Understanding The Corporation Act 2001 And Its Implications On Corporate Authority And Dealings With Officers And Agents In Australia Is Essential For Essay.

Overview of the Corporation Act 2001

1. To analyze the legal status of the contract established between William (on behalf of Company) and the third party?
2. Will the status of the contract deviate if Harry was not the appointed Managing Director of the company?

The Corporation Act 2001 is The Statutory Legislation that governs the working of any company which is incorporated in Australia. A company is an artificial entity which is registered as per the guidelines of law and achieves the status of separate legal person in law who is considered to be separate from its officers. Co, any action by the company is it in its own name and will not hold the officers accountable for the same.

Directors are company officers who mange the affairs of the company and are defined under section 9 of the Act and is held in (Deputy Commissioner of Taxation v Austin, 1998). A person is also a director even if not appointed provided he is pursuing all the functions that are catered by a company director and are called de facto or shadow directors and is held in (Natcomp Technology Australia Pty Ltd v. Graiche , 2001). No person who is bankrupt can attain the position of a director under section 206 B of the Act and is held in (Re Ansett, 1991). The day to day business is run by under the guidance of the Managing Director of the company who attained its position under section 198A of the Act and is held in (Maynegrain Pty Ltd v Compafina Bank, 1982). The managing Director may if requires entrust his duties to some other persons (inclusive or non inclusive of directors) under section 198D of the Act and such person acts like the agent of the managing Director and performs the functions on his behalf. (Krawitz, 2002)

The authorities that can be given to an agent are of two kinds; Firstly, when the authority is acquired by the agent of the company and is allotted to him by the principal directly, either by agreement, express words or conduct, then, such kind of authority is called actual authority. A principal either by express or implication can delegate his functions to his agent and the actions undertaken by an agent within such authority is binding upon the principal and is held in (Bell v Australian Eagle Insurance Co. Ltd , 1990) (Latimer, 2012); secondly, at times there is no direct delegation of the authority by the principal to his agent but the authority is granted by representation and is called apparent authority. In this kind of authority the principal by making representation to an outsider makes him believe that the agent has power to bind him by undertaking particular action which in reality he dies not having and if any contract is made by the agent within such representation then such contract are binding under the shed of apparent authority and is held in (Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd, 1973). (Greig, 1988)

Appointment and Function of Company Directors

The law applicable in the given situation is now applied to the factual scenario.

The basic rule to become a company director is that a person’s cannot be bankrupt as per section 206B of the Act. So, William cannot become the company director. But he can become the agent of the company as per section 198D of the Act because the Managing Director can delegate his duties to any person and he can perform them by becoming his agent.

So, the facts reveal that, Hurray who was the Managing director of the company, by complying with his power under section 198D delegates a power to William according to which he can negotiate contracts. So, the actual authority that is posses by William was that he can only negotiate contract.

But, Harry also makes a representation and makes an outsider believe that William also has an authority to enter into contracts. So, an apparent authority is also provided to William.

So, the contract which is made by William under his apparent authority and the contract which is signed by him under such authority are binding upon Harry.

In corporation Law, a designated person at the position of director is a director under section 9 of the Act. But, a person who is not positioned as a director can still become so if performing the functions of the director. Since Harry is not appointed as Managing Director but is acting and performing all duties of the managing Director, then, he can be considered the same under section 9 of the Act as de facto director.

So, the authority that is granted to William will not change as the same is provided by Harry by acting as deem managing Director of the company.

Conclusion

It is concluded that William holds apparent authority provided to him by Harry and he can make an effective contract with an outsider under such authority and which is binding upon Harry. The contract made by William will not change even if harry is not appointed as Managing Director because he is considered as de facto Managing Director and the authority delegated by him to William is also valid.

If Maria fails to meet payments under the loan agreement, can the bank enforce the guarantee against the company?

A company when is established enters into numerous contract with third parties which are binding upon both the parties to the contract. But many a times the company tries to consider the contract as invalid on the basis that the directors who have established the contract with the third parties does not have authority to do so or the internal regulations that must be met before contract establishment are not met.

Powers and Authorities of Agents

This requirement can be disadvantageous to the third party because he is dealing with the company in good faith. Considering the situation of the third parties, the law has empowered the third parties under section 128 (1) of the Act that they are authorized to make few assumptions which are aid down under section 129 of the Act and is held under (Gye v McIntyre, 1991). this power of assumption is valid even when the documents which are presented before him are not genuine but are forged, the only condition which is required is that the third parties are dealing in good faith and is rightly established under section 128 (3) - (4) of the Act and is rightly held in (South London Greyhound Racecourses Ltd v Wake, 1931). (Larelle & Phillip, 2002)

There are various constitutional/statutory provisions that must be met by any company before undertaking any contract with the third party. Section 129 (1) of the Act empowers the third party to assume that these conditions are met by the company before forming any contractual relationship. The third party when dealing with company director can assume that he is duly appointed and has requites authority to enter into the contract under sub section 2 of section 129 and is held in (Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd , 1975). Also, if any person is appointed as the agent of the company then the third party can assume that all requisites to delegate the authority by the director to the agent has been met and is rightly held under section 129 (3) and section 129 (4) of the Act and is rightly held in (Vrisakis v Australian Securities Commission , 1993). Many a times the company officers provide documents to the third party before entering into the contract and if such documents contains the signature of the directors then the third party can assume that the documents are genuine provided if the documents are signed by one director and secretary or by two directors as held under section 129 (5)- (7) of the Act and is rightly discussed in (Pyramid Building Society v Scorpion Hotels Pty Ltd, 1996). (Power J, 2015)

Maria too loan of $100,000  from the Bank by giving a security and putting signature on the documents she put her own signature and forged the signature of Davis, who is one of the directors/shareholders of the company in which Maria was also the director/shareholder. However, now the company cannot deny the loan that is taken by Maria because the document which is provided by Maria contains the signature of two directors. The Bank can assume that the document that is provided bit Maria is genuine by relying on the assumptions valid down in section 12 (5) - (7) of the Act. This power is granted to the bank under section 128 (1) of the Act. Also, the bank can assume even when the document is forged provided the Bank is undertaking its activities in good faith as per section 128 (3) – (4) of the Act.

Conclusion

It is thus concluded that Bank can sue the company for the loan amount as it can assume that the document was genuine under section 129 of the Act and that he is dealing in good faith under section 128 of the Act. 

Bell v Australian Eagle Insurance Co. Ltd (1990).

Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975).

Deputy Commissioner of Taxation v Austin (1998).

Greig, D. W. (1988). Commercial law. Butterworths.

Gye v McIntyre (1991).

Krawitz, A. (2002). Protecting Outsiders to Corporate Contracts in Australia’ Volume 9, Number 3. Murdoch University Electronic Journal of Law.

Larelle, C., & Phillip, L. (2002). Corporate Authority And Dealings With Officers And Agents. The Centre for Corporate Law and Securities Regulation.

Latimer, P. (2012). Australian Business Law 2012. CCH Australia Limited.

Maynegrain Pty Ltd v Compafina Bank (1982).

Natcomp Technology Australia Pty Ltd v. Graiche (2001).

Ogden & Co Pty Ltd v Reliance Fire Sprinkler Co Pty Ltd (1973).

Power J. (2015). Courage to move beyond the past: Common law and canonical structures for the governance of Australian congregational schools in the 21st century. University of Notre Dame Australia.

Pyramid Building Society v Scorpion Hotels Pty Ltd (1996).

Re Ansett (1991).

South London Greyhound Racecourses Ltd v Wake (1931).

Vrisakis v Australian Securities Commission (1993).