Question
Birk Company is interested in acquiring Apple & Company. Birk engaged Kaye & Co, CPAs, to audit the 2020 financial statements of Apple. Both Birk
Birk Company is interested in acquiring Apple & Company. Birk engaged Kaye & Co, CPAs, to audit the 2020 financial statements of Apple. Both Birk and Apple are engaged in the business of providing management consulting services. While reviewing certain contracts entered into by Apple, Kaye became concerned the proper reporting of the following matters: On December 5th, 2020, Apple entered into an oral agreement with Cream Inc. to perform certain management advisory services for Cream for a fee of $150,000 per month. The services were to have commenced on February 15th, 2021 and to have ended on December 20th, 2021. Apple reported all of the revenues related to the contract on its 2020 financial statements. This constituted 30% of Apple's income for 2020. On February 8th, 2020, Apple purchased the assets of Nestar & Co., a small management consulting firm. Apple and Nestar entered into a written agreement with regard to the transaction that required Apple to pay Nestar $80,000 a year for five years. The agreement required Nestar to transfer all of its assets and good will to Apple. Further, the agreement required Nestar not to compete with Apple or Apple's successors for a period of three years within the city where the majority of Nestar's clients were located. Nestar's office was also located in this city. Other Nestar clients were located throughout the state. On February 1st, 2021, Birk acquired all of Apple's outstanding stock. Birk's decision was based on the unqualified opinion issued by Kaye on Apple's 2021 financial statements. Within 10 days after the merger, Cream decided not to honor the agreement with Apple and gave notice that it had selected another management consulting firm. This caused the market value of Apple stock acquired by Birk to decrease drastically. On May 2nd, 2020, Birk learned that Nestar opened a management consulting firm three blocks from where Nestar's office had been located on February 8th, 2020. Answer the following, setting forth reasons for any conclusions stated. Discuss whether the December 5th, 2020 agreement between Cream and Apple is enforceable, under Article II of the UCC (management service contract). Discuss whether the agreement of Nestar not to compete with Apple is enforceable against Nestar (why or why not), under Article Il of the UCC. Would Common Law Contracts apply to either case? If so, why, and would it make any difference on the outcome of the case? Explain
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