(Solved) Assignment on Commercial Law

Running Head: COMMERCIAL LAW
COMMERCIAL LAW
Name of the Student:
Name of the University:
Author Note

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Answer One:
Issue:
The issues that are identified in the given scenario are:
 What is the legal position of Michele and Tom, the director and secretary of the company
Motorbikes Pty Ltd. in relation to the contract that had been entered upon by the parties
and John for the purchase of the motorcycle?
 Whether a legal contract had been formed between the parties?
 Can Michelle and Tome avoid their contractual obligations?
Law:
It has been provided in section 126(1) of the Corporations Act 2001 (Cth) that a person who
performs any action on behalf of the company by the use of his express or implied authority has
the power to rescind, ratify and the change the terms of the contract which is binding upon the
company or the organizations. It has been specifically provided in this section that the common
seal of the company need not be present for the person who acts on behalf of the company to
exercise his power. However the provisions of these sections do not intervene with any
provisions of the common law which are essential for the formation of a valid contract.
Further it has been provided in subsection 124(2) of the Corporations Act 2001 that a company
has the legal capacity of entering into a contract in the name of the company even when the
contract is not in the best interest of the company or the organization.
In section 129 of the Corporations Act it has been provided that any person who transacts
business or enters into a contract with an organization can assume that the person who is listed as

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the director of the company is duly appointed by such company or organization. It has been
further specified in this section that a company cannot claim the assumption of the third parties
in relation to the directors of the company as incorrect.
It has been specified in section 129(5) of the CA that any document that has been given effect
by the directors or the company secretary of the company, the third party incurs the right to rely
on the assumptions which have been produced in the name of the company. It has been further
provided in the section that a third party gains the right to assume that a contract has been duly
executed if the organization has complied with the provisions as provided in section 127(1).
It has been provided in section 127 of the corporations Act that an organization has the right to
issue and execute a document. Such document need not have a common seal of the company if
the company secretary or two directors of the company signs such a document.
In the notable case Northside Developments Pty Ltd v Registrar-General (NSW)(1990) 170
CLR 146 it had been held by the court that a company represents the authority in relation to the
person who acts on behalf of the company due to the express or implied authority vested in him.
In another notable case Royal British Bank v Turquand (1856) 6 El & Bl 327 it had been held
by the court that an individual who enters into a contract with the company and deals with the
organization in a bona fide manner can assume that the contract or transaction with the company
is consistent with the powers of the directors or the constitution of the company.
Application
As provided in the case study through the facts of the case it can be stated that Michelle was the
company secretary of Motorbikes Pty Ltd and Tim was acting as the director of the company.

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The company’s purpose was to buy, repair and sell motorcycles. It has been further provided in
the given case study that Tim and Michelle had agreed to enter into the contract to buy
motorcycles from John, however upon realizing that they were being charged more decided to
avoid their contractual obligations. Therefore by applying the provision as provided in section
127 of the Corporations Act, it can be stated that an organization has the right to issue and
execute a document. Such document need not have a common seal of the company if the
company secretary or two directors of the company signs such a document. And in relation to the
provisions of section 124(2) of the CA it can be stated that a company has the legal capacity of
entering into a contract even though if it is not in the best interest of the company or the
organization. In accordance with section 129(5) of the aforementioned act it can be stated that a
third party has the right to assume that the contract is duly authorized. Thus by application of the
legal principles it is evident that Tim and Michelle cannot rescind the contract.
Conclusion
Thus in conclusion it can be stated that Tim and Michelle cannot rescind the contract.
Answer 2:
Issue:
The issue in relation to the given scenario is whether a valid contract had been formed between
George and Cakes Pty Ltd.
Rule:
A contract is a legal agreement between two parties, the terms of which are legally binding upon
the parties who have signed it. It can be stated that the once a valid contract has been formed, the

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parties to the contract cannot avoid their contractual obligations. Therefore in light of the
aforementioned statement it can be stated that a contract can be discharged by fraud,
misrepresentation, frustration and breach of the contract.
In section 125 of the Corporation Act 2001 (Cth) that a company or organization has the right to
enter into contracts even though it is not permissible by the constitution of the company. A
contract cannot be held to be invalid if such contract had been entered into beyond the authority
of the constitution of the company.
The court had ruled in the case Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014]
SASCFC 103, that in a circumstance in which a contract had been properly signed by two of the
directors of the organization or the company, such contract becomes legally binding upon the
parties.
In section 129(6) of the CA it has been provided that a third party has the right to assume that the
contract is valid one and it is duly entered into if the contractual document contains the seal of
the company as provided in section 127(2) of the corporations act.
In accordance with section 127(2) of the company it can be stated that a contract can be executed
by any document which can contains the seal of the company and when such contract has been
ratified by at least two directors of the company by their signatures. In a circumstance in which
the contract had been entered into by the parties in compliance with the provisions of section
127(2), a third party is entitled to make assumptions as per the provisions of section 129(6).

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It has been further provided in the section 127(2) in cases where it becomes apparent that the
document of the company contained its common seal, such seal has to be witnessed as provided
in the aforementioned section. Third parties have the right to make assumption that those who
witness the common seal of the company and declare themselves as the only director and
secretary, they are held to be occupying both the designations. It can be further be stated that it is
the duty of the agents and officers of the company that the document produced by the company
is a genuine one.
Application:
In this case it is clearly evident that the company Cakes Pty Ltd had been formed by Sylvia and
Gerard both. Gerard is the director of the company where as Sylvia does not hold any position.
The company secretary of Cakes Pty Ltd. was the mother of Gerard. It can be stated that Gerard
in relation to purchasing the cakes produced a document which contained the seal of the
company and he signed it as a witness. The other witness who signed the contract was Sylvia,
however as stated before she did not have any position in the company. Thus by the application
of section 127(2) of the CA it can be stated that a contract can be executed by any document
which contains the seal of the company and when such contract has been ratified by at least two
directors or by a director and a company secretary of the company by their signatures. However,
in this case it is clearly provided that the document had been signed by Gerard, who was a
director and Sylvia who did not hold any position in the company. Thus by the application of
127(2) of the Corporations Act it can be stated that Gerard cannot and has no right to give effect
to the contract without signature of another director or a company secretary.

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Conclusion
Thus in conclusion it can be stated that the contract entered into by Cakes Pty Ltd, will not have
any effect as it only contained the signature of one director.

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Reference List:
Corporation Act 2001 (Cth)
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 327