Legal Issues in Contracts and Company Law

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Contents
Answer 1.....................................................................................................................................................2
Issues A.......................................................................................................................................................2
Rule.........................................................................................................................................................2
Application of Law..................................................................................................................................3
Conclusion...............................................................................................................................................4
Issue B.........................................................................................................................................................4
Rule.........................................................................................................................................................4
Application of Law..................................................................................................................................5
Conclusion...............................................................................................................................................5
Answer 2.....................................................................................................................................................5
Issues 1....................................................................................................................................................5
Rule.........................................................................................................................................................5
Application of Law..................................................................................................................................6
Conclusion...............................................................................................................................................6
Issue 2......................................................................................................................................................7
Rule.........................................................................................................................................................7
Application of law...................................................................................................................................7
Conclusion...............................................................................................................................................7
Reference List.............................................................................................................................................8

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Answer 1
Issues A
Whether the contract that is established amid Seedy Vineyards and Organic Wines Pty Ltd (OW)
is valid in nature on the basis that: a) Priya does not have the authority to enter into contract; b)
the object clause of Constitution of OW was violated?
Rule
The Corporation Act 2001 governs the actions of the company. Upon incorporation, a company
acquires the status of an independent legal person legally and is held in Salomon v Salomon &
Co Ltd1. This separate legal entity status is governed by section 124 of Act which establishes that
a company being an artificial legal person can enter into contracts with outsiders and its own
members.2
One of the most promising officers that act on behalf of the company is director which gets its
recognition under section 9 of the Act. In Grimaldi v Chameleon Mining NL [2012] 3a person
who even not appointed as director can be considered as a director if he is taking all the duties
and care of a director. Many a times, the Managing Director is appointed under section 198C of
the Act who are delegated with powers of the directors and the acts taken by them are binding on
the company4.
A company when is incorporated by a single person then it is a sole proprietorship. This
company can be run by replaceable rule or constitution or both. The company is run by the
provisions of the constitution. A company can set out its working in its object clause. Section
125 submits that a company can limit/restrict its activities through its object clause. Normally, an
activity which is not as per the provisions are considered as void and a company should not
honor the same. But, this is considered to be a hardship for the outsiders who act with the
company directors considering in good faith that the actions must be within scope are within the
object clause but in reality they are not. To protect their position, section 131 laid down
according to which all contracts made by company in its independent capacity are valid
1 Salomon v Salomon & Co Ltd [1897].
2 Julie Cassidy, Concise Corporations Law, (Federation Press, 2006).
3 Grimaldi v Chameleon Mining NL [2012] FCAFC 6.
4 Julie Cassidy, n2.

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irrespective of the fact whether they are within it outside the object clause and is held in Lion
Nathan Australia Pty Ltd v Coopers Brewery Limited5.6
Every company director is authorized to carry out their actions within the authority that are
assign/need to them by the company as they are the authorized representative of the company.
Firstly, actual authority is the authority which is assumed by the directors either expressly or
impliedly by the company and is held in Freeman & Lockyer v Buckhurst Park Properties
(Magnal) Ltd7, Secondly, when the authority is gained by the director not actually, but, some
representation is made by the company itself in front of the third parties to make them believe
that the director odes own the capacity to bind the company by their actions then, the directors
gain an ostensible authority and the acts within such authority results in a binding contract amid
the outsider and the company and is held in Hely-Hutchinson v Brayhead [1968].8
This authority is established by Indoor management Rule held in Royal British Bank v Turquand9
wherein if the outsider can prove that the contract is made in good faith and on the assumptithat
the agent does have the required authority then any contract is held to be valid provided that the
outsider is not aware of any defect on the part of agents authority and is held in Crabtree-Vickers
Pty Ltd v ADMAA Co Pty Ltd10. This common law principle is established under section 128-129
of the Act and an outsider is allowed to make certain assumptions while making a contract with
the agent of the company. As per section 127 if a document without company seal is signed by
the director and company secretary then it is assumed that the document is valid. 11
Application of Law
A vineyard is operated by Alana and Raj. They form OW so that their children can be part of the
business. The directors of the company are Alana, Raj and their son Jack. Carl was appointed as
the company secretary.
5 Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 59 ACSR 444.
6 David Ferguson, The Statutory Contract, 2013, <
http://www.mondaq.com/australia/x/221404/Contract+Law/The+Statutory+Contract>.
7 Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd [1964])
8 Stephen Judge, Business Law, (Macmillan Education UK, 2009).
9 Royal British Bank v Turquand (1856).
10 Crabtree-Vickers Pty Ltd v ADMAA Co Pty Ltd (1975).
11 Petri Mäntysaari, Comparative Corporate Governance: Shareholders as a Rule-maker, (Springer Science & Business Media,
2005).