Enforceability of Contracts against Events R Us Ltd.

This article discusses the enforceability of contracts created by Michael and Jenny against Events R Us Ltd. It explains the provisions of the Corporations Act and the doctrine of indoor management. It also examines the authority of agents and the exceptions to the indoor management rule.

Issue: The issue in this question is if the contracts created by Michael and Jenny can be enforced
against their company, Events R Us Ltd.
Rule: The Corporations Act, 2001 (Cth) provides that a corporation is a distinct legal entity
(s124 CA). However, the people enter into contracts on behalf of the corporation. Therefore,
sometimes the issues may arise if a valid and binding agreement has been created with the
company. Although it is not necessary that all the conference should be created in writing, but
the simplest way of making sure that the written contract is binding for the company is to create
a contract according to the provisions of section 127, Corporations Act. It is presumed that the
signatures of all the relevant person(s) have been obtained as required by section 127, the third
party is entitled to rely on several statutory assumptions that provide protection to the outsiders
while dealing with a corporation. Therefore, according to the Corporations Act, it can be
assumed by a third party that the constitution of the company and any reasonable rules have been
complied with (s129). At the same time, the authority of the agent can be described as (i) actual
express authority; (ii) actual implied authority (Freeman & Lockyer v Buckhurst Park
Properties (Mangal) Ltd., 1964); and (iii) ostensible authority (Crabtree-Vickers Pty Ltd v
Australian Direct Mail Advertising & Addressing Co Pty Ltd., 1975).
The indoor management rule (Royal British Bank v Turquand, 1856) also protects that third
parties from any irregularities that may be present in the internal management of the corporation
that the person conducting the affairs of the company in a manner that appears to be perfectly
according to the articles of the company (Mahony v East Holyford Mining Co. 1875).

The doctrine of indoor management emerges from Royal British Bank v Turquand case. Unlike
the Doctrine of constructive notice, the doctrine of Indoor Management protects the outsiders
against the company (Howard v. Patent Ivory Manufacturing Co., 1888).
An outsider dealing with the company is not expected that he will know every detail of what is
happening in the company (Hely-Hutchinson v Brayhead Ltd. [1968]). The exceptions to this
rule can be described as follows:
 Where the outsider has knowledge of Irregularity
 Suspicion of Irregularity
 Forgery
 Representation through Articles
 Acts outside apparent authority
Application: in the present case, Michael had entered a contract with Ultimate Computer
Programs even if the constitution of Events R Us provides that any transaction above $40,000
requires the approval of the board. But in this case, Ultimate Computer Programs was not aware
of this condition. Therefore it can rely on the statutory assumptions and believe that all rules of
internal procedures have been complied with in case of this transaction.
Regarding contract created with the Mayor of Sydney, the clause present in the constitution of
Events provides that the company will organize events only in Western Australia. Therefore this
contract is beyond the scope of authority of the company and its agents.
Conclusion: in the present case, the contract created between Michael and Ultimate Computer
Programs is binding against Events R Us. On the other hand, the contract created by Jenny with

the mayor of Sydney is hardly enforceable against the company as it is beyond the scope of
authority.

References
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975)
133 CLR
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Mahony v East Holyford Mining Co 1875 LR 7 HL 869
Royal British Bank v Turquand (1856) 6 E&B 327
Howard v. Patent Ivory Manufacturing Co [1888] 38 Ch. D. 156
Hely-Hutchinson v Brayhead Ltd. [1968]38 comp.Cas 228m (CA)
Corporations Act, 2001 (Cth)