Case 6 "Ace Andy" was a stock car driver who experienced reasonable success in the non-professional race circuits. He eventually decided to incorporate the business on the advice of his accountant, and transferred his cars, trucks and trailers to the corporation. However, he retained his shop building (which had an estimate value of $300,000) and leased it to the corporation for an annual reantal. The value of the stock cars, trucks and trailers as well the other race equipment had a value of approximately $250,000 .
In order to acquire additional capital, Andy who was the president of the corporation, arranged for a bank loan in the amount of $250,000. The bank required the corporation's financial statements in order to process the loan, and Andy instructed his accountant to prepare them. These were prepared in due course, but the accountant, in error, included the shop building as a corporate asset when in fact it was not owned by the corporation, but by Andy personally.
Before advancing the loan to the corporation, the bank discovered the accountant's error, and Andy was required to personally guarantee the loan to the bank.
Sometime later, the corporation found that it needed additional capital for a replacement vehicle, and Andy contacted a friend who was interested in investing in the corporation. The friend offered to invest $60,000, but wished to examine the corporation's finances before doing so. Andy suggested that the investor contact the bank, as the bank had loaned the corporation $250,000, and it could give the investor any information that he might require about the corporation.
The investor contacted the bank for information, but the loans manager was on vacation, and a clerk, who was unfamiliar with the bank loan and the errors in the financial statements, provided the investor with copies of the corporation's financial statements without comment.
The investor examined the financial statements, and decided to purchase $60,000 worth of shares in the corporation.
Over the next few months, Andy's success on the race circuit turned into disaster. Both of his cars were destroyed in track accidents and in the last accident, Andy was seriously injured. As a result, the flow of prize money ended, and the corporation was in financial difficulty. At this point in time the investor discovered that the financial statements were in error, and that land and shop building were not assets of the corporation.
Advise the investor, Andy, the bank, and the accountant of their position and rights (if any) at law.
Case 7
Candy Ltd. Manufactures a variety of soft and hard candies that it packages in clear plastic bulk packs for filling candy dispensing machines located in shops and malls. The dispensing machines are owned and operated by Candy Dispensers incorporated, and the corporation paid the shop owners or mall a small rental fee for the space occupied by the dispensing machine. The shop owners or mall assumed no responsibility for the operation of the machines, and Candy dispenser incorporated employee handled the filling of the machines and the removal of the cash.
One day, a disgruntled employee at Candy Ltd discovered a large, 2cm long maggo on the shipping dock, and in a fit of anger, took the maggot into the plant and threw it into the packaging machine that was packaging bug and animal shaped candies. The package containing the maggot was shipped to Candy Dispensers Incorporated along with other candies as a part of a large order. In due course, the package containing the maggot ( that by this time had died) was emptied into a candy dispensing machine at Joe's Variety and Snack Bar, a popular shop[ where students bought snack on their way to and from a nearby school.
Lisa and Andrea, two students who often bought candy ay Joes's Variety, put coins in the vending Machine, and obtained a quantity of the candy. Lisa noticed that one of the candies that Andrea had received was an off looking shape, and commented that it looked like a "dried up caterpillar." Andrea nevertheless decided to eat it, only to discover that it had a terrible taste. She soon felt ill as a result of toxins in the maggot, and required hospital treatment. As a result, she missed a week of school, and was unable to work at her part-time job for a two week period while she recovered from the "food" poisoning
Advise Andrea.