Tuesday, 16 July 2013

CAPACITY OF THE PARTIES

CAPACITY OF THE PARTIES

Parties to a contract must, at the time when the contract is made, have the legal capacity to make the contract.
PERSONS
While contractual promises are enforceable against anyone having legal capacity, some persons are deemed by law as either incapable of contracting or having only limited capacity to contract. In cases involving limited capacity, the contract is usually considered voidable; that is, the contract is valid until the individual goes to court to void it. As long as the person of limited capacity allows the contract to exist, it may not be voided. Some examples of those with limited capacity to enter a contract include:
  • mentally incompetent persons (those having diminished mental capacity);
  • intoxicated persons (incapable of understanding the nature of a contract by virtue of excessive use of drugs or chemicals);
  • illiterates (unable to read or write); and
  • minors (those under the age of majority).
MENTAL INCOMPETENCE
For purposes of parties to a contract, any person declared to be mentally incompetent is incapable of contracting. Any representation agreement or agreement of purchase and sale entered into by such a person for the purchase, sale, exchange or other disposition of property is voidable. If a person does not declare his/her mental incompetency and the other party knows of this mental incompetency, then the contract may be voidable by the undeclared mentally incompetent person. Expert advice is required on such matters.
INTOXICATED PERSONS
Under contract law, two conditions must generally exist in order that a buyer or seller can avoid a contract based on the fact that he or she was intoxicated. First, the individual must have been so inebriated when the contract was signed that he or she did not understand what was taking place. Second, the condition of that party must be known to the other party to the contract. If these two conditions are satisfied, then such a contract would be considered to be voidable.

Legal Capacity


If a contract is to be legally binding, the parties who sign it must have the legal capacity to do so. Generally most people participating in the legal environment have the legal capacity to sign a contract unless he/she is disqualified from doing so. Besides ensuring you are actually dealing with the owner as seller, you also need to take their full legal capacity in mind.
For example:
Where a couple is married in community of property, certain assets (including property interests, shares, investments, etc.) cannot be disposed of by one spouse without the consent of the other.  The problem is that you cannot merely “rely upon a bold assurance by another party regarding his or her marital status”.  You are required to perform an “adequate inquiry” into such status.  The best is probably to take advice in doubt.

In short; the buyer and seller must have the necessary capacity to be able to form a legally recognised intent for the purpose of concluding a contract, e.g. if you are under the age of 21 you have limited contractual capacity. The result of entering into an agreement with a person who lacks the necessary legal capacity is that the contract may be void. These contracts may only be valid and enforceable from the side of the one lacking the capacity and not from the side of the other contracting party.


The following persons generally lack the necessary legal capacity:
  • He/she is a minor (younger than 21 years and unmarried). Someone under the age of 21 who is married, or who has obtained High Court authorisation, is considered a major.
  • He/she is married in community of property and his/her spouse has not given written consent to the contract.
  • He/she is insane (of unsound mind).
  • He/she is intoxicated or under the influence of drugs or medication.
  • He/she is an un-rehabilitated insolvent.
  • He/she has been prohibited by a Court from entering into a contract without the authority of a curator.

MARRIAGE STATUS

The marriage status of a person has a direct influence on his/her capacity to conclude a valid contract and his/her ability to legally acquire and dispose of immovable property.
  • Unmarried persons (including divorcees, widows, widowers) may generally make decisions that have legal implications and may conclude contracts without having to consult a spouse or anyone else.
  • Couples who are married in community of property have equal rights over their joint property (whether registered in both names or not) and written consent is required from both spouses when dealing with immovable property of the joint estate. They are required to consult each other on all major transactions like sales, mortgage bonds, servitudes or real rights regarding the property. An agreement would therefore not be binding until the other spouse has signed. An exception to the requirement of consent is when a transaction is concluded in the ordinary course of a spouse’s business, trade or profession. Although the spouse dealing with his/her business activities may sign the sales agreement on his/her own, the rest of the transfer documents would still need the consent of the other spouse. However, interpretation of the Married Persons Equality Act in Namibia has it that both spouses should sign to make the agreement binding and valid. In case of marriages in community of property, a sales agreement signed by one spouse only can be ratified afterwards by means of a written consent. However, a power of attorney to deal with the property of the joint estate cannot be ratified and should be signed by both spouses simultaneously.
    A joint estate refers to the estate of two people who are married in community of property. By law, their assets are pooled together and they become owners (each of an undivided half share) of the joint estate. If a person acquired property while he/she was still unmarried and then got married in community of property, the spouse automatically becomes owner of a half share in the joint estate.

    The term “joint ownership” or “co-ownership” denotes that two or more persons own a property at the same time. A single property may therefore also be bought and held by several (joint/co) owners. Each owner has the right to a share in the entire property, but the various shares need not to be equal. Problems do arise when things go wrong in the relationship and one person wants to sell or mortgage while the other person does not.
  • In a marriage out of community of property each party’s debts and assets are kept separate and on dissolution; each takes their portion.  These couples may also decide to acquire property jointly (in half undivided shares) – consent from the other spouse is generally not needed, unless both are registered co-owners.
  • The Native Administration Proclamation 15 of 1928, part of which is still in force, makes a rule for civil marriages between black persons north of the old Police Zone that took place on or after 1 August 1950. These (so-called red-line) marriages are automatically out of community of property, unless a declaration establishing another property regime was made to the marriage officer one month before the marriage took place. Generally one spouse only may act.
  • According to “The Recognition of Certain Marriages Act, Act 18 of 1991”, a marriage according to the Swapo Family Act has the legal right of a marriage in community of property – both spouses need to consent.
  • The consent of the other spouse married in terms of religious rites (Hindus or Moslems) is not required for entering into a property transaction and a person’s capacity to deal with property registered in his or her name is not limited – one spouse only may act.
  • A marriage governed according to the laws of a foreign country (including Germany, Angola and South Africa) needs the consent of the other spouse to deal with property matters in Namibia. 

    The Law of a Country where the husband was domiciled at the date of his marriage, governs the property rights of the parties and not necessarily the Law where the marriage takes place.  Therefore, if the husband was at the date of the marriage domiciled in Namibia, and he marries in a foreign country, the Laws of Namibia would apply to the proprietary consequences of the marriage and therefore he would be married in community of property (unless the parties enter into an Antenuptial Contract).  Similarly, if a man domiciled in England marries in Namibia, the Laws of England will apply.  The parties are domiciled in the Country which the husband regards as his permanent home.

    As each foreign country has its own Laws governing the proprietary consequences of the marriage, and those Laws change from time to time, it is extremely difficult to ascertain what the Laws of that foreign country are.  For example, we may not know whether the marriage is in or out of community of property or whether the one spouse need be assisted by the other.  Even if we know, it is sometimes extremely difficult to prove.  The general rule is therefore that one spouse should sign and the other assist by also signing.


    Recognition in Namibia of marriages out of community of property entered into in South Africa can only be done if the Antenuptial Contract is indeed registered in our Deeds Registry within six months after the marriage was entered into. If not, it is to be regarded as a foreign marriage – both spouses need to consent. All marriages entered into before 1st March 1994 in Walvis Bay or where the husband was domiciled in Walvis Bay, are regarded as foreign marriages in Namibia and both spouses need to consent to real estate matters.

Namibian citizens, residents, non-residents and foreign nationals:
All countries have finite resources when it comes to food, water, basic services and job opportunities. The Namibian Constitution recognises the right for all persons to acquire, own and dispose of all forms of immovable and movable property in any part of Namibia. However, to protect the right of our citizens, Namibia, like other countries, has complex laws regulating people’s access to enter and stay in our country. Only a brief outline is given here:
The Immigration Control Act further prohibits the selling or letting of immovable property to illegal immigrants. One needs permission to reside in Namibia and it is illegal to enter or stay here without proper permission. “Foreign national” is, in general, the term we use to describe a person who is neither a Namibian citizen, nor a holder of a resident status. Temporary or permanent resident permits may be issued to foreign nationals.
From a conveyancing perspective, once official permits provide resident status, citizens and residents of Namibia are generally regarded as having equal status with the important exception of agricultural land. The Agricultural Land Reformed Act prohibits foreign nationals to enter into any agreement regarding the right to occupy or possess agricultural land or a portion thereof in Namibia, without the written permission and consent of the Minister.
To date no further restrictions are being placed on the acquisition of landownership by foreigners. Unless the permit of a foreigner who resides in Namibia expressly prohibits the acquisition of immovable property, that person is not restricted from acquiring property.

OTHER DISQUALIFICATIONS

  • Intoxicated persons or those under the influence of drugs at the time of entering into an agreement, have no legal capacity whatsoever.
  • Minors can in their own names, acquire ownership of immovable property in Namibia. Depending on the situation, a guardian could for instance enter into a contract on behalf of his minor. Bonds and minors are complicated issues. The guardian may not mortgage (bond) immovable property belonging to the minor, unless authorised by the Master or the High Court depending on the situation.
  • When selling, the trustee of the insolvent estate can decide to accept or reject the deal. If the trustee decides to enforce the contract, the property falls in the estate of the insolvent. If not, the property reverts back to the seller. By law nothing really prevents an insolvent, with the consent of his trustees, to purchase property. Theoretically, a person is entitled to apply for a home loan immediately upon his/her rehabilitation. The credit provider, however, has the right to refuse to enter into a credit agreement with any prospective consumer on reasonable commercial grounds that are consistent with its customer risk measurement and underwriting practices.
  • When a person dies an executor is appointed to take charge of his/her estate, to wind up the estate and to distribute the assets of the deceased person to the heirs or take responsibility for selling the assets from the estate. It must always be assured that the representative person has indeed been appointed in that capacity and, secondly, that the transaction is authorised in terms of our law; the will of the deceased (if any) and the powers granted to the executor or representative person. Where the deceased was married in community of property during his lifetime, the surviving spouse and the Executor (if the surviving spouse is not also the Executor) must sign the Agreement.
It does happen from time to time that the seller of the property is not the owner of that property. If someone signs a deed of sale on behalf of a seller or a purchaser, that person must be in possession of a written power of attorney to that effect. A Power of Attorney must be signed by the grantor/principal and dated before the date of the signature on the agreement. If such a written power of attorney does not exist at the time of the agent signing the agreement, the agreement is invalid.

LEGAL PERSONS (ENTITIES), SUCH AS CLOSE CORPORATIONS, TRUSTS OR COMPANIES

These cause the most problems and should be dealt with carefully.  Remember we are not dealing with the sale of shares and loan accounts in the case of a Company and members interests and loan accounts in the case of a Close Corporation.  We are dealing with the case where the Company or Close Corporation is either the Purchaser or the Seller.  Legal entities/persons (the juristic body) have a separate juristic personality to their shareholders or members, and are normally capable of taking part in the day-to-day economic activities, including owning land, and the purchasing and selling thereof.

The following does not deal with the question of Companies and Close Corporations in detail.
  • Does the company have authority?In terms of the Company's Act (Section 34), every company has the power to sell, purchase or mortgage immovable property unless specifically excluded in the company's memorandum. It is thus always advisable for estate agents and conveyancers to call for a copy of the company's memorandum for possible limitations and exclusions. However, in the unlikely event of the memorandum specifically excluding the purchase of immovable property by the company, it still does not mean that the contract is void. 

    In terms of Section 36 of the Company's Act, no act of the company will be void by reason only of the fact that the Company was without capacity or that the directors had no authority to perform that act on behalf of the company; nor may the Company or any other person in legal proceedings rely on such lack of authority or contractual capacity.

    So, a purchase of immovable property by the company, even if specifically prohibited in terms of the memorandum would not be void, provided the directors were prima facie duly authorised to bind the company to the transaction. This means that outsiders (lawyers and estate agents) dealing with a company can accept that the company has the capacity to enter into a contract of sale of immovable property.

  • Who can be authorised to represent the company?The person representing the company is mostly an authorised person within the company such as a director or authorised official. En employee or an authorised outsider, such as an estate agent or legal practitioner in possession of a power of attorney may also act on behalf of the company.
  • How is such a person authorised?The company's articles must be examined as they might provide, for example, that only the board of directors may enter into a contract of sale of immovable property on behalf of the company. In such a case, a single director will not be authorised to represent the company unless he/she is authorised by the board of directors to do so.

    If the articles and memorandum of the company are silent and do not deal with exactly who shall be authorised, then it can be assumed that the board of directors or the company's managing director has the necessary authority to conclude a contract of sale for the company. A single director or the company's secretary normally cannot conclude such contracts on behalf of the company, unless authorised to do so by the company's constitution (memo and articles) or by the board of directors.
  • The Resolution:It is always advisable to obtain a copy of a resolution authorising a person to enter into a transaction on behalf of the Company, and to annex this to the agreement. 

    The person authorised to enter the contract on behalf of the company must sign the contract in a representative capacity, i.e. it must be clear that he/she has signed the contract on behalf of the company: e.g. "for and on behalf of ABC (Pty) Ltd". If not, he/she may be held personally liable to the contract. However, the courts have held that where it is clear that the seller or purchaser is a company and the contract is signed on its behalf by one of its officers without an indication that he/she signs on behalf of the company, it will be assumed that he/she did sign on behalf of the company.
  • Section 228 of the Company's Act:In terms of this section, the directors of a company do not have the power to dispose of the whole or a substantial part of the whole of the undertaking of the company, or the whole or the greater part of its assets, except with the approval of 51% of the shareholders at a general meeting of the company.
    This means that where the company's only asset is the immovable property, one should always ensure that he/she obtains a resolution of a general meeting of shareholders, which authorises or ratifies the specific transaction. It is desirable that the shareholders’ resolution be obtained before entering into the agreement of sale in question. If the sales agreement is signed without the required resolution of the shareholders, the shareholders may subsequently ratify the transaction. This will meet the requirements of s. 228, but until such ratification occurs the agreement has no legal effect.

CLOSE CORPORATION

Section 54 of Close Corporation Act deals with the powers of the members of the close corporation to bind the CC. 
If the specific member appears to have the authority to represent the close corporation and the third party (bank, conveyancer or estate agent) has no reason to believe otherwise, the member’s action would indeed bind the close corporation in so far as the third party is concerned. If of course the third party knew better, it is another scenario. It is always advisable to obtain a copy of the resolution authorising a member to conclude the transaction and to annex it to the contract. 

For example, an attorney might know the management, officials or members of a company or close corporation so that he/she could dispense with all evidence of the signatories having the necessary binding authority. In other circumstances, for instance, where the attorney has doubts about the true capacity of the signatories, he/she could only be proved to have acted with the reasonable amount of care expected, if he/she had taken all the possible steps to obtain the necessary physical evidence about the relevant company or close corporation.

A TRUST

A trust is generally a vague concept not easily understood by many. Before entering into a real estate transaction, the easiest and safest way to ensure a trustee has the authority to bind the trust is to obtain proof from the Trust Deed that the trustee is in fact appointed and that the trust is registered at the Master of the High Court.

“OR NOMINEE”

The buyer may also enter into the contract “as nominee”. For instance: If a person wishes to purchase property and at the time of entering into the agreement, he/she is not certain whether to purchase in his/her name or in the name of another person or entity, he then enters the agreement as nominee. This may become a tricky and could open the way for possible disputes and subsequent transfer duties issues. Nominee agreements should always be very carefully considered and correct wording should be used in the sales agreement. It is advisable that the time period within which the nominated other person should be appointed must be in writing as well as the timing period within which the nominated party should accept and ratify the agreement.

Avoid "nominee" sales if at all possible.

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