Love, Close Corporations & Power of a Member to Bind a Corporation.

Section 54 of the Close Corporations Act reads as follows:

Power of members to bind corporation:

• 54.(1) Subject to the provisions of this section, any member of a corporation shall in relation to a person who is not a member and is dealing with the corporation, be an agent of the corporation.
• 54. (2) Any act of a member shall bind a corporation whether or not such act is performed for the carrying on of the business of the corporation unless the member so acting has in fact no power to act for the corporation in the particular matter and the person with whom the member deals has, or ought reasonably to have, knowledge of the fact that the member has no such power.

In the case of Point 2 Point Same Day Express and Another CC v Stewart and Another 2009 (2) SA 414 (W) the facts were as follows:

The corporation (which had two members) entered into a contract with one Stewart which contained certain restraint of trade terms, that restrained him from competing with the corporation during the existence of the agreement and for two years thereafter.

After the expiry of the agreement Stewart immediately began a business which competed with the corporation.  The corporation then instituted proceedings to restrain Stewart from running the business.

Stewart's defense was that he had been released from the contract by virtue of a letter written to him by one of the corporation's members. It transpired that Stewart and the author of the letter had been involved in a long term love affair with one another.

The question to be decided was therefore whether or not the member had the power to release Stewart from the restraint of trade agreement.

It was held that he did not and Stewart was ordered to discontinue his offending trading activities.

The court found that the provisions of Section 54(1) of the Close Corporations Act in terms of which any member has the authority (as its agent) vis a vis non-members to bind a corporation are not absolute.

It is possible in terms of section 54(2) of the Act to argue that Stewart's friend was not authorised to release him from the contract and the argument that the act was done in the ordinary course of business was not a defense per se.

The court found that Stewart knew or ought reasonably to have known, that the member did not have the necessary authority.

Bruce Lyle | Membership Services Manager