Peppy Motors (Private) Limited v Matabeleland Engineering (Private) Limited

The plaintiff (Peppy Motors) sued the defendant (Matabeleland Engineering) for two claims: Claim A sought US$119,526.70 allegedly lent to the defendant between July 2015 and January 2016, and Claim B sought US$2,000.00 for an armoured cable purchased on the defendant's behalf. Tony Sarpo was a director of both companies and proprietor of the plaintiff. He was also the defendant's Managing and Administration Director, while his sister Sabrina was the defendant's Finance Manager. Wayne Williams was the other director and majority shareholder of the defendant. The plaintiff claimed funds were advanced to help the defendant meet financial obligations, and that partial repayment of US$11,830.00 had been made. The defendant denied entering into any loan agreement, asserting that no board resolution had authorized any borrowing. The defendant claimed the funds transferred were payments for services rendered to the plaintiff, and that Sarpo had failed to disclose his interest in the plaintiff. The defendant also denied any agreement regarding the cable and claimed it had no use for such equipment. After Sarpo and Sabrina resigned, they allegedly took the defendant's books of accounts.

• Whether the defendant was indebted to the plaintiff in the sum of US$119,526.70
• Whether the defendant was indebted to the plaintiff in the sum of US$2,000.00 for an armoured cable
• Whether a company can validly contract to borrow funds without a board resolution authorizing such borrowing
• Whether directors can unilaterally bind a company to loan agreements in the absence of proper corporate authority
• Whether the absence of a board resolution renders claims for loan repayment incompetent

The plaintiff's claim was dismissed with costs in favour of the defendant on the ordinary scale.

A company with multiple directors cannot validly enter into a loan agreement without a board resolution authorizing such borrowing. Directors cannot unilaterally bind a company to financial obligations in the absence of proper corporate authority demonstrated through resolutions passed at properly convened board meetings. Where a claimant seeks to enforce a loan allegedly advanced to a company, the absence of a board resolution authorizing the company to borrow renders the claim incompetent, as no valid cause of action exists. The principle that a company is a separate legal person from its directors requires that those purporting to act on behalf of the company must demonstrate proper authorization to do so.

The court observed that if the plaintiff had wished to pursue an alternative claim based on unjust enrichment, this should have been pleaded in the summons and declaration to give the defendant an opportunity to respond. The court cannot determine a claim on an alternative basis ex mero motu (of its own accord) where such alternative has not been pleaded. The court also noted that it was remiss of the plaintiff not to address the crucial legal issue regarding the absence of board authorization in its closing submissions, despite this defence striking at the heart of the plaintiff's claim. The court commented that the situation would have been different if the defendant had only a single director who could perform all judicial acts without holding a meeting, but this was not the case.

This case reinforces the fundamental principle of Zimbabwean company law that a company has a separate legal personality from its directors and cannot be bound by transactions entered into without proper corporate authority. It emphasizes that directors of companies with multiple board members must act collectively through board resolutions, particularly for significant financial decisions such as entering into loan agreements. The judgment serves as a warning to creditors dealing with companies to ensure that proper corporate authority exists before advancing funds, and that the absence of such authority renders claims for repayment incompetent. The case also illustrates the importance of proper corporate governance and record-keeping, including minutes and resolutions of board meetings as required under the Companies Act.