Contract Validity and Company Execution

This assignment examines the legal validity of a contract between George and Cakes Pty Ltd for the purchase of a cake shop. It analyzes whether the contract was properly executed according to Section 127(2) of the Corporations Act 2001, focusing on the roles of directors and secretaries in witnessing the common seal. The assignment also considers the implications of witness signatures by individuals not holding company positions. Key legal principles and case law are applied to determine the enforceability of the contract.

Running head: BUSINESS LAWS
Business Laws
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BUSINESS LAWS
Issue
The issue in this case is to determine the position of Michelle and Tim acting as directors and
secretary of Motorbikes Pty Ltd with respect to the contract entered upon with John for the
purchase of his motorcycle.
Sub issues
Whether there is a valid contract between the parties or not
If yes whether Michelle and Tim have the option of rescinding the contract
Rule
Section 126 of the Corporation Act 2001 (Cth) states that any individual working on behalf of
the company through an expressed or implied authority has the authority to make, discharge,
ratify or vary a contract binding on the company. For the purpose of exercising this power the
person does not mandatorily require the common seal of the company. Further the section does
not intervene any other law which may be required to complete the procedure to get into a
contract.
The company is further for such reasons not allowed to get into a contract which is not allowed
by a territory or state or a contract provides such right to the company which is prohibited by the
law of state and territories.
Section 129 of the CA states that any person who is dealing with the company can assume a
person who has been listed by the company as directors have been properly appointed by the
company and the assumption further cannot be stated as incorrect by the company.

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Section 127 of the CA states that a document can be executed by the company even if its
common seal have not been used for it of the contract has been approved through signature by
two directors of the company , a director and company secretary of the company and the sole
director or the sole secretary of the company.
In case a document has been executed in the way discussed above, the other party would have
the right to rely upon the assumption provided in subsection 129(5) with respect to dealing in
relation to the company. Section 129(5) of the CA states that a person may assume that a contract
has been executed duly by a company in case the contract is signed with respect to subsection
127(1). A person has the right to assume that the document has been executed duly with seal and
the person providing that they are the sole directors and secretary of the company are assumed to
be so.
In the case of Royal British Bank v Turquand (1856) 6 El & Bl 327 it had been provide by the
court that a person dealing and contracting with the company in good faith may make an
assumption that the contract or dealing is within the powers and consistent with the constitution
of the company
In the case of Northside Developments Pty Ltd v Registrar-General (NSW)(1990) 170 CLR
146 it was provided that a representation of authority held by a person working on behalf of the
company has to be made by the company
Section 124(2) of the CA states that the legal capacity of the company to get into a contract is not
affected by the fact that the contract is not or will not serve the best interest of the company

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Application
In the given situation Michelle and Tim are the directors and secretary of the company
respectively. They are both passionate about motorcycles. The purpose of the company is also to
buy, sell and repair motor cycles.
In the scenario John wanted to sell his motorcycle and Tim and Michelle have both signed the
contract to purchase the motorcycle. It was latter realized by make that too much has been paid
by him in relation to the purchased motorcycle and so he wants to get out of the contract.
As discussed in section 127 of the CA a company can execute a document which have been
signed by the directors of the company even if the document does not contain the common seal
of the company. In case such assent is provided by the director and a secretary of the company
the other party to the contract under section 129(5) of the CA can assume that the deal is allowed
by the company. Therefore in this case as Michelle and Tim who are the directors and secretary
of the company have signed the contract with John for the purchase of the motor cycle the
contract is binding on the company.
In addition as per section 124(2) the contract cannot be declared invalid only because of the fact
that it is not in the best interest of the company, thus Michelle and Tim further would not be able
to get discharged from the contract.
Conclusion
The contract with John is binding on Motorbikes Pty Ltd and they cannot opt out of it.

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Answer 2
ISSUE
The issue in this case is to determine whether George is bond by the contract entered upon with
Cakes Pty Ltd.
RULE
A contract is a legal agreement and is binding on the parties who have signed it. Once the
contract have been formed it cannot be rescinded unless there is frustration , breach or
misrepresentation or fraud by the other party.
Section 125 of the CA states that if the constitution of the company does not allow the company
to get into a contract that act would not be merely invalid because it has been prohibited by the
constitution
In the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC
103 it was ruled by the court that if a contract is signed properly by both the directors of the
company it is binding on the company and if not it is not enforceable by the company.
Section 127(2) of the CA states that a company which has a common seal can execute a contract
by fixing the seal to the document and the fixing of the seal has to be witnessed by the two
directors of the company, a director or company secretary of the company, in case of a
proprietary company the only director and secretary of the company. In case the contract is
executed by the company is accordance to section 127(2) the parties to the contract can rely on
the assumption as stated in section 129(6) with respect to dealing with the company.

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Section 129(6) of the CA states that a person has the right to assume that a contract has been
executed by the company properly in case the document has been fixed with the common seal of
the company with respect to section 127(2)
In addition it appears that the common seal appears to have been witnessed in relation to section
127(2) of the CA. In relation to making assumption, a person has the right to assume the any
person who has witnessed the common seal and state that they are the sole director and secretary
of the company beside their signature are occupying both the offices. Moreover agent or officer
who has the authority has to warrant the document is a true copy.
Application
In the give situation Sylvia and Gerard who love cakes have decided to buy a cake shop recently.
They both have registered a company in the name of “Cakes Pty Ltd”. In the newly formed
company while Gerard held the position of a director, Sylvia was not given any position. The
other secretary of the company was Sarita who was the mother of Gerard.
Through the company they decided to purchase a cake shop from George. For the purpose of
getting into the contract with George with respect to purchasing his cake shop the contract was
stamped by Gerard and then signed by him as a witness. However the other witness in this case
of Sylvia who did not hold any position in the company.
As per the provisions of section 127(2) of the CA where the seal of the company is fixed to the
contract in order to make it valid it has to be witnessed by the director and secretary of the
company. However in this case it has been provided by the contract has only been witnessed by
Sylvia and Gerard. Although Gerard is a director he alone cannot approve the contract on his
own as per the provisions of section 127(2). In addition it has been provided by that the contract

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has been witnessed by Sylvia, however such witness has no effect as she does not have a position
in the company. Further it has not been represented by the company that whether she is working
as the agent of the company. In this case it was required that Martha along with Gerard had to
witness the seal of the company in the contract to give it effect as they are the director and
secretary of the company. In this case it can therefore be stated that the contract between George
and the company has not been formed properly as the provisions of section 127(2) and the case
of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd do not allow such contracts.
Conclusion
The contract between George and Cakes Pty Ltd is not valid.

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References
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