1.  Kelly is a director of Island Properties Ltd.(the Company).  He engaged the accounting firm of Westcan Accounting to perform certain professional work on behalf of the Company. When the work was completed, the accounting firm submitted an account for their fees. The Company failed to pay and the firm commenced legal action to collect the account. The Company argued that Kelly was not a managing director (the firm did not have one), and therefore he did not have authority to bind the Company.

a.  Is the defence likely to succeed? Discuss Kelly’s legal relationship to the Company and what type of authority he had.

2.  Himmel, a German immigrant, carried on an electrical business for many years under the name “Himmel Electrical”. On advice from his accountant, he incorporated Himmel Electrical Ltd. with himself as sole shareholder and director. He sold all his equipment and machinery to the new company and as payment, received 1000 common shares and a mortgage for $125,000 on all equipment and machinery which he had just sold as well as any future assets the company may acquire. The mortgage was by way of a Security Agreement and was registered with the government registry as required under the BC Business Corporations Act. The new company carried on the electrical business; however, Himmel overlooked changing the sign outside his shop and did not tell his customers or suppliers that the business was now owned and run by a company. Business invoices were nevertheless rendered in the company name and all letters were on company stationary. Several years later, the business ran into financial problems because of a loss of customers to larger competitors and Himmel shut the business down. The business assets were sold for $55,000 and Himmel claimed payment in priority to creditors’ claims totalling $82,500. The creditors claimed priority instead, since they were unaware of the change of ownership.

a.  Discuss the issues raised in this case and how the dispute might be resolved.