ICANBusiness LawLaw of Agency2021

Under Section 88 of the Companies and Allied Matters Act (CAMA) 2020, Chief Emeka was appointed Managing Director of Zenith Logistics Ltd. The company's internal Board Resolution restricted his borrowing power to ₦5,000,000 without prior Board approval, but this restriction was never registered or published. Chief Emeka obtained a business expansion loan of ₦12,000,000 from First Capital Microfinance Bank on behalf of the company. The bank acted in good faith without actual knowledge of the internal limit. What is the legal position regarding the transaction?

AThe loan contract is entirely void as Chief Emeka exceeded his actual authority
BZenith Logistics Ltd is bound by the loan contract under the doctrine of apparent/ostensible authority and CAMA 2020 protections for third parties acting in good faithCORRECT
CZenith Logistics Ltd is liable for ₦5,000,000, while Chief Emeka is personally liable for the balance of ₦7,000,000
DThe contract is unenforceable against Zenith Logistics Ltd until ratified by a 75% majority vote at a general meeting
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Why the answer is B, and why the others tempt you.
Under Section 88 and the rule in Royal British Bank v Turquand codified in CAMA 2020, third parties dealing with a company in good faith are not bound to inquire into internal restrictions on the authority of officers like a Managing Director. Since the bank had no notice of the internal ₦5,000,000 limit, Chief Emeka had apparent authority to bind Zenith Logistics Ltd for the full ₦12,000,000.
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