Company Law

Question One

The issue here is whether Jack has the authority to enter into a contract with Giant Ltd when the agreement signed is against the constitution and if powers existed between directors and company through the company's constitution.

Lipton, Herzberg and Welsh (2012, p. 104) state that companies formed after July 1998 have a choice regarding the rules governing their internal management. Under S134, those rules may comprise a constitution specially drafted to suit a company's particular needs, or the replaceable rules in the Corporations Act or a combination of both. Any replaceable rule that is not displaced by a constitution will continue to operate and replaceable rule 198A provides directors with the power to manage the business affairs in the company. In this case, Beanstalk Ltd is a public company and therefore its constitution will be lodged with ASIC under S136(5).

Under Section 140(1)(a) of the statute law, a company's constitution and any applicable replaceable rules have effect as a contract between the company and each member. One of the consequences is that the company can take action against its member to force them to comply with the provisions in the constitution. Similar to the case of Hickman v Kent or Romney Marsh Sheep-Breeders' Assoc [1915] 1 Ch 881, a company's constitution have effect as a contract between the company and each member thus directors are bound by both statute and case law.

Hence, in this case, Beanstalk Ltd has its own constitution stating that it can only sell agricultural products grown in Queensland and any transactions over $100,000 require board approval. Since Jack had signed a $150,000 agreement with Giant Ltd, and with Beanstalk Ltd constitution being lodged in ASIC; s 136(5). It is known that the constitutions of public companies are available for public inspection and that limitation are to be known by an outsider dealing with the company whether or not the outsider was actually aware of the limitation. This was know as "the doctrine of constructive notice", however it has been abolished by s 130(1) and a person is not taken to have information about a company or the content of its constitution merely because information is available to the public from ASIC.

Lipton, Herzberg and Welsh (2012, p. 125) discussed that a company can act through its agent provided they have the requisite authority and act within the ambit of the powers conferred on them by the company's constitution, S124. They are treated as acting as the company itself and this is known as the "organic theory". S126 allows a company to contract through an agent and a company will be bound by the acts of its agents in the same way as any other principal. Express actual authority is when an agent's actual authority may derive from a principal expressly giving the agent authority to enter into a particular contract on the principal's behalf. Apparent or ostensible authority arises if a principal gives the impression to an outsider that an agent has an authority to act on the principal's behalf. (Lipton, Herzberg and Welsh, 2012)

In the fact of our current case, Jack was given the express actual authority to enter into transactions not over $100,000