Binding of contract - Prudent Bank Ltd v Freehills Antiques Pty Ltd

Essay by lucky_taranUniversity, Bachelor'sA-, September 2006

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In this case, Freddy and Fiona are the officers and shareholders of Freehills Antiques Pty Ltd. Freddy, managing director as well, got into a contract with Prudent Bank Ltd by affixing the company seal and signed the loan documents along with Felicity, representing her as the secretary of the company, although she was never appointed one.

The issue that Fiona would like to bring up would be the authority of persons who signed the loan documents, in this case Freddy and Felicity. As mentioned in the case that Freddy is the managing director of the company and also a shareholder of Freehills Antiques Pty Ltd. Although all the major decisions were made by Fiona, but Freddy, too, has the implied authority to make all those contracts that a manager in such position has . As managing director possesses actual authority to do things concerned with the management and also has apparent authority to bind the company to contracts within the scope of the management powers , Freddy could bind the company by the contracts made by him, under s 126 (1) of Corporations Act, if he does that within the scope of his management powers as he would then act as an agent to the company.

According to s 126 (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. A Managing Director has the customary authority to make any contracts related to the day to day management of the company's business. This includes engaging persons to do work for the company and borrowing money on the company's behalf .

Fiona could try to argue that the company...