LST2LBA: Analysis of Contract Law in Business Associations - 2019

This report provides a detailed analysis of two contract law issues, focusing on the application of the Corporations Act 2001 (Cth). The first issue examines whether Motorbikes Pty Ltd is bound by a contract signed by its company secretary and a director, exploring the requirements for proper contract execution under sections 124, 126, 127, and 129 of the Act, and referencing the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd. The second issue assesses whether George is bound by a contract with Cakes Pty Ltd, considering the roles of directors, company secretaries, and witnesses in contract signing, and again referencing relevant sections of the Corporations Act. The analysis concludes with whether the contracts were executed properly and the resulting legal implications for each party. The report meticulously applies the relevant legal principles to the facts of each case study to reach its conclusions.

Contents
Question 1..................................................................................................................................2
Issue:......................................................................................................................................2
Rule:......................................................................................................................................2
Application:..........................................................................................................................3
Conclusion:...........................................................................................................................3
Question 2..................................................................................................................................4
Application:..........................................................................................................................4
Conclusion:...........................................................................................................................5

Question 1
Issue:
The issue in the given case study is to analyse whether the company Motorbikes Pty Ltd is
bound by the legal contract as signed by Tim, the company secretary of the company,
Michelle, the director of the company, and John, the seller of the vehicle.
Rule:
The Corporations Act 2001, (Cth) governs the matters related to the companies. As denoted
in the section 124 (1) of the act, a company is regarded as a separate legal entity in the eyes
of the law, independent of its owners1. Hence, a company registered under the act has the
capacity to enter into the contracts with the other persons in its own identity, through the
managerial body. Section 126 of the act further confers the duty on the agents of the company
to enact the said contracts on behalf of the company2. Thus, the contracts on behalf can be
entered into by the following two persons, firstly the company secretary or the directors of
the company in the capacity of agents, and been rendered the power as per the constitution.
Secondly, the contracts can be entered into by an agent who is specifically authorised by the
directors of the company to do so. It is further significant to note that as mandated by the
section 127 of the act, such contracts on behalf of the company must be in accordance with
the use of the common seal of the company. The section 127 (1) is also worth noting for the
contracts in the name of the company which states the manner in which the contracts must be
entered3. According to the said section, the contracts must be signed in the following two
manner. Firstly, the company secretary of the company and one of the directors can sign it;
and secondly the two of the directors of the company on whose behalf the said contract has
been executed can sign it. It is also imperative to note that the third parties can believe the
enactment of the contract and may make assumptions when the manner of signing the
contract as laid down in the section 127 is fulfilled. Section 129 of the act specifies the
condition of the third party assumptions4. This implies, that a third party can make an
assumption that the applicable statutory requirement has been complied with in terms of the
internal conditions of the company for contract execution, if they are no significant reasons to
not to believe the same. The principle case of Knight Frank Australia Pty Ltd and Paley
1 Corporations Act, 2001, sec 124(1)
2 Corporations Act, 2001, sec 126
3 Corporations Act, 2001, sec 127
4 Corporations Act, 2001, sec 129

Properties Pty Ltd5 must be noted in this regard. In the stated case law, it was held by the
courts of the law that execution of the contract was not in proper terms, because the same was
nor signed by two directors as mandated in the statute. This implied, that third party had the
right to come out of the contract because the contract was not duly formed in first place.
Application:
On the application of the above stated rules of law and the principle of the case law,
following points are noteworthy. It is significant to note that the contract to purchase the
vehicle of John has been signed by both Michelle and Tim, while Tim agrees for the said
contract at the purchase price of $ 5000. Thus, as per the requirements concerning the proper
execution of the contract as stated in the section 127 of the act, the same are complied with
accordingly. Thus, it is evident that there is a proper execution of the contract on behalf of the
company as the same is signed by one of the directors of the company and the company
secretary as well.
Conclusion:
Thus, as per the discussions carried on in previous sections, it can be stated that the company
Motorbikes Pty Ltd is bound by the contract signed in the manner stated above and getting
out of the contract would lead to the violation of the same.
5 Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103

Question 2
Issue:
The issue in the given case study is to analyse whether George bound by the contract as
entered into with the company Cakes Pty Ltd.
Rule:
By the virtue of the section 124 (1) of the Corporations act, a company is a separate legal
entity in the eyes of the law, which make it capable to execute the contracts with the other
persons in its own identity. As stated in the section 127 of the Corporations Act, a contract on
behalf of the company must be signed in accordance with the rules stated therein. This
implied, a contract on behalf of a company must be signed either by the two directors of the
company, or by the company secretary of the company and one of the directors of the
company. Additionally, as per the Section 126 of the act it is the mandatory duty on the
agents of the company to execute the contracts in the name of the company, on behalf of the
company. As per the constitution of the company, the directors of the company are have been
extended the power to enact on behalf of the corporation. It is also important to note that the
directors of the company can further transfer the power to sign the contracts on behalf of
them, to any of the employees of the company who are working therein, as stated in the
constitution of company. . The section related to the use of the common seal usage is section
127(2) of the act6. Accordingly, it is also significant to note that the execution of the contracts
on behalf of the company can be with or without seal, but the procedure laid down in various
sections regarding the signing of the contracts must be followed. As per the said section, a
contract can be executed in the presence of witness by the combination of the parties as
mentioned previously. As per the case law Knight Frank Australia Pty Ltd and Paley
Properties Pty Ltd , it was held that as the section 127 was not adhered to, there was no
contract for the seller to opt out from the offer. Thus, a contract when signed in the said
manner becomes binding on the company and the third parties as well. Thus, the contract
once signed cannot be opted out else the same would lead to the breach of the contract.
Application:
Application of the principles of the Corporations Act 2001, as stated above to the given
circumstances of the case study, leads to the following observations. Firstly, Gerard and
Sylvia have carried out the registration of company, and Sarita is the company secretary of
6 Corporations Act, 2001, sec 127(2)

the company Cakes Pty Ltd. The contract to purchase the cake shop of George has been
entered into by George, and Gerard, the director of the company, and Sylvia the witness of
the said execution of the contract. It is vital to note that the parties have entered the contract
and the common seal of the company has been affixed. However, the most significant point
to be noted here is that Sarita who is the company secretary of the company Cakes Pty Ltd.
does not sign the said contract. In addition, Sylvia is witness of the contract but not the
director of the company. Thus, in order to enforce the contract in the courts of the law, it is
important that the parties in the manner prescribed must sign the same.
Conclusion:
The discussions conducted in the previous parts, lead to the conclusion that contract as stated
in the case study has not been execute properly, because the same is not signed by the
requisite number of parties. The company secretary of the company Cakes Pty Ltd must have
additionally signed the contract to make it legally enforceable, or Sylvia must have first
appointed as the director of the company. This is because; her signatures right now are in
capacity of witness. Thus, it can be concluded that the contract has not been properly
executed, making parties not bound by the same which includes the company and the owner
of shop George as well. Thus, George can opt out of the contract and the same would not be
considered as the breach of the contract.