Law of Association

QUESTION 2 [50 MARKS]

Erykah, Purity, Gabriel, Pienaar, David and Chantel wish to set up a Greek restaurant business called 'Hatfield Restaurant'. They enter into an oral agreement in terms of which it is agreed that: Erykah will be the head chef of the restaurant, and will be entitled to 20% of the profits of the business Purity will be the manager and restaurant host, and will also be entitled to 20% pf the profits of the business. Purity will not share in the net losses of the business Pienaar will allow the use of his property, rent-free, as business premises, and will receive 20% of the profits of the business. Pienaar will also receive a salary of R10 000 per month for accounting services rendered to the partnership Laina will finance the business by contributing an amount of N$ 600 000, but will not participate in the management of the business and his liability for the partnership will be limited to a maximum of N$ 600 000. David will loan a further N$ 50 000 to the business to, which is payable with interest in the form of 10% of the profits of the business. Chantel will be the head waiter of the restaurant, and will be remunerated at a rate of N$ 10 000 per month By reference to the above facts, answer the following questions:

2.1. Has a valid partnership agreement been formed, and if so, between which of the above parties? Fully discuss./10 marks

2.2. Assume that a partnership has been formed, Erykah without the informing the other partners or obtaining their consent, enters into an agreement with X (Pty) Ltd for the purchase of new furniture for the restaurant and signs the agreement of sale as 'Erykah on behalf of Hatfield Restaurant'. Fully discuss whether the partners will be bound by the agreement./10 marks

2.3. Would your answer in (3.2.) above differ if the partners had discussed whether they should purchase new restaurant furniture and the other partners, disapproving of the idea, had instructed Erykah not to do so? Explain fully./ 10 marks

2.4. Hatfield Restaurant fails to pay X (Pty) Ltd the purchase price for the furniture of N$ 300 000. X (Pty) Ltd wishes to institute legal proceedings for payment of the amount

of N$ 300 000.Advise X (Pty) Ltd whether legal proceedings may be instituted against the partnership in its own name or whether the legal proceedings must be instituted against the partners./10 marks

2.5. Hatfield Restaurant eventually goes insolvent. Explain how creditors of Hatfield would be paid the debts owing to them./10 marks