If we apply this by analogy to the current scenario, David was entering into contractual negotiations with Golden Antiques on behalf of White Hall Limited. Therefore, in order for there to be a valid contract, David will have to have capacity and authority to bind the company in such contracts (McIntyre, 2008). Sections 39-40 of the Companies Act 2006 (CA) regulate authority to negotiate on behalf of companies. Section 39(1) of the CA provides that “the validity of any act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution.”
In addition, section 40(1) of the CA stipulates that “In favour of a person dealing with a company in good faith, the power of the board of directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company’s constitution”. Moreover, section 40(2) of the CA implements a provision that as regards third parties negotiating with a company, there will be a presumption of good faith. As such, the CA provisions do not require third parties to enquire as to whether there are any restrictions on the authority of the board to enter into a contract.
Accordingly, if we apply this to the current scenario, unless Golden Antiques were put on notice that David did not have appropriate authority, there will be a presumption that David had capacity to negotiate and conclude the contract with Golden Antiques on behalf of White Halls Limited.
Therefore, the fundamental issue will be whether the legal requirements for an enforceable contract have been complied with. The law of contract provides a tripartite test for determining a legally binding contract, which is offer, valid acceptance and consideration. For example, in New Zealand Shipping Co Limited v A M Satterthwaite, The Eurymedon () AC 154