Such contracts remain enforceable although members

This preview shows page 72 - 74 out of 250 pages.

even though it goes beyond the limit of the powers of the company in the articles. Such contracts remain enforceable although members may punish the directors responsible for them. Moreover, constructive notice of the contents of a company’s articles has now been abolished. S.39, however, does not apply to charitable companies, which must abide by the provisions of their constitution . Acts outside the constitution of a charitable company are not valid unless the other party to the transaction paid fully for the deal without knowledge of the company’s status – s. 42. 21.4.2.3 The power of directors to bind company is now unlimited S. 40 CA 2006 provides that: In favour of a person dealing with a company in good faith , the power of the directors of that company to bind the company or authorize others to do so shall be deemed to be free from any limitation under the company’s constitution. Download free eBooks at bookboon.com
Image of page 72

Subscribe to view the full document.

BUSINESS ORGANISATIONS AND AGENCY 396 COMPANY CONSTITUTION AND CONTRACTUAL CAPACITY This means that as far as innocent third parties are concerned, the directors of a company have unlimited power to tie the company to contracts or to authorise others to do so. A person deals with a company if he is a party to any transaction or act to which the company is also a party. This includes anybody engaged in business deals and contracts with the company. A person dealing with the company is deemed to have acted in good faith unless the contrary is proved. The burden of proof is on the company. Mere knowledge that an act is beyond the powers of the company or directors does not indicate bad faith. This provision guarantees that a contract entered into by a company with a third a party cannot be nullified on the ground of lack of capacity on the part of the company’s directors. 21.4.2.4 Directors cannot benefit personally from s. 40 Under section 41, a director of a company cannot benefit from s. 40 (i.e. from a transaction entered into in excess of the power of the directors). If the directors of a company enter into any transaction beyond their powers, and the other party to the contract is a director of the company or of its holding company, or is a person connected with the director or a company with whom the director was associated, the company has a right to cancel the contract. Any director who was a party to the transaction or who authorised it would be liable to account to the company for any gains they had made. They would also be liable to indemnify the company for any losses suffered. This liability remains whether or not the company avoids or cancels the transaction although the members may, by special resolution, relieve the directors of liability. However, a company cannot cancel a transaction entered into in breach of s.40 if: • It is no longer possible to restore the parties to their original position, or • The company has been indemnified for any loss or damage it suffered, or • A third party, who is not a party to the transaction and who did not know that the directors have exceeded their powers, have acquired rights in good faith and for value.
Image of page 73
Image of page 74
  • Fall '19
  • Corporation, Managing Partner

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes