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- 20 Marks
Question
Prime Company Ltd, traders in frozen fish, entered into an oral agreement for the supply and sale on credit basis, of all its frozen fish to Addae Company Ltd. The affairs and the business of Prime Company Ltd were undertaken by its Managing Director and one Maxwell Mensah. Maxwell Mensah was never appointed by the Company as a director, but he transacted business on behalf of Prime Company Ltd with Addae Company Ltd, as if he were a director and the Chief Executive Officer of the Company. Maxwell Mensah acted on behalf of the Company by signing the applications for the Company to be registered as an importer, apart from financially assisting the Company to start business. The name of Maxwell Mensah also appeared on the Company’s letter-head as one of its directors.
Prime Company Ltd allowed Maxwell Mensah to share in its profits by allocating to him fifty percent (50%) of the last consignment of fish. Maxwell Mensah entrusted the sale of the consignment allocated to him for his benefit to Addae Company Ltd and directed that the proceeds of the sale should be paid by Addae Company Ltd into the account of his private firm, Asanko Ventures Ltd. In the course of the transaction, Addae Company Ltd paid various sums of money being proceeds of the sale of fish supplied to Prime Company Ltd to both the Managing Director of Prime Company Ltd and Maxwell Mensah. No valid receipts were given for those payments. At the close of business, the trading account of Prime Company Ltd showed a debit balance of over GH¢ 16,000.00 against Addae Company Ltd. Prime Company Ltd subsequently demanded that this amount be paid. Addae Company Ltd resisted settlement on the grounds that it had already accounted fully for the cost of the fish sold to it on credit.
Required:
In the light of the above facts, explain whether Prime Company Ltd would be justified in denying Maxwell Mensah as an Officer of the Company. (20 marks)
Answer
Analysis:
- Estoppel: The issue to be determined is whether Prime Company Ltd. is estopped from denying that Maxwell Mensah held himself out as a director of the Company, even though he was not appointed a director. (3 marks)
- Authority Implied by Company Actions: The Company allowed Maxwell Mensah to transact the fish business with Addae Company Ltd. and third parties, on its behalf, and also received payments. This indicates that the Company necessarily conferred an implied authority on Maxwell. (3 marks)
- Profit Sharing: The Company allowed Maxwell Mensah to share in its profits, further demonstrating the kind and nature of the authority exercisable by Maxwell as a director held out by the Company. (3 marks)
- Legal Requirements under the Companies Act: Section 198(1) of the Companies Act, 1963, (Act 179) provides that every company shall, in all trade circulars and business letters on or in which the company’s name appears, state in legible characters with respect to every director. Prime Company Ltd printed the names of its directors on all its letterheads, and among the directors was Maxwell Mensah, even though he was never formally appointed. (3 marks)
- Binding Acts: As between outsiders such as Addae Company Ltd. and Prime Company Ltd., the Company was bound by all the acts done by Maxwell Mensah in relation to Addae Co. Ltd., including receiving payments on behalf of Prime Company Ltd, so far as the transaction is within the scope of his office as director. (3 marks)
- Case Law: The Rule in Royal British Bank Vrs Turquand (1856) 6 E 1& BI. 327 supports the notion that a person who enters into a contract with a company and deals in good faith with that company has the right to assume that acts within the Constitution and powers of the company have been duly and properly performed. (2 marks)
- Conclusion: In the circumstances of this case, the acts of Maxwell Mensah, though an improper director, were binding on Prime Company Ltd. because no steps were taken by the company to remove him or prevent him from acting as a director. Therefore, Prime Company Ltd would not be justified in denying Maxwell Mensah as a director of the Company, as the Company itself held him out as such. (3 marks)
Professional Presentation: (2 marks)
(Total: 20 marks)
- Tags: Agency Law, Company Law, Director Authority, Estoppel
- Level: Level 1
- Topic: Company directors and other officers
- Series: NOV 2019
- Uploader: Kwame Aikins