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Contracts With Outsiders Notes

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BA 1 - 7 Intro Notes

1 7 contracts with outsiders Checklist for exam:

1. Note how a company can make contracts.

2. Do the statutory assumptions apply?
a. S 128 b. S 129 assumptions c. Disqualified under s 128(4)?

3. Agency rules?
a. Actual authority i. Express?
ii. Implied?

1. From position?

2. From circumstances or acquiescence?

4. Indoor management rules?

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2 1. How does a company make contracts? Agent: s 126, or company itself: s 127.

Company's powers to make contracts:

* Legal capacity and powers of a company = individual: Company has the legal capacity and powers of an individual both in and outside jurisdiction: s 124(1). (a) issue and cancel shares in the company (b) issue debentures (c) grant options over unissued shares (d) distribute any of company's property among members (e) grant a security in uncalled capital (f) grant a circulating security interest over company's property (g) arrange for a company to be registered (h) do anything authorized to do by any other law.

* Constitution may limit powers and set out objects: s 125. But exercise of power by company not invalid merely because contrary to an express restriction or prohibition in company's constitution: S 125(1) or contrary to objects: s 125(2). By agent

* Agent can exercise a co's power to make, vary, ratify or discharge contracts - when acting with express or implied authority and on behalf of co: s 126(1) Doesn't need common seal (2). Doesn't affect any requirements of law for particular proc reqs for contracts: 126(2). By company itself

* Execution of documents (including deeds) by company itself: s 127 o Company can execute document without using common seal if document is signed by: (a) 2 directors of company; or (b) a director and company secretary of company or (c) for a proprietary company that has a sole director who is also the sole company secretary - that director. - see s 129(5) assumptions: 127(1) o Company with common seal can execute document if seal is fixed to document and fixing of seal is witnessed by: (a) 2 directors (b) director + company secretary (c) sole director of prop company who is sole company secretary under s 127(2)
? If company executed doc in this way - people can rely on assumptions in s 129(6). o Company can execute document as deed if expressed to be executed as a deed and is executed in accordance with s 127(1) or (2): s 127(3) o Does not limit ways in which company can execute a document: S 127(4)

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3 2. Do the statutory assumptions apply? ss 128 130 Overview of ss 124

130 Checklist:

Issues:

1. Did the person have 'dealings' with the company such that they might be able to rely on the s 129 assumptions? As a person, in relation to dealings with company. (Even extends to dealings with another person who has or purported to have acquired title to property from a company (s 128(2) - or when there was fraud by person acting for company (s 128(3)) - but not when person knew or suspected assumption was incorrect).

2. What are the s 129 assumptions? See below list.

3. Not excluded under s 128(4)?

* Information available to public from ASIC does not constitute constructive notice: s 130 Person not taken to have information about a company merely because information available to public form ASIC.

4. What is the effect of the assumption? Company not entitled to assert in proceedings in relation to dealings that any of assumptions are incorrect: s 128(1). Differences between statutory assumptions and indoor management rule?

* S 128(4) is different - as to state of mind of person dealing with company which will disqualify their entitlement to make assumptions.

* For the most part ss 1289 operate less widely than the common law rule. Sections 128129

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3 are not a code and the common law rule can still operate: Australian Capital Television Sections 128129 apply only in relation to corporations that are companies. The common law rule is not confined to dealings with companies: it can apply to dealings with corporations generally.1. Sections 128129 do not apply where some person other than the company asserts that there was an irregularity in an earlier dealing with a company. It seems that the common law rule can apply in that case. An example that has been suggested is where A sues B for damages in tort for inducing company X to break its contract with A, and B denies formation of the contract on the ground of an irregularity in the internal management of company X: Australian Capital Television Pty Ltd v Minister for Transport and Communications, above , per Gummow J. The plaintiff, A, could possibly rely on the common law rule. Putting it another way a person who has had a dealing with a company in the past can rely on the indoor management rule in relation to that dealing against a third person who questions whether the company became bound in the dealing. Moreover, ss 128129 apply only in favour of a person having dealings (see [13.281] ) with the company or with a person who has acquired title to property, or purports to have acquired title, from the company: Australian Capital Television. In that case Gummow J said that the indoor management rule is not confined to benefiting persons who contract with the company. The assumption as to compliance with requirements as to internal management in the company in s 129(1) is narrower than that allowed under the common law rule. The assumption allowed by s 129(1) relates only to requirements in the company's constitution and those provisions of the Corporations Act that apply to the company as replaceable

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4 rules. It has been submitted earlier (see [13.170] ) that the common law rule goes beyond this to allow assumptions about compliance with requirements in provisions of the Corporations Act that govern internal management and are not replaceable rules. For example, the requirements in s 249J(1) as to notice of a meeting of members and the requirements of s 112(4) about tribute agreements in no liability companies. It may appear that ss 128129 could operate more widely than the common law rule where the person seeking to rely on an assumption is an insider: see [13.260] . But in some circumstances the fact of being an insider may more readily lead to an inference of fact that the insider knew or suspected that the assumption was incorrect than in the case of an outsider.

When dealing with corporation: Assumptions and information: s 128 - 130

* Entitlement to make assumptions: s 128 (1) Effect of assumptions - person entitled to make s 129 assumptions in relation to dealings with company: company not entitled to assert in proceedings in relation to the dealings that any of assumptions are incorrect: s 128(1) (2) Extends to dealings with another person who has or purports to have directly/indirectly acquired title to property from a company: The company and other person not entitled to assert in proceedings in relation to dealings that any assumptions in s 129 are incorrect: s 128(2) (3) Extends to fraud: assumptions can even be made if officer or agent of company acts fraudulently or forges a doc in connection with dealings: s 128(3)

* Assumptions that can be made under section 128: s 129 (1) That constitution and any replaceable rules that apply to company have been complied with: s 129(1) (2) Director or company secretary (a) duly appointed and (b) has authority to exercise powers and duties customarily exercised or performed by a director or company secretary of a similar company: s 129(2) (3) Officer or agent duly appointed and has authority to do what others would be able to do: person may assume that anyone held out by company to be an officer or agent of company (a) duly appointed and (b) has authority to exercise powers and perform duties customarily exercised or performed by that kind of officer or agent of a similar company: s 129(3) (4) Proper performance of duties by officers and agents: a person may assume that the officers and agents of the company properly perform their duties to the company: s 129(4) (5) Document duly executed without seal: can assume that doc has been duly executed by company if doc appears to have been signed in accordance with s 127(1): s 129(5). Can also assume that anyone who signs doc and states next to their signature that they are sole director and sole company secretary of company occupies both offices: s 129(5). (6) Document duly executed with seal: Person can assume that doc has been duly executed by a company if (a) common seal appears to have been fixed to doc in accordance with s 127(2); and (b) fixing of common seal appears to have been witnessed in accordance with s 127(2): s 129(6). (7) Officer or agent with authority to warrant that document is genuine or true copy: Person may assume that officer or agent of company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that document is genuine or is a true copy: s

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5 129(7) (8) Generality of section: without limiting the generality of this section, assumptions that may be made under this section apply for the purposes of this section. Information available to public from ASIC does not constitute constructive notice: s 130 Person not taken to have information about a company merely because information available to public form ASIC. Exception: person cannot make assumption in s 129 if at time of dealings they knew or suspected assumption was incorrect: s 128(4) Req 1#: Did the person have 'dealings' with a company? S 128(1)

* Dealings includes purported dealings: Story v Advanced Bank

* 'Dealings' has a "very wide scope which embraces far more than a legally binding contract or 'deal'": Gye v McIntyre (1991) 171 CLR 609; 98 ALR 393 at 403 . In Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 at 733; 10 ACSR 699 at 708; 11 ACLC 629 Gleeson CJ said of a former provision similar to ss 128129, namely, s 68A of the Companies Code:
... [S]ince the subject matter of s 68A , by hypothesis, includes dealings with purported company agents who lack actual authority, and, by virtue of s 68D [see now s 128(3) ]
extends to forged instruments, the concept of having dealings with a company must embrace, subject to the qualifications contained in the legislation, purported dealings. If the statutory provisions only extended to cases where the person representing the company had actual authority then they would be largely unnecessary

Req 2#: What is the assumption that the person can make? S 129 When dealing with corporation: Assumptions and information: s 128 - 130

* Entitlement to make assumptions: s 128 (1) Effect of assumptions - person entitled to make s 129 assumptions in relation to dealings with company: company not entitled to assert in proceedings in relation to the dealings that any of assumptions are incorrect: s 128(1) (2) Extends to dealings with another person who has or purports to have directly/indirectly acquired title to property from a company: The company and other person not entitled to assert in proceedings in relation to dealings that any assumptions in s 129 are incorrect: s 128(2) (3) Extends to fraud: assumptions can even be made if officer or agent of company acts fraudulently or forges a doc in connection with dealings: s 128(3) (4) Exception: person cannot make assumption in s 129 if at time of dealings they knew or suspected assumption was incorrect: s 128(4)

* Assumptions that can be made under section 128: s 129 (1) That constitution and any replaceable rules that apply to company have been complied with: s 129(1) (2) Director or company secretary (a) duly appointed and (b) has authority to exercise powers and duties customarily exercised or performed by a director or company secretary of a similar company: s 129(2) (3) Officer or agent duly appointed and has authority to do what others would be able to do: person may assume that anyone held out by company to be an officer or agent of company (a) duly appointed and (b) has authority to exercise powers and perform duties customarily exercised or performed by that kind of officer or agent of a similar company: s 129(3)

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6 (4) Proper performance of duties by officers and agents: a person may assume that the officers and agents of the company properly perform their duties to the company: s 129(4) (5) Document duly executed without seal: can assume that doc has been duly executed by company if doc appears to have been signed in accordance with s 127(1): s 129(5). Can also assume that anyone who signs doc and states next to their signature that they are sole director and sole company secretary of company occupies both offices: s 129(5). (6) Document duly executed with seal: Person can assume that doc has been duly executed by a company if (a) common seal appears to have been fixed to doc in accordance with s 127(2); and (b) fixing of common seal appears to have been witnessed in accordance with s 127(2): s 129(6). (7) Officer or agent with authority to warrant that document is genuine or true copy: Person may assume that officer or agent of company who has authority to issue a document or a certified copy of a document on its behalf also has authority to warrant that document is genuine or is a true copy: s 129(7) (8) Generality of section: without limiting the generality of this section, assumptions that may be made under this section apply for the purposes of this section. Information available to public from ASIC does not constitute constructive notice: s 130 Person not taken to have information about a company merely because information available to public form ASIC. Req 3#: Not excluded under s 128(4)?

* Section 128(4) withholds entitlement to make an assumption from persons who, "at the time of the

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dealings", "knew or suspected that the assumption was incorrect".

Information available to public from ASIC does not constitute constructive notice: s 130 Person not taken to have information about a company merely because information available to public form ASIC. In a case raising s 128(4) the burden of persuasion that a person knew or suspected would appear to be on the company. Under earlier comparable legislation the company was treated as having the burden in Brick and Pipe Industries Ltd

meaning of 'suspect': "a suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to a 'slight opinion, but without sufficient evidence' ... a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence" (Queensland Bacon v Rees).
? application to general law: facts that engage the exclusion of s. 128(4) will also likely preclude the protection of the general law doctrines. Unlike the old s 164(4) the new provision in s 128(4) applies the same test of knowledge or suspicion to all persons who seek the benefit of assumptions regardless of whether they are connected with or related to the company. Knowledge or suspicion disallowing one statutory assumption may not disallow others It was held that the former s 164(3)(e) (like current s 129(6) ) was separate from s 164(3)(a) (like current s 129(1) ) and that outsiders were not prevented from relying on s 164(3)(e) because their actual knowledge of the company's constitution precluded reliance on s 164(3)(a) in respect of some lack of authority unrelated to authority to fix the company seal and attest it: Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 3623; (1991) 6 ACSR 464 at 478; 10 ACLC 253 . Knowledge or suspicion at the time of the dealings To be disqualified from making an assumption the person must know or suspect at the time of the

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7 dealings that the assumption was incorrect. That is the time when the person entered a transaction with the company rather than the time when a step is taken unilaterally by either party in the course of or pursuant to the transaction. So if the transaction is a contract for the sale of goods, knowledge of an irregularity first acquired later than the time of making the contract does not alter the entitlement of the person to the benefit of the assumption made when the contract was entered into: Barclays Finance Holdings Ltd v Sturgess (1985) 3 ACLC 662 , a decision on the former provision in old s 164. But if a variation of the contract were to be negotiated after acquiring the knowledge, it may be that the person would not be entitled to make the same assumption in relation to the variation. Only actual knowledge or suspicion disentitles The words of s 128(4) require the company to persuade the court to make a finding of fact that persons claiming to make an assumption actually knew or suspected that the assumption was incorrect. Knowledge rather than notice While the common law rule of indoor management appears, like the equitable doctrine of notice, to deny protection to a person who is negligent without being dishonest, s 128(4) when it uses the words "knew or suspected" does not refer to the notice which a person is deemed to have as a matter of law under the two limbs of the equitable doctrine of constructive notice failure to make usual inquiries and failure to follow up when put on inquiry: cf Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 359; (1991) 6 ACSR 464 at 475; 10 ACLC 253 , a decision on legislation using the expression "actual knowledge". When a court finds by inference that a person has actual knowledge it is a conclusion of fact. When a court says that persons have notice of a fact it treats them as if they knew the fact but without any finding that they in fact knew.It is worth repeating the words of Lord Esher MR in English and Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700 at 7078 : The doctrine of constructive notice is wholly equitable; it is not known to the common law. There is an inference of fact known to common lawyers which comes somewhat near to it. When a man has statements made to him, or has knowledge of facts, which do not expressly tell him of something which is against him, and he abstains from making further inquiry because he knows what the result would be or, as the phrase is, he "wilfully shuts his eyes" then judges are in the habit of telling juries that they may infer that he did know what was against him. It is an inference of fact drawn because you cannot look into a man's mind, but you can infer from his conduct whether he is speaking truly or not when he says that he did not know of particular facts. There is no question of constructive notice or constructive knowledge involved in that inference; it is actual knowledge which is inferred. Constructive notice ... is contrary to the truth. It is wholly founded on the assumption that a man does not know the facts; and yet it is said that constructively he does know them. The construction of s 128(4) as requiring subjective knowledge or subjective suspicion is suggested by what courts have done when faced with legislation referring to a person "knowing" something. Although a construction of particular words in one statute will not necessarily be adopted for the same words in a different statute, there is nothing in the context of s 128(4) to suggest that the construction of "knew" and the process of finding knowledge that the courts have adopted in relation to various other statutes should not apply to s 128(4) . Proof that a person knew or suspected an irregularity may be by evidence showing directly that they knew or, more usually, by evidence of facts from which the judge or jury can infer that they knew, despite their affecting not to know. The inference may be made on the basis of the person's statements and conduct, his or her circumstances and facts certainly known to that person from which he or she could make conclusions of fact by deduction. A consideration of the behaviour of a hypothetical reasonable person can be part of the process of proof. Section 128(4) does not refer to a person "who knew, or ought to have known, or suspected, or ought to have suspected". Those words would have required a court to make a conclusive finding of knowledge (or suspicion) once the company proved that the person knew some fact that would make a

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