CHBO Quizzes

The principle of the time value of money holds that money in the future is worth less than the same amount of money today. You have an agreement with another person that you will be paid $10,000 five years from today. Assuming a discount rate of 2.5% (0.025), how much is that $10,000 worth today?

$8,838.54. $11,314.08. $11,250.00. Not enough information to answer this question.

Alpha Corporation leases an office from Beta Corporation for three years effective July 1, 2020, under terms requiring Alpha to pay Beta $24,000 on the first day of the lease and an additional $2000 on the first day of each month throughout the entire lease. Under accrual basis accounting, how much revenue will Beta record during the calendar year 2021?

$32,000. $36,000. $24,000. Not enough information to answer this question.

Kelly, Chris, Pat, Tracy, and Stacy are eye doctors practicing in a limited liability partnership. Each has a 20% partnership interest and, under the terms of the partnership agreement, share equally in all governance and economic matters. Tracy and Stacy have developed expertise in glaucoma and have decided to leave the partnership and set up their own business. Kelly, Chris, and Pat plan to continue practicing together in the existing LLP. You have been the lawyer for the LLP since its inception and are on good terms with all five of the doctors. However, you have never done any legal work for any of the five doctors individually. Both the group of doctors who are leaving (Tracy and Stacy - I'll call them the "Leave Group") and the group that is remaining (Kelly, Chris, and Pat - I'll call them the "Remain Group") would like you to represent it in negotiating the separation. In this situation, which of the following most accurately describes your ethical obligations in this situation?

Because each of the doctors has an equal interest in the LLP, each is a current client under Professional Conduct Rule 1.7 and you cannot proceed to represent either Group without obtaining the consent required by Rule 1.7(b)(4). Because negotiating the separation will involve the assertion of a claim by one group against another group, Professional Conduct Rule 1.7(b)(3) prohibits you from representing either Group. Because you have not represented any of the doctors as individuals in the past, none of them nor either of the Groups is a current or former client. Therefore, there is no concurrent conflict of interest under Professional Conduct Rule 1.7(a) and you can elect to represent either the Leave Group or the Remain Group without having to obtain the consent required by Rule 1.7(b)(4). Your client is the LLP. Assuming the Remaining Group vote their partnership interests together, you must take your direction from it.

Which of the following is incorrect? (Assume the default rules of business entity ownership set forth in the relevant Indiana statutes apply.)

All of these answers are correct. Partnerships are owned by their partners. Limited liability companies are owned by their members. Correct! Corporations are owned by their directors.

Today, lawyers still practice as sole practitioners or in general partnerships with other lawyers. They can also practice together in corporations, limited liability partnerships, or limited liability companies. However, if they practice in corporations, LLPs, or LLCs,

All of these answers are correct. They must maintain malpractice insurance. They must be certified to practice as a corporation, LLP, or LLC every five years under Indiana Admission & Discipline Rule 27. They must meet annual minimum pro bono service requirements.

You have developed a considerable reputation for successfully representing consumers who have been taken advantage of by unscrupulous merchants, especially used car dealers. In fact, you recently secured a punitive damages award against a used car dealer whom you proved kept reselling the same lemon of an automobile after customers returned it without refunding their purchase prices in full. Now the Greater Indianapolis Used-Car Dealer Association (GIUCDA) has approached you and offered you a significant retainer to defend any of its members in consumer protection lawsuits. As it turns out, the only cases that you have currently pending against used-car dealers are in southern Indiana; those against members of GIUCDA have all been tried or settled. Would your accepting the engagement violate Professional Conduct Rule 1.7?

All of these answers are plausible; this question of "positional" conflicts of interest is an unsettled topic in legal ethics. Yes, there is a significant risk that your action on behalf of either a southern Indiana consumer or a GIUCDA member will materially limit your effectiveness in representing another client in a different case No, lawyers are advocates and so a lawyer's position for one client in one case does not prevent that lawyer from representing another client in another case. No, a lawyer may take inconsistent legal positions in different courts at different times on behalf of different clients; creating a precedent adverse to the interests of a client in an unrelated matter does not create a conflict of interest.

A few years ago, the Indiana state legislature authorized the formation of "benefit corporations," nicknamed "B-corps." Which of the following features does not apply to Indiana B-corps?

An Indiana benefit corporation must have a member of its Board of Directors who is designated the "benefit director" and meets certain explicit standards of independence and who has specific responsibilities under the statute. An Indiana benefit corporation can be the subject of a "benefit enforcement proceeding" for failure to pursue or create a general or specific public benefit. The directors and officers of an Indiana benefit corporation have no duty to a person who is a beneficiary of the corporation's benefit purpose. An Indiana benefit corporation cannot make a profit, i.e., it is a non-profit corporation.

If an LLC is manager-managed:

Any manager has liability for the debts and obligations of the LLC to the same extent as a general partner in a general partnership or a limited partnership. The Articles of Association filed with the Secretary of State must say that the LLC is manager-managed. Any manager must also be a member of the LLC. All of these answers are correct.

Which of the following is correct?

Apparent authority exists when the principal's words or conduct, reasonably interpreted, causes the agent to believe that the agent has authority, even though the principal does not expressly confer authority. Implied actual authority exists in dealing with a third person when the principal's words or conduct, reasonably interpreted, causes the third person to believe that the agent has authority. Implied actual authority and apparent authority are synonymous; they mean the same thing. In dealing with a third person, if the principal's words or conduct, reasonably interpreted, causes both the agent and the third person to believe that the agent has authority, both implied actual authority and apparent authority exists.

ABC Corporation was formed by five Indianapolis lawyers to purchase and develop real estate in Taos, New Mexico. Each owned a 20% interest. The company bought several tracts of land and then hired a construction management firm to develop them for commercial and residential use. Over the years, the projects became quite successful. Three of the five lawyers eventually retired to Arizona; the remaining two continued to work in Indianapolis. Shortly after the three retired to Arizona, the residents of one of the company's subdivisions in New Mexico filed suit against the company in Santa Fe, New Mexico, alleging environmental contamination in the soil on which the company had built the subdivision. The court will look to the law of what state in resolving the dispute?

Arizona. Indiana. New Mexico. Not enough information on these facts to determine.

If an Indiana corporation is involuntarily dissolved by the Indiana Secretary of State, the corporation can be "reinstated" by meeting specified requirements. However, under current law, such a corporation must apply for reinstatement not later than how many years after the effective date of dissolution?

Five years. Trick question - there is no date after which a corporation cannot apply for reinstatement. One year. Three years.

In both Wilkes v. Springside Nursing Home, Inc., and Merola v. Evergen Corp., a minority shareholder's employment with the corporation was terminated. Which of the following best describes the holdings of the Massachusetts courts in these two cases?

In Wilkes, the majority was held to have violated its fiduciary duty to the shareholder-employee but in Merola, it was not. In both Wilkes and Merola, the majority was held to have violated its fiduciary duty to the shareholder-employee. In neither Wilkes nor Merola was the majority held to have violated its fiduciary duty to the shareholder-employee. In Merola, the termination of employment constituted an unfair freeze out of a minority stockholder but in Wilkes, it was not.

Consider the cases of Aronson v. Price (Aronson) and Longhi v. Mazzoni (Longhi). Which of the following is correct?

In Longhi, the Court refused to pierce the corporate veil; in Aronson, it did so. In Aronson, the Court refused to pierce the corporate veil; in Longhi, it did so. In neither Aronson nor Longhi did the respective Courts pierce the corporate veil. In both Aronson and Longhi, the respective Courts pierced the corporate veil.

In our text, we read Gearing v. Kelly from New York and Tomlinson v. Loew's, Inc. from Delaware. In each of these cases, a member of a corporation's Board of Directors attempted to thwart corporate action by staying away from a Board meeting, thereby denying the presence of a quorum. Which of the following correctly describes the holding of these two cases?

In Tomlinson, the absent director was unable to have the Board's action declared invalid; in Gearing, the absent director was able to have the Board's action declared invalid. In both Gearing and Tomlinson, the respective absent directors were able to have their Board's actions declared invalid. Correct! In Gearing, the absent director was unable to have the Board's action declared invalid; in Tomlinson the absent director was able to have the Board's action declared invalid. In neither gearing nor Tomlinson were the respective absent directors able to have their Board's actions declared invalid.

In Shlensky v. Wrigley, the decision of the Board of Directors of the Chicago Cubs Baseball team not to play baseball games at night when every other team in major league baseball did so was held to be:

A business decision that was not protected by the business judgment rule because it was not made in good faith. A business decision that was not protected by the business judgment rule because Mr. Wrigley, the owner of the Cubs, had a conflict of interest. A business decision so irrational that it was not protected by the business judgment rule. A rational business decision protected by the business judgment rule.

Until the relatively recent past, law firms were not able to practice as corporations; lawyers had to practice as either sole practitioners or in general partnerships with other lawyers. Which of the following explains this old rule?

A corporation is beyond the reach of professional discipline. A corporate entity shields the professional from liability for malpractice. Answer All of these answers are correct. Aprofessional employed by a corporation has conflicting duties to the employer and the client.

Although we've not talked about it during this course, a common feature in Indiana business is a "covenant not to compete" often included in employment agreements. (Students who had me for Contracts will remember that we discussed these quite a bit in that course.) What happens is that, in consideration for employment, an employee will agree not to compete with the employer should the employee leave the company for employment elsewhere. Covenants not to compete are litigated with frequency and their enforceability differs greatly pending upon their specific terms and the jurisdiction. (For example, such covenants are regularly enforced by Indiana courts but are largely unenforceable in California.) In Hoffman v. Levstik, we learned that:

A covenant not to compete between a lawyer and a law firm violates the Rules of Professional Conduct, except an agreement concerning benefits upon retirement. A covenant not to compete that represents an arm's length and good faith bargain between a lawyer and a law firm will be enforced. A covenant not to compete between a lawyer and a law firm will be enforced to the extent, but only to the extent, that it would be under the applicable state's contract law. A covenant not to compete between an associate and a law firm in unenforceable but a covenet not to compete between a partner and a law firm or among partners is enforceable.

Sullivan says that G & N Aircraft, Inc. v. Boehm is one of the most important if not most important case studied in this course. One of the things that the case clearly illustrates is that:

A decision of a board of directors controlled by a majority stockholder can be protected by the business judgment rule but the decision might still violate the fiduciary duty that the majority stockholder individually owes to a minority stockholder. Although a majority stockholder can theoretically be liable to a minority stockholder for breach of fiduciary duty, so long as the action is approved by the Board of Directors, it will be protected by the business judgment rule and the majority stockholder will be insulated from any personal liability. The rules of fiduciary duty articulated in the Massachusetts cases like Wilkes v. Springside Nursing Home, Inc., do not apply in Indiana. The "duty of the finest loyalty" articulated by Judge Cardozo in Meinhard v. Salmon does not apply in the context of Indiana corporations.

Which of the following statements is correct?

A limited liability company is more like a corporation than a general partnership because neither are formed by making a filing with the Secretary of State and a general partnership is. A limited liability company is more like a general partnership than a corporation because both limited liability companies and general partnerships are formed by making a filing with the Secretary of State and a corporation is not. A limited liability company is more like a corporation than a general partnership because both limited liability companies and corporations are formed by making a filing with the Secretary of State and a general partnership is not. A limited liability company is more like a general partnership than a corporation because neither a limited liability company nor a general partnership is formed by making a filing with the Secretary of State and a corporation is.

Which of the following is correct?

A limited liability partnership is a limited partnership in which each limited partner is protected by the bedrock principle of limited liability. A limited liability partnership is a general partnership in which each general partner has personal liability for the partnership's debts and obligations. A limited liability partnership is a general partnership in which each general partner is protected by the bedrock principle of limited liability. A limited liability partnership is a limited partnership in which each general partner is protected by the bedrock principle of limited liability.

business, it will usually launch a very thorough investigation of the business proposed to be acquired, examining its finances, potential exposure to liabilities, labor relations, and a whole host of other factors. This investigation is often called "due diligence," that is, thoroughly (diligently) investigating to the extent required (due). Conducting due diligence helps a Board of Directors establish which of the elements of the business judgment rule?

Absence of conflict of interest. Answer Reasonable decision-making process. Good faith. You Answered All three answers are correct.

Which of the following statements is correct?

A limited partnership is more like a general partnership than a corporation because neither a limited partnership nor a general partnership is formed by making a filing with the Secretary of State and a corporation is. A limited partnership is more like a corporation than a general partnership because both limited partnerships and corporations are formed by making a filing with the Secretary of State and a general partnership is not. A limited partnership is more like a general partnership than a corporation because both limited partnerships and general partnerships are formed by making a filing with the Secretary of State and a corporation is not. A limited partnership is more like a corporation than a general partnership because neither are formed by making a filing with the Secretary of State and a general partnership is.

A "derivative" lawsuit as discussed in the Barth v. Barth case is one in which:

A person owed money by a business (called a "creditor") files a lawsuit against the business to collect the money owed. A business files a lawsuit in its own name against a manager or managers of the business claiming damages on behalf of the business. A plaintiff who is a part owner of a business files a lawsuit against the business claiming damages on behalf of the business's owners. A plaintiff who is a part owner of a business files a lawsuit in the name of the business against a manager or managers of the business claiming damages on behalf of the business.

Sullivan quoted former Delaware Supreme Court Justice Jack Jacobs's description of American corporate law as following a "Federalist Model." According to Jacobs (and Sullivan), a key characteristic of this corporate federalist model is:

A state's corporate law governs only those corporations that are formed under that particular state's corporate law, and does not govern those corporations that are formed under another state's corporate law even if doing business in the first state. State corporate law governs those corporations that operate exclusively within a single state; federal law governs those corporations engaged in interstate commerce. A state's corporate law governs the operations of all of those corporations operating within that state, regardless whether they are formed under that particular state's corporate law or not. Whereas state corporate law used to govern corporations, state law has now been completely supplanted by federal law.

In cumulative voting:

A stockholder may cast for all positions to be filled on the Board of Directors the total number of votes equal to the number of shares held multiplied by the number of positions to be filled. A stockholder may cast for each position to be filled on the Board of Directors the total number of votes equal to the number of shares held. Candidates for each position to be filled on the Board of Directors are elected for two-or three-year terms, with one-half or one-third being elected each year. Two or more other stockholders jointly agree to aggregate their votes for each position to be filled on the Board of Directors.

Under the Indiana Business Corporation Law, which of the following is true?

Both a corporation's Articles of incorporation and its Bylaws must be filed with the Indiana Secretary of State and both are public records. Neither a corporation's Articles of Incorporation nor its Bylaws must be filed with the Indiana Secretary of State and neither are public records. A corporation's Articles of Incorporation must be filed with the Indiana Secretary of State and is a public record but the corporation's Bylaws need not be filed and are not a public record. A corporation's Bylaws must be filed with the Indiana Secretary of State and is a public record but the corporation's Articles of Incorporation need not be filed and are not a public record.

Under the Indiana UPA, dissolution of a general partnership occurs automatically in the following circumstances:

By the death of any partner. By the bankruptcy of any partner or the partnership. All of these answers are correct. By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership.

Kelly, Chris, and Pat are members of an Indiana LLC; each has a one third interest. The operating agreement contains no language concerning the transfer of their LLC interests. Pat got into financial difficulty after the pandemic set in and borrowed $100,000 from Casey; as collateral, Pat gave Casey a security interest in Pat's interest in the LLC. Pat was unable to pay Casey back in accordance with their agreement and so Casey got a court order transferring Pat's LLC interest to Casey. The effect of the court's order is that:

Casey replaces Pat as member of the LLC. There is not enough information to answer this question. Casey is entitled to all of the voting and governance rights that Pat had in the LLC but not to any of the profits, distributions, or other economic rights. Casey is entitled to all of the profits, distributions, and other economic rights that Pat had in the LLC but not to any voting or governance rights.

For many years, Kelly's 100% owned Facemask LLC, an Indiana LLC, would buy up second-hand sewing machine robots that could produce facemasks almost entirely automatically - all one needed to do was feed in a bolt of fabric, some string, and some thread and the machine would do the rest: cut, sew, and assemble the masks. Kelly only kept one machine going at a time because there was not much demand but Kelly had a feeling that someday a pandemic would come along and having a quantity of these machines would prove to be a bonanza. To sell the facemasks, Kelly and Chris had formed a general partnership, FM Distribution Company, in which they each had a one-half interest. FM Distribution bought all of the production of Facemask LLC and sold it to whatever customers it could drum up. Well, when the coronavirus pandemic hit, there was no need for a distribution company; Kelly told Chris that pursuant to the Indiana UPA, FM Distribution was dissolved. Meanwhile, Facemask LLC began selling vast quantities of facemasks directly to FM Distribution's former customers and many new customers. Assume FM Distribution has no written partnership agreement. You are consulted by Chris in this circumstance about whatever recourse you might have available. What is your initial instinct about recovery?

Chris has no recourse because Kelly was entitled to put the partnership into dissolution in accordance with Indiana Code §23-4-1-31(1)(b). Kelly's purported dissolution of the partnership was not in accord with the Indiana UPA and the partnership remains in full force and effect. Chris has no recourse because FM Distribution because the partnership has no written partnership agreement; under such circumstances, neither party has a duty to the other. Answer Kelly is liable to Chris for breach of the fiduciary duty that partners owe one another under Indiana common law.

A typical way for a corporation to raise capital is to borrow money from a commercial bank. And a typical commercial loan will be structured in a way that if the borrower fails to repay the lender according to the terms of the loan, the lender is entitled to take possession of property of the borrower, sell it, and use the proceeds to repay itself for the loan. This property is called:

Collateral. Machinery and equipment. Inventory and accounts receivable. Factories and real estate.

Cory was the sole owner of an Indiana corporation called Pandemic Essentials Corporation (PEC). The corporation signed a contract to purchase 250 cases of facemasks during the pandemic from Facemasks-R-Us, Inc. As it turned out, PEC had no assets whatsoever and was just a shell. Cory took the facemasks and flipped them for a quick and substantial profit and then dissolved PEC. Facemasks consults you about collecting from Cory personally. What is your initial instinct about recovery?

Cory will be protected by the bedrock principle of limited liability. These circumstances appear to lend themselves to a claim under the responsible corporate officer doctrine. These circumstances appear to lend themselves to a claim for enterprise liability (also called "alter ego" liability). These circumstances appear to lend themselves to a claim for piercing the corporate veil.

Which of the following answers is incorrect? Under the Indiana Uniform Partnership Act, when a partner purports to dissolve a partnership in contravention of any partnership agreement and where the circumstances are not provided for under the Act:

Each of the partners is entitled to the partner's respective share of the distribution of the partnership's net assets. The purported dissolution is void and a nullity, the partnership remains in full force and effect. The partner is liable to the other partners and the partnership for damages. The partnership is dissolved.

Which of the following is a closely-held business organization?

Eli Lilly and Company (a large pharma company headquartered in Indianapolis). Cummins Inc. (a large engine manufacturer headquartered in Columbus, IN). Barnes & Thornburg LLP (a large law firm headquartered in Indianapolis). None of these answers is correct.

Kelly is in the Indiana National Guard and has been deployed to Afghanistan. Before deploying, Kelly signs a "Power of Attorney" giving Chris the power to act as Kelly's "attorney-in-fact in all things, including signing promissory notes and assuming debts and obligations on Kelly's behalf." What Kelly has done here is an example of:

Express actual authority. Apparent authority. Inherent authority. Implied actual authority.

In the famous case of Meinhard v. Salmon, the New York Court of Appeals ruled against Walter J. Salmon and in favor of Morton H. Meinhard. What did Salmon do wrong?

He held himself out as the sole owner of the leasehold interest in property in which they were both lessees. Trick question - the court ruled in favor of Salmon. He misappropriated funds that under their agreement belonged to Meinhard. He excluded Meinhard from any chance to benefit from the new lease involving the property that had been their joint venture for the previous 20 years.

Which of the following cases that we studied this week sets forth rules on vicarious liability in Indiana?

Hurlow v. Managing Partners, Inc. Arguello v. Conoco, Inc. Ira S. Bushey & Sons v. United States Anderson v. Marathon Oil

Kelly is a shareholder (stockholder) in Hypothetical Corp. who contends that Chris, the CEO of and also a shareholder in Hypothetical, has illegally contracted for Hypothetical to purchase inventory at an inflated price from a corporation owned by Chris's family. In which of the following circumstances may Kelly file a direct action against Chris?

Hypothetical is a large corporation, the stock of which is traded on the New York Stock Exchange. Kelly and Chris are the sole shareholders in Hypothetical which owes the Old Reliable National Bank $1.5 million which it borrowed to build a new factory still under construction. Kelly and Chris are among approximately one dozen shareholders in Hypothetical and the corporation has no debt or other obligations beyond ordinary operating expenses and routine trade creditors. Kelly and Chris are the sole shareholders in Hypothetical and the corporation has no debt or other obligations beyond ordinary operating expenses and routine trade creditors.

In the Ringling Brothers Circus case, Mrs. Ringling and Mrs. Haley had a binding contract to vote their shares in agreement with one another to fill positions on the Board of Directors. Mrs. Haley breached the agreement. Kelly, Chris, and Pat are the sole shareholders in ABC Corporation, an Indiana corporation. Kelly owns 40% of the shares; Chris and Pat own 30% each. The Corporation's Articles of Incorporation provide for cumulative voting. In order to prevent what happened to Mrs. Ringling, Chris and Pat form a voting trust and appoint Casey as trustee. The terms of the trust will likely provide:

If Chris and Pat give Casey joint instructions as to how their shares are to be voted, Casey will be obligated to vote them in accordance with those instructions, but if Chris and Pat do not agree, Casey will be entitled to vote their shares in accordance with Casey's best judgment. If Chris and Pat give Casey joint instructions as to how their shares are to be voted, Casey will be obligated to vote them in accordance with those instructions, but if Chris and Pat do not agree (including if one or the other does not give Casey instructions), Casey will be required to abstain from voting their shares. If Chris and Pat give Casey joint instructions as to how their shares are to be voted, Casey will be obligated to vote them in accordance with those instructions, but if one or the other does not give Casey instructions, then Casey will be entitled to vote that shareholder's shares in accordance with Casey's best judgment. Regardless of any instructions from Chris or Pat, Casey will be entitled to vote Chris's and Pat's shares in accordance with Casey's best judgment.

Sullivan said in class that Currier v. Amerigas Propane, L.P. in our text was like the Indiana case McQuade v. Draw Tite, Inc., 659 N.E.2d 1016 (Ind. 1995), but that McQuade had reached a different result. It is true that in both cases, the victim of a workplace accident sought to hold a business entity affiliated with the victim's employer liable for the accident. But the cases are different from one another in the following respect which may account for the difference in their results:

In Currier, the defendant argued that it was protected by the exclusive remedy provision of workers' compensation law; in McQuade, the defendant argued that it was protected by common law defenses available to defendants in tort cases. In McQuade, the defendant argued that it was protected by the bedrock principle of limited liability; in Currier, the defendant argued that it was protected by the exclusive remedy provision of workers' compensation law. In Currier, the defendant was a limited partnership in which the employer was the general partner and agent of the limited partnership; in McQuade, the defendant was the parent corporation of the employer and not its agent. You Answered Currier was a New Hampshire case and McQuade was an Indiana case.

Which of the following is correct?

In dealing with a third person, if the principal's words or conduct, reasonably interpreted, causes both the agent and the third person to believe that the agent has authority, both implied actual authority and apparent authority exists. Implied actual authority and apparent authority are synonymous; they mean the same thing. Apparent authority exists when the principal's words or conduct, reasonably interpreted, causes the agent to believe that the agent has authority, even though the principal does not expressly confer authority. Implied actual authority exists in dealing with a third person when the principal's words or conduct, reasonably interpreted, causes the third person to believe that the agent has authority.

ABC Corporation was formed by five Indianapolis lawyers to purchase and develop real estate in Taos, New Mexico. Each owned a 20% interest. The company bought several tracts of land and then hired a construction management firm to develop them for commercial and residential use. Over the years, the projects became quite successful. Two of the five lawyers eventually retired to Arizona; the remaining three continued to work in Indianapolis. Shortly after the two retired to Arizona, a dispute arose over the distribution of cash accumulated by the company. The two owners in Arizona contended that the cash should be distributed pro rata among the owners; the three owners in Indiana contended that the money should be plowed back into further development in New Mexico. If the owners in Arizona file suit in Phoenix, Arizona, against the owners in Indiana contending that they have breached their fiduciary duty to the minority owners, the court will apply the law of what state in resolving the dispute?

Indiana. Not enough information on these facts to determine. Arizona. New Mexico.

On dissolution, a general partnership:

Is immediately terminated and all of its assets are placed in trust for satisfaction of all outstanding debts and liabilities of the partnership. Is not terminated but continues in existence for 90 days unless continued by written agreement of two thirds interest in the partnership. Is not terminated but continues until the winding up of partnership affairs is completed. May elect to continue in existence until the winding up of partnership affairs is completed or to terminate immediately and place its assets in trust for satisfaction of all outstanding debts and liabilities.

A controlling shareholder, director, or officer (an insider) of publicly-held corporations in possession of undisclosed material information that might affect the price of the corporation's stock:

Is prohibited from providing the undisclosed material information to any other person except in the limited circumstances where the insider receives no direct or indirect benefit from the tip. Neither of these answers is correct. Both of these answers are correct. Is prohibited from purchasing or selling any of the corporation's stock.

In August, 2019, Kelly and Chris decide to form a new corporation to own and operate a new restaurant. Both are experienced restaurateurs with a considerable following; there is every expectation that the restaurant will be a great success. Pat is an architect with a reputation for restaurant design. Kelly and Chris enter into a contract with Pat to design their new restaurant. The contract explicitly states that Kelly and Chris will be responsible for Pat's fees until the time that the new corporation is established, at which time Kelly and Chris will assign the contract to the new corporation, that the new corporation will assume the responsibility for Pat's fees, and that Pat agrees that Kelly and Chris will have no further obligation for Pat's fees. On January 2, 2020, the corporation was formed be making the requisite filings with the Secretary of State. Unfortunately, it was not until the teeth of the pandemic four months later that Kelly and Chris were able to get the restaurant up and running; it failed and went into bankruptcy after only three months, with the majority of Pat's fees unpaid. If Pat sues Kelly and Chris for Pat's unpaid fees, will the outcome be the same as or different from the Jacobson v. Stern case, and why?

It will be different because here there has been a novation. It will be the same here because the assignment of the contract did not relieve Kelly and Chris of their obligation to Pat any more than the assignment of the contract to A.L.W., Inc., relieved Jacobson of his obligation to Stern. It will be same here because Pat will be able to pierce the corporate veil. It will be the different here because the Covid pandemic operates as a force majeure relieving Kelly, Chriss, and the corporation of any obligation to pay Pat's fees.

Kelly, Stacy, and Casey are the three general partners in an Indiana general partnership called KSC Partners. The partnership agreement dictates that all items of income and loss are to be allocated equally among the partners. During the past year, the partnership had sales revenue of $250,000 and total operating expenses of $175,000, yielding a net profit of $75,000. At year-end, the partnership distributed $20,000 to each of the three partners and kept the remaining $15,000 in the partnership's bank account. Which of the following is correct:

KSC is liable for federal income tax on $0; Stacy is liable for federal income tax on $25,000. KSC is liable for federal income tax on $75,000; Kelly is liable for federal income tax on $20,000. KSC is liable for federal income tax on $75,000; Stacy is liable for federal income tax on $0. KSC is liable for federal income tax on $75,000; Casey is liable for federal income tax on $25,000.

Kelly Smith and Chris Jones are 50% shareholders each in Smith & Jones, P.C. While consulting with Smith & Jones at the firm's office, Pat slips and falls, suffering serious injury. A jury determines that the fall was caused by the negligent maintenance of the premises by Smith & Jones. The lawsuit names not only Smith & Jones but Kelly and Chris in their individual capacities as shareholders of Smith & Jones. Which of the following statements is correct?

Kelly and Chris are personally liable for the debts and obligations of Smith & Jones to the extent that the assets (including property and casualty insurance maintained by) Smith & Jones are insufficient to satisfy the damages awarded in Pat's lawsuit, i.e., Kelly and Chris are liable to the same extent as if they were general partners except that Indiana law imposes an exhaustion requirement. Kelly and Chris are protected by the bedrock principle of limited liability. Pat can recover to the extent of the limits of the property and casualty insurance maintained by Smith & Jones but no more. Kelly and Chris are jointly and severally liable along with Smith & Jones for the debts and obligations of Smith & Jones; law firm professional corporations are treated exactly the same as general partnerships.

Kelly, Chris, and Pat are members of an Indiana LLC that is in the construction business; each has a one third interest. The LLC has borrowed money from the Old Reliable National Bank in order to purchase construction machinery for its business. Kelly believes that Chris has been improperly utilizing LLC personnel and equipment on construction projects for family members for which the LLC has not been paid. Pat does not believe that this is so. What is Kelly's recourse in this circumstance?

Kelly can file a lawsuit on behalf of the LLC against Chris alleging that Chris has misappropriated LLC assets. Kelly can do nothing unless Pat agrees because a majority-in-interest is necessary for the LLC to act. Kelly can file a lawsuit against the LLC alleging that Chris has misappropriated LLC assets. Kelly can file a lawsuit against Chris alleging that Chris has misappropriated LLC assets.

ABC Corporation and XYZ Corporation, both Indiana corporations, are the two general partners in New Enterprises, LP, an Indiana limited partnership. The limited partnership has five limited partners. The limited partnership agreement provides that "no general partner shall sell or transfer its general partnership interest in the partnership without the permission of a majority in interest of the limited partners and the consent of the other general partner." Kelly is the sole shareholder of ABC Corporation. Assuming that the law in Indiana is the same as that applied by the court in In Re Asian Yard Partners, can Kelly sell all of Kelly's shares in ABC Corporation to Chris without the consent of XYZ Corporation and a majority of interest of the limited partners?

Kelly can transfer the economic rights in ABC with the consent of either XYZ Corporation or a majority of interest of the limited partners but not the governance rights. Kelly cannot sell the shares without the consent of XYZ Corporation because the partnership agreement in this hypothetical is the same as that in Asian Yard on the points at issue; however, Kelly need not obtain the consent of a majority of interest of the limited partners because that would constitute the limited partners participating in the control of the limited partnership and expose them to personal liability. Yes, Kelly can sell the shares without the consent of either XYZ Corporation or a majority of interest of the limited partners; the partnership agreement in this hypothetical differs from that in Asian Yard on the points at issue. No, Kelly cannot sell the shares without the consent of both XYZ Corporation and a majority of interest of the limited partners; the partnership agreement in this hypothetical is the same as that in Asian Yard on the points at issue.

Kelly, Chris, and Pat each own 1/3 of the shares in Hypothetical Corporation, an Indiana corporation. Casey, employed by Hypothetical to drive one of its delivery trucks, causes a terrible accident while driving on company business. The company is found liable for a multi-million judgment in favor of the accident victims. The company has insufficient assets to satisfy the judgment. Which of the following is correct?

Kelly, Chris, and Pat are protected by the bedrock principle of limited liability and are not responsible for any amount of the judgment that is not paid by the company. Kelly, Chris, and Pat are jointly and severally liable for the amount of the judgment that is not paid by the company. Kelly, Chris, and Pat are jointly (but not severally) liable for the amount of the judgment that is not paid by the company. This is what insurance is for; Kelly, Chris, Pat, and the company itself are liable only for the amount of the judgment up to the limits of coverage provided by the company's Comprehensive General Liability policy.

Kelly, Chris, and Pat are 1/3 partners each in Hypothetical Partnership, an Indiana general partnership. Casey, employed by Hypothetical to drive one of its delivery trucks, causes a terrible accident while driving on company business. The company is found liable for a multi-million judgment in favor of the accident victims. The company has insufficient assets to satisfy the judgment. Which of the following is correct?

Kelly, Chris, and Pat are protected by the bedrock principle of limited liability and are not responsible for any amount of the judgment that is not paid by the company. Kelly, Chris, and Pat are jointly and severally liable for the amount of the judgment that is not paid by the company. This is what insurance is for; Kelly, Chris, Pat, and the partnership itself are liable only for the amount of the judgment up to the limits of coverage provided by the company's Comprehensive General Liability policy. Kelly, Chris, and Pat are jointly (but not severally) liable for the amount of the judgment that is not paid by the company.

Kelly, Chris, and Pat decided to open a new restaurant and instructed their lawyer to file Articles of Organization with the Indiana Secretary of State for their new business entity, ABC Enterprises, LLC, a member-managed LLC. Each of the three was to be a member of the LLC with a one-third governance and economic interest. The lawyer reserved the name for the business using the Indiana Secretary of State's online portal called InBiz but sent the Articles of Organization to the Secretary of State's office by US Mail. The lawyer was unaware of the fact that, effective July 1, 2021, the Secretary of State only accepts filings to form new corporations, limited liability partnerships, limited partnerships, and LLCs online using InBiz. Furthermore, given the pandemic, the Secretary of State's office has been operating with only a skeleton staff and the envelope containing the Articles mailed in by the lawyer was never opened. Meanwhile, Kelly, Chris, and Pat went ahead and opened the restaurant. Business was terrible and when they tried to advertise for more customers, they were criticized in the press for insensitivity to the pandemic. After running up almost $100,000 in expenses, all of which were invoiced to ABC Enterprises, LLC, they reluctantly went out of business. Now the creditors seek to recover the $100,000 from Kelly, Chris, and Pat personally. What will be the result?

Kelly, Chris, and Pat would likely be protected from personal liability by the de facto corporation and Corporation by estoppel doctrines even though this situation involves an LLC, not a corporation. Kelly, Chris, and Pat would be subject to personal liability because, like general partners in a general partnership, members in LLCs are not protected by the bedrock principle of limited liability. Kelly, Chris, and Pat would likely be subject to personal liability because Ind. Code § 23-18-2-7 is quite specific that an LLC is not organized until the Articles of Organization are on file in the Secretary of State's office. Indiana law on the liability of members in an LLC for the debts and obligations of an LLC is insufficiently developed to be able to answer this question.

The business judgment rule has been justified as follows:

Law shouldn't create incentives for overly cautious business decisions. Businesses confront risk and uncertainty; courts shouldn't view business decisions in hindsight. All of these answers are correct. Courts do not have the requisite expertise to evaluation business decisions.

When a person invests in a closely held company, federal securities regulations:

Make it cost-prohibitive for the company to permit investments in equity and causes an undue reliance on debt. Are a major concern because federal law requires securities to be registered with the federal Securities and Exchange Commission prior to sale unless an exemption is available. Are not a concern because they only apply to companies whose stock is sold over the stock exchanges. Do not apply; instead, the companies are subject to state securities regulations, often called "Blue Sky Laws."

The reason that publicly-held corporations solicit "proxies" in connection with meetings of their shareholders is:

Management wants to be able to vote the shares of the corporation in support of proposals that it favors rather than what the shareholders themselves might favor. Neither of these answers are correct. Both of these answers are correct. Answer Very few shareholders actually attend the annual meetings and so without the proxies, there would be insufficient attendance to take required action such as the election of directors.

ABC Corporation is an Indiana corporation. There are no provisions in its Articles of Incorporation with respect to special meetings of the Board of Directors. The Chair of the Board would like to call a special meeting of the Board to discuss a particularly delicate matter, so delicate that the Chair does not want to include the purpose of the meeting in the meeting notice. Which of the following statements accurately describes the law applicable in the situation?

Members of the Board must be provided reasonable advance notice of the date, time, and place of the meeting and the notice must give a general but not specific description of its purpose Notice describing the purpose of the special meeting and giving its date, time, and place must be given at least two days in advance and the notice. So long as the Board is not asked to vote on any matter, no advance notice of the date, time, place, or purpose of the meeting must be given. Notice of the date, time, and place of the meeting must be given at least two days in advance but the notice need not describe its purpose.

Addison is a partner in Hoover & Roosevelt, LLP, a large and prominent law firm. Addison successfully recruits XYZ Corporation, an extremely promising startup business in the tech space, as a client for the firm. Addison secretly negotiates for 1000 shares of stock in XYZ which XYZ awards Addison personally in return for a 10% discount on all fees earned during the first two years of the engagement. Assume Addison complies with professional conduct rule 1.8 in all respects. Addison tells the other partners at Hoover & Roosevelt that the 10% discount was necessary to secure XYZ as a client but that the long-term potential makes this "loss leader" an exceptionally good bet. The partners expressly ratify the 10% discount. In this situation,

Neither of these answers are correct. Addison has violated the fiduciary duty of loyalty that partners owe to one another. Addison has violated the Rules of Professional Conduct by entering into a business transaction with the client. Both of these answers are correct.

Thomas Eggleston and Elisa Loggin each own an equal number of shares of common stock in World Famous Coffee Importers, Inc. Among other things, this means that:

Neither of these answers are necessarily correct. Each has financial rights equal to the other. Both of these answers are correct. Each has voting rights equal to the other.

Kelly is in the Indiana National Guard and has been deployed overseas. Before deploying, Kelly signs a "Power of Attorney" giving Chris the power to act as Kelly's "attorney-in-fact in all things, provided, however, Chris shall not have the power to sign any promissory notes or assume any debts or obligations on Kelly's behalf." During the time that Kelly is deployed, a payment becomes due on Kelly's credit card for which there are insufficient funds in Kelly's bank account to pay. Chris asks the credit card company to defer collection in return for Kelly paying a larger amount when funds become available. If the credit card company accepts the offer, will the promise to pay a larger amount in the future be enforceable?

No, Chris has no authority to incur additional debt on Kelly's behalf. Yes, even though Chris has no authority to incur debt on Kelly's behalf, the arrangement is in Kelly's best interest and that is the reason Kelly gave Chris the power-of-attorney in the first place. Yes, while Chris does not have express, implied, or apparent authority to make this arrangement, Chris has inherent authority to do so. Yes, while Chris does not have express actual authority to make this arrangement, Chris has apparent authority to do so.

Kelly is a shareholder in ABC Corporation, an Indiana corporation, who vehemently disagrees with the recently announced decision of the Corporation to sell real estate that it owns adjacent to a nature preserve for use as a salvage yard for used automobiles. Kelly believes that the Corporation may have rejected an offer from the non-profit owner of the nature preserve to purchase the property for a superior price because of hostility on the board to environmentalism. Kelly would like to inspect the minutes of the meetings of the Board of Directors at which the decision to sell the property was discussed. Is Kelly entitled to do so?

No, Kelly's motivations are clearly political and political motives are not a proper purpose as required under Ind. Code §23-1-52-2(c). Yes, there are no limits whatsoever on a shareholder's right to inspect the minutes of the meetings of a corporation's Board of Directors. Yes, all of the requirements of Ind. Code §23-1-52-2(c) are met in the situation. No, shareholders never have the right to inspect the minutes of the meetings of the Board of Directors; shareholder inspection rights are limited to financial records.

Pat is a limited partner in ABC Apartment Owners, LP, an Indiana limited partnership. Pat has defaulted on a debt owed to Stacy and Stacy has received a court order assigning Pat's partnership interest to Stacy. ABC owns an extremely profitable apartment complex in Indianapolis which Stacy would like to own. Stacy cooks up the following plan: go to court and ask that ABC be dissolved; upon dissolution, the partnership will have to put the apartment building up for sale; and Stacy will assemble the necessary financing to purchase it from the dissolved partnership. Will Stacy's plan work?

No, although Stacy will be able to force the partnership to dissolve, the corporate opportunity doctrine will prohibit Stacy from purchasing property from the dissolved partnership. Yes, under the Indiana Revised Uniform Limited Partnership Act, Stacy now owns Pat's partnership interest and any partner can force the dissolution of the partnership. No, Stacy only has the rights of an assignee which do not include being able to force the partnership to dissolve. Possibly. Under the Indiana Revised Uniform Limited partnership act, Pat's fellow partners have a right of first refusal to pay off Pat's debt. If they do not do so, Stacey can proceed to force the dissolution.

ABC Corporation is an Indiana corporation that was formed on March 21, 2000. On that date, each of Kelly, Chris, and Pat were issued 500 shares in the Corporation. They were the only shareholders in the Corporation and there were no transfer restrictions on these shares. On March 21, 2010, they remain the only shareholders in the Corporation but all agreed to sell an additional 500 shares each to Tracy and Casey. They also unanimously voted for an amendment to the Articles of Incorporation providing that "No shares of ABC Corporation shall be sold or otherwise transferred, directly or indirectly, without the prior approval of a majority of the Board of Directors of ABC Corporation." The stock certificates issued to Tracy and Casey had that language imprinted on the certificates but the language was not added to the certificates previously issued to Kelly, Chris, and Pat. Do the share restrictions apply to Kelly's, Chris's, and Pat's shares?

No, because their shares were issued before the restrictions were adopted. No, because their share certificates do not have the restriction language printed on them. Answer Yes, because they voted in favor of the restrictions. Yes, because when the Articles of Incorporation were amended, the restrictions applied by operation of law to all issued and unissued shares.

Alex is the partner and Casey is the associate in a law firm representing ABC Corporation in negotiations with the Old Reliable National Bank. ABC has a commercial loan from the Bank and has asked the Bank for more lenient repayment terms. In the course of the negotiation, Casey tells the Bank's executives and lawyers that ABC is near insolvency and might well declare bankruptcy if the more favorable terms are not forthcoming. This is a misrepresentation; both Alex and Casey know that ABC's financial condition is just fine and that this is merely a negotiating tactic engaged in at the direction of ABC's management. Assume that Casey's lie violates the Rules of Professional Conduct. Does Alex have a duty under the Rules of Professional Conduct to correct the misrepresentation.

No, disclosing the misrepresentation would violate Professional Conduct Rule 1.6 that prohibits lawyers from revealing confidential client information. Yes, as a lawyer with direct supervisory authority over Casey, Alex is responsible for Casey's violation of the Rules of Professional Conduct. No, while the principle of vicarious liability applies to tort law, it does not extend to the Rules of Professional Conduct. There is not enough information to answer this question.

ABC Enterprises, LP, is an Indiana limited partnership that owns an apartment building in Indianapolis subject to a mortgage in favor of Fifth Third Bank and another apartment building in Carmel subject to a mortgage in favor of National Bank of Indianapolis. The limited partnership owns no other property and only has a small amount of cash on hand. Property values have declined such that the amounts owed on the mortgage loans approximately equal the value of the apartment building. A tenant in one of the apartment buildings was assaulted by a security guard employed by the limited partnership and the tenant recovered a significant judgment. Kelly is a wealthy individual who is a limited partner in ABC. Kelly is an entirely passive investor, playing no role whatsoever in the day-to-day management of the business. However, Kelly has personally guaranteed the loans from Fifth Third and NBI. In general, a limited partner in an Indiana limited partnership is protected by the bedrock principle of limited liability. However, Ind. Code § 23-16-4-3(a) provides that a limited partner can lose that limited liability if the limited partner "participates in the control of the business." Assuming that the limited partnership has no assets available to satisfy the judgment in favor of the tenant, can the tenant recover from Kelly personally because Kelly's guaranteeing partnership debt constitutes participation in the control of the business?

No, guaranteeing partnership debt without more does not constitute participating in the control the business. Kelly might be liable if the tenant reasonably believed that Kelly was a general partner. Yes, guaranteeing partnership debt without more does constitute participating in the control of the business. Trick question - limited partners are not protected by the bedrock principle of limited liability.

Chris is the CEO of XYZ Corporation, an Indiana corporation, which manufactures bicycles. Chris is traveling in Japan and encounters an entrepreneur about to start a business manufacturing bicycles. The entrepreneur invites Chris to make an investment in this new business as an individual, that is, not on behalf of XYZ. Is this a corporate opportunity that would require approval by XYZ?

No, this is not a business opportunity of which Chris became aware performing corporate functions. No, this is not a business opportunity where the Japanese entrepreneur expected it to be offered to XYZ. Yes, Chris is a senior executive and this is a business opportunity in an activity closely related to XYZ's business. No, this is not a business opportunity of which Chris became a

Kelly, Chris, Pat, and Casey each own a 25% interest in XYZ Corporation, an Indiana corporation. Kelly and Casey fundamentally disagree over the future of the Corporation but neither Chris nor Pat is willing to take sides in the dispute. In order to force Casey out, Kelly purchases both Chris's and Pat's shares, i.e., Kelly now owns 75%. By acquiring a majority interest for the express purpose of forcing Casey out, has Kelly acted illegally?

No, whatever the corporate governance law issues here may be, principles of freedom of contract and private ordering allow Kelly to purchase Chris's and Pat's shares. No, Kelly's purchases did not prejudice Casey in any way; both before and after the purchases, Casey owned 25%. Yes, under the Indiana Business Corporation Law, Kelly must obtain Casey's permission to purchase a majority interest in the Corporation; this is the Control Share Acquisition Statute that was at issue in the famous CTS v. Dynamics Corporation of America decision of the United States Supreme Court. Yes, Kelly's purchases were not for any proper business purpose of the Corporation, but rather to squeeze Casey out.

In slides 6 through 9 in Class #9, I showed the federal law definition of the term "security." Suppose that you were offered an opportunity to buy some land in a citrus grove in Florida, accompanied by a contract with the promoter of the project to grow, harvest, and market the fruit, remitting to you your share of the profits after expenses. Considering the definition of "security" set forth in slides 5 through 8 in Class #9, is the opportunity you have been offered an:

Not a security at all. Investment contract. Interest or instrument commonly known as a "security." Evidence of indebtedness.

Both Chiarella (a printer) and O'Hagan (a lawyer) traded in the stock of a corporation about which they had material information that they expected would and did affect the price of the corporation's stock. Neither was a controlling shareholder, director or officer (and insider) of the corporation. Both made substantial sums and were subsequently prosecuted for insider trading. Which of the following is correct?

O'Hagan was ultimately acquitted but Chiarella convicted. Chiarella was ultimately acquitted but O'Hagan convicted. Both Chiarella and O'Hagan were ultimately acquitted. Both Chiarella and O'Hagan were ultimately convicted.

You represent Alex, one of the victims of the terrible accident described in Question #8. Settlement discussions are not productive. Whom do you sue?

Only Kelly, Chris, and Pat. Each of Kelly, Chris, Pat, Casey, and Hypothetical Partnership. Only the insurance company that issued the partnership's Comprehensive General Liability policy. Only Hypothetical Partnership.

Kelly and Chris form KC Partnership, an Indiana general partnership, to invest in apartment buildings near college campuses. Kelly has a 75% interest; Chris 25%. Although the partners have a written partnership agreement, it says nothing about admission of new partners or the assignment of partnership interests. Pat also would like to invest in apartment buildings near college campuses and asks to be admitted as a new partner, either by making a capital contribution to the partnership itself or by purchasing some of either or both of Kelly's and Chris's partnership interests. Kelly approves of Pat becoming a partner; Chris opposes the idea. Assume that Pat is only interested in becoming a full partner in the partnership; Pat is not interested in having only an economic interest in the partnership. On these facts, which of these answers is correct?

Pat cannot become a partner, either by direct investment or by purchasing part or all of Kelly's partnership interest; however, Pat can purchase part or all of Kelly's economic interest in the partnership. Pat can become a partner by direct investment in the partnership but cannot become a partner by purchasing part or all of Kelly's partnership interest. Pat cannot become a partner by direct investment in the partnership but can become a partner by purchasing part or all of Kelly's partnership interest. Pat can become a partner either by direct investment in the partnership or by purchasing part or all of Kelly's partnership interest.

The corporate opportunity doctrine:

Recognizes that a corporate fiduciary should not serve both corporate and personal interests at the same time. Recognizes that unless the articles of incorporation provide to the contrary, corporate directors and officers are free to pursue corporate opportunities even if they conflict with those of the corporation of which they are directors or officers. Recognizes that a corporation's director cannot enter into a transaction in conflict with the interests of the corporation but that a corporation's officer is free to do so. Recognizes that a corporation's officer cannot enter into a transaction in conflict with the interests of the corporation but that a corporation's director is free to do so.

Kelly owns a majority interest in ABC Corporation, a Massachusetts corporation. Chris owns all of the remaining stock. The Board of Directors of ABC, which Kelly controls, votes a special dividend payable only to those stockholders "owning more than 50% of the issued and outstanding stock of the Corporation." Under Donahue Electrotype Co. v. Rodd, this special dividend:

Represents a valid exercise of the majority-rule principles of corporate governance so long as the Board followed the requisite procedures specified by statute and corporate bylaws. Is permissible by operation of the Business Judgment Rule. Is permissible since the dividend was a special dividend; however, general dividends need to be distributed to all stockholders pro rata. Constitutes a breach of the majority stockholder's fiduciary duty to the minority.

In the case of Arguello v. Conoco, Inc., the U.S. Court of Appeals for the Fifth Circuit relied on which of the following authorities in making its decision?

Restatement of Agency (Second) §228. The Federal Tort Claims Act (28 U.S.C. Part VI, Chapter 171 and 28 U.S.C. § 1346). Louisiana common law. The Equal Protection Clause of the Fourteenth Amendment.

Cheryl and Joe orally agreed to participate in a kitchen remodeling venture for a spec home. Cheryl agreed to invest $10,000 in the venture and Joe agreed to become the job estimator and supervisor. They agreed to share the profits on a 50-50 basis. Possible losses were not discussed. Despite their efforts, the venture was unsuccessful and Cheryl sued Joe to recover one-half the money losses she endured. Cheryl prevailed in the trial court and recovered $4,340, or one-half the net monetary loss of $8,680. You are a judge on the appellate court to which Joe appeals. How do you rule?

Reverse the judgment for Cheryl and enter judgment for Joe. Because the partners did not address the sharing of losses in their agreement, the law presumes that neither has a responsibility to make a contribution to the other in the event of losses. Affirm the judgment for Cheryl. Because the partners explicitly agreed to share the profits on a 50-50 basis, the law presumes that they also agreed to share the losses on a 50-50 basis. Reverse the judgment for Cheryl and enter judgment for Joe. Even though the general rule of partnership law is that in the absence of an agreement, losses are shared by the partners in the same proportion as they share the profits, the general rule does not apply where one party contributes money and the other labor. In such a situation, neither party is liable to the other for any loss sustained. Affirm the judgment for Cheryl. The general rule of partnership law is that in the absence of an agreement, losses are shared by the partners in the same proportion as they share the profits.

The client consent requirements of Professional Conduct Rules 1.7 and 1.8 differ in the following respects:

Rule 1.8 requires that the lawyer seeking consent advise the client of the desirability of seeking and gives a reasonable opportunity to seek the advice of independent counsel whereas Rule 1.7 does not. Rule 1.7 requires that the lawyer seeking consent advise the client of the desirability of seeking and gives a reasonable opportunity to seek the advice of independent counsel whereas Rule 1.8 does not. Rule 1.7 requires that the client consent in writing whereas Rule 1.8 only requires that the client consent such that an oral consent is sufficient. Trick question - the client consent requirements of Professional Conduct Rules 1.7 and 1.8 do not differ in any material respects.

An employer is liable for the torts of its employees committed within the scope of employment. However, an employer is not liable for the torts of independent contractors. Assume for purposes of this question that there are no applicable exceptions to these general rules. In the Parker v. Domino's Pizza, Inc., case, a pizza delivery driver caused an accident. The driver was employed by J&B Enterprises which operated a Domino's Pizza franchise. The victim of the accident sued Domino's even though the driver was not employed by Domino's. The court:

Ruled that the question of whether the employee of a franchisee is an agent of the franchisor is a question of fact that depends upon the degree of control that the franchisor has over the franchisee and its employees. Ruled that franchisors like Domino's are always liable as a matter of law for the torts of their franchisees. Ruled that because franchisees are independent contractors and as a matter of law employers are not liable for the torts of independent contractors, franchisors are never liable for the torts of their franchisees. Ruled that the question of whether the employee of a franchisee is an agent of the franchisor is a question of fact and that on the facts of this case, the driver was not an agent.

At the end of Class #8, we looked at a question from the Indiana Bar Exam from a few years ago where a corporation that had fallen behind in paying its debts suddenly got a $100,000 prepayment. The corporation was owned by three brothers, one of whom immediately paid out employee "bonuses"; each of the three brothers was to get $25,000. Two refused but the third took his. Sullivan says that this fact pattern:

Shows the dangers of brothers going into business with one another. Implicates Ind. Code § 23-1-28-3 which prohibits distributions to shareholders if a Corporation is not be able to pay its debts as they became due in the usual course of business. Constitutes a fraud on the customer who made the prepayment. All of the above

In Melrose v. Capitol City Motor Lodge, Inc., the reason that the company purchased life insurance on the lives of the three shareholders was:

So that the company would have sufficient cash to meet its obligation under a "buy-sell agreement" to buy a shareholder's shares from that shareholder's estate in the event that shareholder dies. So that the company could take advantage of the tax benefits accorded life insurance to build up the net worth of the company over time. So that the company would have funds in the future to expand its business even if one of its shareholders should die. So that the company would have funds to pay the legal fees connected with rewriting its various corporate documents if one of the shareholders should die.

The principal difference between the Securities Act of 1933 and the Securities Exchange Act of 1934 is that:

The 1933 Act is primarily concerned with the regulation of the securities markets and the 1934 Act is primarily concerned with the regulation of the issuance of securities. The 1933 Act is primarily concerned with regulating tender offers and the 1934 Act is primarily concerned with regulating proxy statements. The 1934 Act is primarily concerned with regulating tender offers and the 1933 Act is primarily concerned with regulating proxy statements. The 1933 Act is primarily concerned with the regulation of the issuance of securities and the 1934 Act is primarily concerned with the regulation of the securities markets.

In Smith v. Van Gorkom, the Delaware Supreme Court held that the Board of Directors of Trans-Union Corporation were not protected by the business judgment rule in their decision to approve the sale of the corporation to the Pritzker family because:

The Board had a conflict of interest when it approved the sale. Trick question - the Delaware Supreme Court held that the Board was protected by the business judgment rule. The Board did not approve the sale using a reasonable decision-making process. The Board did not approve the sale in good faith.

Under Ind. Code §23-1-35-5(a), a director's taking advantage of a business opportunity does not subject the director to liability on the ground that the opportunity should have first been offered to the corporation, if:

The Board of Directors disclaims the opportunity after full disclosure. The shareholders disclaim the opportunity after full disclosure. Either of these answers are correct. Neither of these answers are correct.

XYZ Corporation is an Indiana corporation formed three generations ago by the Kelly Dean. Chris Dean is a great-grandchild of Kelly who owns 100 shares of XYZ Corporation worth approximately $50,000, received through inheritance. As is provided for in the Corporation's original Articles of Incorporation, Chris's share certificate has printed on it: "No shares of XYZ Corporation shall be sold or otherwise transferred, directly or indirectly, to any person who is not a direct descendent of Kelly Dean and the Corporation shall under no circumstances register the ownership of any shares in the name of any person who is not a direct descendent of Kelly Dean." Chris got into financial difficulty during the pandemic and a creditor obtained a $50,000 judgment against Chris. As is permitted by Indiana debt collection law, the creditor obtained a court order attaching Chris's shares and a court order directing the Corporation to register the ownership of the shares in the name of the creditor on the books of the corporation. Assume that the creditor knew of the share transfer restriction prior to seeking to attach the shares. If the Corporation appeals the court order directing it to register the shares in the creditor's name:

The Corporation will win because FBI Farms held that share transfer restrictions are enforceable. The Corporation will lose because commercial law always prevails over corporate law. The Corporation will win because the relevant Indiana statute, Ind Code §23-1-26-8, holds that share transfer restrictions are valid and enforceable against any transferee who has knowledge of the restrictions. The Corporation will lose because FBI Farms held that the rights of a creditor prevail over share transfer restrictions.

In a class action in which tenants argue that a warranty of habitability should be held to exist in all apartment leases, which of the following is an example of law and economics reasoning?

The Court examines what the consequences would be for the supply of apartments if the increased costs of apartment repairs required by such a holding was imposed upon apartment owners. The Court examines whether access to habitable housing is a constitutional right. The Court examines whether the jurisdiction's landlord-tenant statute requires landlords to provide habitable apartments. The Court examines whether access to habitable housing is an international human right.

The Securities Act of 1933 (1933 Act) applies to closely-held business organizations in the following way:

The Registration Requirement of §5 of the 1933 Act applies to all businesses, whether publicly-held or closely-held, although closely-held businesses can often utilize exemptions from the Registration Requirement. The 1933 Act requires closely-held as well as publicly-held corporations to file annual reports with the Securities and Exchange Commission detailing the ownership of their stock and their financial condition and results of operation for the preceding year. The 1933 Act establishes requirements for annual meetings of stockholders of closely-held as well as publicly-held corporations. The Insider Trading Prohibitions of the 1933 Act apply to closely-held business organizations as well as to publicly-held business organizations.

Consider the article "Limited Liability and the Corporation" by Frank H. Easterbrook & Daniel R. Fischel. One of the points they make is that:

The bedrock principle of limited liability has equal justification for publicly held companies and for closely held business organizations. The bedrock principle of limited liability has less justification for publicly held companies than for closely held business organizations. The bedrock principle of limited liability has less justification for closely held business organizations than for publicly held companies. The bedrock principle of limited liability should be abolished for both publicly held companies and closely held business organizations.

Pat and Chris are architects. They share space in the same building under an arrangement with the landlord where they each pay 50% of the rent each month under an oral agreement; there is no written lease. They have a successful practice where they frequently help each other on each other's projects, sharing work as it comes through the door. They do not consider themselves to be partners but over the course of several years, their work and space sharing arrangement has resulted in each of the making almost exactly the same amount of money as the other. One of Chris's children was your college roommate and calls you with the concern that if Pat were ever to make a mistake resulting in liability, Chris might share responsibility. What is your response?

The concern is well-placed; Pat's and Chris's "arrangement" might well be deemed to be a partnership such that Chris (and Pat) would share liability for its debts and obligations. There is little reason for concern here; unless Chris and Pat reduce their "arrangement" to writing, the law will treat each of them as sole proprietors without any legal responsibility for any debts or obligations of the other. While Pat's and Chris's "arrangement" might will be deemed a partnership, as partners, each would be protected by the bedrock principle of limited liability. As professionals, Pat and Chris cannot limit their liability to their clients and so it matters little whether they are considered partners or sole proprietors.

As to corporations, we have seen that the courts will allow a plaintiff to "pierce the corporate veil" of corporations under the circumstances described in Aronson v. Price. As to LLCs, the Indiana limited liability act (Ind. Code § 23-18-3-3(a)) provides a member of an LLC is not personally liable for the debts, obligations, or liabilities of the LLC. Which of the following is correct?

The courts have not yet addressed whether a plaintiff can "pierce the corporate veil" of LLCs under the circumstances described in Aronson v. Price. Aronson v. Price has been overruled; the bedrock principle of limited liability now protects shareholders of corporations absolutely and in all circumstances; the courts no longer allow a plaintiff to pierce the corporate veil of a corporation. The courts will allow a plaintiff to "pierce the corporate veil" of both corporations and LLCs under the circumstances described in Aronson v. Price. The bedrock principle of limited liability protects members of LLCs absolutely and in all circumstances; the courts will never allow a plaintiff to pierce the corporate veil of an LLC.

On September 1, XYZ Corporation sold $1 million of "XYZ Corporation Senior Notes due September 1, 2040" and an additional $1 million of "XYZ Corporation Subordinated Debentures due September 1, 2040." Without knowing anything more, it would be reasonable to assume that:

The interest rate on the Notes and the Debentures will be the same. The interest rate on the Debentures will be higher than the interest rate on the Notes. The Debentures will be convertible into the common stock of XYZ Corporation but the Notes will not. The interest rate on the Notes will be higher than the interest rate on the Debentures.

Assume an Indiana corporation with a single series of shares and no cumulative voting. Assume further that neither the corporation's Articles of Incorporation nor Bylaws contain any provisions relating to the removal of directors. A member of the Board of Directors has supported a candidate for President of the United States in a very public way. The corporation has a long-standing reputation for political neutrality which this director's behavior has flagrantly violated. Which of the following is correct?

The offending director's political speech is protected by the First Amendment; the director cannot be removed. The corporation must allow the offending director to serve until the end of the director's term but the shareholders need not re-elect the director. The other directors may remove the offending director. The president may remove the offending director.

In Sword v. NKC Hospitals, Inc., the Indiana Supreme Court held that a hospital was liable for the malpractice of an anesthesiologist committed during a childbirth at the hospital even though the anesthesiologist was an independent contractor. What was the Court's rationale?

The patient was under the reasonable belief that she was being administered anesthesia by the hospital or the hospital's employee and so the hospital should be subject to liability to the same extent as though the hospital's employee was administering the anesthesia. The anesthesiologist's license to practice medicine had been suspended and so the administration of the anesthesia was illegal and so the exception to the general rule of a principal's non-liability for the torts of an independent contractor did not apply. The administration of the anesthesia by the anesthesiologist was intrinsically dangerous and so the exception to the general rule that a principal is not liable for the torts of a principal's non-liability for the torts of an independent contractor did not apply. Trick question - the Court held that the anesthesiologist was not an independent contractor.

Kelly and Chris own 20% of the shares of ABC Corporation, an Indiana corporation. They are deeply dissatisfied with the direction that management is taking the Corporation but have been unable to receive any satisfaction despite increasingly acrimonious communications with the CEO of ABC. Following In re Kemp & Beatley, Inc., which we read in class, Kelly and Chris file a petition for dissolution in Marion Superior Court alleging that those in control of the corporation have been guilty of oppressive actions towards them. Management files a motion to dismiss. You are the judge; how do you rule?

The petition should be dismissed as minority shareholders have no authority to petition for judicial dissolution under Indiana law. The motion to dismiss should be denied and ABC should be dissolved in that all of the requirements for judicial dissolution under applicable law have been met. The motion to dismiss should be denied without prejudice to management filing a motion for summary judgment to determine whether there are genuine issues of material fact or whether management is entitled to judgment as a matter of law. The motion to dismiss should be denied as there are genuine issues of material fact as to whether management has engaged in oppressive action towards Kelly and Chris.

Kelly is an associate at Adams & Jefferson, LLP, a large and prominent law firm. Kelly comes from a family which has extensive business holdings and upon Kelly being hired by the law firm, the family switches all of its legal business to the firm. Assume that the firm has neither any general provisions in its partnership agreement as to the allocation of profits attributable to clients brought to the firm by associates nor any specific arrangement with Kelly in that regard. If Kelly were to subsequently leave the firm and take the legal business attributable to the family to Kelly's new firm, which of the following is correct?

The profits attributable to the work performed for Kelly's family's business prior to departure from Adams & Jefferson belong to Kelly. The profits attributable to the work performed for Kelly's family's business prior to Kelly's departure from Adams & Jefferson must be allocated in accordance with instructions from Kelly's family; in such matters, a client's direction always controls. The profits attributable to the work performed for Kelly's family's business prior to departure from Adams & Jefferson must be allocated among all the lawyers at Adams & Jefferson including Kelly in proportion to the amount of work they performed for Kelly's family's business. The profits attributable to the work performed for Kelly's family's business prior to departure from Adams & Jefferson belong to Adams & Jefferson.

The conflict of interest section in the Indiana Business Corporation Law, Ind. Code §23-1-35-2, says that a conflict of interest transaction is not voidable by the corporation solely because of a director's interest in the transaction if the board approves the transaction after full disclosure, or the shareholders approve the transaction after full disclosure, or the transaction was fair to the corporation. In Melrose v. Capitol City Motor Lodge, Inc., the court found that the transaction proposed by Smulyan to allow the owners to purchase the insurance policies on their respective lives for their cash values did not violate the conflict of interest statute because:

The shareholders had approved the transaction after full disclosure. The transaction was fair to the corporation. The board had approved the transaction after full disclosure. All three of these alternatives were true.

One type of equity discussed in Class #8 was preferred stock. Which of the following is incorrect:

The voting rights of shares of preferred stock must be equal to or greater than those of common stock. The holders of preferred stock are usually entitled to receive a specified dividend before any dividend is paid to the holders of common stock. Upon liquidation of a company, the holders of preferred stock are usually entitled to be paid from the company's remaining assets before the holders of common stock. Preferred stock is often an attractive investment for corporations because it has certain tax advantages compared to owning common stock.

A limited partnership must have at least one general partner and one limited partner. In addition, which of the following is also true?

There can never be more general partners in a limited partnership than there are limited partners. A general partner in a limited partnership must be an individual, i.e., a general partner cannot be an entity like a corporation. A general partner in a limited partnership is protected by the bedrock principle of limited liability. The same person can be both a general partner and a limited partner at the same time.

The Indiana Occupational Safety and Health Act (IOSHA) requires employers to meet specified safety standards in the workplace and subjects employers to significant fines for violations. The statute provides that if the Indiana Commissioner of Labor finds that a violation of an IOSHA safety standard presents a high risk of serious bodily injury or death and that the standard has been recklessly disregarded, the employer's senior-most executive officer shall be liable for a fine equal to the amount that could be imposed upon the employer. For at least a year, IOSHA had received complaints that a punch-press used by ABC Refrigeration Co. was malfunctioning, putting employees at risk and that Cory, ABC's senior-most executive officer, was doing nothing about it despite regular written complaints. Then one day an employee was paralyzed when the press essentially disintegrated, sending shrapnel throughout the factory. IOSHA consults you about its recourse against ABC Refrigeration Co. and Cory. What is your initial instinct about recovery?

These circumstances appear to lend themselves to a claim for enterprise liability (also called "alter ego" liability). These circumstances appear to lend themselves to a claim for piercing the corporate veil. Cory and any relevant entity here will be protected by the bedrock principle of limited liability. These circumstances appear to lend themselves to a claim under the responsible corporate officer doctrine (also called "alter ego" liability).

Old Reliable National Bank made a loan to Vertical Solutions, LLC, an Indiana LLC, which pledged to the Bank all of its property and assets as collateral. Vertical Solutions, LLC, was a subsidiary of ABC Corporation. ABC Corporation was 100% owned by Cory. ABC Corporation also had another subsidiary, Vertical Solutions, Inc. In point of fact, Vertical Solutions, Inc., was the operating company, holding all of the assets of the highly integrated business; Vertical Solutions, LLC, had no assets whatsoever. The bank loan officer was green and did not realize that there was any difference between Vertical Solutions, LLC, and Vertical Solutions, Inc., until the loan went into default. At that point, more senior loan officers at the Bank realized that the company to which the Bank had made a loan had no property to foreclose upon in satisfaction of the debt. The Bank consults you about collecting the loan. What is your initial instinct about recovery?

These circumstances appear to lend themselves to a claim for enterprise liability. Cory and any relevant entities here will be protected by the bedrock principle of limited liability. These circumstances appear to lend themselves to a claim under the responsible corporate officer doctrine. These circumstances appear to lend themselves to a claim for piercing the corporate veil.

Business entities incorporated or otherwise organized under Indiana law can be involuntarily dissolved by the Indiana Secretary of State if they do not comply with certain requirements of applicable law. Where in the Indiana Code are the provisions governing involuntary dissolution?

Title 23, Article 0.5, for all of corporations, LLPs, LPs, and LLCs. Title 23, article 1, for corporations; Article 4 for LLPs and LPs; and Article 18 for LLCs. Title 23, Article 1,, for corporations; Article 4 for LLPs; and Article 18 for LPs and LLCs. Title 23, Article 1 for corporations; Article 4 for LLPs; Article 16 for LPs; and Article 18 for LLCs.

In Meinhard v. Salmon, Chief Judge Cardozo says that Meinhard and Salmon were "coadventurers, subject to fiduciary duties akin to those of partners." From this we can infer that the fiduciary duties that Cardozo says Meinhard and Salmon are subject to apply:

To any business arrangement analogous to partnerships. In joint ventures as well as partnerships. Whenever a lease of commercial real estate expires. Whenever a lot of money is at stake.

Sullivan told the story of an Indiana campaign-finance statute that limits the amount of money that corporations can contribute to candidates for public office. An Indiana corporation was accused of trying to circumvent the statute by establishing an LLC as a subsidiary of the corporation and then the LLC made contributions to candidates in excess of the statutory limits. The corporation argued that the limits only applied to corporations and not to LLCs. Others argued that the limits that applied to corporations should be understood to apply to LLCs as well. Sullivan's point in telling this story was:

To make the point that even if a statute only specifies a particular type of business entity, the statute will apply to other types of business entities as well. To illustrate that statutes sometimes specify only a particular type of business entity and it is not clear whether the statute applies to other types of business entities as well. To warn students about vagaries in Indiana campaign-finance statutes. To make the point that if a statute only specifies a particular type of business entity, as a matter of law it will not apply to other types of business entities as well.

Which of the following is not an exception in Indiana law to the general rule that a principal is not liable for the torts of an independent contractor employed by the principal?

Trick question - all of these answers are exceptions to the general rule. The work to be performed by the independent contractor is intrinsically dangerous. The work to be performed by the independent contractor is illegal. The work to be performed by the independent contractor is work that the principal is by law or contract charged with performing.

In the case of Blacklidge v. Blacklidge, the Court of Appeals held that plaintiff had a contract with an LLC under which he was owed commissions for real estate appraisals performed. The court also held that the defendant, a member of the LLC:

Trick question; the Court of Appeals held that the defendant had breached his fiduciary duty to the plaintiff as a fellow member of the LLC. Was personally liable to the plaintiff for the unpaid commissions. Was protected by the bedrock principle of limited liability; only the LLC was liable for the unpaid commissions. Trick question; the Court of Appeals held that the contract was between the plaintiff and the defendant and not with the LLC.

In the Barth v. Barth case, the Indiana Supreme Court ordered judgment entered in favor of:

Trick question; the Court ordered the case remanded for further proceedings. Robert Barth. Barth Electric Co. Michael Barth.

Alex and Addison divorced after about 10 years of marriage. At the time, the couple jointly owned 25% of the stock in an Indiana corporation founded by Alex's parents; the parents continue to own the remaining 75%. There were no restrictions on the stock certificates and no agreements of any kind governing the transferability of the stock. In the divorce decree, each of Alex and Addison received 12.5% of the stock individually. Alex's parents do not mind Addison continuing to own stock in the Corporation but do not want Addison to sell the stock to a third person. What legal recourse can they take to preempt Addison from doing so?

Under the Indiana Business Corporation Law, the governance interest in a corporation's shares cannot be transferred without the consent of all of the corporation's other shareholders. Absent agreement with Addison, they can do nothing. Under the Indiana Business Corporation Law, the Board of Directors of a corporation can adopt at any time share transfer restrictions binding on all shareholders. Under the Indiana Business Corporation Law, a majority of the shareholders of the corporation can adopt at any time share transfer restrictions binding on all shareholders.

When an LLC has been dissolved and is winding up its affairs, its assets must be distributed in the following order:

Unless otherwise provided in a written operating agreement, to members in proportion to the returned contribution; (2) to creditors to satisfy the liabilities of the LLC; and (3) unless otherwise provided in the operating agreement, to members and former members to satisfy any liabilities for distributions. o creditors to satisfy the liabilities of the LLC; (2) unless otherwise provided in the operating agreement, to members and former members to satisfy any liabilities for distributions; and (3) unless otherwise provided in a written operating agreement, to members in proportion to the returned contribution. Unless otherwise provided in a written operating agreement, to members in proportion to the returned contribution; (2) unless otherwise provided in the operating agreement, to members and former members to satisfy any liabilities for distributions; and (3) to creditors to satisfy the liabilities of the LLC. Unless otherwise provided in the operating agreement, to members and former members to satisfy any liabilities for distributions; (2) unless otherwise provided in a written operating agreement, to members in proportion to the returned contribution; and (3) to creditors to satisfy the liabilities of the LLC;

In Burwell v. Hobby Lobby Stores, Inc., the U.S. Supreme Court held that Conestoga Wood Specialties Corporation and Hobby Lobby Stores, Inc.:

Were protected by the Religious Freedom Restoration Act because they were "closely held corporations." Were subject to federal regulations promulgated under Obamacare because the federal Religious Freedom Restoration Act does not protect corporations primarily organized for secular, profit-seeking purposes. None of these answers is correct. Were protected by the free Exercise Clause of the first Amendment because they were "closely held corporations."

The issue that we studied in class concerning Cincinnati Insurance Co. v. Willis was:

Whether the use of the name Berlon & Timmel by Cincinnati's attorneys violated Professional Conduct Rule 7.5(4)(ii) because neither Berlon nor Timmel was the name of a lawyer in the firm or a deceased or retired member of the firm or of a predecessor firm. Whether the attorneys who held themselves out as practicing under the name of Berlon & Timmel did so in violation of Professional Conduct Rule 1.7 because there was a significant risk that their representation of Cincinnati's policyholders would be materially limited by their responsibilities to Cincinnati. Whether the attorneys who held themselves out as practicing on behalf of Cincinnati under the name Berlon & Timmel were in fact completely independent of Cincinnati. Whether the use of the name Berlon & Timmel by Cincinnati's attorneys was deceptive in violation of Professional Conduct Rule 7.2 because the name implied independence from Cincinnati.

6. Hypothetical Insurance Agency, Inc., is a small insurance agency that sells life insurance, property insurance, and automobile insurance. The agency advertises heavily and stresses in its advertising that it sells life, property, and auto insurance. "Come to us for all your insurance needs" is its motto. The company employs separate "specialists" for each type of insurance, i.e., one group of specialists sells only life; another group only property; and a third only auto. The separation among the groups is strict and each specialist is told not to sell other types of insurance under threat of discharge. Late one Friday afternoon before a holiday weekend, Stacey, a specialist in life insurance, was the only person in the office. A customer came into the office to buy a property insurance policy. Stacy offered to take down the customer's information but, as a specialist in life insurance, could not sell property insurance. The customer exploded, "What about 'come to us for all your insurance needs'"? Stacey relented and agreed to sell the policy. Before closing the deal, the customer asked, "This policy includes flood insurance, right?" "Of course it does," Stacey replied. But Stacey was mistaken; the policy did not insure against floods. Soon thereafter, a freak storm flooded the customer's property, causing significant damage. When the customer sues Hypothetical Insurance Agency, Inc., for negligence in advising that flood insurance was included in the policy, the customer will:

Win because Stacey was acting within the scope of employment. Win because Stacey had implied actual authority. Lose because, as a specialist in life insurance who was forbidden to sell property insurance, Stacey had no authority to contract on behalf of Hypothetical. Lose because, after Stacey advised the customer that Stacey only sold life insurance, the customer assumed the risk of any errors on Stacey's behalf.

Hypothetical Manufacturing, Inc., has a vice president for manufacturing with authority to purchase machinery costing up to $200,000 without approval from the president. This has been company policy for many years and is well known to vendors that sell machines to Hypothetical Manufacturing. The Board of Directors institutes a new policy calling for the president to approve any purchase costing up to $150,000. This policy is not communicated to the vice president for manufacturing who soon thereafter enters into a contract purchase a new machine from a long-standing vendor $175,000. Hypothetical Manufacturing refuses to take delivery on grounds that president did not approve the purchase. In its suit to enforce the contract, vendor will:

Win because the vice president had both implied actual authority and apparent authority to make the purchase. Win because the vice president had apparent authority even though the vice president did not have implied actual authority to make the purchase. Lose because the president did not approve the purchase. Lose because the vice president did not have authority to make the purchase.

Attorney Joseph Yast had represented James Gagan and Gagan's company, DirectBuy, Inc., for many years. More recently, Yast had come to represent Gagan's adult son's company, ThinkTank Software Development Company. In Gagan v. Yast, James Gagan and some others sued Yast alleging:

Yast had stolen $75 million belonging to the customers of DirectBuy. Yast was guilty of an impermissible conflict of interest for representing Trivest in its acquisition of DirectBuy when Yast had previously represented DirectBuy. Yast was guilty of legal malpractice in his representation of DirectBuy. Yast had defamed them in a conversation with Gagan's adult son in which Yast withdrew from representing ThinkTank.

ABC Corporation and XYZ Corporation were engaged in heated commercial litigation. Kelly represented ABC Corporation. On the eve of trial, the two companies agreed to settle their differences and Kelly drafted the settlement agreement. In private, ABC's president instructed Kelly, "Whatever you do, do not release our ability to come after XYZ if they attempt to infringe on our Plastics patent." The litigation settled and the parties went on their separate ways. Several years later, ABC's president called Kelly in a rage, screaming that XYZ was infringing on the Plastics patent after all. What made the president really furious was that when confronting XYZ, XYZ's president responded that the settlement agreement from the litigation had released XYZ from any past, present, or future claims of infringing the Plastics patent. ABC's president wants Kelly to be ABC's lawyer in its patent infringement lawsuit against XYZ. "After all," the president said, "who knows more about what the settlement agreement means then you." Would Kelly's accepting the engagement violate Professional Conduct Rule 1.7?

Yes, Kelly cannot provide competent and diligent representation on the circumstances. No, while Kelly does have an interest in avoiding malpractice liability to ABC, there is no significant risk that Kelly's representation of ABC would be materially limited because, as ABC's president says, Kelly knows more about what the settlement agreement means than any other lawyer ABC could get. No, so long as Kelly reasonably believes that Kelly will be able to provide competent and diligent representation. Yes, there would be a significant risk that Kelly's representation of ABC would be materially limited by Kelly's own interest, namely avoiding malpractice liability to ABC.

Kelly and Chris form KC Partnership, an Indiana general partnership, to invest in apartment buildings near college campuses. Kelly has a 75% interest; Chris 25%. Chris has bought buildings in Muncie near Ball State and in Terre Haute near Indiana State and contributed them to the partnership, although the title remains in Chris's name; Kelly has bought buildings in South Bend near Notre Dame and also contributed them to the partnership; similarly, the title remains in Kelly's name. The partnership gets an opportunity to buy a building near Butler in Indianapolis but none of Kelly, Chris, or the partnership has enough money to buy it. Pat comes to the partnership and offers to buy the Muncie properties; this would produce enough cash to buy the Butler property. Kelly opposes the deal; Chris supports it. Pat knows nothing of the internal debate and so when Chris tells Pat that they have a deal, Pat signs a contract with Chris to purchase the Muncie arranges the funds. Is KC Partnership bound by the contract Chris has signed?

Yes, because the partnership is bound by Chris's action unless Pat knows that the action is unauthorized. Yes, because the Muncie property is titled in Chris's name, Chris has authority to dispose of it even over Kelly's objection. No, the action of a partner is only binding on the partnership if a majority in partnership interest approves. No, the action of a partner is only binding on the partnership if a majority of the partners approve.

Kelly, Stacy, and Casey are three general partners in an Indiana general partnership called KSC Partners. The partnership agreement says that all matters not addressed in the partnership agreement shall be governed by applicable law; the only matters addressed by the partnership agreement are financial allocations. Kelly and Stacy would like to hire Chris to work for the partnership but Casey is adamant that no money should be spent hiring an additional employee. If Kelly and Stacy try to go ahead and try to hire Chris, will Casey be able to enjoin them from doing so?

Yes, the default rule under the UPA (which is the law in Indiana) is that the partners must unanimously agree to all matters concerning the hiring and firing of employees. No, the default rule under the UPA (which is the law in Indiana) is that any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners. No, Kelly's and Stacy's decision to hire Chris is reasonable and a court will not enjoin a reasonable business decision. Yes, the default rule under the UPA (which is the law in Indiana) is that the partners must unanimously agree to all matters connected with partnership business.

Kelly, a lawyer in private practice who regularly represents Old Reliable National Bank, enters into a Loan and Security Agreement with the Bank for a business line of credit under which the Bank will loan Kelly funds from time to time to support the ongoing needs of the law practice, the borrowings to be repaid with interest as circumstances permit. The security agreement provides that Kelly's repayment obligation is secured by the law practice's accounts receivable and other tangible and intangible property. These are the terms that the Bank provides to and requires of all commercial customers of Kelly's credit worthiness. Is this transaction between Kelly and the Bank subject to the disclosure, consent, and other requirements of Professional Conduct Rule 1.8?

Yes, there is a significant risk that the lawyer's representation of the Bank will be materially limited by the personal interest of the lawyer as a customer of the Bank. No, the Rule does not apply to standard commercial transactions between a lawyer and a client for services that the client generally markets to others. Yes, this is a business transaction with the client and although the transaction and terms appear to be reasonable to the client, the Rule also requires disclosure and consent. No, the Rule applies to transactions in which a lawyer makes a loan to a client but not to transactions in which a lawyer borrows money from a client.

Kelly and Chris are 50% each partners in an accounting firm organized as a limited liability partnership. The partnership agreement provides that they share equally in all governance and economic matters. You have represented the LLP for many years and have also done considerable legal work for each of Kelly and Chris individually. Kelly emails you one day that the relationship between Kelly and Chris has started to break down and Kelly is discreetly contacting the firm's clients to see if they would continue to engage Kelly individually to do their accounting work if Kelly were to start a new firm without Chris. And, Kelly says in the email, "Not a word of this to Chris, okay?" What are your ethical obligations in the situation?

You must proceed under Professional Conduct Rule 1.7. Kelly's demand that you keep confidential the information about Kelly's possible departure creates a significant risk that your representation of both the LLP and of Chris will be materially limited by your responsibilities to Kelly. Answer All of these answers are correct. You must proceed under Professional Conduct Rule 1.13 which provides that when a lawyer represents an organization, as you do here, the organization acts through its duly authorized constituents who in this situation appear to be both Kelly and Chris. You must proceed under Professional Conduct Rule 1.6 which prohibits you from revealing the information relating to your representation of Kelly.

Kelly has a 25% ownership interest in a food distribution business. In order to borrow some money from Chris, Kelly pledged the 25% ownership interest to Chris as collateral. Kelly has now defaulted on the loan and Chris has consulted you with the following question: "If I go to court and get the court to award me Kelly's 25% ownership interest, will I only have economic rights, e.g., rights to distribution of profits, or will I have voting rights as well?" Assume there is nothing in the business's organizational documents that change the default rule of the statute. How do you answer Chris's question?

You will have voting rights; you will not have economic rights. You will only have economic rights; you will not have voting rights. You will have both economic rights and voting rights. Answer More information is required.