Business Associations Basic

Humble Oil & Refining Co. v. Martin

OWNER IS LIABLE FOR AN OPERATOR'S NEGLIGENCE IF THE OWNER DIRECTS THE MANNER UNDER WHICH THE STATION IS OPERATED INSTANT FACTS (P) was injured by a vehicle that rolled away from the service station owned by (D), but operated by another person under contract. BLACK LETTER RULE One who maintains control over a business enterprise's operation, even if it entrusts the operation to one acting without meaningful discretion, is liable as a principal for the negligence of those entrusted with his business.

Sandvick v. LaCrosse

PARTNERSHIP-TYPE DUTIES MAY APPLY EVEN WHEN THERE IS NO PARTNERSHIP INSTANT FACTS One co-owner of certain oil and gas leases sued another co-owner for breach of fiduciary duty after the latter secretly purchased ―top leases‖ on the same property that would take effect when the original co-owners' leases expired. BLACK LETTER RULE A partnership is an association of two or more persons to carry on, as co-owners, a business for profit; a joint venture is like a partnership, but is more limited in scope and duration.

Gordon v. Doty

PERMISSION TO DRIVE ONE'S VEHICLE CREATES AN AGENCY RELATIONSHIP INSTANT FACTS (P) was injured in an automobile accident after (D) loaned her vehicle to Garst to transport (P) and others to a football game. BLACK LETTER RULE An agency relationship results from one person's consent that another will act on his behalf and subject to his control, and the other person's consent so to act.

Young v. Jones

PRICE WATERHOUSE-US IS NOT A PARTNER BY ESTOPPEL WITH PRICE WATER-HOUSE-BAHAMAS INSTANT FACTS (P) and others invested money in reliance upon a fraudulent audit statement prepared by Price Waterhouse-Bahamas. BLACK LETTER RULE A person who represents himself, or permits another to represent him, as a partner in an existing partnership or with others not actual partners, is liable to any person to whom such a representation is made who has, in reliance on the representation, given credit to the actual or apparent partnership.

Hoddeson v. Koos Bros.

PROPRIETOR IS ESTOPPED FROM CLAIMING LACK OF AUTHORITY IF REASONA- BLE DILIGENCE COULD HAVE PREVENTED THE ACTIONS INSTANT FACTS (P) paid money for the purchase of furniture to an impostor salesperson in (D) furniture store. BLACK LETTER RULE If a business proprietor by his dereliction of duty enables one who is not his agent to act conspicuously as such and to transact the proprietor's business with a patron in the establishment, estoppel prevents the proprietor from defensively availing himself of the impostor's lack of authority in order to escape liability for the customer's consequential loss.

Arguello v. Conoco

RACIAL EPITHETS MADE DURING AN EMPLOYEE'S NORMAL, AUTHORIZED EMPLOYMENT DUTIES CAN BE WITHIN THE SCOPE OF EMPLOYMENT INSTANT FACTS Several Hispanic plaintiffs were treated improperly in stores owned or branded by (D). BLACK LETTER RULE A master is not liable for his servants' intentional acts if they occurred beyond the servants' scope of employment.

Botticellow v. Stefanovicz

RECEIPT OF RENT MONEY UNDER A LEASE WITH AN OPTION TO PURCHASE DOES NOT CONSTITUTE RATIFICATION OF THE LEASE INSTANT FACTS (P) agreed with (D) to lease property that he owned as tenants in common with his wife, and the lease contained an option to purchase. BLACK LETTER RULE Ratification requires affirmance by a person with full knowledge of the material terms of a prior act which did not bind him but which was done or professedly done on his account.

Bayer v. Beran

RULE REQUIRING DIRECTORS' UNDIVIDED LOYALTY AVOIDS POSSIBILITY OF FRAUD AND THE TEMPTATION OF SELF-INTEREST INSTANT FACTS Shareholders brought a derivative suit against the Celanese Corporation of America's di- rectors (D) for breach of fiduciary duty for approving and extending a $1,000,000 per year radio advertising program. BLACK LETTER RULE A director does not breach his or her fiduciary duty by approving a radio advertising pro- gram in which the wife of the corporate president, who was also member of board of directors, was one of the featured performers.

Ingle v. Glamore Motor Sales, Inc.

SHARE OWNERSHIP IS NOT A GUARANTEE OF CONTINUED EMPLOYMENT ABSENT AN AGREEMENT PROVIDING LIFETIME EMPLOYMENT INSTANT FACTS (P) was a sales manager and a shareholder of Glamore Motor Sales, Inc., (D), and when the company terminated his employment, his shares were bought back under a shareholders' agreement. BLACK LETTER RULE If a shareholders' agreement provides for the right to repurchase shares upon the termination of a shareholder's employment with the issuing company, the employment is treated as employment at will and the shareholder has no claim for damages upon termination.

McQuade v. Stoneham

SHAREHOLDER AGREEMENTS MAY NOT RESTRICT A BOARD'S AUTHORITY INSTANT FACTS (P), who was employed as corporate treasurer pursuant to a shareholder's agreement, was discharged. but claimed that he couldn't be discharged per the Shareholder agreements. BLACK LETTER RULE A shareholder agreement may not control a board of directors' exercise of judgment.

Clark v. Dodge

SHAREHOLDER AGREEMENTS REGARDING OFFICERS' EMPLOYMENT MAY BE ENFORCEABLE INSTANT FACTS (P), who was employed as treasurer and general manager of a corporation pursuant to a shareholder's agreement, was discharged (secret formula case). BLACK LETTER RULE A shareholder agreement regarding employment of certain individuals as officers is enforceable if the directors are the sole shareholders.

Galler v. Galler

SHAREHOLDER AGREEMENTS RELATING TO THE MANAGEMENT OF A CLOSE CORPORATION MAY BE ENFORCED INSTANT FACTS (D) entered into a shareholders' agreement with his brother, Benjamin, to provide for their wives after their deaths, but Benjamin later refused to abide by the agreement. BLACK LETTER RULE Shareholder agreements that relate to the management of a close corporation will be upheld, even if the agreements violate corporate norms.

Waltuch v. Conticommodity Services, Inc.

A CORPORATION MUST INDEMNIFY CERTAIN INDIVIDUALS FOR LEGAL EXPENSES IF THEY ACTED IN GOOD FAITH INSTANT FACTS (P) sued his employer for indemnification of the legal expenses he incurred in defending himself from numerous civil lawsuits and an enforcement proceeding brought by the Commodity Futures Trading Commission. BLACK LETTER RULE A corporation must indemnify its officers, directors, and employees against legal expenses related to the defense of any legal action brought against them by reason of their position or capacity, provided the individual acted in good faith.

A.P. Smith Mfg. Co. v. Barlow

A CORPORATION NEED NOT HAVE SPECIFIC AUTHORITY TO MAKE VALID CHARITABLE CONTRIBUTIONS INSTANT FACTS (P), a (D) shareholder, brought an action seeking to find that a charitable donation made by the corporation was invalid. BLACK LETTER RULE A corporation may make reasonable charitable contributions, even in the absence of express statutory provisions.

Kamin v. American Express Company

A CORPORATION'S DIRECTORS ARE NOT LIABLE MERELY BECAUSE A BETTER COURSE OF ACTION EXISTED INSTANT FACTS Stockholders brought a derivative action, asking for a declaration that a certain dividend in kind was a waste of corporate assets. BLACK LETTER RULE A complaint alleging that some course of action other than that taken by the board would have been more advantageous does not give rise to a cause of action for damages.

Walkovsky v. Carlton.

A COURT MAY DISREGARD CORPORATE FORM TO PREVENT FRAUD OR ACHIEVE EQUITY INSTANT FACTS A pedestrian struck by a taxicab sued the corporation in whose name the taxi was registered, the cabdriver, nine corporations in whose names other taxicabs were registered, two additional corporations, and three individuals. BLACK LETTER RULE Absent an allegation that the defendant was conducting business in his individual capacity, a complaint charging that an individual defendant organized a fleet of taxicabs in a fragmented manner solely to limit his liability for personal injury claims is insufficient to hold the individual liable for the claim.

Ramos v. Estrada

A COURT MAY ENFORCE SHAREHOLDER VOTING AGREEMENTS EVEN IN CORPORATIONS THAT ARE NOT CLOSE CORPORATIONS INSTANT FACTS (D) did not vote her stock in accordance with a shareholders' agreement, and (P) brought suit for breach of contract (D defected from Ventura 41 Voting bloc). BLACK LETTER RULE Voting agreements between two or more shareholders of a corporation are enforceable, even if the corporation does not qualify as a close corporation.

Collins v. Lewis

A PARTNER'S INTERFERENCE IN A PARTNERSHIP'S PROPER MANAGEMENT MAY NOT CREATE A RIGHT TO DISSOLUTION INSTANT FACTS (P) and (D) entered into a partnership to operate a cafeteria, with (P) providing the financial backing and (D) devoting his experience and management ability. BLACK LETTER RULE A partner may not obtain a judicial dissolution of the partnership if his own interference causes the partnership to be unprofitable.

Fenwick v. Unemployment Compensation Commission

A PARTNERSHIP IS NOT FORMED BY MERELY AGREEING TO SHARE BUSINESS PROFITS INSTANT FACTS Cheshire and (D) entered into a partnership agreement, pursuant to which D contributed all capital investments, possessed exclusive control over the management of the business, and bore the risk of all business losses. BLACK LETTER RULE A partnership is an association of two or more persons to carry on as co-owners of a business for profit.

Reading v. Regem

A SERGEANT MUST SURRENDER ILLEGAL BRIBES RECEIVED BECAUSE OF HIS EMPLOYMENT POSITION INSTANT FACTS (P) obtained payments for accompanying unlawful contraband past civilian police checkpoints while employed by the British army. BLACK LETTER RULE A servant is accountable to his master for profits he obtains because of his position, if the servant takes advantage of his position and violates his duty of good faith and honesty to make the profit for himself.

Alaska Plastics, Inc. v. Coppock

A SHAREHOLDER MAY NOT REQUIRE A COMPANY TO PURCHASE ITS STOCK FOR FAIR VALUE IF THE COMPANY HAS NOT DONE SO FOR OTHERS INSTANT FACTS (P) received half of her husband's shares in (D) Company in a divorce; the com- pany offered to buy her shares at a price (P) believed to be too low. BLACK LETTER RULE A shareholder may require a corporation to repurchase its own shares upon the company's breach of fiduciary duty, but the remedy should be less than liquidation, if possible, and a fair price may be less than the appraised value.

Pedro v. Pedro

A SHAREHOLDER MAY OBTAIN VALUE FOR SHARES IN EXCESS OF THAT PROVIDED IN A VALID STOCK REDEMPTION AGREEMENT INSTANT FACTS Members of a family-run business terminated one of the shareholder's employment when he refused to ignore a substantial accounting discrepancy. BLACK LETTER RULE A shareholder-employee of a closely held corporation, who was fired by other share- holders in a breach of fiduciary duty, is entitled to damages equal to the total of the difference between his stock's fair value and any lesser amount required by a stock retirement agreement, in addition to the damages arising from his loss of life-time employment.

Rash v. J.V. Intermediate, Ltd.

AN EMPLOYEE MAY NOT EXPLOIT HIS EMPLOYMENT RELATIONSHIP FOR HIS PERSONAL GAIN TO THE DETRIMENT OF HIS EMPLOYER INSTANT FACTS After an employee's contract expired, he continued working for the same employer but started a competing business and awarded that business several lucrative contracts with the employer's business, unbeknownst to the employer BLACK LETTER RULE Unless otherwise agreed, an agent is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency.

Majestic Realty Associates, Inc., v. Toti Contracting Co.

BUILDING OWNER MAY NOT BE LIABLE FOR A DEMOLITION CONTRACTOR'S NEGLIGENCE INSTANT FACTS (P) suffered property damage to its building caused by the negligent demolition of an adjacent building. BLACK LETTER RULE Ordinarily, if a person engages a contractor, who conducts an independent business by means of his own employees, to do work not itself a nuisance, the person is not liable for the contractor's negligent acts in performing the contract.

State ex rel. Pillsbury v. Honeywell, Inc.

COMPANY MAY DENY ACCESS TO A STOCKHOLDER WHO PURCHASED STOCK SOLELY TO ACCESS CORPORATE BOOKS AND RECORDS INSTANT FACTS (P) purchased (D) stock in order to bring suit to compel production of the defendant's corporate books and records because he didn't like their stance on the Vietnam War. BLACK LETTER RULE A stockholder who purchased stock for the sole purpose of bringing suit to compel production of corporate books and records, who was motivated by his belief that the corporation should not be manufacturing ammunition to be used in the Viet- nam War, and who had no concern for the corporation's economic well being, cannot compel production of the corporation's shareholder lists or business records.

Mill Street Church of Christ v. Hogan

CONTINUOUS PAST AUTHORIZED ACTS SUFFICIENTLY CONFER IMPLIED AUTHORITY ON AN AGENT INSTANT FACTS (P) was injured after he was hired by a church employee to paint the inside of the church. BLACK LETTER RULE Implied authority is actual authority that the principal intended the agent to possess and includes such powers as are practically necessary to carry out the delegated duties.

Levin v. Metro-Goldwyn-Mayer

CORPORATE MANAGEMENT MAY USE CORPORATE ASSETS TO PROVIDE SHAREHOLDERS WITH INFORMATION THAT IS RELEVANT TO A VOTE INSTANT FACTS P and five other shareholders of (D) Company brought an action against its directors, arguing the management was using illegal and unfair methods of communicating with stockholders and had forced the corporation to bear the expenses of a proxy solicitation. BLACK LETTER RULE Incumbent management may make reasonable use of corporate assets to inform shareholders of its position in a proxy contest involving corporate policy issues.

Fliegler v. Lawrence

INTERESTED SHAREHOLDERS CANNOT RATIFY THEIR OWN TRANSACTIONS WITH THEIR CORPORATION INSTANT FACTS A shareholder brought a derivative action against the officers and directors of Agau Mines, Inc. and the United States Antimony Corp. (USAC) to recover 800,000 shares of Agau stock transferred to USAC. BLACK LETTER RULE A majority of disinterested shareholders must ratify corporate transactions with an interested director.

Kovacik v. Reed

INVESTOR IS NOT ENTITLED TO RECOVER LOST CAPITAL FROM A JOINT ADVENTURER WHO HAD INVESTED ONLY HIS LABOR INSTANT FACTS Kovacik (P) sought recovery from Reed (P) of one half of the money capital he invested in a losing business venture. BLACK LETTER RULE If one partner or joint adventurer contributes the money capital and the other contributes the skill and labor necessary for the venture, neither party is entitled to contribution from the other.

Lawlis v. Kightlinger & Gray

INVOLUNTARY EXPULSION FROM A PARTNERSHIP WITHOUT BAD FAITH DOES NOT GIVE RISE TO DAMAGES FOR WRONGFUL DISSOLUTION INSTANT FACTS (P) was expelled from the law partnership of Kightlinger & Gray (D) despite comply- ing with all conditions for his continued relationship. BLACK LETTER RULE When a partner is involuntarily expelled from a business, his expulsion must be in good faith for a dissolution to occur without violating the partnership agreement.

Lovenheim v. Iroquois Brands, Ltd.

SHAREHOLDERS MAY INCLUDE SIGNIFICANTLY RELATED MATERIALS WITH A COMPANY'S PROXY STATEMENTS INSTANT FACTS (P) asked to have information about a resolution (on foie de gras) he proposed to make at an upcoming shareholders' meeting included in the company's proxy materials, but the company refused. BLACK LETTER RULE Under § 14(a) of the Securities Exchange Act, shareholders may include in the com- pany's proxy statements certain materials that have limited, if any, economic impact on the company as long as they are ―otherwise significantly related‖ to the issuer's business.

Zeitlin v. Hanson Holdings, Inc.

SHAREHOLDERS MAY RECEIVE A PREMIUM ON THE SALE OF THEIR SHARES FOR THE CONTROL REPRESENTED BY THEIR SHARES INSTANT FACTS (P) owned two percent of Gable Industries when (D) and (D), which owned a controlling interest in Gable Industries, sold their shares to Flintkote Co. for $15 per share at a time the common stock was trading at $7.38 per share. BLACK LETTER RULE In the absence of an allegation that a shareholder is looting corporate assets or has committed fraud or other acts of bad faith, a shareholder may obtain a premium price for the sale of a controlling block of shares.

Stroh v. Blackhawk Holding Corp.

SHARES MAY REPRESENT A PROPRIETARY INTEREST EVEN IF THEY DO NOT ENTITLE THE HOLDER TO DIVIDENDS OR OTHER PROPERTY INSTANT FACTS (P) purchased shares of D Holding Corp.'s Class B stock, which permitted voting rights in corporate matters, but did not receive dividends or other corporate assets. BLACK LETTER RULE A corporation's shares of class B stock, which permit voting rights, are valid shares of stock, notwithstanding the fact that the stock is not entitled to dividends.

Ringling Bros.—Barnum & Bailey Combined Shows. v. Ringling

STOCKHOLDERS MAY MAKE BINDING AGREEMENTS ON HOW TO VOTE THEIR STOCK INSTANT FACTS (P) agreed to vote her stock in agreement with (D), but then refused to do so. BLACK LETTER RULE A shareholder may agree with another shareholder to vote his or her stock in a par- ticular way.

In re Wheelabrator Technologies, Inc. Shareholders Litigation

STOCKHOLDERS MUST BE FULLY INFORMED WHEN THEY RATIFY AN INTERESTED TRANSACTION INSTANT FACTS The shareholders of (D) sued the company's directors for breach of fiduciary duty, alleging the proxy statement issued in connection with its merger was misleading. BLACK LETTER RULE An interested transaction between a corporation and its directors is not voidable if it is approved in good faith by a majority of fully informed, disinterested stockholders.

Smith v. Van Gorkom

THE BUSINESS JUDGMENT RULE PRESUMES ALL DECISIONS MADE BY A COMPANY'S DIRECTORS ARE INFORMED INSTANT FACTS Trans Union's (D) stockholders brought a class action suit against the company's board of direc- tors for negligent decision-making. BLACK LETTER RULE The business judgment rule presumes that, when making business decisions, directors act on an informed basis, in good faith and in the company's best interests.

G & S Investments v. Belman

THE COURT MUST HONOR A PARTNERSHIP AGREEMENT'S TERM PROVIDING FOR THE BUY-OUT OF A PARTNER UPON DEATH INSTANT FACTS Company (P) partner died while suit for dissolution was pending, triggering the partnership agreement's buy-out provisions. BLACK LETTER RULE Under the Uniform Partnership Act, a court may dissolve a partnership when a partner becomes incapable of performing under the partnership agreement, when a partner's conduct tends to affect the business prejudicially, or when a partner willfully breaches the partnership agreement's terms.

Perlman v. Feldmann

A CONTROL PREMIUM MUST BE SHARED AMONG ALL STOCKHOLDERS IF IT REPRESENTS THE TRANSFER OF A CORPORATE ASSET INSTANT FACTS Feldmann (D), a majority shareholder in a steel mill business, sold a controlling interest in the mill to a company that required steel in the fabrication of its products, and the minority shareholders brought a derivative action against Feldmann (D) to recover the amounts he received in excess of the shares' market price. BLACK LETTER RULE A shareholder with a controlling interest who transfers his or her shares is accountable to the minority shareholders for the amount in excess of the market price if the premium is attributable to the sale of a corporate asset.

Crane Co. v. Anaconda Co.

A CORPORATION MUST GRANT A REQUEST FOR ACCESS TO A SHAREHOLDER LIST TO ENABLE TENDER-OFFER DISCUSSIONS INSTANT FACTS (P) sought to acquire twenty percent of (D)'s shares and asked to have access to (D)'s shareholder list to distribute information on the tender offer directly to (D) shareholders. BLACK LETTER RULE A corporation must grant a shareholder who wants to discuss a tender offer's terms directly with the corporation's shareholders access to the shareholder list, unless the corporation can establish a wrongful purpose.

Summers v. Dooley

A PARTNER IS NOT LIABLE FOR EXPENSES INCURRED BY ANOTHER PARTNER'S UNILATERAL DECISION TO HIRE AN ADDITIONAL EMPLOYEE INSTANT FACTS (P) incurred expenses when he hired a partnership employee for garbage business despite Dooley's (D) objection. BLACK LETTER RULE Absent a contrary agreement, each partner possesses equal rights to manage the partnership's affairs, and no partner is responsible for expenses incurred without majority approval.

Haley v. Talcott

A CONTRACTUAL DISSOLUTION MECHANISM MUST OFFER AN ADEQUATE SEPARATION OF INTERESTS INSTANT FACTS A disgruntled LLC member sought judicial dissolution of the LLC Seafood Restaurant when the contractual exit mechanism failed to free him from personal liability for a business debt. BLACK LETTER RULE A court may decree the dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.

Auerbach v. Bennett

A BOARD OF DIRECTORS MAY GRANT AUTHORITY TO A SPECIAL COMMITTEE TO MAKE RECOMMENDATIONS ON A DERIVATIVE CLAIM INSTANT FACTS A corporation appointed a special committee to investigate the basis of a shareholders' derivative suit charging mismanagement of corporate funds, and the committee determined the suit should be terminated. BLACK LETTER RULE A special litigation committee's determination forecloses further inquiry into a matter, provided the committee's investigation is bona fide.

Wilkes v. Springside Nursing Home, Inc.

A CLOSE CORPORATION'S SHAREHOLDERS NEED A LEGITIMATE BUSINESS PURPOSE TO TERMINATE ANOTHER SHAREHOLDER'S EMPLOYMENT INSTANT FACTS Wilkes (P), who formed a real estate investment business/nursing homes with three other men who shared equally in the business, created disharmony and was fired when he struck a particularly hard bargain with one of the other shareholders in the sale of some corporate property. BLACK LETTER RULE Majority shareholders acting to ―freeze out a minority shareholder by terminating his employment without a valid business purpose have breached their duty to act as fiduciaries.

Essex Universal Corporation v. Yates

A CONTRACT TO SELL A CONTROLLING INTEREST IN A CORPORATION MAY INCLUDE CONTROL OF THE CORPORATION'S BOARD INSTANT FACTS (D) agreed to sell a controlling block of shares in (P), and the sale agreement required (D) to deliver a board of directors filled with members nominated by (P). BLACK LETTER RULE If the transfer of shares is sufficient to constitute the transfer of a controlling interest, a seller may lawfully agree to assist the buyer in installing a favorable board of directors.

Meehan v. Shaughnessy

ONE-SIDED SOLICITATIONS TO A PARTNERSHIP'S CLIENTS BREACH THE DUTY OF GOOD FAITH AND FAIR DEALING INSTANT FACTS P's separated from Parker Coulter (D), their former law partnership, to form a new law firm with cases removed from Parker Coulter (D). BLACK LETTER RULE A partner must render on demand true and full information of all things affecting the partnership to any partner.

Cohen v. Beneficial Industrial Loan Corp.

A COURT MAY REQUIRE A PLAINTIFF TO POST A BOND IN A DERIVATIVE SUIT INSTANT FACTS P brought a shareholder's derivative suit against Beneficial Industrial Loan Corp. (Beneficial) (D) and others, and Beneficial brought a motion seeking to have P's executrix, post security for the expenses associated with prosecuting the lawsuit. BLACK LETTER RULE A New Jersey statute that requires a holder of less than five per cent of a corporation's outstanding shares who brings a derivative suit to pay for all expenses of defending the suit and that requires security for the payment of these expenses should be enforced in cases prosecuted under federal diversity jurisdiction.

Jenson v. Cargill

A CREDITOR WHO CONTROLS ITS DEBTOR'S BUSINESS OPERATIONS IS LIABLE FOR THE DEBTOR'S DEBTS INSTANT FACTS The plaintiffs entered into grain contracts with Warren Grain & Seed Co., which was financed and controlled by (D), a separate entity. BLACK LETTER RULE A creditor that assumes control of its debtor's business may become liable as princip- al for the debtor's acts in connection with the business. BLACK LETTER RULE A creditor that assumes control of its debtor's business may become liable as principal for the debtor's acts in connection with the business. -3 elements found here: 1) D directed Warren to implement its recommendations thereby manifesting consent to D's agency; 2) Warren acted on behalf of D in procuring grain for its operations, which were totally financed by D; and 3) D interfered w/ Warren's internal affairs, exhibiting control over Warren.

Dodge v. Ford Motor Co.

A FOR-PROFIT CORPORATION MUST PAY DIVIDENDS ABSENT A JUSTIFIABLE BUSINESS REASON INSTANT FACTS (D) made extraordinary profits and its founder, (D), intended to use those profits to lower the price of its cars and expand its factories' capabilities by adding a steel plant, but shareholders (P) objected to these policies claiming that the company's first obligation was to make profits for its shareholders. BLACK LETTER RULE Although a corporation's directors have discretion in the means they choose to make products and earn a profit, the directors may not reduce profits or withhold dividends from the corporation's shareholders in order to benefit the public.

Jordan v. Duff and Phelps, Inc.

A FORMER EMPLOYEE MAY RECOVER DAMAGES FOR INCREASED STOCK VALUE AFTER SELLING STOCK BACK TO A CLOSELY-HELD CORPORATION INSTANT FACTS (P), an employee of and stockholder in (D), left the closely-held company and cashed in his stock according to his stockholder agreement; a pending sale of the defendant firm would have made his stock far more valuable. BLACK LETTER RULE If a closely held company withholds from an employee-stockholder material information about possible increases in stock value in breach of its fiduciary duty, the employee-stockholder may be entitled to damages if he or she can show that the nondisclosure caused the employee-stockholder to act to his or her financial detriment.

Murphy v. Holiday Inns, Inc.

A FRANCHISE AGREEMENT THAT PROVIDES AN OPERATION SYSTEM FOR A FRANCHISEE DOES NOT ESTABLISH A PRINCIPAL-AGENT RELATIONSHIP INSTANT FACTS (P) slipped and fell in a motel owned and operated by a franchisee under a license agreement. BLACK LETTER RULE If a franchise contract so regulates the activities of the franchisee as to vest the fran- chiser with control within the definition of agency, the agency relationship arises even if the parties expressly deny it.

Brodie v. Jordan

A FREEZE-OUT DOES NOT AUTOMATICALLY ENTITLE THE MINORITY SHAREHOLDER TO A FORCED BUYOUT OF HER SHARES INSTANT FACTS A minority shareholder claimed that the majority shareholders froze her out and that she was entitled to a buyout of her shares, as well as other remedies; on appeal to the state's highest court, the majority shareholders did not contest their liability, but only what remedies should be available. BLACK LETTER RULE The proper remedy for a freeze-out is to restore the minority shareholder as nearly as possible to the position she would have been in had there been no wrongdoing.

Meinhard v. Salmon

A JOINT ADVENTURER'S SEIZURE OF A JOINT VENTURE'S OPPORTUNITY BREACHES HIS DUTY OF LOYALTY TO THE OTHER JOINT ADVENTURERS INSTANT FACTS (D) terminated a lease belonging to his joint venture with Meinhard (P) to enter into a new lease on behalf of his solely owned business. BLACK LETTER RULE Like partners, joint adventurers owe one another the duty of loyalty.

Martin v. Peyton

A LOAN AGREEMENT THAT ALLOWS FOR SHARING OF PROFITS AS REPAYMENT DOES NOT ESTABLISH A PARTNERSHIP ABSENT INTENT INSTANT FACTS (P) sued Peyton (D), Perkins (D), and Freeman (D), as alleged partners of a firm that owned (P) money, when the defendants entered into an elaborate loan agreement with the firm. BLACK LETTER RULE A partnership is created by an express or implied contract between two persons with the intention to form a partnership.

Smith v. Atlantic Properties, Inc.

A MINORITY SHAREHOLDER MAY ACT IN A MANNER THAT BREACHES HIS FIDUCIARY DUTY TO THE OTHER SHAREHOLDERS INSTANT FACTS (D), who owned part of a corporation that purchased property for investment, blocked dividend payments to other shareholders, leading to substantial IRS penalties and limiting the others' returns from their investments. BLACK LETTER RULE A minority shareholder may abuse his position by using measures designed to safeguard his position in a manner that fails to take into consideration his duty to act in the ―utmost good faith and loyalty toward the company and his fellow shareholders.

In re Silicone Gel Breast Implants Products Liability Litigation

A PARENT CORPORATION IS LIABLE FOR ITS SUBSIDIARY'S TORTS IF THE PARENT CONTROLLED THE SUBSIDIARY AS ITS ALTER EGO INSTANT FACTS Breast implant recipients brought a products liability action against Bristol-Myers Squibb Co. (D), which was the sole shareholder of Medical Engineering Corporation (D), a major supplier of breast implants. BLACK LETTER RULE If a parent corporation uses a subsidiary as its alter ego, as demonstrated by shared common directors or business departments, consolidated financial statements and tax returns, and an inadequately capitalized subsidiary, a plaintiff may assert its claims against the parent.

Putnam v. Shoaf

A PARTNER HAS NO INTEREST IN THE UNKNOWN CHOSES OF ACTION BELONGING TO THE PARTNERSHIP INSTANT FACTS (P) sold all her interest in her partnership to Shoaf (D) in exchange for Shoaf's (D) assumption of personal liability on a bank note. When D recovered money after learning of embezzlement of employee, P wanted a chunk of it. BLACK LETTER RULE A partner's property rights include rights in specific partnership property, interests in the partnership, and the right to participate in the partnership's management.

Grimes v. Donald

A STOCKHOLDER GENERALLY MUST DEMAND THE BOARD BRING AN ACTION BEFORE HE OR SHE BRINGS A DERIVATIVE SUIT INSTANT FACTS (P), who learned of the extremely generous compensation package DSC Communi- cations (DSC) (D) had extended to Donald (D), demanded DSC cancel Donald's (D) contract. BLACK LETTER RULE A shareholder need not make a demand that a company's board institute a lawsuit before bringing a derivative suit on behalf of the corporation on a showing the demand would be futile, and if a demand is made and rejected, a shareholder may still proceed by establishing that the board's refusal was wrongful.

Zahn v. Transamerica Corporation

A STOCKHOLDER VOTING AS A DIRECTOR MUST VOTE IN ALL SHAREHOLDERS' BEST INTERESTS INSTANT FACTS Stockholders of the Axton-Fisher Tobacco Company sued (D) claiming (D) caused Axton-Fisher to redeem its Class A stock at $80.80 per share, instead of allowing them to participate in the liquidation of company assets, in which case they content they would have received $240 per share. BLACK LETTER RULE If a stockholder who is also a director is voting as a director, he or she represents all stockholders in the capacity of a trustee and cannot use the director's position for his or her personal benefit to the stockholders' detriment.

Sinclair Oil Corp v. Levien

A TRANSACTION BETWEEN A PARENT AND ITS SUBSIDSIARY MUST BE INTRINSICALLY FAIR INSTANT FACTS Shareholders brought a derivative action against (D) to require an accounting for damages sustained by its subsidiary, Venezuelan Oil Company. BLACK LETTER RULE If, in a transaction involving a parent company and its subsidiary, the parent company controls the transaction and fixes the terms, the transaction must meet the intrinsic fairness test.

Rosenfeld v. Fairchild Enginge & Airplane Corp.

ABSENT A CLAIM THAT PROXY FIGHT EXPENSES WERE EXCESSIVE, A COMPANY MAY REIMBURSE THE PARTIES FOR THEIR COSTS INSTANT FACTS Stockholders brought a derivative action arising out of money paid by the corporation to defray rival factions' expenses in a proxy fight. BLACK LETTER RULE Absent a claim that the expenses were unwarranted, excessive, or otherwise improper, a corporation may reimburse factions for costs associated with a proxy fight involving a policy contest, but not one involving a personal power contest.

Three-Seventy Leasing Corporation v. Ampex Corporation

ABSENT CONTRARY KNOWLEDGE, A SALESPERSON HAS APPARENT AUTHORITY TO BIND HIS PRINCIPAL TO SELL ITS PRODUCTS INSTANT FACTS. (P) executed a document provided by an (D) representative for the purchase of computer leasing equipment, but (D) never executed the document. BLACK LETTER RULE An agent has apparent authority sufficient to bind the principal when the principal's acts would lead a reasonably prudent person to suppose that the agent had the authority he purports to exercise.

Eisenberg v. Flying Tiger Line, Inc.

AN ACTION TO REVERSE CORPORATE ACTIONS THAT DEPRIVED SHAREHOLDERS OF A VOICE IN OPERATIONS IS NOT DERIVATIVE INSTANT FACTS A stockholder in a corporation that ceased to exist post-merger, brought an action on behalf of himself and all other stockholders of the dissolved corporation, to enjoin the plan of reorganization and merger. BLACK LETTER RULE An action seeking to overturn a reorganization and merger that deprived an acquired corporation's shareholders from having a voice in the surviving corporation's business operations is a personal action rather than a derivative action under the New York statute requiring the posting of security for the corporation's costs.

Atlantic Salmon A/S v. Currran

AN AGENT IS LIABLE FOR DEBTS INCURRED BY HIS PRINCIPAL IF A THIRD PARTY DOES NOT KNOW THE PRINCIPAL'S IDENTITY INSTANT FACTS (D) purchased imported salmon from the plaintiffs, and the plaintiffs sought to recover unpaid money from (D) individually. BLACK LETTER RULE An agent is personally liable for his principal's debts if he fails to disclose to a third party that he is acting as an agent and his principal's identity.

Benihana of Tokyo, Inc. v. Benihana, Inc.

DIRECTORS COULD PUT TWO AND TWO TOGETHER INSTANT FACTS A board member of (D) arranged a stock sale between (D) and BFC, another company for which he served on the board, and the majority shareholder of (D) contested the deal. BLACK LETTER RULE Delaware General Corporation Law § 144 provides a safe harbor for interested trans- actions if the material facts as to the director's relationship or interests as to the contract or transaction are disclosed or are known to the board of directors, and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors.

Citadel Holding Corporation v. Roven

DIRECTORS MAY RECEIVE AN ADVANCE ON INDEMNIFICATION INSTANT FACTS (P), a former director of (D), sued (D) for indemnification of sums he paid to defend a federal court action (D) brought against him. BLACK LETTER RULE A corporation may advance a director the costs of defending a lawsuit.

Francis v. United Jersey Bank

DIRECTORS MUST DILIGENTLY DISCHARGE THEIR DUTIES INSTANT FACTS The bankruptcy trustee of various creditors brought suit against Pritchard's estate to recover misappropriated funds. BLACK LETTER RULE Directors have the duty to act honestly and in good faith and with the same degree of diligence, care, and skills that a reasonably prudent person would use in similar circumstances.

Broz v. Cellular Information Systems, Inc.

DIRECTORS MUST PUT A CORPORATION'S INTERESTS BEFORE THEIR OWN INSTANT FACTS P filed suit against D for breach of fiduciary duty, alleging he put his own interests before that of the corporation when he took a business deal, held it for company, and that sold it to them later on when they could afford it. BLACK LETTER RULE Under the doctrine of corporate opportunity, a corporate fiduciary must place the corporation's interests before his or her own interests in appropriate circumstances, but a corporate fiduciary does not breach his or her fiduciary duty by not considering the interests of another corporation proposing to acquire the corporation in deciding to make a corporate purchase.

In re Oracle Corp. Derivative Litigation

DIRECTORS WITH TIES TO WRONGDOERS ARE NOT INDEPENDENT INSTANT FACTS Oracle shareholders filed a derivative suit against Oracle directors, which an Oracle special litigation committee sought to dismiss. BLACK LETTER RULE A director's lack of independence turns on whether the director is, for any substantial reason, incapable of making a decision with only the best interests of the corporation in mind.

In re The Walt Disney Co. Derivative Litigation

DISNEY'S HIRING AND FIRING OF A NEW COMPANY PRESIDENT WERE IN GOOD FAITH INSTANT FACTS Disney shareholders brought a derivative suit against the directors and officers of the company, claiming breaches of fiduciary duty and waste in connection with the hiring and firing of, and payment of a $130 million severance package to, the new compa- ny president. BLACK LETTER RULE The law presumes that in making a business decision, the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company.

Boilermakers Local 154 Retirement Fund v. Chevron Corporation

FACTS. Defendant's articles of incorporation authorized the company's board of directors to adopt bylaws without a vote by stockholders. Because D was often subjected to litigation in multiple forums involving the same issue, the board adopted bylaws providing that any litigation involving the company would be conducted in Delaware. Certain of Defendants stockholders (plaintiffs) brought suit in the Delaware Court of Chancery, alleging that the bylaws were both statutorily and contractually invalid. The plaintiffs' statutory claim rested on the notion that the bylaws in question referred to an external matter, rather than an internal matter, such as stockholder meetings, the board of directors, and officerships. Relevant Delaware law stated: "bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees." Issue Are forum selection bylaws adopted pursuant to articles of incorporation without a vote by stockholders facially invalid? Holding No. Forum selection bylaws adopted pursuant to articles of incorporation without a vote by stockholders are not facially invalid. In terms of statutory validity, the proper subject matter for bylaws under Delaware law includes "process-oriented" directives "relating to the business of the corporation," such as regulation of stockholder meetings and the board of directors.

Town & Country House & Home Service, Inc., v. Newberry.

FORMER EMPLOYEES MAY NOT TARGET A COMPETING BUSINESS EXCLUSIVELY AT THEIR FORMER EMPLOYER'S ESTABLISHED CUSTOMERS INSTANT FACTS (D) and other defendants established a competing housekeeping business using methods and techniques similar to those the plaintiff had developed. BLACK LETTER RULE A business proprietor may not solicit his former employer's customers who are not openly engaged in business in advertised locations or whose availability as patrons cannot readily be ascertained, but whose trade and patronage have been secured by years of business effort, advertising, and the expenditure of time and money.

Prentiss v. Shelfful

FORMER PARTNERS MAY PURCHASE THE PARTNERSHIP ASSETS INSTANT FACTS Upon dissolution of a partnership, the former partners purchased the partnership assets at a judicial sale. BLACK LETTER RULE Upon dissolution of a partnership, a former partner may bid on the partnership assets at a judicial sale.

Giles v. Giles Land Company

Facts Partnership/Defendant was a family-owned farming company. The partners were all related. The partnership held a meeting to consider converting the partnership to a limited liability company (LLC). One of the D's children, Kelly (plaintiff), was unable to attend the meeting, but later received notice of the partnership's determination to convert to an LLC. Plaintiff formally requested the partnership's books and records for his review. He was not satisfied with the books and records turned over, so he brought suit against the partnership and the other partners (defendants), claiming that he was improperly denied access to the books and records. The defendants filed a counterclaim, arguing that Plaintiff should be dissociated from the partnership. The defendants presented evidence that Plaintiff had threatened them and that the family relationship was broken beyond repair. The defendants also presented evidence that they did not trust Plaintiffs and vice versa. The trial court ruled in favor of the defendants on all counts, finding that it was not practicable to continue the partnership with Plaintiff as a partner. Plaintiff appealed the trial court's order regarding his dissociation from the partnership to the Kansas Court of Appeals, arguing that he had not engaged in conduct relating to the partnership. Issue Is dissociation appropriate where the partner engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with the partner? Holding Yes. Dissociation may be proper based on impracticability or a partner's wrongful conduct. Dissociation on account of impracticability is based on dissolution law. Dissociation is appropriate if the partner engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with the partner. Just as "an irreparable deterioration of a relationship between partners is a valid basis to order dissolution, [it is also, therefore] a valid basis for the alternative remedy of dissociation." Alternatively, dissociation may be ordered if a partner has engaged in wrongful conduct that adversely and materially affected the partnership

Ira S. Bushey & Sons, Inc. v. United States

GOVERNMENT IS LIABLE FOR DAMAGE CAUSED BY DRUNKEN SAILOR RETURNING TO A DOCKED SHIP INSTANT FACTS A drunken sailor employed by the U.S. Coast Guard caused damage to the plaintiff's drydock while returning to the ship from leave. BLACK LETTER RULE Respondeat superior imposes liability on an employer for an employee's conduct if the employer created the risk that the conduct would occur.

Manning v. Grimsley

HECKLING INTERFERES WITH A BASEBALL PLAYER'S ABILITY TO FULFILL HIS EMPLOYMENT DUTIES INSTANT FACTS (D) threw a baseball at (P) in response to (P) heckling at a baseball game. BLACK LETTER RULE To recover from an employer for an assault committed by its employee, the plaintiff must show that the employee's assault was in response to the plaintiff's conduct which was presently interfering with the employee's ability to perform his duties successfully.

Sea-Land Services, Inc. v. Pepper Source

INABILITY TO SATISFY A JUDGMENT IS INSUFFICIENT TO PIERCE THE CORPORATE VEIL INSTANT FACTS (D) owed (P) for the cost of shipping peppers; however, (D) was dissolved before (P) could enforce a judgment against it. BLACK LETTER RULE In order to pierce the corporation veil and impose individual liability, a creditor must show (1) that there was such a unity of interest between the individual and the corporate entity that separate identities no longer existed, and (2) that a failure to do so would promote ―injustice‖ in some way beyond simply leaving a creditor unable to satisfy its judgment.

Zapata Corp. v. Maldonado

INTERESTED BOARD MEMBERS MAY APPOINT A DISINTERESTED COMMITTEE TO INVESTIGATE LITIGATION INSTANT FACTS (P), who was a (D) shareholder, sued D officers and directors for breach of fiduciary duty, but (P) did not ask the board to bring the action, considering the request to be futile. BLACK LETTER RULE While a majority of a board may lack the independence to evaluate a derivative claim, the taint of self-interest is not necessarily sufficient to prevent the board from delegating the evaluation to an independent committee comprised of disinterested board members who may recommend dismissal of a shareholder's action.

Frigidare Sales Corporation v. Union Properties, Inc.

LIMITED PARTNERS ARE NOT LIABLE FOR A LIMITED PARTNERSHIP'S DEBTS INSTANT FACTS (P), a creditor of Commercial Investors, a limited partnership, brought an action against the corporate general partner and its limited partners individually when the partnership failed to pay installments due on contract. BLACK LETTER RULE Limited partners are not liable for the debts of a limited partnership simply by their status as officers, directors, or stockholders of the corporate general partner as long as they conscientiously keep the corporate matters separate from their personal business and no fraud or manifest injustice results.

Day v. Sidley & Austin

MANAGING PARTNERS NEED NOT DISCLOSE MANAGEMENT DECISIONS TO PARTNERS WITH NO RIGHT TO CONTROL BUSINESS OPERATIONS INSTANT FACTS (P) sued (D) law firm for breach of contract, fraud, and breach of fiduciary duty after he resigned due to the defendant's decision to merge with another law partnership and trying to make him share chairman of that city's branch with new merged firm partner. BLACK LETTER RULE Managing partners have no fiduciary duty to disclose changes in the partnership's internal structure if the changes do not generate a profit or loss for the partnership.

Miller v. McDonald's Corp.

MCDONALD'S CAN BE LIABLE FOR ITS FRANCHISEES' NEGLIGENCE INSTANT FACTS (P) was injured when she bit into a sapphire found in her Big Mac and sued McDonald's Corp. (D). BLACK LETTER RULE A franchisor can be held liable for its franchisee's negligence if the franchisor retains a right of control over the franchisee's business operations or holds the fran- chisee out as its agent.

Frandsen v. Jensen-Sundquiest Agency, Inc.

MERGERS DO NOT TRIGGER THE RIGHT-OF-FIRST REFUSAL UPON SALE PROVIDED IN A SHAREHOLDER AGREEMENT INSTANT FACTS The majority block of shares in (D) was owned by a group of individuals that entered into a shareholders' agreement providing them with protec- tion in the event of a sale of the corporation's stock, and when the company attempted to transfer its primary asset, one of the shareholders demanded to exercise his right of first refusal. BLACK LETTER RULE A minority shareholder's right of first refusal that is triggered by the majority shareholders' sale of their stock does not apply to a transaction in which an acquiring entity purchases the corporation's principal asset, after which the corporation is liquidated.

Stuparich v. Harbor Furniture Mfg., Inc.

MINORITY OWNERS ARE NOT GRANTED JUDICIAL DISSOLUTION WITHOUT EVIDENCE OF PREFERENTIAL TREATMENT OF MAJORITY SHAREHOLDERS INSTANT FACTS (P) and (P), minority shareholders in (D), received regular dividends, but wanted to be bought out because they were not on good terms with the other shareholders and their family members. BLACK LETTER RULE A court will not order dissolution of a close corporation if the plaintiffs fail to show the dissolution was reasonably necessary to protect their rights.

Owen v. Cohen

MUTUAL DISHARMONY AND DISRESPECT ARE BASES FOR A JUDICIAL DISSOLUTION OF A PARTNERSHIP INSTANT FACTS The court dissolved (P)'s and (D)'s partnership upon finding that the parties could not practicably continue bowling business together. BLACK LETTER RULE Courts of equity may order the dissolution of a partnership if the partners' quarrels and disagreements are of such a nature and to such an extent that all confidence and cooperation between the parties has been destroyed or if a partner's misbehavior materially hinders the proper conduct of the partnership's business.

Sadler v. NCR Corporation

NEW YORK LAW ENTITLES SHAREHOLDERS TO SHAREHOLDER AND NON-OBJECTING BENEFICIAL OWNERS LISTS INSTANT FACTS AT&T hired Shareholder to bring an action against a corporation to obtain its shareholder list and to demand the corporation create a list of nonobjecting beneficial owners. BLACK LETTER RULE A New York law entitling resident shareholders to shareholder lists and lists of nonobject- ing beneficial owners does not subject the corporation to inconsistent regulation prohibited by the commerce clause nor discriminate against or burden inter- state commerce.

Hoover v. Sun Oil Company

NO AGENCY EXISTS IF AN OIL COMPANY DOES NOT CONTROL A SERVICE STATION'S OPERATIONS INSTANT FACTS (P) was injured when his car caught fire while a service station employee was fueling it. But the Oil Company did not control the service station's operations. BLACK LETTER RULE Agency arises if a principal retains the right to control the details of the day-to-day op- eration of the agent's business.

In re eBay, Inc. Shareholders Litigation

OFFICERS AND DIRECTORS MAY NOT USURP A CORPORATE INVESTMENT OPPORTUNITY INSTANT FACTS Individual directors and officers accepted high-profit IPO investments from Goldman Sachs as an incentive for maintaining a future business relationship. BLACK LETTER RULE The fiduciary duty of loyalty requires directors and officers to offer investment opportunities derived from corporate business to the corporation before acting on them individually.

Shlensky v. Wrigley

OFFICERS' AND DIRECTORS' DECISIONS ARE PROTECTED BY THE BUSINESS JUDGMENT RULE INSTANT FACTS Shlensky, a Chicago Cubs' shareholder, brought a derivative suit against the Chicago Cubs and its directors for negligence and mismanagement and for an order that the defendant install lights for night baseball games. BLACK LETTER RULE A shareholder fails to state a cause of action unless it alleges that a corporation's directors' conduct was causing financial loss to the shareholder and was based upon fraud, illegality or conflict of inter- est.

Marx v. Akers

THE PLAINTIFF MUST PROVIDE MORE THAN CONCLUSORY STATEMENTS TO ESTABLISH THAT A DEMAND WOULD BE FUTILE INSTANT FACTS A shareholder brought a derivative action charging breach of fiduciary duty and corporate waste by International Business Machines' (IBM) board of directors for excessive compensation of IBM's executives and outside directors. BLACK LETTER RULE A plaintiff establishing that a demand on a company's board would have been futile must show either that the measure furthered the board's self-interest, that the directors did not fully inform themselves about the challenged transaction, or that the challenged transaction was so egregious on its face that it could not have been the product of the directors' sound business judgment.

Southex Exhibitions, Inc. v. Rhode Island Builders Association, Inc.

TWO PROMOTERS' MUTUAL SHARING OF PROFITS AND INTELLECTUAL PROPERTY DOES NOT ESTABLISH A PARTNERSHIP INSTANT FACTS Rhode Island Builders Association, Inc. (D), replaced (P), as the promoter of its home show after terminating a contract it had entered into with the plaintiff's predecessor. BLACK LETTER RULE Sharing profits is prima facie evidence of a partnership, which can be rebutted by evi- dence sufficiently demonstrating that the parties did not intend to create a partnership.

Watteau v. Fenwick

UNDISCLOSED TAVERN OWNER IS LIABLE FOR HIS AGENT'S DEBTS OWED TO AN UNKNOWING CIGAR VENDOR INSTANT FACTS Humble operated (D)'s tavern under Humble's name and credit and purchased goods from (P) without (D)'s express authority. BLACK LETTER RULE When a principal is undisclosed to third parties, the actions taken by an agent in furtherance of the principal's usual and o

Pav-Saver Corporation v. Vasso Corporation

UPON WRONGFUL DISSOLUTION, A PARTNER RETAINS THE USE OF A FORMER PARTNER'S TRADEMARKS AND PATENTS INSTANT FACTS (D) alleged (P) wrongfully dissolved the partnership, seeking to continue the partnership business. BLACK LETTER RULE Upon a wrongful dissolution of a partnership in violation of the partnership agreement, each partner who has not wrongfully dissolved the partnership is entitled to damages for breach of contract and may continue the partnership business for the term required under the partnership agreement with the right to possess the partnership property upon posting a bond.

Stone v. Ritter

WITHOUT RED FLAGS, DIRECTORS HAVE NO REASON TO SUSPECT WRONGDOING INSTANT FACTS After the corporation's banks were assessed significant fines for employee misconduct, shareholders initiated a derivative action but failed to make a demand on the board prior to filing suit. BLACK LETTER RULE To excuse the statutorily required pre-suit demand on directors, a court must determine whether the particularized factual allegations of a derivative stockholder complaint create a reasonable doubt that, as of the time the complaint was filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand. (But in this case the company had placed a decent amount of precautions in place).