For many years David Smyth has wanted to have his own business, but as he had a young family and a new home with a mortgage, he felt unable to take the financial risk of running his own business on top of his family responsibilities. He wanted to open an embroidery business in his local area; as he believes there are a number of local businesses, clubs as well as a good population of local customers to support the business. He came across the idea while looking through possible franchise opportunities a number of years ago. One of the franchises he researched was an embroidery store which embroiders shirts, t-shirts, baseball caps with the logos and designs requested by customers. After looking at the terms on offer by the franchisor, David decided it wasn't for him at that time.

He continued to research the business and sourced the type of equipment he would need, as he believed that the business would be successful in his local area. Over the next few years, he developed a detailed business plan as his family grew. He presented his business plan to the bank and was approved for some business loans. Shortly after being approved he discovered a property which was becoming available as the current owner had fallen behind on the mortgage. David felt he could acquire it at a good price, through a judicial sale. His father in law has offered to invest in the business and become a partner, but as he is retired he does not want to be involved on a daily basis. Although he has a strong relationship with his father in law, David is unsure whether or not that is the right path to take, or if he should just be a sole proprietor or incorporate. He is planning to take orders for embroidery work in the store and online. The customer will request what exactly they want embroider on the garments. David will use his embroidering machine to create the goods, before packaging them to send to the customer or for them to come and collect from the store.

Answer all questions (39 marks)

1. List 3 reasons against opening a franchise ( 3 marks)
2. What is judicial sale? (2 marks)
3. Explain the other options available to mortgagee when a mortgage is in default? ( 4 marks)
4. Explain the 3 different types of partnerships. ( 6 marks)
5. Is a partnership the best option for him? Which of the major types of ownership would you recommend to David as the best ownership structure to use in his business. Discuss the strengths and weakness of your recommendation compared with the other major types. ( 7 marks)
6. How will the sale of goods act impact on the business in terms of implied conditions and warranties on each embroidery sale? (4 marks)
7. Explain to David when the ownership of the goods made will transfer to the consumer according to the sale of goods act. (2 marks)
8. Explain to David in what situations in his business would he find himself in situations of lucrative bailment and constructive bailment? ( 4 marks)
9. Explain to David when a contract with a customer is created when the customer is shopping online? (2 marks)
10. Explain 2 other important issues in regards to e-commerce that David should know about before starting to make sales through the internet. (2 marks)
11. If David chooses to lease the equipment rather than buy the equipment, which type of bailment will he be entering. Explain to him the responsibility of the bailor and bailee in this situation. (3 marks)