Legal Analysis of Contracts and Company Law

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Contents
Solution 1...............................................................................................................................................................2
Issue....................................................................................................................................................................2
Relevant Law......................................................................................................................................................2
Application of Law.............................................................................................................................................3
Conclusion..........................................................................................................................................................4
Solution 2...............................................................................................................................................................4
Issue....................................................................................................................................................................4
Relevant Law......................................................................................................................................................4
Application of Law.............................................................................................................................................5
Conclusion..........................................................................................................................................................5
Reference List.........................................................................................................................................................6

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Solution 1
Issue
Whether the contract made amid Tim and John is binding upon Motorbikes Pty Ltd and John?
Relevant Law
Any person who wants to indulge in any kind of business has the option to engage in sole trader ship, a
part ship or a company. When a business is registered as per the provisions of the Corporation Act 2001
and ASIC then a company is formulated. A company is a separate legal person in law and has the
power to act on its own behalf.
A company gains a status of an artificial person which signifies that it has the capacity on its own to
make contracts, to acquire property, to indulge in legal proceedings, etc. In Saloman v saloman1 a
company is considered to be separate legal entity which implies that the officers of the company and
the company itself are two different personalities and the acts that are taken by the officers are carried
out in the name of the company and will bind the company alone. The acts are not binding upon the
company officers and the officers are acting merely as agents of the company2.
The directors are the most important officers and have acquired the position under section 9 of the Act.
Under section 198A of the Act, the directors carry the activities of the company by acting as its agents.
Also, in any company which has only one director, then, as per section 198E of the Act, such director
has all the powers to act on behalf of the company unless such acts are especially restricted by the
company itself. Thus, the company directions are mainly the representatives of the company and can
bind the company with their acts3.4
Further, under section 126 of the Act every company director is its agent and has the capacity to
represent the company. The capacity includes the power to establish contracts on company behalf.
Thus, any contract made under the common seal of the company and the document is signed by the
company’s authorized representative, then, such contracts are binding on the company5.6
1 Salomon v. Saloman & Co. Ltd. (1897) (AC) (22).
2 Andy Gibson and Douglas Fraser. Business Law 2014, 2013, Pearson Higher Education AU.
3 Imperial Hydropathic Hotel Company Blackpool v Hampson (1882) 23 Ch D 1.
4 Patricia Dermansky. Should Australia Replace Section 181 Of the Corporations Act 2001 (Cth) With Wording Similar to Section 172 of
the Companies Act 2006 (UK)?., 2018.
5 Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd[2014].
6 CGW. Has the company correctly signed the contract? Director’s personal liability for incorrectly signed contracts, 2018, <
https://www.cgw.com.au/publication/company-incorrectly-signed-contract/..

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Now, the representatives of the company can be empowered to represent the company by granting them
with authorities. Normally, authority can be granted by actual manner that is when the company either
grants an authority expressly or impliedly; then, an actual authority is given to the officers of the
company7. An authority can also be provided when the company makes a representation to the outsider
and submits that ay officer has the power to bind the company by his acts, then, such authority that is
possessed by such an officer is a ostensible authority and any act done under such ostensible authority
will bind the company with the outsider8.
In the leading case of Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd9, it was held
that when a company is run by an individual director then such director is empowered to represent the
company by his acts and such acts are binding on the company. A company secretary is also
embowered to make contract for the company with the outsiders and such contracts are binding
provided the acts are carried out by the secretary within the normal course of business,
The law is now applied to the facts.
Application of Law
Tim and Michelle has started a company in the name of Motorbikes Pty Ltd. Michelle is the director of
the company and the secretary of the company is Tim. The company deals in the sale and repairs of the
bikes.
Tim and John both signed a document with John wherein John agreed to ell his bike to them @ $5,000.
However, Michelle now wants to terminate the contract as he thought that he has paid too much for the
bike.
It is submitted that as per section 126 of the Act, Michelle being the only director of the company has
the power to take decision and make contract for Motorbikes Pty Ltd. as per section 198A, Michelle
being the company director is also considered as its agent and as per section 198E has power to act for
the company. Michelle has the authority to bind the company by his actions.
Likewise, Tim being the secretary of the company also has the power to act for the company provided
his acts are carried within the usual course of the business. since the company is dealing in bikes, and
Tim purchased bike on behalf of Motorbikes Pty Ltd thus the acts of Tim are within his authority.
7 Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd [1964].
8 Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) .
9 Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991).