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ACCA Applied Skills · Corporate and Business Law (Global) · Other company officers

Zentra Ltd's company secretary, Mr Rao, signed a contract on the company's behalf to hire a fleet of cars for use by the directors. The contract was made with a leasing firm that did not know of any restriction on his role. Under the traditional common law position as developed in Panorama Developments v Fidelis Furnishing Fabrics, what is the effect of the contract?

The contract binds Zentra Ltd. A company secretary has ostensible authority to make contracts concerning the administrative side of the business, such as hiring cars, so a third party without notice of any restriction can enforce the agreement against the company.

  1. AIt binds Zentra Ltd, because a company secretary has ostensible authority to make contracts relating to the administrative side of the company's businessCorrect
  2. BIt is void, because only directors can bind a company to contracts
  3. CIt binds Mr Rao personally only, because a company secretary has no authority to contract
  4. DIt is voidable at the option of the leasing firm only

Explanation

In Panorama, the court held that a company secretary is an officer with ostensible authority to enter contracts connected with the administrative running of the company, such as hiring cars for business use. The company is therefore bound. The claim that only directors can bind the company reflects the older, outdated view.

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