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The issue in the given case is whether Motorbikes Pty Ltd would be bound by the contract made by Tim and Michelle for the purchase of the motorbike of John under the Corporations Act 2001.
Under the provisions of section 124 of the Corporations Act 2001 a company can be seen as having both the powers and legal capacities as any natural individual would have. The powers of a company under the provisions of this section can be seen as to own properties in its own name, to get into any contract and to have the capacity to sue or being sued. Subsection 2 of section 124 mentions that the validity of the contract would not just be depending upon the fact that the contract is not beneficial for the company. Under the provisions of this section a company can also be held responsible for any kind of legal actions regarding contracts. The company further can be seen as liable for any breach in the contract.
The ways for the execution of any contract can be seen as being specified by two sections in the Corporations Act. The two sections under the CA are the sections 126 and 127.
Under the provisions of section 126 any individual acting in accordance with any kind of implied or express authority as an agent would have the power to be binding the company towards their actions. Following the provisions of the section in a document signed by an individual on behalf of any company, the company would be liable for the execution of the same.
A company, under section 127, can be seen as validly executing a contract if that agreement has been signed by either to directors or one director or one secretary.
Unless a sole proprietary company, the contract had been executed by either two directors or a director or a company secretary by way of witnessing of the documents with a common seal as has been discussed in the provision of section 127 (2).
In the judgement of the case of Salomon v Salomon & Co Ltd the judges of the court held that any company would be considered as an artificial person who has separate existence from its directors and shareholders and its identity can be distinguished from its owner by way of a corporate veil.
In the given scenario for determining the issues with context to the facts of the case the rules for the incorporation of a company and the execution of contract of a company have been applied. In this scenario it has been clearly mentioned that Tim and Michelle have passion about motorcycles and hence they have formed a company, Motorbikes Pty Ltd, where they are seen to buy, repair and sell motorbikes. Subject to the judgement of Salomon case it can be seen that a company has been formed and hence it can be considered as a separate legal entity which can enter into contracts in its own name. Michelle is seen as a director of the company and Tim is the company secretary and has the power for acting on behalf of the company under the provision of section 126. Tim was seen agreement to purchase a motorbike from John for a price of 5000 Dollars and a contract for the purchase was made and signed by both Tim and Michelle. Applying section 127 in this scenario it can be said that the execution of any agreement can be done against a company if the same has been signed by either two directors all one director and one company secretary. As Michelle is a director of the company and Tim is the company secretary, hence the contract between Motorbikes Pty Ltd and John that was signed by Michelle and Tim would be considered as valid under subsection 1 of section 127. As per the provisions of subsection 2 of Section 124 the contract would not merely become invalid even if it is against the best interest of the company, therefore even if Michelle is off the opinion that the price for the motorbike was too much yet the contract Would Still Be valid and legally binding towards Motorbikes Pty Ltd.
From the above mentioned discussions it can be concluded that the contract formed between Tim and Michelle on behalf of Motorbikes Pty Ltd and John is legally valid and not continuing with the contract would create a breach of contract for which the company can be sued by John.
Under the provisions of section 126 any individual acting in accordance with any kind of implied or express authority as an agent would have the power to be binding the company towards their actions. Following the provisions of the section a document signed by an individual on behalf of any company, the company would be liable for the execution of the same. Under the section 198A (2) the director of a company can be with the all the necessary powers for the daily management as seen as Freeman and Lockyer v Buckhurst Park Properties Ltd.
A company, under section 127, can be seen as validly executing a contract if that agreement has been signed by either to directors or one director or one secretary. For any document executed under the provisions of this section, statutory in assumptions can be made by the other party under section 129 of the Corporations Act 2001. The provisions of this section were asserted in the case Re CCI Holdings and the landmark case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd.
Under the provisions of section 124 of the Corporations Act 2001 a company can be seen as having both the powers and legal capacities as any natural individual would have. The powers of a company under the provisions of this section can be seen as to own properties in its own name, to get into any contract and to have the capacity to sue or being sued.
In the judgement of the landmark case Royal British Bank v Turquand the judges of the court held that any person who makes a deal with company should be provided with the privilege of making assumptions that the internal rules off the company has been complied with why the agent and if the person has been observed as to act in a good faith.
In the given scenario for determining the issues with context to the facts of the case the rules for the incorporation of a company and the execution of contract of a company have been applied. In the given scenario it is seen that Cakes Pty Ltd is a company found by Gerard and Sylvia who has been registered under the ASIC. Generate conditioners the director of the company and his mother Savitri is the Company Secretary. Following subsection 1 of section 127 it can be observed that for the execution of any agreement it has to be signed by either two directors or by one director and one Company Secretary. In this case the agreement has been signed by Gerald and Sylvia and hence is not in compliance of section 127(1), as Sylvia does not have a position of any director or company secretary in the company. Therefore the contract would be seen as invalid under the provisions of this section. As mentioned in section 126 any individual having provided with the authority acting on behalf of the company as an agent would be binding the company with the actions taken by him. Therefore any document that has been signed any individual acting as an agent of the company would be considered as binding company to be executing the contract. Inference subsection 2 of section 198A the directors of the company are provided with any power that is necessary for the company’s operations. Thus by applying section 198 A and the Freeman case judgment instantly wishing that Gerald has the right to be executing any type of contract on the company’s behalf hence the contract would be legally formed. Going back on the contract would be considered as a breach of contractual duties.
It can be concluded from the above facts mentioned that the contract signed by Gerald and Sylvia for the purchase of the cake shop could be considered as valid.
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