Northside Developments Pty Ltd v Registrar-General (1990) 93 ALR 385

Facts

The Registrar General registered a mortgage in favour of Barclays Credit Corporations Holdings (Barclays) over some land.
Northside Developments Pty Ltd (Northside) was the registered proprietor of the land.
The mortgage purported to have been executed by Northside under common seal.
Robert Sturgess, a director of Northside, attested to affixing this common seal. His son, Gerard Sturgess, also signed as “company secretary”.
The articles of association required either two directors present when affixing the seal, or a director and company secretary. Gerard Sturgess was not the company secretary.
The mortgage secured a loan to companies which were owned by Sturgess. Northside had no interest in these companies.
Following default of the mortgage, Barclays sold the land at auction to a third party. Northside sued the Registrar General for damages under section 127 of the Real Property Act 1900 (NSW) for having registered its land to another entity.
Young J held that the nature of the mortgage should have put the Registrar General on inquiry and no inquiry was made. The Registrar General appealed.

Issues

Should Barclays have been put on inquiry or could it have relied upon the common seal as evidence of Northside’s agreement?

Held

The High Court held that a third party dealing with a company is not entitled to relying on the affixing of a common seal as evidence of the validity of an instrument if the very nature of the transaction is enough to put him on inquiry.
A person dealing with a company is put on inquiry when the nature of the transaction appears unrelated to the purpose and business of the company and the company seems to gain no benefit.
There was no representation from the directors that the seal was affixed with their authority or approval.
The transaction was completed without Northside’s actual or apparent authority.

Quotes

“The affixing of the seal to an instrument makes the instrument that of the company itself; the affixing of the seal is in that sense a corporate at, having effect similar to a signature by an individual …Thus it may be said that a contract executed under the common seal evidences the assent of the corporation itself and such a contract is to be distinguished from one made by a director or officer on behalf of the company, that being a contract made by an agent on behalf of the company as principal.”

(Mason J at page 392)