LEARNING UNIT 6
CONTRACTING ON BEHALF OF AN
ENTERPRISE
FORMS OF BUSINESS ENTERPRISES
Sole Proprietor
Partnership
Company
Close Corporation
SOLE PROPRIETOR
 Not a separate entity
 Owner of business concludes contracts
 Rights & duties of contract is owners
responsibility
 Owner can use an Agent to act on their
behalf
PARTNERSHIP
Exists independently of partners
Partners conclude contracts
Partners can have separate
estates therefore special rules
apply
MUTUAL MANDATE
 Each partner can perform any act
 This falls within the partnership business
 Such act binds all partners
 Each partner representing co-partners =
MUTUAL MANDATE
Can be excluded between partners
Then such partners will not conclude other
contracts
JOINT & SEVERAL LIABILITY
 A partner concludes a contract on behalf of
partners
 All partners are jointly responsible
 Third party can sue all partners & recover
debt from partnership assets
 If partnership assets do not cover debt, then
can be claimed from partners personally
 Partners can then claim their portion from
the partner that concluded contract
COMPANY
 Company exists separately from its
members
 Members = Shareholders + Owners
 Own assets
 Shareholders not responsible for debt
 Limited liability – they will only lose
what they invested in company
THE CAPACITY OF A COMPANY
Legal acts a natural person
can do but a company
cannot
Capacity of company =
founding documents
THE ULTRA VIRES DOCTRINE
 Acts that fall outside the company were
invalid in the past
 This resulted in ULTRA VIRES DOCTRINE
 Outside companies not assured of
contract validity
THE DOCTRINE OF CONSTRUCTIVE
NOTICE
 Courts used this doctrine for the above
 Contract with a company, you should
know the company constitution
(founding documents)
 Memorandum of Association & Articles
of Association of a company are
available for public view
SECTION 36 OF THE COMPANIES ACT
 No company act can be invalid
 If a company’s main object is to buy &
sell shoes & they contract to buy
clothes, the contract is still valid even
though they exceeded their main
objective
 Ultra Vires contract becomes valid
THE TURQUAND RULE
 Famous rule from Royal British Bank
 Before directors could borrow money from
company
 When lender sued company for money,
company said that it was not bound to a
contract
 Court said company bound because the lender
did not know internal company rules
 Outsiders expected to know content of public
documents & not internal rules
CLOSE CORPORATION
 Exists separately from members
 Has its own assets & liabilities
 Members not responsible for debt
 Ultra Vires Doctrine does not apply
 Each member has power to bind
corporation to contract
Member’s power is limited
HOMEWORK
 Revision Exercise Page 85
 Questions 1 – 9
 We will check on Friday, 19 October
2012