University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

441

Pages:

2
Author:

bratrochanter

To address the questions posed regarding Bon Vivant Foods, Inc. and the risks associated with various contracts and agent authority, let's analyze each scenario in light of agency law principles: 1. Contract for Snack-Cracker Brand ($15,000,000)  Will Bon Vivant be bound? o Since the $15,000,000 acquisition price is well below the $30,000,000 threshold, it falls within your authority as Vice President of Acquisitions. If the snack-cracker brand is a permissible category of acquisition (i.e., not restricted or excluded like cola), the contract would likely bind Bon Vivant. o This assumes you are acting within your express authority, and no other limitations or restrictions apply. 2. Contract for Cola Brand ($13,500,000)  Will Bon Vivant be bound? o No, Bon Vivant will not be bound. While the purchase price of $13,500,000 is within your authority, the board has explicitly instructed you not to acquire a cola drink brand. This is a clear limitation on your authority, and contracting for a cola brand would exceed your express authority. o If you proceed, the contract may be voidable because you are acting outside your express authority. Even if the price is within budget, the type of product is a critical factor here, and this contract would likely be considered unauthorized by Bon Vivant. 3. Contract for Organic Canned Soup Brand ($40,000,000)  Will Bon Vivant be bound if you present it to the board and they later reject it? o No—Bon Vivant will not be bound at the time you sign the contract unless the board ratifies the contract. Although you are authorized to negotiate acquisitions up to $30,000,000, the price here exceeds that limit. This means you lack express authority to bind Bon Vivant on a $40,000,000 deal. o Even if the board later approves the contract, if the board rejects it, Bon Vivant will not be bound by the contract, as they did not ratify the agreement at the time it was signed. 4. Contract for Eddie’s Ice Cream Brand ($26,200,000)  Who is liable on the contract? o In this case, the contract is signed by you on behalf of LHIW, Inc., but you also sign as an agent of LHIW. If the seller, Eddie, relies on the o representations made in the contract, LHIW, Inc. will be liable, as it is the entity that is being contracted with. However, Bon Vivant may not be directly liable unless LHIW is later revealed as a subsidiary or affiliate of Bon Vivant or unless the board ratifies the agreement. The use of the fictitious name LHIW could potentially lead to legal challenges if Eddie later finds out about the connection, especially if it was not disclosed properly or was deemed a misrepresentation. Risk Assessment Summary:     Snack-Cracker Brand: Contract would likely be binding if within authority. Cola Brand: Contract will not bind Bon Vivant, as this exceeds your express authority. Organic Canned Soup Brand: Contract is not binding unless the board ratifies it. Eddie’s Ice Cream Brand: LHIW, Inc. would be liable, but Bon Vivant may not be, unless ratified. Conclusion: Bon Vivant should be cautious in these transactions, especially with restrictions on acquiring certain types of products (e.g., cola), and should ensure all acquisitions are within the scope of your authority to avoid complications or the risk of contracts being voided. The use of a fictitious company name also raises potential risks regarding misrepresentation.