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Company Contracts Notes

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COMPANY CONTRACTS Capacity of The Company to Enter Contract

1. Used to be case that companies were required to have objects clause in their memorandum of association.

2. Where company entered into contracts not covered by objects clause, had acted ultra vires Modern Position 1) Section 31: presumption that companies have unlimited objects and powers. 2) Section 39: acts carried out contrary to any specific restrictions on company's powers contained in Articles are NOT ultra vires.
? i.e. third parties from outside the company can rely upon them, even if such acts were in breach of company's constitution
? acts cannot be challenged simply because they breached a provision in company's constitution

1. Thus specific restrictions in articles only have consequences as restrictions on directors' powers

1. i.e. are only relevant in terms of authority (see below)

Acts of the Company'

1. Company is a legal person

2. Thus to see if contract is binding on company, necessary to look at who actually has authority to enter into contracts on behalf of the company?

3. Company law uses principles of agency to solve this question i) company is principal, ii) and the board or an individual director is agent


1. Actual authority may be express or implied.

1. Express Actual Authority

4. Someone has express actual authority to make a decision on behalf of company (e.g. entering a contract) if: 1) authorised to do so by company's articles 2) or if they have had this power delegated to them by someone possessing that power

a.i) Articles

5. Model Articles puts power to act on behalf of company in board of directors

1. NB the **board of directors acting as a whole**

2. Thus individual directors do not have power to act on behalf of company unless expressly permitted to (or unless they have power delegated to them - see below)

a.ii) Delegation

1. Model Articles 5+6 allow company to delegate power (provided there is nothing preventing this in constitution)

1. Thus board of directors (via Art 3) may validly delegate one of their powers to someone else

1. e.g. may delegate power to enter contracts on behalf of company to individual director

2. Where this validly occurs, delegee has actual authority to enter contracts on behalf of company

1. provided he acts within scope of delegated powers a.ii.1.a.2.

Implied Actual Authority

1. Even if D has no express actual authority from Articles to enter into contract, actual authority may be implied

1. Hely-Hutchinson v Brayhead [1968]

2. Authority is implied where it is inferred from conduct of parties and circumstances of case Examples 1) Where director occupies a particular position in company, has implied authority to do anything which that position entails

1. If X is managing director,

2. has implied authority to do anything falling within scope of office

1. Hely-Hutchinson v Brayhead [1964]

3. thus does not have power to do things which are properly remit of the board

1. e.g. cannot suspend members of the board

2. Smith v Butler [2011]

4. actual authority may depend on terms of MD's appointment

1. i.e. where X is appointed MD but his terms of appointment restrict his powers, actual authority is restricted to these areas

2. Harold Holdsworth [1955]
a.i.1.b. If X is a director of particular area (e.g. sales director), has implied authority to do anything which that position entails c. If X is the company secretary, has implied authority to bind company in relation to administrative matters

1. Panorama Developments [1971]
d. However for positions lower than that of director, courts reluctant to accept implied/ostensible authority

1. e.g. a 'manager' does not have implied/ostensible authority

2. Freeman & Lockyer [1964]

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