QUESTION 1

Kate and Mr Sam are the founders of an import-export business. They have decided to capitalise on the COVID-19 pandemic by importing and selling designer face masks. They read of a potential market opportunity; the board of Company A is seeking the supply of 11 000 "Joker Smile" masks. Kate and Mr Sam have developed reliable contacts in China, and feel that this offer is an excellent opportunity for them to increase the earnings of the business. The only problem is that the advertisement states: "This offer is available only to companies registered under the Companies Act 71 of 2008, or to businesses that commit to establishing such a company within six months after awarding of the contract".

Kate and Mr Sam had previously discussed the desirability of incorporating a company, but had never made a firm decision in that regard, until the moment that Kate and Mr Sam agreed that they could not miss the face mask opportunity; therefore they submit a quote to Company A as "a business that undertakes to incorporate within six months".

The CEO of Company A calls Kate to inform her that the company was impressed with their quotation and the speed with which they promise to deliver, and that Company A would like to sign the contract as soon as possible.

Kate and Mr Sam have been informed that there are two ways to conclude a contract on behalf a company which does not exist yet. You are their legal adviser. Advise them as to the most appropriate method for them by providing a detailed comparison between the two methods.

(12 marks)

QUESTION 2

The Memorandum of Incorporation (MOI) of Heavenly Experiences (Pty) Ltd contains the following clause:

"The company may not enter into suretyship agreements."

Kate and Mr Sam are the only directors of the company. In terms of a unanimous resolution, the board appoints Indiana Jones as the Chief Executive Officer (CEO) and confers unlimited contractual authority on him.

Shortly after his appointment, and without knowing about the prohibition on entering into suretyships, Indiana Jones binds the company to a suretyship agreement as part of a complex series of transactions aimed at benefitting the company's motor vehicle sales division.

Kate is very upset when she learns of this transaction. She wants the company to withdraw from the agreement, but the third party threatens to sue the company if it tries to escape from the suretyship.

Kate approaches you for advice. She wants to know:

1. whether the suretyship contract is valid, and
2. if the contract is valid, whether there are any legal steps she can take to prevent the company from performing in terms of the agreement.

Advise her, with reference to relevant law.