Business Law Assignment: Contracts and Corporate Law Analysis

This business law assignment analyzes two key scenarios involving the Corporations Act 2001 (Cth) and contract law. The first scenario examines whether Motorbikes Pty Ltd is bound by a contract for the purchase of a motorcycle, considering the roles of directors Michael and Tim and the requirements for contract execution under section 127. The analysis considers the company's capacity to contract under section 124 and the implications of section 126. The second scenario explores whether a contract was validly formed for the purchase of a business, Cakes Pty Ltd., by Gerard and Sylvia from George, considering the roles of directors and company secretaries and the application of sections 126, 127, and 198A. The assignment applies legal principles from cases like Salomon v A Salomon & Co Ltd, Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, and Royal British Bank v Turquand to determine the validity of the contracts and the liabilities of the parties involved.

Running head: BUSINESS LAW
BUSINESS LAW
Name of the Student:
Name of the University:
Author Note:

1BUSINESS LAW
ANSWER 1:
ISSUE:
The issue to be decided in this part of the assignment is whether Motorbikes Pty Lts is
bound by the any contract under the Corporations Act 2001(Cth)1.
Rules:
In the case of Salomon v A Salomon & Co Ltd2, the doctrine of corporate personality was
established such that creditors of a company that has turned insolvent cannot sue the
shareholders of the company for the payment of the unpaid debts.
Section 124 of the Corporations Act 2001(Cth) provides the capacity as well as
the powers of the company in the eyes of law3. Subsection 1 of the said section states that a
company has the power and capacity to act as a natural person4. By the virtue of such power the
company can issue as well as cancel shares after company issue debentures distribute the
company’s property among its members cause the company to be registered and to do anything
that has been recognized by the law. In that respect the company has the power to enter into a
contract holder property as an owner and can even take part in legal proceedings. The company
even has the power to institute legal proceedings against other. Thus in brief it can be said that
the company has the power to do anything which is recognized by the law of the country or even
by the law of any foreign country. Subsection 2 of the said section provides that if any contract
1 Corporations Act 2001(Cth).
2 [1896] UKHL 1, [1897] AC 22.
3 Corporation Act 2001 (Cth) s 124.
4 Ibid.

2BUSINESS LAW
entered by the company is not regarding its best interest then such contract does not become
invalid5.
A company can perform its applications and exercise its powers by various methods and
procedures. Sections 126 and 127 provide various manners by which company can execute a
contract. Under Section 126 it is said that an individual can be empowered and authorized by the
company to act as his agent and the act performed or committed by such agent is binding on it6.
Hence if the agent executes any document by his signature then it will be regarded as that
document is executed by the company itself.
Subsection 1 of section 127 provides that a contract can be executed in a valid manner by
the company7. This section states that the company has the authority to execute any agreement
provided at least one director together with Company Secretary or two directors have signed it.
However this is not required in a sole company.
Moreover sub section 2 of the section 127 enumerates that two directors or one company
secretary along with one director have the authority to get a contract executed by the use of a
common seal of such company which will act as the witness to the document8.
Application
The facts of the present case must be analyzed in the light of the incorporation rules and
the rules of executing the contract discussed in the rules part. From the facts of the case it
appears that Michael and Tim both are very much passionate about motorcycles and by virtue of
each day is published a company in the name of a company in the name of Motorbikes Pty Ltd.
5 Corporation Act 2001 (Cth) s 124(2).
6 Corporation Act 2001 (Cth) s 126.
7 Corporation Act 2001 (Cth) s 127(1).
8 Corporation Act 2001 (Cth) s 127(2).

3BUSINESS LAW
From the fact it is clear that Tim has the willingness to buy the motorcycle belonging to John at
the cost of $5000. In this regard he also executed contract with John for the purchase of the
motorcycle. Michael also signed the contract. These facts can be discussed in the light of section
127 in order to determine whether the contract is valid. Under this section it is given that a
company can execute any agreement if such agreement is signed by two directors for one
director and one company secretary. From the facts of the case it is known that Michael and team
both hold the position of directors. Moreover the purchasing deed of the motorcycle has been
signed by both the directors Michael and Tim on company’s behalf. Hence the contract executed
between the Motorbikes Pty Ltd and John is valid under section 127(1). In case it has not been
executed as per the terms of the deed then the contract will be breached. Even according to
Section 124(2), the contract does not turn invalid even if it is not in the best interest of the
company. So even though Michael considers the contract to be not in the company’s best
possible interest still it binds the company. Hence the contract for purchasing the motorcycle
belonging to John has been executed in a valid legal manner and it also binds the company. If
Michael plans to discontinue the contract with John it will make the company responsible for the
breach of it.
Conclusion
Hence it can be concluded that Michaels Desire of not carry out the contract executed
between John and the company will turn illegal and even John can sue the company for it.

4BUSINESS LAW
Answer 2
Issue
The matter of dispute in this part of the assignment is identifying whether Sylvia and
Gerard have executed any contract with George for purchasing the latter's business in the name
of the newly incorporated company Cakes Pty Ltd. created by them.
Rules:
Section 126 of the Corporations Act 2001 (Cth) enumerates that when a person has been
authorized by a company to act on his behalf then any act committed by him has the implication
of minding the company9. Hence as per section 126 if such agent science any document for the
company and on its behalf it will be regarded that the company has executed such document.
Again the provisions provided in subsection 2 of section 198A, the directors belonging to
a company are empowered with all the powers required for operating and managing the affairs of
the company10. But such power of the company does not include anything which is not allowed
by the company’s constitution.
The provisions of the two sections discussed above can be supported by Freeman and
Lockyer v Buckhurst Park Properties (Mangal) Ltd11 where it is held that the directors of the
company have the Apparent power as well as authority that bind the company.
9 Corporation Act 2001 (Cth) s 126.
10 Corporation Act 2001 (Cth) s 198(2).
11 [1964] 2 QB 480.

5BUSINESS LAW
Section 124 also provides that the company possesses the capacity as well as power to act
like a natural person by virtue of which it can enter into contract, hold property, be a party in the
legal proceeding and even can sue or get sued12.
Subsection 1 of section 127 numerous that a contract can be executed in a valid manner
by the company13. It also provides that such contract can be considered to be valid when it is
signed by at least two directors for one company secretary and one director provided it is not a
sole proprietary company. If under this section any document is executed then the other party has
the authority to make assumptions as given in section 12914. This can be supported by Re CCI
Holdings15.
In the case of Royal British Bank v Turquand16, it has been provided that any person
dealing with the company has the privilege to assume that the agent has complied with the
company’s internal rulings provided such person has acted in good faith. This is called the
Doctrine of Indoor Management.
Application
The rules of execution of a contract and the Incorporation are applied to the facts of the
case in order to determine the issue. It is seen that Cakes Pty Ltd. is formed by Gerard and Sylvia
It is seen that Gerard is the company director and his mother Savitri is the company secretary.
Company deals with George in order for purchasing his business. An agreement has been made
and both Gerard and Sylvia have signed the agreement of the contract. As per subsection 1 of
section 127 when the company executes an agreement it has to be signed by at least two directors
12 Corporation Act 2001 (Cth) s 124.
13 Corporation Act 2001 (Cth) s 127(1).
14 Corporation Act 2001 (Cth) s 129.
15 [2007] FCA 1283.
16 (1856) 6 E&B 327.

6BUSINESS LAW
or one company secretary and one director belonging to such company provided it is not a sole
business company. From the facts of the case it is seen that section 127(1) has not been followed.
This is due to the fact Sylvia was neither the director not the company secretary of the company.
The contract executed is invalid as per section 127. But again it is provided under Section 126
that in case a person has been authorized to act as company’s agent any act committed by such
person will be binding the company. Hence according to the said section when a document has
been signed by the agent on behalf of the company for the interest of the company then it will be
considered that the document has been executed by the company itself. According to sub section
2 of section 198A the director’s belonging to any organization have been empowered with all the
powers required to manage as well as operate a company. Thus in the light of both the sections
mentioned above and by applying the decision of Freeman and Lockyer v Buckhurst Park
Properties (Mangal) Ltd, it can be said that Gerard can execute the contract on company’s
behalf. Hence George cannot withdraw himself from the contract because this will result into
breach of it.
Conclusion
Thus, the contract entered by Gerard and Sylvia has been formed validly.