Garnett Food Service, Inc. owned the building and land that Woods, Johnson and Smith planned to purchase. Prior to putting the property on the market, Garnett hired Lindsey Silver, of the accounting firm of Stevens, Silver and Winters to conduct an audit of the current business located on the property. Silver knew that potential buyers would use the audit report in making their decision to purchase the property. Silver’s audit report showed the current restaurant to be profitable. Woods, Johnson and Smith relied on the accountant’s report in agreeing to purchase the property. It was later discovered that Silver made a number of mistakes that overstated the profitability and value of the property. Woods, Johnson and Smith sued Silver and her accounting firm for damages based on negligent misrepresentation of fact. Silver used lack of privity of contract as her defense.

Analyze the arguments for each party. Be sure to include a discussion of the various approaches to the duty of care a public accountant owes to third parties.

Part 2 – Sureties and Guarantees
Fifth Third Bank loaned $100,000 to Woods, Johnson and Smith to purchase the restaurant. Since the three parties did not have much cash or other assets, the bank required assurance of payment from another party. Chuck Wagon agreed to be a surety for the loan.

Evaluate the bank’s options if the restaurant defaults on the loan. Be sure to identify the amount Wagon is responsible for paying, if any.

Explain why the bank prefers the surety to a guaranty.

Part 3 – Secured Transactions and Bankruptcy
Harrell Restaurant Supplies agreed to sell two new commercial refrigerators to [Restaurant Name] for$17,500. Harrell retained a security interest in the equipment. [Restaurant Name] agreed to pay for the equipment in equal installments over 48 months.

Evaluate Harrell’s rights as a creditor if [Restaurant Name] files bankruptcy 18 months after purchasing the equipment.

Discuss Harrell’s rights as a creditor if [Restaurant Name] sold the two refrigerators for $750 approximately 30 days prior to filing bankruptcy.

Explain how a failure by Harrell to file a financing statement might impact the outcome of both scenarios.

Part 4 – Employment Discrimination
Born in 1970, Florita Lopez immigrated from Mexico in 2001 and became a U.S. citizen in 2005. Lopez speaks fluent English with a strong Hispanic accent. Her accent does not interfere with her ability to communicate with others. Lopez worked as a cook and waitress for 20 years. Although she did not have any formal management experience, Lopez applied for a shift manager’s job with [Restaurant Name]; however, she was not hired for the position. The restaurant currently employs 5 full time employees and 11 part time employees.

Required:

Analyze the possible grounds Lopez might have for a discrimination lawsuit against [Restaurant Name].

Provide support for each ground selected and then provide arguments that [Restaurant Name] could make to counter each claim.

Explain how your answer might change if the restaurant only employs a total of 12 people.