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Module 3 · Corporate contracting: authority, the indoor management rule and the statutory assumptions

Corporate contracting asks one question: is the company bound? The 2023 report's verdict that the question "was not done well overall" makes this a differentiator module, and the differentiator is the decision path itself.

Cases at a glance

Case	In a line
Northside Developments	General assent does not authorise particular transactions. The IMR presumption is defeated by inquiry, forgery outside it (Brennan J)
DY Logistics	A signature needs personal authentication
Boz One	A sole director may assent where that is the company's only way to act
Panorama	A secretary's implied authority is administrative
Isherwood	Administrative authority does not extend to litigation
Re Haycraft	A mere director carries very little implied authority
State Bank of Victoria	The chair is included: little implied authority
Freeman & Lockyer	Apparent authority needs a representation by someone with actual authority, inducing the contract
Crabtree-Vickers	No chaining: apparent authority cannot rest on merely apparent authority
Corpers (No 664)	Self-representation counts only where the company invites an estoppel
Mahony	Member acquiescence may suffice where a new company has no officers
Turquand	An outsider may presume the company's indoor procedures were regular
Kanssen	Knowledge or unpursued inquiry defeats the IMR
Morris	Actual knowledge and wilful blindness both count
Hughes	Unavailable to the company itself unless both companies want invalidation
Ruben	Impersonation forgery is outside the IMR. Misrepresented authority is broader fraud
ACT	The common law IMR survives the statutory scheme
Soyfer	Dealings need a legitimate role. s 128(4) is subjective, a "slight opinion" sufficing. Illegible signatures are still execution
Story	Purported and fraudulent transactions can be dealings with the company
Brick & Pipe	A wrongly stated position is not fatal where two directors in fact signed. Dealings are broad, and s 129(2) outreaches common law chaining
Sunburst	The company bears the s 128(4) onus. Assumptions are cumulative
Oris	With Sunburst on the company's onus
Errichetti	Failure to inquire alone is not enough
Correa	A fiduciary bound to inquire cannot rely while in breach. Liquidator appointment a dealing
Re Madi	ASIC documents need not have been seen
Wood	Lodgments by invalidly appointed directors do not count
Szudzinski	Customary duties turn on the nature of the business
Australian Glass and Mirrors	Actual holding out needed, past dealings sufficing, no reliance required
Fairworld Holdings	Conduct and the role's customary nature can be the holding out
McDonald	The execution assumption can run through s 127(4)
Vero Insurance	Lodging proxies can be dealings
Matlic	Fraudulent dealings need an actor with a legitimate company role

Attack plan. Is the company bound? Run the decision path. 1. Capacity and constitutional limits. ss 124 and 125: a restriction never invalidates by itself but shapes every authority argument. 2. Direct execution. Was the particular transaction authorised by the board under s 198A or the constitution, and executed under s 127 or a constitutional method? 3. Actual authority. If an agent contracted (s 126), express authority first, then implied. 4. Apparent authority. Freeman & Lockyer, remembering the holding out must come from the company. 5. Ratification, then the common law indoor management rule. If the contract is still defective, ask whether the company adopted it, then run the rule, watching inquiry and forgery. 6. The statutory assumptions. ss 128 and 129: identify the dealings, select only the assumptions the facts support, and finish at the s 128(4) knowledge-or-suspicion disqualifier. Expect a quoted constitutional clause with a dollar or duration threshold in the facts: find it before arguing authority.

Corporate capacity and constitutional restrictions

RULE. arrowA company has the legal capacity and powers of a natural person, including the power to contract (s 124(1)).

RULE. arrowThe constitution may limit that power, but an act outside a constitutional restriction is not invalid merely because of the contravention (s 125(1)).

The restriction still matters twice: it can defeat actual and apparent authority, and it creates the internal irregularity the indoor management rule and s 129(1) exist to cure.

Direct execution: authorisation plus execution

RULE. checklistDirect entry requires both authorisation of the particular transaction by the board under s 198A or the constitution and execution under s 127 or a constitutional method under s 127(4). A general power to assent to contracts does not authorise particular transactions (Northside Developments).

Execution under s 127. Without a common seal (s 127(1)), execution takes one of three forms: two directors signing, a director and a company secretary signing, or the sole director and secretary of a proprietary company signing. With a common seal (s 127(2)), the same three combinations witness the fixing of the seal. The seal must show the company's name and, where the name omits it, the ACN, and duplicate seals are allowed (ss 123(1), (2)). Deeds may be executed the same way (s 127(3)). Signing covers physical copies of the entire contents, electronic signatures identifying the person and their intention, and counterparts (ss 127(3A) to (3C)), and electronically observed sealing counts as witnessing (s 127(2A)).

A signature must carry some personal authentication. Ask whether the intent to sign is there (DY Logistics).
A single-director proprietary company may be able to assent where the sole director's method is the only way the company can act (Boz One).

Indirect contracting through agents: s 126 and actual authority

RULE. arrowA company's contracting power may be exercised by an individual acting with the company's authority on its behalf, without a common seal (s 126(1)).

RULE. keyringExpress actual authority is conferred in writing or orally, whether by the constitution, a resolution or an instruction. Implied actual authority covers whatever is necessary to carry out what was expressly authorised, plus the authority customarily attaching to the agent's actual position.

Office	Implied authority from the position
Managing director / CEO	Day-to-day operations, supervision, delegation. Whole-of-business acts (selling the company) likely outside
CFO	Oversight of financial affairs
Company secretary	Administrative conduct (Panorama), not commencing legal proceedings (Isherwood)
Individual director (including the chair)	Very little (Re Haycraft; chair included: State Bank of Victoria)
Self-appointed "agent" the company acquiesces in after learning of it	Implied acceptance of that authority

Apparent or ostensible authority

Apparent (or ostensible) authority is the authority an agent appears to have because of the words or conduct of someone who actually has authority. The company is held to the appearance it created.

RULE. checklistTo enforce despite the absence of actual authority, the outsider must show a representation that the agent had authority to make the contract on the company's behalf, made by someone with actual authority to bind the company, which induced the contract by way of reliance (Freeman & Lockyer). Then check the constitution does not bar the transaction.

The representation arguably must be made directly to the outsider rather than merely overheard.
No chaining. Apparent authority cannot be built on a representation by someone who has only apparent authority (Crabtree-Vickers), though the statutory assumption in s 129(2) can reach further (Brick & Pipe).
Where a just-started company has no officers, member acquiescence in a person's actions may suffice (Mahony).

Ratification

RULE. arrowA contract entered into without authority may nonetheless be enforced if the company afterwards adopts it. Ratification stands in place of the missing authorisation (Redmond [8.220]). Check the ratifying organ could itself have authorised the transaction.

The common law indoor management rule

The indoor management rule lets an outsider assume the company's internal ("indoor") procedures were regular: appointments not procedurally defective, required meetings called and held, constitutional and statutory preconditions such as resolutions satisfied, and the constitution and the Act complied with in entering the contract.

RULE. checklisttwistWhere the company reasonably appears to have authority to act, the authority could constitutionally have been conferred, and the asserting party acts in good faith, a presumption of internal regularity arises (Turquand; Northside Developments). It is only a presumption and can be displaced (Northside per Brennan J).

The rule cures procedural defects only: appointments, quorum, missing resolutions. The outsider has notice of the constitution and the Act, but if the act complies on its face there is no duty to inquire further.
Exception: knowledge and inquiry. No protection where the outsider is aware of irregularities, or is put on inquiry and fails to make it. Actual knowledge and wilful blindness both count (Kanssen; Morris; Northside). The very nature of the transaction suffices where it would excite a reasonable apprehension of purposes apparently unrelated to the company's business (Northside).
Exception: forgery. The rule cannot reach forged or fraudulent instruments, including false signatures. Distinguish genuine documents that merely lack authority behind them (Northside per Brennan J). Ask whether someone is pretending to be someone else, or merely misrepresenting their authority. The second is just broader fraud (see Ruben).
The rule does not operate in favour of the company itself, unless both companies want the transaction invalidated (Hughes). It still operates alongside the statutory provisions (ACT).

The statutory assumptions: ss 128 and 129

Architecture of s 128. A person having dealings with a company may make the s 129 assumptions, and the company may not assert they are incorrect (s 128(1); Soyfer). The same applies to dealings with a person who has, or purports to have, acquired title to property from the company (s 128(2)). The assumptions may be made even where an officer or agent acts fraudulently or forges a document in connection with the dealings (s 128(3)). They are lost only where the person knew or suspected the assumption was incorrect (s 128(4)).

RULE. gateDealings need only be a single transaction and can include negotiations or steps toward a contemplated transaction, purported or fraudulent transactions (Story), lodging proxies (Vero Insurance) and appointing a liquidator (Correa) (Brick & Pipe; Soyfer). Fraudulent or forged dealings count only where done by a person with some legitimate role on the company's behalf in relation to them. They must be dealings with the company and not with a person acting alone (Soyfer; Story; Matlic).

Indicators of dealing with the company: dealing with the managing director, the other director permitting control, the company's custody of the subject-matter, a transaction requiring the company to act (Story).

RULE. arrowThe s 128(4) disqualifier is subjective and requires actual apprehension or mistrust, a "slight opinion" sufficing and wilful blindness included (Soyfer). The company challenging the assumption bears the onus (Sunburst; Oris). Failure to inquire is not enough even where a prudent person would have inquired (Errichetti). But a person owing the company a fiduciary duty to inquire cannot rely on the assumptions while in breach of it (Correa).

The assumptions, one by one:

s 129(1): compliance. The constitution and any applicable replaceable rules have been complied with. This establishes only that internal rules were not broken. It confers authority on no one.
s 129(2): ASIC-document officers. Anyone appearing from public ASIC documents provided by the company to be a director or secretary was duly appointed with authority for the customary duties of that office in a similar company. No need to have seen the documents (Re Madi). Documents lodged by invalidly appointed directors do not count (Wood). ASIC documents are assumed true (Northside per Gaudron J), and customary duties turn on the nature and constitution of the business (Szudzinski).
s 129(3): held-out officers and agents. Anyone held out by the company as an officer or agent was duly appointed with customary authority. An actual holding out is needed, past dealings sufficing, but no reliance or knowledge. The act of holding out is enough (Australian Glass and Mirrors). Conduct and the role's customary nature count (Fairworld Holdings).
s 129(4): proper performance. Officers and agents properly perform their duties to the company.
ss 129(5), (6): due execution. A document appearing to be signed (s 129(5)) or sealed and witnessed (s 129(6)) in accordance with ss 127(1) to (2) was duly executed. An incorrect stated position is not fatal if the signatories are in fact two directors (Brick & Pipe). Illegible names above "director" and "secretary" objectively suffice (Soyfer), and the assumption may run through a s 127(4) constitutional method (McDonald; Brick & Pipe).
s 129(7): warranting copies. An officer or agent with authority to issue documents or certified copies also has authority to warrant them genuine or true (cf Ruben).
The assumptions are cumulative (s 129(8); Sunburst).

How the routes interact: and the order to argue them

	Common law IMR	Statutory assumptions ss 128 to 129
Who it protects	Anyone asserting against a corporation generally, even third-party assertions	Only persons having dealings (or title dealings) with a company
Trigger	No "dealings" requirement	"Dealings" required (s 128(1))
Forgery	Excluded (Northside per Brennan J)	Reached (s 128(3))
Losing protection	Knowledge or being put on inquiry (objective)	Actual knowledge or suspicion only (s 128(4)). Failure to inquire is insufficient (Errichetti)
Internal rules reached	Potentially non-replaceable rules and other internal procedures	Constitution and replaceable rules (s 129(1))

Validity first, direct execution, actual authority, apparent authority. Then enforcement despite invalidity: ratification, the indoor management rule, the statutory assumptions. The statutory route is usually stronger, because it survives forgery and its disqualifier is narrower, but run the IMR where the facts fall outside "dealings" or the constitution-and-replaceable-rules scope. The common law operates despite the statute (ACT).

Critical pitfalls and counter-arguments

Trap. Self-holding-out is not apparent authority. A representation about your own authority counts only if the company does something inviting an estoppel (Corpers (No 664)). The examiners plant this repeatedly. In 2018, "Jin decides to introduce Michael and himself to the other conference delegates as directors of Chocko". In 2023, Artemis "even names herself as such [managing director] in the company's financial reports lodged with ASIC", yet the report found no "express actual or implied authority or apparent authority (which there was not)". Ask who made the representation before asking what it conveyed.

Trap. Forgery flips the IMR. The fact making the document look regular is the fact taking it outside the rule, but the statutory assumptions can still reach it (s 128(3)), so a forgery finding sends you to statute, not to a dead end.

Trap. ss 129(5) and (6) are unavailable where only one person signed. In 2023, Hallil alone "signs as a director of Portovino", and the report: "Note that s 129(5) was not helpful here given that only one person signed the contract." The execution assumption presupposes a document at least appearing to satisfy s 127(1): two directors, a director and a secretary, or a sole director and secretary of a proprietary company. One signature that is none of those fails on its own terms. Find the assumptions that actually fit (ss 129(2), (3)).

Trap. Obtaining an assumption does not make it effective for every purpose. Assuming a person is duly appointed with authority over customary duties does not validate a transaction outside those duties: a mere director customarily has little contracting authority, so s 129(3) for a "director" buys almost nothing, and s 129(1) only clears internal rules. Match each assumption to the precise gap in the outsider's case.

Trap. Fraud and forgery do not defeat the statutory route. The assumptions are preserved where officers or agents act fraudulently or forge documents in connection with the dealings (s 128(3)): the opposite of the common law IMR. The 2023 forgery kills the IMR limb but not the ss 128 to 129 limb, provided the forger had some legitimate role in the dealings (Soyfer; Story) and s 128(4) is not triggered ("slightly taken aback by Hallil's youthful appearance" tests exactly this).

Exam calibration. The architecture is stable: an unauthorised signatory, a quoted constitutional threshold clause, and a calibrated outsider state of mind for s 128(4). The 2023 report's verdict, "This question was not done well overall", makes this a differentiator module: walk the full decision path, conclude on each step including the negative ones ("apparent authority (which there was not)"), and never let one route's failure end the answer.

Take it to the practice bank

This module is drilled in the Corporations Law practice bank. Every problem there carries a realistic Pass answer, an H1 model answer, and an examiner's comment explaining the decisive fact and where the marks are lost.

Practice prompts

Find the quoted constitutional clause in any contracting paper, name its dollar or duration threshold, and write the sentence stating what it does and does not invalidate (s 125(1)).
Take facts where the signatory introduced himself as managing director and write the apparent authority paragraph, asking who made the representation before asking what it conveyed (Freeman & Lockyer; Corpers (No 664)).
Run a forged execution through both routes: conclude that forgery defeats the indoor management rule, then take the same facts through s 128(3) to the statutory assumptions.
For a mere-director signatory, list each s 129 assumption and say which one actually closes the gap in the outsider's case, and why s 129(1) and s 129(3) buy almost nothing.
Draft the s 128(4) paragraph you will reuse: the company's onus (Sunburst), the subjective standard (Soyfer), and the Errichetti line that failure to inquire is not enough.

Check your understanding

Auto-marked drills. Answer, then see the authority in the feedback.