Brownett v Newton

This case involved an appeal to the High Court of Australia from a decision of the Supreme Court of New South Wales. The respondent, Mr. Newton, had supplied goods to a company, Applied Concrete (Broken Hill) Ltd., and sought to recover the outstanding balance from the appellants, who were the directors of the company. The core of the dispute was whether the directors had breached an implied warranty of authority when entering into contracts with Mr. Newton on behalf of the company.

The legal issues before the court were whether the directors of the company had provided an implied warranty that they were authorised to enter into immediately binding contracts on behalf of the company, and if so, whether this warranty had been breached. Specifically, the court had to determine if the directors' conduct, in light of the company's failure to comply with section 77 of the Companies Act 1936 (N.S.W.), gave rise to an inference of such a warranty, and if the respondent could maintain an action for breach of this warranty despite the statutory restrictions on the company's ability to commence business.

The court reasoned that directors, like other agents, can be held liable for breach of an implied warranty of authority if they induce another party to contract with them as agent for a principal by an unqualified assertion of their authority. The court found that there was evidence from which a jury could infer that the directors, through their actions and conduct in ordering and accepting goods from the respondent, had represented that they possessed the authority to make contracts that would be immediately binding on the company. This was despite the fact that the company had not complied with the statutory requirements of section 77 of the Companies Act 1936, which rendered contracts entered into before compliance provisional and not binding. The court held that the respondent was not presumed to know of the company's non-compliance with section 77 and was entitled to rely on the implied warranty of authority from the directors for the purpose of this collateral contract.

The High Court dismissed the appeal, affirming the decision of the Supreme Court. The court held that there was sufficient evidence to go to a jury on the question of whether the directors had provided an implied warranty of authority and that the respondent was entitled to pursue his claim for breach of this warranty.