Individuals and companies enter into contracts daily. Whether you are an individual buying a loaf of bread or a company contracting to obtain the services of an individual or company, contracts are an essential component of daily life. However, entering into contracts may be easy and commonplace, and the enforcement thereof may be slightly more complex. This article seeks to give the reader a brief overview of the essential components one should ensure are present for the enforcement of a contract.
When considering the liability of a contracting company one needs to establish the authority of the company’s representative as well as the capacity of the company to enter into such a contract. When contracting with an individual on behalf of the company, you first need to establish if that individual is indeed an agent of the company. Thereafter consider if that agent has the necessary authority to bind a company to a contract of the specific nature you are contemplating. The simplest manner in which to do this is to confirm such authority with the company’s Memorandum of Incorporation or MOI. The MOI should set out who may act as an agent for the company and the duties ascribed to this role. Another manner in which to determine if the agent may indeed bind the company to a contract contemplated by both parties is by comparing the nature of the work engaged by the company to that of the contract you wish to enter. For example, where a company engaged in the production of shipping vessels wishes to contract with a party engaged in providing music teachers to primary school students, it is unlikely that this company would be bound to this contract as the nature of the company’s work is far removed from that of music.
The authority of the contracting agent is an essential requirement that must be verified. In the instance where such authority is not verified, and the contracting party breaches its contract such contract may become unenforceable. There lays a further danger that should you attempt to enforce such a contract and the agent did not have the authority to act in such an instance, the company may not be held liable. However, should the agent misrepresent to you that he/she indeed had the authority to enter into such a contract, this may be a remedy within our law for such a misrepresentation.
A company’s board does however have the power to ratify a contract where its agent did not have the capacity to enter into it but did so anyway. This is a saving grace one should not rely on, as there is no manner for a party to ensure the company’s ratification of a contract after it has been entered into.
Due diligence must be done when contracting with a company, and ignorance is not an excuse. Should you require any assistance in any contract-related matter or any aspect of the law, contact us and we will gladly provide you with our assistance.