QUESTION 3

The Memorandum of Incorporation of Pure Gold Ltd ('the company') provides that only the board of directors, or any director authorised by the board, has the power to conclude contracts on behalf of the company. It also states that any transaction that exceeds R50 million must first be authorised by the shareholders by way of an ordinary resolution. Maki, a director who is authorised by the board of directors to conclude contracts on behalf of the company, enters into a contract with Judith for the purchase of gold processing equipment to the value of R100 million, without first obtaining authorisation for the purchase by the shareholders.

Judith knows about the provision in the Memorandum of Incorporation because she has dealt with the company before. However, she does not know that the transaction has not been authorised by an ordinary resolution of the company's shareholders.

3.1 Discuss whether Pure Gold Ltd is bound by the contract concluded by Maki and Judith. (20)

3.2 Suppose that after seven years the board of directors of Pure Gold Ltd has withdrawn Maki's authority to conclude contracts on behalf of the company by way of a board resolution and by amending the Memorandum of lncorporation of the company. However, the board of directors has allowed Maki to conclude contracts on behalf of Pure Gold Ltd with Judith. One day, the board of directors suddenly argues that Maki is not authorised to conclude contracts on behalf of the company and that a contract concluded with Judith is invalid. With reference to the relevant authority and the facts, advise Judith on what she must prove in order to hold Pure Gold Ltd bound by the contract. (20)