Case Of Royal British Bank V Turquand

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Case Of Royal British Bank V Turquand

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Question:
Discuss about the Case Of Royal British Bank V Turquand.

Answer:

Issue
The questions which needs to be analyzed in relation to the scenario is the legal position of Tim and Michelle who are acting as the secretary and directors of Motorbikes Pty Ltd respectively in relation to a contract which has been entered with John for purchasing a motorcycle.
Sub-issues
Has a legally binding contract being formed between the parties
In case a contract has been formed whether Tim and Michelle can rescind the contract
Rules
According to section 124(2) the Corporation Act 2001 (Cth) it has been provided that the company has the legal capacity of getting into a contract even where the contract is not is the best interest of the organization
As stated by section 126 of the CA a person who works on behalf of an organization through implied or expressed authority has the power to get into, rescind, ratify and change the terms of the contract which binds the organization. The common seal of the company is not required by such person in order to exercise such power. In addition any other law which is required for forming a valid contract is not intervened by the provisions of this section.
Moreover an organization for the cannot get into a contract which is restricted by a state or territory along with any rights which is provided by the contract and not allowed by the state or territories laws.
As stated by section 127 of the CA an organization can execute a document even in case it has not used the common seal if two directors of the organization or a company secretary and a director have approved the contract thorough signature.
According to section 129 of the CA an individual who deals with an organization has the right to assume that any other individual who is listed through the organization as a director has been appointed duly by the company and the company cannot claim such assumptions as incorrect.
In situation where a document has been given effect in the above discussed manner, the other party gains the right to rely on assumptions provided through section 129(5) of the CA in relation to dealing with respect to the company. According to Section 129(5) of the CA an individual has the right to make assumption that a contract has been executed duly by the company if it has complied with the provisions of section 127(1). The individual is also provided with the right to make assumption that a document has been duly executed with seal and it can also be assumed that persons who depict themselves and the sole secretary and directors of the company are actually so.
It had been ruled by the court in the case of Royal British Bank v Turquand (1856) 6 El & Bl 327 that an individual contracting and dealing with the organization in a bona fone manner has the right to assume that the dealing or contract is consistent with the constitution and within the power of such directors.
It had been provided by the judge in the case of Northside Developments Pty Ltd v Registrar-General (NSW)(1990) 170 CLR 146 that the company has to make a representation of authority in relation to the authority held by the person working on behalf of it.
Application
In the given scenario it has been provided that Tim and Michelle are the secretary and directors of the organization respectively. Both of them are passionate about motorcycles. The reason why the organization has been formed is to sell, repair and buy motorcycles.
It has been provide that John wished to sell a motorcycle, and Michelle and Tim have signed the contract to buy the motorcycle. They realized latter that they had paid in excess in relation to the motorcycles and thus want to rescind the contract.
It has been discussed above in relation to section 127 of the CA that an organization has the right to execute a document even in case its common seal has not been used and where it has been signed by one director and one secretary of the company. The other party also has the right to make an assumption that under section 129(5) of the CA the contract is authorized by the company. Thus the contract which has been entered by Michelle and Tim with John for the Motorcycle is binding on the organization.
Moreover, it has been provided by section 124(2) of the CA that an organization can get into a contract which is not in its best interest and therefore Tim and Michelle would not have the right to rescind the contract
Conclusion
The contract with John is binding on Motorbikes Pty Ltd and Tim and Michelle cannot rescind it.

Relevant rules
According to McKendrick (2014) a contract is defined as a legal document which is legally binding on the parties who have signed it. The contract once formed between the parties can only be discharged or rescinded in the event of breach, frustration, fraud and misrepresentation by the other party.
According to section 125 of the CA the company has the power to get into a contract which is not allowed by the constitution of the company. The contract is merely not invalid as it is not within the powers of the constitution.
It has been ruled by the court in the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103 that where a contract has been properly signed by two directors of the organization it becomes legally binding in the company and in case it is not it cannot be enforced by the organization.
As provided by section 127 (2) of the CA an organization can execute a document where it has used the common seal, if two directors of the organization or a company secretary and a director have approved the contract thorough signature. In situation where the contract has been executed in compliance with the provisions of section 127(2) by the company the other party has the right to make an assumption which has been provided in section 129(6) in relation to dealing with the organization.
It has been stated by section 129(6) of the CA that an individual is provided with the authority to make an assumption that a contract is duly entered upon into by the organization if the common seal of the organization has been fixed to the document in relation to section 127(2) of the CA.
Moreover, in case where it is apparent that the common seal has been affixed to the document it has to be witnessed in compliance with section 127(2). With respect to making an assumption, an individual has the authority to assume that any person by whom the common seal of the company has been witnessed and where they depict then selves as the only director and secretary of the organization are actually occupying both the offices in relation to the company. In addition officers or agents who have power have the responsibility to guarantee that the document is a true copy
Application
It has been provided in the scenario that Gerard and Sylvia who both like cakes have came to a decision to purchase a cake shop. A company named “Cakes Pty Ltd” has been formed by them both. However where Gerard is the director of the new company, Sylvia has not been provided with any position within the company. The secretary of the organization is the mother of Gerard named Sarita.
The organization have cane to a decision to deal with George in order to purchase cakes. Gerard in relation purchasing the cake shop of George have executed the contractual document through affixing the seal of the company and signing as a witness. However Sylvia was the other witness in relation to the contract where she did not have any position in the company. As provided by section 127 (2) of the CA an organization can execute a document where it has used the common seal, if two directors of the organization or a company secretary and a director have approved the contract thorough signature. However in the given situation the document has been witnessed by only Sylvia and Gerard. Gerard has no right to give effect to the document under the provisions of section 127(2) of the CA without the signature of the secretary.
Moreover the witness which has been done by Sylvia in relation to the contract does not have any effect as she hold no position in relation to the company. The company has also not made a representation that he is working for the company has an agent. The contract actually had to be signed by Sarita and Gerard along with the common seal to be valid. Therefore it can been provided as per Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd and section 127(2) the contract with George and Cakes have not been formed.
Conclusion
There is no valid contract between Cakes Pty Ltd and George

References
Corporation Act 2001 (Cth)
Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103
McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).
Northside Developments Pty Ltd v Registrar-General (NSW)(1990) 170 CLR 146
Royal British Bank v Turquand (1856) 6 El & Bl 327

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