QUESTION ONE (33 marks) Eras Java Corp. ("EJC") is an Alberta based franchise that has recently commenced operations in Ontario. EJC has incorporated a wholly owned subsidiary, EJ Ontario Inc. ("EJ Ont") to act as its franchisor in Ontario. EJ Ont operations are just evolving. The law firm that acts on behalf of EJ Ont is Swift & Taylor, LLP, Barristers & Solicitors (referred to as S&T). The S&T lawyer/partner on the EJ Ont/EJC account is Travis Taylor. Travis agreed with EJC that in order to more "rapidly" promote Ontario expansion that Travis and his wife Alex Levy would sell franchises, in exchange for which, either EJC or EJ Ont, would pay to them an amount equal to 10% of the franchise fee. Travis Taylor did a search on his law firm's database to identify clients that already owned a franchise or that were in the food business. He then provided the list to Alex who contacted these "prospects". One contact was Mitch Carter. Mitch had previously owned a 3 for 1 Pizza store, which he sold two years ago. Alex and Mitch met to discuss an Eras Java Bar@ franchise to be located at Sherway Gardens in Toronto. Alex explained to Mitch that his would be one of the first franchises in Ontario and so he would be entitled to a special discounted franchise fee of only $500,000. The franchise fee was to be paid - $100,000 on signing with the balance paid in equal instalments over the next three years. The balance due was secured by the "assets" of the franchisee and a security interest was registered under the PPSA. Alex provided Mitch with a summary of the franchise concept and some projections hat she had prepared. She then had Mitch sign a document that stated - "Received documents as required by Arthur Wishart Act". Alex (because she thought it was true) told Mitch that the franchise was an "offshoot" of Nespresso that operates a store at Sherway Gardens. (It is not. ) Mitch who was excited about being a "high end barista" purchased a franchise. Mitch signed the franchise agreement in his personal capacity. Over the next few months, Mitch spent a further $430,000 in leasehold improvements in opening the Sherway Gardens Eras Java Bar. Mitch incorporated Carter Coffee Corp ("CCC") to purchase all the equipment and to outfit the location. Most of the funds required to purchase the equipment were from a Royal Bank loan, secured by a GSA. The opening of the store was well received, but a continued and strong customer base never developed. Around the same time that Mitch was renting the location at the Sherway Gardens food court for his store, two other high end coffee stores also opened in the same food court (Moonbucks and Final Cup). Mitch has worked very hard to make his franchised store a success - but it continues to face cash flow problems. Mitch has recently learned that the Moonbucks and Final Cup stores in the food court are corporate stores owned by EJC. Apparently EJC is the franchisor of five different franchise entities, some of which have been forced to close due to solvency issues. Mitch was never aware of this. Mitch also learned that around the time that he was first contacted by Alex, that EJC was in negotiations to be acquired by FarmGirl Foods Inc. (FarmGirl) and that this transaction has recently closed. Mitch had indicated that he met recently with his lawyer at S&T, and told her that he does not plan to make any further payments on the franchise fee and is hoping to sue EJ Ont and maybe others. This information apparently made its way to EJ Ont who yesterday seized all the coffee equipment from Mitch's store, claiming that they were enforcing their security interest under the PPSA. The Receiver that oversaw the enforcement of the security interest for EJ Ont sold the assets to Moonbucks at around one half of its original cost. Besides removing all the equipment, the Receiver also padlocked the location. Required: Mitch is a friend of you, Bea Calm. Mitch is concerned about the lack of communications as between him and his lawyer. He has asked if you could give this situation an objective review and prepare a detailed memorandum to him that sets out and discusses the legal issues that may have arisen and provide your advice as to how to proceed. He knows you are the best person to do this as many of the issues pertain to your Business Law II course (and perhaps Business Law I as well)