Themba, Vusa and Newberg are partners in a venture whose sole business is to manufacturing matchstick for profit. Their partnership agreement provides that any partnership contract worth 100 000 and above will be signed by Vusa only. In May 2023, Newberg entered a contract on behalf of the partnership in terms of which the partnership was to sell 20 000 boxes of matchsticks to a Malaysian Company, LXX Xhoung for 1000 rands per box.
Based on case law and other legal authority, discuss whether the contract signed by Newberg is binding upon the partnership.
The contract signed by Newberg on behalf of the partnership may not be binding upon the partnership because the partnership agreement stipulates that any partnership contract worth 100 000 and above will only be signed by Vusa. Therefore, it can be argued that Newberg exceeded his authority in signing the contract with LXX Xhoung.
This principle is established in agency law where an agent can only act within the scope of their authority. If they exceed their authority, the principal (partnership) may not be bound by the agent's actions. In this case, the partnership agreement limits the authority of Newberg to sign contracts worth 100 000 and above, and he cannot unilaterally exceed that limit by entering into a contract worth 20 000 boxes of matchsticks.
Furthermore, the contract signed by Newberg may also be deemed voidable if LXX Xhoung was aware of the partnership agreement and still proceeded to enter into the contract with Newberg. This is because LXX Xhoung would have knowingly contracted with an agent who did not have the full authority to bind the partnership, and this could be construed as bad faith or fraud on their part.
In summary, the contract signed by Newberg on behalf of the partnership may not be binding upon the partnership due to the limitations on his authority stipulated in the partnership agreement.
In order to determine whether the contract signed by Newberg is binding upon the partnership, we need to examine the principles of agency law and the specific terms of the partnership agreement.
1. Agency law: Under agency law, a person can bind a principal (in this case, the partnership) to a contract if they have actual or apparent authority to act on behalf of the principal.
2. Partnership agreement: It is mentioned in the partnership agreement that any contract worth 100 000 rands and above must be signed by Vusa only. This implies that Vusa has the exclusive authority to enter into such contracts.
3. Actual authority: Actual authority refers to the express or implied authority granted by the principal to the agent. In this case, it seems that Newberg did not have explicit authority to enter into contracts of this magnitude.
4. Apparent authority: Apparent authority is the authority that a third party reasonably believes an agent possesses based on the actions, words, or appearances of the principal. If a third party reasonably believes that Newberg had the authority to enter into the contract, the partnership may still be bound by the agreement.
5. Reasonable belief: In this scenario, the circumstances suggest that Newberg did not have the authority to sign the contract on behalf of the partnership, as it specifically requires Vusa's signature for contracts of this value. Therefore, a reasonable third party would likely not believe that Newberg had the authority to bind the partnership to this contract.
Based on these considerations, it is likely that the contract signed by Newberg is not binding upon the partnership. Newberg exceeded his actual authority as provided by the partnership agreement, and there are no apparent circumstances to suggest that he had the authority to enter into such a contract. However, it is important to consult with an attorney or legal expert to determine the specific legal implications of this scenario in your jurisdiction.