Waterfun Systems, Ltd. was a New York corporation
that manufactured and installed patented equipment to simulate ocean waves. Water Thrills Waterpark was a California corporation that owned and operated a water-oriented amusement park in Palm Springs, CA. Powerhouse Construction was Water Thrills’ general contractor at the park
In July 1985 Powerhouse contracted with Waterfun to design and construct a 29,000 square foot “surfing pool” at the park, using Waterfun’s wave equipment. The total contract
price was $750,000. Waterfun was aware of a California law that requires a contractor to have a California contractor license to provide construction services in California. The statute stipulates that an unlicensed contractor cannot sue in a California court to recover compensation for work requiring a California contractor’s license.
Because it was concerned with the licensing problem, Waterfun wished only to sell and deliver the equipment and avoid involvement in the design and construction of the pool. However, on advice by Powerhouse, Water Thrills contacted Waterfun directly, insisting that Waterfun’s unique expertise in design and construction was essential. Water Thrills induced Waterfun to provide these services by promising to pay Waterfun for its services even if the law provided otherwise. The contract was revised to include the installation, bringing the revised total contract price to $850,000.
In reliance on these promises, Waterfun furnished equipment and services in full compliance with the contract. Waterfun had been paid $725,000 during the course of the contract. When it billed Water Thrills for the remaining $125,000.
1. Water Thrills refused to pay. Waterfun sued Water Thrills and Powerhouse for damages in California court for breach of contract and fraud.
2. Defendants moved to dismiss. On what basis? What defense(s) did the defendants use? Be sure to reference arguments by Water Thrills and Powerhouse.
3. What arguments did Waterfun make in response to the defendants?
4. Who do you think wins and why?
5. What advice would you have given Waterfun in order to avoid this entire mess?