MMPA – BUSINESS LAW – SPRING/SUMMER 2024

ASSIGNMENT #1

This Assignment consists of a single simulation and should be completed in a group of two (2) consisting

of students from either class section. The submission should not exceed 12 pages, 1-1/2 spaced, Font

11, Times New Roman - in length. Please note that this fact situation, including any statute is fictional.

When submitting the Assignment, please note the following on the front page and sign this

statement, “We have completed this Assignment on our own without the assistance of any other

individual, party or any aids, including, but not limited to AI, beyond the course materials.”

Simulation

You, MMPA, on your co-op term are employed at the Stratford Ontario office of Famme, Crowe & Clark

LLP (“FCC”) Chartered Professional Accountants. You really enjoy working at this firm as you are allowed

to work on a range of professional engagements, your knowledge and expertise is valued and many

clients are in the agriculture industry, an area for which you have a passion. The following situation arises

with regard to a client that you are completing professional services.

…

Morgan-John Deere (Tavistock) Inc. (“MJDI”) is a mid-size John Deere (“JD”) dealership located in

Tavistock, Ontario. MJDI is an audit client of FCC and prepares their financial statements following ASPE.

Keith Morgan is the principal shareholder/manager of MJDI. Prior to starting the dealership, Keith

obtained a bachelor’s degree in mechanical engineering from the University of Toronto. In addition to the

JD dealership, Morgan owns a 400-acre cash crop farm located on the outskirts of Stratford.

Keith is always looking for opportunities to use his engineering background to develop innovative ways for

MJDI to diversify their revenue streams from being solely the sale and service of farm equipment. In

2022, Keith began to focus on designing drones to be used by farmers to spray fertilizers and herbicides

on their crops. Deere & Company, the legal corporate entity that manufactures John Deere equipment

has an informal arrangement with Keith/MJDI whereby they will reimburse 50% of the research and

development costs related to the drone technology, on the condition that “the use of drones for such

purposes are legal, viable and that all drones are painted in the corporate John Deere green.” To date, MJDI has

incurred $600,000 [DR] of costs which are reflected on the balance sheet as “Deferred Development

Costs, net of $300,000 [CR] to be refunded by Deere & Company (therefore the deferred development

cost is $300,000). MJDI has set up the “Drone Division” as a profit center.

To date, the drone technology has worked very well. MJDI has developed two types of drones, which

have been effectively utilized at the Morgan farm, as well as several other area farms. Some pictures of

the drones are below:

Page 1 of 3

The Drone Division operates from the crop farm that Keith owns personally. At this point, the division has

a fleet of ten drones. Each must commence travels from the farm, as it at the farm that the sprayer drones

are filled with fertilizer or herbicides. The drones are equipped with AI and precision cameras, and this is

what allows the drones to do targeted precision spraying in a field. The drones run on electricity and are

fairly quiet, producing only a low buzzing sound. However, since there are so many of them, there is

almost always one or two drones taking off and landing from Keith’s farm. Keith loves watching his

drones, but recently the owner of the farm next to him, Jennifer Johnson, told him that the drones are

annoying her cows. She says the cows are afraid of the drones and do not like the buzzing noise, which

is extremely high pitched (and thus more audible to cows). She says that the stress from the buzzing is

causing them to make less milk. Jennifer also explains to Keith that two weeks ago that one of the drones

departing from his farm with herbicide sprayed one of her dairy cows. She knows this because she keeps

a camera focussed on her dairy herd and saw a liquid being sprayed on a dairy cow. As a result, Jennifer

thinks that the cow is now blind in one eye and because of the fear of milk contamination from chemicals,

the cow has to be isolated for four weeks and her milk disposed of. In response Keith tells Jennifer that

“Like the Wright brothers, I am helping improve mankind. Life goes on” but Jennifer does not seem happy

with this answer.

Two weeks ago, Keith was awarded the Order of Ontario (https://www.ontario.ca/page/order-ontario) for,

what was described by the government as “being innovative in the field of Ontario agriculture.”

Recently, the Federal government of Canada is starting to become more aware of drones. Concerned

about the growing popularity of drone flying and drone clubs, the Federal government passes the

Regulation of Unmanned Non-terrestrial Devices Act RSC (the Round Act) to regulate all drones and

other unmanned flying devices.

Section 1.1 of the Round Act requires that all drones be registered with Federal authorities and pay a

yearly licensing fee for each drone. Upon payment a drone will be assigned a unique registration

number.

Section 2.1 of the Round Act states that “No more than 2 individuals may gather at any one time for the

purposes of operating drones”.

Page 2 of 3

It is generally understood that Section 2.1 of the Round Act was added because when many drones are

operating together in close proximity to a weather station, they interfere with the radar, making it more

difficult to predict the weather. (Weather stations are located in most rural areas)

Section 3.5 of the Round Act requires that all drones be painted fluorescent orange and the only markings

on the drone shall be their registration number.

Krishani Puveendiran is the audit partner on the MJDI audit. Krishani is concerned about the existence

and valuation assertions regarding the Deferred Development Costs that appear on the balance sheet of

MJDI, along with the receivable of $300,000 from Deere & Company. Krishani says to you, “take off your

accountant hat and put on your law hat. Please prepare a detailed memorandum for me that discusses

the possible legal issues that arise from the drone operations, including those raised by Jennifer.

Krishani states that Keith has indicated that what the federal government is doing is not valid. Krishani

would like you to explain and discuss all relevant legal issues, including what arguments MJDI can make.

Ensure you discuss arguments which other parties might also put forward. (Your focus should be on possible

Constitutional, Charter and Tort related issues).

Page 3 of 3