Kakadu Tourism Services Pty Ltd Essay: Legal Capacity And Assumptions In Company Transactions.

Discuss about the Case of Kakadu Tourism Services Pty Ltd.

There are two issue which have been identified in relation to the case

1. Whether an argument can be made by the car finance company with respect to having a valid mortgage over the office of Kakadu Tourism Services Pty Ltd (KTS)
2. Whether the mortgage over the house owned by KTS can be enforced by Easy Loan Bank through relying on the assumptions provided in Section 129 of the Corporation Act 2001 (Cth).

Section 124 of the CA deals with the legal capacity of the company in relation to getting into a transaction. As per the section the law provides the capacity to the company to get into a transaction like an individual person.

As per section 125 of the Act the power of the company to get into a valid transaction cannot merely be restricted if the constitution of the company does not allow such transaction. A transaction can be valid even it has been prohibited by the constitution of the company.

In the case of Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 59 ACSR 444 it had been ruled by the court that the constitution of a company is has to be interpreted broadly in order to determine the powers of the company. In this case the court used the section 125 of the CA to provide that act outside the scope of the company’s constitution are also binding on it.

According to the provisions of section 126 of the Act the power of a company in relation to a particular transaction can be carried on by an individual who acts on behalf of the company through its express or implied authority even if the common seal of the company is not used.

In the case of Royal British  v Bank v Turquand (1856) 119 ER 886 it had been provided by the court that it is the right of an outsider to assume that the internal rules of the organizations have been complied with anyone using the authority of the company to get into a transaction.

Section 128 of the Act provides a third person to make assumptions in relation to the company.  The section provides that if a person has power under section 129 of the Act to make an assumption the company cannot provide the assentation that the assumption made by such person is not valid. An assumption can be made by a person with respect to a transaction with another person who provides to have acquired title of the company’s property in a direct or an indirect manner. In such situation also the third person or the company cannot provided in the court that the assumptions are not valid. Even if an agent or officer of the company had forged a document or have acted fraudulently the assumptions under the section can be made. In case a person knew or suspected an assumption to be incorrect they cannot rely on the assumptions under section 129.

Rule

In the case of Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 the court ruled that In case a person knew or suspected an assumption to be incorrect they cannot rely on the assumptions with respect to dealing with the company.

A person under section 129 of the Act has the right to assume that in relation to the transaction the replaceable rules and constitution of the company has been complied with. In addition a person has the power to assume anyone with respect to the information provided by the ASIC available to the public to be a company secretary or the director of the company and also assume that they have been appointed in a proper manner and have the right to perform the powers which a normal director would have. A person also has the right to assume that a director or officer of the company have performed their duties properly.

In the case of Brick and Pipe Industries Ltd v Occidental Life Nominees (1992) 10 ACLC it was ruled by the court that when dealing with the company an outsider has the right to make more than one assumption in relation to the person acting on behalf of the company. The same concept had also been used in the case of Advance Bank Australia v Fleetwood Star Pty Ltd (1992) 10 ACLC 703.

An individual can think that a paper has been properly executed by the organization in case the document apprehends to be signed in compliance with section 127(1) of the Act. In relation to the assumption it can be assumed by the person that any person who has signed the paper are the sole director and company secretary of the company.

In the given case it had been provided that Mary and John who are married are the shareholders and directors of the company Kakadu Tourism Services Pty Ltd (KTS). The purpose of the company was in relation to tourism business. Marry occupies a house which is owned by the company and John has moved out of the house as their marriage has broken down. Mary does not have active participation in the functioning of the company.

A sports care has been purchased by John which is worth $80000. The payment has been done through a finance lease with respect to KTS. A mortgage over the office building has been provided as a guarantee for the finance lease to the Car finance company.

Application

In this case even through the purpose of the company is related to tourism services, section 125 of the CA would allow such transaction to be valid in relation to the company. Thus the transaction cannot be held ultra-virus with respect to the company.

In addition section 126 provides that any person who has expressed or implied authority in relation to the company can get into a transaction on behalf of the company. In the given case John being the director of the company has authority to enter on transactions on behalf of the company thus the dealing with the Car finance company can be further stated to be binding on KTS.

It has been claimed by Mary that the car was personal asset of John, however as per the above discussed rules John had the power to bind the company to a contract with any their party and thus the car finance company also has the right to mortgage the company’s office because of non-payment.

In addition it has been provided that John had entered into a deal with Easy loan Bank for borrowing $200000 and mortgaging the house which is occupied by Mary without telling this to her. The mortgage had been secured as John stated that he is the director of the company and his son Michael is the Company secretary. According to the provisions of section 127 of the CA a company can give effect to any document if it has been signed and witnessed by one director of the company and the company secretory.

It had been provided by John to the Bank manager that Mary has resigned as the company secretary and the new company secretary of the company is Michael.  The act was also not approved by the board as provided by the constitution of KTS.

Section 129 of the CA provides that an outsider can make certain assumption in relation to the dealing with a company. Firstly the person has the right to assume that in relation to the transaction the replaceable rules and constitution of the company has been complied with. Thus in this case even when the constitution of the company provides the contrary the bank has the right to assume that the constitution had been complied with in relation to the transaction. Secondly, a person also has the right to assume that a director or officer of the company have performed their duties properly therefore the bank has the right to assume that the John has complied with his duties in a proper manner. Thirdly in relation to the execution of a document if a person provides that he is the director or company secretary of the company the third person has the right to assume that the person actually is the director or company secretary of the company.

However it has been provided clearly by section 129 (6) that if a person had knowledge of an information being incorrect they cannot make assumptions under this section. There was no documentation available with the ASIC which could derive the conclusion that Mary is no longer he Company secretary of the company or Michael is the new Company Secretary. In addition it is the duty of a third person to make further inquiry with the ASIC in relation to the directors and secretaries of the company which had not been done by the bank. Thus it can be provided that the bank does not have the right to rely on the assumptions provided in section 129 as they did not make further inquiries in relation to Michael being the secretary with the ASIC.

Conclusion

The deal between the Car finance company and KTS is binding and valid. The Bank cannot claim assumptions under section 129 of the CA.

References

Advance Bank Australia v Fleetwood Star Pty Ltd (1992) 10 ACLC 703.

Brick and Pipe Industries Ltd v Occidental Life Nominees (1992) 10 ACLC

Corporation Act 2001 (Cth)

Lion Nathan Australia Pty Ltd v Coopers Brewery Limited (2006) 59 ACSR 444

Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146

Royal British  v Bank v Turquand (1856) 119 ER 886