Question 1

For several years Tom had managed Nick's Place, a restaurant/tavern owned by Nick. As a result of Toms efforts, profits increased from $20,000.00/year to $200,000.00/year during the term of his management. Nick, as a result of his failing health and advancing age (he was now 80), had slowly withdrawn from the daily operations. He had come to rely on Tom not only to manage the business, but as his friend who looked after Nick, did all of his banking and personal errands and invited Nick over 3 times a week for dinner. Nick had few other friends and celebrated all holidays with Toms family.

One day, Tom presented Nick with an ultimatum. Either Nick sold Tom 50% of the restaurant for $100,000.00 or he would hand in his immediate resignation and seek employment elsewhere. Nick felt he had little choice. He had become totally dependent on Tom to run the business. As well, if he refused he felt that the friendship would be over. Nick had no idea what the business was worth, but signed the contract that Tom presented without reading it.

Nick's children had never trusted Tom, although they rarely visited. Six months later, Nick told them he had sold 50% of the business to Tom. The children investigated and determined that restaurant businesses were usually valued at twice the annual profit which would mean the business was worth $400,000.00. The children were adamant that Tom had taken advantage of Nick and, at their insistence, Nick reluctantly commenced an action to set aside the agreement.

Required: Discuss the issues which will be raised and the basis, if any for Nick to have the contract set aside. Be certain to explain the applicable principles as part of your answer