Contract Validity and Company Execution

Running head: BUSINESS LAWS
Business Laws
Name of the student
Name of the university
Author note

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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.

2
BUSINESS LAWS
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