Business Law of Finance Lease by John †MyAssignmenthelp.com

Questions: 1.Explain whether the car finance company can argue that it has a valid mortgage over the office? 2.Can Easy Loan Bank enforce its mortgage over the house and can it rely on the assumptions in s129 of the Corporations Act? Answers: Issue: 1. In the present case, the first issue is related with the purchase of sports car by John worth $80,000. For this purpose he has obtained a finance lease in the name of the company and he also gave a guarantee in the form of a mortgage over the office building belonging to Kakadu Tourism Services Pty Ltd. In the present case, it needs to be noted that the loan has been taken by John for his personal use, to purchase a sports car worth $80,000. In this way, Kakadu Tourism Services Pty Ltd (KTS) was not going to be benefited or derive any commercial advantage from the loan. Due to the reason that a corporation is a fictitious legal entity, it has to act through its agents. These agents can be the directors or the other officers, employees or official agents of the company. Rule: It has been mentioned in section 126, Corporations Act the seal of the company is not required for the purpose of creating a binding contract. If the agent of the company or its employee or some other person has been authorized for this purpose, and the person has acted within the authority provided by the company. Therefore, thelaw provides that if an individual is acting within the scope of express or implied authority provided by the company, may enter into a legally enforceable contract on behalf of the company (Baxt, Fletcher and Fridman, 2008). In this regard, it also needs to be stated that the directors or the other officers of the corporation enjoyed all the powers that have been given to them under the constitution of the corporation or the replaceable rules. It is also worth mentioning that the principle of ultra vires has been done away with. As a result, any of the company cannot be treated as invalid only on account of the reason that the act of the company is contrary to or beyond the limitations of the prohibitions that have been mentioned in the Constitution of the company. These include the contracts or the promises that are against the provisions of the Constitution of the company (Cassidy, 2013). This provision has been mentioned in section 125(2) of the Corporations Act. In this regard, another provision is present in section 129 of the Act. It provides that, generally, it is permissible for an outsider to assume that the person, acting on behalf of the corporation does have the necessary authority and the person is acting within the scope of the company's constitution. Application: In this regard, section 127 of the Act prescribes the ways in which a document may be validly exhibited by a company. Therefore, briefly speaking, a document may be executed by a company in accordance with the provisions of section 127 with or without the seal of the company. Thelaw provides that in case the company has received, it is not necessary to use it (Ciro and Symes, 2013). Hence, usually the execution of document according to section 127 takes place without the seal of the company. In such a case, a document may be validly executed if the document is signed by (i) to directors of the company; (ii) , a director and company secretary (iii) or in case of provides the company, having sole director, who is also the sole secretary by such director. Conclusion: In the present case, this requirement has not been fulfilled. As a result, it can be concluded that the mortgage over the office building of KTS, executed by John for purchasing the sports car was not validly executed. Hence, it cannot be argued by the car finance company that it has a valid mortgage over the office belonging to KTS. Issue: 2. Another issue that is present in this case deals with the loan of $200,000 taken from Easy Loan Bank without informing Mary and without obtaining the approval of the board, which was required by the Constitution of the company. John had mortgaged the house in which Mary was living. John also told the bank that Mary had resigned from the position of the company secretary of the company and his son Michael had been appointed as the company secretary. Therefore, it needs to be seen if the mortgage over the house can be enforced by Easy Loan Bank and for this purpose if the bank can rely on the assumptions mentioned in section 129, Corporations Act. Rule: It needs to be loaded in this regard that the individual directors of the company, managing directors as well as the company secretaries are always treated as agents of the company (Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd., 1964). But they should be authorized by the relevant internal rules of the company. In this regard, section 129, Corporations Act provides that an outsider can make an assumption regarding the presence of the authority given to the agent. Therefore, it has been mentioned in section 129 that an outsider can make an assumption that a person representing the company as its officer has been appointed properly and similarly to assume that such such person has the authority of using the powers on behalf of the corporation (Hanrahan, Ramsay and Stapledon, 2013). Similarly, the section also provides that the outsiders may assume that the person is performing properly, its duties towards the corporation. On the other hand, a contract cannot be treated as binding for the company only due to the reason that the agent has entered the contract without authority (Hargovan and Adams, 2013). The relevantrule of the common law that applies in such cases is the indoor management rule. In Turquand's case, the court came up with this rule. According to the indoor management rule, protection has been provided to innocent third parties while they are going to enter the transaction with a corporation, but they cannot know if all the relevant internal rules of the corporation have been followed or not (Redmond, 2009). Hence the courts have adopted a practical approach in order to deal with the problems that were present before the outsiders. These problems were the result of the fact that it is very difficult for the outsiders to know if all the relevant internal rules of the company have been followed while inching into transaction (Li and Riley, 2009). The indoor management rule has been incorporated in section 129, Corporations Act. However, thecommon law provides that this protection is not available in case the third-party those regarding the fact that the director or the a gent was not properly appointed or if such person does not have the authority to enter a contract on behalf of the corporation. Similarly, the law requires that the effect of fraud and forgery should be kept in mind, while considering if a particular contract created by the agent can be treated as binding on the company or not. In order to deal with such cases, section 128(3) of the Act provides that if a document has been forged by the agent or if the agent has acted fraudulently, these assumptions can still be made by the innocent third party (Austin and Ramsay, 2012). Application: In this case, John had made a false representation to Easy Loan Bank that Mary has been removed from the position of the director of the corporation and in his place, his son, Michael has been appointed as the company secretary and Michael also has the authority to sign contracts on behalf of the corporation. But in this regard, it needs to be noted that there was no documentation lost with the ASIC which would show that Mary had been removed from the position of the company secretary of KTC and Michael has been appointed in her place. In this way, John had taken a loan of $200,000 from the bank without telling Mary. The loan was secured by a mortgage over the house that was owned by the company and in which Mary was living. Under these circumstances, the issue arises if the Bank can be allowed to enforce the mortgage against the house. For this purpose, it doesn't be decided if the mortgage created by John and Michael legally binds the company or not. In view of the regions mentione d in section 129, it can be said that in the present case, the mortgage is binding on the company. At the same time, it also needs to be noted that in view of section 128(3) even if there is some fraud, still an outsider is allowed by the law to make the assumptions mentioned in section 129. As a result in the present case. Also, Easy Loan Bank can make the presumptions mentioned in section 129 of the Act. As a result, the contract created by John and Michael regarding the loan of $200,000 and the mortgage of the house is binding on KTS. Conclusion: Under these circumstances, the law allows Easy Loan Bank to enforce the mortgage over the house. For this purpose the bank may rely on the assumptions mentioned in section 129 of the Act. References Austin R.P. and Ramsay, I. 2012, Ford's Principles of Corporations Law, Butterworths, Australia, 15th edition Baxt, R., and Fletcher, K.L., Fridman, S. 2008, Corporations and Associations Cases and Materials on, Butterworths, Australia, 10th edition Cassidy, J. 2013, Corporations Law Text and Essential Cases, Federation Press, 4th edition Sydney Ciro T, Symes C. 2013, Corporations Law in Principle LBC Thomson Reuters, Sydney, 9th edition Hanrahan, P., Ramsay I., Stapledon G. 2013, Commercial Applications of Company Law. CCH 14th edition Harris, J. Hargovan, A. Adams, M. 2013, Australian Corporate Law LexisNexis Butterworths 4th edition Li, G, Riley, S. 2009, Applied Corporate Law: A Bilingual Approach LexisNexis 1st Edition. Redmond, P. 2009, Companies and Securities Law - Commentary and Materials, Law Book Co., Sydney, 5th Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) 2 QB 480