CHITAKUNYE
J: The first respondent owns an
immovable property known as stand number 237 Redcliff Township of Redcliff
Estate situate in the District of Kwekwe measuring 3 185 square metres held
under deed of transfer number 2190/2000, also known as number 5 McNab Road
Redcliff.
On
30 April 2007, the board of directors of the first respondent passed a
resolution to dispose of that property with a view to buying another immovable
property.
In
their resolution the board of directors nominated Nandi Properties (Pvt) Ltd to
act as the disposing agent. On 2 May 2007 all the three directors signed the
resolution.
It
is not disputed that Mr Michael Hanyani as the managing director thereafter
gave instruction to Nandi Properties (Pvt) Ltd in furtherance of that
resolution. Nandi Properties (Pvt) Ltd proceeded to source for buyers for the property.
On 21 June 2007 the applicant made an offer to
purchase the property at a price of Z$1.9 billion. The amount was to be paid by
RTGS see annexure “A” of the founding affidavit.
That
irrevocable offer letter and acceptance was apparently faxed to Kwekwe fax
number (055) 23192 attention Hanyani. Mr M Hanyani, to whose attention it was
said the offer letter was drawn is alleged to have appended his signature on
the same date and had the document faxed back to Harare.
On
26 June 2007 Mr M Hanyani signed a special power of attorney, annexure “C” to the founding affidavit in favor of Messrs Magwaliba
& Kwirira authorizing them to sign all documents relating to the sale and
transfer of rights and interests in the property in question. That document was
sent to Magwaliba & Kwirira by fax on that same date.
On
that same date, 26 June 2007, the agreement of sale was signed by the parties.
Mr T Magwaliba signed on behalf of the first respondent in terms of the special
power of attorney and the applicant signed as purchaser.
On
28 June 2007 the applicant paid the total purchase price of Z$1.9 billion
through RTGS in terms of the agreement of sale.
On
29 June 2007, the first respondent, through Mr M Hanyani wrote a letter,
addressed to Mr Madamombe of Nandi Properties (Pvt) Ltd purportedly cancelling
the agreement of sale for the property in question. The letter reads in part:
“We write to
inform you that we are cancelling the sale agreement for the property on 5 McNab Street
Redcliff. The directors of Bryden Technical Services (Pvt) Ltd felt that they
cannot find a replacement property with an equivalent value as agreed on
earlier on (minutes of 30 April 2007).
The replacement
property was pegged at Z$1.9 billion but after two weeks due to hyper inflation
and your delay in facilitating payment, the property now costs Z$3.5 billion.
This, however, has left us with no option except to cancel the agreement. Please
may you reverse payment made as soon as possible.”
It
is apparent from the above, that the first respondent was by that date aware
that an agreement of sale had been concluded and payment made hence the
cancellation of the agreement and instructions to its agent to reverse the
payment made as soon as possible. It is also apparent that the reason for the
cancellation is the change in the price of the property the first respondent
intended to buy after disposing of 5
McNab Street Redcliff.
On
4 July 2007, the first respondent, through Messrs Mkushi, Foroma & Maupa
legal practitioners, addressed a letter to Messrs Magwaliba, Matutu &
Kwirira. That letter reads in part:
“We write you at
the instance of Mrs E Khetani and Ms Lukungwe, who are both directors of Bryden
Technical Services. Our clients advise that on 30 April 2007, they made a
resolution to dispose of the above referenced property, but they were yet to
appoint a company representative to sign the requisite documents on behalf of
the company. We are advised that Mr Michael Hanyani, one of the directors had
proceeded to negotiate the price as well as granting power of attorney to
yourselves to do the needful.
Our instructions
are that the other two directors never authorized Mr Hanyani to act in the
manner he did and he acted on his own volition without any company resolution
to that effect, implying that whatever was negotiated and concluded by him
without the authority of the other directors is null and void. This includes
any agreement, if one had been concluded as well as the power of attorney to
yourselves”.
The
reasons for seeking to annul the agreement of sale are clearly different from
those advanced by Mr Hanyani, the managing director in his letter of 29 June
2007 cited above.
Faced
with the apparent effort to resile from the contract by the first respondent
the applicant applied for and obtained a provisional order from this court on
11 July 2007. The interim relief granted was to restrain and interdict the
first respondent from disposing of the property in dispute and that the order
be registered as a caveat against deed of transfer number 2190/2000.
The
applicant now seeks the confirmation of the provisional order granted then,
which is basically an enforcement of the agreement of sale.
The
first respondent opposed the confirmation of the provisional order. The first
respondent's basic grounds for opposing the order sought were that:
(1)
The first respondent did not accept the offer made by
the applicant; and
(2)
The managing director Mr M Hanyani had no authority to
accept the offer and to negotiate the selling price.
The
main issue include whether the first respondent being a corporate entity and
legal persona, authorized the agreement of sale or alternatively, whether the
said agreement of sale is a nullity.
The
applicant's position was to the effect that the agreement of sale he entered
into was valid and should thus be enforced. The first respondent on the other
hand contended that it did not see the applicant's irrevocable offer letter and
acceptance and it therefore did not accept his offer. In any case its managing
director who is alleged to have seen the irrevocable offer letter and to have
proceeded to sign it, had no authority to negotiate the purchase price.
The
first respondent does not deny that in terms of its board of directors'
resolution of 30 April 2007, it was resolved to dispose of number 5 McNab Street
Redcliff through Nandi Properties (Pvt) Ltd.
There
is no denial that Mr M Hanyani, the managing director instructed Nandi properties
(Pvt) Ltd on behalf of the first respondent.
It
is trite law that the first respondent, being a legal persona acts through its
agents, in this case the board of directors.
In
Walenn Holdings (Pvt) Ltd v Intergrated Contracting Englineeers (Pvt)
Ltd & Anor 1998 (1) ZLR 333
(H) at p 346 SIBANDA J cited with approval the role of the board of directors
as summed up in Hahlo, SA Company Law Through
Cases, 4th ed at p 445 where the author stated that:
The fountain
head of a managerial power in the company is the board of directors, which acts
on its behalf. A transaction entered into or approved by the board, acting
within its constitutional powers, is binding on the company. So is a
transaction entered into within the scope of his actual authority by the
managing director, if there is one, by a single director, or by a manager or
other officers of the company.”
In
casu, the intention of the first
respondent to sell the property was known through its resolution made by the
board of directors.
On
whether the first respondent accepted the offer by the applicant, it is common
cause that the first respondent nominated and appointed Nandi Properties (Pvt)
Ltd as its agent in disposing the property in question. It is not disputed that
Mr M Hanyani was given the mandate to convey the nomination and appointment of
Nandi Properties (Pvt) Ltd. He duly did so.
Nandi
Properties (Pvt) Ltd advertised the property and upon receipt of the applicant's
offer, sent same to Kwekwe, fax number (055) 23192 attention Mr Hanyani.
It
is apparent that the offer and acceptance was signed and re-faxed to Harare as confirmation
that the first respondent had accepted the offer. Soon after that the first
respondent's Mr M Hanyani signed a special power of attorney in favor of Messrs
Magwaliba & Kwirira, legal practitioners authorizing them to sign all
documents for the sale and transfer of the property.
The
first respondent's effort at pointing to the difference in signatures of Mr M
Hanyani on the irrevocable offer letter and acceptance and other documents was
without merit. As pointed out by the applicant Mr M Hanyani's manner of signing
where his signature was required is not the same even on those documents that
he admitted to have signed. The same applies to how he chose to sign when he
was required to sign in acceptance of the offer. I did not hear the first
respondent's counsel to seriously deny that Mr M Hanyani did sign differently
even on admitted documents..
Clearly
Mr M Hanyani is not given to signing in the same manner wherever his signature
is required.
I
am of the view that the preponderance of probability is clearly against the
first respondent in this regard and in favour of the contention that Mr M
Hanyani is the one who signed the irrevocable offer letter on behalf of the first
respondent.
Having
found thus, can the first respondent be heard to say that it did not know about
the acceptance or that its managing director had no authority to negotiate or
agree on the purchase price.
It
is common cause that the first respondent held out Mr Michael Hanyani as its
managing director. In that post, he was clothed with the general powers of a
managing director of a company. Anyone dealing with him would thus be entitled
to assume he had all the powers and mandate of a managing director. He was a
high ranking agent of the company endowed with enormous powers befitting a
managing director.
The
general law on agency as enunciated by AJ Kerr in Law of Agency, 3rd ed 1991 at p 259 is that:
“In the standard
case the services of empowered agents acting within the terms of their
authority result in, and the services of unempowered agents contribute to the
formation of a contract between the principal, disclosed and named, and the
third person. The resulting legal position as far as the principal and the
third person are concerned, is the same as if the principal had entered into
the contract himself as in the case of unempowered agents as if the principal
had conducted the negotiations himself”.
In
this case the first respondent held out Mr M Hanyani as its managing director
and authorized him to deal with Nandi Properties (Pvt) Ltd on its behalf. Any
person dealing with him was entitled to assume that he had the apparent
authority to contract on behalf of the company which is generally available to
all managing directors of similar companies.
This
rule relating to apparent authority was derived from Bowstead on Agency and quoted with approval by STRATFORD J in Monzali v Smith 1929 AD 382 at 385 where at it is stated that:
“Where any
person, by words or conduct, represents or permits it to be represented that
another has authority to act on his behalf he is bound by the acts of such
other persons with respect to any one dealing with him as an agent on the faith
of any such representation, to the same extent as if such other person had
authority which he so represented.”
At p 293 of Bowstead on Agency 15th ed 1985, the author states that:
“Where a person
is held out by the company as having an authority that he might consistently
with the provisions of the memorandum and article possess, a third party is in
some cases entitled to assume that he has such authority and that the relevant
procedures of indoor management (the documents concerning which are not
available to him) for giving him this authority have been completed ….
The first type
of holding out occurs where the agent is appointed to a position carrying with
it a usual authority, e.g. that of managing director. Here, provided that the
act performed by the agent is within the usual authority of persons holding a
position such as that held by the agent, an estoppel operates against the
company and it is bound by his acts even though these were unauthorized, or
even though the procedures necessary for authorizing him had not been applied.”
Clearly
therefore when one is appointed to a certain position or post, the principal
represents by such, that that person/agent has such powers as other persons
holding similar positions in companies dealing in similar business. See Reed N O v Sagers Motor (Pvt) Ltd
1970 (1) SA 521 (RAD) at p 524 H- 525A; Stewart
v Zagneb Properties(Pvt) 1971 (2) SA 349 (RAD); and Southern Life Association Ltd v Beyleveld NO 1989 (1) SA 496 A at p 505
B-D.
Mr
Hanyani as managing director had certain powers expected of a managing director
of a company.
In
Moresby White v Rangeland Ltd 1952 (4) SA 285 (SR) at p 236A – 237 B TREDGOLD CJ had this to say about the
position of a managing director:
“The term
'managing director' has become virtually a term of art in company law and is
applied to a director who is vested by the board of directors with all or a
substantial part of its general powers of the control of the affairs of the
company. He is the direct and immediate representative of the board, fully
recognized as such for certain legal purposes … and acts within his ostensible
authority to bind the company in its dealings with other parties… A fully
accredited managing director, acting in that capacity, acts as the company
itself, just as the board so acts”.
The
first respondent's contention that Mr M Hanyani had not been specifically
authorized to sign the irrevocable offer letter and to negotiate and agree on
the purchase price was bereft of the reality.
As
the managing director, anyone dealing with him would expect him to be reposed with
the powers of a managing director of a company. These include to enter into
contracts on behalf of the company. The issue of him not having been specifically
authorized to deal with the nitty grities of the agreement of sale could not
vitiate a contract he lawfully entered into on behalf of the company. It was as
managing director that he:
(a)
gave instructions to Nandi Properties (Pvt) Ltd to
dispose the property;
(b)
signed the irrevocable offer letter;
(c)
gave a special power of attorney to Messrs Magwaliba
and Kwirira to sign all documents relating to the sale and transfer of the
property in question; and
(d)
wrote the letter dated 29 June 2007 purporting to
cancel the agreement of sale for the reasons stated there in.
That
letter does not show in any way that Mr M Hanyani had no authority from the
first respondent to do as he did. If anything the letter shows a clear acknowledgement
that an agreement of sale had been concluded and the purchase price of Z$1.9
billion had been paid. The directors were now seeking to cancel the agreement
because the price of the property they wanted to buy had risen from Z$1.9
billion to Z$3.5 billion.
The
irregularities that the first respondent raised pertaining to Mr M Hanyani's
lack of authority is of no consequences in the light of the above.
In
Walenn Holdings (Pvt) Ltd v Intergrated Contracting Engineers (Pvt) Ltd
& Anor (supra) SIBANDA J
quoted with approval the words of LORD SIMON in Morris v Kanssen (1946) 1
ALLER 586 (HL) at p 592 when he said that:
“The rule in Royal British Bank v Turquand (The Turquand on Indoor
Management Rule) provides that persons contracting with a company and dealing
in good faith may assume that acts within its constitution and powers have been
properly and duly performed and one is not bound to inquire whether acts of
internal management have been regular. The rule renders proof by the company
that the internal formalities have not been complied with insufficient to
enable it to escape liability under the contract, hence the rule is not merely
on applications of the rebuttable presumption omnia praesumuntur rite esse
acta”.
In Hahlo's South
African Company Law through the Cases, 5th ed at p 460 the rule is
repeated where in it is stated that:
“Under the rule
also known as the indoor management rule persons dealing with the director or
manager of a company who openly exercises authority which he could have under
the constitution of a company, provided that some act of internal management
was performed are entitled to assume that that act was performed”.
In Zimbabwe, the point is made clear
by s 12 of The Companies Act Chapter
24:03. That section provides that:
“Any person
having dealings with a company or with someone deriving title from a company
shall be entitled to make the following assumptions, and the company and anyone
deriving title from it shall be estopped from denying this truth:
a)
that the company's internal regulations have been duly
complied with;
b)
that every person described in the company's register
of directors and secretaries, or in any return delivered to the Registrar by
the company in terms of s 187, as a director, manager or secretary of the
company, has been duly appointed and has authority to exercise the functions
customarily exercised by a director, manager and secretary, as the case maybe,
of a company carrying on business of the kind carried on by the company; and
c)
That entry person whom the company, acting through its
members in a general meeting or through its board of directors or its manager
or secretary, represents to be an officer or agent of the company has been duly
appointed and has authority to exercise the functions customarily exercised by
an officer or agent of the kind concerned”.
In
this case the first respondent is estopped from denying that its managing
director had the necessary authority to sign the irrevocable offer letter and
to negotiate the price when from its own
admission that managing director had been authorized to instruct Nandi
Properties (Pvt) Ltd to dispose the property.
The
first respondent is splitting hairs by seeking to say that though Mr Hanyani had
the authority to instruct Nandi Properties, he had no authority to do other
acts that generally or naturally go with such mandate; that is the issue of
purchase price.
I
am of the view that the first respondent is estopped from contending that Mr M
Hanyani as the managing director, did not have the usual ostensible authority
expected of any company managing director to enter into contracts on behalf of
a company.
It
is further estopped from denying that it was aware that its managing director
had signed the irrevocable offer letter and had by virtue of the special power
of attorney in favour of Messrs Magwaliba, Kwirira legal practitioners entered
into a valid agreement of sale with the applicant.
It
is my further view that the first respondent had no good reason to seek to
resile from the agreement of sale or to seek to have such agreement of sale
nullified.
Accordingly
it is hereby ordered that:
The provisional
order granted by this court on 11 July 2007 be and is hereby confirmed with
costs.
Wintertons, applicant's legal practitioners
Chitere Chidawanyika
& Partners, respondent's legal practitioners
