Fundamental of business law

Jerry, Harry and Tanya are mature aged Business students at Flinders who happen to be qualified builders. To support themselves while studying they decide to engage on a venture of speculative building under the name JH&T Builders. All three agree between themselves that all decisions will be made jointly. Of the three only Tanya has any assets: an old dilapidated truck registered in her name, which she usually parks at Jerry’s house. The running costs of the truck are paid for out of the business bank account.
After some early difficulties the business begins to do well, largely through the intervention of Steve, a family friend of Tanya’s. Steve agrees to lend the business $200,000 as startup capital in return for a payment of $10,000 per year out of the gross profits of the business. The terms of the loan also provide that Jerry, Harry and Tanya would consult Steve about any major contracts entered into by the business and gave him a right to inspect the accounts at regular intervals. With the borrowed money the firm purchases blocks of land for development and registers these in the name of JH &T Builders.
Question 1
How would you describe the business relationship between Jerry, Harry, Tanya and Steve? (In your answer you should discuss whether or not JH&T Builders operates as a partnership and if so who are the partners).
As the business prospers, problems begin to emerge. After consulting Steve, Jerry, Harry and Tanya agreed that no one person would have the authority to spend more than $10,000 on any item without the approval of at least one other person. This is decided on 4th August 2013. However on 10th August, Harry purchases some rare Malaysian hardwood timber from Timber Supplies Pty Ltd to the value of $18,000 as he thinks that a kitchen designed in this timber would createa real talking point with customers. On 12th August Harry tells Tanya of the purchase, pointing out that he had made a similar purchase from Timber Supplies in July. She says it is all right but Jerry objects. On 10th September Harry purchases some Pazzotti ceramic tiles from Exotic Imports Pty Ltd. for the house they are currently building. These are imported from Italy and cost $16,500. Harry tells no-one of this purchase. When the tiles arrive, there is some unpleasant disagreement between Jerry and Harry and on 18th September Harry decides to leave the business.
On 25th September Tanya is driving her truck through the city to make a delivery of copper tubing to the building site, when she inadvertently goes through a red light. She collides with a bus belonging to Northern Lines Pty Ltd., injuring the driver and badly damaging both the bus and her truck. On the same day Harry orders $5,000 worth of concrete from Ready-Make Concrete Pty Ltd for the houses currently under construction. He telephones Jerry and Tanya immediately. Both say that it will be all right. On 2nd January 2014 Harry notifies all his clients that he has resigned from the business and places an advertisement in the local newspaper. On 1st May Tanya is notified of actions being brought against her for the damage to the bus by Northern Lines, and by the driver of the bus for his injuries. On 10th June it becomes apparent that the creditors – Timber Supplies, Exotic Imports, and Ready-Make Concrete – have not been paid and are threatening to sue. On that day Jerry and Tanya decide to dissolve the business and go their separate ways.
Question 2
(a) Discuss the liability of Jerry, Harry, Tanya and Steve in respect of the debts owed to the creditors and whether an action can be brought against JH&T Builders by Northern Lines.
(b) Advise Jerry, Harry, Tanya and Steve as to their rights and liabilities against one another upon dissolution of the business. In particular they want to know who is entitled to the blocks of land that were purchased with the money that Steve lent them and which has in the meantime increased in value by 100%.

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