Motorbikes Pty Ltd - John

LAW OF BUSINESS
ASSOCIATION
[Pick the date]

LAW OF BUSINESS ASSOCIATION
Question 1
Issue
The key issue is to highlight If in the light of the applicable clauses of
Corporations Act 2001 (Cth), there is a binding contract between the company
(i.e. Motorbikes Pty Ltd) and John regarding the motorcycle.
Relevant Rule
A company in accordance with s.124(1) is a separate legal entity and hence
capable of enacting contract. However, as per s. 126 agents are supposed to
enact these contracts on company’s behalf. This may be carried out by any of
the following entities identified1.
 The company director or/and company secretary as per the constitution of
the company.
 Any agent having authorization from the company’s directors to enact
contracts with outside parties.
It is essential that the contracts must be enacted in line with s. 127 Corporations
Act 2001. With regards to contracts enacted without the common seal use, the
relevant rule applicable would be s. 127(1) 2. In accordance with this, for any
document to be enforceable, it has to be signed by one of the three potential
official combinations listed as follows3.
 One of the directors and a company secretary
 Two directors of the company on whose behalf the contract is being
enacted
Also, under the aegis of s.198A, the director has the power to manage the
business of the company. If the document is executed as per s.127(1), then the
other party can make assumptions in relation to contract execution as per s. 129
Corporations Act 2001. Hence, if there is lack of any significant material evidence
which highlights violation of internal assumption, the outside party has the right
to assume that the contract has been duly executed complying with all the
requirements4.
1 Pathinayake, Athule, Commercial and Corporations Law, (Thomson-Reuters, 2nd ed., 2014)
2 Marc Hertz, ‘Importance of execution of contracts by companies’, Thomson Reuters CLEARDOCS
(online), February 2015< https://www.cleardocs.com/clearlaw/company-registration/execution-of-
contracts.html>
3 Amanda Seaton and Jarrod Wilksch ‘Putting pen to paper – execution under section 127’, Johnson
Winter & Slattery (online), July 2015 < https://www.jws.com.au/en/acumen/item/660-putting-pen-
to-paper-execution-under-section-127>
4 Andy Gibson, Douglas Fraser, Business Law (Pearson Publications., 8th e, 2014