IAN SPENCE GRAY

and

PRINCIPLE BASED SOLUTIONS P/L

versus

THE REGISTRAR OF DEEDS

HIGH COURT OF ZIMBABWE

GOWORA J

HARARE5 November 2009 and 30 June 2010

Opposed Court Application

P C Paul, for the applicants

P Philips-Dube, for the respondent

            GOWORA J: On 2 September 2007 the first applicant, acting as a trustee for a company about to be formed entered into an agreement with one Marie Louise Morris in respect of the sale of an immovable property belonging to the latter. The sale was successfully concluded by the parties thereto. The purchaser of the property was not specifically identified and was referred to as Ian Spence Gray acting as trustee for a company about to be formed. It is common cause that the second applicant was incorporated as a company under the laws of this country on 8 November 2007. The first applicant is a director in the second applicant.

            On 19 March 2008 legal practitioners acting on behalf of the second applicant then lodged with the respondent documents to effect transfer of the immovable property from the said Morris to the second applicant. The documents were returned with an instruction that the applicant comply with s 47 of the Companies Act (“the Act”). The applicant was not satisfied with the reaction from the respondent and the result was that a letter was addressed by its legal practitioners to the respondent in which it was indicated that the applicant did not need to comply with s 47 of the Act in that the first applicant, when it entered into the agreement of sale for the purchase of the immovable property central to the dispute, had acted as a trustee for a company not yet formed when the agreement was concluded and not as an agent. Correspondence was exchanged between the parties which did not yield any result. The applicants therefore have brought this action for an order from this court directing the respondent to transfer the property from Morris to the second applicant. The respondent opposes the relief being sought.

            When the matter was initially called, it appeared that counsel had not furnished the court with any authority on the issues to be determined. I therefore directed that each of them draft and file supplementary heads of argument citing for my benefit the authorities being relied upon by the respective parties and I am grateful for their assistance in this regard.

            The crisp issue before me is whether or not the second applicant is obliged to comply with any provisions in the Act in order for the transfer of the immovable property to be effected in its name or whether under the common law the applicant can have the property registered in its name despite avoiding the requirements set by statute.

It is appropriate at this juncture to set out the provisions of the Act that the respondent insists must be complied with before the property can be registered in the applicant’s name. Section 47 is to the following effect: 

“Any contract made in writing by a person professing to act as agent or trustee for a company not yet formed, incorporated or registered shall be capable of being ratified or adopted by or otherwise made binding upon and enforceable by such company after it has been duly registered as if it had been duly formed, incorporated and registered at the time when the contract was made if-

(a)        the memorandum on its registration contains as one of the objects of such company the adoption or ratification or the acquisition of rights and obligations in respect of such contract; and

(b)        the contract or a certified copy thereof is delivered to the Registrar simultaneously with the delivery of the memorandum in terms of section twenty-one.”

Mr Paulargued on behalf of the applicants that the second applicant does not have any obligation to comply with the requirements of the Act, as in terms of common law a contract concluded for a third party, a stipulatio alteri, was capable of being enforced by the intended beneficiary even where that beneficiary was a company which had not yet been formed at the time the contract was concluded as long as the person who represented the company did so as a trustee and not an agent. According to MrPaul the law of South Africa, which is the same as our own, is to the effect that under the common law a company can ratify a contract merely by adopting a resolution to that effect and there is no need for compliance with the provisions of the Act as long as the contract was made for the company before its incorporation by a person acting as a trustee for the such company. It was his further view that the provisions of the Act which the respondent insists must be complied with, are only relevant if the person who negotiated the pre-incorporation contract acted as an agent and not as a trustee. Mr Paul has sought reliance on a South African authority on the issue before me.

 MrsPhilips-Dube submitted that South African authorities are merely persuasive on our courts, they are not binding. She argued further that the applicants were seeking to avoid compliance with the provisions of the Act under a pretext that the first applicant had acted as trustee in the pre-incorporation contract and that as a consequence strict compliance with the provisions of s 47 was unnecessary. Her contention was that statutory provisions took precedence over the common law and that the non compliance on the part of the applicants with those was fatal to the applicants’ cause. The contention by the respondent is that every company in Zimbabwe must comply with the provisions of the Act.

 The authority which Mr Paul has placed reliance on is in Afrikaans and despite request from me he has refused to furnish the court with a translation of the judgment, his view being that the court can read the minority judgment by TROLLIP A.R. In view of the fact that his whole argument was based on this authority I found his attitude not only puzzling but rather unhelpful, and even an indication from the court that the majority judgment in Afrikaans would be more of more assistance met with no success. The only saving grace is that the minority judgment of TROLLIP A.R. is instructive and was quoted with approval by GILLESPIE J in one of the few Zimbabwean authorities on the issue in question. I think a discussion of that judgment is necessary.

            In Watson v Gilson Enterprises & Ors[1]GILLESPIE J had to consider the rights of a person who contracts a contract on behalf of a company not yet incorporated. Whilst the facts in that case are not similar to the present, nevertheless the learned judge, as his wont, also discusses the position of the company as regards the company both at common law and under the Act. At pp325F-326D wherein he stated the following:

“Thus where a person purports to contract as agent for a company which is not as yet formed, the company upon its incorporation cannot at common law (leaving aside for the moment the relevant provisions of the Companies Act) purport to ratify that contract. It could only enjoy the benefits of that contract were it to enter into a new contract itself with the other party.

On the other hand, the Roman Dutch law recognizes the concept of the stipulatio  alteri by which –

‘where the persons have entered into a contract for the benefit of a third, the latter may, before the promise has been revoked, accept it and thus acquire a right of action ...’

The third party may accept the benefit even if it did not exist when the promise was made. Where such a third party, particularly a company not incorporated at the time of the agreement, purports to ratify or adopt the contract made for its benefit, it was therefore formerly most important to determine whether the person purporting to act in the non-existent third part’s interest acted as agent or as a principal contracting party.

I say formerly because much of the importance of the distinction as far as companies are concerned has been removed by the provisions of s 47 of the Companies Act. This provides that, subject to certain formal requirements:

‘Any contract made in writing by a person professing to act as agent or trustee for a company not yet formed, incorporated or registered shall be capable of being ratified or adopted by or otherwise made binding upon and enforceable by such company after it has been duly registered as if it had been duly formed, incorporated and registered at the time when the contract was made ...’”           

The issue has received attention from the learned authors Nkala and Nyapadi in their book Company Law in Zimbabwe 1995 Edition. The view of the learned authors is that a company can adopt contracts made on its behalf before incorporation provided that it (the company) meets the following five conditions- viz; that the contract is in writing; the person making the contract on behalf of the company to be formed, irrespective of how he describes himself must at least profess to act as agent for the company; the memorandum and articles of association must contain at the time of incorporation the contract as one of its objects; the contract must be delivered to the registrar simultaneously with the memorandum and articles of association and the contract must be legally enforceable. This view expressed on pp55-59 is in accord with the provisions of the Act.

The applicants have not complied with the requirements of s 47. That much is not in dispute and given the manner in which the memorandum and articles of association were prepared they will not be able to comply with the requirements of the Act. They accept that the Act has prescribed the steps required of a company under the Act to benefit from a pre-incorporation contract concluded for its benefit before it came into being. They however argue that notwithstanding non compliance with the provisions of s 47, the company is under common law entitled to ratify the contract as it was entered into on behalf of the company by a trustee and that the contract constitutes a stipulatio alteri.

It is not the case for the applicants that the Act does not provide for specific requirements for the ratification of a pre-incorporation contract, but that over and above those requirements the applicant company is not precluded from benefiting from the contract without reference to the provisions of the Act as the remedy is available at common law. The respondent has contended that the provisions of s 47 are peremptory and as a result the applicant company can only have the pre-incorporation contract ratified if it has abided by the requirements of s 47.

            I do not believe that it is necessary for me to decide whether or not the provisions of s 47 are peremptory as argued by Mrs Philips-Dube. In my view the import of s 47 has been interpreted by the South African courts as well as Zimbabwean ones. It appears that neither counsel was prepared to research on the issue. Our courts have accepted that at common law the promoters of a company prior to incorporation could individually enter into a contract for the benefit of such company.  In Graphics Africa (Zimbabwe) (Pvt) Ltd v Rank Xerox Ltd[2]ADAM J unequivocally stated:

“At common law, it is clear that the promoters of a company prior to incorporation could individually enter into a contract for the benefit of such company to be formed and on its incorporation the newly formed company could adopt the contract. Sentrale Kunssmis Korporasie (Edms) Bpk v NKP”

Kunsmisverreiders (Edms) Bpk 1970 (3) SA 367               

In his book The Law of Contract in South Africa 3ed, the eminent author R H Christie states at p 293.

“There is ample authority for thus falling back on the common law, and it may well be correct to say that s 35 is not intended to apply to pre-incorporation contracts which qualify as contracts for the benefit of a third party, but it does not seem to matter which view is taken because as TROLLIP JA observed in Sentrale Kunsmis Korp (Edms) Bpk v NKP Kunsmis-verspreiders (Edms) BKP 1970 (3) 367 (A) 398, s 35 is usually invoked and complied with for safety’s sake even if it is not necessary, and if the attempt to comply with it fails no harm is done provided the contract qualifies under the common law. In the days before what is now s 35 the courts very properly applied the maxim ut res magis valeat quam pereat to interpret the promissee’s position as that of a principal rather than an agent in a doubtful case, but in Peak Lode Gold Mining Co Ltd v Union Government 1932 TPD 48 51 GREENBERG J thought the section made it no longer necessary to lean away from agency. There is no doubt so if the section has not been complied with, but if it has not the position remains unchanged.”     

It is also recognized by Nyapadi and Nkala in their book[3]that where the company has not complied with provisions of the Act, the alternative is to invoke the common law rules which they refer to as being very complicated. They accept that the company can under the concept of a stipulatio alteri but point out that the newly formed company may refuse to be bound by the contract. This is not the situation in this case as the company is the prime mover for the acceptance and ratification of the contract concluded on its behalf.

Incasu the requirements of s 47 have not been complied and it falls for this court to decide if the contract is a stipulatio alteri and if so whether or not it can be adopted and ratified by the company. I did not understand the respondent to dispute the contention by the applicants that the contract negotiated by the first applicant was a stipulatio alteri. I take the view therefore that the nature of the contract has been accepted. In the premises I cannot find a reason why the first applicant cannot enforce the contract. This in my view includes the registration of title in the cause of the contract itself.

            One more issue remains for determination, whether or not the applicants should have instead proceeded in terms of s 11 of the Deeds and had the property registered in the names of the first applicant and the second applicant in sequence. This submission deserves a short answer. The intent behind a stipulatio alteri is that the contract is made for the benefit of a third party. There are only two parties to the contract and the party acting on behalf of the third party only comes into the picture if the promissee fails to accept the benefit under the stipulatio alteri. In the circumstances therefore s 11 of the Deeds Registries Act would not be applicable. I find therefore that the contract concluded in respect of the agreement of sale of is a stipulatio alteri and in terms of the common law the company for whose benefit it was concluded has the right to ratify the same under the common law. The applicants are therefore entitled to an order as prayed and in the premises an order will ensue as follows:

IT IS HEREBY ORDERED

1. That Respondent be and is hereby directed to register the transfer of certain piece of land situate in the district of Salisbury being Stand 459 Northwood Township 3 of Sunben to the Second applicant.

1. That the Respondent shall pay the costs of this application.

Wintertons, legal practitioners for the applicants.

Civil Division of the Attorney-General’s Office, legal practitioner for the respondent