Analysis of Corporation Act: Motorbikes, Cakes Pty Ltd, and Contracts

This report provides an analysis of the Corporation Act, focusing on two case studies. The first case involves a dispute between Michelle and Tim regarding a contract to purchase a motorbike through their company, Motorbikes Pty Ltd. The analysis explores the validity of the contract under sections 124, 126, and 127 of the Corporation Act 2001 (Cth), considering the roles of directors and the execution of contracts. The second case examines a situation where Sylvia and Gerard attempt to purchase George's business through their company, Cakes Pty Ltd. The analysis assesses the validity of the contract, considering the roles of directors and the execution of contracts under sections 126, 127 and 198A(2) of the Corporation Act. The report highlights the importance of proper contract execution and the powers of company directors in binding the company to agreements, ultimately determining the liabilities of the companies in each scenario.

RUNNING HEAD: CORPORATION ACT
Corporation Act
Name of the student
Name of the university
Author Note

1
CORPORATION ACT
Reply to Question 1-
Issue:
The issue regarding the case of Michelle and Tim is about the legitimacy of Michelle as
he disagreed to continue the contract made with John that concerns about purchasing his
motorbike in the company’s name united by Tim and Michelle.
Rule:
The case of Salomon v Salomon and Co Ltd,1 the judge concluded and said a
organisation is a reflection of an fake person containing a distinct existence distinguishing its
identification of its proprietor through a process of corporate veil.
The methods in which an organization can do a lot of things inclusive seal attaching
through the agent of the organization. The presence of two separate sections under the provisions
of the Corporation Act 2001 that specifies the method through which any contract can easily be
accomplished by the organization. Section 126 and section 127 are the two sections mentioned
above. Section 126 declares that an individual where the company has given the authority for
acting as the agent can easily bind an organization to his deed. Therefore u/s 126 if any file is
signed on behalf and for the organization or a company it is considered that the company has
executed the document or the file.2
Under the provisions of section 127(1) explains that a company or an organization can
implement any contract validly. It is well explained in this particular section that if any one of
1 AC [1897]
2 Corporation Act 2001 (Cth) s 126

2
CORPORATION ACT
the directors of a company signs any document or an agreement, the company can execute that
particular agreement3.
The provision u/s 124 of the CA 2001(Cth) states that an organization or a company has
the capacity or the power like a natural individual4. It can perform deeds like entering into a
contract, owning a property and to be in a lawful suit. Therefore, in applying this section an
organization or a company may be held liable, or a lawful action can be taken relating to the
contract. Breaching the contract may hold the company directly liable. The provision of the
Corporation Act 2001 u/s 124(2) it is declared invalidation of contract does not take place merely
it does not stay in the top interest of the company5.
Further, it is stated that if there two directors unless it is not considered as a solitary
proprietor organization or one secretary of the company and one director can easily implement
any contract by way of witnessing the contractual file with the seal of an organization that is
commonly provided u/s 127(2)6 of CA.
Application:
Rule of contract execution and incorporation is essential in applying the facts of the provided
case for determining the issue related to the case. It is very evident from the fact that Michelle
and Tim were passionate regarding motorbikes due to which they established a company in the
name of Motorbikes Pty Ltd. When the organization has been established it forms a distinct legal
individual and can create any contract in the name of the company. It is clear and clarified that
Michelle and Tim are the company’s director. This clearly explains that both of them carries the
3 Corporation Act 2001 (Cth) s 127(1)
4 Corporation Act 2001 (Cth) s 124
5 Corporation Act 2001 (Cth) s 124(2)
6 Corporation Act 2001 (Cth) s 127(2)

3
CORPORATION ACT
power of acting on the behalf of the organization or the company. As the contract was created
with John, Michelle and Tim did not create it individually rather it was created with the company
Motorbikes Pty Ltd. All the situational facts had cleared that Tim remained interested in
purchasing John’s motorcycle for $5000. He signed and entered into the contract in order to buy
the motorbike from John. Michelle has also entered into the contract with John. The facts of the
case fall under the provision of the CA u/s 127 that helps in determining the contract validity.
The section states that any agreement can easily be implemented or executed if it is signed by the
company secretary or by the director or by any two directors if it does not fall in the category of
solitary proprietorship organization or company. In the case it is very evident that Michelle and
Tim both of them are the company’s director. It is evident from the provided case that the
contract of purchase was signed by the directors Michelle and Tim. Under section 127(1) of CA
the contract in between John and Motorbikes Pty Ltd was established invalid method. It would
create a breaching of the contract if it were not established agreeing the conditions and terms of a
valid agreement. The contract also becomes valid u/s 124(2) as the invalidity of agreement does
not take place merely because it does not take place in the top interest of the organisation.
Therefore Michelle cannot come out of the contract thinking about the best interest of the
company. In this case the contract will still bind on the name of the company by Tim and
Michelle. The lawful contract for purchasing the motorbike from John in lawfully executed
binding the organisation and if in the present situation Michelle steps back from the purchasing
the bike, John can easily sue the company for breaching the contract.

4
CORPORATION ACT
Conclusion:
Motorbikes Pty Ltd can be held liable by John as Michelle wants to step back from continuing
the contract formed between John and the company.
Response to case study 2-
Issue-
The issue in the provided case is whether Sylvia and Gerard have entered into a lawful contract
for purchasing George’s business in the name Cakes Pty Ltd which was formed by them.
Rule:
Section 198A(2) of Corporation Act 2001 declares that any managing director of a
company or an organization has been given all the essential power in managing the company’s
business operation except the power which is restricted according to the company’s constitution7.
. Section 126 clearly states that an individual who was given the authority from the
organization for acting as the agent binding the organization in its actions. Thus, u/s 126 if any
file is signed on behalf and for the organisation it would be treated as the document is
accomplished by the particular organization or a company8. Section 198A(2) and section 126 is
supported here with a case Freeman and Lockyer v Buckhurst Park Properties (Mangal)
Ltd9. In this mentioned case, the court held that the company’s director contains an authority that
is apparent in binding the action of the organization or the company.
7 Corporation Act 2001 (Cth) s 198(2)
8 Corporation Act 2001 (Cth) s 126
9 [1964] 2 QB 480

5
CORPORATION ACT
Under section 124 of CA, it is clearly declared that an organization has the capacity and
the power like those of normal person. It performs actions like entering into a contract. Getting
the ownership of a property and can be a part of the party in any lawful suit. Under section
127(1) execution of an contract can be done if the contract is signed by any of the secretary of
the company or by one of the directors or any two directors unless it is a solitary proprietorship
company.
Application:
The rules in contract and incorporation execution has to be implemented in the facts for
determining the issue. Gerard and Sylvia formed a company Cakes Pty Ltd. It is provided that
the company’s director was Gerard the Savitri was appointed as the Secretary of the Company
who was known as the mother of Gerard. There was a deal made with George for purchasing his
business. A legal agreement was formed, and the contract was signed by Sylvia and Gerard.
Under section 127(1) execution of an contract can be done if the contract is signed by any of the
secretary of the company or by one of the directors or any two directors unless it is a solitary
proprietorship company. In the provided case the situational facts made it vibrant that the
contractual document was not signed with amenability of the particular section of CA. This is
due to the reason that Sylvia was neither selected as the Company Secretary nor the director of
the company. Therefore the contract cannot be considered as valid under the particular section.
Section 126 clearly states that an individual who was given the right by the organization for
acting as the agent binding the organization in its actions. Thus, u/s 126 if any agreement is
signed on behalf and for the organisation it would be treated as the document is accomplished by
the particular organization or a company.

6
CORPORATION ACT
Additionally according to section 198A(2) of Corporation Act 2001 the company’s director is
given with all the essential power for managing the company’s operation. Therefore if this two
sections can be combined and the example of Freeman and Lockyer v Buckhurst Park
Properties (Mangal) Ltd, if applied, makes it understandable that power of execution of any
contract is being carried by Gerard on company’s behalf. Therefore there is formation of
contract, and here in this provided case George cannot step back, and if it is done there will be a
breach of contract.
Conclusion:
Therefore from the above facts, it had been understood that Sylvia and Gerard had entered into a
valid agreement for buying George’s business in the name Cakes Pty Ltd, which was formed by
them.

7
CORPORATION ACT