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Waterfun Systems, Ltd. was a New York corporation that manufactured

and installed patented equipment to...
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?
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12/2/2011
Richard - Bizlaw
Category: Business Law
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bizlaw :

The defendants moved to dismiss on the ground of illegality in that Waterfun was an unlicensed contractor and cannot sue for work for which it required a contract. It would be against public policy as expressed in the statute to allow Waterfun to recover based on a special contract between the parties and private parties cannot contract to break the law and have it enforced in court. Waterfun's argument that it was fraudulently induced by Water Thrills fraudulent representation that it would not raise the defense of illegality and that such a defense is waivable by the party. This argument will fail because CA enacted its law to make sure contractors who work in the state are licensed and it is not just to protect against this situation but for the public in general to make sure contractors are competent as evidenced by the license. Waterfun should not have taken the design work and if it did, it should have insisted on payment in full in advance for that work. Waterfun will recover the $25,000 portion of the price that does not relate to the design and construction.




This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.


Customer :

That makes sense. Can you elaborate a little more at all?

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I could not see your response in chat so I had to switch to this mode. Waterfun could also argue that Waterthrill should be equitably estopped from asserting the non license defense because to do so would be to reward Waterthrill for its fraudulent conduct, allowing it to be unjustly enriched and rewarded for inducing Waterfun to break the law. I don't think the court will allow this argument and will treat the arrangement as an illegal contract and leave the parties wherever they stand. Waterfun may have a solution which is to take the steps necessary to get licensed, renew its suit for fraud and unjust enrichment and recover that way.

 

This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.

Richard - Bizlaw
Category: Business Law
Satisfied Customers: 10,705
Experience: 30 years of corporate, litigation and international law
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