Australia: Has the company correctly signed the contract? Personal liability of directors for incorrectly signed contracts

In the recent case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014] SASCFC 103, a $1.5 million purchase contract was signed by only one director of the purchaser. The company had two directors.

The issue was whether there was an enforceable contract with the purchaser and, if the contract had not been correctly signed by the purchaser, whether the director who purported to sign the contract on behalf of the purchaser was personally liable to pay damages to the vendor for breach of warranty of authority.

The background to the case

Under sections 126 and 127 of the Corporations Act 2001, a distinction is drawn between execution by the company itself (which is governed by section 127), and execution by an agent on behalf of the company (which is governed by section 126).

Section 127 provides for execution of a document with or without using the common seal. When the common seal is not used and where a company has more than one director, section 127 requires that at least two directors or a director and a company secretary of the company sign a contract in order to bind the company.

The contract execution page for the purchaser (De Chellis Homes Pty Ltd) was material to the Full Court's analysis. There were alternative execution boxes for the purchaser:

The purchaser's execution page proceeded upon the same distinction between execution by the company itself – which was provided for in the first execution box – and execution by an agent on behalf of the company, which was provided for in the second execution box.

The first execution box stated explicitly that the execution was in accordance with section 127. It made provision for execution by the company in two different modes, depending on whether the company had one or more directors:

  • If the company had a sole director and secretary, provision was made for the purchaser to strike out the word 'Director' and for the 'Sole Director/Sole Secretary' to sign as the company.
  • If the company had two or more directors, provision was made for two signatures, namely a signature by a director and a second signature by another director or a secretary.

Section 126 provides that the power of a company to make a contract may be exercised by an individual acting with the company's express or implied authority on behalf of the company. The second execution box provided for execution by an agent on behalf of the company.

The purported execution by the director

The director of De Chellis Homes signed in the first execution box as a director and he struck out the words 'Sole Director/Sole Secretary', designating that the company had two or more directors.

In the absence of a second signature by a second director it was clear on the face of the execution page of the contract that it had not been executed by the purchaser under section 127.

The second execution box for execution by an agent on behalf of the company was left blank with no alterations.

The purchaser's constitution

The purchaser's constitution was also relevant. It provided that where the company had more than one director and the Board of directors resolved that a director specified in that resolution was authorised to execute documents, then the company could execute any document by that director signing the document.

There was no resolution authorising the director to execute the contract on behalf of the company.

However, if he had been signing the contract in accordance with such a resolution, he would have signed the second execution box as agent on behalf of the company because the execution would have been under section 126 and not under section 127.

The vendor was also unable to place any reliance upon section 129 of the Corporations Act, sometimes referred as part of the 'indoor management rule'.

The specific assumptions in issue were subsections 129(5) and (6). Generally speaking, subsections 129(5) and (6) entitle a person dealing with a company to assume that a document has been duly executed by the company if the document appears to have been signed in accordance with section 127.

In this case the contract did not appear to have been signed in accordance with section 127 at all, because the execution page indicated that the director was not the sole director and a second director or secretary had not signed as representing the company.

The purchaser had not correctly signed the contract and, as a result, the contract was not enforceable against the purchaser.

Was there a breach of warranty of authority by the director of the purchaser?

The Full Court reiterated the well-established legal principle:

If an agent purports to enter into a contract on behalf of a principal, purportedly within the scope of the agent's authority, and the other party relies upon the agent's representation of authority to enter into the purported contract with the principal, the agent warrants that the agent has authority to enter into the contract. The agent is liable for damages to the other party for any breach of that warranty of authority.

The director had a lucky escape.

The Full Court said the following:

  • In signing his name as director of the purchaser as part of an execution clause by the company purportedly in accordance with section 127, the director was not purporting to act as an agent for the company.
  • Instead he was undertaking one half of the execution of the contract by the company itself, which was manifestly incomplete because the execution clause was not countersigned, as required by the execution clause itself, by a second director or secretary.
  • The partial execution by the company was incapable of conveying to an objective person in the position of the vendor that the purchaser had determined to enter into the contract.
  • The signing of one half of the first execution box could not support a warranty that the director was an authorised agent of the company and as a result the director was not personally liable.
  • This position can be contrasted however with the position that would have applied if the director had executed the second execution box and purported to sign as agent for and on behalf of the company. In that event, he would have been purporting to act as agent for the company and would have implicitly warranted that he had authority to do so.


Correctly signing a contract by or on behalf of a company is not a mere formality.

If a contract is incorrectly signed on behalf of a company it may result in the contract being unenforceable against the company. Worryingly for the director or agent who purported to sign the contract on behalf of the company, they might be personally liable.

The assumptions in section 129 of the Corporations Act are technical in their application. Whether a particular assumption will apply will depend on the facts.

Where a contract is purported to be signed by an agent or representative on behalf of a company (as opposed to the situation where a contract is signed by the company itself) there will be a red flag as to whether the purported representative or agent has authority to sign on behalf of the company.

If you are the other party to a contract you should obtain confirmation that the representative or agent had authority to sign on behalf of the company.

In internal company disputes or where there is 'seller or buyer remorse', allegations are commonly made that a representative of the company acted without authority in purporting to sign an agreement.

The warning for a person purporting to sign as representative or agent on behalf of a company is that they can be liable to pay damages if they breach the warranty that they had authority to sign on behalf of the company. They should make sure that they have written evidence of the required authorisation before purporting to sign on behalf of a company.

Winner – EOWA Employer of Choice for Women Citation 2009, 2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and 2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best Australian Law Firm (revenue less than $50m)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.