Reference no: EM133659869
Assignment:
Brian owns a traditional style 'fish and chips' shop in Campbelltown Mall, Sydney Australia. He has recently decided to retire, so he advertises the shop for sale with a local real estate agent. The shop is advertised as a 'going concern' with a steady turnover of customers and a 3 year lease with an option to renew for another 3 years. The price is $45,000, including all equipment, shop fit out, and stock at valuation.
Larry wants to invest in a small food business and has been looking for one in Campbelltown Mall. Larry wants to sell mainly roast and fried chickens (as well as chips, salads and drinks) rather than fish. Larry knows Brian quite well from their local pub, and when he sees Brian's advertisement, he answers it and comes to look at the shop. He decides the equipment and the shop itself can be used just as easily for making fried and roast chicken, as well as the other side dishes. Larry doesn't mention this plan to Brian though. He knows the shop is Brian's pride and joy as he 'built it up from nothing', and he thinks Brian might be upset at the thought of changing it. Larry is keen to buy it though as the price is very good, and because shops in good positions in Campbelltown Mall hardly ever become available, so he says nothing about his plans.
Larry offers $42,000. Brian tells him he wants $43,000, and Larry agrees to pay $43,000. The money is to be paid in two instalments, one of $30,000 before Larry takes possession of the shop, and the balance 2 months later. They sign a written contract of sale for the business which, among other things, includes an undertaking that Brian will transfer the lease to Larry and that Brian will work with Larry in the shop to 'show him the ropes' for a fortnight after the purchase is complete and Larry takes over. The contract also states that the takings from the shop (income) are 'approximately $2000 per week'. Larry tells Brian he doesn't really need him for the fortnight after the sale, but they should leave it in the contract just to be on the safe side.
Larry pays the first instalment ($30,000) and takes possession of the shop. He immediately changes the signs, installs a rotisserie (for cooking chickens) and makes some other alterations to the fit out to change the shop into a chicken shop. To his surprise though, Larry is contacted on the third day he is in the shop by Centre Management, who point out that he is in breach of the lease Brian has signed over to him if he changes the nature of the shop. It turns out that Centre Management has a deal with a major fast food chain, who are also tenants in the Mall, to the effect that their outlet will be the only shop that is allowed to sell cooked chicken (whether roasted, fried or both) in that shopping centre. The leases on all the shops in the Mall therefore contain a clause that prevents them from being used for this purpose. Unfortunately, Larry didn't use a lawyer when he bought the shop and he didn't think of checking the lease for this type of clause.
Larry is devastated, but immediately tries to run the business as a fish shop - basically continuing it as it was when Brian owned it. Larry has no idea how to source fresh supplies, let alone how to cook the fish, and to his alarm the income from the first full week of trading is only about $500 per week. He calls Brian to say that he needs Brian to do the 2 week training period as set out in the contract, only to find that Brian has gone to Bermuda for an extended holiday, at least until the following year. Larry doesn't want to pay the balance of the money he owes to Brian and, in view of the problems with the lease, he now wants to back out of the whole deal.
- Does a binding contract exist between Larry and Brian?
- Assuming there is one, what are the terms of the contract?
- Does Larry have to finish the deal?