TOPIC 5: CORPORATE LIABILITY
Corporate assent:
• *Corporate assent is how a company decides to enter into contractual relations.
• *Corporate contracting is how a company enters into contracts. A
corporation is an artificial entity, with a separate legal personality. Section 124 gives a company powers that an individual has including the ability to enter into contracts. However, the company can only act through natural persons.
• *Which individuals are capable of entering into a contract on behalf of the corporation, and what type of contracts is an individual capable of entering into?
! Involves the balancing out of two competition policy interests: (1) trying to protect outsiders who deal with companies in order to promote business deals and convenience; but also (2) want to protect the company and its shareholders/creditors against the fraud of purporting to act for the company.
! *This competing policy issue was recognised by Mason CJ in Northside Developments: it is a company which should ordinarily bear the loss, and not the party innocently dealing with the company.
The policy of business convenience requires that efficacy of business
Authority to Contract
Organic Theory
(s127)
Was the document
properly executed?
Did the organ acting for the company have the
authority to bind the company?
Agency Theory (s126) Actual
Authority
Express Implied
Company Position
Incidental
authority Usual authority
Acquiescence
Apparent
Authority
transactions generally is put above the financial and other interests of innocent officers, members and creditors of a corporation.
! Generally the outsider will be protected in order to facilitate business convenience, however there are exceptions such as where the
outsider is on notice.
• *There are theories about how a company contracts: (a) organic theory-finds support in s127 of CA; and (b) agency theory-finds support in s.126 of CA.
Organic theory: entering into contracts directly-
• *The consequences of board supremacy is that the actions, state of mind and knowledge of the senior officers of the company can be attributed to the company itself-this means when the board exercises power, it acts as the company itself. The same goes for the acts of the members in the GM-these can be seen as the acts of the company itself.
• *Under the organic theory, the company is considered to act, whereas under agency theory, the company is simply bound by the acts of its agents i.e. the board or GM. In both cases, natural persons acting for the company have to have the requisite authority to bind the company to a contract-this is governed by both CL and statute.
• *Organic theory: a company that enters into a contract directly will only be bound if the document is properly executed, and the organ acting for the company in execution of the document has the authority to bind the company.
! *(1) Was the contractual document in question properly executed?
S127 states that there are 3 methods that a company can enter into a contract directly. So if a document is executed in any one of these 3 ways, then it has been properly executed.
• *Methods of execution: (a) Common seal: traditionally only a wax seal was accepted by the courts, however 19th century courts recognised other methods of authenticating a document. In 1998, the common seal became entirely voluntary: s123-a company may use a company seal.
! If a company insists on using a company seal, there is a requirement that senior officers are to witness the seal to ensure that the seal itself is not enough to bind the company.
! In practice, the board passes a resolution to enter into a particular contract and then the contract will then be entered into by using a seal.
*Mason CJ in Northside Developments: the common seal is in effect the signature of the company in that, it is evidence of the assent of the corporation itself, and such contract is to be distinguished from a contract made by a director or officer on behalf of the company: that being a contract
