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Corporate Business Template
Corporate law (LLH305)
Queensland University of Technology
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Corporate Business Template Major Issue: Is Company bound to the contract by virtue of sections 128 and 129 of Corporations Act.
- you could be advising the third party that has entered into the contract with the party. They might want to know whether the company is bound.
- you could be advising the company itself if they are say being sued by the third party seeking to enforce the contract against them.
- you could be advising the alleged agent, the person who entered into the contract, who might be trying to avoid personal liability on the contract The Law
- Common law agency At common law, a principal will be bound to a contract entered into on its behalf by an agent. Whether agent has actual express authority, actual implied authority, or apparent or ostensible authority. A principal will be bound to a contract entered into on its behalf by an agent where the agent has actual express authority, actual implied authority or ostensible authority. Capacity: The Principal must have legal capacity to perform the act done by the Agent (s126). The COMPANY has all the powers of a natural person upon incorporation, and this includes the power to enter contracts (s124). s126 requires the principle to have legal capacity to do the act performed by the agent. Authority: Does (managing director or who it applies to) have actual express authority, actual implied authority, or ostensible authority to bind COMPANY to the contract. i. Actual express authority
Actual express authority means that the agent has been specifically authorised to do acts by the principal. There is nothing on the facts that suggests (person is applied to) has actual authority to enter into the contract. As the actual express authority here is limited to ‘investigating potential contacts’. The actual express authority is expressed in terms that prohibits entering into any contract without consent of the board. OR On the facts (person is applied to) has actual authority to enter into the contract. To conclude there is no actual express authority to enter the contract. OR As the company has no constitution (s198A). ii. Actual implied authority Actual Implied authority means that the agent is impliedly authorised to do certain acts. This authority is usually implied from the position of the agent or the prior conduct of the parties. (The person in question) is a director A director’s customary power does not extend to entering contracts on the company’s behalf (Northside Developments v Registrar-General). This transaction is of a magnitude that takes it beyond the ordinary trading transactions of the company. This would even exceed the customary power of a managing director (Corpers v NZI Securities; Camelot Resources v Macdonald; Green v Meltzer; Hely-Hutchinson v Brayhead). Even a managing director wouldn't have customary power to engage in transactions that are outside the ordinary course of business or trading activities of the company (Entwalls v National and General Insurance). The person in question customary power would not extend to entering contracts such as this one, even if there was some customary power to enter into low level contracts that were relevant to their role, isn't such a contract. It says in the facts that this is the most expensive distribution rights deal that blondes ever entered into applying corpus. In this context, this would exceed even the customary authority of a managing director. The person in question does not have implied authority. iii. Ostensible or apparent authority The company will be bound to the contract if person in question had ostensible authority, which arises:
c) Reasonable reliance Applying Pourzand, whether or not reliance is reasonable is considered objectively. Reliance isn't reasonable where the circumstances put the third party on inquiry as to whether the agent had the relevant authority (Pacific Carriers v BNP Paribas; Northside Developments v Registrar-General; Tipperary Developments v WA). Looking objectively at the circumstances, clearly the conversation with the company directors raises circumstances that would put a person on inquiry as to whether the company directors had relevant authority. It would have been unreasonable for third party company to rely on the holding out (Pacific Carriers). If there was reliance, then here it is not reasonable. As it is not definitive on the facts. d) Conclusion Person in question does not have ostensible authority. The argument as to holding out is weak, but even if it was successful person in question has exceeded the customary power of a managing director. There may not have been subjective reliance on the holding out. Even if there was subjective reliance, such reliance was not reasonable. At common law third party company could not rely upon agency to enforce the contract against the company. 2. The Indoor Management Rule A third party, sometimes called an outsider, dealing with the company in good faith, is entitled to assume that the company has complied with its own internal management rules (Turquand). Third party company might be able to assume the company is acting properly within its powers and its constitution which is defined as the Indoor Management rule (Turquand). There is no obligation on the outsider to inquire as to whether acts of internal management are being complied with. Third party company to argue that it was entitled to assume that Meg was properly appointed as managing director (Northside Developments). The third party company are or are not aware that the person in question is not the managing director and could or could not rely on the indoor management rule (Howard v Patent Ivory Manufacturing). As they were aware this is sufficient evident on the facts they had
knowledge therefore the company cannot be bound to the contract on the basis of the indoor management rule. 3. Statutory Assumptions There are certain statutory assumptions in: i. s ii. s That third party company might be able to rely upon to bind company to the contract. If these statutory assumptions fail third party company may bring an action against Meg damages at common law for breach of warranty of authority. Whether the assumptions codify or exclude the common law indoor management rule. s128 provides that a person is entitled to make the assumptions in s129 in their dealings with the company. The company is not entitled to assert that the assumptions are incorrect (Turquand). s s129(2) – directors and secretaries named on ASIC records are duly appointed with customary authority. s129(3) – a person held out by the company as a company officer or agent is duly appointed with customary authority. s129(4) – a company officer or agent will properly perform their duties to the company. A person is not entitled to rely upon the assumptions if the person knew or suspected that the assumption was incorrect (s128(4)). Relying on the meaning of suspect (Queensland Bacon Ltd v Rees; Errichetti Holdings v Western Plaza Hotel; Sunburst Properties v Agwater; Caratti v Mammoth Investments). Here the conversation with Meg herself seems to make the basis of a very strong argument that Haircare knew or suspected that its assumption that Meg was managing director was incorrect. The company does does bear the onus of proving this as it is not sufficient to show third party ought to have suspected (Sunburst Properties; Caratti). Third part knew person in question was not the managing director and therefore, they are precluded from relying upon s129(3) due to the statement made before signing the contract.
For the company to sign the documents itself looking for compliance with s127 when received back by third party. Seek positive reassurance from the company that its agent has authority to deal on behalf of the company such as, evidence of minutes of meeting. Take commercial steps to insure against the risk, such as inflating prices.
Corporate Business Template
Course: Corporate law (LLH305)
University: Queensland University of Technology
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