Contracting with the company Flashcards
.
What is an agent?
An agent is someone given authority by a principal to make contracts on their behalf
1st kind of Authority: actual. Definition?
Authority actually given to agent by agreement with the principal. Any contract formed here will be binding
Actual authority can be…
Implied from circumstances (e.g. appointing agent to role that usually carries a certain authority)
Actual authority in companies
- Derived from const.
- Articles give board authority to make contract on company’s behalf
- Articles allow board to delegate authority, as part of general powers
- No actual authority where contract is contrary to company const.
- No actual authority where contract is bound to be contrary to company interests
Re Capitol films
Individual directors have no acc. authority. Board has acc. authority
Re Marseilles extension railway co.
Exec. directors…
usually have actual authority in specified area
contract binding due to apparent authority?
Agent liable for breach of contractual/fiduciary duty
Contract not binding, agent liable to 3rd party for…
Warranty of authority
Apparent authority, criteria
freeman & lockyer v Buckhurst park properties
- rep of authority to 3rd party
- reliance by 3rd party/Put on iinquiry?
- rep by individual with authority
App authority: REPRESENTATION occurs where…
An agent was appointed to a position that carries usual authority. If principal limits their authority, there is no actual authority regardless of what’s apparent
App authority: represntation. ‘no need for…
explicit rep.
case for when representation occurs
Panorama development
define representation by acquiescence (clue, architects and managing director).
FREEMAN & LOCKYER
Almost as if company reluctantly plays along, allowing the agent to assume position and claim possession of authority
Who can make representation (plus case)
Someone with authority (sun Life)
making rep: someone with authority doing what? (with case?)
Confirming or ratifying the excercise of authority
Kelly v Fraser
RELIANCE: contract is not binding if… (plus case)
the 3rd party’s reliance is unreasonable (includes knowing the limit put on agents authority)
Criterion Properties
What puts the 3rd party on inquiry
Unusual circumstances.
What unusual circumstances put a 3rd party on inquiry? (with 2 cases)
IF NO INQUIRY MADE, CONTRACT ISN’T BINDING
- Where the 3rd party knew/suspected that the director was acting for improper purposes/contrary to the interest of the company (Re capitol films)
- Where the 3rd party knew/suspected a conflict of interest (Wrexham AFC)
What is the doctrine of constructive notice
the assumption that the third party would have consulted the company constitution, which is a public document. Hence apparent authority cant override limitations in articles
What is the indoor management rule
(mitigates effect of constructive notice doctirne) Unless put on inquiry, 3rd party can assume that any procedural requirement in constitution has been fulfilled
S.40 CA 2006 replaces?
Indoor management rule in mitigating effect of constructive notice doctrine
s40 ‘Dealing with company’ cases to do with shareholders
- EIC services: shareholders cant rely on s40 in relation to bonus issue by the company
- Cottrell v King: shareholders cant rely on s40 against other shareholder (transfer of shares)
s40 3rd party presumed to be in good faith unless…
- Proved otherwise
2. Put on inquiry
s40 3rd party Not assumed to be in bad faith simply because…
they knew about limitations on authority
Can directors rely on s40?
No. s41 applies for directors and connected persons
Shareholders can take action in advance…
to stop contracts contrary to articles. But once contract is entered into, they can’t do anything
If director has made a contract contrary to articles, company can…
claim compensation for breach of s171 (duty to act in accordance with constitution)
How do companies execute contracts themselves (plus case)
- Common seal
- 2 authorised signatures
- Director in the presence of a witness
case: Hilmi and associates ltd
companies aren’t obliged to have common seal
Objects clause
Limits the authority that can be given to an agent.
If contract is binding in favour of 3rd party…
company must ratify it so they can enforce it.
case: ‘Board can ratify if it has authority to make the contract’
Macari
case: ‘If beyond the authority of the board, general meeting ratifies’
Grant
S.239 CA 2006
If making the contract involved a breach by director, it must be ratified by a general meeting
Long term trend
- The reform of Ultra vires and constructive notice
- more protection for outsider. less protection for company (risk of binding contract)
- Has the protection for the outsider gone too far?
