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Corporate Contracting Notes

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Supervision 3 Corporate Contracting Corporate Contracting Forgeries

1. Where there is a forged document, we consider the rules of agency per Lovett v Carson Country Homes. In this case, a debenture was valid despite having a forged signature due to the estoppel principles in ostensible authority. In the execution of documents by a company, statute requires two authorised signatories per s44(2) CA 2006. The bank was held to be a "purchaser" within s44(5) CA Thus the document "purports" means does it speciously appear to be signed validly (even if it is not so?). Does the subsection operate to validate forged documents? Or is a forgery is a nullity? HELD: Whilst it is a nullity in the sense noone has actual authority to issue the forged document, the estoppel of ostensible authority means it does not mean it cannot have effect. Thus, in some cases, there is no ostensible authority vested in the person to sign (thus not binding at all). But in this case, it was held that C was director, secretary and Member of the company. On a number of occasions, the other directors permitted him to sign bank documents using other director's purported signatures. Thus, he had been clothed by the company with ostensible authority to sign the debenture and guarantee, and the signatures could be relied upon as genuine!

Essay Structure

2. 3.

Does company have capacity? Usually yes per s31(1) CA 2006 and s39 CA 2006. Does the agent have authority to undertake this kind of contract?
a. Actual Authority?
b. Ostensible Authority


There will usually be no problem with capacity due to the combined effects of:
* No requirement for an "objects clause" s8 CA 2006?
* Objects are unlimited unless specifically limited s31(1) CA 2006
* As against TP, capacity does not invalidate company acts s39 CA 2006

Authority Art 3 Model Articles confer "all the powers of the company" on the directors.

1. ACTUAL (EXPRESS/IMPLIED) AUTHORITY This must be conferred by someone with actual authority! An agent cannot selfrepresent and create his own authority! In Freeman & Lockyer v Buckhurst Diplock LJ states there must be immediate actual authority of the representor. Conversely, in British Bank of the Middle East v Sun Life Assurance and Bowstead & Reynolds on Agency Lord Brandon held that an agent can have apparent authority to make representations about other agents I.E Branch Manager had no actual authority to conclude transactions... There are two types of implied actual authority per HelyHutchinson v Brayhead:

1. Express Actual Authority ("when it is given by express words, such as when the board of directors pass a resolution which authorises two of their number to sign cheques" OR

2. Implied Actual Authority ("when it is inferred from the conduct of the parties, and the circumstances of the case, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office"

1. Express Actual Authority i. This is where there is an explicit delegation of authority from Board to Agent. 14

ii. iii.

2. 3.

4. Art 5 Model Articles permits the directors to delegate to any person. s161 CA 2006 states the acts of a director are valid notwithstanding
* Defect in his appointment?
* Disqualified from office?
* Ceased to hold office?
* Not entitled to vote on the matter in question?
iv. Morris v Kanssen states what is now s161 CA 2006 cannot be relied upon if TP knows of the facts giving rise to the invalidity!
Implied Actual Authority i. "USUAL AUTHORITY" (Powers Implicit in the Job Title)?
* Managing Director Chairman had no authority as he was a mere chairman. However, the Board permitted him to act as de facto MD giving him implied actual authority per HelyHutchinson v Brayhead. But in Smith v Butler it was noted that the MD cannot do EVERYTHING the Board can, e.g. he cannot sack the Chairman who is appointed by the Board. But MD of C, acting fraudulently, doesn't have authority to give instructions to solicitors who are holding company money in client accounts per Lexi Holdings v Pannone.
* Managers A manager has usual authority in relation to managing his branch per Armagas v Mundogas.
* Sales Directors has implied actual authority to enter contracts of sale.
* Secretary A secretary has the usual authority to complete administrative transactions per Panama v Fidelis. In this case, that extended to hiring company cars!
* Cashiers A cashier has implied actual authority to sell goods on display for cash... ii. "COURSE OF DEALINGS" (Acquiescence of Principal to Agent's Behaviour)
"the conduct of the board... would be understood by a reasonable man as a representation that the agent had authority to enter into the contract sought to be enforced." (Freeman v Buckhurst Park).
* Freeman & Luckyer v Buckhurst Diplock LJ said "Silent Acquiescence" is not enough there must be an actual "communication by words or conduct of principal's consent". iii. Those powers are limited by express limitations on their authority (E.G.: No contracting worth more than PS1m...) No Actual Authority?
i. Hopkins v Dallas Group Director does not have actual authority when acts for:
* Improper Purposes
* In Bad Faith
* E.G. In breach of his fiduciary or statutory duties?
# Is the transaction so disadvantageous to director's own company that Company B should have known director was acting in breach of duty?
ii. The motives of the agent are a relevant consideration: acting fraudulently will fall outside the agent's actual authority per Lexi Holdings v Pannone. This is because actual authority is a consensual agreement between PA and acting fraudulently falls outside that agreement!
s40 CA 2006 i. This allows TP, acting in good faith, to deem Director's authority free of limitation in the Constitution! Thus if they are limited by, say, bylaws, then s40 CA has no relevance!
ii. E.G.: In TCB v Gray Articles required Director to sign cheques, but his 15

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