#8569 - Contracts With Outsiders - Business Associations

7 contracts with outsiders 1

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

2. Do the statutory assumptions apply? ss 128 - 130 3

Req 1#: Did the person have ‘dealings’ with a company? S 128(1) 5

Req 2#: What is the assumption that the person can make? S 129 5

Req 3#: Not excluded under s 128(4)? 6

3. Authority under the general law? 11

A. Actual authority 11

(a) Express authority 11

(b) Implied actual authority (from (i) position and (ii) acquiescence) 14

(i) Implied actual authority attached to a position 14

(ii) Implied actual authority from acquiescence 19

B. Apparent authority (note – consider ss 128 and 129 in addition) 23

REq 1#: A representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor. 24

Req 2#: Representation made by a person(s) who had actual authority to manage business of company either generally or in respect of those matters to which the contract relates 24

Req 3#: The contractor was induced by such representation to enter into the contract, that is, that he in fact relied upon it 26

Req 4#: Under its constitution the company was not deprived of capacity to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent – although note position in Australia 26

C. Indoor management rule : northside etc 26

Exception 1#: Constructive notice after being put on inquiry 28

Exception 2#: Acts beyond corporate power 31

Exception 3#: Subjective knowledge of irregularity 32

Exception 4#: Rule cannot benefit company 32

Exception 5#: Can the rule benefit an insider? 32

Checklist for exam:

Note how a company can make contracts.
Do the statutory assumptions apply?
1. S 128
2. S 129 assumptions
3. Disqualified under s 128(4)?
Agency rules?
1. Actual authority
  1. Express?
  2. Implied?
    1. From position?
    2. From circumstances or acquiescence?
Indoor management rules?

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).
1. issue and cancel shares in the company
2. issue debentures
3. grant options over unissued shares
4. distribute any of company’s property among members
5. grant a security in uncalled capital
6. grant a circulating security interest over company’s property
7. arrange for a company to be registered
8. 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
- 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)
- 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).
- 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)
- Does not limit ways in which company can execute a document: S 127(4)

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 128-9 operate less widely than the common law rule. Sections 128-129 are not a code and the common law rule can still operate: Australian Capital Television Sections 128-129 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 128-129 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 128-129 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 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 128-129 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 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) 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) 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 That constitution and any replaceable rules that apply to company have been complied with: s 129(1) 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) 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) Proper performance of duties by officers and agents: a person may assume that the officers and agents of the...

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 128-9 operate less widely than the common law rule. Sections 128-129 are not a code and the common law rule can still operate: Australian Capital Television
Sections 128-129 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 128-129 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 128-129 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 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 128-129 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...

#8569 - Contracts With Outsiders - Business Associations

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