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CORPORATE LAW
LECTURE 5
Transacting by companies
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Important assignment advice

• There is NO opportunity to submit a revised assignment
once you have submitted your paper.
• It is your responsibility to ensure that the assignment has
actually been submitted. If you do not get an
acknowledgement of receipt, you have not submitted
properly – try again.
• You MUST ensure your cover sheet is attached, otherwise
your paper will not be assessed.
• There is no obligation to use all 1,500 words. However, we
expect that you will need most of those words to be able to
answer the question fully with thorough discussion and
proper use of cases and legislation.
• See Subject Guide for more information.
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Corporate capacity
• Section 124 - Companies have the capacity to do most
things that a natural person can do, and some additional
things, including
• issuing shares
• anything that it is authorised to do by any other law
• What is the effect of internal limitations on powers in the
company’s own constitution?
• Section 125 - constitution may limit power or objects, but
acts outside those limitations are not invalid as against
third parties
• Internal remedies may be available eg actions against
directors for acting for improper purpose
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Company contracting
• How do companies enter into contracts?
• Contracting ‘directly’ – board decision, with contract executed by
people eg directors or other senior officers
• Contracting ‘indirectly’ through an agent
• Contract is valid regardless of which way it is made
• Real issue is not ‘how’, but whether the contract is made
with authority
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Enforcing defective contracts

• What is a ‘defect’?
• lack of actual authority to make contract
• defect in procedures eg wrong person signs
• Company denies it is bound by a contract
• But outsider wants to enforce it
• Policy issue: Need to balance the competing interests of
• outsiders dealing with companies; and
• innocent shareholders and creditors of companies
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Contracting directly
• Traditionally: by using its “common seal” - seal no longer
required: s 123
• Three ways possible now:
• execute the document with seal, and necessary witnesses – s
127(2), or
• execute the document without seal - signed as required by s
127(1), or
• use procedure set out in your company’s own constitution
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How does a company contract through

an agent? : s 126
• Company is the ‘principal’
• The agent makes the contract on the company’s behalf
with an outsider
• The contract is then between the company as principal
and the outsider
• but the agent must have “authority” to act on behalf of the
company
• A person has authority to act for a company if she or he
has :
• Actual authority – express or implied; OR
• Apparent authority
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Actual authority
• Express actual
• can arise from a provision in the Corporations Act or the company’s
constitution eg s 198A
• Can also arise when someone who has actual authority delegates
some of their own actual authority
• Implied actual
• Can arise by implication eg appointing someone to a certain
position
• Different company officers have different levels of implied authority
• NOTE – express restrictions LIMIT implied actual authority
• IAA by acquiescence – ‘ratifying’ past exceeding of authority
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Officers’ IAA
• CEO: IAA to do all things that fall within the usual
scope of that office: Hely-Hutchinson v Brayhead
• Other executive officers: IAA for things usual to their
job
• Director, acting alone - no implied actual authority:
Brick and Pipe
• Chairperson - same as director acting alone
• Company secretary - administrative matters
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Defective contracts made by

agents
• Contract made through an agent may be defective
because the purported agent either:
• has no express actual authority, or
• has express actual authority that is too narrow for this contract
• Has no implied actual authority
• But the outsider still wants to enforce contract against the
company
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Common law rules to assist outsider (1)

• Did the purported agent have apparent authority?
• Can arise even where the principal has not in any way
(words or conduct) given the agent actual authority to
make the contact
• Three requirements – all must be satisfied:
• a “holding out” (or “representation”) - can be words or conduct:
Freeman & Lockyer
• by someone with actual authority - apparent authority not
enough: Crabtree-Vickers
• on which the outsider relied - outsider must be “induced”
• Pacific Carriers v BNP Paribas – good example of
holding out
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Common law rules to assist outsider (2)

• Will the “indoor management rule” assist?: Royal British
Bank v Turquand
• Outsider can assume that:
• no procedural defects in appointment of directors
• board meetings properly called and held
• any board or general meeting approval required under
constitution/replaceable rules has been obtained
• But can’t rely on this rule if:
• Actual knowledge of lack of authority; or
• Outsider was ‘put on inquiry’
• has the outsider failed to make inquiries that would usually be made by
a reasonable person in their position in these circumstances?
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Example of common law holding

out
• Principal (P) wants to buy land from third party (3P) via an
agent (A).
• P only wants to pay maximum of $1million, but doesn’t
want to tell 3P this amount – hopes to get the land
cheaper!!
• P tells 3P – ‘my agent is coming to negotiate to buy your
land’.
• P tells A – ‘go buy me the land, and don’t pay more than
$1million’
• A signs a contract with 3P for $1.2million (bad negotiator!)
• Is P bound?
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The statutory assumptions

• Helps with the enforcement of defective contracts
• Can any of the “statutory assumptions” be made? s128,
129
• Overlap and add to common law
• So contract may be enforceable due to assumption even
where the common law would say contract not
enforceable
• Each one is used to overcome an objection raised by
company
• Assumptions would NOT cover the example on the
previous slide – use common law for that one
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Statutory assumptions
• Section 129(1)
• Compliance with constitution and RRs
• Section 129(2)
• Assumption about officers named with ASIC
• Properly appointed
• Customary powers
• Eg named company secretary can execute documents

• Section 129(3)
• Assumption about officers of a ‘kind’ where company holding out
• Properly appointed
• Assume customary powers of that kind of officer in that kind of company
• Then ask, is this contract within those customary powers?
• Eg Marketing manager of small company can make small advertising
contracts – does it ‘look right’?
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Statutory assumptions (cont)

• Section 129(4)
• Assumption that officers properly perform their duties
• Section 129(5)
• Assumption of due execution without seal
• ‘document appears to have been signed’
• Two signatures in accordance with s 127(1)
• Forgeries? Don’t matter: see s 128(3)
• Section 129(6)
• Assumption of due execution with seal
• ‘document appears to have been signed’
• Two signatures in accordance with s 127(2)
• Forgeries? Don’t matter: see s 128(3)
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Limits on statutory assumptions

• Where outsider “knew” or “suspected” assumption was
incorrect – s 128(4)
• narrower than “put on inquiry” exception
• Must ACTUALLY know or suspect
• So more favourable to outsider
• Read assumptions carefully – only apply in their specified
circumstances