In terms of prescribed management rule 10 a document (including contracts) is only valid and binding on the body corporate if it is signed by two trustees or by one trustee and the managing agent. This does not mean that a trustee who signs the contract is authorized to do so as the STSM Act empowers the body of trustees, and not individual trustees to perform the functions and exercise the powers of the body corporate. A third party cannot assume that such a trustee has the delegated authority to conclude the contract. This is also true for the chairperson as neither the STSM Act nor the prescribed management rules give the chairperson any special contracting authority. Therefore, the third party dealing with an individual trustee, and not the body of trustees, should make sure the trustee is acting in terms of a delegated authority or that the body of trustees have approved the contract by way of a trustee resolution.
If the general meeting wishes to exercise its statutory power to impose restrictions on the powers of the trustees to enter into certain contracts on the behalf of the body corporate, it must do so before the trustees enter into the contract. The body corporate may, by means of a resolution passed at a general meeting, confer the power to a trustee to negotiate any contract on behalf of the body corporate. It is important that two trustees or a trustee and managing agent must still sign the contract of the body corporate in conformity with prescribed management rule 10. The body corporate could pass a resolution to give the trustees contractual power to enter into contracts with third parties.
The contracting resolution can set out the names of trustees who may contractually bind the body corporate; how many trustees are required to sign the contract; whether the managing agent is also required to sign the contract; what preliminaries are required; monetary restrictions can be made; and the types of contracts that the trustee may not enter into.
In this way the third party is protected from entering into contracts with unauthorized trustees simply by checking the resolution. The trustees will also be protected from being held personally liable on the contract with the third party as their authorization will be held in the resolution passed by the body corporate.
It is also important to remember that PMR 6(3) states that a trustee who has any direct or indirect personal interest in any matter to be considered by the trustees must not be present at or play any part in the consideration or decision of the matter concerned.
In terms of PMR 10(2) a resolution adopted or other act performed by the trustees remains valid and effective notwithstanding the later discovery of some defect in the appointment of a trustee or the disqualification of a trustee.
The body corporate or body of trustees may still in appropriate circumstances ratify contracts entered into with a third party by trustees who do not have the necessary authority.
WRITTEN BY DR CARRYN MELISSA DURHAM
