Law of Business Association Issues 2022

LAW OF BUSINESS
ASSOCIATION

Issue:
The concern in the given scenario is to analyse the validity of the contract as between seller
of the motorbike John (hereinafter referred to as J) and the company Motorbikes Pty Ltd
(hereinafter referred as MP). Thus, whether there is binding contract between the parties or
not would be analysed in light of the Corporations Act (Cth).
Rules:
The Corporations Act (Cth) governs the matters related to the companies in Australia. The
various sections prescribe the various procedures and manners of different aspects of
company administration. One such aspect of management of the affairs of the company is the
entering into the contracts by the board of directors on behalf of the corporate. It is essential
to note that most significant feature of corporate business structure is that there is existence of
separate legal identity different from the members or the shareholders. The principle of the
separate legal identity has been stated in the section 124 (1) of the said legislation. Thus, on
fulfilment of the registration formalities, the agents or the managerial body can enter the
contracts in the name of the company. It has been stated in the act that it is the legal duty of
the directors to enter into contracts on behalf of the corporates. The said legal duty has been
elaborated in the section 126. The section 127 (1) of the legislation is also worth noting in
this regard. The manner of contract signing has been further prescribed. There are two modes
of contract creation for the companies without the use of the common seal (Austlii, 2019).
The first mode specifies the contract to be signed by either two members of the board of
directors, or one director and the company secretary. The second mode states that if
authorised by the constitution of company the said power can be delegated to an authorised
employee of the company. The use of the common seal of the corporate is also significant in
the contract of the companies. Hence, when the contracts are entered between the parties,
where one of the parties is a corporate, the third parties have reasons to believe that there are
no irregularities. The third party assumptions principles are laid down in the Section 129. The
section states that if the third parties do not have contrary reasons to believe regarding the
irregularities in contract execution, they would believe that the conditions laid down in the
Corporations Act have been complied with respect to the contract execution.
The well renowned case and judgement pronounced therein of Knight Frank Australia Pty
Ltd and Paley Properties Pty Ltd must be noted here. It was held in the case that the third
parties have option to opt out of the contracts that have not been legally formed in first place