Company Law & Contractual Authority
Added on 2020-04-01
7 Pages1650 Words122 Views
|
|
|
NameInstitution Date COMPANY LAW1
INTRODUCTION Although a company is a legal person1, it is an entity that is abstract in form and its capacity tocontract can only be through natural persons’ actions.2 By virtue of section 126 of theCorporations Act3, a company possesses the power to enter into contracts through the agency ofpersons who are acting upon either the implied or express authority of the company.Accordingly, contracts are only binding upon a company if they are entered into by agents whohave the company’s authority. Normally, parties to such contracts would seek to escape fromliabilities that arise from the same. Therefore, it is important to establish that the persons actingas agents have ostensible or actual authority from the company for the contracts to be binding.The organic theory of company law largely governs these kinds of scenarios, which lie beyondthe ambit of agency law. However, they draw from agency law. QUESTION 1Michelle and Tim both sign a contract for the purchase of a motorbike with Michelle as directorand Tim as company secretary. Michelle wants to opt out of the contract. The issue is whetherthe contract is binding upon Motorbikes Pty Limited.In most of the companies with multiple directors, the companies’ constitutions will confer uponthe board of directors (collectively) with management powers. The actions of a single directorwith outsiders will usually not be binding on the company as he lacks implied actual authority.4By virtue of a mandatory rule contained in section 198E (1) of the Corporations Act, aproprietary company that has a single director or shareholder is conferred with all of that1Salomon v Salomon and Company 2 Larelle Chapple and Phillip Lipton, Corporate Authority and Dealings with Officers and Agents, (Australia: CCH Australia Limited 2002), p.1. 3 The Corporations Act 2001, (Cth) Australia. 4See Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991) 6 ACSR 464 at 476.2
company’s powers. The company’s constitution can limit such sole director’s actual authoritywhere he is not the sole shareholder. This actual authority is lessened despite the wide powersconferred by section 198A. However, the individual director may possess implied authority to dowhat a sole director normally does in such a situation. The result is that the implied authority ofsuch a sole director may be wider than their actual authority.5The authoritative pronunciation in the Panorama Developments case was that companysecretaries are not merely clerks any longer but are considered to be companies’ officers withextensive responsibilities and duties.6 In that case, “chief administrative officer” was the newterm that was used to refer to company secretaries. Their authority is implied and they canrepresent the company in certain matters such as entering into contracts involving internaladministration but not management of the company’s daily business. In the celebrated case ofNorthside Developments Pty Ltd v Registrar-General, the Honourable Court held that thecompany secretary’s position is conferred with implied actual authority. Such authority is forcountersigning the affixed seal of the company and witnessing the fixation of the common seal.Motorbikes Pty Ltd is a proprietary company that has a single director, Michelle, who is the soledirector, and a company secretary, Tim. The law confers upon Michelle as sole director all thepowers of the company. Such power includes entering into contracts with outsiders. Tim, ascompany secretary, is also clothed with ample powers to sign contracts on behalf of the companyunder the law. The contract signed by Michelle and Tim on behalf of Motorbikes Pty Ltd for the purchase of aMotorbike is therefore binding upon the company. 5 Ford H, Ford's Principles of Corporations Law, 10th ed (Australia: Butterworths 2001), p.658.6Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711.3
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents