Question: 1
Jane, John and Jabulani are the directors of Touring Africa by Bicycle (Pty) Ltd (“the company”), a company that is based in Johannesburg. The memorandum of incorporation of the company provides that only the board of directors have the authority to enter into contracts on behalf o...
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Question 1
1. Jane, John and Jabulani are the directors of Touring Africa by Bicycle (Pty) Ltd (“the
company”), a company that is based in Johannesburg. The memorandum of incorporation of the
company provides that only the board of directors have the authority to enter into contracts on
behalf of the company. James, the branch manager of the company in Durban, attends an
outdoor show in Durban to scout for useful new products for the company’s cycling excursions.
At the outdoor show one of the exhibitors, Cycle for Life (Pty) Ltd, has a limited special offer on
electric bicycles for the amount of R120 000.00 per bicycle. James contacts the directors of the
company by way of a Zoom call, and while speaking to the directors of the company on the
Zoom call, James keeps his mobile phone on speakerphone. The directors instruct James to
purchase six of the electric bicycles on behalf of the company. Nancy, the representative of Cycle
for Life (Pty) Ltd, hears the instruction, and because James has previously entered into
agreements with Cycle for Life (Pty) Ltd without any problems, she enters into an agreement
with James for the sale of six electric bicycles to Touring Africa by Bicycle (Pty) Ltd. The
electric bicycles are delivered to the company’s Durban office. When Cycle for Life (Pty) Ltd
sends an invoice for payment of the total amount of R720 000.00 for the six electric bicycles,
Touring Africa by Bicycle (Pty) Ltd refuses to pay, arguing that it is not bound by the contract
as James did not have the authority to act on its behalf. Nancy approaches you for legal advice.
With reference to the relevant authority/principle and the facts, advise Nancy on what Cycle for
Life (Pty) Ltd must allege and prove in order to prevent Touring Africa by Bicycle (Pty) Ltd
from arguing that it is not bound by the contract concluded by Nancy and James.
In this scenario, the key issue revolves around whether James had the authority to bind Touring
Africa by Bicycle (Pty) Ltd ("the company") to the contract with Cycle for Life (Pty) Ltd. According
to the facts, the company's memorandum of incorporation stipulates that only the board of directors
has the authority to enter into contracts on behalf of the company. Therefore, it appears James, as a
branch manager, did not possess actual authority to enter into the contract for the purchase of six
electric bicycles.
However, James received explicit instructions from the directors via a Zoom call to purchase the
bicycles, and this instruction was overheard by Nancy, the representative of Cycle for Life (Pty) Ltd.
The crux of the argument for Cycle for Life will be to establish that James had ostensible authority to
enter into the contract, making the company bound by the agreement.
Ostensible Authority and Its Requirements
Ostensible (or apparent) authority arises when a third party is led to believe, through the conduct or
representation of the principal (the company, in this case), that an agent (James) has the authority to
act on the principal's behalf. To establish ostensible authority, Cycle for Life must allege and prove
the following elements:
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