the director and Sarita is the secretary of the company.
Now, Gerard and Sylvia on behalf of the company, Cakes Pty Ltd., make a contract with George on behalf of the company and soigné the document with common seal. In this situation, George can rely on section 128 ($) of the Act and acting in good faith can rely on the assumptions made under section 129 of the Act.
The company, Cakes Pty Ltd, has signed the contract with common seal thus, George can assume that the parties signing the document are authorized provided it is signed by 2 directors but on the contrary the document is signed by Sylvia shareholder) and Gerard (director). Thus, the document was not signed validly.
But, since they both are empowered to represent the company thus as per Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd the contract is binding on the company.
Conclusion
So, the contract amid Cakes Pty Ltd. and George is valid and he cannot terminate the contract.
Reference List
Books/Articles/Journals
Dermansky. Patricia , Should Australia Replace Section 181 Of the Corporations Act 2001 (Cth) With Wording Similar to Section 172 of the Companies Act 2006 (UK)?., 2018.
Gibson, Andy and Fraser. Douglas, Business Law 2014, 2013, Pearson Higher Education AU.
Case laws
Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991).
Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985)
Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964].
Imperial Hydropathic Hotel Company Blackpool v Hampson (1882) 23 Ch D 1.
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd[2014].
Salomon v. Saloman & Co. Ltd. (1897) (AC) (22) ;
Online Material
CGW. Has the company correctly signed the contract? Director’s personal liability for incorrectly signed contracts, 2018, < https://www.cgw.com.au/publication/company-incorrectly-signed-contract/..
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