Application of Section 125, Section 140 and Authority of Representative of Company

Contents
QUESTION 1..................................................................................................................................2
QUESTION 2..................................................................................................................................3
Reference List..................................................................................................................................5

QUESTION 1
The solution deals with the application of section 125, section 140 and the authority of the
representative of the company.
Miles and Patricia are operating farm and in 2014 they decided to involve their children. So
Avocado Smash Pty Ltd (“AS”) is incorporated and the farm is transferred to AS. Miles and
Patricia are the directors, Alicia (daughter and Chief Financial Officer) and Leighton (Managing
Director from 1st January 2015 for 3 years). Coral (solicitor) drafted the constitution.
An object clause was introduced which limited the activities to organic farming of avocadoes.
Also, Coral is the solicitor and can only be removed for misconduct. He is given 6% shares and
is thus the minority shareholder. Nuala was appointed as Company Secretary (CS).
The Corporation Act 2001 is the guiding force of the company incorporated in Australia. As per
section 124, the legal status of a company is distinct and separate1. It requires officers for its
working. A director is the officer appointed at the said post and includes all person who are
carrying the acts of a director2. As per section 198C, a Managing Director is responsible for
carrying day to day activities s of business.3
Now, Leighton was acting as MD from 2018, thus, he is the de facto manager.
The first concern that was raised is whether AS is bound by the contract with Build Em
Architects considering that Leighton has exceeded his authority?
In company law, directors are authored to represent the company. The power can be granted to
the directors actually or impliedly4 or ostensibly5. When the agents act outside their authority and
enters into contractual relationship with outsider, then, if the outsider is acting with good faith
then the acts are binding under Indoor Management Rule6.
1 Salomon v Salomon & Co Ltd [1897].
2 Grimaldi v Chameleon Mining NL [2012] FCAFC 6.
3 Julie Cassidy, Concise Corporations Law, (Federation Press, 2006).
4 Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd [1964])
5 Stephen Judge, Business Law, (Macmillan Education UK, 2009). Hely-Hutchinson v Brayhead [1968].
6 Royal British Bank v Turquand (1856); Crabtree-Vickers Pty Ltd v ADMAA Co Pty Ltd (1975).

As per section 128(4), assumptions under section 129 can be raised by outsider if acting in good
faith. As per section 127, if the document is signed by one director and CS, then, it can be
assumed that the officer has the required authority as per section 1297.
Now, Leighton is only allows to undertaken transactions up to $50,000. Beyond that board of
approval is required. He appointed Nuala as CS and solicitor. In 1st August, Leighton entered into
contract with Build Em Architects (BEZ) @ $150,000. The contract is signed by Leighton and
Nuala.
The contract with BEZ is valid as the document is signed by the MD (Leighton) and Nuala (CS)
and thus BEA can rely on section 129 assumptions and IMR provided it is acting in good faith.
Now, Whether the agreement by Leighton is considered to be in breach of the objects
clause?
As per section 125, the company must act as per the provisions of the object clause. But, in order
to avoid suffering to outsiders, as per section 131, the acts are not considered to be ultra virus
even if they are outside the object clause8.9
So, the contract by Leighton with BEA is outside the object clause, but as per section 31 such
acts are valid and enforceable.
Now, on 10th of August, Leighton notified Coral that her services are not required.
Now, whether Coral can enforce the clause appointing her as CS and what remedy is
applicable.
As per section 140, a contract with the officers is enforceable by the company with members and
vice versa. Thus, a member can sue the company provided his member’s rights are violated10.11
7 Petri Mäntysaari, Comparative Corporate Governance: Shareholders as a Rule-maker, (Springer Science & Business Media,
2005).
8 Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 59 ACSR 444.
9 David Ferguson, The Statutory Contract, 2013, <
http://www.mondaq.com/australia/x/221404/Contract+Law/The+Statutory+Contract>.
10 Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1 Ch 881.
11 Tomasic, et. Al, Corporations Law in Australia, Federation Press.