‘SIDNEY & NANCY’
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
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.
Due date: See Instructional Plan
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
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
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
In addition, during the last two months of their first year, the economy went from bad to worse.
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. Sidney and
Nancy decided that they had had enough and decided to declare bankruptcy. Believing that
uncle Fred was in the clear, it seemed like they had nothing to lose. The bank could ‘go pound
In the week before the pair were to visit their lawyer to discuss the bankruptcy process, Sid and
Nancy 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 January 2012, 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 Compact’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
Sidney & Nancy’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 Nancy had spilled and failed to clean
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.
QUESTIONS FOR ANALYSIS
PART ONE (TOTAL 40 MARKS)
1. Is there a valid contract between Compact and International Tire Inc.? Explain
fully with specific reference to the key elements. (6 marks)
2. 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)
3. How would the court approach the question of damages relating to the Compact
and International Tire Inc. contract? What factors would be considered? (8
4. 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
5. 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
6. 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)
1. 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)
2. 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)
4. 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
5. 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. 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)
7. 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)