The following documents should be considered when determining who has legal authority to execute documents on behalf of a Company:
a) The Companies Act, Cap 486 Laws of Kenya
b) The Articles of Association of the Company
Section 37(2) of the Companies Act provides that:
“A document is validly executed by a company if it is signed on behalf of the company-
a) by two authorized signatories; or
b) by a director of the company in the presence of a witness who attests the signature.”
Section 3 of the Act provides in part that an authorized signatory in relation to a company, means a director of the company and also means in the case of a public company, the secretary or a joint secretary of the company.
Most Articles of Association of companies usually provide that if a seal of a Company is affixed on a document, then it should be witnessed by two (2) directors or a director and secretary. This mode of execution still complies with provisions of the Companies Act as two authorized signatories sign alongside the affixing of the seal.
Based on the above, a document should be signed by a Company as follows:
i) by two authorized signatories i.e. either two directors or a director and secretary;
or
ii) by a director in the presence of a witness who attests the signature; or
iii) where a seal is affixed, the seal should be witnessed by any of the people
referred to in i) & ii) above.
Can the authority to execute documents on behalf of the Company be delegated?
Section 40 of the Companies Act provides that:
(1) A company may, in writing, authorize person, either generally or in respect of
specified matters, as its attorney to execute deeds or other documents on its
behalf.
(2) A deed or other document executed by a person authorized under section (1)
has effect as if executed by the company.
Accordingly, directors can delegate the power to execute Company documents to
attorneys through powers of attorney.
The Doctrine of Ostensible Authority/Indoor Management Rule
Thompson Reuters Practical Law explains the doctrine of ostensible authority as
follows:
“An agent is said to be acting within the scope of its apparent or ostensible authority
(and therefore able to commit the principal) if:
The principal in some way represents or holds out the agent as having an authority which is wider than the agent's actual authority. The person making the representation about the agent's authority must itself have actual authority to make that representation, not just apparent authority.
The agent commits the principal to a third party within the scope of that wider, apparent authority.
The third party makes a commitment or otherwise alters its position in reliance on that representation of authority.
Where the agent acts within the scope of its apparent authority, the principal is bound to the same extent as if the principal authorised the transaction expressly.”
In Florence Wangu Mwangi & Another v British American Insurance Company Limited & Another [2010] eKLR the Court held as follows:
“The position under the contract law is that any third party may enforce a contract against a company if the obligations arising there under were assumed by the company or an officer thereof with ostensible authority as explained in the rule known as Turquand’s case which doctrine was derived from the case of Royal British Bank v Turguand (1885) E&B 327.”
In Ashok Morjaria v Kenya Batteries (1981) Ltd & 2 Others [2002] eKLR, the Court held
that:
“As regards the defence that the agreement was not executed properly by the company and that the borrowing was unauthorized, I am persuaded by the plaintiff's advocate that whether a company has or has not complied with its internal procedures as to borrowing or execution of contracts is an internal management issue and cannot afford a defence to a third party dealing with the company. The third party is entitled to assume that the company has complied with its internal rules and regulations unless he has had actual knowledge of them or there are suspicious circumstances putting him on inquiry. That is what is called the rule in TURQUANDS CASE and was propounded in ROYAL BRITISH BANK V TURQUAND (1856) 119 E.R. 886. The case of SHAH MANEK LTD V UKAY ESTATE LTD & 2 OTHERS [HCCC N0.883 OF 1998] cited by the plaintiff also supports the above view of the matter. So where, as here, a Director of a company executes a loan agreement on behalf of the company and stamps it with a company stamp, as the second defendant did, the company cannot wriggle away from its obligation to repay by contending that the borrowing was not authorized or one director's signature was not enough or the company seal itself was not affixed to the agreement if what he did was within his ostensible authority a director of the company as indeed it was.”
According to the above, the doctrine of ostensible authority is a valid defence by a third party against a person who claims that he is not bound by a contract signed on his behalf by his agent who had ostensible/apparent authority even though the agent did not have the actual authority. Therefore, if an officer of the company with ostensible authority but no actual authority signs a contract on behalf of the company, the company would be bound by the terms of the contract as held in the two cases above.
On the other hand, if an officer of the Company with ostensible authority but no actual authority signs a contract on behalf of the company and the other party relies on the contract as executed, the party may be estopped from relying on the lack of actual authority as a defence especially if the party benefitted from the contract.
Conclusion
Based on the provisions of the Companies Act, the following persons can sign documents on behalf of a Company:
a) two authorized signatories i.e. either two directors or a director and secretary; or
b) a director in the presence of a witness who attests the signature or
c) attorney(s) appointed by the directors by way of power of attorney.
Please note that this article is only intended for general knowledge and the same shall not be construed as legal advice. For comprehensive legal advice on setting up a business in Kenya or assistance in ensuring compliance with the law in Kenya, please contact us at info@mckayadvocates.com