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Partnership in Restaurant Business

1.Michael and Kate have decided to open a new restaurant together in Parramatta. They have each contributed capital to get the business established, as well as equipment and contacts within the food industry that will benefit the enterprise.

They will both be actively involved in the restaurant. Michael will be responsible for purchasing food and other items needed for the business, as well as overseeing the marketing that will need to be done. Kate will concentrate on keeping the books of the business in order and recruiting of staff. They will share the responsibility for training their staff and operating the restaurant.

Michael and Kate agreed that they would share all costs equally and calculate profits monthly. Any profits would be split 50:50 between them.

Their restaurant, Salamander, opened on 2 July 2018. Whilst it was not a raging success, turnover was sufficient to be encouraging for them.

On 11 September 2018, Michael ordered a shipment of truffles for the restaurant from Australian Truffle Delicacies in Tasmania. He placed the order without consulting with Kate, as it was a sudden and unexpected opportunity to cash in on a rare and valuable luxury food item that he had long wanted to include on a menu.  

Two days later, Michael received a telephone call telling him that his father was terminally ill, and so he left immediately to be by his father’s bedside at his home in outback Queensland. He told Kate that he would return as quickly as possible, however he would be out of contact for the time he was away because of the remoteness of his family home.

Kate received a letter on 28 September 2018 from Australian Truffle Delicacies stating that the truffles were sold on 7-day trading terms, and that the full $9,000 is now due. Michael is still away and not contactable, and the supplier is now threatening to take Kate to court to claim full payment from her.

Using IRAC, advise Kate of whether she would be considered a partner in the business, and her personal liability for the $9,000 owed to Australian Truffle Delicacies.

Make sure you support your response with relevant case or legislative authorities.

2.Damien decides that he wants to but a new motorcycle. He goes to the local dealership and is met by Cassandra who asks if she can help him and whether he is looking for anything in particular.

Damien says that he has his heart set on a motorbike that was made in Japan, as he had heard that they were extremely well-made and that custom parts are readily available in Australia. Cassandra tells him that all of the Yamaha, Suzuki, Kawasaki and Honda bikes in the dealership are made in Japan. He also mentions that he has long wanted a midnight blue Honda but has been unable to find one in this colour at any other showroom.

Cassandra shows him a black CBR1000 model, and is informed that it is available in midnight blue but that it would need to be ordered in. Damien is told that the price is $17,000 including stamp duty, and that this is an extremely popular model, and a fantastic bike at this price.

On the basis of this information, Damien agrees to buy the base model, in midnight blue, along with a matching helmet. Delivery is to be made by Friday the following week, so that he has the entire weekend to use it. He makes full payment and provides his address for delivery.

The bike is delivered on Saturday afternoon, and Damien notices immediately that it is the black bike that he was looking at in the store. He also lifts up the seat and sees a metal label that says “Made in USA”. The helmet is also missing.

He finds an old helmet and takes the bike for a ride. Although he likes the way the bike rides, he is disappointed with the seat and finds it uncomfortable to sit on for longer than 15 minutes. Having ridden many different bikes, he does not believe this one to be a “fantastic bike” as it was described, even at that price.

Advise Damien of the terms of this contract, and classify each of the terms you have identified, supporting your answer with relevant legal authority where appropriate.

3.Sarah operates a boutique patisserie and bakery in Paddington. Following the trend in the area, she has recently started selling a wide range of gluten free products and has been searching for a reputable local supplier of gluten-free flours. She finally locates Vincent Lee Milling, a small operation that has branched out into these specialty flours.

Last Monday Sarah telephoned Vincent Lee and informed him that it was very important that the flour have absolutely no traces of gluten, as Sarah’s customer base included many people with a severe gluten intolerance, including patients in local hospitals. Vincent assures Sarah that the rice flour will be suitable and so Sarah orders 50 sacks, and asks that it be delivered on Tuesday night before 8:00pm as she has orders for gluten-free bread to meet for the following day.

The flour is delivered at 7:30pm on the Tuesday night. When Sarah’s senior pastrycook goes to open the bags at 3:00am the next morning to start baking he notices inside the sack a tag that states that the flour is processed on machines that are used for other grains and may therefore contain traces of gluten. Sarah makes the decision not to use the flour and proceeds to just bake her regular products.

The next day Sarah informs Vincent that she is terminating the contract for supply of the special flour, and is claiming $6,000 in damages, being the anticipated profit she expected to make from:

  • supply of 800 loaves of gluten-free bread to four major Sydney metropolitan hospitals in the area ($2,500);
  • supply of 200 loaves of gluten-free bread to general customers in the area ($500);
  • profit from supply of a special order for a gluten-free wedding cake for a local celebrity who he is not allowed to name. ($3,000)

to the local hospital ($500) and for the profit for a special order for a gluten free wedding

cake for a local minor celebrity who he is not allowed to name ($2500).

Advise Vincent Lee whether Sarah is entitled to the remedies she has claimed. Be specific in your advice and support your answer with relevant legal authority where appropriate.

Partnership in Restaurant Business

1.Issue: it has to be seen if there is a partnership between Michael and Kate. And as a result, Kate is bound by the liabilities of the business that have been incurred by Michael.

Rule: the relationship of partnership is present between the persons who are carrying on a business; in common; and with a view to profit. In case of a partnership, there is an agreement between two or more parties performed legally binding relationship. Essentially this relationship is conceptual in nature. In Green v Beesley (1835), the partnership has been described as a mutual participation yet the participants don't form a legal entity, while creating a partnership. In this way, and not in a partnership can be described as a partnership that comprises of definite individuals who are bound jointly by contract created between themselves for jointly working for common objective, either during pleasure or for a limited time. Essentially, partnership comprises the persons who have generally entered into the contract with each other (Smith v Anderson, 1880). According to the partnership act, the three elements that are essential for establishing the presence of a partnership can be described as follows:-

  • Carrying on of the business;
  • In common;
  • With a view to profit.

On the other hand, if any of these elements is not present, the relationship between the parties cannot be described as a partnership. The law provides that the partners are jointly and severally liable for the debts and obligations of the business.

Application: In the present case, Michael and Kate are running the restaurant business jointly. Each of them had contributed capital for the establishment of the business. Both of them are equally and acted the involved in the business. It was agreed between them that all costs of the business will be shared equally by them. Similarly, any profit will also be divided equally between them. Under these circumstances in order of a shipment of truffles was made by Michael. He had placed this order without consulting Kate. Two days later, Michael had to go, as his father was ill. While Michael could not be contacted, Kate received a letter from Australian Truffles Delicacies claiming the price of the truffles. Considering the effects of the present is, it can be said that Michael and Kate were running the business as a partnership. Therefore, they can be held liable to pay for the truffles.

Conclusion: in this case, Kate is liable to pay for the truffles that have been ordered by Michael. The reason is that they are considered to be running the business as a partnership.

2.Issue: The issue here is related with the terms and conditions of the contract created between Damion and Cassandra.

Rule: Every contract has key terms. These terms fall into different categories. The parties made expressly agree regarding the terms of the contract, orally or in writing. At the same time, terms may also be implied by the law in a contract or from the conduct of the parties, custom, previous dealing or the intention of the parties.

In this context, the terms of a contract can be described as conditions, warranties and innominate terms. This can be specified by the parties and the contract or implied by the nature of the or implied by law.

Terms of Contract for Motorbike Purchase

A term of the contract can be described as a condition if in case of a breach of the term, the other party gets the right to either terminate the contract or performing. At the same time, in such a case, the aggrieved party also has the right to claim damages.

On the other hand, in case of a breach of warranty, the other party does not get the right to terminate the contract. Therefore in case of a breach of warranty, the aggrieved party only gets the right to claim damages. In this way, a term can be described as a condition if it is a basic term of the contract and goes to the root of the contract. Conversely, a statement or an assurance made regarding a factual matter will generally be considered as a warranty. The difference between the two can be explained with the help of famous cases of Poussard v Spiers (1875) and Bettini v Gye (1875).

In case of innominate terms, the remedy for the breach of contract depends on the effect of the breach. Therefore, if the breach has substantial effect on the eve party, it will be considered as a basic term and give a right to such party to terminate the contract. If this is not the case, the aggrieved party may only claim damages.

Application: in the present case, it was a condition that the bike should be made in Japan. Another condition was that the bike should be of midnight blue color. However, it was a warranty that it was a fantastic bike.

Conclusion: in the present case, there has been a breach of condition. This provides the right to Damien to terminate the contract.

3.Issue: The issue present in this question is, if Sarah is entitled to recover the expectation damages from Vincent Lee?

Rule: expectations loss can be described as the usual measure of damages that may be awarded by the gays in case of a breach of contract. Expectation damages refer to the loss of a bargain suffered by the innocent party, like the profit that would have been expected to be made by such a party in the contract was performed properly, less the cost. That would have been incurred by the party to earn such profit. The purpose behind awarding expectations loss damages is to raise the innocent party in a similar position where it would have been if the contract was performed properly. Expectation loss has to be contrasted with reliance loss, which is also a measure of damages awarded in case of breach of contract and generally known as wasted expenditure.

In Hadley v. Baxendale (1854) the crankshaft of the steam engine of the mill broke down. A replacement was ordered from a supply would require that the broken shaft should be provided for making sure that the replacement was fabricated to correct dimensions. Under these circumstances, Baxendale was hired for delivering the old shaft supplier by a particular date. But there was a delay in the delivery. Consequently, Hadley was delayed in receiving the replacement shaft. During this time the mail cannot be operated and he lost business. Therefore he sued Baxendale for lost profit.

 The Court has stated that the lost profits were not the reasonably foreseeable consequence of the failure of Baxendale to perform the contract on time.

Application: because in the present case, Sarah had not informed Vincent Lee regarding the orders with the local hospital and the special orders for glutton free wedding cake, she cannot be allowed to claim these damages from Vincent Lee.

Conclusion: Sarah may claim damages for the breach of contract from Vincent Lee but she cannot be allowed to claim expectation damages for the loss of profit suffered by her as a result of the breach of contract.


Bettini v Gye (1875) L.R. 1 QBD 183

Green v Beesley (1835) 2 Bing N C 108

Hadley v Baxendale [1854] EWHC J70

Poussard v Spiers (1875) L.R. 1 QBD 410

Smith v Anderson (1880) 15 Ch D 247

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