AF205 tut week two

Kumar is a sole trader. He carries on business under the name Custom Programs. Kumar’s
business is to supply computer programs that meet the particular demands and specifications
of a customer. The business adapts and modifies standard programs, or, where necessary,
writes wholly original programs.

Ten individuals work in the business – eight programmers, a secretary/book-keeper and a

manager. Kumar himself has not been actively involved in the day to day affairs of the
business for several years. Kumar leaves the active running and management of the business
to the manager.

The standard contract used by Custom Programs provides that in return for payment of the
contract price a customer will receive delivery of a program plus ‘support’ for twelve months
following delivery. Support involves debugging problems that may arise in a program,
training in the use of a program and assistance in troubleshooting problems that a customer
may encounter.

Plant used in Kumar’s business includes some expensive hardware financed by Bankco under
a finance lease.

In April Kumar agrees to sell his business as a going concern to Jone with effect from May
1st. Among other things, the sale agreement provides;
 that Jone shall be responsible for fulfilling the support obligation on programs delivered to
customers in the twelve months before the sale date.
 that Jone will ‘take over’ the finance lease with Bankco. Kumar and Jone together
approach Bankco and obtain the bank’s agreement to this arrangement.

The sale is duly completed on May the 1st.

Answer the following questions.

(i) Much of the value in the business being bought and sold in this story lies in the business
reputation and in the team of skilled workers. How can these ‘assets’ be transferred to the
new owner Jone?
(ii) Prior to May 1st Custom Programs had delivered a program to Yco. Yco proves to be a
difficult customer with many complaints and demands. Initially Custom Programs attends to
all the demands. The demands however seem never ending. The manager of Custom
Programs believes they are in fact unreasonable. In August the manager tells Yco that Yco’s
demands are not covered by the contractual provision for ‘support’. Yco disagrees. In Yco’s
view the failure to address its demands is a breach of contract.
If Yco is to sue for breach of contract, who should Yco sue?
(iii) Explain the arrangement established with Bankco in greater detail. What is the technical
name for this arrangement?