SIDNEY & NANCY’
Instructions:
1. This assignment is to be completed in groups of 3-5 students. Each group is required to work independently from the other groups and to submit only its own work.
2. Read the attached case and answer the questions that follow. Marks for each question are as stated.
3. Answers must be word-processed. Spelling, punctuation, and grammar count and will be marked. Include a cover page with case title, course and section number, my name, the date and the names (and section numbers) of the members in group.
4. It is a requirement of this course that every group member actively contribute to this group project. Students who contribute nothing or very little to the group effort should expect to receive a mark of zero on the project. Students who contribute only a minimal amount to the group should expect to receive a maximum mark of 55%. Such a determination is at the sole discretion of the instructor.
5. The best answers will demonstrate that the group has preformed research beyond the text book and class handouts where necessary.
6. This assignment is to be done in two parts. Part one is worth 10% of the course mark. Part two is worth 15% of the course mark.
7. The answers will be submitted both electronically through eConestoga and in hard copy to the office of the instructor on or before the due date. Any submission that shows an inordinate similarity to another document may be given a 0 and may be considered plagiarism.
8. Each group will also complete a Student Contribution Report for each part of the assignment and submit it when the assignment is handed in. Each member of the group must participate in the preparation of the report and sign the second page of the document.
THE CASE
Sidney Greenwood and Nancy Fitzgerald had worked for National Business Systems, an international computer repair service, for ten years. It therefore came as a surprise when they both received lay-off notices on a Friday afternoon late in December 2010. Both were given severance packages that matched their seniority so they decided that this might be the catalyst to launch their own business repairing computers and related equipment for businesses in their community. Both were single, so no one else would be affected if the business failed. Sidney had graduated from a community college with a diploma in computer technology while Nancy had left high school after grade twelve, having taken several business courses prior to graduating.
They decided to establish a partnership and to call their firm Compact Business Systems, closely mimicking a large successful firm in another city called Compaq Business Systems. Since they had no plans to expand their business beyond their own community, they did not believe that the similarity in names would pose a problem. In fact, Sidney and Nancy so admired the colours used in the Compaq Business Systems’ logo that they used similar gradient tones of red on all their signage and advertisements. Sidney and Nancy also named their premium same day service: “Presidio Service” (a name similar to, but not exactly the same as, one already trademarked by Compaq Business Systems) and this became their most popular standard of service outselling their three day “Invest Service” by a margin of two to one.
Sidney and Nancy gave no thought to the non-competition clause they had signed with National when they were hired. All employees of National were required to sign a non-competition covenant stipulating that they would not work for a competitor or start up a competitive business within three years after leaving National Business Systems. There was no geographic restriction contained in the non-competition clause, as National Business Systems had customers all over the world.
In considering their start up costs, the pair determined that they would need a small shop to conduct their business from, some testing and repair-equipment, a modest inventory of electronic components and a delivery van to pick-up and return equipment they would repair. They would also need to do some advertising in the local newspaper to get their name in front of the public. Pooling their resources they found they had a shortfall in start-up capital of some $50,000.
Because neither Sidney nor Nancy owned a home or had any appreciable assets, the bank would not lend them the money without a guarantor. Nancy’s uncle Fred was fairly well established and agreed to sign a continuing guarantee for the necessary funds, insisting that “this was as much as he was prepared to ‘be on the hook for’, so they better make do.” This limitation however, was not written into the agreement with the bank, nor was the bank made aware of it.
Compact Business Systems opened for business on March 1, 2011. In the first couple of months after start-up the business was going extremely well. On April 15, 2011, one of Compact’s customers – Lucky Accounting – delivered one of its (Lucky’s) desktop HQ computers to Compact. Compact was asked to upgrade the computer and install a new operating system known as Vulnerable. When Lucky’s employee returned to Compact on April 21st to pick up the HQ computer, Compact informed the Lucky employee that he was out of luck because the HQ computer had been stolen in a break-in the night before. Neither Compact nor Lucky had any insurance coverage on the HQ computer. Compact had installed surveillance cameras in the store and there was a sign on the door identifying an alarm company. In order to save money, however, Compact had stopped paying for the alarm monitoring and the surveillance cameras were just dummies. Compact’s desk clerk calmly explained to the Lucky employee that the loss was not Compact’s fault. The Lucky employee became very angry but she was not able to obtain any satisfaction from Compact.
When Compact upgraded computers, this often involved not only changing the hardware but also adding additional software. Shawna, a mature looking17 year old high school student, brought her computer into Compact’s. Shawna’s computer had not being working well lately and she had absolutely no idea why that was the case. Compact’s desk clerk advised Shawn that the only way to improve the computer would be for her to purchase Compact’s Deluxe Upgrade Package for $750.00. Shawna, under the urging of the desk clerk, agreed and signed the work order. Shawna picked up her computer a few days later. Once she had her computer at home it worked perfectly. When her parents returned home and found out how much she had spent to repair the computer her mother called a friend in the computer repair field who advised her that the repairs should have cost no more than $200.
About a week after Shawna had visited the store, Nancy, who happened to be working at the counter, spotted a customer behaving strangely. Upon closer observation she saw him slip some small computer components into his pocket and move towards the exit. Nancy got another clerk who was in the back working on some computers and, after the customer had left the store, Nancy and the clerk approached him and demanded that he empty his pockets. The customer refused and Nancy demanded that he come back into the store while she called the police. Intimidated by the other clerk (whose nickname was “Moose”) and believing that he had no choice but to comply he accompanied them into the store. He was placed in the break room and the door was closed. He waited until the police arrived and was subsequently arrested and charged with theft.
Later that day a long term customer, known to his friends as “Shady,” brought his computer to Compact. Shady had heard that Compact would install software (named FreeFromITunes), created by a company called Sketchysoft, which would allow Shady to download music and movies from itunes.com without payment. Compact installed this software and Shady paid the $400.00 fee. When Shady got his computer home he realized that FreeFromITunes did not work at all and, in fact, resulted in Shady being charged double for each download.
Sidney and Nancy called on several of National Business Systems customers and persuaded several to switch their business with offers of reduced service charges and faster turn-around. Sidney and Nancy were particularly proud that they were able to persuade the regional office of International Tire Inc. to bring all their computer repair work to Compact. International Tire Inc., who was National Business Systems largest customer, was in the 3rd year of a 5 year service contract with National Business. Nancy was also quick to point out to those she called on that she had long suspected National Business Systems of overcharging its bigger customers and using off-shore components of inferior quality in their repairs. Needless to say, many of National’s customers were eager to switch their business in favour of the lower prices offered by Compact.
On June 1, 2011, Compact Business Systems signed a three year agreement with International Tire Inc. Terms of the contract included the requirement that Compact would repair all of International Tire’s computers in a timely manner and that International would send all of its computer repairs to Compact during the 3 year period. The contract was signed by the President of International Tire (on behalf of International Tire Inc.) and by Sidney Greenwood. Another term of the contract required Compact to pick up, repair and return the computers within an “average time of approximately 4 business days.”
Sid and Nancy were fortunate to get a large contract from another tire manufacture – American Tire Corporation – based in Nova Scotia. This contract was fixed price contract. Sid and Nancy negotiate a deal that would pay $100,000 per year for 4 years for keeping ATC’s computers working in tip top shape. The contract contained Sid and Nancy’s cost exposure because ATC’s ability to utilize their services was limited to having Sid and Nancy repair or upgrade a maximum of 1300 computers a year. A contract covering this work was executed by both parties. A few days after the contract was signed, Nancy notice that the contract stated that the annual payment would be $10,000 per year.
Around Thanksgiving 2011, things started to go wrong. Nancy, who had agreed to take care of the administrative end of the business, had fallen behind in paying the firm’s bills and several suppliers were becoming impatient. At the same time, payments were not coming in from their customers and Nancy was too busy to spend time chasing the delinquent accounts. Mainly as a result of this, cash flow was tight.
By this time, Sidney and Nancy’s business had paid $15,000 of the initial loan. The pair approached the manager of the bank for an additional $40,000 in order to pay off the remainder of the initial loan and have an additional $5,000 to get them through their ‘tight spot’. The bank manager agreed and provided the needed funds with all of Compact’s business assets to be secured against the additional funds.
One night a couple of weeks later, Sidney was delivering a computer to a customer on his way home from work and had an accident. A young woman in the other car, Freda Schmidt, was seriously injured, suffering serious neck and back injuries. It was determined that Sidney had made an improper lane change and he was subsequently charged with dangerous operation of a motor vehicle. As it turned out, Freda was a highly paid administrative assistant and when her boss learned she could be off work for at least three months, was going to sue for the loss of her services and the cost of replacing her on a temporary basis.
By early November, the average time Compact took to repair a computer had slipped from 4 business days to 7 or 8 business days. After several complaints from International to Compact, International advised Compact that it was cancelling the contract because Compact had breached a condition of the contract. International Tire Inc. stopped sending its computers to Compact for repair.
QUESTIONS FOR ANALYSIS
PART ONE (TOTAL 40 MARKS)
- Is there a valid contract between Compact and International Tire Inc.? Explain fully with specific reference to the key elements. (6 marks)
- ASSUMING THAT THERE IS A VALID CONTRACT, was the contract breached? Which party (or parties) breached the contract? How specifically was the contract breached? At what point in time could legal action be started by each party that you have identified as breaching the contract? (8 marks)
- How would the court approach the question of damages relating to the Compact and International Tire Inc. contract? What factors would be considered? (8 marks)
- Is there a valid contract between Compact and American Tire Corporation? Will Compact be able to successfully bill American Tire Corporation for $100,000 per year? What arguments can Compact bring forward? Will it be successful? (6 marks)
- Does Shawna have any action that she can take against Compact? What steps can she take (assuming her parents let her out of the house)? Will she be successful? In a court action, who would be the plaintiff and who would be the defendant? (8 marks)
- Can Shady successfully sue Compact in court for the return of his money based on the fact that the software did not work? Why, or why not? (4 marks)
PART TWO (TOTAL 46 MARKS)
- Define “Passing off” and describe how it is an issue in this case. Who is the defendant? Who is the Plaintiff? What remedies would be available? What specific losses would be addressed? (6 marks)
- What is interference with contractual relations and how is it relevant in this case? Who is the plaintiff and who is the defendant? What are the facts that support a possible claim? What remedies would be available in this situation? (6 marks)
3. Describe how defamation is an issue in this case. What specific form of defamation occurred? Who is the plaintiff and who is the defendant? Which defenses, if any, would be available to Sidney and Nancy? What would be the most probable outcome (remedy) and why. (6 marks)
- Is the restrictive covenant (non-competition clause) that Sidney and Nancy signed with National one that would be enforced by the courts? Explain your answer thoroughly. (6 marks)
- Explain how trespass is an issue in this case from Compact’s perspective? Who is the trespasser? If an action for trespass is commenced, who would be the plaintiff and who would be the defendant? What would be the most probable outcome (remedy) and why. (6 marks)
- Do the trespasser(s) that you identified in question 5 above have any action against Compact? Who would be the plaintiff(s) and on what basis? Who would be the defendant(s)? Please explain your answer thoroughly. (6 marks)
- Describe the steps taken by Sid and Nancy immediately prior to the bankruptcy that may be offences under the Bankruptcy and Insolvency Act. What is the legal term used to describe each of these steps (events)? (4 marks)
8. Does Lucky Accounting have a potential cause of action against Compact? If so, what type of action (give its legal name) would Lucky pursue? Explain the cause of action and whether or not they might be successful. If Lucky was successful, what would be the most probable outcome (remedy) and why. (6 marks)