MGSC30 – The Legal Environment of Business I Summer Term 2015 Assignment One Jeff Rybak The Case Satira Rahman, Rami Mohammed, and Rebecca Glass are all students at the University of Toronto and are friends from school. Recently, Satira and Rami became involved with helping to sponsor Syrian refugees through their mosque. They helped with fundraising and other efforts, and Rebecca got involved also because she wanted to help and didn’t know anyone else who was doing anything directly. All of the students became a little frustrated with their level of involvement, because they wanted to do more than just raise money. Rebecca’s father, Morrie Glass, owns a small furniture shop and when he heard about her activities he suggested that families who are trying to start a new life always need good furniture. He said that people throw away perfectly good furniture in the city all the time, and all that’s needed to make it really nice is just some love and attention, and some basic skills to fix it up. There’s also the challenge of moving it around, since furniture is large and heavy and sometimes good things go to waste simply because no one will pick them up. Through an older brother who ran a delivery service, Rami had access to a midsized truck on the weekends. He knew they could solve the transportation challenge. Rebecca already had some exposure to working with furniture through her father’s shop, and Satira showed a strong interest in learning also. Morrie said they could use a corner of his shop to work on things and borrow his tools, as long as they promised to learn properly and work safely. And so with every piece apparently in place, the three friends made it their personal mission to outfit three Syrian families with good furniture for their new homes. Through social media, Satira and Rebecca went about finding good used furniture that people were willing to donate. They were quickly overloaded with offers. Unfortunately, when Rami went to pick up the furniture he often found that the furniture was either low quality or else damaged to the point it wasn’t worth fixing. There was good stuff also, but they had to learn to be more selective. And then when they picked up things they didn’t want, it became extra effort to dispose of it later. Morrie laughed at them just a little, and said it was all part of learning the business. Once they got working, Satira and Rebecca did an excellent job fixing the furniture. They both really enjoyed the work. It was mainly just a matter of sanding and painting and tightening things, but Satira really got into it and started to learn how to reupholster fabric and refinish surfaces. She wanted to do even more, but in the end the priority was to outfit new families and so they had to get it done. When the refugee families arrived, they were overwhelmed by the personal effort and care that went into furnishing their new homes, and the local media made quite a story out of it, with the efforts of the three friends at the center of the story. When asked what they called their “company,” Satira said it was called “New Lives Custom Furniture,” because that was the working name they had used while talking about it. Very soon, other refugee sponsors and even resettlement agencies were contacting them to see if they could outfit other homes as well. They spoke and decided they could handle as many as twenty more over the school year, but only if they were able to somehow lighten their school commitments. After a discussion with faculty, a professor agreed to supervise their work as a sort of special practical course, for which they all received credit. By the end of that year, graduation was definitely looming close and they all agree they would be doing their own thing following. Unexpectedly, the University of Toronto Alumni Association presented the three of them with a special community service award after graduation. The award came with a $10,000 cash prize which they split three ways. They agreed they hadn’t got into the whole project with any hope of coming out ahead, but doing the right thing certainly did turn out well for them. Rami found he was very good at transporting and organizing things for delivery and he went into business with his older brother. His brother was hard-working but had never been to school and Rami took the lead in expanding and financing the business. He approached a small credit union (which is like a bank) about securing a loan to buy three new vehicles. When he was asked about the nature of the business, Rami said he’d be transporting large goods like he did with New Lives Custom Furniture. He provided the loan officer at the credit union with a news story that had the three friends posing with Rebecca’s father in his furniture shop. Impressed, the loan officer called Morrie Glass who said that Rami was a fine young man who would do very well in business, and he was proud to work with him. Based in large part on this conversation, the credit union loaned almost $100,000 to the business, to finance the down payments on three trucks. Meanwhile, Rebecca had been very inspired by her experiences in helping Syrian refugees and she wanted to continue in the charitable sector. She had conversations with a local charity called Neighbourhood Works who help at-risk youth find employment and she imagined a sort of spin-off where she would teach youth to repair furniture the way she did (with perhaps some more experienced teachers also) and then it could be donated to families who would make good use of it. Based on this discussion, Neighbourhood Works put in a proposal to the City of Toronto and to the Province of Ontario requesting funds for the plan. Materials relating to New Lives Custom Furniture (primarily drawn from the media) featured heavily in this proposal. Satira had her own plans. She found she really enjoyed working with furniture and truthfully, she was far better at it than her friends. Rebecca’s father confirmed as much. She never really wanted to be an accountant (which is what she studied in school) and suddenly she had a whole other career in mind. She knew there was no business model that would allow her to just permanently give furniture away, but she had the sense that she could produce good enough work to sell and still leave something for charity on the side. So she spoke with Morrie Glass about her plans and he agreed that she could continue working out of a corner of his shop until she could get set up on her own. He was impressed with her determination to be an entrepreneur and with her promise that New Lives Custom Furniture would always donate 10% of all sales from refurbished furniture to related charitable causes. Unfortunately, all three friends made these plans without discussing them directly with one another. And there have been various consequences. First, the credit union where Rami secured his loan made a further call to Morrie Glass that’s caused him some alarm. After a manager looked over the file, he became concerned that Morrie hadn’t signed the loan document and asked him to come in and do so. Morrie indicated he had nothing to do with the loan, and the manager became rather pushy and insisted the loan was only issued to Rami on Morrie’s assurance they were doing business together, and he was responsible for it one way or the other, regardless of whether or not he signed. Morrie, who doesn’t like getting pushed around, said that manager obviously didn’t believe that himself or he wouldn’t be so worried about getting him to sign it. Then he hung up. But he has been thinking about it since, and it troubles him. Satira has begun engaging in the early stages of incorporating her business, because she doesn’t want to deal with personal liability. She learned at least that much in her business program at school. She’s determined that the name “New Lives Custom Furniture Inc.” is available, but now that she’s learned Rebecca is using it also she wants to be fair. She just isn’t sure what to do about that. Rebecca is running into problems with the charity as well. It seems their funding proposals were successful but now they are proposing that the work should occur entirely under Rebecca’s company and the charity will simply fund the placements. It isn’t at all the regular job she was hoping for working within the charity, and she’s not sure where that leaves her. On top of everything, one of the earliest things they did has come back to cause problems. In the very first days they started working, over a year ago, Rami showed up at a large house that was being cleared out because the owner had died. The place was in a terrible state, and the woman who was there asked Rami to just take the large furniture away because it all needed to go. Rami did so, and most of it ended up as garbage because it was just too far gone to repair. They did restore and reuse one table. Now they have been contacted by the estate trustee of the man who died, named Humphry Jardain, and the trustee is alleging that the woman who gave the furniture to Rami never had authority to do so and therefore the partnership of Rami, Satira, and Rebecca are all responsible for the loss. Satira, Rami, and Rebecca (as well as her father Morrie) all want to be decent about things, but they also want to understand their rights and their legal responsibilities within these various situations. So you have been tasked with preparing a memo and explaining, as best you can, what their rights and obligations are, based on these facts. PLEASE NOTE. Your job is not to advise them on how to sort out their futures or to make a business case for one solution or another. Your job is to help them understand where they stand, legally, at the present time and in relation to these issues. What they do going forward is another matter, and beyond the scope of this assignment. Instructions The goal in this assignment is to demonstrate good analysis. There is no “right answer.” The case is designed so that intelligent people can disagree in their conclusions and still make good arguments to support each conclusion. The best work, in fact, will recognize the good points to be made from multiple perspectives. Good advice will consider all the relevant facts, and not minimize the inconvenient ones or exaggerate the positive points. You may work alone or in a group as large as three. Groups larger than three will not be approved. Your paper should be about 5-6 pages long (double spaced) but you will not be rigidly held to this length. If you are significantly above or below this page count, however, you might wish to rethink your approach. The assignment is due in class on May 31. NOTE – There is no special format required for case writing or to produce a “legal memo.” A memo is simply information written down in some way that’s easy to follow and understand. I recommend you use headings of some sort to divide your major topics, but otherwise the only rule is to present your information in a way that a real person can understand it easily. This is good practice for the real world.