Validity of Contracts under Section 127 of Corporation Act 2001

Business Environment 1
Business Law

Business Environment 2
Answer 1
Issue
Whether Motorbikes Pty Ltd is liable in terms of the contract signed with the John
Law
Section 127 of the Corporation Act 2001 states the regulations related to execution of the
document. According to clause 1 of the section, organization can execute the documents
deprived of fixing the common seal on the document if such document is affixed by the
signatures of the two directors of the organization or by the director and the company secretary.
It must be noted that, in case company executes the document in this manner, then it is possible
for the third party to rely on the assumption stated under subsection 129(5) in context of dealing
with the company.
As defined by section 129(5), third party can make the assumption that the contract has been
duly attested by the corporation if such document is signed in the similar manner as stated under
subsection 127(1). In terms of creating the expectations, a individual may also make the
assumption that any person who signs the contract.
It is necessary to understand that, while executing the contract on the basis of the organization,
an individual cannot put their signature on the document or fixed the common seal in the
capacity of two different authorities. However, there is an exception to this rule which states that
person signs the contract if he or she is the sole director or sole secretary of the company
(Hatcher, 2016).
Recently, in case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC
103, Full Court of the South Australia considered the issue related to the valid execution of the
contract. In this case, contract was signed by the single director and without the common seal of
the company, which means, director execute the contract under section 127(1) of the Act. Court
stated that contract is not valid and cannot be enforced (Winter, no date).
Application
In this case, contract is signed by the Tim and Michael on behalf the organization with the John
for purchasing the motor bike from the John. Contract is executed with the John under section
127(1), as this contract is signed by the director and company secretary of the organization.
Organization can execute the contracts without fixing the common seal on the contract if such
document is affixed by the signatures of the two directors of the organization or by the director
and the company secretary of the company.
It must be noted that, in case company executes the document in this manner, then it is possible
for the third arty to rely on the assumption stated under subsection 129(5) in context of dealing
with the company, which states, third party can make the assumption that that the contract has
been proven by the company if such document is signed in the similar manner as stated under
subsection 127(1).