Business Law Case Study

MGMT3230-007, Winter 2020 FINAL EXAM FACT SCENARIO

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For the last 15 years, Eleanor S. has operated a specialty yogurt shop, with unique yogurt goods

(such as yogurt spoons and cups designed and produced by Eleanor herself) and unique flavours of

frozen yogurt. The shop operates under the name ‘Yogurt Horizons’ (YH) and advertises on the

radio using the jingle “yogurt tastes better in Kensington”. The jingle and a logo were created by

Michael, a friend of Eleanor’s who is great with marketing. Michael was paid $500 by Eleanor to

prepare promotional materials for the store. Eleanor lives and breathes her work, so she decided to

get a tattoo on her forearm of the YH logo. And because she believes it will be great advertising, she

often posts pictures on Instagram of YH product with the logo/tattoo on her arm prominently

featured.

Eleanor’s shop is famous for the unique frozen yogurt flavours it produces, especially her famous

‘coffee-almond-radish-beet-shrimp’ (CARBS) flavour of frozen yogurt. The recipe for CARBS yogurt

is a closely guarded secret that only Eleanor knows, but the formulations for other flavour

combinations that Eleanor and her staff have created over the years are written in a recipe book

kept under lock and key at the shop.

Eleanor employs a small but mighty group of staff members. One employee in particular, Chidi, has

been with Eleanor since the beginning and knows all aspects of Eleanor’s business (except the

CARBS yogurt recipe). Chidi has worked in the frozen dessert industry nearly his entire career and

Eleanor relied heavily on Chidi’s expertise in the beginning. Recently, however, Eleanor has been

rejecting Chidi’s ideas for new flavour combinations, and Chidi has become sullen and

temperamental at work, showing up late for shifts, being unkind to customers, and making mistakes

when mixing the yogurt combinations. Eleanor’s attempts to reprimand Chidi have been

inconsistent as she is afraid to hurt his feelings. Chidi has also been making derogatory comments

online about YH, especially the YH flavour combos. Chidi posted one particularly nasty commentary

about the Choco-Clam Latte flavour on his public Facebook page, criticizing the combination and

referring to it as ‘hot ocean milk with dead animal croutons’.

YH operates in a small shop in Kensington which Eleanor owns, although it is subject to a mortgage

in favour of Toddrick Hemple for $800,000. Eleanor owns most of the equipment that is within the

shop, and she has recently invested in a new frozen yogurt machine necessary to freeze bigger

quantities of frozen yogurt. She bought the machine from Doug Forcett, and it is subject to a

conditional sales agreement that says: “Notwithstanding the delivery (immediate possession and

use) of the machine to Yogurt Horizons, Doug Forcett shall retain ownership of the machine until

Eleanor S. has finished paying for it in full.” The agreement also states that if Eleanor fails to make a

monthly payment, Doug is entitled to re-acquire possession of the machine and to sue for damages.

For reasons of safety and efficiency, Eleanor has the machine bolted to the floor of the shop and

partially incorporated into a wall (exhaust and electrical cords that were attached to the machine

are firmly built into the wall and surrounding area).

MGMT3230-007, Winter 2020 FINAL EXAM FACT SCENARIO

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The purchase of the new yogurt machine was enabled by the steady cash flow generated by a

recent contract Eleanor had negotiated with Mindy St Clair, a local entrepreneur, to sell her CARBS

flavour frozen yogurt in Mindy’s chain of specialty stores all across Calgary. The terms of the

contract state that on the first Monday of every month, Eleanor would send 200 litres of yogurt to

Mindy’s warehouse, and Mindy would pay her $6000. (Yes, Eleanor’s yogurt is $30/litre, it’s that

good.) Eleanor is glad for the contract as it provides a chance for a Calgary-wide distribution. The

CARBS flavour yogurt is so popular that Mindy has pre-sold most of the first order and has a waitlist,

and the customers have pre-paid for their orders.

Eleanor is concerned however, as she received a call on March 30 indicating that her milk supplier

will not be able to send her milk for at least the next 3 weeks, because of a wildfire that destroyed

most of the herd. Without the milk to make yogurt, Eleanor knows she cannot fill her order to

Mindy and make the next delivery.

To make matters worse, the recent first shipment (the April shipment) has suffered a disastrous

fate. The courier hired to deliver the CARBS flavour frozen yogurt to Mindy’s warehouse is DHL, a

courier company that offers delivery services to the public for a great price. The driver hired by

DHL, Jason, usually uses his own truck to do the deliveries but had to borrow his neighbour’s truck

to complete these particular deliveries on time (he doesn’t get paid by DHL if the goods aren’t

delivered on time). Shortly after picking up the yogurt from the YH shop, Jason was hit by another

vehicle and the tubs of CARBS frozen yogurt lay melting in the intersection. Jason has a perfect

driving record and is not at fault for the accident, but the YH yogurt and his neighbour’s truck are

both entirely ruined.

DHL uses a standard form contract for all their deliveries, which Eleanor signed without reading. As

a result, she was unaware a clause in the DHL standard form contract stated: “DHL’s liability is

limited to $4 per package for any damage, howsoever caused.”

Eleanor calls Mindy and asks “Given the difficulties with my supplier and the delivery accident (which

was totally out of my control), I wonder if you’d be willing to just call off our agreement?” Mindy

replied “Fine.” After considering the matter further, however, Mindy called Eleanor back and said

she wanted the contract to be performed as initially planned. Eleanor refuses to comply, in fact,

Eleanor insists the contract no longer exists.

As a result of the milk supply disruption and accident, YH has insufficient cash flow to make its

payments and is forced to close its doors. Eleanor is personally financially ruined, and unable to

make the monthly payments for the frozen yogurt machine to Doug Forcett. She has also defaulted

on her mortgage payments to Toddrick Hemple.

To top it all off, Eleanor has just learned that a rival, ‘Yogurt Haven’, has recently opened and is

producing frozen yogurt using the same flavour combinations found at YH. For example, their

‘Chocolate Chowder’ flavour appears to be identical in flavour/ingredients to YH’s “Choco-Clam

Latte” concoction.