Crag Rock Enterprises Case Study

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One week later, the buyer of the trucks returns to CRE and is angry. He says that none of the trucks are eligible for Class “A” registration as they are all heavy-haulers that can’t be driven on major highways because they will ruin asphalt paving. They are completely unusable in his business and he is looking for some remedy. Leirinda says “Sorry, but a deal is a deal.”

CRE must also dispose of other heavy equipment, including 5 giant excavators that were used to dig gravel from the CRE’s pit. The excavators are valuable machines and are collectively worth $500,000. Regan, who is managing the sale of the excavators, quickly finds a buyer, “DIG-IT Enterprises” who are willing to pay full asking price for the machines. DIG-IT enters into an instalment sale payment contract with CRE under which it will make an initial deposit of $50,000 on taking possession of the machines and thereafter will make payments of $50,000 every 90 days to CRE until the entire $500,000 is fully paid. This is agreeable to CRE.

CRE has a large operating line of credit with BANKO, its chief lender, and CRE has currently drawn almost $1 million in funds under this line. Regan wants to reduce the size of CRE’s operating credit, and proposes to assign CRE’s right to payment under the instalment sale agreement with DIG-IT to BANKO. This will substantially reduce CRE’s financial obligations. On behalf of CRE, Regan signs an assignment agreement with an officer of BANKO, who gives the assignment to a BANKO clerk for processing.

Meanwhile, LENDCO is another of CRE’s creditors, and well known to Oswald, who is CRE’s equipment manager. Oswald has a conversation with one of LENDCO’s managers who says to him “I hear that CRE has sold its excavators under some kind of instalment payment plan. LENDCO has an outstanding loan to CRE for $750,000. You could do CRE a big favour and maybe get yourself a promotion by assigning CRE’s payment rights to LENDCO. I’m sure CRE would be really happy to reduce that big loan.” Oswald, who is not known to be a careful sort of person, replies “That sounds great. It will be a big surprise for the Boss.” He secretly obtains a copy of the instalment sale agreement between DIG-IT and CRE and signs an assignment agreement on behalf of CRE to assign CRE’s right to payment under the instalment sale agreement to LENDCO. “I can hardly wait to see the Boss’s face when I tell him about this.” Oswald says.

It turns out that the internal processing of BANKO’s assignment agreement with CRE is going very slowly, and the BANKO clerk assigned doesn’t send out notice of the assignment to DIG-IT until one week later. Meanwhile, LENDCO also sends out its notice of its assignment to DIG-IT at about the same time. Both notices arrive at the offices of DIG-IT the same morning. DIG-IT’s CEO, puzzled by the two documents, and noting that DIG-IT has just received a large payment on another contract, decides that she does not want these complications and immediately decides just to pay the entire remaining amount of $450,000 to CRE. She instructs her treasurer to prepare a cheque payable to CRE in that amount, and sends it to CRE.

Regan does manage to acquire another adjoining property and CRE prepares a new business plan that scales back the size of the wind farm operation. The farm is designed and CRE starts acquiring the components of the huge wind turbines. Giant propellers are delivered to CRE’s property by way of flatbed trucks and they are temporarily stored on a flat piece of land. While being stored, the propellers are on their sides, stationery and cannot be rotated. ROE’s wind farm property is fenced with large signs every 50 metres stating ‘DANGER – NO TRESPASSING”.

One night, a local group of high school students assemble for a bush party near CRE’s property. The teenagers, who are all under age 18 and consuming large quantities of beer, decide that it would be really cool to try and climb on the propellers and balance on them. It’s relatively easy to jump the chain-link fence around CRE’s land, and they start their climbing and balancing activities on the propellers. They are filming each other in this process for publication on YouTube. Unfortunately, one of the students loses her balance and falls right from the tip of one of the propellers and lands on her back, fracturing her spine. As a result of the commotion, two large Rottweiler guard dogs that had been acquired and placed on CRE’s property the week before by Regan (who was concerned about possible break-ins) run out of their pen and start chasing and biting several of the students, who sustain injuries. Police and paramedics are called and, hearing the sirens, some of the teenagers try to drag the injured student back with them out of the property. As a result of being dragged, she lapses into a coma, with serious brain injuries. She remains in hospital and the prognosis for recovery is poor. She will require years of extra care. Her family have consulted a lawyer to help them with any claim that can assist their daughter.

Leirinda has become more and more erratic in her performance as CEO of CRE in recent months. Recently, a young woman, Goneril, has started to call on Leirinda and tells her that she is the Daughter of Leirinda’s deceased Brother, Edgar. She offers no birth or other certificates to prove this. She has become friendly with Leirinda. She convinces Leirinda that neither Regan nor Cordelia are truly loyal to Leirinda and that only Goneril can act in Leirinda’s best interests. Leirinda falls strongly under Goneril’s influence. Leirinda has a conversation with Goneril one day at CRE’s office in which Leirinda says “I trust you to run the Company. I’m thinking about selling my shares in CRE to you.” Goneril replies “That’s great, let’s say $40,000 in total. Let me get my chequebook”. Leirinda stares at Goneril and says nothing.

However, this conversation was overheard by Regan and Cordelia, who have been listening from a doorway. They immediately burst into the office just as Goneril is writing a cheque payable to Leirinda for the $40,000, and escort Leirinda away. Goneril protests, saying “Too late! I’m controlling this enterprise now!”. Regan and Cordelia respond “Never! Never!”

Students are asked to prepare a legal memorandum that will identify the legal issues presented on the facts, analyze the issues according to the principles of law and materials from the course, and suggest remedies that may be available, and to whom, at various points. You may address the legal memorandum to me.

Students should make legal arguments, applying the principles of law to the facts. Where there could be alternative or competing arguments to a