A Contract Law Problem

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Question 1 Issue The issue is whether the contract entered into by Harry, a clerk in the factory office is enforceable against the company. Rules A company can enter into a contract by the virtue of s124. There are several ways a company can contract with the outsiders.

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One common way is to affix the company’s common seal as illustrated in Northside Developments Pty Ltd v Registrar-General. However according to s123(1), it is optional for the company to have a common seal. S127(1) of Corporations Act states that a common seal is not required if two directors or a director and a company secretary sign the document. There are two ways where individuals are capable of entering into contracts for the company. The first is the organic theory which refers to the organs of the company who are the directors, members and managing directors. This theory allows the company to contract directly under its name as illustrated in the case of Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd. The second way is more common whereby a company (principal) is allowed to appoint agents to act on behalf of the company under s126 of the Corporation Act. There are two types of authorities that agents are appointed through – actual and apparent or ostensible authority: s126(1). An agent’s actual authority may be given expressly or not by the principal. When an actual authority comes with express instructions, this is known as express actual authority. An actual implied authority is when an authority is not expressly agreed upon between the agent and the principal and the agent can enter into contracts like a person in the same position customarily can: Hely-Hutchinson v Brayhead Ltd. An agent has apparent or ostensible authority when the person is held out by the company [s129(3)] and when outsiders have the impression that the agent has the authority to act on behalf of the company. However, this is not an actual authority but an appearance of the authority: Freeman and Lockyear v Buckhurst Park Properties (Mangal) Ltd. S128 and s129 of the Corporations Act allows the outsiders to make assumptions that the agent is complying with its company’s constitution. The outsiders will rely in good faith on the representation and Doctrine of Estoppel will apply once representation is made. Application Based on the law and facts given, when Harry did not introduce his position to Mickey, Mickey assumes under s129 that Harry has the ostensible authority customary for a factory manager and has the authority to enter into the contract with him.

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