Robert Batty and Rosie Chan established a small accounting practice soon after graduating in Commerce from Flinders University in 2014. Calling themselves Batty, Chan & Co, they entered a written agreement on terms that described their practice as ‘a firm of accountants and tax agents and such other business as the parties agreed from time to time’. Under the agreement all major decisions relating to the practice were to be made jointly, adding (in parenthesis) that ‘neither can order goods in excess of $7000 in value without the others consent’. As they had little money to bring into the business, Robert’s father, Dr Lawrence Batty, lent them $20,000 as ‘startup capital’ to purchase a lease on office premises in a prime retail location in the Adelaide CBD. A separate loan agreement provided that ‘the advance of $20,000 was to be by way of a loan, that it was to be repaid over a ten year period, out of the profits of the business, at an annual rate of 2% and that Dr Batty be given full access to the firm’s books of account on demand’.
After a year of solid growth Rosie suggested diversifying their practice to include advising small business about taxation matters. Refurbishing their office premises to attract a more up market clientele was another of her ideas that Robert supported. He therefore encouraged her to attend a trade fair at the Adelaide show grounds. There Rosie met several salespersons who were eager to do business with Batty, Chan & Co. One of them, a representative of Wood Crafts Pty Ltd (Wood Crafts) was particularly pushy and offered to pay Rosie a $950 ‘commission’ if she placed an order with his company to the value of at least $9500. She agreed. Recently Rosie had seen a Toshiba notebook for sale for $950 and decided that there would be no harm in accepting the money as she could use it to buy herself the notebook. Rosie ordered from Wood Crafts two wood crafted mahogany desks and chairs to match, especially imported from Italy, to the value of $9500, and arranged to have them delivered to their office premises in the CBD. The representative of Wood Crafts then handed Rosie a cheque, made out to her personally, to the value of $950.
Robert knew nothing about the order until the furniture arrived at their premises a few weeks later. He was furious when he saw the bill and angrier still when he found out about the $950 ‘commission’. Wood Crafts had sent the bill C/- Batty, Chan & Co, accompanied by a note at the bottom of the account which read: ‘I hope you are enjoying your new computer’. That day Robert gave Rosie notice of dissolution of their business. He pulled down their name plate, Batty, Chan & Co, from above the entrance to the office premises, and wrote her a letter to that effect: ‘As from today I am operating as a sole practitioner, but will continue to use the office premises (as the lease belongs to my father). You may stay and continue to use the premises until an account is taken of the firm’s assets and liabilities in due course’.
When Rosie read Robert’s letter she was so upset that she made mistakes in dealing with one of her regular clients. Lucy Evans had sought her advice in setting up a ‘bed and breakfast’ on Kangaroo Island and Rosie failed to check the latest changes in taxation law for small business. Consequently Lucy paid $5,000 more in tax than she needed to. A more serious gaffe related to Lucy’s investment in shares. Lucy had asked Rosie to purchase $10,000 worth of shares (at $5 per share) in a newly formed company. Distracted by Robert’s letter, Rosie forgot that she had to register Lucy’s interest in purchasing the shares by close of business, the last day for doing so. As a result Lucy sustained a further loss of $10,000 as the shares doubled in value (to $10 per share) when they were listed on the Australian Stock Exchange. Lucy is now threatening to sue Batty, Chan & Co for negligence, claiming compensation of $15, 000
1. What kind of business is Batty, Chan & Co? (Is it a partnership? And if so who are the partners?)
2. (a) Advise Wood Crafts Pty Ltd regarding their right to recover $9500 for the furniture from Batty, Chan & Co (Is there a binding contract? If so who is liable?)
(b) Advise Robert in relation to the $950 ‘commission’ used by Rosie to buy herself a notebook.
3. Advise Lucy in respect of her action against Batty, Chan & Co for the losses she sustained in relation to the two transactions involving Rosie.
4. Regarding the dissolution of Batty, Chan & Co: Who owns the lease to the office premises (which has doubled in value since it was purchased in 2014)?
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