Company Law Essay

Question One (13 marks)

Jack is the managing director of Beanstalk Ltd. The company has a constitution which states that the company may only sell agricultural products grown in Queensland. The board of directors have implemented a company policy that all transactions over $100,000 require board approval.  

Jack attends a trade fair in Victoria and is so impressed with the quality of the beans grown on a Victorian farm by Giant Ltd that he signs a $150,000 purchase agreement.

The board of directors of Beanstalk Ltd decide that this purchase will undermine the company’s marketing campaign promoting Queensland products. They advise Giant Ltd that the company will not make payment under the purchase agreement as:

1. Jack did not have authority to sign a contract above $100,000;
2. Beanstalk Ltd had no legal capacity under its constitution to buy any produce from outside Queensland so the agreement cannot be enforced against it;
3. The constitution of Beanstalk Ltd was available in the public record and Giant Ltd had a responsibility to know its contents and comply with it.

REQUIRED:

Advise Giant Ltd by separately addressing each of the three points raised by Beanstalk Ltd. If you consider that the contract is enforceable you should identify in your answer the type of authority that Jack had.

Refer to the CA and cases where appropriate.

The area of law here is the contracts made by an agent (managing director) and the statutory assumption of an outsider.

Under S126 (1) provides that an agent can exercise the company power to enter contracts. Similarly the company which authorise the power to the agent is bounded by the acts of the agent.

A managing director is an agent appointed by the principal to run daily operation of the business. The managing director has an implied authority to make contracts as supported by Hely-Hutchison v Brayhead Ltd (1968)

Under Royal British Bank v Turquand (1856), it is ruled that the outsider entering a contract may not be in a position to know about the internal issue of a company. To protect the outsider entering into contract with the company, S129(3) provides the assumption to an outsider that an agent who has been appointed has the authority customary in their position. It is also assumed that the agent carry out duties dutifully as provided in S129(4).