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.
As per the given scenario, the partnership agreement clearly specifies that any partnership contract worth 100,000 and above will be signed by Vusa only. However, Newberg entered into a contract with a Malaysian company on behalf of the partnership without Vusa's authorization.
Generally, in a partnership, every partner is the agent of the other partners and is bound by the actions of the other partners carried out in the normal course of the business. But, in this case, the partnership agreement has restricted the authority of Newberg to sign contracts worth 100,000 and above.
In the case of Barker v. Faulkner (1877) LR 2 CPD 40, it was held that if the partnership agreement specifies the limit of the authority of one partner and he exceeds it, the contract is not binding upon the other partners unless they ratify the contract. Therefore, in this case, because Newberg exceeded his authority by signing a contract on behalf of the partnership without Vusa's authorization, the contract is not binding on the partnership unless Vusa ratifies the same.
In conclusion, the contract signed by Newberg is not binding on the partnership unless Vusa ratifies it, as per the partnership agreement.
To determine whether the contract signed by Newberg is binding upon the partnership, we need to consider the principles of agency law and the specific terms of the partnership agreement.
1. Agency Law: Under agency law, a partner is considered an agent of the partnership. As an agent, a partner has the authority to bind the partnership to contracts entered into within the ordinary course of business.
2. Partnership Agreement: In this case, the partnership agreement states that any partnership contract worth 100,000 rands and above will be signed by Vusa only. This provision restricts the authority of the partners to enter into certain contracts on behalf of the partnership.
Based on the information provided, the contract entered into by Newberg falls within the ordinary course of business of manufacturing matchsticks. However, the partnership agreement limits the authority to enter into contracts of 100,000 rands and above solely to Vusa.
Under these circumstances, we need to determine whether the contract with LXX Xhoung for the sale of 20,000 boxes of matchsticks for 1000 rands per box is considered a partnership contract worth 100,000 rands and above. If it is, the contract would fall outside of Newberg's authority, and would therefore not be binding upon the partnership.
To make this determination, we need to calculate the total contract value. The contract states that the partnership is to sell 20,000 boxes of matchsticks at 1000 rands per box. Therefore, the total contract value would be:
20,000 boxes x 1000 rands per box = 20,000,000 rands
Since the contract value is 20 million rands, which is above the threshold set by the partnership agreement, it can be argued that the contract falls within the category of contracts that require Vusa's signature.
Therefore, based on the partnership agreement, the contract signed by Newberg would not be binding upon the partnership, as it exceeds the specified contract value threshold.