1.Joe operates a small boutique computer store called Connect Computers (“CC”). Joe specialises in computer repairs but was successful in securing a contract with the Whittlesea Primary School (“WPS”) to supply and install 150 computers at a price of $45,000. The terms of the contract with WPS required the computers to be delivered and installed by 31 June 2018.
Joe had never had such a big order to fill. After looking at his stock on-hand, he calculated that he needed to order an additional 75 Central Processing Units (“CPU”). He decided to call his good friend Annie who owned and managed an IT supply company. Joe had been good friends with Annie for over 20 years and he was sure that she would be able to give him a good price. Annie was excited for Joe and told him that she would send an email with further information the next day. On 12 February 2018, Joe received an email from Annie quoting a price of $4,000 for 75 CPUs. In the email, Annie advised Joe that this was the cheapest she could go for 75 single core CPUs. Joe was concerned that the single core CPUs may not have enough power to meet the Schools’ needs and wrote back to Annie the same day. ‘I have concerns that the single core might not be powerful enough. What is the lowest price that you could do on an order of quad-core CPUs? I will probably still go with the single core option but interested in comparing prices. Please keep this original quote open for 14 days while I work on my calculations?”
On 16 February, Annie sends Joe another email quoting a price of $12,000 for 75 quad-core CPUs. Both emails from Annie have an order form attached, and state ‘If you wish to accept this quotation, please print off and sign the attached order form and return by post.’ The order form further states that all quotations are valid for a period of seven days. When Joe reads the second email, on the morning of 17 February, he decides that the quad-core CPUs are too expensive for his budget. He immediately prints the order form attached to the first email (from 12 February), signs it and posts it to Annie that same day. Meanwhile Annie had received an order for her entire stock of single-core CPUs from a major computer manufacturer called Pear. On 18 February, Annie writes an apologetic email to Joe telling him that she had sold all of her single core CPUs and that he would have to wait until August for new stock to arrive. Upon reading this, Joe immediately calls Annie and explains that he cannot afford the quad-core CPUs, ‘You will have to find the single cores from somewhere else,’ he says, ‘I have sent the order form back, and as far as I am concerned, we have a contract.’ Annie was confused, ‘What are you talking about? I haven’t received your order form yet. You have until tomorrow to let me know whether you want the quad-cores.’ Joe was upset with Annie and decided to explore his options. After a bit of searching, he is able to source the single core CPUs from another IT supplier, but at a total price of $7,000. Disappointed with the increased expense, Joe decides to go ‘doorknocking’ in his local neighbourhood to see if he can gather some new business.
He knocks on the door of Florence Nightingale, a 70-year-old lady who spoke very little English and had very limited computer literacy. Joe told Florence that he was offering a free service on computers in the neighbourhood. Florence thought this was a great initiative and welcomed him in. Upon inspection of Florence’s computer, Joe tells her that her machine was filled with dangerous viruses and that she was in urgent need of an upgrade. Florence was a bit surprised as her daughter had only bought the computer for her six months earlier, but nevertheless thought Joe seemed trustworthy enough. Joe asked Florence a few questions about how she uses the computer, for which she responded, ‘just the odd email and to sometimes video call with my grandchildren Esmeralda and Michelangelo.’ Joe tells Florence that he has the perfect machine for her and that he is offering a special price if she signs today. He provides Florence with a basically worded contract which she signs without reading. The contract requires Florence to pay Joe $2,000 on delivery of the computer and included the following disclaimer: Connect Computers does not warrant or guarantee that any products sold or provided will be fit for any purpose, howsoever described or disclosed.
About a week later, Joe delivers a newly built computer to Florence and provides her with an invoice for the full amount ($2,000). However, the computer came with no operating system or applications and Florence is unable to use it. Sometime later, Florence’s daughter Rachel came to visit and finds the invoice on the table. “Mum, why have you bought a new computer? The one you had worked perfectly fine. There were definitely no viruses on it, I do a scan every time I am here! Plus, the one you have bought is incredibly overpowered. What do you need 16GB of RAM for?” Florence responded, “Oh Rachel, I haven’t bought 16 rams. Where would I put all those sheep?” Joe is able to supply and install the computers ordered by WPS and receives his $45,000 as payment. However, he is still annoyed that he had to pay a higher amount for the CPUs and is seeking your advice as to whether he has any remedies under contract law. He has also received an angrily-worded letter from Rachel refusing to pay the $2,000 invoice and threatening to take legal action against him.
Joe has come to you for the following advice:
a) Whether Joe had entered a valid contract with Annie for the sale of the singlecore CPUs, and based on your determinations, whether Joe would have access to any remedies under contract law?
b) Whether Florence would be successful in any claims against Joe, and if so, what remedies might be available to her?
2.You must be the new lawyer. I have just met with a new client, Joseph Brunetti. Joseph runs his own successful computer store and is looking to expand his business. He has had enough of running the business by himself and has come to seek our advice on ways he could potentially structure his business. As way of background, Joseph has been operating as a sole trader for approximately 10 years. He has been lucky enough to land a few contracts to supply and install computers in local primary schools. However, he is now looking to take the next step and establish a 24/7 IT service support arm of his business, with the hope that he can secure service contracts with the schools he has already supplied to. As part of this, Joseph wants to purchase a bigger warehouse and a fleet of vehicles. He estimates that this will cost approximately $600,000. He is also looking to hire more staff to support the anticipated increase in workload.
Joseph has told me that he had attempted to borrow money to find the expansion but was told by the bank that he does not have enough security for the amount required. Joseph does own a house, but only has $100,000 worth of equity and $20,000 in cash. Although he does not want to give up control of the day-to-day operations of the business, he would consider offering part-ownership in exchange for some of the capital required. He currently has two friends (Sarah and Malcolm) who are interested in investing, but Joseph is concerned with the number of failed businesses that Malcolm has been involved in. I am of the understanding that Sarah will be able to provide $300,000, Malcolm $180,000, and Joseph the remaining $120,000. In our conversation, Joseph identified a number of key concerns for your consideration. This included:
• A desire to minimise his overall tax liabilities;
• How his choice of business structure may impact on the raising of capital to fund the venture and the ability to attract and keep the right employees;
• Mechanisms that he could implement to ensure that he was protected from any poor management decisions of his partners; and
• Ways in which he could ensure control over the day-to-day decision of the business.
Your job is to prepare a memorandum of advice for the client. Your advice should include a brief discussion of the strengths and weaknesses of each potential option, keeping in mind the specific needs for the client. Remember to include specific recommendations on what Joseph should do – the client isn’t paying us for nothing!
Belinda Klein | Partner
Advise Joseph of the potential ways to structure his business, including the strengths and weaknesses of each option for Joseph’s specific circumstances. You must consider Joseph’s assets and liabilities when giving advice.
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