Contracting with a company - check for director authority
A recent High Court judgment reminds us once again of how important it is, when dealing with a company, to check that whichever director/s you are dealing with is/are fully authorised to bind the company.
R3.8m in claims attacked
- A liquidation application was launched against a property developing company with 3 directors,
- The applicant creditor was owed some R3.8m in loan and suretyship claims,
- Its problem was that the suretyship and loan agreements had been signed by only one of the directors of the property company, with the knowledge and approval of the second director but not of the third,
- The third director (acting as trustee of a creditor trust) opposed the liquidation application on the grounds that the first and second directors had acted without authority. He argued that the creditor had no claim against the company, and therefore had no standing to liquidate it,
- The Court found on the facts that the creditor had failed to prove that the first and second directors had acted with authority. Nor had it proved that they were held out as being persons authorised to manage the company's affairs. Thus it could not enforce any claim, and the liquidation order was refused.
So, how do you prove authority?
You must firstly show that you were dealing with someone who had either actual or apparent (often called "ostensible") authority to contract with you. You can't enforce your claim if you can't prove authority!
As a rule you are allowed to assume that the board of directors and any managing director have the necessary authority. The same doesn't generally apply to any ordinary director or employee, except perhaps to the extent that they hold an executive position (financial director or branch manager perhaps) which suggests that they have authority "usual to that type of position". Of course you can't make any assumptions at all if you actually knew, or should have known or suspected, that the director or employee was acting outside his/her powers and authority.
No wriggle room
To complicate matters (sorry, but this is important and to your advantage) what happens if a company tries to wriggle out of its contract with you on the basis that, unknown to you, the director had breached some internal company procedure? Since usually only insiders will know about a company's internal policies, it would be highly unfair to you if that were allowed.
To protect you, our law says that, once you have proved actual or apparent authority as above, you can then assume that all the company's internal rules and policies have been complied with. Out of interest, if you ever hear lawyers earnestly and learnedly debating "The Turquand Rule", this is what they are talking about.
Beware - our law on this is both complex and fraught with grey areas, and the notes above are just a summary of some general legal principles. Insist on directors you contract with producing written proof of authority (a formal company resolution to start with) and take legal advice on your particular circumstances!
FEATURED PAGESCost Calculators
Calculate your approximate transfer costs together with estimated registration fees and transfer duty with our Transfer Cost Calculator; Bond Cost Calculator and Bond Repayment Calculator. (NOTE - this is best viewed in Chrome or the latest version of IE)Contact us
Click above for our contact details and contact us for any additional information or enquiries.Goldberg & de Villiers Inc.
Are you searching for legal service from experienced professionals who strike the much-needed balance between innovation and tradition, and who will put your needs first? At Goldberg & de Villiers Inc, we proudly offer our clients that state-of-the-art, up to date approach to business and legal services, whilst always keeping our clients' specific needs as our main focus. With us, experience and innovation go hand in hand, so clients feel comfortable entrusting their business to the firm - knowing the team can offer them the best of both worlds.
It is this unique combination of trusted experience and modern flexibility that makes Goldberg & de Villiers Inc the choice of such a variety of discerning clients, from one-man businesses to multinational listed companies. Since our inception in 1933, our commitment to personal service, practical advice and tailor-made proactive solutions has earned us a stellar reputation in our field.
The members of African Drumbeat attended the...
Jet Club in partnership with Educor launched...
Ah, salt. We love its taste and yearn to use it liberally in our...
The New Year has begun and for many this is a time to...
A 33-year-old woman is expected in court on Monday after she was arrested by Butterworth police for dealing in dagga. "The suspect was arrested on Friday, at about 03:00am, at Skiet Informal Settlement, Butterworth," described police...
Eastern Cape police on Friday appealed to the public for...
Public Enterprises Minister Lynne Brown has instructed Eskom...
The South African Communist Party (SACP) in the Eastern...
Once again Kouga Local Municipality has been packed with...
The Mandela Bay Development Agency (MBDA) is the entity...
- Two men in custody for house robberies in East London - more arrests expected
- Busted! Lusikisiki cop appears in court for demanding R1 500 bribe from driver at accident
- Current accumulated 2016 fees debt for NMMU stands at R142.6-million
- Visiting elderly American couple rescued after hijacking in Uitenhage
- Injured on duty? Here's what to do