Contracting with the company

Question 1

What is an agent?

Answer 1

An agent is someone given authority by a principal to make contracts on their behalf

Question 2

1st kind of Authority: actual. Definition?

Answer 2

Authority actually given to agent by agreement with the principal. Any contract formed here will be binding

Question 3

Actual authority can be…

Answer 3

Implied from circumstances (e.g. appointing agent to role that usually carries a certain authority)

Question 4

Actual authority in companies

Answer 4

• Derived from const.
• Articles give board authority to make contract on company’s behalf
• Articles allow board to delegate authority, as part of general powers

Question 5

• No actual authority where contract is contrary to company const.
• No actual authority where contract is bound to be contrary to company interests

Answer 5

Re Capitol films

Question 6

Individual directors have no acc. authority. Board has acc. authority

Answer 6

Re Marseilles extension railway co.

Question 7

Exec. directors…

Answer 7

usually have actual authority in specified area

Question 8

contract binding due to apparent authority?

Answer 8

Agent liable for breach of contractual/fiduciary duty

Question 9

Contract not binding, agent liable to 3rd party for…

Answer 9

Warranty of authority

Question 10

Apparent authority, criteria

Answer 10

freeman & lockyer v Buckhurst park properties

• rep of authority to 3rd party
• reliance by 3rd party/Put on iinquiry?
• rep by individual with authority

Question 11

App authority: REPRESENTATION occurs where…

Answer 11

An agent was appointed to a position that carries usual authority. If principal limits their authority, there is no actual authority regardless of what’s apparent

Question 12

App authority: represntation. ‘no need for…

Answer 12

explicit rep.

Question 13

case for when representation occurs

Answer 13

Panorama development

Question 14

define representation by acquiescence (clue, architects and managing director).

Answer 14

FREEMAN & LOCKYER

Almost as if company reluctantly plays along, allowing the agent to assume position and claim possession of authority

Question 15

Who can make representation (plus case)

Answer 15

Someone with authority (sun Life)

Question 16

making rep: someone with authority doing what? (with case?)

Answer 16

Confirming or ratifying the excercise of authority

Kelly v Fraser

Question 17

RELIANCE: contract is not binding if… (plus case)

Answer 17

the 3rd party’s reliance is unreasonable (includes knowing the limit put on agents authority)

Criterion Properties

Question 18

What puts the 3rd party on inquiry

Answer 18

Unusual circumstances.

Question 19

What unusual circumstances put a 3rd party on inquiry? (with 2 cases)

Answer 19

IF NO INQUIRY MADE, CONTRACT ISN’T BINDING

1. Where the 3rd party knew/suspected that the director was acting for improper purposes/contrary to the interest of the company (Re capitol films)
2. Where the 3rd party knew/suspected a conflict of interest (Wrexham AFC)

Question 20

What is the doctrine of constructive notice

Answer 20

the assumption that the third party would have consulted the company constitution, which is a public document. Hence apparent authority cant override limitations in articles

Question 21

What is the indoor management rule

Answer 21

(mitigates effect of constructive notice doctirne) Unless put on inquiry, 3rd party can assume that any procedural requirement in constitution has been fulfilled

Question 22

S.40 CA 2006 replaces?

Answer 22

Indoor management rule in mitigating effect of constructive notice doctrine

Question 23

s40 ‘Dealing with company’ cases to do with shareholders

Answer 23

1. EIC services: shareholders cant rely on s40 in relation to bonus issue by the company
2. Cottrell v King: shareholders cant rely on s40 against other shareholder (transfer of shares)

Question 24

s40 3rd party presumed to be in good faith unless…

Answer 24

1. Proved otherwise

2. Put on inquiry

Question 25

s40 3rd party Not assumed to be in bad faith simply because...

Answer 25

they knew about limitations on authority

Question 26

Can directors rely on s40?

Answer 26

No. s41 applies for directors and connected persons

Question 27

Shareholders can take action in advance...

Answer 27

to stop contracts contrary to articles. But once contract is entered into, they can't do anything

Question 28

If director has made a contract contrary to articles, company can...

Answer 28

claim compensation for breach of s171 (duty to act in accordance with constitution)

Question 29

How do companies execute contracts themselves (plus case)

Answer 29

1. Common seal 2. 2 authorised signatures 3. Director in the presence of a witness case: Hilmi and associates ltd companies aren't obliged to have common seal

Question 30

Objects clause

Answer 30

Limits the authority that can be given to an agent.

Question 31

If contract is binding in favour of 3rd party...

Answer 31

company must ratify it so they can enforce it.

Question 32

case: 'Board can ratify if it has authority to make the contract'

Answer 32

Macari

Question 33

case: 'If beyond the authority of the board, general meeting ratifies'

Answer 33

Grant

Question 34

S.239 CA 2006

Answer 34

If making the contract involved a breach by director, it must be ratified by a general meeting

Question 35

Long term trend

Answer 35

- The reform of Ultra vires and constructive notice - more protection for outsider. less protection for company (risk of binding contract) - Has the protection for the outsider gone too far?