28 April 2008

Sale of immovable property - agent or functionary?

Section 2 of the Alienation of Land Act, No 68 of 1981 (ALA), prescribes certain formalities for the conclusion of a valid agreement for the alienation of land.

The alienation must be "contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority".

In the case of Northview Shopping Centre (Pty) Ltd v Revelas Properties Johannesburg CC and Another (275/09) [2010] ZASCA 16, Revelas Properties Johannesburg, as seller, entered into an agreement for the sale of land with Northview Shopping Centre, as purchaser. The agreement was signed on the seller's behalf by Christelis (the husband of the sole member of the seller). The seller claimed that Christelis was not authorised in writing, and that the sale agreement was accordingly invalid for want of compliance with the formalities prescribed by ALA. The purchaser argued that written authority is not required when a close corporation is the principal, and claimed specific performance.

The Court reiterated the legal position as set out in the Potchefstroom Dairies case (1913 TPD), which has been applied for nearly a century. This case involved a consideration of section 30 of the Transvaal Transfer Duty Proclamation 8 of 1902. Section 30, like section 2(1) of ALA, stated that a contract of sale, if not signed by the principal must be signed by his agent "duly authorised in writing".

The TPD found that a principal can only confer powers on its agent, which it is capable of exercising itself. Companies that have "neither minds nor hands of their own" are only capable of acting through natural persons who are authorised to act by virtue of their positions in the companies. The TPD reiterated that the agency contemplated by section 30, is one that must be created expressly by a person who could himself, if so minded, have exercised the power that he has elected to delegate. The TPD further highlighted the distinction between a functionary and an agent. A functionary is a person authorised by law or by the internal rules of a juristic entity, and an agent is expressly authorised in accordance with the will of the person authorising him or her.

In the present case, the question was whether or not an agent, as opposed to a functionary, could bind a close corporation to a contract for the sale of immovable property where there was no express written authority to do so.

The Court stated that the object of section 2(1) of ALA is to ensure legal certainty in respect of contracts for the sale of land. That object is not defeated if a functionary of a company or a close corporation or any other juristic person signs such a contract. There would be no uncertainty as to the functionary's authority, as it derives from law. However, where the authority arises from expression of will, being effectively an agency, it must be in writing. If it were not, the uncertainty as to the authority would defeat the object of the section.

The Court concluded that, in the case of a close corporation, the principle that should prevail is that a member who is given authority by statute to bind the corporation, does not require written authority to do so. However, if a member of the corporation authorises an agent to enter into a contract for the sale of land on behalf of the corporation, he or she must do so in writing. Therefore, in the absence of written authority given to Christelis by his wife, who was the sole member of the corporation, the Court found that the contract for the sale of the property was invalid.

In summary, the judgment distinguishes a functionary from an agent. A functionary is a person who has legal authority to represent and bind a company or close corporation by operation of law, whereas an agent is a person other than a functionary, who derives authority to bind the principal from an agency agreement recognised by law. While the question of the authority of an agent to bind a company (as opposed to a close corporation) falls outside the scope of this article, it should be noted that section 69 of the Companies Act No 61 of 1973, has been the subject of much debate and the final position in that regard has not yet been settled.

For the unwary, it would be wise when contracting with a juristic person to obtain a copy of the relevant resolution or other legal document evidencing the authority of the person representing the juristic person, particularly where the sale of land is involved.

Hugh Jackson, Director, Real Estate
Kerensa Thomas, Associate, Real Estate

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