#10831 - Contracts With Outsiders - Business Associations 1

Part 2B.1 – Company powers and how they are exercised(commentary)

124 – Legal capacity and powers of a company

1. [Legal capacity of a body corporate] A company has the legal capacity and powers of an individual both in/outside this jurisdiction. A company also has all the powers of a body corporate including:

   1. Issuing/cancelling shares

   2. Issuing debentures (incl. irredeemable ones and redeemable ones if a contingency occurs)

   3. Grant options over unissued shares in the company

   4. Distribute any of the company’s property among members

   5. Grant a security interest in uncalled capital

   6. Grant a circulating security interest over the company’s property

   7. Arrange for the company to be registered/recognized as a body corporate outside the jurisdiction

   8. Do anything authorized by any other law (incl that of a foreign country)

(a company limited by guarantee can’t issue shares)

2. Capacity not diminished by non-beneficial action - A company’s legal capacity to do something is not affected by the fact that the company’s interests would not be served by doing it

3. Actions constrained by law – This section doesn’t a) authorize a company to do an act prohibited by the law of a State/Territory; b) give a company a right that a State/Territory law denies to the company

125 – Constitution may limit powers and set out objects

1. [Constitution may restrict capacity] If a company has a constitution, it may contain an express restriction/prohibition of the company’s exercise of any of its power. The exercise of a power by the company is not invalid merely because it is contrary to an express prohibition/restriction in the constitution

2. [Capacity not affected by constitutional objectives] If a company has a constitution, it may set out the company’s objects. An act of the company is not invalid merely because it is contrary to them

126 – Agent exercising a company’s power to make contracts

1. [Power to contract] A company’s power to make/vary/ratify/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 the common seal

2. [Contracts under law] This section doesn’t affect the operation of a law that requires a particular procedure to be complied with in relation to the contract

127 – Execution of documents (including deeds) by the company itself

1. [Documents executed without seal] A company can executed a document without the CS if it is signed by

   1. 2 directors; b. A director + company secretary; c. a director of a proprietary company that has a sole director who is sole company secretary

2. [Witnessing affixing the CS] A company with a CS can execute a document if the seal is fixed to it and it is witnessed by:

   1. Exactly the same as (1)

3. [Document executed as deed] A company may execute a document as a deed if it is expressed to be executed as a deed and executed in accordance with (1) or (2)

4. [Document execution not limited by this section] This section does not limit the ways in which a company may execute a document [including a deed]

Part 2B.2 – Assumptions people dealing with companies entitled to make (commentary)

128 – Entitlement to make assumptions

1. [Assumptions in s 129] A person is entitled to make assumptions in s 129 in relation to dealings with a company. The company isn’t entitled to assert in proceedings in relation to those dealings that the assumptions are incorrect

2. [Entitlement to make assumptions] A person is entitled to make the assumptions in s 129 in relation to dealings with another person who (has/purports to have) directly/indirectly acquired title to property from the company. The company and the other person are not entitled to assert in proceedings in relation….

3. [Assumptions entitled despite fraud] The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings

4. [Assumption not valid if known to be incorrect] A person is not entitled to make an assumption in s 129 if at the time of the dealings they knew or suspected that the assumption was incorrect

129 – Assumptions that can be made under s 128

Constitution and replaceable rules complied with

1. A person may assume that the constitution and any provisions of this Act applying as RR have been complied with

2. A person may assume that anyone who appears, from information provided by the company available to the public from ASIC, to be a director or company secretary

   1. Has been duly appointed and

   2. Has authority to exercise powers/perform duties customarily exercised/performed by a director/CS of a similar company

Officer or agent

3. A person may assume that anyone held out by the company to be an officer or agent of it

   1. As in (2)

Proper performance of duties

4. A person may assume that the officers and agents of the company properly perform their duties to the company

Document duly executed without seal

5. A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with s 127(1). For the purposes of making this assumption, a person may also assume anyone who signs the document and states next to their signature that they are sole director + secretary that they occupy both offices

Document duly executed with seal

6. A person may assume that a document has been duly executed by the company if:

   1. The company’s common seal appears to have been fixed to the documents in accordance with 127(2) and

   2. The fixing of the common seal appears to have been witnessed in accordance with that subsection

For the purposes of making the assumption they can also assume that anyone witnessing its affixing and states next to their signature that they are sole director + secretary that they occupy both offices

Officer or agent with authority to warrant that document is genuine or true copy

7. A person may assume that an officer/agent of the company who has authority to issue a document or certified copy of a document on its behalf also has authority to warrant that it is genuine or is a true copy

8. [Applicable assumptions] WLOG s 129 the assumptions that may be made under this section apply for the purposes of this section

S 130 – Information available to the public from ASIC does not constitute constructive notice

1. [No assumed knowledge] Person is not taken to have information about a company just because information is available to the public from ASIC

2. [Exemptions for lodged charge] (1) doesn’t apply in relation to a document lodged with ASIC to the extent that it relates to a charge registrable under this Act

[5.310] Problems facing those who deal with companies

• The CB writers distinguish between organs acting in the name of the company being an act of the company itself as opposed to when it contracts through an agent which is an act for the company

• The difficulties faced by a contractor with the identity and power of the company are largely answered by 4 doctrines:

  • The doctrine of actual authority

  • The doctrine of ostensible authority

  • The indoor management rule

  • S 128-129 of the Act

    • All of which found corporate liability for those professing to Act of a company while striking a balance between the claims of the company and contractor

• The protection of authority under these are cumulative such that one may fall into many of them

• Also the statutory provisions build on general law agency doctrines and supplement rather than substitute them

• The primary source of authority of company officers (agents generally) is their actual authority which can be either express or implied (the latter – e.g. appointment to a particular office)

  • Implied actual authority deriving from appointment can be diminished by express limitation or expanded as such by, for e.g. in Hely-Hutchinson by conduct of parties to the agency

• In Freeman v Lockyer v Backhurst Park Properties (Mangal), Diplock LJ distinguished between ‘actual’ and ‘ostensible’ authority – noting that they were independent but co-exist

  • Actual authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties – it’s scope is ascertained by normal principles of construction of contracts

    • Contractors are strangers and perhaps totally ignorant to these – but if the agent enters a contract pursuant to actual authority it still creates contractual rights between the two

  • In ordinary businesses, when contractors enter into a contract they can rarely rely on ‘actual authority’ – generally their information must be derived from the principal/agent since only they know what the agent’s actual authority is. Contrarily the contractor can only know what they tell him – in the end he relies on the principal’s representation (apparent authority) or representation of the agent (warranty of authority)