Can Motorbikes Pty Ltd rescind the contract entered by Michelle and Tim with John?
Any person in Australia if intends to establish a corporation, then, he must comply with the provisions of the Corporation Act 2001. An entity upon incorporation gains the status of a corporation. As per Saloman v saloman (1896) every corporation become an artificial personnel once registered. The company acts like a person and has every right and power of a person, but, it does not have the heart to beat and mind to think. In order to conduct the affairs of the company, it needs some living person who is called the officers of the company. (Bourne, 2013)
The company director is one such person and he is authorised under the Corporation Act 2001 (section 198A) according to which a company is obligated to carry out its function under the administration of the director. Thus, a director must be authorised to carry out the functions of the company and is held in Hely-Hutchinson v Brayhead Ltd . (Krawitz, 2002)
So, authority on the part of the company officer plays a prime role to make a company liable by their actions. This is authenticated as per Section 126 of the Act according to which an agent of the company has the power to make, ratify, discharge the contract on behalf of the company and this power of the agent can be possessed even if the company is contracting without the common seal and is held in Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd. (CooperGranceWard, 2015)
Thus, it is now important to consider as how the officers of the company possess authority. Officers can posse’s authority in three ways; firstly, when the company delegates the authority to the officers directly, either in the form of contract, deed or orally and is called express authority and is held in Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd .; secondly, the authority that is possessed by the officers in addition with the express authority and is required to complete the tasks that are delegated to them. It is called implied authority Australia & New Zealand Bank Ltd v Ateliers de Constructions Electriques de Charleroi; thirdly, when the company makes a representation in front of an outsider and portrays a person to be the agent of the company, then, such an officer is the company officer under ostensible authority and is held in Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) . (Gillies,2004)
Now, when the power to bind the company through contract rests with the board then an individual director has no authority to establish contract on compony behalf (Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991). But, if an authority is delegated to him, then, he can enter into contract individually or the company must have a sole director. Likewise, a company secretary has full authority to make contract regarding those matters which are in the normal course of business (Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd (1971).
Michelle is the Director and Tim is the secretary of Motorbikes Pty Ltd. both of them sell and buy motorbikes on behalf of the company.
Now, Michelle is the only director of the company and thus as per 198A and 198E he is authorized to make a contract on company behalf. Likewise, Tim is in regular dealing with the day to day activities of the company and thus as per Panorama Developments he can also bind the company by his actions.
Now, both Tim and Michelle brought the bike of John @ $ 5,000. This purchase is within their authority because they were also in regular dealing in selling and buying the bikes, thus, they already has an express authority to buy and sell bikes on company behalf.
So, the contract is binding and cannot be rescinded.
Since the contract by Tim and Michelle is within their authority and is binding so the contract cannot be rescinded at any later stage.
Is the contract made between George and Gerard and Sylvia is binding or can be resided?
The company with the help of its officers can enter into contracts with third parties and such contracts are binding in nature. But, what will be the situation when the officer who is entering into the contract is not authorized to establish the contract on company behalf. The company then can rescind the contract on the basis of lack of authority. In order to cure this defect and to bring justice to the outsider who makes a contract on the belief that the officers is an authored agent, the corporation Act 2001 has enacted section 128 and section 129 of the Act. The outsider can make assumptions laid down in section 129 of the Act (section 128 (1) of the Act)). (Australia, 2011)
The outsider can assume that the all the companies internal matters are conducted in an adequate manner (section 129 (1) and (2)). That the company documents are executed in an appropriate manner (section 129 (6)). If the documents are with common seal then the requirements of section 127 (2) must be met in order to make an assumption under section 126 (2). The requirements are, firstly, to directors must sign the document or a secretary and director must sign the document. If these conditions are not met then such document has no relevance in law. However, if the document is executed with common seal and the requirements of section 127 (2) are not met but the officers who had signed the document are the authorized agents of the company, in such situation as well the document is valid. (KWM, 2017)
But, no assumption can be relied upon by the outsider if he is not acting in good faith (section 128 (4) of the Act).
George is intended to sell out his cake shop to Gerard and Sylvia. In order to do so, Gerard and Sylvia establishes a company in the name of “Cakes Pty Ltd” , wherein the director is Gerard and the secretary is Sarita.
In order to buy the cake shop a document was executed with common seal. But, the document is signed by Gerard and Sylvia. Sylvia is not the company secretary rather she is the shareholder of the company.
Now, George can make assumption under section 129 (1) and (2) that all the internal matters of the company are met duly. Also, he can assume that the documents are executed validly provided the same is signed by 2 directors or a director and secretary. But, the document is signed by Gerard (director) and Sylvia (shareholder).
So the requirements of section 127 (2) are not met so such basis the contract is not valid.
But as per the law, even if section127 (2) is not met but if the document is signed by the company agents who are the authorized representatives, in such cases as well the documents are binding.
Now, the document is signed by Sylvia who is assumed to be the authorized representative of the company.
In such case, the document is valid and is binding upon the company.
George cannot take advantage of his own wrong, since he is aware that the document is signed by the parties who are not complying with the conditions of section 127 (2).
Thus, the contract is binding upon the parties and George cannot cancel the contract.
Australia (2011) Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations, CCH Australia Limited
Bourne N (2013) Bourne on Company Law, Routledge.
Gilliers, P (2004) Business Law. Federation Press, .
Krawitz, A (2002). Protecting Outsiders to Corporate Contracts in Australia. Murdoch University School of Law. Volume 9, Number 3
Maisto, G (2009). Residence of Companies Under Tax Treaties and EC Law. IBFD.
Australia & New Zealand Bank Ltd v Ateliers de Constructions Electriques de Charleroi.
Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991).
Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) .
Hely-Hutchinson v Brayhead Ltd .
Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd .
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd 
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd (1971).
Saloman v saloman (1896).
CooperGranceWard (2015) Has the company correctly signed the contract? Director’s personal liability for incorrectly signed contracts (online). Available on: https://www.cgw.com.au/publication/company-incorrectly-signed-contract/. Accessed on 15th September 2017.
KWM (2017) From Concept to Completion: Contract execution – some basic rules (online). Available on: https://www.kwm.com/en/au/knowledge/insights/from-concept-to-completion-contract-execution-some-basic-rules-20130601. Accessed on 15th September 2017.