LST2LBA Law Of Business Association

Answer 1

Issue

Whether Motorbikes Pty Ltd is liable in terms of the contract signed with the John

Law

Section 127 of the Corporation Act 2001 states the regulations related to execution of the document. According to clause 1 of the section, organization can execute the documents deprived of fixing the common seal on the document if such document is affixed by the signatures of the two directors of the organization or by the director and the company secretary. It must be noted that, in case company executes the document in this manner, then it is possible for the third party to rely on the assumption stated under subsection 129(5) in context of dealing with the company.

As defined by section 129(5), third party can make the assumption that the contract has been duly attested by the corporation if such document is signed in the similar manner as stated under subsection 127(1). In terms of creating the expectations, a individual may also make the assumption that any person who signs the contract.

It is necessary to understand that, while executing the contract on the basis of the organization, an individual cannot put their signature on the document or fixed the common seal in the capacity of two different authorities. However, there is an exception to this rule which states that person signs the contract if he or she is the sole director or sole secretary of the company (Hatcher, 2016).

Recently, in case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103, Full Court of the South Australia considered the issue related to the valid execution of the contract. In this case, contract was signed by the single director and without the common seal of the company, which means, director execute the contract under section 127(1) of the Act. Court stated that contract is not valid and cannot be enforced (Winter, no date).

Application

In this case, contract is signed by the Tim and Michael on behalf the organization with the John for purchasing the motor bike from the John. Contract is executed with the John under section 127(1), as this contract is signed by the director and company secretary of the organization. Organization can execute the contracts without fixing the common seal on the contract if such document is affixed by the signatures of the two directors of the organization or by the director and the company secretary of the company.

It must be noted that, in case company executes the document in this manner, then it is possible for the third arty to rely on the assumption stated under subsection 129(5) in context of dealing with the company, which states, third party can make the assumption that that the contract has been proven by the company if such document is signed in the similar manner as stated under subsection 127(1).

Therefore, it is clear that contract signed by Michal and Tim is duly attested, and there is valid contract between the parties.

Conclusion

Contract is duly attested between the parties, and Motorbikes Pty Ltd is liable in terms of the contract signed with the John.

 

Answer 2

Issue

Whether third party that is George is liable towards the Cakes Pty Ltd in context of contract signed between them

Law

Section 127(2 of the Act states that, organization with the common seal can execute the document if such seal is fixed to the document and this fixing is witnessed by the two directors of the organization or by the director and the company secretary of the company. It must be noted that, in case company executes the document in this manner, then it is possible for the third party to rely on the assumption stated under subsection 129(6) in context of dealing with the company.

As defined by section 129(6), third party can make the assumption that that the contract has been duly attested by the organization if such contract is fixed by the common seal in the similar manner as stated under subsection 127(2). This assumption further states that common seal fixed by the company must be witnessed in the manner as stated under section 127.

In terms of making the assumptions related to the execution of the document by the company, an individual can make the assumption that any person who signs the document and states next to their signature that they are the sole directors of the organization and the sole secretary of the organization. In case execution clause states in incorrect manner than the executed document must be signed by the two directors of the company or by the director and the company secretary of the company. The constituent is compromised of the sole director/sole secretary who signs the contract then the risk is that the presumptions cannot be relied on. The document signed by the company must be executed in context of the section 127 of the Act, unless it clearly states that such document is signed by the sole director or sole secretary of the company.

In case sole director or sole secretary of the organization held liable for the incorrect execution clause, and in case they are not held liable then there is possibility that document is not enforceable in nature.

In case law Hewlett-Packard Australia Pty Ltd v Exceed Pty Ltd [2004] FCA 135, court consider the issue in which document was executed without the common seal of the company. In this case, Court held that the document was considered as the deed if it was executed by the common seal of the company. Court further stated that, this document was executed by the company; even such document was not fixed by the common seal of the company but it is executed in terms of the section 127 of the Act.

Application

In the present case, Gerard and Sylvia purchased the cake shop from the George, and in this context they registered the company which named as “Cakes Pty Ltd” in Australia. In this company, Gerard is listed as the director of the organization and his mum Sarita is listed as the company secretary of the organization.

On the day at which contract is signed between the parties for purchasing the cake shop, and in this context contract is fixed by the common seal of the company and also witnessed by the Gerard as the director and Sylvia. After few days, George believes that he must not sell his cake sho and wants to get it back. 

In this case, contract between the parties is executed in terms of the section 127(2 of the Act which states that organization with the common seal can execute the document if such seal is fixed to the document and this fixing is witnessed by the two directors of the organization or by the director and the company secretary of the company. In this case also, contract is fixed with the common seal and signed by the director of the company (Lavan, no date).

It must be noted that, in case company executes the document in this manner, then it is possible for the third party to rely on the assumption stated under subsection 129(6) in context of dealing with the company. As defined by section 129(6), third party can make the assumption that that the document has been duly attested by the company if such document is fixed by the common seal of the company in the similar manner as stated under subsection 127(2). This assumption further states that common seal fixed by the company must be witnessed in the manner as stated under section 127.

In this case, contract is only signed by the director of the company and not by the company secretary of the company and this is the reason because of which it can be state that contract is not executed in the manner stated by section 127. Facts of this case are similar to the case law, Hewlett-Packard Australia Pty Ltd v Exceed Pty Ltd [2004] FCA 135, court consider the issue in which document was executed without the common seal of the company. Court further stated that, this document was executed by the company; even such document was not fixed by the common seal of the company but it is executed in terms of the section 127 of the Act.

Therefore, it is clear from the above facts, that contract between the parties is not executed in the manner which is stated under section 127 of the Act, and this is the only reason because of which this contract is not valid, which means, contract is not enforceable and George can get back his cake shop

Conclusion

Contract between the parties is not executed in the manner which is stated under section 127 of the Act, which means, contract is not enforceable and George can get back his cake shop.

References

Corporation Act 2001- Section 127

Corporation Act 2001- Section 129

Hatcher, S. (2016. Australia: Executing documents on behalf of a company. Available at https://www.mondaq.com/australia/x/550522/Contract+Law/Executing+documents+on+behalf+of+a+company. Accessed on 29^th September 2018.

Hewlett-Packard Australia Pty Ltd v Exceed Pty Ltd [2004] FCA 135.

Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103

Lavan. Consequences of defective execution clauses. Available at https://www.lavan.com.au/advice/property_leasing/consequences_of_defective_execution_clauses. Accessed on 29^th September 2018.

Winter, J. Putting pen to paper – execution under section 127. Available at https://www.lexology.com/library/detail.aspx?g=cf057ecb-0d7e-4ec2-be21-c833666e0173. Accessed on 29^th September 2018.