BUSINESS LAW 402
This is your midterm examination. It is worth 25% of your final mark. There are two (2)
questions. You must do them both. Each question is of equal value. There is one bonus
point available for writing your name on the examination booklet. All questions are to be
answered in the examination booklet. You may use any form of answer you choose, i.e.
essay style, point form etc. You may use any writing implement of your choice.
1. Basil and Sybil are the owners of Fawlty Realty. They are both licensed real
estate agents. They have one employee, Polly, who is also a licensed agent. They have
another employee, Manual, who is not a licensed agent and works only taking care of the
records and bookkeeping. They rent out one of the offices in their suite to Mick, who is
an independent licensed real estate agent. Mick handles nothing but condominium sales
and his business activities are kept entirely separate from those of Fawlty Realty. Fawlty
Realty also carries its own insurance, standard business insurance including errors and
omissions insurance to cover any liabilities of the company.
Friday, October 13th, turns out to be a very bad day for Basil and Sybil. The first thing to
happen was that they noticed that Mick seemed to have disappeared and cleared out his
office in the middle of the night. Several of his clients come looking for him and for
money they say he has that belongs to them. It turns out that Mick has sold the same
condominium property ten times and accepted deposit cheques from ten different people.
He has now disappeared, as has the money. The current owner of the condominium did
retain Mick as an agent to sell the property, but has never signed any deals or received
any money from anyone. He refuses to give the prospective buyers any money saying he
never received anything himself. The clients want Basil and Sybil to refund their money.
Basil and Sybil say this is nothing to do with them.
Fred, comes in furious because Polly has negotiated a deal for his property which is well
below its value. Polly admits that she did promise him to sell for no less than
$245,000.00. The actual selling price is $150,000.00. But she tells Basil that the client is
crazy because the amount he wanted for his property was almost twice what it was worth
and she had been trying to sell it for two months before she had to lower the price.. The
client insists that Basil make up the difference and pay him the amount he says Polly
agreed to get for him.
Meanwhile, Sybil is getting into an argument with Marianne, who insists that she gave
Fawlty a deposit cheque as a downpayment on a property. Manuel says there is no record
of having received a cheque. Marianne insists she gave it to Manuel himself. Sybil says
that Manuel is not authorized to deal with customers or money so she must be mistaken.
Marianne then goes to her bank and comes back with a photocopy of the back of the
cheque. It has been signed by Manuel, endorsed over to himself and deposited in his bank account. When Sybil turns around, Manuel is gone. Sybil tells Marianne she is not
responsible for anything Manuel does because he is not a real estate agent.
Keith comes in to complain about the deal that he has made. It turns out that Basil failed
to do an adequate property search on the title to the land and Keith has now discovered
that there is a long-term tenant in the property and that he