Question

THE CASE Sameer Arkell and Marcy Haddow had worked for Crowdsite, 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 early January 2015. 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 and had no children, so no one else would be affected if the business failed. Sameer had graduated from a community college with a diploma in computer technology while Marcy 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 Insight Global Solutions, closely mimicking a large successful firm in another city called Insyte Global Solutions Ltd. 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, Sameer and Marcy so admired the colours used in the Insyte Global Solutions’ logo that they used similar gradient tones of blue on all their signage and advertisements. Sameer and Marcy also branded their premium Sameere day service: “Primus-plus Service” (a name similar to, but not exactly the Sameere as, one already trademarked by Insyte Global Solutions Ltd.) and this became their most popular standard of service outselling their three day “Basic Service” by a margin of two to one. Sameer and Marcy gave no thought to the non-competition clause they had signed with Crowdsite when they were hired. All employees of Crowdsite 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 Crowdsite. There was no geographic restriction contained in the non-competition clause, as Crowdsite was a worldwide service provider with customers all over the world. In considering their start up costs, the pair determined that they would need a small shop from which to conduct their business, 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 and on social media 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 Sameer nor Marcy owned a home or had any appreciable assets, the bank would not lend them the money without a guarantor. Marcy’s aunt Helga was fairly well off and agreed to sign a continuing guarantee for the necessary funds, insisting that “this was as much as I am 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. Insight Global Solutions opened for business on March 1, 2015. In the first couple of months after start-up the business was going extremely well. On April 20, 2015, one of Insight’s customers – Better Balance Accounting – delivered one of its Better Balance’s desktop HQ computers to Insight. Insight was asked to upgrade the computer and install a new operating system known as Weaklink. When Better Balance’s employee returned to Insight on April 10th to pick up the HQ computer, Insight informed the Better Balance employee that he was out of luck because the HQ computer had been stolen in a break-in the night before. Neither Insight nor Better Balance had any insurance coverage on the HQ computer. Insight had installed surveillance cameras in the store and there was a sign on the door identifying an alarm company. But to save money, Insight had stopped paying for the alarm monitoring and the surveillance cameras were just dummies. Insight’s desk clerk calmly explained to the Better Balance employee that the loss was not Insight’s fault. The Better Balance employee became very angry but she was not able to obtain any satisfaction from Insight. When Insight upgraded computers, this often involved not only changing the hardware but also adding additional software. Arnav, a mature looking17 year old high school student, brought his computer into Insight’s place of business. Arnav’s computer had not being working well lately and he had absolutely no idea why that was the case. Insight’s’s desk clerk advised Arnav that the only way to improve the computer would be for him to purchase Insight’s Deluxe Upgrade Package for $750.00. Arnav, under the urging of the desk clerk, agreed and signed the work order. Arnav picked up his computer a week later. Once he had his computer at home it worked perfectly. When his parents returned home and found out how much he had spent to repair the computer, however, his 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 Arnav had visited the store, Marcy, 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. Marcy got another clerk who was in the back working on some computers and, after the customer had left the store, Marcy and the clerk approached him and demanded that he empty his pockets. The customer refused and Marcy demanded that he come back into the store while she called the police. Intimidated by the other clerk (whose nickname was “Crusher”) 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 “Slim,” brought his computer to Insight. Slim had heard that Insight would install software (named FreeNetflixForLife), created by a company called JollyRogerOnline, which would allow Slim to access online streaming services without payment. Insight installed this software and Slim paid the $400.00 fee. When Slim got his computer home he realized that FreeNetflixForLife did not work at all and, in fact, resulted in Slim being charged double for each download. Sameer and Marcy called on several of Crowdsite’s customers and persuaded several to switch their business with offers of reduced service charges and faster turn-around. Sameer and Marcy were particularly proud that they were able to persuade the regional office of Fresh Foods Inc. to bring all their computer repair work to Insight. Fresh Food Inc., who was Crowdsite’s largest customer, was in the 3rd year of a 5 year service contract with Crowdsite. Marcy was also quick to point out to those she called on that she had long suspected Crowdsite of overcharging its bigger customers and using off-shore components of inferior quality in their repairs. Needless to say, many of Crowdsite’s customers were eager to switch their business in favour of the lower prices offered by Insight. On June 2, 2015, Insight Global Solutions signed a three year agreement with Fresh Food Inc. Terms of the contract included the requirement that Insight would repair all of Fresh Food’s computers in a timely manner and that Fresh Foods would send all of its computer repairs to Insight during the 3 year period. Insight sought $11,000 a month, but Fresh Foods asserted it would only pay $9,000 per month for repair services. Insight was anxious to earn Fresh Foods’ business and decided it would be worth taking a lower amount for such an important customer. The contract was signed by the President of Fresh Foods (on behalf of Fresh Foods Inc.) and by Sameer Arkell. Another term of the contract required Insight to pick up, repair and return the computers within an “average time of approximately 4 business days.” Sameer and Marcy were extremely happy when they won a contract from another large grocery company - Organic Basket Company (“OBC”) – based in Nova Scotia. This contract was fixed price contract. Sameer and Marcy negotiated a deal that would pay $100,000 per year for 4 years for keeping OBC’s computers working in tip top shape. The contract contained Sameer and Marcy’s cost exposure because OBC’s ability to utilize their services was limited to having Sameer and Marcy 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, Marcy noticed that the contract stated that the annual payment would be $10,000 per year. By November 1, 2015, things started to go wrong. Marcy, 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 Sameere time, payments were not coming in from their customers and Marcy was too busy to spend time chasing the delinquent accounts. In one case, a smaller business, NewCo, said it could only pay a fraction of what it had originally agreed to. NewCo had not paid its bills for six months. They originally agreed to have Insight by available on-call for $1000 a month. Reluctantly, Marcy agreed to accept a $3000 repayment in full settlement of NewCo’s outstanding $6000 debt. Marcy further agreed that Insight would be available on call on the Sameere terms as before, but would only charge $200 a month for the Sameere service. By this time, Sameer and Marcy’s business had re-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 Insight’s business assets to be secured against the additional funds. One night a couple of weeks later, Sameer was delivering a computer to a customer on his way home from work and had a car accident. A young woman in the other car, Maddy Freeman, was seriously injured, suffering serious neck and back injuries. It was determined that Sameer had made an improper lane change and he was subsequently charged with dangerous operation of a motor vehicle. As it turned out, Maddy 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 highly skilled services and the cost of replacing her on a temporary basis. By early December, the average time Insight took to repair a computer had slipped from 4 business days to 7 or 8 business days. Complaints began to flow in from Fresh Foods to Insight and Fresh Foods advised Insight that it was cancelling the contract because Insight had breached a condition of the contract. Fresh Foods stopped sending its computers to Insight for repair. In addition, beginning around March 2016, the economy went from bad to worse. Marcy and Sameer needed money and started to wonder if they could get the money that they felt NewCo still owed them. They wanted to revert to the original terms of their first contract. Orders dropped off, suppliers were screaming for payment in full on their overdue accounts, and the bank was threatening to seize the collateral posted as security for their loan. Sameer and Marcy decided that they had had enough and decided to declare bankruptcy. Believing that aunt Helga was in the clear, it seemed like they had nothing to lose. The bank could ‘go pound salt’. In the week before the pair were to visit their lawyer to discuss the bankruptcy process, Sameer and Marcy wrote cheques to three of their suppliers whom they felt had treated them well and who they did not want to leave holding the bag. They also arranged to sell off some unused inventory to a discount warehouse for 30% of its original value. They pocketed the cash they received from the sale, believing that they were entitled to it as compensation for all of their hard work. In early May 2016, they met with their lawyer to start bankruptcy proceedings. They disclosed their financial situation, including the most recent loan arrangement they had with the bank. Although the lawyer only gave the initial loan agreement with the bank a cursory look, he assured them the inventory was the only security the bank was entitled to. The delivery van, which was leased, could be returned to the leasing company without any additional costs and they would simply abandon the lease for the building they were using as a workshop. Meanwhile, the leasing company, having heard about Insight’s troubles, decided to try and recover their van, fearing that bankruptcy proceedings could see it tied up for weeks once the trustee in bankruptcy put a lock on the firm’s premises. They ordered their agents to break into Sameer & Marcy’s shop late one night to recover the van. In doing so, the agents broke the padlock on the door and, while moving through the dimly lit premises, one of the agents tripped over an electric heater which ignited a puddle of solvent Marcy had spilled and failed to clean up. The solvent ignited immediately causing a fire that quickly spread through the shop. Serious damage was done to the shop and one of the agents sustained serious burns while putting the fire out. He was out of work for three months recovering from the injuries.

1. Is there a valid contract between Insight and Organic Basket Company? Will Insight be able to successfully bill Organic Basket company for $100,000 per year? What arguments can Insight bring forward? Will it be successful? (6 marks)

Answer 1

Is there a valid contract between Insight and Organic Basket Company? Will Insight be able to successfully bill Organic Basket company for $100,000 per year? What arguments can Insight bring forward? Will it be successful?

The contract between Insight and Organic Basket Business is valid because all aspects of a contractual contract that represent an bid, approval, purpose of forming a lawful agreement, and care are met. This is typically money.

The first attribute of a valid contract would be an offer made by the Insight to Organic Basket Company, in exchange for a fixed cost of $100,000 per annum over four years, to provide organic Basket company with a repair and maintenance service, for a maximum limit of 1,300 computer services each year.

The second aspect of a contractual contract is an agreement, lawfully agreed and executed by the respective parties by Organic Basket Company.

The third factor of a valid contract is establishing legal relationship which is considered to be a business partner of Organic Basket and Insight and which has full intent to form part of the agreement at the time of its signature. Nevertheless, the fact that any side should have proof of an intention is potentially false.

A consideration, commonly known as money, is the final element of a valid contract. Computer maintenance and reparation services were offered to Organic Basket Company for up to 1300 PCs annually, in return for a fixed rate of $100,000 annually. Because all parties offer some interest, care is shown.

Insight will actually charge $100,000 a year for Organic Basket Business rather than the $10,000 that the contract signed erroneously mentions in several different cases. But they are willing to release themselves from the duty to satisfy their contract however if demonstrated by Organic Basket Corporation.

One way the Experience would illustrate the claiming $10,000 was an mistake was by supplying other companies and consumer with detailed evidence of their usual prices, demonstrating that paying $10,000 wasn't their regular cost. Any agreement or correspondence that suggests 100,000 dollars rather than 10,000 dollars should be called an mistake, and Intuition will prove that indicating 100,000 dollars on the contract is a mistake. Insight will be extremely likely to confirm the mistake made in the contract with the previously mentioned claims.

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