Reference no: EM133257027
Question: Four friends, Luigi, Mario, Antonio and Guido decide to enter into business together after sitting at Jakes Bar one Friday afternoon. They see that there is a great water opportunity in Cape Town with the lack of water. They all agree that they must share equally in the water business and share all the profits and losses. All of them have R100 000-00 to put into the business. They appoint an attorney who drafts an agreement reflecting that they all share the profits equally and in order to trade the attorney obtains a shelf company and each pays his R100 000-00 into the attorneys trust account. The only shelf company that is available is a shelf company whose main object is the sale of industrial chemicals. The company is chosen as they eager to do business. The company is called Borehole Satisfaction (Pty) Ltd.
Prior to the company registration, they conclude a lease agreement with Fred for the hire of the warehouse and Mario concludes a contract for the purchase of cheap running shoes as a container has landed at Cape Town harbour and is being sold at half the cost price. It seems like a great opportunity to him and he signs an offer to purchase for R450 000-00.
Antonio and Guido are appointed Directors in terms of a shareholders resolution and Mario and Luigi are comfortable to be shareholders as they have other businesses as well. However, Luigi has a contact as Pick n Pay in Green point and signs a contract for the supply of 500 tons of water per month for 12 months. Everyone is eager to commence business.
Guido in doing his bit to promote the sales concludes a contract with Vangelis whose business is a restaurant trading as Must Eat. Guido has a contract to supply him 500 bottles of water every month for 12 months at R10 00-00.
We deliver Cars, a partnership offers them a delivery vehicle. Sam who is a partner of the partnership concludes the instalment sale agreement with Borehole Satisfaction (Pty) Ltd for a period of 12 months, at a cost of R5000-00 per month. He advises that he will purchase the car in his name from the partnership and then then resell the vehicle to Borehole Satisfaction (Pty) Ltd. The business of We deliver Cars is than of the purchase and sale of motor vehicles.
Having concluded the various agreements the shareholders of Borehole Satisfaction Pty Ltd hold a board meeting and ask Luigi if he secured their supply of water to meet their contracts from Island Spring Water in Paarl. He tells them he has, but being so busy has not yet concluded the agreement. In haste the following day he buys the requisite number of bottles and containers to fill the water and decides to rather use his borehole in his garden to fill the containers as that means the water is obtained at zero costs and the company's profits will soar.
Three months passes and they enter into the new premises and begin to trade. However just before the end of the last month in the 3 month period the board resolves not to ratify the shoe agreement, as it is not their business. The shoes have been supplied and the seller wants the R450 000-00 from the company. The company wants to deny liability, for the shoes ,and ask you how they can and on what basis? Their attorney says their defence lies in the doctrine of constructive notice is he correct?
The company duly supplies the 500 tons of water to Pick n Pay and within 3 months Pick n Pay receives numerous lawyers letters that clients have been falling ill and on testing of the water, it was found to have 20 percent traces of faecal matter in the water. The matter is directed to the board of Borehole Satisfaction (Pty) Ltd as Pick n Pay want their money paid back of R 300 000-00, and have cancelled the agreement and wish to sue the company. Their lawyer says they must not worry as the company gives them limited liability and there is no chance that Pick n Pay can sue each of them personally is he correct? Is there any other defence besides limited liability.
The company has also supplied the business Must Eat who know owe R30 000-00 for water supplied. Antonio goes to see their attorney who says they must issue summons against the business must eat, but is not hopeful because of the limited liability principal in South African law. Is he correct?
The company receives a letter from We deliver Cars who advise they are cancelling the agreement as their one partner who arranged the contract has breached a fiduciary duty in concluding the agreement, as he had no authority to bind the partnership as a partner .Again they go to their attorney for advice who says that they have a great defence based on the Turquand Rule. Explain what it is and is he correct? Does this rule adequately explain the cancellation of the agreement?
The company attorney phones to say that a customer at Pick n Pay wishes to sue the company as they vomited for 4 weeks, spent a weekend in ICU because of the faecal matter in the water. The attorney advises them not to worry as she is not their customer there is no direct link and the only gives rights to directors and shareholders to sue the company not outside parties The customer would be obliged to Sue Pick N Pay. Is he correct ?.
The board takes a decision to sue Spring Water in Paarl and Luigi has to own up that it was not their water but his borehole water. On this revelation the board resolves to sell the stock and split the profits of the sale between them and leave the company as a shell as they protected by limited liability and there is no possibility of a personal law suit as the Company Act protects them as seen in Saloman v Saloman. Their attorney agrees with this approach is he correct.?