The Business Law Assessment - Assignment Example

Question Prepare a memorandum for the management of ICCI (including Luigi Gelata) that addresses the issues raised in the above facts and providespractical analysis and advice. You are reminded that Luigi is not sophisticated and so wants specifics and details. Issue: The question deals with the granting of Shareholder loan by the sole owner and principle shareholder of Ital Cappuccino Company Inc. (ICCI) to CPI. It has been agreed that the entire loan amount of $300,000 would be funded by ICCI through its sole shareholder, Luigi Gelata. However, there are certain norms and formalities to be followed with respect to the grant of loan to CPI since as per law, the company and its principle shareholder are distinct entitites. Hence, in the eyes of law, the shareholder Luigi Gelata and the loaner Company, ICCI are two distinct entities. If the event of LG acting on a personal capacity with regard to matters that effect the company, it is necessary that he seek the permission of the Board of Directors and seek their consent in such matters, especially in the case of granting, or receiving loans, or other matters which affect the company as a whole. Law: ICCI should authorize the grant of Shareholder Loan to CPI. Next, the Shareholder Loan Document has to be duly authenticated in a Board Meeting duly convened, minuted and signed by the Board of Directors of the lending Company, ICCI. Further, the Board of Directors should ratify Luigi Gelati's authority to disburse the loan. Application: The terms governing the granting of loan should be clearly specified in the document, including the interest rates (if any), mode, term and value of repayment or amortization scheduling and whether the loan is repayable on demand or is for a specified period. The conditionalities to be imposed in the event of default of the loanee, that is, in the event of inability on the part of CPI to service the interest or principal amount should be clearly specified in the Shareholder Loan Document. It is advisable that the loan be secured by collateral, since this would enable priority over other creditors, if, in the event of its winding up, the loanee Company, CPI is not in a position to have assets that could fully meet creditors' liabilities and debts. It is judicious to have the loan document witnessed and notarized since this is an accepted practice used by Banks and Registry, should such a need arise for the loaner Company, ICCI, to utilize their services in future. (Shareholder Loan Agreements. 2008). In the second part the main facts that need to be considered are as follows: Issue 1: Whether ICCI could lay priority to claim goods over bank and employees Law: The unpaid seller has the highest priority to lay claim over the goods over other creditors in the event of goods being sold and delivered to the bankrupt debtor. However, the following conditions apply: Debtors must have be unable to pay for the full price of the goods bought. Next, the seller has claimed return of the goods within 30 days of delivery to the buyer, but this has not been done by the buyer. The debtor has been rendered bankrupt or a receiver has been appointed, as is evident in this case. Further, the goods are still in the same state, condition and possession of the buyer and finally, the goods are identifiable as belonging to the debtor. Application: It is seen that in this case the following aspects are applicable, except whether the claim for return had been served to MMRI (unclear) Issue 2: Could the Bank claim a security interest in the goods: Law: Order of priorities on bankruptcy: unpaid seller, PMSI secured creditor, other secured creditor, preferred creditors (including employees for up to 6 months wages (max. $2,000), other unsecured creditors. In this case bank could lay claim of being a secured creditor after the claim of ICCI, and to the extent of balance unpaid amounts, the bank would be treated as an unsecured creditor. Application: Since ICCI are 1st preferential creditors, it ranks over the secured and unsecured creditors. They need to be compensated for the full value of goods, and in the event of sale of these items, their sales proceeds to be handed over to ICCI in settlement of their claims. The claims of the bank would be after the assets are sold out and the proceeds available for distribution to secured and unsecured credit in order of the above-mentioned priority list. Issues 3: What about the employees' claim for unpaid wages for 2 months Law: As per the law the employees would be preferred creditors up to a maximum of $ 2000 in the event of winding up of the unit and this amount would have to be paid. Application: Upon final dissolution of the company, the preferred creditors could stake their claim as cited above. Question 2: The Board of LTCL would like you Bea, to review the facts here and to provide an "objective" assessment of what has occurred, the employment law implications and a recommended course of action. Issue 1: Whether the action of Olive Oile (DGM) constituted a tort Law: The employer may be held vicariously liable for wrongful acts (torts) committed during the course of employment by the employee. This is applicable even if the employee has been categorically dissuaded from pursuing such course of employment. Application: Olive was well aware that it was against Company's policies to grant credit to such customers and yet she went ahead, without respecting the Company's credit policies. Again, there is breach of trust on her part for not informing her employers regarding her actions. Issue 2: Whether the action of Brutus Popeye (CEO) constituted wrongful dismissal Law: Where there is a question of termination with cause, as in the present case, due to a major breach of contractual obligation, like criminal offence, or where the employee has willfully disobeyed the requirements of his work, or where there a lowered level of competence, which has caused monetary detriment to the employers, it could be construed as termination with cause. Application: In this case Olive has acted prejudicial to the interests of her employers by regularly giving credit against her authority. This has cause material damages to them. Therefore, it is well within their privilege to bring in action of termination with cause. However, there has been no notice period given to Olive, and she could therefore sue the employers for damages and claim amount as substantive compensation for notice period claim. Issue 1: Alleged "willful misconduct" causing injury to worker. Law: It is seen that the workers compensation laws may be operationalised which states that claims have to be met out of the funds to employees who have been caused injuries, by accidents caused during the course of employment. This law could be applicable even if the injuries have been cause by the employee's carelessness. But in this case it is seen that the victims are not employees but casual workers. Application: It is seen that the accident may not have been caused due to willful neglect but to the careless driving of Frank. Hence the compensation to the victims may be enforceable. However, if it is proved that the accident was caused due to willful neglect, it may not be enforceable. Moreover, it is also seen that the victims were summer camp workers who may not fall within the ambit of employees. Issue 2: Whether Frank's dismissal constituted a case validating termination with cause Law: From the point of law, the dismissal may be perceived as arising due to willful misconduct. To avail of this protection, the employers have to prove that the employee's conduct was major immoral behavior, which could have affected the business's reputation, upset the morale of other employees, has caused monetary losses to employers, or finally constituted a criminal offense. Since the nature of Frank's conduct was not such, it could have been deemed to be termination without cause. Application: Though Frank has been an employee with 25 years service, he was dismissed without notice. The Employment Standard Act specifies that employment service for over 8 years needs to have 8 weeks notice period. Hence, Frank may appeal for enforcement of notice period and seek damages for wrongful dismissal. Recommendations: In order to avoid future reoccurrences, it is recommended that future recruitments need to be made by a panel of interviewers. The selection procedure needs to be made through consensus, and also selected applicants should not be placed in the departments /divisions of the people who have hired them. Question 3: Prepare a memorandum which sets out and discusses all of the legal issues arising out of the above set of facts, and that also specifically addresses the two issues that the dancers specifically asked you about. Issue 1: Whether John Letcher is bound by contractual obligation to share the proceeds of 'theatre night' with Frieda and Donna Law: The law that deals with this subject is in terms of the agents' duties, acting in fiduciary capacity with the principals. John has being acting as agent for the two dancers, Frieda and Donna, and he stands estoppeled in the matter of 'Theatre Night' also. The fiduciary capacity in which John is acting for the dancers requires him to act in their best and fair interests, even above his own interests as their agent. He needs to disclose profits made by him acting in the capacity of their agent. Moreover, he is also bound to disclose the facts and figures relating to all matters that affects their rights as principals. He also has to turn over the profits generated during the "theatre night" to Freida and Donna and must also abide by all restrictive covenants relating to the matter of agency. Application: The law relating to agency is applicable in this case and the dancers, Frieda and Donna could demand specific performance of agency covenants, whether expressed or implied, written or oral, in the matter of profits generated from the "theatre night". They could also claim damages from John for breach for contract and for vitiating the contract of agency by holding back profits gained from the program. Lastly, it is also well within the rights and prerogatives of Frieda and Donna to rescind their agency contract with John. Coming to the second part of the question with regard to opening of a franchising unit or entity through operation of their own dancing business. Issue 1: How Frieda Flash dance could set up and operate a franchisee system Law: The laws relating to franchising business could be seen in terms of the following: Although the aspect of fiduciary relationship is not present, there is an explicit clause of good faith and preservation of the best interest of the franchisor. Further, there is normally a disclosure element in which potential franchisee, Frieda needs to disclose all material facts relating to the proposed franchise agreement. In the absence of this, the contract is voidable by the franchisor within two years of its initiation. The terms and conditionality for the operation of franchise business is laid down by written agreement and could be in terms , Firstly, territories are chalked out and the franchisee has to operate within assigned territories. Next, all development expenses and other promotional have to be taken up by franchisee. Again, the franchisor shall provide necessary training and operating manuals and the franchisee has to operate within the framework of operating manuals. Next, the franchisee has the right to use the trade marks of the franchisor during the currency of the franchising agreement. All the matters of mutual interest for the franchisee and franchisor shall be set forth in the franchising agreement and both the parties need to abide by it in letter and spirit. Any matter affecting the franchising that is outside the legal framework shall be decided by mutual agreement of the parties. The sale of the franchisee business shall be made by the franchisee with the consent of the franchisor and with first preference made to the latter. Finally, the restrictive clauses pertaining to confidentiality of trade secrets and business information shall be applicable to the franchisee during, and after the cessation of franchisee business. Application: By identifying and contacting a suitable franchisor for her dancing skills, Frieda would be able to enter into a franchising agreement with them. She would thus be able to do away with her agency contract with Peter Letcher. However, she has to keep in mind certain professional facts regarding agreements bound by agencies and that by franchisees. Under agency contracts, the agent is under the direct control and supervision of the principal, and he is not entitled to any benefits, except with regard to the covenanted sums as agency commission and actual expenses incurred for the agency business. However, under franchisee business, the entire control and administrative powers are vested with the franchisor, and the terms of the agreement, usually written covenant can be enforceable strictly. The franchisee's powers and control are significantly diminished since she would have to offer her services as per the terms of the franchisor. Further, while there is a question of fiduciary relationship in the case of agency, this is not available in the case of franchising business where an agreed pre-determined percentage of earnings would be retained by the franchisee and the rest would have to be passed on to the franchisor. Frieda needs to consider all aspects, in terms of both benefits and costs before launching on her franchising business. Works Cited Shareholder Loan Agreements. Lawdepot.com. 2008. 23 Feb. 2008 . Read More