Contract Formation by Corporations

This assignment explores the principles of contract formation in the context of corporations under the Australian Corporations Act, 2001. It examines sections 124-127 and analyzes situations where individuals act as agents on behalf of a corporation to form contracts. The assignment delves into the legal capacity of corporations, the role of authorized agents, and the requirements for valid contract formation in corporate settings.

CONTRACTS WHEN BINDING AND WHEN NOT
University- KIIT University

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Issue 1:
The Australian Corporation Act, 2001 states, under section 124 that a corporation is
given the same legal capacity as that of an individual which is inclusive of the power
to form a valid contract.
Section 125 provides that such agreement which has been entered into by any such
corporation must perform the promised act even if it is beyond the companies
constitution.
Since both Michell and Tim are authorized authorities under the company they can form
a valid contract which has to be performed on behalf of the company being an
obligation under the aforesaid sections of the act.
Section 126 of the act states, since a company cannot act on its own it has to take
decision through an agent. The agent on its behalf is authorized to ‘make, ratify or
discharge a contract’.
Here, Michell and Tim are the authorized authorities who are supposed to act as agents
on behalf of the company.
Issue 2:
Under the Corportation Act, 2001, section 126 states, that a company cannot take
decisions on its own and thus should acts through agents or representatives. The agents/
representatives are empowered on behalf of the company to make, ratify or discharge the
contract in which they have entered or about to enter.
Here, George intends to sell out his cake shop to Gerard and Sylvia. Under the
provisions of section 127, the agreement to sell the shop will satisfy only if one director
and one secretary provides consent to such agreement. Though Gerard is the nominated
director he can consent, Sylvia is just a shareholder of the company. She is not the
secretary to provide consent which is necessary to satisfy the requirements under section
127. Again, section 126 tells us that if any authorized agent provides consent on behalf
of the company to any such document to form an agreement, then such agreement shall

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be binding upon both the parties to a contract and should be treated the same way if
one director and one secretary would have given consent. Though Sylvia is not the
secretary, she is authorized under the company as an agent/ representative to undertake
contracts. Thus her consent to such document will satisfy the requirement under section
127 and makes the contract binding.

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REFERENCE
1. Nexis, L, (2016), Australian Corporations Legislation.
2. Bevan, C. (2016). Corporation Law 8th Edition. Thomson Reuters.