BLAW20001 Lecture Notes - Lecture 5: Royal British Bank, Apparent Authority, Natural Person
19 Jun 2018
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CORPORATE LAW LECTURE 5
Transacting by Companies
Corporate Capacity: The effect of internal limitations on powers in the company’s own constitution s 125. Internal
remedies may also be available e.g. actions against directors for acting for improper purpose.
s 124: Companies have the capacity to do most things a natural person can do, as well as additional things including:
issuing shares and anything authorised by another law. A company limited by guarantee does not have the power to
issue shares.
s 125: Constitution may limit powers and set out objects. There may be an express restriction on or a prohibition of
any of its powers. However the exercise of a power by the company is not only invalid because of these restrictions.
The acts of the company are not also invalid because it is contrary to an object in the constitution.
Company contracting: Companies can enter into contracts directly- via board decision, with the contract executed by
people e.g. directors or other senior officers, or indirectly through an agent. The validity of the contract does not
depend on the way it is entered.
Enforcing defective contracts: defective contracts lack actual authority to make contract or there has been a problem
with the procedure e.g. wrong person signs. The policy issue is the need to balance the competing interests of the
outsiders dealing with the company and the innocent shareholders and creditors of the company.
Contracting Directly: Can be done in accordance with the company’s own constitution. Or
s 127(1): execute the document without common seal, must be signed by 2 directors; or director and company
secretary or for proprietary, sole director who is also sole secretary.
s 127(2): execute document with common seal, if fixing of seal it witnessed by: 2 directors of company, or director
and company secretary, or for proprietary- a sole director who is also sole secretary.
Contracting through an Agent:
s 126: A company’s power to make, ratify, vary or discharge a contract may be exercised by an individual acting with
the company’s expressed or implied authority and on behalf of the company. Can be exercised without common seal.
Actual Authority: Express Actual authority can arise from a provision in CA or the company’s constitution e.g. s
198A (powers of directors) and s 198D (delegation). It can also arise when someone who has actual authority
delegated some of their own actual authority. Implied Actual authority can arise by implication e.g. appointing
someone to a certain position. Different company officers have different levels of implied authority. Express
restrictions limit implied authority. Implied actual authority by acquiescence(agreement)- ‘ratifying’(approving) past
exceeding of authority.
Officers Implied Actual Authority:
CEO: IAA to do all the things that fall within the usual scope of that office: Hely-Hutchinson v Brayhead.
Other executive officers: IAA for things usual to their job
Director acting alone: No IAA: Brick v Pipe
Chairperson: No IAA
Company Secretary: Administrative Matters ( defined in s 188: Responsibility of secretaries etc. for certain corporate
contraventions)
Defective contracts made by agents: Contracts made through an agent may be defective because the purported agent
either: had no express actual authority; or as expressed actual authority that is too narrow for this contract; or has no
IAA.
Common Law rules to assist outsider: did the purported agent have apparent authority? Apparent authority can arise
even where the principal has not in any way given the agent actual authority to make the contract. Three requirements
must be satisfied for apparent authority to be established:
1. A “holding out” or “representation” via words or conduct: Freeman v Lockyer and Pacific Carriers v BNP
Paribas
2. By someone with actual authority- apparent authority is not satisfactory: Crabtree-Vickers
3. On which the outsider relied- outsider must be induced.
The ‘indoor management rule’ will assist according to Royal British Bank v Turquand
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Corporate capacity: the effect of internal limitations on powers in the company"s own constitution s 125. A company limited by guarantee does not have the power to issue shares. s 125: constitution may limit powers and set out objects. There may be an express restriction on or a prohibition of any of its powers. However the exercise of a power by the company is not only invalid because of these restrictions. The acts of the company are not also invalid because it is contrary to an object in the constitution. Company contracting: companies can enter into contracts directly- via board decision, with the contract executed by people e. g. directors or other senior officers, or indirectly through an agent. The validity of the contract does not depend on the way it is entered. Enforcing defective contracts: defective contracts lack actual authority to make contract or there has been a problem with the procedure e. g. wrong person signs.
