Business & Law

Contracts

A valid contract or agreement, depending on its type, for example of sale, addresses aspects such as the parties and their capacity to act, consensus, offer and acceptance, goods or services to be transacted, consideration or price, payment terms, transfer of ownership, breach, dispute resolution, termination, etc.

Presumption of regularity

and estoppel

There are instances when a party contracts a juristic person such as a business entity. The entity will be represented by a natural person and the natural person may be described as being duly authorised to represent the entity.

Problems arise when the entity seeks to resile from or repudiate the contract citing internal irregularities. Presumption of regularity and the doctrine of estoppel become relevant.

Simplified, presumption of regularity entitles a party to a contract to assume that internal regulations of the juristic person have been complied with. In estoppel by representation, if one party to a contract (“the representor”) makes representations of fact to another person (“the representee”) by words, acts, conduct or silence with the intention which intention induces the representee to contract, the representor is estopped, prevented or barred from denying the truth of his representations, to the detriment of the representee, in subsequent litigation.

The Act

The new Companies and Other Entities Act (Chapter 24:31) of 2019 hereinafter called (“the Act”), effective February 2020, provides for presumption of regularity and estoppel under Section 24. Subject to certain conditions, any person having dealings with a registered business entity or with someone deriving title from a registered business entity shall be entitled to make certain assumptions.

Section 24(1) directs that the company or private business corporation (“PBC”) and anyone deriving title from the business entity shall be estopped, prevented or stopped from denying their truth. The assumptions are that:

1. a) The company’s or PBC’s internal regulations have been duly complied with,
2. b) Every person described in the company’s register of directors and secretaries or as a member in its register of members, or every person described as a member in the incorporation statement of the PBC, or in any return delivered to the Registrar by the company or the PBC in terms of section 217 (“Register of directors and secretaries”) as a director, manager or secretary of the company or member of the PBC, has been duly appointed and has authority to exercise the functions customarily exercised by a director, manager or secretary of a company or member of the PBC, as the case may be, carrying on business of the kind carried on by the company or the PBC,
3. c) Every person whom the company, acting through its members in general meeting or through its board of directors, manager or secretary, represents to be an officer or agent of the company, has been duly appointed and authorised to exercise the functions customarily exercised by an officer or agent of the kind concerned,
4. d) The secretary, every officer or agent of the company having authority to issue documents or certified copies of documents on behalf of the company, has authority to warrant genuineness of the documents or the accuracy of the copies so issued,
5. e) A document has been sealed by the company if it bears what purports to be the seal of the company attested by what purports to be the signature of a person who can be assumed to be a director of the company.

However, there is a qualifier or limitation in that:

A person shall not be entitled to make such assumptions if he or she has actual knowledge to the contrary or he or she ought reasonably to know the contrary,

A person shall not be entitled to assume that any one or more of the directors have been appointed to act as a committee of the board of directors or that an officer or agent of the company has the company’s authority merely because the company’s article provide that the authority to act in the matter may be delegated to a committee or to an officer or agent.

According to Section 24(2) a business entity is still bound regardless of fraud or document forged by its above people.  In terms of Section 24(3) absence of a seal on a document, where required, does not necessarily invalidate a contract.

Godknows Hofisi, LLB(UNISA), B Acc(UZ), CA(Z), MBA(EBS,UK) is a legal practitioner / conveyancer with a local law firm, chartered accountant, registered tax accountant, insolvency practitioner, consultant in deal structuring and business and is an experienced director including as chairperson. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected].