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MGT393H5F2005DEC - UNIVERSITY OF TORONTO AT MISSISSAUGA...

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Unformatted text preview: UNIVERSITY OF TORONTO AT MISSISSAUGA Final Examination MGT393H5F — Legal Environment of Business I Instructor: Manfred Schneider December 13,005 Duration: 2 hours Aids Allowed: None It is an academic offence for students to possess the following items at their examination desks: cell phones, pagers, PDAs, wrist watch computers, or other electronic devices not specifically listed as “Aids Allowed”. If any of these items are in your possession, put them with your belongings at the front of the room before the examination begins. No penalty will be imposed. Please note, students are NOT allowed to petition to RE-WRITE afinal examination. Please print your name and student number in the spaces provided below. Student name (LAST NAME FIRST) Student number Instructions: This examination paper must be returned with the examination booklet. MGI393H5F ~PINAL EXAWAIION Page 1 of4 CASE QUESTION (THERE IS ONE QUESTION TO THIS EXAMINATION) Ms. Oh Coiffure was a spring 2005 graduate of the Toronto School of Hairdressing. After a short work term at a hairdressing salon located at Square One in Mississauga, Ms. Coiffure decided to go into business for herself. Her research of the hair salon industry determined that salons typically sold for 1-1/2 times of'annual revenues. Ms. Coiffur'e had heard that Mr. Lidal Masson was selling his shop which operated under the business style, “Lidal Masson — Stylistics” because he planned to retire. Masson had a shop in what was considered the most desirable area of Toronto. Ms. Coiffure visited the shop and spoke extensively with Mr. Masson who provided her with information, in addition to confnrning his retirement plans, When she asked him what the annual revenues were, he passed her a file folder that contained photographs of the shop, a listing of the shop assets and a single sheet of letterhead of Smythe, Smythe, LLP Chartered Accountants On this sheet of letterhead the following was set out: Abbreviated financial information for Lidal Masson - Stylistics: Revenues - $165,000 Fixed Assets - $13, 200 Based on this data, Ms. Coiffure made an oral offer to purchase for $240,000. Mr. Masson told Ms. Coiffirre that as the agreement related to a business, it had to be in writing to be a valid offer . He then handed her a blank sales agreement in which she inserted her offer price, name, address and closing date. In the blank spot marked “what sold”, she inserted the words, “the business”. Once she signed it she handed it to Mr. Masson also signed it. The agreement contained on the back of it in rather fine print, the words: “This agreement constitutes the entire agreement. No representations are contained herein.” Ms. Coiffure did not see the clause. After the closing date, business at the salon tended to be rather slow. Ms. Coiffine then contacted Smythe, Smythe LLP, Chartered Accountants who she presumed had prepared the audited abbreviated financial information. In a telephone conversation, Mr. Smythe, a partner, advised Ms. Coiffure that they had in fact prepared the schedule, “but it was not audited, and was only prepared based on the data that Mr. Masson provided.” He also told Ms. Coiifure that approximately $70,000 of the revenues was for special services provided by Mr. Masson to a movie studio that was filming for five months in Toronto Ihese special services were not typical and were not expected to be reoccurring. Before hanging up the telephone, Mr Smythe told Ms. Coi‘r‘fure, “Don’t even think about trying to go after our firm. Keep in mind we are an LLP and therefore cannot be sued. As well, we know where you live.” To make matters worse, Mr. Masson has recently opened a new shop approximately one mile away flow the location Ms. Coiffure purchased. The new location is called, “Lidal Masson — Stylistics II”. In response to Ms. Coiffure’s protests, Mr. Masson responded, “I never agreed not to open again, nor did I sell you the name _. look at the contract. In fact, I have ordered my lawyers to get an injunction stopping you from using my business name.” As the salon had problems, in effort to improve general cash flows, Ms. Coiffur'e decided to put together a group that would specialize in preparing “brides, grooms and wedding parties for the big event”. Ms. Coiffine went back to the Toronto School of Hairdressing and posted a sign — “Seeking entrepreneurs to participate in special projects”. In response to the posting, Ms MGT393HSF — FINAL EXAMINATION Page 2 of'4 Coiffure met with three individuals, Cheryl Cuts, Tiffany Bangs and Franklin Streaks. The four (these three and Ms. Coiffure) decided to form, “The Wedding Groomers”. Ms. Coiffure indicated that she was not going to actively cut hair but would act as an administrator. Cuts, Bangs and Streaks each purchased a Volkswagon Beetle, (financed by VW Canada Finance) on which they had large lettering “Who You Going to Call -— The Wedding Groomers” pasted on, along with a telephone number. The telephone number was the phone number for Ms. Coiffure’s shop. Things were generally going well for this venture. The Toronto Star featured Tiffany Bangs in their Sunday paper in an article about teenage entrepreneur‘s. The picture and article raised the general profile of' the venture. Things however took a turn for the worse. On December :3, 2005, Cheryl Cuts was in the home of mold—millionaire, entrepreneur Willie Wonkers. Mr. Wonkers’ daughter was getting married in the afternoon and Mr. Wonkers wanted to “look great” as several important guests were going to he in attendance. Ms. Cuts who wanted to make a good impression decided to use a new electric hair cutting device, the “‘TRIM 300.0” manufactured by Stihl HairTools Inc. Ms. Cuts had never used the machine before. As Ms. Cuts was using it on Mr. Wonkers, the hair cutting tool suddenly began to shake violently. During her struggle to control it, Ms. Cuts trimmed a four inch strip of hair down the centre of'Mr. Wonkers head. At that point, Mr. Wonkers could feel the tugging and cutting on his scalp. When he looked in the mirror and saw his missing hair, he shrieked, “I look like an ass”. He then immediately collapsed of a heart attack. The Woukers family followed the paramedics and ambulance to the hospital. Ms. Cuts was left alone in the Wonker mansion. While sitting in the kitchen in a state of’despair, Ms. Cuts smelled smoke. Ms. Cuts panicked and ran outside. She never thought about calling the fire department. By the time a distant neighbour saw the fire and called the fire department, the mansion was basically destroyed. The fire investigator said that the likely cause of the fire was the overheated TRIM 3000 device. The TRIM 3000 has a label affixed to it which states, “Do not leave plugged in for long periods of time as may overhea ”. Apparently in all of the excitement, Ms. Cuts forgot to unplug it. Willie Wonkers, although alive, suffered severe brain damage. His family is now seeking to “sue everyone and everything.” At a subsequent meeting between Coiffur'e, Cuts, Bangs and Streaks, Ms. Coiffure stated, “you guys and your firm are in big trouble. I am glad that I was only a paid administrator.” Mr. Streaks replied, “I do not think that is the way it is at all. I think you are the only one on the hook Boss! !” ' On a personal note, Ms. Coiff'ure engaged a contractor (EZ Reno’s Inc.) to carry out structural renovations to her home, including lowering the basement floor by eighteen inches. To Coiffure’s knowledge, the contractor commenced work without a building permit. After the permit had been obtained, the work was inspected by inspectors of the City of Toronto By this time, the renovation had progressed to the point where it was difficult to determine whether the contractor had done its work properly and the city building inspectors relied on the assurances of the contractor as to how the work was completed, including how the underpinning was installed. About two months afler the work was completed, Coiffure began to note leaks in the basement. The original corporation who carried out the work had since declared bankruptcy and the principals were no where to be found. Coiffine then hired a new drainage contractor to determine what the problem was. When the drainage contractor dug around the basement he discovered that the underpinning which was to be completed at the time the basement floor was lowered was done improperly. The underpinning was six inches wide instead of the full 2.4-inch MGT393H5F — FINAL EXAMINATION Page 3 of4 width of the old foundation and as set out in the plans submitted at the time the building permit was sought. Ms. Coiffin'e spent $60,000 having the underpinning properly completed. Ms. Coiffure is of the view that the City of Toronto is to blame for her problems As well, she feels that although EZ Reno’ s Inc may have gone bankrupt, she knows that the main shareholder, Mike House, was still well off financially Ms. Coiffure has just received a letter from VW Canada Finance demanding payment on the financed Volkswagon Beetles. The letter states, “As you signed the agreement, we are of the view that we have privity of contract with you and therefore you are contractually liable for any and all debts.” Reeling from this sequence of devastating blows, Ms. Coiifure decided she had better go see her lawyer, Jock Howitzer, of the prestigious firm Bush, Rumsfeld & Howitzer. While there, she recounted all that had happened (as outlined in this question) and asked lock to provide a complete analysis of all of the potential lawsuits that could be brought as a result ofthese events. In the analysis, she wanted to know the legal basis for each lawsuit, the legal principles that would be used to analyze the likelihood of success, and wanted a brief conclusion about Whether the lawsuit in question would succeed. As a junior lawyer in .lock’s firm, you, Bea Calm, have been asked to provide the analysis Ms. Coiffure has requested. Your memorandum should also set out any other matters that may be relevant. look, who teaches part time at the Faculty of Law, has also requested that you add a separate part to your memorandum that details how all of these problems/issues could have been avoided. lock is thinking ofturning this situation into a teaching case and would like to be able to use it to demonstrate effective risk management. REQUIRED: Assume the role of‘Bea Calm, and prepare the analysis requested. END OF EXAMINATION Total marks = 100 MGI393H5F — FINAL EXAMNAIION Page 4 of4 ...
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