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Answer Plan: Corporate Contracting 1. Introduction Under section 124 of the Corporations Act 2001 (Cth) (‘the Act’), a company has separate legal personality and can do almost anything that an individual can do. There is no limitation to the types of contract that a company can sign. Is there an objects clause? Include this: Section 125 provides that if a company has an objects clause in its constitution, this will not affect the validity of the contract. Two ways a contract can be entered into: i. ii.

Contract entered into directly by the company Agent is contracted into entering the transaction for the company

Entering into Contracts Directly 127 Execution of documents (including deeds) by the company itself (1) A company may execute a document without using a common seal if the document is signed by: (a) 2 directors of the company; or (b) a director and a company secretary of the company; or (c) for a proprietary company that has a sole director who is also the sole company secretary—that director. (2) A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by: (a) 2 directors of the company; or (b) a director and a company secretary of the company; or (c) for a proprietary company that has a sole director who is also the sole company secretary—that director. (3) A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2). (4) This section does not limit the ways in which a company may execute a document (including a deed). When a contract is entered directly by the company, the contract will only be valid if the document is duly executed and, the organ acting for the company in execution of the document has the authority to bind the company. Mason CJ in Northside Development indicated that the common seal is in effect a signature of the company in that it ‘…evidences the assent of the corporation itself, and such a contract is to be distinguished from one made by a director or officer on behalf of the company, that being a contract made by an agent…’ (Mason CJ, Northside)

1. Has the Contract been Duly Executed? Execution of documents by the company must follow the protocol underlined in section 127. Page 1056. 2. Did the Person have the authority? Two types of authority; Formal Authority: = Authority to physically affix, and attest to the affixing of, the seal of the co; or authority to sign documents on co’s behalf & Substantive authority = authority to enter into the transaction for the company.

Entering the Contract Through an Agent 126 Agent exercising a company’s power to make contracts (1) A company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company. The power may be exercised without using a common seal. (2) This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract. Section 126 allows a company to contract through an agent acting with the company’s express or implied consent. An agents authority can be either apparent or actual.

Apparent Authority Apparent authority is a doctrine based on estoppel. It occurs when the company (the principal) makes a representation to a third-party (the contractor) that one of its agents has authority to contract with it (even though he does not). According to Lord Diplock in the Freeman & Lockyer Case, in order to establish apparent authority by an agent with no actual authority, the following conditions must be met : (Diplock LJ, Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480: 1. There is a representation as to the agent’s auth to enter into a contract of that type (could be eg conduct, business card, sending a contract on co’s stationery). 2. By a person with actual authority in respect of the matter(s) to which the contract relates (eg board holds out that a person is MD); (see below) 3. There is a reliance by the 3rd person on that representation; and 4. The Co has capacity to enter into the contract [although note this is no longer relevant in Aust b/c the narrow ultra vires doctrine has been abolished, s124-125 give the company the capacity of an individual, and acts are not invalid merely b/c they do not comply with objects of corporate constitution.] Actual Authority Actual authority has two types: express and implied. Implied Implied Actual Authority is authority which is not actually agreed on by principal and agent, but is implied from the circumstances. This type of authority may arise in two ways: (1) where a co appoints a person to a position so as to perform certain acts (arising from appointment to a company position); or (2) where a co acquiesces to give a person authority (arising from conduct of the board- acquiescence). i. Company Position  

Certain positions within a company will lead to an implication of implied actual authority in relation to the performance of the usual functions of a person in that position in that type of company. This type of authority may be ‘incidental’ (relating to acts) or ‘usual’ (relating to position).

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Cases such as Hely-Hutchinson and Freeman v Lockyer demonstrate that the authority of X extends to everything within the usual scope of that office for a company of that size and nature.

Typically the Managing Director will have authority to do things such as:   

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Enter any ordinary trading transaction: Corpers (No 664) Pty Ltd v NZE Securities Australia Ltd (1989) ASC 55-714 Supervise other managers As well as guaranteeing loans to a subsidiary and indemnifying persons who have given such guarantees if these transactions finance the ordinary course of the company’s day to day business: Hely-Hutchinson v Brayhead Ltd Engage others to provide services for the co ( Freeman & Lockyer) If it is a trading co – the MD may have authority to give security over the company’s property in the course of normal trading activities: Biggerstaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93; Delegate to others the MD’s authority to enter into contracts (Crabtree Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72

ii. Acquiescence 

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Diplock J stated in the Freeman & Lockyer Case that implied actual authority could not be inferred from mere silent acquiescence but rather would require ‘the communication by words or conduct of their respective consent to one another and to the de facto managing director’. This hurdle was overcome in Hely-Hutchinson because the board communicated consent to one another at board meetings, either expressly when discussing the contracts, or impliedly by accepting the contracts as a ‘given’. In contrast, in Freeman & Lockyer the board was aware of the contracts that one director acting as MD was entering into on the company’s behalf, but the directors never met to discuss them.

Statutory Assumptions

Section 128 sets out the entitlement to make assumptions. •

When the statutory assumptions apply :: s 128(4) – knew or suspected •

According to the narrow interpretation, section 128(4) only relates to a subjective test whereby the outsider must have actual suspicion or knowledge. •

See Gray J in Sunburst Properties Pty Ltd v Agwater Pty Ltd [2005] SASC 335: •

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‘a person does not lose the benefit of the assumptions in s129 merely because the person’s suspicions, in the circumstances, should have been aroused. In this respect, the operation of s128(4) can be contrasted with the ‘put on inquiry’ test that applies when a person seeks to enforce a defective contract at CL…’ (my emphasis)

Under the broad interpretation, s 128(4) would encompass both a subjective test and an objective test, such that the question becomes something like would a reasonable person in the circumstances have suspected that the relevant assumption in s129 is incorrect? •

See, for example, Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 and Oris Funds Management Ltd v NAB [2003] VSC 315.

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The Statutory Assumptions :: Section 129(3) – authority of person held out as officer/agent – Northside Developments. •

What does “holding out” mean?

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Four conditions for apparent authority as stated in Freeman v Lockyer are relevant for determining whether the company has “held out” a person for purposes of this section.

The Statutory Assumptions :: Section 129(3) – authority of person held out as officer/agent – HelyHutchinson and Crabtree-Vickers. •

Section 129(3)(b) makes it clear that the authority of a person ‘held out’ will be the customary authority (i.e. usual authority) of someone in that position.

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See cases like Brick & Pipe and Crabtree-Vickers.

The Statutory Assumptions :: what assumptions may be made? - s129(5): document duly executed without seal •

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Section 129(5) relates to documents duly executed without a seal.

The Statutory Assumptions :: What assumptions may be made? s129(6) – document duly executed with seal •

Section 129(6) is similar to subsection (5), but here we are dealing with a document that is executed with a company seal.

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The essential question in relation to this provision is: •

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‘does a person dealing with a company assume simply that the document has been duly executed, or can they assume that the document is duly executed PLUS that the assumptions in s129(5) & (6) overcome the officer’s lack of substantive authority?’.

The Statutory Assumptions :: What assumptions may be made? s129(6) – document duly executed with seal •

The question of whether s 129(6) relates to formal AND substantive authority is an unsettled and complex area of law.

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According to the narrow view, ss 129(5) and (6) are confined to formal authority only – allowing a person to assume due execution of a document, but nothing more.

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See: Ramsay, Stapledon and Fong “Affixing of the Company Seal and the Effect of the Statutory Assumptions in the corporations Law: (1999) 10 Journal of Banking and Finance Law 38.

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According to the broad view, s129(5) and (6) can overcome the lack of substantive authority as well as formal authority....