Business Associations (Hypos/Cases)

In re Walt Disney Co. Derivative Litigation

A - Because the committee was informed of the contents of and the reasons behind the employment agreement, the committee did not breach their fiduciary duty of care in approving the agreement. Further, the presumption of the business judgment rule would protect the committee because there is no credible evidence to show that the 5 factors were not met. C - the committee members are protected under the presumption of the business judgment rule and did not breach a fiduciary duty. A - Because the committee was informed of the contents of and the reasons behind the employment agreement, the directors did not breach their fiduciary duty of care in approving the agreement. Further, the presumption of the business judgment rule would protect the committee because there is no credible evidence to show that the 5 factors were not met. C - the board and committee did not act in bad faith. A - Disney was contractually obligated to pay the severance payments. The payment cannot constitute waste unless the obligation is itself wasteful. The shareholders allege that the agreement's non-fault termination provisions were wasteful because they gave Ovitz an incentive to leave the company before the end of his contract term. However, the provisions constitute a rational business purpose because Disney needed to persuade Ovitz to leave his job. The termination provisions provided Ovitz the "downside protection" he desired. While the severance dollar amount is extremely high, it's inclusion was the only way Ovitz would have accepted the position. C - the board and committee did not breach their fiduciary duties.

Gay Jensen Farms Co. v. Cargill, Inc

A - Cargill did not orally or in writing manifest its assent. However, Cargill did manifest assent to Warren being its agent through its conduct in directing Warren to implement their recommendations. The relationship benefited Cargill because Warren was acting on its behalf by procuring grain for it and giving Cargill the right of first refusal on the grain. Cargill also had control over Warren because it interfered and influenced Warren's internal affairs like Warren's inability to enter into any financial agreements without Cargill's approval, Cargill's power to continue or discontinue its financing of Warren, or Cargill's right of entry on Warren premises to conduct checks and audits. C - There was a principal agent relationship between Cargill and Warren, so Cargill can be held vicariously liable for the contracts Warren entered into with third parties.

Walkovszky v. Carlton

A - Here, Carlton is a shareholder in 10 different taxicab corporations. Each corporation had title to two cabs and each cab carried the minimum $10,000 car liability insurance. Walkovszky alleges that each of Carlton's other cab corporations all functioned as a single enterprise and should be treated accordingly. Carlton argues that he is not personally liable. He holds the minimum required insurance amount, and only has the taxi cabs as assets in the corporation. Carlton argues that his operation is following the rules set forth by the legislature, requiring only a $10k insurance policy. Because he meets this requirement, he argues that the corporations are not undercapitalized. The Seon Cab Corporation only carries the legally required minimum amount of liability insurance. However, the state requirement is a blanket requirement for all motorists. A corporation that operates a taxi service and has multiple cars on the road for 24 hours a day would be irresponsible to only carry the minimum liability insurance. Accidents are inevitable and carrying minimum insurance means that the corporation will need to deplete its cash in order to respond to the inevitable plaintiffs' recovery of damages. These corporations, Seon included, did not carry any cash assets. Also, public policy favors making tort victims whole; a responsible cab company would know to expect this treatment by the courts and get more than the minimum amount of insurance coverage. This is undercapitalization. In this case, Carlton would be held personally liable to Walkovsky. C - Carlton is not personally liable.

Fenwick v. Unemployment Compensation Commission

A - Here, Fenwick and Chesire agreed that Chesire was to be a partner and share 20% of the salon's profits. It would appear that a partnership was formed between Fenwick and Chesire because they were two people, with a written agreement to share profits of a business together. Of the eight factors that a court will examine to determine if a partnership exists, Fenwick and Chesire's relationship only met two: the right to share in profits, and the language used in an agreement. Chesire was given 20% of the salon's profits, and the agreement stipulated that Fenwick and Chesire were in a partnership called United Beauty Shoppe. However, Chesire's 20% of the salon's profits can be seen as wages of an employee, which falls under the exception to the general rule that share of profits constitutes prima facie evidence of partnership formation. Regarding intent, Fenwick gave testimony that his intent was to keep a valued employee and provide Chesire with a means of increased compensation. Regarding a share in the business' losses, Chesire did not share in the losses, and Fenwick was liable for all the losses. Regarding ownership of property and capital, Fenwick contributed all the capital, and Chesire contributed no capital. Regarding management and administration of the business, the agreement stipulated that Fenwick would retain exclusive control of the management of the business. Regarding conduct of the parties toward third parties, Chesire acted as an employee to all but the Unemployment Compensation Commission, and they never registered the trade name with the department of state. Finally, Chesire had no rights upon dissolution; rather, when she decided to quit to stay home with her child, the result was exactly the same as if she had quit employment—she ceased to work and ceased to receive compensation and everything reverted to the condition it was in prior to the agreement, except that Fenwick hired a new receptionist. C - Ms. Chesire was an employee, and no partnership was formed.

Rash v. J.V. Intermediate, Ltd.

A - Here, JVIC assented to a relationship with Rash because they hired him to help manage and supervise their Tulsa division, and further, Rash signed a contract assenting to the relationship between himself and JVIC. JVIC benefited from the relationship because they have someone to manage an additional division of their business. JVIC also had control and supervision over how Rash was to operate the Tulsa division because it was a division of their larger company, subjected to the company's standards of operation and business. Further, Rash doesn't contest that he is an agent of JVIC. Since there is a principal-agent relationship between JVIC and Rash, fiduciary duties exist. The agent has a duty to obey reasonable instruction and the duty to exercise reasonable care, but those duties are not at issue in this case. Rash breached the duty of loyalty to JVIC because he breached the fiduciary duty of full disclosure which he owed to JVIC. He did not disclose to them his participation and ownership of other businesses, including the scaffolding business he owned. The duty of full disclosure pertains to all information about matters that could affect the principal's business. Selecting subcontractors can have an effect on a building company like JVIC. This aspect of the business was influenced by Rash's affiliation with his other businesses because one of his businesses (TIPS) was selected as a JVIC contractor on more than one occasion. A decision that influences JVIC, but Rash did not disclose that to them. C - Rash breached a fiduciary duty he owed to JVIC.

Sea-Land Services, Inc. v. Pepper Source

A - Here, Marchese would generally not be held liable as a majority shareholder of PS. However, if there is a finding of fraud or unfairness, the corporate veil may be pierced and Marchese maybe liable upon a finding of abusing the privilege of incorporation or if granting Marchese limited liability would be inequitable. Of the 5 corporations run by Marchese, he was the sole shareholder of 4 entities. Sea-Land argues that these corporations were alter egos of each other and Marchese hides behind the veils of the alleged separate entities. Each of these corporations are not only alter egos of one another, but Marchese created and manipulated each of the corporations and their assets for his own personal use. The court finds here that funds were comingled with Marchese's personal funds, none of the corporations ever held a single corporate meeting, there were no articles of incorporation or bylaws. Additionally, Marchese runs all of the corporations out of the same single office and each corporation borrows money from one another. Marchese uses the corporate accounts to pay for personal expenses and doesn't even have a personal account. C - Marchese will only be held personally liable if Sea-Land successfully argues on remand that his conduct constituted fraud or failing to hold him personally liable would promote injustice.

Meehan v. Shaughnessy (MBC v. PC)

A - Here, Meehan and Boyle breached their fiduciary duty of loyalty and good faith to PC by secretly competing for their clients. PC clearly formed a partnership with Meehan and Boyle operating as individual partners of the firm for profit. Because a partnership existed, Meehan and Boyle owe fiduciary duties to the partnership, even upon their exit. There is no evidence that they breached a duty to the partnership through improperly handling cases for their own. Even though Boyle may have suggested that cases be resolved under their new partnership, there was no evidence that this actually occurred. BUT partners may plan to compete as long as they do not violate fiduciary duties in the course of the arrangements. Meehan and Boyle made logistical arrangements to establish MBC that did not result in an impermissible breach. Meehan and Boyle did unfairly acquire from clients and referring attorneys' consent to withdraw cases to MBC. Meehan and Boyle prepared to leave the partnership and prepared by obtaining clients' consent in secrecy. C - Meehan and Boyle breached their fiduciary duty of loyalty and good faith when they secretly organized to take clients away from PC to MBC.

Putnam v. Shoaf

A - Here, Putnam was in a partnership with the Charlton's because they are two or more people, acting as co-owners of a for-profit business (the Frog Jump Gin Company). When Putnam wanted to sell her interest in Frog Jump Gin and the Shoafs expressed interest in potentially Putnam's one-half interest in Frog Jump Gin. The Shoafs agreed to take that interest, assume all partnership obligations, and assume personal liability for all partnership debts if Putnam and the other partner, the Charltons, each paid $21K into the partnership account, she executed a quick claim deed, which released her from liability of the partnership and transferred her interest in the partnership to the Shoafs. Effectively, Putnam was no longer in the Frog Jump Gin partnership. A partnership is now created between the Charltons and the Shoafs as co-owners of a for-profit business. Because the partnership property/assets cannot exist absent a partnership, a partner does not personally own any specific property/assets of the partnership and therefore cannot retain any rights to the partnership after she conveyed her interests. Putnam transferred all her interest in the partnership to the Shoaf's and it was her intent to transfer all of her one-half interest because she wanted to exit the partnership. C - Putnam is not entitled to the other of half of the $68,000.

Roman Catholic Archbishop of San Francisco v. Sheffield

A - Here, Sheffield entered into a contract with the Canons Regular of St. Augustine a Catholic monastic order, of Switzerland for the purchase of a trained St. Bernard dog. Sheffield alleges that Archbishop and the Canons Regular were alter egos of each other and the Roman Catholic Church. However, Archbishop has never had any dealings with the Canons Regular. There is nothing to suggest that the interests of the Archbishop and those of the Canons Regular are alter egos to allow for veil-piercing. Archbishop and the Canons Regular did not commingle funds, did not hold out as one entity, or use the same offices or employees. While it is true that the Archbishop and the Canons Regular are both entities involved with the Catholic Church, both Archbishop and Canons Regular are controlled by the Pope in Rome. C - the Archbishop cannot be held liable.

Sinclair Oil Corp. V. Levien

A - Here, Sinven is a subsidiary of Sinclair. Sinven operates on behalf of Sinclair in Venezuela, Sinclair operates primarily as the holding company, and owns 97% of Sinven's stock. Sinclair nominates all members of Sinven's board of directors. Sinclairs overwhelming control of Sinven leads to them owing Sinven a fiduciary duty. Here, the intrinsic fairness test was incorrectly applied. The dividend payments did not show evidence of self-dealing by Sinclair. While the dividend payments resulted in large amounts going to Sinclair, a proportionate share of the money was also received by the minority shareholders. Sinclair received nothing from Sinven that the minority shareholders were excluded from. Because there was no self-dealing here, the business judgment rule should be applied. There is no evidence of a usurped opportunity, nor self-dealing. Without any of the elements of the business judgment rule being breached, and absent any evidence of fraud, the decisions made by Sinclair, including its expansion decisions are protected from judicial interference. Sinclair's act of contracting with the dominated subsidiary was self-dealing because the minority shareholders were not able to share in receipt of the products. Sinclair breached two portions of the contract, the payment terms and the amounts required for purchase. Because there was self-dealing, the intrinsic fairness test should be applied. C - Sinclair violated a fiduciary duty when it breached its contract claims, but not when it paid out dividends.

National Biscuit Company v. Stroud

A - Here, Stroud and Freeman entered into Stroud's Food Center as co-owners for profit, meeting the definition of a partnership. There was no evidence of any restriction or limitation on the partnership. Absent any agreement of how the partners would exercise control, Stroud and Freeman shared equally in management of the business. reeman was acting as an agent and his conduct of selling bread to NBC therefore bound the partnership. Stroud could not and did not restrict the authority of Freeman to buy bread for the partnership because the purchase of bread was within the scope of the business. Freeman's actions therefore bound the business. Because this conduct was within the scope of business, the partnership is liable to fulfill the sale. Each partner is jointly and severally liable for the purchase of the bread if the partnership cannot cover those costs in dissolution. C - the partnership was bound by Freeman's conduct as a partner and Stroud is jointly and severally liable.

Southern-Gulf Marine Co. No. 9, Inc. v. Camcraft, Inc.

A - Here, a corporation by estoppel will be granted. Mr. Barrett, acting as a promoter for the yet to be formed Southern-Gulf, entered into a contractual agreement with Camcraft. Adequate consideration was given, and Camcraft knew that the corporation had yet to be formally incorporated. Mr. Barrett remains liable for the contract until the corporation is formed, the contract is adopted and there is novation. Despite this ratification of the contract, Camcraft is challenging the legitimacy of Southern-Gulf as a corporation. It seems that Southern-Gulf took the requisite people, paper, act needed to become a corporation, however, they did this in the West Indies, instead of Texas. Camcraft entered into the agreement thinking Southern-Gulf would be incorporated in Texas, allowing any legal problems to be resolved under U.S. Jurisdiction. Because of the West Indies incorporation, Camcraft is seeking to invalidate the contract. When Camcraft entered into the contract with Southern-Gulf, it acknowledged Southern-Gulf as a corporate entity. Camcraft cannot now deny the existence of the legal existence of Southern-Gulf after signing those contracts in order to unfairly benefit. C - Because Camcraft acknowledged the contract with Southern-Gulf, it will be estopped from later denying that there was a corporation in order to gain an advantage.

Summers v. Dooley

A - Here, a partnership existed between Summers and Dooley because they are two or more persons, acting as co-owners of a for-profit trash collecting business. This fact is not disputed. As partners in a partnership, they are jointly and severally liable for the debt incurred by the partnership and are bound by the contracts entered into by its partners with authority. Each partner also has an equal right to management and conduct of the partnership business. Since there is not an agreement to suggest otherwise, we assume that Summers and Dooley have equal rights to the management and conduct of the trash collecting business. However, this employee was specifically brought on to benefit Summers, not the partnership which is evident by Dooley's multiple objections to hiring a third person who they didn't need. Summer's hiring an employee and wanting the partnership to pay for him was contrary to how they normally handled business (paying third parties out of their own pocket) and should have been decided by a majority vote, but wasn't. If it was put to a majority vote, like it should have been, Summer's one vote to hire the employee is not a majority and therefore wouldn't have been approved. It would be unjust to hold the partnership liable for the costs of an employee who only benefited one partner and not the whole partnership. C - the partnership and Dooley are not liable for the costs incurred by Summers in hiring a third person.

Day v. Sidley & Austin

A - Here, a partnership exists between the firm's senior partners as co-owners of the firm for profit. The misrepresentation is not enough for a finding of fraud because Day was not deprived of any legal right in his reliance on the misrepresentation. Also, Day could not have reasonably believed that no changes would be made in the Washington office since the agreement gave complete authority to the executive committee to decide firm policy, including appointing chairpersons. Day was not denied his right to the chairperson position because he held no right to begin with. The information Day wanted to have disclosed to him was the new structure of the firm, which is exactly the information that is exempt from the needing to be disclosed because failure to disclose this type of information does not injure the partnership or cause financial loss as a whole. The partners on the executive committee already had management power granted to them and did not gain any more power through the merger or knowledge of the merger. Here, S&A and the executive committee did not owe him any duty of disclosure of the merger prior to its occurrence. C - S&A did not owe Day a fiduciary duty.

Martin v. Peyton

A - Here, a partnership relationship is not formed between the creditors and KN&K bank. A partnership requires two or more persons carrying on as co-owners for profit. Here there is some preliminary evidence of what may be considered a partnership, but the agreement, indenture, and option between the parties do not move past a mere creditor-debtor relationship. Additional guarantees were needed to ensure the protection of their loan. C - Peyton is not a partner of KNK and is not liable to Martin for KNK's debts.

Mill Street Church of Christ v. Hogan

A - Here, an agency relationship existed between Bill Hogan and the Church because: (1) Bill Hogan assented to paint the church as he starting doing the job; (2) the Church benefits by getting painted and looking nice; and (3) the Church had control as it had indicated the painting job that was required, and Bill went to the Church elders to ask for a helper. The Church did not give express authority to Bill to hire Sam. However, Bill had implied authority to hire Sam as his helper. Bill needed a second person in order to reach the baptistry portion of the Church which was very high up and difficult to reach (necessity). Painters typically work in groups rather than by themselves (custom). And in the past, the Church had allowed Bill to hire Sam or other persons to help (prior dealings). Even if there is no implied authority, there is apparent authority. The Church cloaked Bill with the appearance of authority (Bill had previously hired Sam when he was working this job; the Church paid Sam for the half-hour that he worked before he fell), and Sam reasonably relied on the appearance of authority (he started painting the Church before he was injured). C - the Church is liable for the contract that Bill entered with Sam and is thus liable for Sam's injuries.

Atlantic Salmon A/S v. Curran

A - Here, an agency relationship exists between Curran and Marketing Designs, Inc. because Curran purchased and sold salmon on behalf of Marketing Designs, Inc. (assent, benefit, and control were present). While there is no evidence of express or implied authority, there is evidence of apparent authority. Curran signed checks with the fictitious corporation "Boston International Seafood Exchange, Inc." imprinted on them, to which the plaintiffs accepted as payment. Curran was cloaked with the appearance of authority and third parties reasonably relied on that appearance. The plaintiffs had notice that Curran was purporting to act for a corporate principal, but believed he was acting for Boston International Seafood Exchange. Because they did not have notice of the true principal's identity (Marketing Designs, Inc.), the principal is partially disclosed. While the plaintiffs could have discerned who they were dealing with by searching the records with the city clerk, it was Curran's duty to disclose—to provide actual knowledge of the principal's identity to the plaintiffs—and he failed to do so. Regardless, because the defendant did not fully disclose the identity of the principal, it can be presumed that he intended to make himself personally responsible for the fulfillment of the contract. C - Curran is liable as a party to the contract.

Sandvick v. LaCrosse

A - Here, no partnership was formed between LaCrosse, Haughton, Sandvick, and Bragg. The parties were not co-owners of a business. Their actions were limited and did not meet the definition of a business. A business requires a series of acts. The parties' purchase of the Horn leases is considered only separate acts. A joint venture was formed between the four parties. LaCrosse and Haughton breached their duty of loyalty to Sandvick and Bragg by entering into the Horn Top leases prior to the end of the Horn Leases. Though the Horn lease did not contain an extension or renewal provision, the Horn Top Lease were very much an extension of the Horn Leases. LaCrosse and Haughton breached their duty of loyalty by usurping the business of their joint venture and self-dealing in the profits they would make off the new purchase. By entering into the new Horn Top Leases prior to the current leases ending they took away an opportunity for the joint venture and the other partners to also join in on the activity. LaCrosse and Haughton further breached their duty of care owed to Bragg and Sandvick. The duty of care requires that partners disclose any information pertaining to the business, including when a partner/co-adventurer might have a conflict of interest to the joint venture or partnership. C - LaCrosse and Haughton breached the fiduciary duties they owed to Bragg and Sandvick.

Botticello v. Stefanovicz

A - Here, no principal-agent relationship was present between Walter and Mary Stefanovicz. There was no assent between Walter and Mary. Neither party agreed to have Walter act on Mary's behalf as an agent. Also, there was no control. Walter handled many of the business aspects including payments for taxes, insurance, and mortgage. However, Mary consistently signed any deed, mortgage, or mortgage note in connection with their jointly held property. Mary and Walter both discussed the sale of the farm. Mary did not have control over Walter because he was not supervised by Mary in some business aspects. Here, in the alternative, the plaintiff contends that even if there was no principal-agent relationship, Mary ratified the agreement. Mary did accept all the benefits. She received rental payments from the plaintiff. However, she did not have knowledge of all material facts regarding the agreement. At most, Mary's actions simply illustrate that she knew that of plaintiff's rent payments and development of the property were pursuant to an agreement she had not signed and concerned land in which she has a one-half interest. Mary did not have knowledge of all material facts. What "she knew" was from simple observation. C - Mary is not bound by the contract made between Walter and Botticello, meaning Botticello cannot recover damages from her.

Dodge v. Ford Motor Co.

A - Here, the Dodges are questioning the decisions of Henry Ford to, instead of declaring special dividends, reinvest funds in the business for an ore smelting plant, among broader community gains. The dividend approval is at the discretion of the board of directors. However, there is evidence that the decision to eliminate special dividends comes at the expense of the stockholders. The elimination of special dividends, especially in an environment where profits continue to rise, provides evidence of a breach of good faith to the stockholders. However, this protection will be lost if there is evidence of a lack of good faith when making a decision. The corporation's purpose is to benefit the stockholders, Ford's decision to eliminate special dividends goes against this purpose, and the business judgment rule protection is lost. The dividend elimination is against the best judgment of the business. Redirecting profits to an iron ore smelting plant, however, is not. This decision is a business judgment, best left to the directors instead of the court. Unless any element of the business judgment rule is violated, the court will not interfere. There is no evidence of that type of violation here. C - Ford's actions of eliminating special dividends were not in the best interests of the shareholders and can be enjoined, but the creation of the iron ore smelting plant cannot.

Bayer v. Bernan

A - Here, the board of directors decided to attempt radio advertising for the first time and ratified the decision individually. In making this decision, the board acted, therefore was not engaging in nonfeasance. The plaintiff alleges that the decision was a conflict of interest because the president's wife benefitted from the agreement. The directors acted in good faith because the corporation changed the way its product was branded after an FTC decision and was concerned about advertising its products. The directors made the decision to move forward with this advertising campaign in good faith and in the best interest of the company in an attempt to maintain profits after this forced change. The board used studies to make the decision, fulfilling the requirement of an informed decision. Finally, the board was not reckless or wasteful in this decision. There was a fair relationship to the net sales and earnings and the money spent on advertising. However, since the plaintiff alleges a conflict of interest, the business judgment rule does not apply. There is no evidence that the radio program subsidized Miss Tennyson's career or did anything besides enhance her prestige as an already talented musician and provide reasonable compensation that any musician would receive. The evidence shows that the same decision on the advertising campaign would have been made whether Miss Tennyson was chosen to be included in the campaign or not. C - the board of directors did not breach a fiduciary duty and is not liable

Smith v. Van Gorkom

A - Here, the board of directors did not make an adequately informed decision when they decided to sell according to Van Gorkom's plan to sell on September 20. Because the directors did not have any knowledge prior to the meeting of the meeting's purpose and they had no information or documents to review prior to the meeting, they were largely uninformed. They relied upon Van Gorkom's conclusions based on a 20-minute oral presentation. There was no additional evaluation and the board accepted Van Gorkom's representation without any scrutiny as to the $55 price and its fairness. No facts that support that the board was allowed to put the corporation up for sale or that the auction occurred. The board overlooked the fact that these amendments were nothing short of superficial in order for Pritzker to hold control. The board here made a bad decision that amounted to more than an innocent mistake. C - the board of directors breached their fiduciary duty to shareholders by failing to inform themselves of reasonable information and failing to disclose all material information to the shareholders.

A.P Smith Mfg. Co. v Barlow

A - Here, the board of directors of A.P. adopted a resolution to join with others in the 1951 annual giving campaign to Princeton and donated $1,500. The act was questioned by stockholders as a suit was filed. A.P. Smith's articles of incorporation make no express statement regarding the authorization of contributions. Their incorporation took place prior to the passage of New Jersey's law granting corporations the ability to donate funds. Even though this is technically an ultra vires activity, courts (following the lead of legislatures) have been hesitant to enjoin the donations in favor of public policy. And though the board is taking profits from shareholders to donate to the charitable foundation, their decisions are made with sound business judgment. The donations will increase good will, create a favorable educational environment, and ensure well-educated individuals enter in the workforce to assist in the corporation's long-term success. There is no evidence that this decision was made in bad faith, against the best interests of the corporate, or without being informed. While some may constitute a donation a waste, the courts, legislature, and the corporation all view donations of these types to be beneficial for society. Finally, there is no evidence of self-interest, nor is there an unfair benefit to the corporation. C - the board had authority to give the donation.

Zahn v. Transamerica Corporation

A - Here, the board of directors, who are also agents of Transamerica violated their fiduciary duties to the minority shareholders of Axton-Fisher. Axton-Fisher, a tobacco company located in Kentucky, is primarily owned by Transamerica. By 1943, Transamerica owned nearly 66% of the Class A stock outstanding, and over about 80% of the Class B stock outstanding. With this substantial control, Transamerica elected their own officers or agents as the board of directors for Axton-Fisher. By initiating this liquidation, the board did not act with the requisite disinterest to abide by their duty of loyalty. If the board had made the shareholders aware of the details surrounding the appreciation of the tobacco price, this action may have been valid. However, they did not. Additionally, the board did not seek to ratify this decision by seeking a majority vote of independent directors, a majority vote of a committee of at least two independent directors or a majority vote of shares held by independent shareholders. Since Transamerica is self-dealing here, the intrinsic fairness test would apply (rather than the business judgment rule). Transamerica would need to prove that its actions were entirely and objectively fair. Since there was no reason for the declaration of dividends on the Class A stock to be followed by liquidation other than to profit the Class B stockholders, Transamerica would fail the intrinsic fairness test, and would be liable to minority shareholders. C - Transamerica owed and breached its fiduciary duty of loyalty to minority shareholders.

Fliegler v. Lawrence

A - Here, the directors of Agau claim the exercised option was protected because the shareholders ratified the deal. Their reasoning follows that because the shareholders ratified the deal, the burden of proving fairness has been relieved. This view, however, is flawed because the majority of shareholders that ratified the deal were interested shareholders. In this case, the board of Agau sought ratification from shareholders to approve the interested director transaction and avoid any liability associated with a breach of loyalty. Because the ratification was approved by a majority of shareholders the directors claims that the burden of proving an unfair transaction shifts to the objective shareholders. Here, the majority of shares voted in favor of the transactions were cast by interested parties, the directors. Only 1/3 of the "disinterested" shareholders voted and no assumption can be made that the remaining disinterested shareholder would approve or disapprove. Because of this the fairness burden remains with the director. Because of the significant benefits attributed to the USAC option the price paid can be considered fair. C - the shareholder directors did not breach their duty of loyalty to the corporation by exercising an option for Agau to purchase USAC, because the deal was objectively fair.

Shlenksy v. Wrigley

A - Here, the presumption of the business judgment rule protects Wrigley unless he has violated the duty of loyalty and care. Shlensky alleges that Wrigley violated his duty of care through his failure to install lights at Wrigley Field. The decision not to install lights for night games allegedly led to lower attendance at weekday games and consequently lower revenue and profit. Shlensky believes Director Wrigley is acting for a reason contrary and wholly unrelated to the business interests of the corporation. Further, Shlensky argues that Wrigley's acts constitute mismanagement and a waste of corporate assets. There is no evidence that Wrigley failed to comply with the five factors of the business judgment rule. While Shlenksy may disagree with the course of action, Wrigley could have reasonably reached the business conclusion that the Cubs were better off not investing in stadium lights to play night games.Wrigley and the board decision might not have been making the correct decision. But the authority of the directors in the conduct of the business of the corporation must be regarded as absolute when they act within the law and there is no showing of fraud, illegality, or conflict of interest in the decision-making process. The court is without authority to substitute its judgment for that of the directors. C - Wrigley did not breach a fiduciary duty to shareholders when he decided to not install stadium lights.

In re eBay, Inc. Shareholders Litigation

A - Here, the presumption of the business judgment rule will not apply because the directors had conflicts of interest. The conflict was whether to personally receive the stock allocations of IPOs and to sell them in the market or have eBay acquire the stock. Instead, the directors have usurped the corporation's opportunities by realizing significant IPO gains while not offering those opportunities to the corporation first. The directors of eBay, working with their longtime underwriter, Goldman Sachs, were given special opportunities to purchase IPO share allocations. These early offerings were given to the directors to show appreciation for eBay's business and to enhance the chances of Goldman receiving future business. The eBay directors usurped the corporation's opportunities. eBay's previous dealing in investing means that the corporation should have been offered the opportunity to invest in the IPOs first. Directors are agents to the corporation, and here, the directors failed to account for the profits obtained personally in connection with transactions related to their principal, eBay. This could be viewed as a breach of loyalty under a principal-agency relationship. C - eBay's directors breached the fiduciary duty of loyalty by usurping corporate opportunities.

Stone v. Ritter

A - Here, the shareholders are unable to satisfy the standards above and fail to provide evidence that the directors acted with bad faith. The KPMG report shows that the AmSouth directors had substantial BSA and AML policies in place, including a BSA officer, a BSA and AML compliance department, a corporate security department, and a suspicious banking activity oversight committee. Further, AmSouth's board at various times enacted written policies and procedures designed to ensure compliance with the BSA and AML regulations. The implementation of this system discharges the directors' oversight responsibilities because it is an adequate reporting system and it delegated monitoring responsibilities to AmSouth employees and departments. While individual AmSouth employees might have failed to follow the BSA/AML policies and procedures in place, that does not mean that the directors did not put the policies and procedures in place in good faith. C - the directors did not breach their fiduciary duties.

Meinhard v. Salmon

A - Here, the terms of the agreement made between Salmon and Meinhard to purchase the Bristol Hotel resulted in a joint venture because they are two or more parties, carrying out a single business enterprise (converting the Bristol hotel into shops and offices), for-profit (the rent received by those lessees of the shops and offices). However, this is not enough for formation of a partnership because Salmon and Meinhard did not share control of the business. It is, however, enough for the formation of a joint venture. Parties involved in a joint venture become co-adventurers and are subject to the same high level of fiduciary duties as a partner in a partnership. These fiduciary duties include the duty of loyalty, a duty of good faith & fair dealings, and a duty of care. Salmon breached the duty of loyalty he owed to Meinhard. The extension of the lease was directly related to the joint venture lease with Meinhard and to which Meinhard had made a large investment in. Salmon was offered this lease extension opportunity because he managed the property adjoining it, which was the joint venture between him and Meinhard. Because Salmon's opportunity arose as a result of his status as the managing co-adventurer of the joint venture, he had a duty to tell Meinhard. If Salmon had told Meinhard about the extension deal, making the two of them free to compete or enjoy the reward, and then was chosen by the landlord for the lease extension, Salmon would have not breached his fiduciary duty. By not telling Meinhard about the extension, Salmon effectively prevented Meinhard from any chance to compete and any chance to enjoy the opportunity that arose out of their joint venture. C - Salmon owed fiduciary duties to Meinhard, his co-adventurer, and he breached these fiduciary duties.

Town & Country House & Home Services, Inc. v. Newbery

A - Here, there is a clear agency relationship. There was assent to the employee-employer relationship, the employees worked on behalf of the cleaning company offering a benefit to the principal, and the principal controlled the manner in which they worked. Because the former employees were agents of Town and Country, they owed a fiduciary duty to T&C. When the agency relationship terminated, the duty of loyalty continued. This is because T&C's customer base had been procured though its hard work and advertising, the list became part of the business's good will, and customers from that list should not be solicited by former employees under a lasting duty of loyalty. By using T&C's customer list to solicit clients away from Town and Country, defendants usurped Town and Country's business opportunity because T&C thereby lost those clients' business. C - Therefore, the former employees breached their duty of loyalty which continues after employment has been terminated, and are liable to former principal, Town and Country, for breach.

Ira S. Bushey & Sons Inc v. US

A - Here, there is an agency relationship because Lane is an employee of the U.S. Coast Guard, thus, there is assent, benefit, and control. Lane's conduct (turning the valves) was not of the kind Lane was hired to perform. Getting on and off the boat while on shore leave was part of his job (along with the access to the dry dock, but he wasn't hired to get drunk and damage property. The conduct may have occurred on the job. It was not a frolic, because it was not a new independent journey; rather, he went back to the boat and checked in with the quartermaster, which is the appropriate procedure for seamen when they return to the boat from shore. Lane's conduct was more like a detour—a mere departure from an assigned task. Lane's assigned task was to come back to the boat and report with the quartermaster after a shore leave. While on his way back to the boat, he turned the valves, and subsequently reported to the quartermaster. His negligent conduct is in no way a purpose to serve the principal. Lane did not intend to benefit the Coast Guard by getting drunk and turning the valves. However, it is reasonably foreseeable that a sailor would get drunk while on shore leave because it is well documented that sailors drink heavily while on shore because of the solitude they endure while at sea. It is also reasonably foreseeable that drunk sailors returning to the ship might turn unsecured valves. C - Because the conduct was foreseeable for a sailor, Lane was acting within the scope of employment, and the U.S. Government is liable.

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

A - Here, there is an independent contract relationship rather than an agency relationship because assent and benefit are present, but control is not. Parking Authority hired Toti to do the demolition, and Toti began the demolition so it assented to the relationship. Parking Authority benefits because the demolition needs to be done and Toti will do it. Parking Authority does not have control of Toti because Toti is able to do the demolition in any manner or method of performance, and Parking Authority does not exercise control over it. Because control is missing in the relationship, there is no agency relationship. Rather, Toti is an independent contractor. Parking Authority would not be vicariously liable for any torts committed by Toti, except that New York law considers building demolition to be inherently dangerous work—especially when it is adjoined to another building in a built-up and busy section of the city. Toti was negligent in performing this inherently dangerous activity—Toti's president admitted his negligence to the plaintiff's employee after the incident, ("I goofed."). The Parking Authority is responsible for ensuring that Toti take special precautions to avoid risk to the public. Toti did not take special precautions in executing the demolition and performed the job negligently. C - Toti performed an inherently dangerous activity negligently, Parking Authority is liable.

Lawlis v. Kightlinger & Gray

A - Here, there was a partnership between Lawlis and the rest of the partners at Kightlinger & Gray ("the firm") because they are two or more people, acting as co-owners, in a for-profit business (the law firm). The existence of a partnership is not disputed in this case. However, the removal of the files does not constitute a "wrongful expulsion" because Lawlis still received and participated in the profits of the partnership after their removal. Also, the notification Lawlis received was not in fact an expulsion, rather, the notification was informing Lawlis of what the Finance Committee was proposing to do in the future. Only senior partners were permitted to vote on the Finance Committee's proposal for his expulsion. This also points to Lawlis still being considered a senior partner because Lawlis was permitted to vote on the proposal, and he was the only dissenting vote. First, the firm sought to assist and aid Lawlis through his struggles with alcoholism by allowing him to take time off work and concealing his illness from others for months. They also permitted Lawlis to continue drawing from his partnership account even though he wasn't less productive in those years. The firm also made an agreement with Lawlis about requiring attendance at AA meetings and specific work times. This agreement also contained a "no second chances" provision. However, after Lawlis resumed his consumption of alcohol, the firm didn't expel him, rather, they continued to work with Lawlis by drawing up yet another agreement with conditions he was to meet. There was also no proposal for how the firm was planning on increasing their lawyer to partner ratio. These factors all negate Lawlis' claim of his expulsion being for "predatory purposes." C - Kightlinger & Gray did not breach their duty of good faith and fair dealing when they expelled Lawlis.

Miller v. McDonald's Corp.

A - Here, there was assent between 3K and McDonald's because they entered into a license agreement; by entering the agreement, McDonald's and 3K assented to a franchisor-franchisee relationship. McDonald's benefitted because it received licensing fees from 3K for the use of the McDonald's brand. McDonald's was also benefitted by having a restaurant presence in the Tigard location without owning or operating that particular restaurant. McDonald's had control over 3K's performance. In the license agreement, McDonald's described in great detail the way that 3K had to operate the restaurant. It included specific instructions about the layout of the building, the operating hours, the employee uniforms, food handling, and preparation, etc. (see p. 47-48). McDonald's also periodically sent field consultants to inspect the operations in order to ensure conformity with the agreement; failure to comply with the agreed standards could result in loss of the franchise. The agreement laid out that McDonald's has the RIGHT to control; it doesn't matter whether it exercised that right. Though the agreement stated that 3K was not an agent of McDonald's, McDonald's exercised sufficient control/right of control over 3K's operations such that 3K is not an independent contractor and instead converted the franchise relationship into a principal-agency relationship. C - an agency relationship exists between McDonald's and 3K, and McDonald's can be held liable for 3K's negligence.

Young v. Jones

A - Here, there was no evidence to suggest that PW-US and PW-Bahamas were operating as a partnership in fact. In order for PW-US to be liable for the negligent acts of PW-Bahamas, there would need to be evidence that a partnership by estoppel was created. Partnership by estoppel would be created if PW-US represented, or permitted another to represent, that it was a partner in an existing partnership with PW-Bahamas, PW-US is liable to Young, who reasonably relied on that representation. Here, the evidence does not support a finding of partnership by estoppel. The plaintiff argues that because Price Waterhouse promotes its image as an organization affiliated with other PW offices around the world and that it is common knowledge that Price Waterhouse operates as a partnership, partnership by estoppel should be found. Furthermore, a PW brochure states that PW has over 28,000 professionals in 400 offices throughout the world. However, the plaintiffs do not contend that they relied upon the brochure to make the decision to invest. The brochure also fails to assert that entities of PW are liable for the acts of another or that the entities operate within a partnership. C - partnership by estoppel did not exist between PW-US and PW-Bahamas, and PW-US is not liable to the investors for damages caused by PW-Bahamas' negligence.

Gorton v. Doty

A - There was assent manifested by Doty because she told Garst that he could use her car if there weren't enough cars for all of the football players to get to their game. Doty had control over the task and how it was to be completed by Garst because she stipulated that she would only loan her car if Garst were the one driving it AND that it was specifically to be use to transport the football players to their game. Lastly, Doty benefited from this relationship because she did not have to drive the players to their game. C - there was a principal-agent relationship between Doty and Garst, which would hold Doty vicariously liable for the accident.

Hoddeson v. Koos Bros

A - there is no principal-agent relationship. There was no assent between the principal and the imposter. The principal could neither assent to an agreement with a party they aren't aware of nor can they control a party they are unaware of. The principal did not authorize the imposter to contract. There was no express authority given to the imposter. There was no implied authority because there was no necessity, custom, or prior dealing. It would be unreasonable for the imposter to believe he add authority. Apparent authority is not present either. While a third party reasonably relied on the apparent authority, the principal never cloaked the agent with an appearance of authority. Ratification is not present because the principal never later ratified this contract. Typically, the principal would not be liable because no authority was given. However, a proprietor has a duty of reasonable care and vigilance to protect the customer from loss occasioned by the deceptions of an apparent salesman. The customer acted in a reasonable manner to believe that the imposter was in fact the proprietor's agent. A proprietor is estopped from availing himself of the impostor's lack of authority and cannot escape liability for loss sustained by the customer. It's not realistic to expect customers to check the validity of salespersons; rather the customer is always made whole. C - the defendant is estopped from denying liability due to the impostor's apparent authority.

A tells B that she is an expert in negotiating real estate transactions. B orally informs A that B wants A to negotiate the sale of Blackacre. A negotiates the sale of Blackacre for B.

AGENCY: R - Actual Expressed Authority can be oral, private, and narrow. The exception to the general rule is if the authority is in the interest of real estate that lasts longer than one year, the actual expressed authority must be in writing due to the Statute of Frauds A - B orally gave authority to A to negotiate a sale of real estate, Blackacre. Since this authority was for a piece of real estate, lasting more than one year, the authority falls under the exception to the rule, meaning it needs to be in writing therefore violating the Statute of Frauds. C - A's estate is not bound by the contract with B.

B authorizes A to buy diamonds. A spots choice diamonds, and secretly buys them for herself for $1 million. A then resells the diamonds for $2 million. 1. What duties, if any, has A breached?

AGENCY: R - All agents owe the principal, a duty to exercise reasonable care, a duty to obey reasonable instruction, and a duty of loyalty to not self-deal, usurp or have secret profits. A - A has violated the no self-dealing duty, which is receiving a benefit to the determent of the principal. A does this by secretly buying diamonds herself, which she would have bought for B, and reselling them for a profit, creating a loss of profit for B. A also violated the no usurping duty when she took away B's opportunity to buy and sell the diamonds when she bought sold them for herself. Having made a $1 million profit for the diamond she bought and sold while working for B, she also violated the no secret profits duty because she didn't tell B about her dealings or profits. C - A has violated multiple duties which she owed to B. B might have a breach of contract claim and sue for damages.

A owns a rare book store. A shipment of a rare book arrives from Paris. A tells his employee B not to sell a first edition of "The Magic Mountain" hand signed by Thomas Mann. A goes to lunch. Meanwhile, B sells the book. Is A bound on the sales contract?

AGENCY: R - Apparent Authority is a two-part test. If the principal cloaked the agent with the appearance of authority and if a third party reasonably relies on the appearance of that authority. A - A has given B authority to sell books, since B works in a bookstore but has now given B secret limiting instructions to not sell a certain book. A cloaked B with the appearance of authority when A hired B to sell books and a third party reasonable relied on B's authority to sell them that particular book, suggesting there was apparent authority from A to B. C - A is bound by B's sale of the book.

B gives A power of attorney to purchase chickens for her restaurant. A enters into a contract with C to purchase 500 plastic hooks to hang chickens. B says to A: "great job, I really needed hooks, but I only need 300." Is B bound by the contract with C?

AGENCY: R - Authority can be granted after the contract has been entered if the principal ratifies it, therefore taking on liability. Two aspects are required for the ratification of authority: the principal has to have knowledge of all material facts regarding the contract and the principal accepts the benefits of that contract A - B gave A actual authority to purchase chickens for her restaurant, instead A enters into a contract with C for the purchase of plastic hooks. B responds to A with: "great job, I really needed hooks, but I only need 300." B now has knowledge of all material facts regarding the contract for the plastic hooks and has accepted the benefits of that contract (being the plastic hooks) even though she only needs 300, she assented to the contract between A and C to purchase those hooks. C - B is bound by the contract with C.

A employs B. A instructs B to drive across town to deliver doughnuts to a branch office. On the way back, B stops to pick up her shirts at the dry cleaner for work the next day. In the parking lot of the dry cleaner, B hits a pedestrian. Is A liable for tort committed in parking lot?

AGENCY: R - P liable if A's actions if there is a P/A relationship and A's actions were w/in the scope of that relationship. W/in the scope = (1) If the conduct was of the kind the agent was hired to do; (2) If the tort occurred on the job (detour) and not during a frolic; (3) if the agent intended to benefit the principal even in part A - B (picking up her dry cleaning) was not what she was hired to do and B picking up her dry cleaning did not benefit A.actions of B are within the scope of the relationship because they happened "on the job." B picking up her dry cleaning on the way back to work from a work-related drop-off is considered a detour because it was a mere departure from the job. Because B's actions took place during the workday, on her way back to work from a work-related trip, it was not an independent or new journey and is not considered a frolic. C - A is liable for B's torts

A went to B to have her brakes repaired. B had an independent contractor arrangement with the C. C negligently repaired A's brakes, resulting in an accident. Is B liable?

AGENCY: R - principal is not vicariously liable for the torts of an independent contractor. The exception to the general rule is in cases of ultra-hazardous activity and/or estoppel. A - This is considered an ultra-hazardous activity because a mistake could cause harm to the public (like an accident) if done incorrectly. This means that it falls under the exception to rule that a principal cannot be held liable for the torts of an independent contractor C - B is liable for the negligence of C even though C is an independent contractor.

A sold chickens as B's agent since 2000. In 2008, B finds out that A has been stealing chickens and terminates the contract with A. A continues selling chickens to customers and escapes with customer's payments. Is B bound by contracts that A made on behalf of B after A was fired?

AGENCY: R - Apparent Authority is a two-part test. If the principal cloaked the agent with the appearance of authority and if a third party reasonably relies on the appearance of that authority. A - B has terminated the Actual Expressed Authority given to A when B terminated the contract with A. A still has lingering authority. To the customers, it would seem that A is still cloaked with the appearance of authority since A is still selling chickens to them and those customers reasonably relied on that appearance of authority since they are still buying those chickens from A. C - B is bound by the contracts A made (on behalf of B) even after A was fired.

B Corp. is in the rare book trading business and has ten directors. A is one of them. On a trip to Paris to buy new rare books for B Corp's business, A is offered a first edition of Dante's Divine Comedy by one of the vendors. The first printed edition was published in Foligno, Italy, by Johann Numeister and Evangelista Angelini on April 11, 1472. Of the 300 copies printed, only fourteen still survive. Overjoyed, A buys the book in mint condition for herself for $1mil but later decides to resells it to B Corp. for $2 mil. After careful consideration, however, A discloses her actions to the Board of Directors. After the disclosure, the Board gives proper notice to call for a meeting. 9 of 10 directors attend the meeting. 5 of the 9 directors vote to ratify A's transaction with B Corp.

CORPORATIONS: R - i. directors are fiduciaries, meaning they owe a duty of care and a duty of loyalty to their corporation. Under that duty of care, a director must act with care that a prudent person would use with regard to their own business. Under the duty of loyalty, a director must act in good faith and in the corporations best interests. A director breached the duty of loyalty when they entering into competing ventures or usurp corporate opportunities from the corporation. A direct may also not engage in self dealing, which is an unfair benefit to the detriment of the corporation or shareholder. The deal made by the director is set aside OR the director is liable UNLESS the director can show there has been material disclosure AND independent ratification which is obtained through either a majority vote of independent directors, a majority vote of a committee of at least two independent directors, or a majority vote of shares held independent by shareholders. A - A is a director for B Corp which means she has fiduciary duties of care and loyalty which she owes to the corporation. A buying a limited edition, mint condition book for herself, instead of buying it for B Corp, a rare book trading business, A is engaging in self dealing because she is receiving an unfair benefit to the detriment of the corporation. By buying the rare book for herself, she is taking that opportunity away from her corporation. A further engages in self dealing when she sells it to the corporation for double what she paid for it. By engaging in self dealing, A has breached her duty of loyalty to B Corp. The deal can now by either set aside OR A can be held liable. To avoid liability, A must show that there has been a material disclosure of her self interests AND there must be an independent ratification by the disinterested directors or disinterested shareholders. Here, after A sells the book to B Corp, she discloses her actions to the Board of Directors. The board then properly gives notice for the Board of Directors meeting to discuss A's breach of her duty of loyalty, 9 out of 10 directors show. Out of those nine directors present, 5 vote to ratify A's transaction. This means a majority vote of the directors ratified A's actions. C - A is not liable.

X-Corp has 2 mil. authorized stock, 1 mil. issued and outstanding. After a particularly successful year with substantial improvements in its operating margin (operating income / net sales), X-Corp. buys back 500k of its stock. In the next quarter X-Corp loses half its customers and needs to sell more stock. It decides to sell the stock it had previously reacquired. Investor A is willing to buy 250k stock and offers as consideration a dilapidated office building that had not been maintained since the late 70s. The board of X-Corp. considers the offer and signs off on the transaction. Shareholder B finds out about the transaction and files a lawsuit on behalf of the corporation against the board's decision to buy back 250k stock in return for the building.

CORPORATIONS: R - Treasury stock is stock that was previously issued and has been reacquired by the corporation. The stock can later be resold again. Treasury stock has no par value and any valid consideration may be received if deemed adequate by the board. The general rule is that Directors have a duty to manage the business of the corporation. The Business Judgment rule is a presumption that the directors manage the corporation in good faith and in the best interest of the corporation, it's shareholders. This rule will protect its directors from liability for innocent mistakes of business judgment. The director's business decision will not be second guessed unless they violate one of the 5 factors of the rule. The factors are (1) to act in good faith; (2) to act in the best interest of the corporation; (3) to act on an informed basis; (4) to not be wasteful; and (5) to have no involved self-interest. A - -Corp has bought back 500k of it's 1mil. Shares of outstanding stock. These reacquired stock reenter the organizations books as treasury stock. After losing half of its customers, X-Corps decides to sell 250k of the reacquired stock to investor A in return for dilapidated building. After finding out about the action, shareholder B decides to sue X-Corp for the boards decisions. X-Corp is selling no-par stock. The buyback of the 500k shares turns these from shares with par value, it shares with no par value, also known as treasury stock. X-Corps decision to use this treasury stock for their 250k reissuance means any valid consideration may be received if it is deemed adequate by the board.Even if the corporation needed to buy a building, buying a dilapidated building is wasteful. X Corp will have to spend even more money whenever they refurbish the building or knock it down and build a new building. Spending more money than what is needed is harmful to X Corp given their financial situation. While it is true that any valid consideration may be received if deemed adequate by the Board for treasury stock, there must be a limit. The Board's actions was not an innocent mistake. The Board did not meet the requirements of the business judgment rule, and as a result, the rule will not protect them from liability. C - Shareholder B is unlikely to be successful in their lawsuit. However, if the board is found to have committed misfeasance, the shareholder may be successful.

A Corp. is selling 10,000 shares of $3 par treasury stock to B. How much does B have to pay A Corp.?

CORPORATIONS: R - 1. when a corporation sells and trades its own stock, it must received adequate consideration in exchange for that stock. This consideration can be in the form or money, property, or services already performed for the corporation. The minimum issuance of stock is considered par value stock. When receiving consideration for par value stock, any valid consideration may be received if the board values it in good faith to be worth at least par value. When a corporation issues par stock for less than par value, directors are liable because they authorized that issuance of stock when they lacked the authority to do so. Shareholders who are acquiring the stock, are liable to pay full consideration which is at least par value. Stock that has no minimum issuance price is considered no par stock and any consideration may be received in exchange for that stock if deemed adequate by the board. Any stock that the corporation previously issued, then bought back and can be resold, is called treasury stock. Treasury stock is treated as if it were no par stock, meaning any valid consideration in exchange for treasury stock may be deemed adequate by the board. A - the stock being sold to B is considered treasury stock and is therefore treated as no par stock. Because it is treated as no par stock, any valid consideration (money, property, services previously performed for the corporation) will be accepted in exchange for the treasure stock if the board deems it to be adequate C - B can pay any amount of valid consideration, if the board deems it adequate.

B Corp., a startup corporation, has 120,000 shares outstanding and has 700 shareholders. At the annual meeting, the board of directors proposes to change the business plan to allow for more business with foreign entities. The Articles of Incorporation of B Corp. do not mention a quorum requirement.

CORPORATIONS: R - A quorum is the minimum number of people who must be present physically or by proxy in order for a decision to be binding. This is based on the number of shares represent not by the number of shareholders present at the meeting. Usually, a quorum of shareholders requires a majority of the outstanding shares. This quorum of shareholders cannot be lost if somebody leaves who represents a certain amount of stock. Articles of Incorporation can alter the meeting quorum requirement but it can never by below one third of the total outstanding shares. A - B Corp has 120,000 outstanding shares. In order to do business and have a decision made at the annual meeting be binding on the corporation, there must be a quorum of shareholders. Since the Articles of Incorporation do not mention a quorum requirement, a majority of the outstanding shares must be represented. Since there are 120,000 outstanding shares, a majority of those shares would be 60,001 C - 60,001 shares of B Corp. must be represented at the annual meeting for there to be a quorum.

A, an avid investor, is interested in B-Corp., a startup corporation that has not yet been formally formed. A signs a pre-incorporation subscription agreement. The agreement stipulates that A will buy 200 shares of B-Corp. Three weeks later the Dow Jones Index drops 300 points a day for several days. A pulls out of the markets and wants to revoke her subscription.

CORPORATIONS: R - A subscriber is a person or entity who makes written offers to buy stock from a corporation that has not yet been formed. A subscription for stock of a corporation, whether made before or after the formation of a corporation shall not be enforceable against a subscriber unless it is in writing and signed by the subscriber. Unless otherwise provided by the terms of the subscription, a subscription for stock of a corporation to be formed shall be irrevocable except with the consent of all other subscribers or the corporation for a period of 6 months from its date. A - A would be considered a subscriber in B-Corp because she entered a written agreement to buy stock, and B-Corp is not yet officially incorporated. By signing the written agreement for subscription on stock of B-Corp, the agreement becomes enforceable. Stock subscriptions are considered irrevocable unless otherwise provided in the terms of the agreement or all other subscribers or the corporation consents to the revocation within 6 months of when the agreement was signed. C - A is still within 6 months from when she signed the agreement (three weeks), but she cannot automatically revoke her subscription without the consent of B-Corp or its other subscribers.

The articles stipulate that Hardware Inc.'s purpose is to "engage in all legal activities for the purpose of selling hardware". For the promotion of a new line of electric saws, Ms. Orange as CEO of Hardware Inc. bakes cookies at home and offers them as a special package "buy two electric saws and get a free bag of cookies". SH A finds out about the cookie deal and wants to sue Ms. Orange and the board on behalf of the corporation.

CORPORATIONS: R - Absent a specific clause in the Article's purpose, the corporation's general purpose is to engage in all lawful activities. The specific clause in Hardware Inc's articles is to engage in all legal activities for the purpose of selling hardware. An ultra vires act is an act that is outside the scope of the corporation's Articles. Ultra Vires acts are valid, but the shareholders can get an injunction and the responsible directors and officers are liable to the corporation for any losses caused by the ultra vires activities. A - a. Ms. Orange, CEO of Hardware Inc. has baked cookies to support a promotion of "buy two electric saws and get a free bag of cookies". While selling cookies would be outside the specific purpose of Hardware Inc., using them as a promotional tool is not. The purpose of the cookie sale is to entice customers to get a delicious treat with their purchase of saws, or more generally "hardware". This falls directly in line with the corporate purpose of Hardware Inc., to "sell hardware." Cookies draw customers, customers buy hardware, and the corporate purpose is adequately met. C - Because of this, a shareholder would not be able to get an injunction.

A is a director of Ocean Racing, Inc. ("OR, Inc."). OR, Inc. wants to promote its new canting keel line of race yachts for the Volvo around the world ocean race. After studying the issue carefully and interviewing various candidates, A votes to retain Heino, a German country singer, to appear on the new racing yacht at its first presentation to the sailing community and investors. The marketing campaign is a total disaster.

CORPORATIONS: R - Directors are fiduciaries, meaning they owe a duty of care and a duty of loyalty to their corporation. Under that duty of care, a director must act with care that a prudent person would use with regard to their own business. This duty of care includes reasonable investigation into business opportunities so that all the necessary information is obtained for major decisions. If the directors fail to attend all meetings or conduct reasonable investigations into their business opportunities before they make decisions, they breach the duty of care by engaging in nonfeasance, which is failing to act. Directors are liable for the harm and costs which their nonfeasance has caused the corporation. Directors could also breach their duty of care by engaging in misfeasance, which is acting but the act results in bad business decision or is harmful to the corporation. To escape liability for misfeasance, a director must meet all of the facts set forth by Grobow v. Perot, to be protected by the Business Judgement Rule. Under Global v. Perreault, for the Business Judgment Rule to apply, the director must 1) act in good faith, 2) act in the best interests of the corporation, 3) act on an informed basis, 4) not be wasteful, and 5) not involve self interests. A - A is a director for OR, Inc, meaning he is a fiduciary and owes a duty of care to OR Inc. Under the duty of care, A must act with care that a prudent person would use with regard to their own business including conducting reasonable investigation into business opportunities so that all the necessary information is obtained for major decisions. A avoided nonfeasance because of this reasonable investigation. However, since the marketing campaign was a total disaster, A could have breached the duty of care by engaging in misfeasance. A can avoid liability through the Business Judgment Rule. A met all five factors because 1) A acted in good faith when he hired Henio because he wanted someone to help promote their line of racing yachts and though Henio would be a good choice, 2) A acted in the best interest of OR Inc. because by promoting the line of racing yachts, OR Inc. might sell more of them, 3) A acted on an informed basis because he studied the issue of who would appear on the new racing yacht and went through interviews to find the best candidate, 4) there is no evidence that A was being wasteful when he hired Henio, and 5) A had no self interest in hiring Henio to appear on the yacht. By meeting all five factors, A's bad business decision is protected by the Business Judgement Rule. C - A did not violate his duty of care.

As X-Corp's board is considering the approval of the new product line, Director B attends only the last of 6 meetings and fails to read any of the memos provided by the board by Skadden & Arps partners. Nevertheless, B votes in favor of the new product line. The new product line proves a complete disaster and causes $200 million loss in the next quarter. SH A finds out about B's lack of attendance and sues B on behalf of X-Corp.

CORPORATIONS: R - Directors have a duty to manage the business of the corporation. The Business Judgment rule is a presumption that the directors manage the corporation in good faith and in the best interest of the corporation, it's shareholders. This rule will protect its directors from liability for innocent mistakes of business judgment. The director's business decision will not be second-guessed unless they violate one of the 5 factors of the rule. The factors are (1) to act in good faith; (2) to act in the best interest of the corporation; (3) to act on an informed basis; (4) to not be wasteful; and (5) to have no involved self-interest. Directors are fiduciaries and owe a duty of care and loyalty. The standard of care is that the director must act with the care that a prudent person would use with regard to her own business. A director may breach this duty of care by nonfeasance or misfeasance. Nonfeasance is when the director fails to act. Director must do what a prudent person would do with respect to her own business affairs. Prudent acts usually involve reasonable investigation into a business opportunity so all necessary information is obtained. The presumption of the business judgment rule does not protect the director if there is nonfeasance. Misfeasance is when a director acts and the action is harmful to the corporation. The presumption of the business judgment rule will protect the director from alleged misfeasance if the director meets the business judgment requirements. A - Director B breached his duty of care by nonfeasance. Director B attended only the last of 6 board meetings. Further, he failed to read any of the memos provided to the board. Despite his lack of reasonable investigation into the new product line, Director B voted in favor of the product line which resulted in a $200 million loss. Director B did not act with the care that a prudent person would use with regard to his own business. The presumption of the business judgment rule does not protect directors if they engaged in nonfeasance. Alternatively, Director B breached his duty of care by misfeasance. His action, voting in favor of the product line, was harmful to the corporation. The presumption of the business judgment rule will protect Director B if he meets the 5 requirements. However, Director B does not meet all 5 requirements. Director B did not act on an informed basis. He attended only the last of 6 board meetings and failed to read any of the memos provided to the board about the new product line. Director B did not meet the 5 requirements thus, he will not be protected by the business judgment rule. C - Director B breached his duty of care and is liable.

The articles stipulate that Hardware Inc.'s purpose is to "Engage in all legal activities for the purpose of selling hardware" but Ms. Orange is so enthused by the great success of her promotion that she opens a small bakery next to the entrance of Hardware Inc. to make her customers feel at home in the store. SH A finds out about the bakery and wants to sue Ms. Orange and the board on behalf of the corporation. She comes to you claiming the bakery caused losses of $100k because Hardware Inc. operated at a loss a year after the bakery opened.

CORPORATIONS: R - The general rule is that ultra-vires deals are valid, but shareholders can get an injunction and responsible directors/officers are liable to the corporation for any losses caused by the ultra-vires activity. The Business Judgment rule is a presumption that the directors manage the corporation in good faith and in the best interest of the corporation and its shareholders. This rule will protect its directors from liability for innocent mistakes of business judgment. The director's business decision will not be second guessed unless they violate one of the five factors of the rule. The factors are (1) to act in good faith; (2) to act in the best interest of the corporation; (3) to act on an informed basis; (4) to not be wasteful; and (5) to have no involved self-interest. Nonfeasance is when the director fails to act. The business judgment rule does not protect nonfeasance. A - Here, the purpose of the corporation is "to engage in all legal activities for the purpose of selling hardware." Ms. Orange originally developed the idea of selling cookies as an incentive for customers to buy electrical saws. That conduct was not likely ultra-vires because she engaged in the conduct to sell the electrical saws. However, by opening a bakery near the entrance to the hardware store, Ms. Orange has now engaged in conduct for the purpose of selling baked goods alongside the hardware. This conduct is ultra-vires because it is outside of the purpose of selling hardware. Opening a bakery is a valid deal, however shareholders can get an injunction and hold Ms. Orange liable for any losses caused to the corporation. The Board is generally protected from liability for innocent mistakes of business. However, the Board engaged in nonfeasance. The Board failed to act in regard to Ms. Orange opening a bakery. The Board has the authority to fire officers, and they failed to do that. The business judgment rule does not protect nonfeasance. C - Ms. Orange and the board would be liable for the $100,000 loss to the corporation caused by her ultra-vires conduct.

Ms. Orange paid $200k for the storefront property and paid attorney Y $5000 in closing costs and fees. After informing the board about the valuation, she sells the property to Hardware inc. for $220k. SH A finds out about this and sues the board on behalf of Hardware Inc. for a violation of fiduciary duties. Assess the likelihood of success and the payment of damages for this lawsuit.

CORPORATIONS: R - The promoter cannot sell his/her own property to the corporation for a profit without disclosing the profit. If the property was acquired by the promoter before becoming the promoter, the promoter must give back anything received over fair market value to the corporation. If the property was acquired after becoming the promoter, the promoter must give back anything over cost. The presumption under the business judgment rule is that directors manage the corporation in good faith and operate in the best interests of the corporation and the shareholders. The business judgment rule states that the director must 1) act in good faith, 2) in the best interest of the corporation, 3) on an informed basis, 4) not be wasteful, and 5) cannot act in self-interest. A - Ms. Orange is the promoter, serving to set up the corporation prior to formal incorporation. Ms. Orange cannot sell her own property to the corporation for a profit without disclosing the profit. If the corporation agrees, those deals are acceptable. Here, Ms. Orange disclosed the price of the property including the closing and attorney's fees involved. The corporation accepted that deal because the price was disclosed and they purchased for a higher price anyway. a. Because the board of directors here acted to purchase the property under good faith, in the best interest of the corporation, on an informed basis because they knew of the price to Ms. Orange, the purchase was not overly wasteful and not in the board's self-interest, there was no breach here. According to the rules, if the board did violate their fiduciary duties, here the damages would amount to anything over cost of the property. Because the property cost is valued at $205,000 with attorney's fees, the damages would amount to $15,000. However, because there was no breach, shareholder A cannot recover on behalf of the corporation. C - There was no breach of fiduciary duties and there is no recovery.

A is the record owner of B Corp. shares on the record date. On June 4, A sends a signed letter to the secretary of B Corp. The letter authorizes C to vote A's shares and mentions that "this proxy will be irrevocable". However, prior to the meeting A sends another signed letter to the secretary of B. Corp. The letter stipulates: "I want D to vote my shares at the meeting."

CORPORATIONS: R - The record owner of the shares on the record dates votes. The exception to the general rule is that the record owner of the shares may have a proxy to vote for their shares at the annual meeting. To satisfy a proxy voter there must be 1) a writing, 2) signed by the record shareholder, 3) directed to the secretary of the corporation, 4) which authorizes the person to vote the stocks/shares, 5) which is valid for 11 months. Proxies are revocable at any time unless the proxy says conspicuously that it is irrevocable AND the proxy is coupled with some other interest. A - i. A is record owner of B Corp shares on the record date. A wants C to be a proxy for A's shares so A must satisfy all five elements for C to be A's proxy. 1) A sends a written letter, 2) signed by A, 3) sends the signed written letter on June 4 to the secretary of B Corp. 4) authorizing C to vote A's shares, 5) at the annual meeting (which is within 11 months of when the written letter was sent to the secretary on June 4). C can be A's proxy because all elements are met. In general, proxies can be revoked at any time unless the proxy says conspicuously that it is irrevocable AND the proxy is coupled with some other interest. Here, the letter stipulates that the proxy is irrevocable. However, there is no evidence that the proxy was coupled with some other interest, meaning A can revoke C's proxy. Assuming that A's later letter was 1) written, 2) signed by A, 3) sent to the secretary of B Corp. 4) authorizing D to vote A's shares at the meeting, 5) within 11 months of the meeting, then D can be A's proxy. C - A can revoke C's proxy and assign it to D.

A is the record owner of B Corp. shares on the record date. On June 4, A sends a signed letter to the secretary of B Corp. The letter authorizes C to vote A's shares. However, prior to the meeting A sends another signed letter to the secretary of B. Corp. The letter stipulates: "I want D to vote my shares at the meeting."

CORPORATIONS: R - The record owner of the shares on the record dates votes. The exception to the general rule is that the record owner of the shares may have a proxy to vote for their shares at the annual meeting. To satisfy a proxy voter there must be 1) a writing, 2) signed by the record shareholder, 3) directed to the secretary of the corporation, 4) which authorizes the person to vote the stocks/shares, 5) which is valid for 11 months. Proxies are revocable unless the proxy says conspicuously that it is irrevocable AND the proxy is coupled with some other interest. A - A is record owner of B Corp shares on the record date. A wants C to be a proxy for A's shares so A must satisfy all five elements for C to be A's proxy. 1) A sends a written letter, 2) signed by A, 3) sends the signed written letter on June 4 to the secretary of B Corp. 4) authorizing C to vote A's shares, 5) at the July annual meeting (which is within 11 months of when the written letter was sent to the secretary on June 4). C can be A's proxy because all elements are met. In general, proxies can be revoked at any time unless the proxy says conspicuously that it is irrevocable AND the proxy is coupled with some other interest. Here, C's proxy is revocable because there is nothing to suggest that C conspicuously said that it was irrevocable and there is no evidence that C's proxy is couples with some other interest. Assuming that A's later letter was 1) written, 2) signed by A, 3) sent to the secretary of B Corp. 4) authorizing D to vote A's shares at the meeting, 5) within 11 months of the meeting, then D can be A's proxy. C - it is valid for A to revoke C's proxy and assign A's proxy to D.

B Corp. has 9 directors. According to the bylaws of B Corp. a notice for a Board of Directors meeting is send out. The Board wishes to endorse the new strategic plan for B Corp.. 4 Directors are present at the meeting. Can the BoD do business and pass a resolution?

CORPORATIONS: R - There must be notice of Board of Directors meetings. Usually this is mentioned in corporation's bylaws. In order to do business, a corporation needs a majority of all directors present at the meeting, which is called a quorum. To pass a resolution at a board of directors meeting, a corporation needs a majority vote of all directors that are present at the meeting. The majority of the directions are not there at the time of the vote, the quorum is lost. If less then half of the directors show up to that meeting (meaning there is no quorum) and the directors present take action, that action can be ratified at a later date. A - i. there is proper notice of the Board of Directors meeting because notice was sent out in accordance with the corporation's bylaws. Only 4 out of the 9 directors on the board for B Corp. showed up to the meeting. This means, there is not a majority of the directors at the meeting because 4 out of 9 is 44% and you need 51% to be a majority there is therefore no quorum. Since there is not quorum, the board cannot do business. If there were 5 out of 9 directors present, there would be a quorum because that is 55%, which is a majority. Since there is not a majority, there is no quorum and the board cannot do business. If they vote on the resolution on the new strategic plan for B Corp. with less than a quorum of the directors, and the directors at the meeting attempt to pass the resolution, that action can be ratified at a later date. C - The four directors cannot do business for the corporation at the meeting.

B Corp. issues 10,000 shares of $3 par stock to A for $15k. The par value of this issuance would be $30k. Can B. Corp. recover the remaining $15k from its directors?

CORPORATIONS: R - When a corporation sells and trades its own stock, it must received adequate consideration in exchange for that stock. This consideration can be in the form or money, property, or services already performed for the corporation. The minimum issuance of stock is considered par value stock. When receiving consideration for par value stock, any valid consideration may be received if the board values it in good faith to be worth at least par value. When a corporation issues par stock for less than par value, directors are liable because they authorized that issuance of stock when they lacked the authority to do so. A - B Corp. issued 10,000 shares of $3 par stock to A for $15K. This issuance is less than par value because par value of these shares is $30,000 (10,000 shares x $3.00 per par stock). Since B Corp directors approved this issuance of stock for less than par value which they are not authorized to do, they become personally liable C - the directors are liable for the remaining $15,000.

B Corp. desires to purchase Blackacre to open a new factory. Blackacre costs $15k. B Corp. has insufficient cashflow for the acquisition. Can B Corp. issue 5,000 shares of $3par stock to acquire Blackacre?

CORPORATIONS: R - When a corporation sells and trades its own stock, it must received adequate consideration in exchange for that stock. This consideration can be in the form or money, property, or services already performed for the corporation. The minimum issuance of stock is considered par value stock. When receiving consideration for par value stock, any valid consideration may be received if the board values it in good faith to be worth at least par value. When a corporation issues par stock for less than par value, directors are liable because they authorized that issuance of stock when they lacked the authority to do so. A - This adequate consideration is considered to be any valid consideration in the form of money, property, or services already performed, which the board values in good faith to be at least par value. Because Blackacre costs $15,000, the consideration must be at least $15,000. Par value consideration in this case is at least $15,000 because the cost of each par value share ($3.00) multiplied by the number of shares (5,000) is $15,000. C - B Corp. can issue 5,000 shares of $3 par stock to acquire Blackacre

B Corp. issues 10,000 shares of $3 par stock to A for $15k. The par value of this issuance would be $30k. Can B Corp. recover $15k from A?

CORPORATIONS: R - When a corporation sells and trades its own stock, it must received adequate consideration in exchange for that stock. This consideration can be in the form or money, property, or services already performed for the corporation. The minimum issuance of stock is considered par value stock. When receiving consideration for par value stock, any valid consideration may be received if the board values it in good faith to be worth at least par value. When a corporation issues par stock for less than par value, directors are liable because they authorized that issuance of stock when they lacked the authority to do so. Shareholders who are acquiring the stock, are liable to pay full consideration which is at least par value. A - A is a shareholder who is acquiring stock in B Corp. B Corp. issued 10,000 shares of $3 par stock to A for $15K. This issuance is less than par value because par value of these shares is $30,000 (10,000 shares x $3.00 per par stock). A only paid half of the consideration ($15,000) and shareholders must pay full consideration (money, property, services previously performed for the corporation) for the par value shares which is $30,000. C - B corp. can hold A liable for $15,000 which is the remaining consideration for the par stock purchased.

B Corp. is in the ocean race yacht building business. B Corp. has 4 director positions on its board. B Corp's board is not a staggered board. All 4 directors are up for reelection at the annual meeting. B Corp's articles stipulate cumulative voting for the election of directors. A, a minority shareholder, owns 105 shares of stock in B Corp. A wants to ensure that Ken Read, skipper of Puma's Il Mostro, in the Volvo around the world ocean race, is elected to the board of B Corp.

CORPORATIONS: R - a corporation can provide cumulative voting for its shareholder when electing its directors but it must stipulate this within its Articles of Incorporation. Cumulative voting allows minority shareholders to concentrate all their voting strength on one or more individual directors with the hope that they are elected which helps preserve the minority shareholder present representation on the board of directors. Cumulative voting only applies when shareholders vote for directors. To determine the number of votes under cumulative voting, multiply the number of shares held by the shareholders BY the number of directors to be elected. A - i. B Corp's articles have stipulated cumulative voting for the election of directors. A, as a minority shareholder, a can then concentrate A's voting strength on one or more individual directors with the hope that they are elected. A wants to ensure Ken Read is elected to the board. The number of votes A has is determined by A's number of shares by the number of directors that need to be elected at that meeting. A has 105 shares of B Corp. and there are 4 directors up for reelection at the meeting (105 multiplied by 4), so A has a total of 420 cumulative votes to use to elect Ken Read. C - A has a total of 420 cumulative votes to cast for electing Ken Read.

X-Corp gets sued for malfunctioning products that were approved by A as the board considered the approval of the new product line. A spends one year of her own time and $1.5 mil. in attorney fees to represent X-Corp. in defending the lawsuit. X-Corp settles the product liability lawsuit for $600 mil. The court concludes that A acted in good faith and in the best interest of X-Corp when approving the new product line. After the conclusion of the lawsuit, independent Director C approves the indemnification of A for her attorney's fees. SH D finds out about the indemnification and sues the board on behalf of X-Corp.

CORPORATIONS: R - a corporation may indemnify directors and officers for litigation expenses brought against them by virtue of their positions. It is mandatory for a corporation to do so if the director is successful in defending such suit. However, a corporation is prohibited from indemnifying a director if the director is held liable to the corporation in defending a suit; for example, the director will have no claim to indemnification if the director breached a fiduciary duty. If a corporation is liable to third parties, or if third parties settle with the corporation, and the director incurs expenses in defending the lawsuit, the director may receive permissive indemnification if the director acted in good faith and in the best interest of the corporation, and by either (1) a majority vote of the directors who are not parties to the action; (2) a majority vote of a committee of at least two directors who are not parties to the action; (3) a majority of shares held by shareholders who are not parties to the action; or (4) independent legal counsel. A shareholder may sue a third-party on behalf of a corporation (a derivative suit) if that third-party is causing harm to the corporation. In order to bring a derivate suit, a shareholder must: (1) own stock in the corporation at the time the claim arose and throughout the entire litigation; (2) represent the interests of the corporation and of other shareholders; and (3) make a written demand to the directors that the corporation brings the suit on its own behalf, and the board has either rejected the demand or 90 days have passed. And exception to the demand requirement is if the demand would be futile, that is, that it is clear the directors will oppose the demand (such as if the suit is a criticism of the directors' managerial abilities). A - i. a third-party sued X-Corp for damages relating to the malfunctioning products, and A spent one year of time and $1.5 million in attorney fees to represent X-Corp. in defending the lawsuit. Director A does not have a right to mandatory indemnification because she was not a party in the action. For the same reason, Director A cannot be prohibited from indemnification. Since Director A was not a party in the action but was representing X-Corp in the action, and because X-Corp settled a product liability lawsuit with a third-party for $600 million, Director A was seeking permissive indemnification. Director A acted in good faith and in the best interest of the corporation but failed to obtain the approval required for permissive indemnification. Only one director not party to the action (Director C) approved the indemnification here. According to the rule, a majority of independent directors or a majority of at least two independent directors on a committee would be required to approve permissive indemnification. Alternatively, a majority of independent shareholders or an independent legal counsel could approve permissive indemnification, but neither of those things happened here. Shareholder D, in order to bring a successful lawsuit against the Board, would first have to meet the requirements to bring a derivative suit. C - Shareholder D would then be able to show that the Board did not validly grant permissive indemnification to Director A.

A is the record owner of B Corp. shares on the record date. On June 4, A sends a signed letter to the secretary of B Corp. The letter authorizes C to vote A's shares.

CORPORATIONS: R - the record owner of the shares on the record dates votes. The exception to the general rule is that the record owner of the shares may have a proxy to vote for their shares at the annual meeting. To satisfy a proxy voter there must be 1) a writing, 2) signed by the record shareholder, 3) directed to the secretary of the corporation, 4) which authorizes the person to vote the stocks/shares, 5) which is valid for 11 months. Proxies are revocable at any time unless the proxy says conspicuously that it is irrevocable AND the proxy is coupled with some other interest. A - A is record owner of B Corp shares on the record date. A wants C to be a proxy for A's shares so A must satisfy all five elements for C to be A's proxy. 1) A sends a written letter, 2) signed by A, 3) sends the signed written letter on June 4 to the secretary of B Corp. 4) authorizing C to vote A's shares, 5) at the July annual meeting (which is within 11 months of when the written letter was sent to the secretary on June 4). C - C can vote A's share at the annual meeting in July.

Director A gets sued for her involvement in developing a new product line. After 2 years of depositions and court proceedings the court decides that A did not breach her duty of care. A now demands indemnification of $1 mil. in attorney's costs. X-Corp's last quarterly results were abysmal. The board refuses to grant A indemnification. A sues X-Corp. for reimbursement of the attorney's fees.

CORPORATIONS: R - a corporation may indemnify directors and officers for litigation expenses brought against them by virtue of their positions. It is mandatory to do so if a director is successful in defending a suit. However, a corporation is prohibited from indemnifying a director if the director is held liable to the corporation in defending a suit; for example, the director will have no claim to indemnification if the director breached a fiduciary duty. If a corporation is liable to third parties, or if third parties settle with the corporation, and the director incurs expenses in defending the lawsuit, the director may receive permissive indemnification if the director acted in good faith and in the best interest of the corporation, and by (1) a majority vote of the directors who are not parties to the action; (2) a majority vote of a committee of at least two directors who are not parties to the action; (3) a majority of shares held by shareholders who are not parties to the action; or (4) independent legal counsel. A - Director A is found to have not breached her duty of care. A is requesting indemnification as a result of winning her suit. X-Corp, after a quarter of abysmal results, refuses the indemnification request. An analysis of the three types of indemnification shows that Director A should be able to recover attorney's fees because she has a right to mandatory indemnification. Director A's indemnification request is not blocked by prohibited indemnification because she was ultimately found to have not breached her duty of care. Similarly, permissive indemnification does not apply to Director A because the corporation was not found to be liable to a third party, nor did the party settle with the third party. Mandatory indemnification, however, applies in Director A's case. After 2 years of litigation, Director A was found to not have breached her duty of care. C - Because Director A was successful in her lawsuit, indemnification is mandatory in this case. Even though the corporation is having financial troubles, the corporation must pay the attorney's fees and will be held liable for A's reimbursement.

B Corp., a startup corporation, has 120,000 shares outstanding and has 700 shareholders. The board of directors proposes to change the business plan to allow for more business with foreign entities. At the annual meeting, 80,000 shares are represented but only 50,000 shares vote on the proposal. Votes representing 30,000 shares are cast in favor of the proposal. Was a quorum present? Did the shareholders accepted the proposal?

CORPORATIONS: R - a quorum is the minimum number of people who must be present physically or by proxy in order for a decision to be binding. This is based on the number of shares represent not by the number of shareholders present at the meeting. Usually, a quorum of shareholders requires a majority of the outstanding shares. This quorum of shareholders cannot be lost if somebody leaves who represents a certain amount of stock. Articles of Incorporation can alter the meeting quorum requirement but it can never by below one third of the total outstanding shares. When a quorum is present AND an action is approved, the corporation is bound by the action if the votes in favor of the proposal exceed the votes against the proposal by at least one share. A - In order to do business and have a decision made at the annual meeting be binding on the corporation, there must be a quorum of shareholders. A majority of the outstanding shares must be represented for there to be a quorum. Since there are 120,000 outstanding shares, a majority of those shares would be 60,001. There are 80,000 represented at the meeting so there is a quorum and the board can conduct business. However, only 50,000 shares voted on the proposal to change the business plan. 30,000 shares were cast in favor of the proposal. Here, there was a quorum present because there were 80,000 out of 120,000 outstanding shares represented at the meeting. The action was approved and the corporation is bound by the action because the votes in favor of the proposal (30,000) shares exceeded the votes against the proposal (assumingly 20,000) by at least one share C - there was a quorum present and the action was approved because the votes in favor exceed the votes against by at least one share.

X-Corp produces bushings. After a disastrous first venture into cosmetics, X-Corp wants to start a new cosmetic product line. Board calls a special meeting of shareholders and gives proper notice. At the meeting 30k of 50k stock outstanding are present. 20k of the 30k shares present are voted against the new cosmetic product line.

CORPORATIONS: R - a quorum requires a majority of the outstanding shares present. A quorum is the minimum number of shares represented, physically or by proxy, in order for the decision to be binding. The key is the number of shares represented, not the number of shareholders. Once you have a quorum, if someone leaves the quorum, it is still met. Articles can alter the quorum requirement, but it can never be below one-third of the outstanding stock. If a quorum is present, and action is approved, the corporation is bound by the action if the votes in favor exceed the votes cast against the proposal. To call a special meeting, there must be at least 2-days notice. There are three options for calling a special meeting. First, a board of directors can initiate the meeting. Second, 10% or more of voting shares can call the special meeting. Finally, the articles can specify alternatives for calling a special meeting. This special meeting must be regarding something they can act on. A business can act on activities assuming they fall within the purpose of the corporation, a general purpose is presumed in the absence of any specific clause. A - proper notice is given, and a quorum is present at the special meeting. The requisite majority of voting shares (30k/50k) is present at the meeting. To pass the resolution, a majority of the present shares must vote in favor of the proposal. This would require at least 15,001 in favor. Here, 20k shares vote against the product line. C - The vote, therefore, fails to meet the majority requirement.

Ms. Orange buys property to provide Hardware Inc. with a store to sell hardware. She drafts and files the Articles of Incorporation for Hardware Inc. with the Department of State and elects a board of directors. Attorney Y drafted the articles for Ms. Orange and counseled her during the incorporation process. Attorney's paralegal filed all the paperwork on behalf of Ms. Orange with the Department of State. Attorney thereafter sends Hardware Inc. the first bill. The board refuses to pay the legal bill.

CORPORATIONS: R - a. corporation is not liable for pre-incorporation contracts between promoter and third parties unless corporation adopts these contracts and there is novation. The promoter or incorporator is the person acting on behalf of the corporation prior to its official formation. The corporation can adopt through express adoption, where the board of directors of corporation passes resolution and implied adoption which requires 1) knowledge of the contract between third party and promoter AND 2) the corporation must accept the benefits. Novation is the agreement between the promoter, the corporation and the other contracting party, that the corporation will replace the promoter under the contract. If the corporation accepts the contract pre-incorporation and there is NO novation, both the corporation and the promoter remain liable until novation. The promoter alone is liable if the promoter entered into a contract and the corporation is never formed. A - Ms. Orange is the promoter acting prior to the incorporation of Hardware Inc. There is no express adoption between Hardware Inc. and Ms. Orange's attorney because Hardware Inc. is not accepting liability for the contract. Since the attorney filed the paperwork and completed the steps on Ms. Orange's behalf, it is likely that Hardware Inc. had knowledge that the attorney was acting in a contract with Ms. Orange on behalf of the corporation. Furthermore, Hardware Inc. is accepting the benefits by continuing as a corporation. Hardware Inc. would not be an official corporation if not for the contract between Ms. Orange and the attorney to prepare and file the articles of incorporation. Here, there is no novation. C - Both Hardware Inc. and Ms. Orange are liable.

X-Corp produces bushings. After a disastrous first venture into cosmetics, X-Corp wants to start a new cosmetic product line. 8% of the shareholders find out about the new venture and decide to call a special meeting of shareholders. At the meeting 30k of the 50k stock outstanding are present. 20k of the stock are voted against the new cosmetic product line.

CORPORATIONS: R - i. a quorum requires a majority of the outstanding shares present. A quorum is the minimum number of shares represented, physically or by proxy, in order for the decision to be binding. The key is the number of shares represented, not the number of shareholders. Once you have a quorum, if someone leaves the quorum, it is still met. Articles can alter the quorum requirement, but it can never be below one-third of the outstanding stock. If a quorum is present, and action is approved, the corporation is bound by the action if the votes in favor exceed the votes cast against the proposal. To call a special meeting, there must be at least 2-days notice. There are three options for calling a special meeting. First, a board of directors can initiate the meeting. Second, 10% or more of voting shares can call the special meeting. Finally, the articles can specify alternatives for calling a special meeting. This special meeting must be regarding something they can act on. A business can act on activities assuming they fall within the purpose of the corporation, a general purpose is presumed in the absence of any specific clause. A - there is not the requisite amount of voting shares to call a special meeting. Only 8% of shareholders call the meeting, but we do not know if this is below the required 10% of voting shares. Any decision made at this special meeting would be invalidated for missing this requirement. If the articles specify an alternative to the 10% rule, the quorum analysis can be conducted. A quorum is present at this special meeting, a majority of voting shares (30k/50k) is present at the meeting. To pass the resolution, a majority of the present shares must vote in favor of the proposal. This would require at least 15,001 in favor. Here, 20k shares vote against the product line. The vote, therefore, fails to meet the majority requirement. C - there was not the requisite number of shares needed to call a special meeting. Plus, the quorum requirements were not met to pass the resolution.

The board of X-Corp authorizes the issuance of 10k shares of #3 par stock to investor A for 15k. Shareholder B finds out about this transaction and sues the board on behalf of the corporation for violation of fiduciary duties.

CORPORATIONS: R - corporation as a separate legal entity, sells and trades its own stock. Shareholders will receive stock if they are able to provide appropriate consideration. Consideration can be in the form of money, property, or services already performed, but not future service nor promissory notes. The par value is the minimum issuance price for the stock. Any valid consideration may be received by the board if the board values it, in good faith, to be worth at least par value. If par stock is issued for below par value, directors are liable for the issuance as they lack the authority to do so under agency principles. Additionally, the acquiring shareholder is liable to pay full consideration (at least par value) for the shares. The Business Judgment rule is a presumption that the directors manage the corporation in good faith and in the best interest of the corporation, it's shareholders. This rule will protect its directors from liability for innocent mistakes of business judgment. The director's business decision will not be second guessed unless they violate one of the 5 factors of the rule. The factors are (1) to act in good faith; (2) to act in the best interest of the corporation; (3) to act on an informed basis; (4) to not be wasteful; and (5) to have no involved self-interest. A - the board of X-Corp. issued 10k shares of $3 par value stock to investor A for $15k. This is well below the appropriate consideration needed for the shares. 10k x $3 = $30,000. If cash consideration is given, it should be at least $30k to meet the appropriate par value. Cash, property, or services already performed, that are valued by the board to be worth at least $30k, would also be appropriate.The Board is generally protected from liability for innocent mistakes of business. However, the Board engaged in misfeasance. The action was issuing 10,000 shares of $3 par stock ($30,000) for only $15,000, which is less than par value. If par stock is issued for less than par value, Directors are liable for authorizing a below par issuance of stock. The Board will not be liable if they meet the business judgment requirements. The Board did not meet the requirements of the business judgment rule, and as a result, the rule will not protect them from liability. C - Shareholder B is likely to be successful against the board for violating their fiduciary duties.

After the new product line is approved by the board, X-Corp. substantially increases its profit margin in the next quarter. On the agenda for the next monthly board of directors meeting is the declaration of a dividend. To accelerate the approval of the dividend, Chairman A asks the compensation committee to declare the dividend. The compensation committee passes a resolution to pay an increased dividend. SH C finds out about this and sues the board on behalf of X-Corp.

CORPORATIONS: R - dividends are declared at the board's discretion. The exception to the general rule is that the board of directors does not have discretion to distribute dividends if the corporation is insolvent or the payment of the dividend would result in insolvency. Dividends can be sourced from earned surplus or capital surplus, while stated capital cannot be used. When first announcing dividends, you must note the type of funds used, the amount of the dividends, and the type of stocks for payout. Directors have a duty to manage the business of the corporation. The default rule is that directors cannot delegate duties. However, directors can delegate management duties to a committee or one or more directors. Committees, however, have limits. Committees cannot declare dividends, nor can they amend bylaws, they also cannot fill a board of directors vacancy. A - i. the Chairman A has asked the compensation committee to declare a dividend—a discretion that they Chairman alone does not have the power to make. Dividends are declared at the board's discretion, the only exception to this rule is insolvency or the potential for insolvency, that does not exist here. Assuming X-Corps profit margins are earned or capital surplus, then the board does have discretion of increasing the dividend. However, Chairman A's sole decision to give this discretion is a violation of his duties. While Chairman A is able to delegate his duties to a committee, one of the explicit action's committees cannot act on is declaring dividends. This is a duty reserved solely for the board of directors. By delegating this action to the committee Chairman A has violated his duty to manage the corporation. C - SH C is likely to be successful in their lawsuit.

B Corp. had a successful year and wants to declare dividends. After paying overhead and salaries, the board of B Corp. decides that the earned surplus justifies paying $400,000 in dividends. How are dividends paid if the outstanding stock of B Corp. is: 4. B corp. did not pay any dividends in the prior three years. B Corp. has 100,000 shares of common stock and 20,000 shares of $2 preferred cumulative stock.

CORPORATIONS: R - dividends are declared by the Board of Directors, at the Board's discretion. An exception to the general rule is the Board will have no discretion if the corporation is insolvent or the payment of the dividend would make them insolvent. There are four types of stock: (1) preferred stock; (2) preferred participating stock; (3) preferred cumulative stock; and (4) common stock. Dividends will be paid to preferred stock before common stock. For preferred participating stock, dividends will be paid to preferred stock first, and this stock will be paid again at the end with common stock. Preferred cumulative stock will be paid dividends by adding up the previous years' dividends that have not yet been paid, and then will pay out the cumulative amount. A corporation's earned surplus, A - i. B. Corp's Board of Directors has declared, by its discretion, to pay $400,000 in dividends; it can use earned surplus to pay those dividends to shareholders. B Corp. has 100,000 outstanding shares of common stock, and 20,000 shares of $2 preferred cumulative stock. Preferred cumulative stock is handled by first paying out the previous years' dividends not yet paid, then paying out the current year as preferred stock, and finally paying out the common stock. The corporation will first pay the years not yet paid. 20,000 cumulative preferred shares times $2 per share, times three unpaid years = $120,000. Each preferred cumulative share will be paid $6 per share. $400,000 in dividends minus $120,000 leaves $280,000 remaining. Next, the corporation will pay those holding preferred cumulative stock as preferred stock for the current year, that is, 20,000 shares with a $2 dividend preference = $40,000. $280,000 minus $40,000 leaves $240,000 remaining Last, the corporation will pay the remaining dividends distributed equally amongst the common shares. $240,000 divided by 100,000 common shares, or $2.40 per common share. C - dividends will be paid out in the following manner: first, $8 per share to the 20,000 cumulative preferred stock ($6 for previous years' cumulative share, $2 for preferred share), then $2.40 per share to the 100,000-common stock.

B Corp. has 5000 shares outstanding. A owns 1000 shares of B Corp., i.e. 20%. B Corp needs additional cash to acquire a competitor. B Corp. decides to issue 3000 additional shares for cash. A has preemptive rights.

CORPORATIONS: R - existing shareholders have preemptive rights if it is mentioned in the articles of incorporation. Preemptive rights provide that any existing shareholder, may maintain their current percentage/ownership shares in the corporation by buying stock whenever and ONLY if there is a new issuance of stock for cash. A - A is a existing shareholder of B Corp., owning 1,000 shares of B Corp. (20% ownership in B Corp). B Corp then issued 3,000 shares (newly issued stock), in exchange for cash. Because A was an existing shareholder with preemptive rights and B Corp issued new stock for cash, A has the right to maintain her percentage/ownership shares by buying stock. C - A may buy addition stock to maintain her percentage/ownership shares in B Corp.

The board of X-Corp has 10 directors. Board of X-Corp has to vote on whether to approve a new line of products after extensive production design changes. The board also has to approve several contracts in this context. To save time, Chairman of the board A proposes to act without a meeting. 9 of 10 directors approve to act without a meeting.

CORPORATIONS: R - he board always meets in person to act on board decisions. This ensures that dialogue happens and better decisions are made. The exception to this rule is that unanimous written agreement among the board can override the need for an in-person meeting. Notice for the board of director meeting is required. This can be achieved by mentioning the meeting in the bylaws for the corporation. A special meeting requires 2-day notice. Proxies and voting agreements are not allowed—directors cannot delegate their duties. To establish a quorum, and enable the corporation to do business, the corporation needs a majority of all directors present at the meeting. To pass a resolution, the corporation needs a majority vote of all directors present at the meeting. If there is no quorum, the overall board can ratify the action later. The quorum can be lost if the director exits the meeting. A - the Board of X-Corp seeks to approve a new line of products. To do this, the chairman of the board proposes to act without a meeting. This directly violates the general rule that the board always meeting in person. Absent a unanimous written agreement, voting without an in-person meeting is not allowed. Here, only 9 of the 10 directors approved acting without a meeting. The board did not unanimously agree to act without a meeting, therefore the board is not authorized to act without a meeting. If there had been unanimous agreement, a quorum was present. A quorum requires a majority of directors to be present. Assuming that 9 out of 10 directors are present outside the in-person meeting a quorum is still meet and any decision to act would be acceptable. However, without unanimous agreement to act without a meeting, voting on the new product line is disallowed C - the new product line has not been approved.

A Corp. is selling 10,000 shares of $3 par stock to B. How much does B have to pay A Corp.?

CORPORATIONS: R - When a corporation sells and trades its own stock, it must received adequate consideration in exchange for that stock. This consideration can be in the form or money, property of services already performed for the corporation. The minimum issuance of stock is considered par value stock. Any valid consideration may be received if the board values it in good faith to be worth at least par value. A - A corp. is selling 10,000 shares to B at $3 par stock, meaning it is the minimum issuance of stock that the corporation will sell or trade. C - B must pay A Corp consideration in the form of money, property, or services already performed at the value of $30,000.

B Corp. had a successful year and wants to declare dividends. After paying overhead and salaries, the board of B Corp. decides that the earned surplus justifies paying $400,000 in dividends. How are dividends paid if the outstanding stock of B Corp. is: 1. 100,000 shares of common stock?

CORPORATIONS: R - i. dividends are declared by the Board of Directors, at the Board's discretion. An exception to the general rule is the Board will have no discretion if the corporation is insolvent or the payment of the dividend would make them insolvent. There are four types of stock: (1) preferred stock; (2) preferred participating stock; (3) preferred cumulative stock; and (4) common stock. For the purposes of dividend distribution, dividends will be paid to preferred stock before common stock. For preferred participating stock, dividends will be paid to preferred stock first, and this stock will be paid again at the end with common stock. Preferred cumulative stock will be paid dividends by adding up the previous years' dividends that have not yet been paid, and then will pay out the cumulative amount. Common stocks are paid last. A corporation's earned surplus, i.e., its earnings less losses and previous distributions, is used to pay dividend distributions. A - B. Corp's Board of Directors has declared, by its discretion, to pay $400,000 in dividends; it can use earned surplus to pay those dividends to shareholders. B Corp. has 100,000 outstanding shares of common stock, and no preferred stock. Since there are no various types of stock for which to pay dividends in priority order, the 100,000 shares will all be paid at one time to all common stock. With $400,000 earned surplus, the corporation can pay: $400,000 divided by 100,000 shares, or $4 per share C - B Corp. pays a dividend of $4 per share to all of its common stock.

B Corp. had a successful year and wants to declare dividends. After paying overhead and salaries, the board of B Corp. decides that the earned surplus justifies paying $400,000 in dividends. How are dividends paid if the outstanding stock of B Corp. is: 3. 100,000 shares of common and 20,000 of $2 preferred participating stock?

CORPORATIONS: R - i. dividends are declared by the Board of Directors, at the Board's discretion. An exception to the general rule is the Board will have no discretion if the corporation is insolvent or the payment of the dividend would make them insolvent. There are four types of stock: (1) preferred stock; (2) preferred participating stock; (3) preferred cumulative stock; and (4) common stock. For the purposes of dividend distribution, dividends will be paid to preferred stock before common stock. For preferred participating stock, dividends will be paid to preferred stock first, and this stock will be paid again at the end with common stock. Preferred cumulative stock will be paid dividends by adding up the previous years' dividends that have not yet been paid, and then will pay out the cumulative amount. Common stocks are paid last. A corporation's earned surplus, i.e., its earnings less losses and previous distributions, is used to pay dividend distributions. A - i. B. Corp's Board of Directors has declared, by its discretion, to pay $400,000 in dividends; it can use earned surplus to pay those dividends to shareholders. B Corp. has 100,000 outstanding shares of common stock, and 20,000 shares of $2 preferred participating stock. Since preferred stock is paid first, the 20,000 times $2 per share, or $40,000, will be paid first to the preferred participating stock. With $400,000 earned surplus, the corporation will first pay $40,000 for preferred shares, and will have $360,000 remaining to pay common shares and preferred participating shares. 100,000 common shares plus 20,000 preferred participating shares are a total of 120,000 shares to pay the remaining dividends. The corporation will then pay: $360,000 divided by 120,000 shares, or $3 per share. C - dividends will be paid out in the following manner: first, $2 per share to the 20,000 preferred stock, then $3 per share to the 100,000 common stock and 20,000 preferred stock.

B Corp. had a successful year and wants to declare dividends. After paying overhead and salaries, the board of B Corp. decides that the earned surplus justifies paying $400,000 in dividends. How are dividends paid if the outstanding stock of B Corp. is: 2. 100,000 shares of common and 20,000 of preferred with $2 dividend preference?

CORPORATIONS: R - i. dividends are declared by the Board of Directors, at the Board's discretion. An exception to the general rule is the Board will have no discretion if the corporation is insolvent or the payment of the dividend would make them insolvent. There are four types of stock: (1) preferred stock; (2) preferred participating stock; (3) preferred cumulative stock; and (4) common stock. For the purposes of dividend distribution, dividends will be paid to preferred stock before common stock. For preferred participating stock, dividends will be paid to preferred stock first, and this stock will be paid again at the end with common stock. Preferred cumulative stock will be paid dividends by adding up the previous years' dividends that have not yet been paid, and then will pay out the cumulative amount. Common stocks are paid last. A corporation's earned surplus, i.e., its earnings less losses and previous distributions, is used to pay dividend distributions. A - i. B. Corp's Board of Directors has declared, by its discretion, to pay $400,000 in dividends; it can use earned surplus to pay those dividends to shareholders. B Corp. has 100,000 outstanding shares of common stock, and 20,000 shares of preferred stock with $2 dividend preference. Since preferred stock is paid first, the 20,000 times $2 per share, or $40,000, will be paid first to the preferred stock. With $400,000 earned surplus, the corporation will first pay $40,000 for preferred shares, and will have $360,000 remaining to be equally distributed amongst common shares. The corporation will then pay: $360,000 divided by 100,000 shares, or $3.60 per share. C - dividends will be paid out in the following manner: $2 per share to the 20,000 preferred stock, then $3.60 per share to the 100,000 common stock.

X-Corp a Delaware corporation has 2 mil authorized stock, 1 mil. issued and outstanding. Shareholder A holds 55% of X-Corp. stock. X-Corp. decides to issue 500k stock for cash. The articles do not provide for preemptive rights. A wants to buy stock to maintain her 55% ownership stake.

CORPORATIONS: R - preemptive rights are the rights for existing shareholders to keep the stock proportion or percentage of ownership shares in the corporation by buying stock whenever and only if there is a new issuance of stock for cash. Broken down, these are rights of 1) existing shareholder to maintain 2) percentage of ownership upon 3) new issuance for 4) cash. However, the modern trend A - X-Corp has 2mil of authorized stock, and only 1mil is outstanding, giving them to have the ability to issue more. Shareholder A holds 55% of X-Corp. stock. X-Corp. decides to issue 500k stock for cash. Under the general rule, A would have preemptive rights because A is an existing shareholder seeking to maintain her percentage of ownership (55%) in the new issuance of stocks for cash. However, the modern trend according to § 102(b)(3), is that preemptive rights do not exist unless they are mentioned in the articles. Here, X Corps articles do not provide for preemptive rights, so A does not have any right to keep the stock proportion or percentage of ownership shares in the corporation. C - A does not have any preemptive right to keep the stock proportion or percentage of ownership shares in X. Corp.

A is the record owner of B Corp. shares on the record date. A sells C her shares after the record date but before the annual meeting. After the sale of her shares to C but before the annual meeting, A sends a signed letter to the secretary of B. Corp. giving C an irrevocable proxy to vote her shares at the annual meeting.

CORPORATIONS: R - the record owner of the shares on the record dates votes. The exception to the general rule is that the record owner of the shares may have a proxy to vote for their shares at the annual meeting. To satisfy a proxy voter there must be 1) a writing, 2) signed by the record shareholder, 3) directed to the secretary of the corporation, 4) which authorizes the person to vote the stocks/shares, 5) which is valid for 11 months. Proxies are revocable at any time unless the proxy says conspicuously that it is irrevocable AND the proxy is coupled with some other interest. A - A is record owner of B Corp shares on the record date. A then sells her shares to C after the record date but before the annual meeting. After selling C the shares, A 1) sends a written letter, 2) signed by A, 3) to the secretary of B Corp. before the annual 4) authorizing C an irrevocable proxy to vote A's shares, 5) at the annual meeting (which is within 11 months of when the written letter was sent to the secretary). In general, proxies can be revoked at any time unless the proxy says conspicuously that it is irrevocable AND the proxy is coupled with some other interest. Here, the letter stipulates that the proxy is irrevocable AND that proxy is coupled with some other interest because A sold her shares to C. C - A cannot revoke her proxy to C.

B Corp. is in the blasting and explosives business but does not carry insurance. A is a shareholder and CEO of B Corp. Despite the nature of its business, B Corp. has an initial capitalization of only $1,000. A comingles his own funds with those of B Corp. C gets injured at one of B Corp's blasting sites.

CORPORATIONS: R - shareholders are not liable for the debts of the corporation because corporations have limited liability. The exception to the general rule is shareholders can be held liable by piercing the corporate veil which is possible 1) if the shareholder abused the privilege of incorporation and 2) if giving the shareholder limited liability would be inequitable. Courts can pierce the corporate veil occurs when shareholders engage in alter ego, which is the failure to observe sufficient corporate formalities, like co-mingling (using corporate funds to pay for personal costs). The corporate veil can also be pierced if shareholders engage in undercapitalization, which is the failure to maintain sufficient funds to cover foreseeable liabilities. A - i. By default, A is not liable for the debts of B Corp. However, A can be held personally liable by piercing the corporate veil. The veil can be pierced in two ways alter ego and undercapitalization, both of which A engaged in. A engaged in alter ego, the failure to observe sufficient corporate formalities when he co-mingled his own fund with the corporations. A also engaged in undercapitalization, the failure to maintain sufficient funds to cover foreseeable liabilities, because by having a blasting business, it is foreseeable that someone might be injured as a result. By only having capitalization of $1,000, B Corp does not have sufficient funds to cover foreseeable liabilities like C getting injured at blasting site. C - the corporate veil is pierced and A is liable to C.

All members of Section B own Coca Cola Stock. Section B decides that voting jointly to elect one of their classmates to the Board of Directors would give them the best shot at increasing the profitability and sustainability of the Coca Cola Company. However, they cannot agree on who should have the voting power on their behalf. Section B approaches Section C to write a legal memo on how to increase the likelihood of electing their classmate to the board of Coca Cola Inc.

CORPORATIONS: R - shareholders who own relatively few stock can increase their influence at the annual meeting by block voting, that is, aligning interests and voting alike. There are two ways shareholders can accomplish block voting. The first is a voting agreement, in which shareholders agree in writing to vote their shares as agreed by all parties. Courts are split as to whether voting agreements are enforceable because a voting agreement is a contract that deprives a shareholder of the right to vote all of its shares. The second way is by a voting trust, which is a formal delegation that gives all voting power to a trustee. In order to accomplish a voting trust, the following are required: (1) written trust agreement; (2) copy filed with the corporation; (3) the agreement transfers legal title of shares to trustee; (4) shareholders receive trust certificates; (5) shareholder retains all rights except the right to vote; and (6) the agreement it valid for 10 years unless limited or extended by agreement. A - Voting agreements inherently require agreement among the parties as to who amongst them will have the voting power. Since there is no agreement among the students in Section B as to who amongst them should hold the voting power, a voting agreement will not work. Another method that could potentially help Section B get one of their classmates elected is cumulative voting. If cumulative voting is stipulated in Coca Cola's Articles, and if there are multiple board openings at this time, then after the trustee has selected the classmate to be nominated to the board of directors, all of the Section B shareholders could then cast all of their votes for that single nominee. However, the students would only be able to gain from cumulative voting if Coca Cola has multiple openings on its board. If there is only one director opening on the board, there is no multiplying factor, and the shareholder votes are no more powerful than they would be without cumulative voting. the students would not be able to multiply votes through cumulative votes unless the Articles provide for cumulative voting, and here we so not know if Coca Cola's articles provide for cumulative voting. C - Section B should utilize a voting trust in order to elect a classmate to the Board of Directors for Coca Cola.

The board of X-Corp has 10 directors. Board of X-Corp has to vote on whether to approve a new line of products after extensive production design changes. The board also has to approve several contracts in this context. The bylaws require a monthly meeting. At the monthly meeting, 9 of 10 directors are present. 4 of the 9 directors vote in favor of the new products and the required contracts.

CORPORATIONS: R - the Board of Directors must meet in person to act. The exception to the general rule is the Board can act without meeting if there is unanimous agreement to act without meeting. In order to meet, there must be notice, which can be specified in the bylaws. Special meetings can be called with at least two days' notice. At a Board of Directors meeting, in order to do business, a majority of the Board must be present (that is, a quorum must be present). In order to pass a resolution, a majority of directors who are present must vote in favor of the resolution. If there is no quorum, the action can be ratified later by the overall board. A quorum can be lost if a director leaves the meeting before the vote. A - i. The Board has been given notice of a meeting because the bylaws require a monthly meeting. At the monthly meeting, a quorum is present because 9 of 10 directors, which constitutes a majority, are present. No fact suggests that any directors left the meeting so we can assume that the quorum was maintained throughout the entirety of the meeting. The resolution does not pass, however, because only 4 of the 9 directors vote in favor of the new products and the required contracts. Thus, a majority of the directors present did not vote in favor of the resolution. With 9 directors present, a minimum of 5 would be required to vote in favor of the resolution. C - the new product line has not been approved.

The board of X-Corp has 10 directors. Board of X-Corp has to vote on whether to approve a new line of produces after extensive production design changes. The board also has to approve several contracts in this context. Because of the urgency of the situation, the chairman of the Board calls a special meeting the next day. 5 of 10 directors vote in favor of the resolution.

CORPORATIONS: R - the Board of Directors must meet in person to act. This rule ensures that directors engage in dialogue so that better decisions are made by the board. The exception to this rule is that unanimous written agreement among the board can override the need for an in-person meeting. In order to meet, there must be notice of the meeting, which can be specified in the by-laws. A special meeting requires 2-day notice. Proxies and voting agreements are not allowed—directors cannot delegate their duties. To establish a quorum, and enable the corporation to do business, the corporation needs a majority of all directors present at the meeting. To pass a resolution, the corporation needs a majority vote of all directors present at the meeting. If there is no quorum present at the meeting, the board can ratify the action later. The quorum can be lost if a director exits the meeting. A - The board is attempting to urgently pass the new products. To do this, the chairman of the board calls a special meeting the next day. This violates the rule that special meetings require at least 2-day notice. On this fact alone, the approval of the new product line fails. Even if the special meeting were valid, and assuming that all ten directors were present at the special meeting, the resolution did not pass because only 5 of 10 directors voted to pass the resolution, and a majority—a minimum of 6—would be required to vote in favor of passing the resolution. C - the new product line has not been approved.

Attorney Y's paralegal put wrong name of recipient onto the envelope when filing the articles and articles are never actually filed with the Department of State. But for the incorrect recipient name, Ms. Orange, Attorney Y and paralegal took all necessary steps to incorporate Hardware Inc. Jiffy Lube, Inc. signed 5 contracts with Hardware Inc but upon finding out about the lacking legal existence of Hardware Inc. claims that the contracts are invalid and Ms. Orange is personally liable.

CORPORATIONS: R - to create a legal corporation/existence, there must be people (who sing and file the articles of incorporation with the state), paper (the articles of incorporation which stipulate, the authorized stock, purpose of the corporation, list the agents and incorporators, and state the name of the corporation), and act (filing the articles with the secretary of state).a. When a corporation fails to meet the De Jure requirements (People/Paper/Act) of corporate formation, a de facto corporation can be formed. A de facto corporation means even if the corporation does not legally exist, it will still be treated as if the corporation exists if 1) the organizers/promoters have made a good faith, colorable attempt to comply with the corporate formation formalities and 2) the organizers/promoted have no knowledge that it wasn't technically formed and they have done everything to form the entity. If a de factor corporation exists, the organizers/promoters will not be held personally liable and the corporation will be liable as a legal entity. A - Hardware Inc. was technically never legally formed and doesn't legally exist as a corporation. Hardware Inc lacked the "act" requirement of "people, paper, act" was not met because the articles were never filed with the Department of State due to Attorney Y's paralegal putting the wrong name of recipient onto the envelope when filing the articles. However, Hardware Inc. can be treated as if it does exist if 1) the organizers/promoters have made a good faith, colorable attempt to comply with the corporate formation formalities and 2) the organizers/promoted have no knowledge that it wasn't technically formed and they have done everything to form the entity. There is also no evidence to suggest that Ms. Orange, Attorney Y, and the paralegal had any knowledge that Hardware Inc. wasn't technically formed. C - Since a de factor corporation exists, Hardware Inc. will be held liable as an entity. Ms. Orange cannot be held personally liable.

Reading v. Regem

Here, there is a principal-agent relationship. Reading, the agent assented to an agreement with the principal by joining the army and Royal Army Medical Corps. The agent's conduct was for the principal's benefit because the agent oversaw the medical stores at the hospital in Cairo. The principal had the right to control the agent because they could reassign him to different positions. Because there is a principal-agent relationship, the agent owes three duties to the principal. The agent met his duty to exercise reasonable care because he followed his duties at sergeant. The agent met his duty to obey reasonable instructions. However, the agent did not meet his duty to be loyal. The agent, without authorization, escorted truckloads of cargo through Cairo. The agent was hired because he was a soldier and used his status and uniform to pass the cargo through without detection. The agent was able to unjustly enrich himself by virtue of his service to the principal. Without the status and uniform given to him by the principal, the agent would not have been able to obtain these secret profits. C - Because the soldier breached his duty of loyalty, and was unjustly enriched as a result, the Royal Army can keep any profits made as part of the illegal activity.

A and B are sharing profits in the AB partnership as co-owners. The AB partnership has outstanding debt of $200k. Despite the precarious financial situation, C sees a long-term benefit in joining the partnership and decides to join the AB partnership in January. A and B demand that C contribute capital of $100k to satisfy existing creditors and C agrees to do so. In March of the same year, D, one of the AB partnership creditors, holds C personally liable for outstanding AB partnership debt of $100k. Is C liable?

PARNTERSHIPS: R - Partners are jointly and severally liable for the debts of the partnership. The exception to the general rule is that incoming partners have no liability on preexisting debts of the partnership. The exception to this exception is that any capital contributions made by the incoming partner may be used to pay off preexisting debts. A partnership is by default created when two or more people act as co-owners to make a profit. A - A partnership exists between A and B because they two or more people, acting as co-owners for-profit. Because the $200k preexisted C joining the partnership, C is not jointly and severally liable for such debt. However, the capital contribution of $100k that C agreed to pay to AB can be used to pay off a portion of that pre-existing debt. C - D, one of AB partnerships creditors cannot hold C personally liable for the outstanding $100k because that debt was pre-existing when C joined the AB partnership.

A and B dissolve their partnership. In winding up, they liquidate the partnership assets and have a total of $1 million to distribute. How should that amount be distributed, if (1) the partnership owes $600,000 to trade creditors; (2) Partner A loaned the partnership $100,000; and (3) Partner B made capital contributions of $200,000? What if A and B's partnership has only 700,000 to distribute?

PARNTERSHIPS: R - a. partners are always jointly and severally liable for the debts of the partnership. The exception to the general rule is that partnership creditors must first exhaust partnership resources before recovering from partners individually credits. During winding up of a partnership, the distribution of liquidating assets should be completed in 3 levels, where each level must be satisfied before the next level. (1) pay back their outside creditors, then to the inside creditor/partners who made loans to the partnership; (2) repaying each partner for their capital contributions to the company in addition to that partners share of profits minus that partners share of the losses (3) each partners share of the remaining profits. A - the partnership must first repay the $600,000 they owe to trade creditors, bringing their total from assets to $400,000. Then, they must repay A's $100,000 loan because A is considered an inside partner/creditors who should be paid right after outside creditors, making the total assets left to be distributed at $300,000. Then, they can start repaying each partner for their capital contributions plus the share of profits minus the losses. B had a capital contribution of $200,000 and losses are not discussed so the partnership assets are now $100,000 after the first to levels of repayment have been completely. Lastly, each partner gets a share of the remaining profits - in this case, A and B would each receive $50,000. If the partnership only have $700,000 of assets to being the winding up process, they would take care of the outside creditors first ($600,000) and then repay A for his inside partner/creditor loan ($100,000). The debt of the company is not covered by the assets of the partnership, the remaining debt is to be taking from the individual partners. C - the partnership would pay their debts in priority order, and where the partnership doesn't retain enough assets to fully repay their debts, the individual partners can be indemnified to repay what's left.

1. What if the agreement is silent on profits and losses? 2. What if the agreement stipulates: "Profits are shared 60/40." How are losses shared? 3. What if the agreement stipulates: "Losses are shared 60/40." How are profits shared? 4. What if Partner A puts up all of the money. Partner B does all of the work. Partner C gives the partnership its name. Partner D does nothing. How are profits shared?

PARTNERSHIPS: 1. The general rule is that when an agreement is silence on profits and losses, the partners are to share the profits equally and absent an agreement, the losses are to be shared like the profits (equally). Therefore, the profits would be shared equally and as would the losses. 2. The general rule is that the losses are to be shared like the profits. Therefore, absent an agreement, the losses are to be shared like the profits are, 60/40. 3. The general rule is that the losses are to be shared like the profits. If the agreement is silent as to the profits, they are shared equally. Therefore, the profits can be shared equally, but the losses can be shared 60/40 because there is an agreement that stipulates the losses are not shared like the profits are. 4. The general rule is that when an agreement is silence on profits and losses, the partners are to share the profits equally and absent an agreement, the losses are to be shared like the profits.

A and B agree to start a ski school. A agreed to lend B money to purchase a snowmobile for the school. Later, A told C, a snowmobile vendor: "B, my partner, and I are starting a ski school and we would like to buy a snowmobile." C offered to sell A and B a snowmobile. C agreed to allow B to take it for a test ride. Before B's test drive, however, A and B decide to abandon their idea for setting up the ski school. Nevertheless, B takes the snowmobile out for a test-ride and totally destroys it.

PARTNERSHIPS: R - Partners are jointly and severally liable for debts and torts of a partnership. A partnership exists when two or more persons carry on as co-owners of a business for profit. Contribution of money or services for a share of profits is prima facie evidence of a general partnership. A person who represents to a third party that a partnership exists will be liable as if a partnership in fact does exist under estoppel. A - There is no partnership yet formed because both A and B decide they will not go through with plans to form a ski school business. There was no evidence of contribution of money or services in return for a share of profits, therefore there is no prima facie evidence of a partnership. At the time of the accident, A had only agreed to lend B money to buy a skimobile for the school. A represented to C that he was in a partnership with B (A said to C, "B, my partner, . . . "). Even after A and B decided not to go through with the ski school partnership, they did not convey that to C, allowing C to continue to believe A and B were partners, when B destroyed C's skimobile. C - Since there was no partnership between A and B, but A represented to C that a partnership existed, A is liable as if a partnership did in fact exist.

A, B, and C are in the business of buying and selling diamonds as co-owners for profit. On a recent business trip for the ABC partnership to Johannesburg's diamond markets, A spots choice diamonds, and secretly buys them for herself for $1 million. A then resells the diamonds for $2 million. What duties, if any, has A breached? What remedies, if any, does the ABC partnership have against A?

PARTNERSHIPS: R - Partnership is by default created when two or more people act as co-owners to make a profit. A partnership gives rise to a fiduciary relationship and a duty of loyalty, a duty of good faith & fair dealings, and a duty of care which each partner owes to others in the partnership. Under the duty of loyalty and agent cannot engage in self-dealing, a partner cannot usurp, or take away the partnerships business opportunities/profits, and the partner cannot have secret profits. If a partner violates the duty of loyalty, the partnership can bring an Action for an Accounting against the partner responsible. A partner also has a duty of good faith & fair dealings to the other partners in the partnership. Additionally, each partner has a duty of care owed to the partnership. Under the duty of care, 1) partners must refrain from grossly negligent or reckless conduct or intentional misconduct; 2) partners must provide, without demand, information about the partnership which is reasonable required for other partners to exercise their rights under the partnership agreement; and 3) partners have to provide, on demand, any other information about the partnership unless it is unreasonable. A - a partnership was created because A, B, and C are two or more persons, acting as co-owners, in a for profits business of buying and selling diamonds. i. A breached the duty of good faith & fair dealings as well as the duty of loyalty owed to the partnership because A not only engaged in self dealing and usurping of business opportunities, but also received secret profits, when A decided to secretly buy and resell diamonds. A also usurped a business opportunity for the partnership because A bought and sold the diamonds meant for the partnership, she inhibited the partnership's ability to buy and sell the diamonds themselves. C - A breached the duty of loyalty to the partnership and the partnership can bring an Action for an Accounting against A to recover the losses caused by her breach or disgorge the profits A made by selling the diamonds.

A, B, and C are in the business of buying and selling diamonds as co-owners for profit. On a recent business trip for the ABC partnership to Johannesburg's diamond markets, A spots choice diamonds, and buys them for the ABC partnership for $1 million. On her return trip to the United States, A recklessly lost the diamonds. What duties, if any, has A violated?

PARTNERSHIPS: R - R - Partnership is by default created when two or more people act as co-owners to make a profit. A partnership gives rise to a fiduciary relationship and a duty of loyalty, a duty of good faith & fair dealings, and a duty of care which each partner owes to others in the partnership. Under the duty of loyalty and agent cannot engage in self-dealing, a partner cannot usurp, or take away the partnerships business opportunities/profits, and the partner cannot have secret profits. If a partner violates the duty of loyalty, the partnership can bring an Action for an Accounting against the partner responsible. A partner also has a duty of good faith & fair dealings to the other partners in the partnership. Additionally, each partner has a duty of care owed to the partnership. Under the duty of care, 1) partners must refrain from grossly negligent or reckless conduct or intentional misconduct; 2) partners must provide, without demand, information about the partnership which is reasonable required for other partners to exercise their rights under the partnership agreement; and 3) partners have to provide, on demand, any other information about the partnership unless it is unreasonable. A - a partnership was created because A, B, and C are two or more persons, acting as co-owners, in a for profits business of buying and selling diamonds. A did not breach the duty of loyalty or the duty of good faith & fair dealings. However, A did breach the duty of care when she lost the diamonds on her return trip to the United States. If A had just negligently lost or misplaced the diamonds, she would have not breached her duty of care but because she recklessly lost them, she breached her duty. C - A violated the duty of care owed to the ABC partnership.

A and B form a partnership that has the purpose of buying and developing properties and selling such properties for profit. The AB partnership has assets of $90k. D, a contractor holds the AB partnership liable on a recent contract with the AB partnership for $100k. When D realizes she can only recover $90k from the AB partnership, D holds A liable for the remaining $10k. Who is liable and for what amounts?

PARTNERSHIPS: R - i. partners are always jointly and severally liable for the debts of the partnership. The exception to the general rule is that partnership creditors must first exhaust partnership resources before recovering from partners individually credits. Each partner also retains the right to indemnification from the other partners. A partnership is by default created when two or more people act as co-owners to make a profit. A - a partnership exists between A and B because they two or more people, acting as co-owners in a for-profit business of buying, developing, and reselling properties. Since a partnership was created, A and B are both jointly and severally liable for the debts occurred by the partnership, meaning they are both liable for the $100k debt they owe D for their recent contractor contract. As a creditor, D must first exhaust all of the partnerships assets before recovering from the individual partners. C - Since AB partnership only has $90k in assets, D can hold either or both partners liable for the remaining $10k owned to pay off the debt incurred by the AB partnership.

A, B and C are sharing profits in the ABC partnership as co-owners. C decides to dissociate from the partnership in January without filing a statement of dissociation with the department of state. In March of the same year, A and B sign a contract with a new creditor D. In May that year, D holds C liable on the contract.

PARTNERSHIPS: R - person dissociated as a partner (no longer associated with the partnership) is not liable for a partnership obligation that occurred after dissociation from the partnership. The exception to the rule is 1) if the a partner would be liable on the transaction AND 2) at the time the other party enters into the transaction (a) less than two years have passed since the dissociation and (b) the other party does not have knowledge or notice of the dissociation and reasonably believed that the person is a partner. To avoid this, the dissociated partner or the partnership may file a statement of dissociation with the Dept. of State, to put creditors on notice of the dissociation. A partner wrongfully dissociated themselves from the partnership when they walk away from a particular undertaking or a definite term before it is completed or expired. If a partner wrongfully dissociates, without causing it resulting in dissolution or winding up of the partnership, the partnership may continue and buy out the withdrawing partner but the payment is contingent on the completion of the project or term. Rightful dissociation happens with a partnership at well, and the remaining partners may continue the partnership and buy out the withdrawing partner. A - C can be liable to D because of the exception to the rule. C would have been jointly and severally liable for the contract with D, entered into by the partnership (as every partner is in a partnership) if he was still a partner. The first element of the exception is satisfied because C would have been liable on the transaction with D if he were a partner. At the time A & B entered into the contract with D, only two months (less than two years) had passed since C dissociated himself from the partnership. Since C didn't file a statement of dissociation with the department of state, the creditors of the partnership so D was not aware of or on notice that C was dissociated from the partnership and therefore, still believed that C was a partner. C - C can be liable on the contract with D.