by John Wojtowicz (Director - Law Central Legal)

This article is the second part of a two part series concerning the method by which companies can validly execute documents pursuant to the Corporations Act 2001 (Cth) (‘the Act’).

An agreement will become legally binding after it has been properly executed.

Part one of this series illustrated the importance of correctly executing contracts through the signatures of a company’s directors pursuant to section 127 of the Act. This article will illustrate the risks associated with executing contracts through an agent of a company and demonstrate the diligence that should be adopted when doing so.

Section 126 of the Act states that:

(1) 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.

(2) This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract.

Section 126 of the Act gives a company the power to execute a document through an authorised agent. An agent can be given the requisite authority to bind the company through express written delegation, implied authority through the agent’s position of employment and in circumstances where the agent has been represented as having a certain authority and that representation was relied upon.

If the agent does not have requisite authority to enter into the contract, the contract may be void and unenforceable.

Diligence when contracting through an agent

In the absence of express written delegation, authority can be difficult to establish. In order to ensure a document has been properly executed, diligence on the part of the contracting parties is imperative when entering into a contract through an agent.

The best way to ensure the agent has requisite authority to enter into the contract is to obtain written proof of authority from the agent’s company before entering into a contract with the agent. This will ideally prevent any disputes arising in the future and provide valuable evidence if issues regarding the authority of the agent do arise.

Further, it is important that the agent signs the contract in their capacity as an agent and not as a director of a company. This was demonstrated in the case of Knight Frank Australia Pty Ltd & Anor v Paley Properties Pty Ltd & Ors [2014] SASCFC 103.

Gold and Platinum Members read on for a discussion of the impact of the Knight Frank Australia Pty Ltd case.

Conclusion

A party relying on an agent’s authority to enter into a contract should obtain written proof of that authority. Further, the execution clause of a contractual agreement should make clear that the agent is executing the document in their capacity as an authorised agent of their company. A contractual agreement may be deemed unenforceable when signed by agents in cases where they do not have the requisite authority, the contract has been incorrectly executed or the circumstances suggest that the agent did not have the appropriate authority pursuant to section 128(4) of the Act.

Read on for circumstances where the authority can be implied through the Agent’s employment position…

If you have contracted with an agent where they had no express actual authority, the Court can imply authority through an agent’s position of employment. For example, a contract signed by the Managing Director or Chief Executive Officer may bind that company as entering into contracts is within the ordinary scope of their position.

Senior employees with specific responsibilities may be deemed agents due to the ordinary responsibilities of their position. For example:

• Marketing managers entering into contracts for the printing of pamphlets are likely to have implied authority.
• Company secretaries may bind the company with respect to minor administrative expenses. However, they will not have implied authority to bind the company to major commercial arrangements.

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.