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Published: Fri, 02 Feb 2018
Analysing common law and corporations act
X Ltd is a company, and hence can directly enter a contract in accordance with the constitution. However, the constitution had not been met because the constitution stated that 2 directors were required as a witness when the company seal was affixed, but there were only one witness is a director (Mary). Therefore, in an aspect of the Common Law, the contract is not binding.
Under s124(1), X Ltd itself could directly enter the contract as a legal entity.
Refer to s127(2), the company seal was affixed and witnessed by Mary (Director) and John (Company secretary).
Refer to s129(2), Y Ltd might assume both Mary and John had authority to exercise powers to enter the contract.
Furthermore, re s125(2), the act (s127(2)) was not invalid merely because it conflicted with the X Ltd’s constitution, in which 2 directors are requited as a witness. Therefore, s127(2) may override the constitution.
Moreover, re s129(6), third party (Mary and John) could assume that the contract was properly executed and hence was binding.
Therefore, in an aspect of the Corporations Act, the contract is binding.
X Ltd can also indirectly enter the contract by an agent. Mary, an executive director of X Ltd, had reasonably wide customary powers to enter contracts on behalf of X Ltd. Similarly to managing director, it was because executive director had apparent authority. According to agency situation, if X Ltd’s agent had apparent authority, then X Ltd would be bound. Therefore, the contract is binding if only Mary signed the contract as “Mary, director for and on behalf of X Ltd”.
Moreover, if Mary is an ordinary director, who does not have both actual and apparent authority, the contract would also be binding. It is because the board of directors of X Ltd had actual authority. The board was entitled to appoint (hold out) Mary as an agent to negotiate with Y Ltd and it did so. Mary then had an apparent authority to negotiate with Y Ltd. Besides, the court will also consider whether Mary entered the similar contracts before, and in fact she was responsible for the negotiations with Y Ltd with respect to some similar contracts.
Therefore, no matter if she was an executive director, she had an apparent authority to make a contract on behalf of X Ltd and thus the contract was binding even not using the company seal.
On the other hand, refer to Freeman and Lockyer v Buskhurst etc (1964), it suggests that an agent has no authority to enter the contract if no person having actual authority appoints him.
Under s124(1), X Ltd could indirectly enter the contract by an agent, such as Mary (executive director).
Re s126(1), X Ltd can enter a contract via Mary as she had authority to exercise X Ltd’s power to make a contract on behalf of X Ltd.
Re s128(1), Y Ltd was entitled to make assumption in s129 due to in relation to the dealing with X Ltd.
Re s129(3), Y Ltd might assume that Mary, who was held out by X Ltd, had been duly appointed and had authority to exercise powers to enter the contract.
Therefore, Mary had an apparently authority and the contract was binding.
It involved internal requirement of X Ltd. Although requirements such as seal to be fixed and witnessed by 3 directors were satisfied, X Ltd argued the contract is not binding because the internal requirement was not satisfied (less directors attended the board meeting).
Furthermore, in the case Royal British bank v Turquand, only third party (not Y Ltd) can assume the internal requirement in X Ltd’s constitution has been satisfied.
In conclusion, the contract was not binding because the constitution was not fully satisfied.
Re S128(1), both X Ltd and Y Ltd were entitled to make the assumptions in s129.
Re s129(1), both X Ltd and Y Ltd might assume that Y Ltd complied with the internal requirement in X Ltd’s constitution.
Since Y could not comply with the internal requirement in X Ltd’s constitution, the contract was not binding.
Since the company “Alyce Pty Ltd” was not yet formed, Alyce was not yet a director.
During the time that the company was not yet formed, or the contract was not yet ratified, entering into the contract Alyce was liable to pay damage to other party (the franchiser). Therefore, Alyce was liable on the contract. (Hanrahan, Ramsay & Stapledon, 2009)
Director duties do not apply because Alyce claimed that she was a director of a company that does not exist. It means she was not yet a director. Moreover, directors of company are chosen during a procedure of company registration. Thus, she was not a director and had no “authority” towards “the company”.
However, refer to black v Smallwood (1966) and Kelner v Baxter (1866), although Alyce knew that the Alyce Pty Ltd did not exist, the court could say that the commercial agreement must be taken. Therefore, although the company did not exist, Alyce was liable on the contract.
Refer to Richardson v Landecker (1950), the promoter (solicitor) was not personally liable on the contract.
Re s119, a company exists since the day the company is registered. However, because her solicitor had infected swine flu, Alyce Pty Ltd was not formed and therefore not existed.
Re s131(1), since Alyce entered the contract on behalf of Alyce Pty Ltd before it was registered, the company became bound by the contract as long as Alyce Pty Ltd was registered and ratified the contract within 12 weeks after entered the contract.
Re s131(2), since Alyce Pty Ltd had not yet been registered, Alyce would be liable to pay damages to each party to the contract.
In common law aspect, Alyce was still liable on the contract.
The court does not consider that promoter signed the contract as an agent, but only to authenticate Alyce Pty Ltd’s execution of the document when the company has been formed. Refer to Richardson v Landecker (1950), promoter was still not liable on the contract, but Alyce.
Re s131(1) and s131(2), Alyce would not be liable on the contract after Alyce Pty Ltd has been registered and the contract is immediately ratified.
Re s132(1), Alyce may release from all the part of her liability under s131 by signing a release.
Therefore, in Corporations Act aspect, Alyce is no longer liable on the contract if immediately after the formation of Alyce Pty Ltd the company ratifies the contract fot the franchise rights.
Word count: 1108
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