COMPANY CONTRACTS & VALIDITY Flashcards
(31 cards)
What does the ultra vires doctrine state?
A company exists only for the purposes stated in the memorandum of association.
This means that any act beyond these purposes is void and not binding.
What happens if a company acts ultra vires?
The act is void and not binding on the company or the other party.
The company cannot ratify such acts even if all members approve.
What was the purpose of the ultra vires doctrine?
To protect investors and creditors by limiting the company’s activities to its stated objects.
It prevents companies from engaging in businesses outside their defined scope.
What does Section 19(1) of the Companies Act 71 of 2008 state regarding a company’s legal powers?
A company has all the legal powers and capacity of an individual unless otherwise specified.
This marks a shift from the ultra vires doctrine.
What is the effect of Section 20(1)(a) of the Companies Act?
Actions of the company will not be void solely due to limitations in the memorandum of incorporation (MOI).
This ensures contracts remain valid despite internal restrictions.
In what scenario can shareholders ratify actions inconsistent with the company’s MOI?
By special resolution as per Section 20(2) of the Companies Act.
However, actions cannot be ratified if they contravene the Act.
What legal recourse do shareholders have under Section 20(6)?
Shareholders may claim damages against those causing the company to act inconsistently with the Companies Act.
This applies unless the action has been ratified.
What does the doctrine of constructive notice imply?
Persons dealing with a company are deemed aware of its public documents.
This doctrine was abolished by Section 19(4) of the Companies Act.
What is required for a company to act through its directors?
The business and affairs must be managed under the direction of the board as per Section 66(1).
The board has authority to exercise the company’s powers unless restricted by the Act or MOI.
Define actual authority in the context of agency law.
Authority given explicitly by the principal, either orally or in writing.
This includes both expressed and implied authority.
What is ostensible authority?
Authority that is created by the principal’s representation, leading a third party to believe the agent has authority.
The principal can be bound by the agent’s actions due to this representation.
List the three requirements for ostensible authority according to Freeman & Lockyer v Buckhurst Properties.
- A representation must have been made to the third party.
- The representation must be made by someone with actual authority.
- The third party must have relied on the representation.
If the third party knows the agent lacks authority, they cannot rely on ostensible authority.
What is the significance of the case Makate v Vodacom (Pty) Ltd?
It highlights the principles of actual authority and ostensible authority in contractual agreements.
The case involved a dispute over compensation for an idea developed by the applicant without formal approval from Vodacom’s board.
True or False: The Companies Act allows a company to have an objects clause.
False. It is no longer mandatory except for non-profit companies.
The Act simplifies the capacity of companies compared to the ultra vires doctrine.
Fill in the blank: A company acting beyond its stated purpose is said to be acting _______.
ultra vires.
Such acts are void and cannot be ratified.
What recourse do shareholders have if a company acts beyond its powers?
They can apply to court to restrain the company or directors from such actions.
This is under Section 20(5) of the Companies Act.
What is actual authority?
The authority granted to an agent to perform a juristic act on behalf of a principal.
What is ostensible or apparent authority?
When a principal conducts herself in a manner that misleads a third party into believing that an agent has authority.
What is estoppel in the context of agency?
A rule preventing a principal from denying that an agent had authority if the principal misled a third party.
What does the Common Law Turquand Rule protect?
Bona fide third parties who are not aware of any irregularities affecting the validity of their contracts.
What must a third party do to be protected under the Turquand Rule?
Act in good faith and assume compliance with all formalities required for a valid contract.
What is the significance of the case Royal British Bank v Turquand?
It established that third parties dealing with a company can assume that internal formalities have been complied with.
What are the requirements for the Turquand Rule to apply?
- The outsider must be acting in good faith
- The outsider must not know of a defective mandate
- Surrounding circumstances must not be suspicious
True or False: The Turquand Rule applies to third parties who have constructive knowledge of internal irregularities.
False
