Final-Exam – Copy #1
Part 2 of 4 – Case Two
Sue and Juan own “Tacos, Tamales and Tortilias,” (TTT) a food truck business, which sells gourmet Mexican cuisine on the Streets of San Franscico, California. The partners operate four food trucks scattered at various points in the downtown area close to the office and retail shops. They have a vendor’s license from the City to operate their business. TTT is very successful. Their best selling dish, “The Tamarito,” is so popular that it was the subject of a Food Network, “Diners, Drive-Ins and Dives” with Guy Fieri. The, “Tamarito,” won the competition. Sue and Juan are understandably, very proud of their products.
The partnership does not yet have a formal agreement that outlines profit distribution, managerial responsibilities, and liabilities of the parties. Sue and Juan have agreed to expand the food truck business to include four new trucks in the city. They also decide to franchise the food truck business around the state. Sue has agreed to the expansion only if they bring in a new partner, with money, for the express purpose of getting the franchise contracts. Jeremiah, one of Sue’s friends, has agreed to become a partner for the time it takes to set up the franchise business. Jeremiah offers to contribute $50,000 to the partnership with the understanding that he will double his money by the end of the 1st twelve months of continuous operation of the four new trucks in the city and no less than 10 additional franchises around the state. No written agreement was made between the partners.
Every year The American Legion sponsors an Amateur Athletics Festival. It begins on the second of May and culminates with the sack race on May 4th. The proceeds of the festival are given to the local animal shelter. The three day festival is a big money maker for TTT because of all the activity in the downtown area leading up to the festival and because of the large number of people who come to the festival. It comprises almost 25% of their annual income. Historically, TTT has had their usual four trucks around the city during the festival. This income goes to TTT.
TTT also sponsors one truck during the festival which is located in the festival area, itself. The proceeds from this truck go the festival sponsors. This year, the sponsors anticipate an increased attendance of 15%. Sue and Juan are excited about this, and hope that they can use the additional funds to help fund their business expansion.
One month before the Festival, Sue and Juan received a mailed notice from the City of San Francisco informing them that, due to a new City Ordinance brought about because of excessive traffic flow, licensed food trucks would no longer be able to operate in the immediate downtown area of San Francisco. The city passed the ordinance at the last city council meeting without prior notice of any kind. The ordinance was written to go into effect on the 1st of May. Vendors could only sell their wares in a concentric circle some 15 blocks from the main street of San Francisco. Not only would all the food truck vendors be more or less together, but the proposed area has very little foot traffic and customers. Failure to abide by the law would result in the loss of a vendor’s license for ten days and a five thousand dollar fine.
The TTT partners were angry and devastated. If this law were allowed to stand, they could no longer do business in the downtown area, they could not participate in the Festival, and their expansion plans would go up in smoke. Worse yet, in anticipation of the Festival, Sue and Juan ordered and made payment on thirty thousand tortillas, five hundred pounds of ground beef, and condiments from Century Food Distributors, their usual supplier. After much discussion, Sue and Juan decide that they were going to set up for the festival as usual and take the chance of getting a fine and suspension. Sue and Juan make this decision because they think it will be cheaper to pay the fine and lose the ability to do business for ten days than to do business on the city’s terms. The serious financial pressure from having already prepaid Century for the tortillas, beef, and other condiments has added real urgency to their decision to pursue business as usual.
From their point of view, it means that TTT can live to fight another day. Sue and Juan agreed to this course of action without asking Jeremiah, who was not around.
May first arrives, and TTT sets up for the Festival. Business at the Festival was going great. The money was pouring in and all the trucks were really busy. People who had seen the Food Network show were anxious to try The Tamarito. One customer was so excited that he raced to the truck and tripped over a nearby box of tortillas which caused him to fall into the back of truck, hitting his head on the floor and knocking over the young woman handing out samples. Both sue TTT. The suits total $60,000. Moreover, in the midst of the accident, the police arrive. TTT receives a summons and ticket for violation of the new city ordinance. TTT was given a ticket on each remaining day of the festival.
As if this were not enough, three thousand of the tortillas delivered by Century Food on the second of May contained mold. This was not discovered until the final day of the festival. Once discovered TTT was forced to close two of their trucks completely before the end of the festival. Sue and Juan estimate they lost four thousand five hundred dollars of business.
In addition, while Sue and Juan were busy with the festival happenings, Jeremiah signed three new TTT franchise contracts, and took deposits totaling fifty thousand dollars. Upon his arrival back in San Francisco he finds out the problems with the festival and wants out of the partnership. He feels his partners did not include him in their decision-making and that he should not have to pay for their mistakes. He does inform them of the franchise agreements. However, he also informs them that he is leaving with the fifty thousand dollars he collected from the companies, because it is the same amount he put in to the business.
Sue and Juan look to you for advice. They have come with the following list of questions for you to answer (please select the best response to each question):
Question 6 of 6 2.0 Points
Instructions: In four to six sentences explain your answers to the following questions.
Sue and Juan are also concerned about their contract with Century Foods. They would like to know if they can get reimbursed for the forty-five hundred dollars of business they lost and the money they paid Century for the tortillas and delivery. Under the UCC explain two of the best warranty theories that would help TTT to recover their losses.
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