Legal Analysis of Contract Execution: Business Law Assignment

This assignment analyzes two scenarios related to contract execution under the Corporations Act 2001 (Cth). The first scenario examines a contract for the sale of a motorcycle, assessing its enforceability based on the signatures of the director and company secretary. The analysis references s.127(1) of the Act and the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd, concluding that the contract is enforceable. The second scenario evaluates a business sale agreement where the company seal is affixed, but the witnesses are not in compliance with s.127(2). It determines whether the contract is enforceable, considering the roles of the director and the non-director witness, and concludes that the contract is not legally binding due to improper execution, granting the seller the right to withdraw.

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Question 1
Issue
The key objective is to ascertain if an enforceable contract has been enacted between the company
and John in relation to the sale of motorcycle considering the applicable sections of the Corporations
Act 2001 (Cth).
Relevant Rule
It is noteworthy that in accordance with s. 124(1) Corporations Act, a company possesses the
requisite legal capacity to enact contracts and documents. This power is implemented through the
authorised agents1.
However, Corporations Act highlights the exact manner in which the documents or contracts need to
be executed. In this regards, s.127 is critical since it highlights the manner of execution of
documents. The execution of documents may be done using a common seal or without the same.
Section 127(1) covers the procedure to be followed if the contract is to be implemented without the
company seal2.
In accordance with s. 127(1), the document would be considered as legally valid if the same has been
signed by either of the officials combinations outlined s follows3.
 Company’s Directors (minimum two)
 A company director along with a company secretary
 When dealing with proprietary company in which the only company director exists, then the
documents could be signed by the same
Section 127(2) deals with documents executed using company seal (or common seal) while section
127(4) highlights the power of the company constitution to outline alternative mechanisms for
document execution4.Once a contract has taken place as s. 127(1), then it is binding on the
contracting parties and non-confirmation with the mutual obligations would amount to breach of
contract5.
1 Barkoczy, Stephen, Foundation of Taxation Law 2015, (North Ryde, CCH, 2015)
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 Deutsch, Robert, et. al., Australian tax handbook. (Pymont, Thomson Reuters, 2015)
5 Gilders, Frank, et. al., Understanding taxation law 2015. (LexisNexis, Butterworths 2015)

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A critical case to be discussed in the context of document execution is Knight Frank Australia Pty Ltd
v Paley Properties Pty Ltd6. In accordance with the case facts, a contract was enacted whereby there
were multiple options offered for execution of the contract. One of these was the same as outlined
in s. 127(1). This contract was signed by one of the company’s directors who also struck “Sole
Director/Sole Secretary” so as to highlight the existence of other directors and company secretary.
Thus, ideally for contract to be considered as enforceable, it should have been signed by either
another director or the company director. But this was not done and there was a change of mind for
the other contracting party which withdrew the consent to the contract. The case made way to the
court where the court highlighted that since the contract was not duly executed, hence it was valid
and thereby the other party had right to withdraw7. Therefore, it would be incorrect to consider
these sections related to document execution as only operational formalities as these have
tremendous implications for the business dealings and hence should always be adhered to.
Application
As per the given facts, the company was approached by John who wanted to sell his motorcycle.
There was agreement from both parties and in order to put in place a contract for the same, from
the company’s side the signatories were Michelle, the director and Tim, the company secretary.
Section 127(1) offers three combinations with one being that of a director and a company secretary.
Thus, the sale of motorbike contract has been duly executed and hence would be considered as
legally enforceable. Hence, not complying with the contractual obligations by either of the parties
i.e. John or the company would lead to breach of contract.
Conclusion
As the contract document has been duly executed keeping in mind the provisions of s.127(1), thus
the contract for sale of motorbike is enforceable and thus the company now cannot withdraw from
the same without consent from John.
Question 2
Issue
Considering the applicable section of Corporations Act 2001(Cth), the objective is to assess if the
contract executed between George and the company in relation to the business sale is enforceable
or not. Based on this, it can be determined whether George has the option of withdrawing from sale
of business contract.
Relevant Rule
For contract execution, a pivotal role is played by the Corporations Act 2001 as the various enabling
sections outline the precise manner of execution which would lead to formation of an enforceable
contract which forms the basis of contractual dealings for any business and hence is of immense
significance. This has been already highlighted in the discussion on the Knight Frank Australia Pty Ltd
6 Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103
7 Ibid. 3

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v Paley Properties Pty Ltd case where non-compliance with the relevant section for execution lead to
contract deemed as non-enforceable. The net result of this case was that the court announced the
non-applicability of warranty breach as contract was never enacted despite the presence of various
essential elements only because of a missing signature8. Thereby the key lesson to be derived from
the above case is that the procedural guidelines with contract enactment are as pivotal as other
elements of the contract as failure to comply here could result in withdrawal of acceptance at a later
stage by any of the parties which may adversely impact the interest of the other party.
It has already been outlined that the document enactment may be done using the company seal or
without it. The procedure for enactment of document in the absence of company seal has already
been highlighted in s. 127(1). In relation to the document execution with a company seal, s. 127(2) is
critical which outlines as witness for the document must be from one of the following three cases9
 Company’s Directors (minimum two)
 A company director along with a company secretary
 When dealing with proprietary company in which the only company director exists, then the
documents could be signed by the same
Thus, for the document to be enacted using the affixing of the company seal, it is essential that any
of the combination above must sign as witnesses and only then the document would become legally
enforceable10.
Application
On the basis of the description provided, Gerard and Sylvia have registered a cake company named
Cakes Pty Ltd. At the time of registration, Gerard is named the director while Sarita (his mother) is
identified as the company secretary. George has a cake shop which the company intends to
purchase and a legal document is enacted for the same. The company seal id affixed on the
document along with the signature of Gerard and Sylvia in the capacity of witnesses. The relevant
clause that would apply for this case is s. 127(2) since company seal has been used to execute the
document. The noticeable fact here is that neither is Sylvia the company secretary nor a director in
the company. Hence, effectively the witness is just one director. Thus, for contract of sale to be
legally enforceable the witness should have been Sarita, the company secretary or Sylvia should
have been made the director. However, neither of the above two options has been implemented in
practice which would imply that the current contract to buy the cake shop would not be considered
as legally binding on the contracting parties.
Conclusion
Based on the case facts, it is apparent that the designation of Sylvia is neither the director nor the
secretary of the company. Thus, the contract to buy cake shop from George has not been enacted in
8 Ibid. 3
9 ‘From Concept to Completion: Contract execution – Some basic rules’ king & Wood MALLESONS (online), 01 June 2013
< http://www.kwm.com/en/au/knowledge/insights/from-concept-to-completion-contract-execution-some-basic-rules-
20130601>
10 Ibid. 4

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accordance with the provisions outlined in s. 127(2). As a result, George has the right to pull out of
the contract and deny to sell his business without attracting any legal implications.