The issue is whether Anna and Susanna have the authority to enter into the contract as agents of Leaping Lizard Coffee Emporium.
A company's constitution overrides any and all specific policy in governing the company; however, where the constitution directly clashes with the laws, the laws supersede the company's constitution. According to section 5F of the Corporations Act 2001 (Cth), "Corporations legislation does not apply to matters declared by State or Territory law to be an excluded matter." In other words, when a policy of the company is hindering the application of the law then the resulting company's policy is overridden. Additionally, under Australian law, "A company's power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company's express or implied authority and on behalf of the company. The power may be exercised without using a common seal."
. The Corporations Act also states:
(1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; & #8230;
Note: If a company executes a document in this way, people will be able to rely on the assumptions in subsection 129(5) for dealings in relation to the company.
Under Section 129(5):
"A person may assume that a document has been duly executed by the company if the document appears to have been signed in accordance with subsection 127(1)."
Nothwithstanding the absence of an express agreement the parties, that is, the principle and agent, may conduct themselves in such a way that it is proper to infer that the relevant authority has been conferred on the agent.
Accordingly, where the question is whether the agent has implied authority to act in a particular way the court directs its attention to the conduct of the parties in order to decide whether the inference of authority should be drawn.
Here, the Leaping Lizard Coffee Emporium Pty Ltd. was registered in 2012 with four directors, Joan, Anna, Prafula, and Susanna. Prafula is the managing director. Under the company's constitution, all purchases of more than $20,000 must be approved by Prafula. For the company to act in any other way would be a violation of their company constitution. Prafula was not present at the coffee convention, and so Anna and Susanna decided that it was in the company's best interest to enter into a contract with the company Wholesale Coffee Roasters Ltd. For the amount of $25,000. Therefore, under their company constitution, this contract does not need to honored.
However, under the Corporation's Act, there are protections in place to prevent one company's constitution from impeding the flow of business in such situations. According to the Act, the Corporation's Act supersedes in matters of law. Here, a contact has been entered into. A contract is a legally binding agreement that is required by law to be honored by both parties so long as it is legitimate. In this case, Anna and Susanna agreed to purchase two coffee roasters and two coffee machines from Wholesale Coffee Roasters. The contract was signed and a deposit of $250 was made as consideration for the agreement. So, the contract itself was validly created and is legally binding on its face.
Prafula could argue that Anna and Susanna did not have the authority under their company's constitution to enter into contracts for the company because of the purchase limit provision. This argument is nullified, however, by the Corporation's Acts provisions on agents. Under these provisions, a contract can be entered into for the company when two directors sign the contract. Here, Anna and Susanna are both directors of the company. This authority was provided by their company's constitution
. Furthermore, both signed the agreement. Therefore, under these provisions when the Corporation's Act is honored above the company's constitution, the contract must be honored.
In conclusion, under the Corporation's Act, which is upheld above company constitutions in matters of law, Anna and Susanna were acting as agents of the company and entered validly into a contract for the purchases. Therefore, this contract must be honored by the company and the full $25,000 paid.
The issue is whether the directors have the authority to issue shares and change the company's constitution without the approval of the members.