GOWORA J: On 2
September 2007 the first applicant, acting as a trustee for a company about to
be formed entered into an agreement with one Marie Louise Morris in respect of
the sale of an immovable property belonging to the latter. The sale was
successfully concluded by the parties thereto. The purchaser of the property
was not specifically identified and was referred to as Ian Spence Gray acting
as trustee for a company about to be formed. It is common cause that the second
applicant was incorporated as a company under the laws of this country on 8 November 2007. The first
applicant is a director in the second applicant.
On 19 March 2008 legal
practitioners acting on behalf of the second applicant then lodged with the
respondent documents to effect transfer of the immovable property from the said
Morris to the second applicant. The documents were returned with an instruction
that the applicant comply with s 47 of the Companies Act (“the Act”). The
applicant was not satisfied with the reaction from the respondent and the
result was that a letter was addressed by its legal practitioners to the
respondent in which it was indicated that the applicant did not need to comply
with s 47 of the Act in that the first applicant, when it entered into the
agreement of sale for the purchase of the immovable property central to the dispute,
had acted as a trustee for a company not yet formed when the agreement was
concluded and not as an agent. Correspondence was exchanged between the parties
which did not yield any result. The applicants therefore have brought this
action for an order from this court directing the respondent to transfer the
property from Morris to the second applicant. The respondent opposes the relief
being sought.
When the
matter was initially called, it appeared that counsel had not furnished the
court with any authority on the issues to be determined. I therefore directed
that each of them draft and file supplementary heads of argument citing for my
benefit the authorities being relied upon by the respective parties and I am
grateful for their assistance in this regard.
The crisp
issue before me is whether or not the second applicant is obliged to comply
with any provisions in the Act in order for the transfer of the immovable
property to be effected in its name or whether under the common law the
applicant can have the property registered in its name despite avoiding the
requirements set by statute.
It is appropriate at this juncture to set
out the provisions of the Act that the respondent insists must be complied with
before the property can be registered in the applicant's name. Section 47 is to
the following effect:
“Any contract made in writing by a person professing to act as
agent or trustee for a company not yet formed, incorporated or registered shall
be capable of being ratified or adopted by or otherwise made binding upon and
enforceable by such company after it has been duly registered as if it had been
duly formed, incorporated and registered at the time when the contract was made
if-
(a) the
memorandum on its registration contains as one of the objects of such company the
adoption or ratification or the acquisition of rights and obligations in
respect of such contract; and
(b) the
contract or a certified copy thereof is delivered to the Registrar
simultaneously with the delivery of the memorandum in terms of section
twenty-one.”
Mr Paul
argued on behalf of the applicants that the second applicant does not have any
obligation to comply with the requirements of the Act, as in terms of common
law a contract concluded for a third party, a stipulatio alteri, was
capable of being enforced by the intended beneficiary even where that
beneficiary was a company which had not yet been formed at the time the
contract was concluded as long as the person who represented the company did so
as a trustee and not an agent. According to Mr Paul the law of South Africa, which is the same as our
own, is to the effect that under the common law a company can ratify a contract
merely by adopting a resolution to that effect and there is no need for
compliance with the provisions of the Act as long as the contract was made for
the company before its incorporation by a person acting as a trustee for the
such company. It was his further view that the provisions of the Act which the
respondent insists must be complied with, are only relevant if the person who
negotiated the pre-incorporation contract acted as an agent and not as a
trustee. Mr Paul has
sought reliance on a South African authority on the issue before me.
Mrs Philips-Dube submitted that
South African authorities are merely persuasive on our courts, they are not
binding. She argued further that the applicants were seeking to avoid
compliance with the provisions of the Act under a pretext that the first
applicant had acted as trustee in the pre-incorporation contract and that as a
consequence strict compliance with the provisions of s 47 was unnecessary. Her
contention was that statutory provisions took precedence over the common law
and that the non compliance on the part of the applicants with those was fatal
to the applicants' cause. The contention by the respondent is that every
company in Zimbabwe
must comply with the provisions of the Act.
The
authority which Mr Paul has placed
reliance on is in Afrikaans and despite request from me he has refused to
furnish the court with a translation of the judgment, his view being that the
court can read the minority judgment by TROLLIP A.R. In view of the fact that
his whole argument was based on this authority I found his attitude not only
puzzling but rather unhelpful, and even an indication from the court that the
majority judgment in Afrikaans would be more of more assistance met with no
success. The only saving grace is that the minority judgment of TROLLIP A.R. is
instructive and was quoted with approval by GILLESPIE J in one of the few Zimbabwean
authorities on the issue in question. I think a discussion of that judgment is
necessary.
In Watson
v Gilson Enterprises & Ors GILLESPIE
J had to consider the rights of a person who contracts a contract on behalf of
a company not yet incorporated. Whilst the facts in that case are not similar
to the present, nevertheless the learned judge, as his wont, also discusses the
position of the company as regards the company both at common law and under the
Act. At pp325F-326D wherein he stated the following:
“Thus where a person purports to contract as agent for a
company which is not as yet formed, the company upon its incorporation cannot
at common law (leaving aside for the moment the relevant provisions of the
Companies Act) purport to ratify that contract. It could only enjoy the
benefits of that contract were it to enter into a new contract itself with the
other party.
On the other hand, the Roman Dutch law
recognizes the concept of the stipulatio
alteri by which –
'where the persons have entered into a contract for the
benefit of a third, the latter may, before the promise has been revoked, accept
it and thus acquire a right of action ...'
The third party may accept
the benefit even if it did not exist when the promise was made. Where such a
third party, particularly a company not incorporated at the time of the
agreement, purports to ratify or adopt the contract made for its benefit, it
was therefore formerly most important to determine whether the person
purporting to act in the non-existent third part's interest acted as agent or
as a principal contracting party.
I say formerly because much
of the importance of the distinction as far as companies are concerned has been
removed by the provisions of s 47 of the Companies Act. This provides that,
subject to certain formal requirements:
'Any contract made in writing by a person professing to act as
agent or trustee for a company not yet formed, incorporated or registered shall
be capable of being ratified or adopted by or otherwise made binding upon and
enforceable by such company after it has been duly registered as if it had been
duly formed, incorporated and registered at the time when the contract was made
...'”
The issue has received attention from the
learned authors Nkala and Nyapadi in their book Company Law in Zimbabwe 1995 Edition. The view of the learned
authors is that a company can adopt contracts made on its behalf before
incorporation provided that it (the company) meets the following five conditions-
viz; that the contract is in writing; the person making the contract on behalf
of the company to be formed, irrespective of how he describes himself must at
least profess to act as agent for the company; the memorandum and articles of
association must contain at the time of incorporation the contract as one of
its objects; the contract must be delivered to the registrar simultaneously
with the memorandum and articles of association and the contract must be
legally enforceable. This view expressed on pp55-59 is in accord with the
provisions of the Act.
The applicants have not complied with the
requirements of s 47. That much is not in dispute and given the manner in which
the memorandum and articles of association were prepared they will not be able
to comply with the requirements of the Act. They accept that the Act has
prescribed the steps required of a company under the Act to benefit from a
pre-incorporation contract concluded for its benefit before it came into being.
They however argue that notwithstanding non compliance with the provisions of s
47, the company is under common law entitled to ratify the contract as it was
entered into on behalf of the company by a trustee and that the contract
constitutes a stipulatio alteri.
It is not the case for the applicants that
the Act does not provide for specific requirements for the ratification of a
pre-incorporation contract, but that over and above those requirements the
applicant company is not precluded from benefiting from the contract without
reference to the provisions of the Act as the remedy is available at common
law. The respondent has contended that the provisions of s 47 are peremptory
and as a result the applicant company can only have the pre-incorporation
contract ratified if it has abided by the requirements of s 47.
I do not
believe that it is necessary for me to decide whether or not the provisions of
s 47 are peremptory as argued by Mrs Philips-Dube.
In my view the import of s 47 has been interpreted by the South African courts
as well as Zimbabwean ones. It appears that neither counsel was prepared to
research on the issue. Our courts have accepted that at common law the
promoters of a company prior to incorporation could individually enter into a
contract for the benefit of such company. In
Graphics Africa (Zimbabwe) (Pvt) Ltd v Rank Xerox Ltd ADAM
J unequivocally stated:
“At common law, it is clear that the promoters of a company prior
to incorporation could individually enter into a contract for the benefit of
such company to be formed and on its incorporation the newly formed company
could adopt the contract. Sentrale Kunssmis Korporasie (Edms) Bpk v NKP”
Kunsmisverreiders (Edms) Bpk 1970 (3) SA
367
In his book The Law of Contract in South Africa
3ed, the eminent author R H Christie states at p 293.
“There is ample authority for thus falling back on the common
law, and it may well be correct to say that s 35 is not intended to apply to
pre-incorporation contracts which qualify as contracts for the benefit of a
third party, but it does not seem to matter which view is taken because as
TROLLIP JA observed in Sentrale Kunsmis
Korp (Edms) Bpk v NKP
Kunsmis-verspreiders (Edms) BKP 1970 (3) 367 (A) 398, s 35 is usually
invoked and complied with for safety's sake even if it is not necessary, and if
the attempt to comply with it fails no harm is done provided the contract
qualifies under the common law. In the days before what is now s 35 the courts
very properly applied the maxim ut res
magis valeat quam pereat to interpret the promissee's position as that of a
principal rather than an agent in a doubtful case, but in Peak Lode Gold Mining Co Ltd v Union Government 1932 TPD 48 51 GREENBERG
J thought the section made it no longer necessary to lean away from agency.
There is no doubt so if the section has not been complied with, but if it has
not the position remains unchanged.”
It is also recognized by Nyapadi and Nkala
in their book that where the company has
not complied with provisions of the Act, the alternative is to invoke the
common law rules which they refer to as being very complicated. They accept
that the company can under the concept of a stipulatio
alteri but point out that the newly formed company may refuse to be bound
by the contract. This is not the situation in this case as the company is the
prime mover for the acceptance and ratification of the contract concluded on
its behalf.
In
casu the requirements of s 47 have
not been complied and it falls for this court to decide if the contract is a stipulatio alteri and if so whether or
not it can be adopted and ratified by the company. I did not understand the
respondent to dispute the contention by the applicants that the contract
negotiated by the first applicant was a stipulatio
alteri. I take the view therefore that the nature of the contract has been
accepted. In the premises I cannot find a reason why the first applicant cannot
enforce the contract. This in my view includes the registration of title in the
cause of the contract itself.
One more
issue remains for determination, whether or not the applicants should have
instead proceeded in terms of s 11 of the Deeds and had the property registered
in the names of the first applicant and the second applicant in sequence. This
submission deserves a short answer. The intent behind a stipulatio alteri is that the contract is made for the benefit of a
third party. There are only two parties to the contract and the party acting on
behalf of the third party only comes into the picture if the promissee fails to
accept the benefit under the stipulatio
alteri. In the circumstances therefore s 11 of the Deeds Registries Act
would not be applicable. I find therefore that the contract concluded in
respect of the agreement of sale of is a stipulatio
alteri and in terms of the common law the company for whose benefit it was
concluded has the right to ratify the same under the common law. The applicants
are therefore entitled to an order as prayed and in the premises an order will
ensue as follows:
IT IS HEREBY ORDERED
(a)
That Respondent be and is hereby directed to
register the transfer of certain piece of land situate in the district of
Salisbury being Stand 459 Northwood Township 3 of Sunben to the Second
applicant.
(b)
That the Respondent shall pay the costs of this
application.
Wintertons, legal practitioners for the
applicants.
Civil Division of the
Attorney-General's Office, legal practitioner
for the respondent
