Business Associations Final Examination Fall,2008 Instructions: r CuLl This is a closed book, 3 hour examination, consisting of 4 questions, the first 3 worth 20 points each, the last one worth 10. Your 3 best quizzes, plus your 10 point research paper, plus your 5 point research paper, totals I 00 possible points. Good luck, and have a safe and happy holiday season. QUESTION ONE SplatterCorp is a duly organized corporation in Massachusetts. Its Articles of Incorporation states that it was organized for the purpose of providing fun toys, which children could either throw at walls or eat (or both). The toys are organic and non-toxic, and easily wash off walls and furnishings. It was authorized to issue 200,000 shares of stock. It was established in 2001 by James Gremlin, who was initially chosen president (he was also the sole shareholder, sole director, and only employee). James owned 900 shares. In the middle of 2003, he brought in Jane Splain, because business was beginning to really grow (get it?). To entice her, he gave her a pretty good starting salary ($50,000), a nice title (Executive Vice President) and 100 shares of stock in the corporation. James retained his 900 shares. Jane had the responsibility of making sure that the office was running smoothly, while James was out and about, building the edible toys from his botanical gardens (the land on which he grew the botanical elements in the toys he co- owned with his brother, Rufus), and visiting local toy and grocery stores, trying to drum up business. In late 2005, James also brought his son Francis and daughter Emily into the business. James learned from Rufus how to plow fields and mix chemicals in the lab, while Emily learned how to tun the business operations smoothly. TIJ.is she learned from Jane, who was an excellent teacher. One fateful day last year, the following things happened. First, some background. It was a warm morning, but that was to be expected in July. It had rained a little the night before, and the roads were still a little slick, and it was also very foggy. James was driving the company-owned SUV, and Iris 2 children were passengers (they still lived at home with mom and dad). Emily told her father that they needed staples and other office supplies for the office, so James pulled into Staples, and Francis hopped out to run into the store to get them. James left the SUV mnning. Francis never made it into the store. He was hit and seriously injured by a teenager who had stolen a car from a local unlicensed carpenter, whose name is Max Beaumont. T11e teenager ran away on foot. Seeing this, James jumped out of the car to assist his son, and
Transcript
Business Associations Final Examination Fall,2008
Instructions:
r CuLl ~J
This is a closed book, 3 hour examination, consisting of 4 questions, the first 3 worth 20 points each, the last one worth 10. Your 3 best quizzes, plus your 10 point research paper, plus your 5 point research paper, totals I 00 possible points.
Good luck, and have a safe and happy holiday season.
QUESTION ONE
SplatterCorp is a duly organized corporation in Massachusetts. Its Articles of Incorporation states that it was organized for the purpose of providing fun toys, which children could either throw at walls or eat (or both). The toys are organic and non-toxic, and easily wash off walls and furnishings. It was authorized to issue 200,000 shares of stock. It was established in 2001 by James Gremlin, who was initially chosen president (he was also the sole shareholder, sole director, and only employee). James owned 900 shares. In the middle of 2003, he brought in Jane Splain, because business was beginning to really grow (get it?). To entice her, he gave her a pretty good starting salary ($50,000), a nice title (Executive Vice President) and 100 shares of stock in the corporation. James retained his 900 shares. Jane had the responsibility of making sure that the office was running smoothly, while James was out and about, building the edible toys from his botanical gardens (the land on which he grew the botanical elements in the toys he coowned with his brother, Rufus), and visiting local toy and grocery stores, trying to drum up business.
In late 2005, James also brought his son Francis and daughter Emily into the business. James learned from Rufus how to plow fields and mix chemicals in the lab, while Emily learned how to tun the business operations smoothly. TIJ.is she learned from Jane, who was an excellent teacher.
One fateful day last year, the following things happened.
First, some background. It was a warm morning, but that was to be expected in July. It had rained a little the night before, and the roads were still a little slick, and it was also very foggy. James was driving the company-owned SUV, and Iris 2 children were passengers (they still lived at home with mom and dad). Emily told her father that they needed staples and other office supplies for the office, so James pulled into Staples, and Francis hopped out to run into the store to get them. James left the SUV mnning.
Francis never made it into the store. He was hit and seriously injured by a teenager who had stolen a car from a local unlicensed carpenter, whose name is Max Beaumont. T11e teenager ran away on foot. Seeing this, James jumped out of the car to assist his son, and
Emily followed. The SUV, left running and unattended, rolled right through the Staples plate glass window, injuring Bill Johansen, who had just gotten fired from Staples less than 2 minutes earlier, for allegedly calling in sick. (The tmth of the matter is that Bill was a salesperson, always on the road, and the calls came from his neighbor, who detested Bill and wanted to get him fired) . Francis and Bill were taken to the hospital, in separate ambulances. The ambulance Francis was riding in got into an accident with a Fedex truck on the way to the hospital emergency room, and it can be proved that Francis broke his right arm as a result of that collision. Clearly, it was not Francis' day. James and Emily called Jane, who picked them up to bring them to the office.
En route, James informed Jane that she had done a wonderful job training Emily, such a good job, in fact, that her services were no longer needed. So he fired her. He then asked her to stop at a local coffee shop, where he promised to buy Jane and Emily a coffee, and the donut of their choice. Emily chose a chocolate coconut cruller. Jane chose a jelly. While in the store, James was bumped by a customer who was leaving with his order. This customer, Fred Frolic, spilled his hot coffee on James, burning him badly, but not too badly.
It gets worse.
After they got to the office, Jane cleaned out her desk and left, but not before vowing to "see [James] in court." Emily moved into Jane's office, and immediately began ordeting needed supplies, but also ordering champagne and flowers for herself, to celebrate her promotion. She gave the company credit card number to vendors.
At the hospital, Francis was treated by Dr. William Malfoyle, who managed to tum two badly bruised anldes (and the aforementioned broken arm) and a very sore hip into an appendectomy and an amputation of one of Francis's legs. Jeesh.
Two more things. It turns out that, unbeknownst to James, Rufus used pesticides on the organic crops, so they could not actually be sold as "organic," which was a big selling point to customers. (Apparently, Jane knew this, and tattled to the Boston Globe after she was fired.) And Jan1es (or Jane, or Emily, or whoever was responsible for doing so), not only didn't keep proper corporate minutes over the last five years, they also forgot to file armual reports and renew the corporate liability insurance, which lapsed last month.
THOROUGHLY DISCUSS ALL POSSffiLE CAUSES OF ACTION.
QUESTION TWO
PrintCo, a large conglomerate with offices worldwide which was incorporated (in the state ofNewbraska) in late 1997 (the company is engaged mainly in shipping and publishing), had on its Board of Directors six people, Tom, Sirnlca, Eve, Benny, exPresident Clinton, and Gerry Moneybags. Tom, Simka, Eve, and Betty each held the title of Executive Vice President. Tom was president. Tom and Benny were high school and
college buddies, who married their high school and college sweethearts, Simka and Eve, respectively. Each of the four owned 25 shares of stock in the corporation (Clinton and Moneybags did not own any of the stock). The Articles oflncorporation had a provision requiring any shareholder who wanted to transfer stock within I 0 years of the date of incorporation had to first offer the stock to the corporation (the "right of first refusal").
Gerry Moneybags was on the board because his employer, Fleet Bank, required that he be put on the board as a condition of granting a $1,000,000 loan to the corporation over the previous year. (Tom, Simlca, Eve, and Benny orally agreed to act as sureties on the loan). President Clinton was on the board because the hononuium was high ($1 00,000), and because the corporation wanted to be able to boast about its impressive Board of Directors. Over the last three years, the following occurred:
I. In 2006, Tom and Simka were divorced, and as part of the division of their marital assets, Sinllca gave Tom 23 of her shares of stock, and Tom gave her the house in the Poconos. Soon thereafter, the shareholders had a vote, and they ousted Simlca as director and Executive Vice President.
2. In 2001, Benny hired his son, Greg, as marketing director of the firm, at an annual salary of$150,000, fora ten year term. The contract was in writing, signed by Benny as director. Greg never made it out of college, by the way.
3. In early 2007, Eve sold one share of stock to her friend Betty's daughter, Wilma. Wilma hates Greg, because he jilted her at the altar a few years back, if that matters to you.
4. In 2002, President Clinton injured his back during a PrintCo golf outing. In addition, he assisted the company in hiring his fom1er aide, George Stephanopolous, whose job it was to lobby Congress for legislation beneficial to PrintCo's interests. Stephanopolous duly registered as a lobbyist and incorporated himself.
5. In 2007, the shareholders voted to split off the shipping business into a separate corporation, whose stock was solely owned by PrintCo. The new shipping corporation, ShipShape, Inc., had many of the same (but not all, by any means, see Simka, supra) members on its board as PrintCo.
6. Later that year, the captain of one of the ShipShape oil tankers ran aground in Puget Sound, causing all sorts of environmental disasters. The captain was allegedly drunk at the time.
7. Six months ago, Jinuny Carter was elected to the PrintCo Board of Directors.
8. In 2008, the IRS audited ShipShape, and discovered a deficiency of$! ,250,000 in unpaid witll110lding and FICA taxes.
9. Finally, in March, 2000, (I apologize for not mentioning this earlier) the board of PrintCo voted to issue itself stock options, at the current market price (which was $1 0 per share), in lieu of voting to increase their fees for acting as Directors. They did this with lmowledge of impending favorable legislation which would be a boon to the company, because they had firm beliefs in Stephanopolous' continued influence in the halls of Congress.
Two weeks ago, attorney James Dullblade bought 5 shares ofPrintCo stock from his (now) girlfriend, Simlca, found out all that was going on, and filed a derivative lawsuit on behalf of the corporation.
THOROUGHLY DISCUSS THE RIGHTS AND LIABILITIES OF THE PARTIES.
QUESTION THREE
Tom, Bob and Fred worked on the loading dock in a local Lowe's warehouse. They had a lot of free time between loading and unloading deliveries, and they were always brainstorming about new ideas, something that would make them rich beyond their wildest dreams, or at least rich enough to quit their jobs and go fishing all day.
One day, they were tinkering with the platforms used to bridge the gap between the warehouse floor and the truck they were unloading or loading. A driver named Steve (who worked for a local contractor named Ed) who was at the dock to pick up a refiigerator for Ed's wife helped Tom grab the heavy metal platform to put it in place, but his fmger got caught underneath the platform before it was placed between his truck and the loading dock, and it was crushed. Tom drove him to the hospital, in a hurry. Too much of a hurry, as a matter of fact, because the roads were icy, and Tom lost control of the car, smashing into Dolores Pumpernickel's car. Steve was hurt even further. Dolores died. Tom suffered whiplash.
Prior to that, Tom, Bob, and Fred came up with tllis brilliant idea to make the platform, which is usually made of very heavy steel and is thus extremely cumbersome to maneuver, out of a high grade polymer plastic. Actually, truth be told, they did not come up with the idea. One of the truckers, who had a bad back (and a Ph.D. in mechanical engineering) told them about it. It was his idea. He told them he was going to present the idea to their foreman, Nancy. I believe he actually did. I also believe that Nancy ignored him.
On the weekends, they built their prototype, going through reiteration after reiteration. TI1en they began testing it at work, much to the disgruntlement of the incoming drivers who wished to load or unload packages at the warehouse. Tom, Bob, and Fred were just too busy tinlcering to help unload anything.
The new platform really seemed to work, so they went to an attorney, who patented the concept for them. Then they went to another attorney, fresh out of law school, named Moe Dribble, and he had them form a limited partnership, named the XYZ Limited partnership. Moe said it combined the best of both worlds, because it would limit their tax liability and their personal liability. Impressed, Tom agreed to be named general partner.
Tom got fired the next day. He said it was because he told Nancy's supervisor that Nancy was having an affair with one of the salesman, which was against written company policy. The other two men quit their jobs on the same day, even though it was in their contract that if they should leave, they had to give two weeks' notice. Lowe's lost $3,000 worth of orders because there was no one to load the goods onto the trucks.
The patented platforms, called "E-Z Load" were an instant hit. XYZ Limited Parinership made an awful lot of money. But it soon became apparent that the new "E-Z Load" platforms were prone to cracking in low temperatures, and this resulted in many, many accidents ar1d injuries in the winter months of2004. One driver in particular, Gerry Fielding, was unloading a heavy crate of computers when the platform cracked in two. This caused the computers to (a) fall on top of him and kill him, and (b) push against his parked truck, which caused the truck's emergency brake to malfunction, which caused the truck to roll away from the dock, and right over a small girl named Debby (a child of one of the factory workers), who was playing in the snow outside. Both Debby and her pathetic attempt at a snowman were crushed.
THOROUGHLY DISCUSS THE RlGHTS AND LIABILITIES OF THE PARTIES.
QUESTION FOUR
Craig and Sue, husband and wife, came up with a great idea. Chocolate flavored, nontoxic (supposedly), clear nail polish. Their thinlcing was that people are always biting their nails, so they at least ought to be a tad edible. And, being clear, it would be ideal for bathe genders, of all ages. They went to see their favorite attorney, Moe Dribble (remember him?). This is what he ended up doing for them.
First, he duly formed a corporation, BMN, Inc. Then he duly formed a limited partnership, TBF Industries. Naming BMN, Inc. as general partner of the limited partnership. Craig and Sue were named as lin1ited partners ofTBF Industries, and each received 100 shares of stock ofBMN, Inc. Craig was named the president ofBMN, Inc., and Sue was named treasurer. Both were named to the corporation's board of directors. Craig and Sue were skeptical at first, but they trusted Moe. He was, after all, their attorney. He said it was to limit their liability in case something bad should happen.
Which it did. Three things, to be exact.
First, it turns out the nail polish, which sold like hotcakes when they were introduced, posed a health hazard to small children, who were painting their nails and then biting them, and then becoming violently ill. Apparently, their little tummies lacl<ed the enzymes necessary to properly digest the polymer in the nail polish. TBF' s contracts with its Chinese supplier (Chang Industries, Inc.) specifically required the enzyme to be added in the manufacturing process, but that never happened.
Second, Bigbank, Inc. loaned $1 Million to TBF Industries to get the venture up and running. Moe acted as counsel to the lender in the transaction, but forgot to have Craig and Sue sign as sureties on the loan.
Third, when the lawsuits stmted appearing inevitable, Moe refused to turn over his files, because Craig and Sue never paid him for his services rendered in establishing either the corporation or the limited partnership.
THOROUGHLY DISCUSS THE RIGHTS AND LIABILITIES OF THE PARTIES.
Busin-ess Association» Final Exam fall,20(l4 Professor Devlin
Instructions: This is a 3 hour closed book exam~ conslsting of three essay questions. eac:h equally \-reigbted. Do not refer to prior essay answers when annvering any particular essay. Please budget your time spent on eacb question accordingly.
Question One
Three ;;:oi lege hudcL.es, Hans, Franz. ar.d Lemaas, dectdcd one day w go into business. coge~lJer, 'naking cool ("shirts for ccllege s-=udents. Since ~:hey .±ll had tak.,;n a course i11
Busir.es,. L:rx. they knew that if they':in~_;orporated, th..;y \Vould be able to limit t:-Jeir persor.al habilit)• {t:lis \vas espccial~y important to, franz, as he \>.'as ~nP,cpcnJ.en_tly w;;;altl1y. and h:>d the :nos;. wlosc). Bu:: they also k11e'.v ~hn.t ifth;;::y fo:;rr~:G a corpo::utto::, they would be faced\\ ith the possib:Ety of double la>:ation (once OL :he corpora!e Jeye.l, ar~d rhc s~conU time lfthc corporatlon pmd d:vide::1ds). Starting out as a partnership was not a good iJe?., becm:se of the perso:1a: liability- isSU(' A.nd fo~mng a :imiteG pa1incrsh:p was not'' good idea eith;;.r, because all tlm::e men \vanted to have <1 say in tll2 num:ng of rhe busi:1;;ss. So they hatched t:1e following scheme.
L>ey w..::~Jt to an a:tomcy .. Toe Wbte. wh0r:1 they had heard was a :ad shady, bu: l:e·-eame 3.1 a go0d pr:ce. Attorney \.V~itc. formed a !in::tcd pa:r:nership for 1he~1:, HFL :"'.ntiteJ ·Pc.rtnership. and E1ed the neccssar;.' paperwork \;vi"J1 the secretary of state's office. :.ne gcne1a~ pm1ner of the pc.rtrJership was a corpora~ion; LFH, inC. By doing this, t:J.e budd:es rcaso~u;d Ihat only the general partr.er was pe::sonally on th0 hook, and, since tbe general ;:artnc: was <t c;nvora:ivn, ac·L<S of the 3 men ·,yo:;ld ever be pctsona.lly L:bk somethilig went \\Tong. All thYcc men ;.vcre officers and direc~vrs ofLFH, lnc., and by Coing this. they '.vcre able~~) :nanagc the.limiwd pat:r.ership by acting as officers of Lhe. corp;xa;c gcner::J partner. All three me:1 agreed to contd':mte $100,000 each as a capital COJ".tri'oution to the li;mteJ parlnership, but only F:anz actually rn.::: up cmy rr:one;\ :::.~Han::; :..nd Lc~~.Jns h2t: no mo:1cy to put in lHa.xs did own so:::t.e land, \VOrth .a fair ch::::1k cf changet
The frst thing the llr:ai;ed p;;.:-:rership d;.d was buy a :-Jn··down building in Lawrence, ::V1assachmet\<; for $25,000, wl!ich lhe mc~1 ?lar..ned to use as their production, limited p,mccr:::hip . .::1d corpo:atc hcadq~iarters. They then hi:-ed a local :nasor:.ry com;;any, V ..::Yet ,\1asons. llK ., to n:paic the b:1chvork on the tront of' lhc builCing, for the contract ::n icc of $1 CI,OOO. \\l1ile engaged in the work, ar. apprer.:icc mason for VehJct .:!Cctd::nt~>l!y !ei some oCthe Ic::;se bricks fall o11thr building's fat;.ade, and on:; of the bricks hi! a \'islior c,;fthe b:;ilding,.Bob Hc.tchet1 ir:_luring bm severely. Wl:en Frar:7. saw
what happc!1<:d, hL" called Hans on his c,ell phone_ Hans icum::dia:cly lo:st comrol of his C;iT and cc-:!:ihed imo J.J little old lady named Gertie_ cm:sing her mu~tipk ll1juncs.
t\ couple cf other t::mgs you s.:"tou:ci know about l:nbdcwwnst to C1e other oftl:::e:-s of !he coq)(m.ttc general )'BJ\r.er. Hans c:nercd into a long tc;m supply contract wit:1: a cotton su;::pllcr. \Vhe-:1 Franz and Lema:1s fo:mU out about it, tbcy went balilstic ::nd L::man~ {\Yho had a hi1 of a t.::m_::;cr) ~ook a swing a! Hans, bUI hit the office sccretury, Doris. She •xe11t ~o th2 hospi:al fvr minor i:1jurics.
The !hrce co liege buddies realized that ;:hey c~.1u!d 110 longer get along, so the :1ext d3y
they !lled art: des of dissolution for bo:h the limited partnership and the c0rporation.
Discuss thoroughtj' all possible causes of action.
Question Two
John and Jake \\-ere good friends and professioaal investors, a."ld having graduated fro:n \1SL with law degrees, '"ere each able to amass a sma] fortUJl::: buying and selling stock ill ur:ciervalued corporations.
Jake's J11:)thcr died i:1 2001, and he inherited from her 10 ::..hares o~ stock i:1 BigCorp, a publidy traded CO?Orat!on incorporated in Massachusetts. H:: to~d his good fTic:1d John that 'he thol!gbt jt was a good buy. so John \ven1 out and bought :00 sha:es, ar S: OO:'share. Jobn ihen v,-ent oniine and read the corporation's SEC ti:ing,:- at1d fo<.tnd out allsurts of
possibly objcctior:able th~ngs about the company, including how the members of the Bo.ard of Directors had been self~dez.ling for a long iime. Incensed, he imr:JcCiately filed a derivative action on behalf of the corpvra1:on against the directors_
Tne ir:teresting thing about BigCorp was that its By-Laws reqt:ired anybody wish:ng to pu:s:.c a derivative l:iwsm'. or: behalf of the corpomtio:t to post ::1 S 1 OO,OOG boad to ;;;o·.cer the costs to the corpontioL m defending the suit. if the suit '\vas u!rimately unsuccessfuL
A few yean ago, Jake ;:m~cred into a S i 0,000 contract to have his house pai1:ted by a local painter ns.mcd Bob, v.:ho breached the contract. Jake go: somel1ody else to do it, for $1 LOOO. \VlJcn he sued, ile found out in Bob's Jc-;}ositicm the Bob \Vas actually worbng ns a fran:::::1isee for a corporation called CleanHouse, Inc. Jake wo:1the seit b'cl1 wher. he :ricd to :::oHcct his damage ?.ward, Bob filed for ba!:lkrup!cy. So Jake has now flied suit aguu:.s1 Clca.nHouse. lnc. as the prir.cipal.
four ot~er items \\'OrLt, mentioning. First. Jake's -wife Sharon has her ovvn sr:1u!l business corpom::ion, a lltrk bouti~jUe selling children's toys. located in rlow~Hown Andover. She leases spa;:;c from a real cst;:;tc trust, \Vhosc trustee a..'1d n1run bcnefie-\:J.rV is a loc:1l oolitican. Peter Scumbaggw. Six weeks ago. Debbv Dreed entered the shop to mavbc . ·-~ ·~ - . ' . p<Jrchase so11~e toys for her 7 small c-hildree, and she sEpped and fell (and broke her hlp) on the just-mopped flonr of the store. Second, the stockho]d£."TS of BigCo:p l::st week
agr~eJ t(! ;u:rgc wi:h Ever,B1ggerCorp i11 a 2 f::::.r 1 S~Jck tnms;.;.ction, urder wl1icb eac~1 c>-.io.tlng sinc.kholder of Big-Co:/) would :·e(:ein~ 2 shares of Ev.::nB:ggcrCo:v. J ·y,.;:ry 3hc.rcholder but cee voted ic favc•r of the mcrgeL That shareholder is name6 B.::Uy SIL~<lp.
Th:rd, Shn:-ml tc.ld her husband tha:. ;:ven thcugh he \\aS on the boord oLl;r;::ctors ofh:r lia1e corpora:ion (Slut:on is th<: sole s:.::::cl:d10ldc~ and fac other Clrtctor;, !".c \V<Jc; :'1ot
:n::-horized to enter into an\' transactiOns on bcha\f of the corpora!;on. hmorim:: her din::cl:ve. he: er:tered i;l1o; contc-act or behalf of the corpormion to buy S5.000"oi'uscless cbseotJt ~oys frorr: a na!io~ml toy Hquldato:-. The toys have arrived, but thcv have cot vet been paid fo;-, and still sir in boxes ou: on the !oadir.g dock. " "
:\nd finaUy, :here is J :;, sis~cr, a s1~:.1ggling law stcdcm wh;::, '>Vorks part~tie1e as em indept:Jdcnt C-ontra·~tor doing research &nd odds znd ends tOr the ;aw firm ;:,f Coyne and Corsa-ro. T'\ o weeks ago, s~1e got her hnnd stt:ck ir. a mal!~t:nctionlc:g elevato:· at the offlce of the local courti1ou:;e w"jiie delivenng a ccmpla~nt to (:Je clerk o~· courts., o:nd had to go to the hospital Attor:-.ey CorsarG told her to keep the whole etaUcr CCdiet and promised to pay her for her medical expenses, v;hich he said he did nm have to do. be;:. sh...:: is wond::::ing \V'b_e.ther s:te might have a -caLLse of actk1n against somebody, Corsz.ro ;ired her yesterday.
Discu!>s thoroughly all possible eause-s of action.
Question Tbree
Jirrm·_y Bmg~e worked as a stockbroker for :Viutual( orp,: a naLonally kr,own ?.nd well~ :-e~;pcc:ed enlity owned ar:.d op~rated by :he Smith brothers, Dan ,~e..i Dave. Since he worked as ar independent co~1tractor and was paid solely oc cornmissions, w.!1d since he r;:"ally w<'!.sn't such a good stock.:JrokcL Jir.m1y rnoonligh1cJ by driving a pizza deli\ery nn. This ~c was pretty gJod at, ar,ci h~ made scrioss money on ti?Js.
Last :nor:th, he delivered 2. pizza to c mansion, bul :he kld who ans'>'-'ercd the doo:: forgot to go to an ATivJ machine that day, Jimmy asked the K:d Vi.-bcre his mom and dad v.-ee, a:~d the kid told hiD that th:::y we-:-c out of town on business. )Jicv- guy that he\"~::., Jimmy decided lo let :he kid !-lave the pizza dJ:)'\Vay The kid thanked him prof'J.sely, a•·,d as Jimmy was heac:ir:g hack to his car, the k:d yelled om some!hing aDoui how his dad owned a huge ph<Lr:l:a;::eutical company DamcJ DrugCo, and he i;:;ad to go out oftow:1 to Ciscuss a merger ;Jroposal \Vith l:JugeDrugCo, but that be would be back <o:JlOITOW, and Jimn:.y could come back then for his money, ph1s a h'Jge tip
Jir:11r.y said t~at he had already gotten a huge enoo.gl: ~ip frorr: the kid, and d:-on; off l-nfor,u:1JJely for Lhe kd, he l::ad ordered a plain cbeese pizza, b:n he go1 <~ pep~eroni pizn:. Thls was L!rtf(>rltJna:e bl:causc the kid didn': k:;ow that he was Jeath:y u.llerg1c :<l p:;;pperon:. :1nC. !1e wasn't two s:ices mtc, scarfbg that pizza v.rh::r: '.Yet:t into toxic shock and dkd. H-:: vvasr:t found un:il late :he next afternoon. whe:1. his pareats c:;:JK
horne
-:he n:::x; p-~<Jnling Iimn~v wen~ inlo work &nC star:eJ Juyi::;g Dn:g\.'o.;; both for
mcrni:1g, frurr. a phvne call ii·;:m an e::nplvyce ofDmgCo wlm fountl Oh~ about the propnscd :n<.:rz:!er 'Nh1le cr.>pty\ng ·,be trash over t!-.,.c week em:. DfugCo s;oc!( doubled ir price almost i:nmccha:cly. and Jinnny \VJ.3 a :mllionaire by <:-arly tll2.t afterr:oon .
.ln:t.'ily Uc:;ded to \vorL one more night delivering pizzas, BLlt, ns you caYJgu-css, :-~is mitld \V::ts oo: w:-1erc il shovld have been, ~r.d he go: ln:o an ac-cident when he ran :t red lig:h:_ He ended up killi::g four nuns who were bl!ssfuUy crossing the street. He \Vas _;;o prcocCJ;pieC :hir:iziCJg aboa: hO\-V J:-;e would spe.nd the rest of his days: drlrJzn:g pina coladas on:\ privat::: 1sland S():ncwherc. he didn't eve::1 notic.:e tile ~arnctge.
TI1e ncxL day, :1::: wer.t ba::-k to work at the brokerage house, only to find his con~puter !'tad been hacked mto, and al! ofhts files \Vere copied. One file copied shm-,·ed that a large corporation ;;.;:uned LargeCo \-vas in ser)ous 5.naacial troubic. A wc~k lme~, a hon:.clcss mnn nam.ed Clla:·Jcs W:JS rwnmaging tf..rougl1 the locu.l landfill, 1bund the :lles. ar:d inm-:cdiatcly robbed a EHlc old lady o7$l0,000 cash. De 1he1: too:( the mtm:::y :nd ;nve::;rcd it, sc:lli1>g LargeCo stan. \Vi thin tv:o weeks, he\\ as a ;n~llionaire. He tracked down t:te old lady, and gave her S:W,G-00, telling her it was a gift from a stra.ng~r, a:~d r.ot :clE1lg :wr that he \vac; the one who had ir,Hia1!y rubbed her.
Tv.:o oth::: tidl:Jits tOr yol: to thmk abou:. Fi:·st, Jimmy's motilcr vv0rkcd as R bookkeeper for Malaguti and Dickinson, LLP. a local, well ··espectcd law f::::m spcdaltzing m reo! estate c!osir:.g:;, and she cm:,ezzled client filllds, ca:tsing the fi:w to fiie fo: blnkruptcy. All five panners o:1d all eight r.ssociatcs and aE of the paralegals and support sraff at the now-def,mct flrm \Yere r::hockcd by tHs txrn of events, and all ag:·ecd tha: J!:nmy's mom W0:Jld be t~e ~ast person :hey \vcdd ever believe cot:ld do st:ch a thing. ),Ja1agmi, maybe. B:1t not .!i:nrny's mom. She ha:: :1eC. the coJntry.
AmL if;JOU ran ::':ex: heiicve su:h a thir:g, i~ n::;:s em that J;1r:ny's s:ster, .\bvis, 1vas at a Boston C ehi.:s gume, in 1\'!utuc..lCorp's iuxury box, -,_vhen a f:ght broke out bctwt'Cli the fans anc!. the op;K)si~lg haskerbaU team, !he Dc:roit Pistons. She got hit 1.rith a beer bortle over rhe hearL and sufferc!! a severe conc::sslon, VIdeotape shO\Vs taat :, was one cf the merni::¢rs of the De-trci: Pisto:1s who hit her over ~he flead.
Discuss thorouj:;;hly aH possJhk causes of action.
1 ::1~kd, \V<b a \'wto;_· cf comt.r.:,:er ch1ps io tlY.:: i>Ctnl' .. o:tJ-uct:.::r ir;c',us;.ry. l.! over "1 ,_)IJ(I s~·,:o.rchoV.c.rs. :nld.-;~! vc meJ~r\~,e-1 ci or. tts B•.n:rd of TYr ;:;:;tors, end ·~;a;::S ap;;. cl::.c ted f(J;· 4
/·,'. u nR~ticg ,_,f::s-"BoarC. ::::fihrcc1or:: in J·,Jy, 2~J!J3, the En::~rd void tD gr::Jnt tl:e powc;· o·.-cr ;;!; s;;lcs .acd dlst:.-ibUlioes :n the Ne'<v Eng:::u;d n.rca to its \'1ce .Pre:::iden!, J;m>t> Jockoo;1. TLe rt:::-ol:;t:un, udOrtnnn:cly, w~s never :::: \\-n:i"1g: .
Jy C:u.:i:- ~;,-:11. ~ agrec:n n', y..--as in w:iting, signed by L:~ls.~~l: fmd S::o:-;.;:is, an-: ~nO\ ;,·:cct :h~-:t t":lt cont~·a:: wotdd ia: '',a:, long as :·cvctY~t:::s of Qu~isllr Ccrp mc:·e:a.sc on a l 1(
hsksoJ:-~t1>o hired his \.'\'~fe as ;:n ~nd0perdent sontractof w COLlidinal;c; '·an markcl!n~ a·::ti\·i:ies of~}.:: cornpZLny in tl-:e :'<J.-::rC1cast rcgi::.n." Sh:;; l!.?J2Ii2.Lm?-..rk£tns;_ ex;:o""'.'E.c, a;1cl her v-:ritt.c:1 cr_<ntra:=;~, at} l GO,OOO ?er year, ·:equirc-d iler rv usc he:·
::f-;ort~ on :he ~-~~~II' s ':)tJslness. ~wo Gays Jftcr b::ing ;-~i~·cd, w:1s 01~ ';;-.:;;· ;.v:;;Y
:o ,; locJI pt·i~J::ng fim~ to so:;1e bid<o on some fl>: t!1c upc:u;lir;g 1ri:stmL~
se2sC<"1, \'.'bt:-t: w::s ir...illeC s.fter she lost c:r:1trol of~er car and hit a F_ed_L:x,:::uck ((-:e kdcd; on Route
··y::-eghl-at Dunk:n' Dom . .;'5, \Vhich spilled on b;;r lap, cru:oing he:· ;,) fn::ak ouL an= lc';e control of the -.,-ehicl-e. 's wii'c was traveling ~<"10EH: , whc-- :·iJ:~o \\'')lkt(
·:mm~C~ately the ;-trm, a:> \Yell,;;:, Jacks~::• (but or'.ly a±le1 Ja::k:-c<1 nad EC:g:1cd a d:..n.sc ar:.d sak BL,'Tt'<:mc:1t to buy some J in downto'N!l Lav,reace) T:·k: BQ;n:._: of
~-opy d it, and t!1cy \vere both so e:-.cited that they ora:ly Jgreed lo c,-:,c,- H'ltO J. ~ar1.r:¢.r;l~~p
knO\'iD as '·JV::-dph-fr:jolie Pa.-:nershi(J ,. Since FredC:y really \\';mtt:d :n s:av i:1 colic§ (h,;; dreamed ;;f sr-rneda)1 becoming a :av,·ye;!, and since he ::a me fmm a very wea:r- y fundy, the~'' ;__• ag::-:::cd ~hat Freddy's sole r:::sponslb-:1-.ry ·.vc"L:.ld to l'Jnd ;):biJ:css cmti~ i· r::::::dv:d :;:~:es of 5QJ_l({1 ~)C-r year, and ~il::<_i Rnlph \voeld :l(!\'C ,-,~~B sil•ibty ~~-~r geu:ic,9 Cit b'.:S'.l!css t:p ~md mr:nir:g Prof1ts were to b:; ;;plil"" sc/.:: :n iiiv.::r ofF \·,
equally, Freddy inm1(:d:a.ttly t:2vc Ralph a c:-lc;::K for S 1 DD.U;JO, and w:G hi:n ;() gcnr Vllt;'J the :--r;oney, Ralph \\'tnt out ar:d purct:ased :l ::C".~e iitt~·2 storefront rig,11t it: ;;;e l:earl ofB-JSHJn's Finaccial District :GJr- S?.OO,CDO, putting S::75,QQ;) dow:--l, und ~2king 01..:: :-; mortgage ~n t;1c nan:c of the ;:1<.uiners:1ip fo:- :he aracn.:.nt of ~L 25JJ(;i)_ On!y Ralph's sigrnturc., howe-..'cr, was n~ the ;oa..t do:::~ .. nr:ents. He the-:1 proc(~e<.ld to sp·::nd the
l went \n;ll :'or a mo:-1C1 or two, bu: ~l:c law finn ofiJcvlin & Assoc::.ncs S1.'ddenh' \\"."1~~
harl-2:npt f,:J.zl Lhe flower b;.,s1nes.s los-t its t·:ggest dent. D:::v!m & A;;Do(~,::::_:cs pail: Sl C·,Cif)~; fOrth~ ~~oVv :;;-;:::, dclh-'ered to its offices, b'.lt ld1 Ralph :nJ Fred(;;:; on ;::1;)thcr 'S5JJUO :c c.cco:mts c·:::ceivabk.
:o Jas:::t: cr Jake, z.:1d a]~ ofwhor:1 re<:t::~.>ed stociz :;:; an C:l<i-o: -ye;::T mm;,,:;ce bow~s during the]:- employment Tbc B:Jald of Directors vonsL'iteJ of
b<_,\); vf their V/h'es.
ded that 1he corporation, ifi\ dcq rcpurch;,sc all of a:: smployce's sto::k sh:.>zld :h<! emplc·yee ~enr:.icatc CJ':J;:toyr::-:::::. o;· GJ.::_ The ;w:cc w,'.S ::.et ar t:-~e ti:re t':1:: ctrpc,;_--atlo:J ~:::d i:-:.: ::1~ght d:::r
rate
Since h.:;<JU \vas getting on in years, he decided to retire, ':)ut befOre doi:1g so, he gave ]_ 00 share:\~ o+'!~;s s~ock Lo each of~h_;ec loGg-tin:..e .TasoEiG~· employees. >;eeL Ehh~, ~'.nd Rj()J_ ~c·lh-"'··· TiF!f''d 3." ·~r"'siCer~ J"k"''" '~rc· ·~,__,~;"11 ·t"~ n··,·;.1':1r•JJI \\'"•;, h) ;,."t'*,i'-'C "ro - - • •>-- • - ~ ~ :;' \. ••• <- - - L '>-'\. ,._.,_,,<.< '~ t··•'-~ -" W. t• ,,,\. '-'-'" d ,;
J'.:e·· •• sc ::is sa:ary r:>qu~re:-r:.sr;_'l_o;: '>vc:_-,__; notal! :ha~ g::·¢.:-::). Besaus:: :1is :;a!ccy, a;:d :_;,.:;..:::-:~Hz· of a general d:::wn:u:t: in business {3 ake v::ts::'; bu :;ine:;sn~aJ> ),
ThAi's !i.n;d all three or :he:n, ::o severance pay, C<Jly .a letter dcnu-.rviing , turn o<. cr du:ir s:::.J;:::k w tae c:.'J1Joratl::::·:l, :r: cxd:a.r:se f(:.r the :·ede:np::on prL:.c. Ht: u:dm:::d,;. check ;n
Dl.SC\;SS TH l2 Rl(iHTS A ~D LL-\J3IL1TTES OF THE PARllES
BJ a la:·2c. pal::iclY held conQ:!o:ncratc \VJth off:ces wor:(hvld~, :1ad 01: its Bo;n: of D;rectors fh;·e gcntlen:;n, Dan, D:;_ve, Do1;, Dar~·en, ar:d D;·ed. A] five rr.e.n v..'er<.> · sciloo1 1 . .HJd(\l:;o:. ln addit:on, <;be compaQy had 0:1 its BO)ard tJ<see won::';n, \},· a:1da, 'vV e-J.;~:y, sr;d ~\'-/ilhcir:l!na. who did :10l l<:ww ea::h ot~-c::.· (except in their offici a: capacities). \\";mcl3 wa~ 81nploy.;;d as t:x: vice ;;resident of a pens-ion fund which h=;d a BisCo s:;:;d;, c-.o slle was on the Board to j)fOtec:l itS in::::c·ests \Vend, ... icthr:rit'.CC a brse
~ J -
\:1ioc stocK ·;'rom ~er fa:hc:r_ :Jcm~is, who kLe\v a11 the o1Lcr gcntlcl1l0n fr0:T i:i::~b
s-::.ho•:l. but who l:aJ. died 1tcenrly ~r a fie-;;,' boat a;;:cidcnt Wilhc:r:ica w::.:: J. fun~~c: C\>ngrCSS\\·C'·rD2J from Arlans2.s, •Vho v:a5 elected to ~he Boarc<. :'oc 11lc uen.:·t' ::;1;;::
brm:ght in Wa:;hlngton, D .. lr: its re:::cnt ::u"'Clua1 meethlg, th;; Boan:: r:1c1fJeC :he fol:ov.:ing Z:.ci:::, haG :<1.i:.en p:::re ove:: the prev!.ous year.
1. A cor;t.ract be~wevn B:sCo ar;C SmallCo, a p\i'·ia!dy hc.".d corp>JLiliOJ: ''/;osc stc.ck \'>'1!6 ::;vJned Sy Dru: aed Dave. This :::ontract 'NJ.S to -;rovidr:' C<.'nsc:JTi1~g serv:.::e.s yr, BigCo, tl:o"Jgh S:-r~allCo no e:npioyees, :tnd s:n:piy cu::::cnrc.:.:d the c.::-r:..s•.cl1i::h '-VJrk to a d:f:fer~nt co~-!lpmy fo:: less tban what it wa::: bci:1g paiC. tJy '"·;·.O
2. A cowract he~-.veet: Dred's w·ifc, Sandy, fo: her to ;::rovlde nurkc~~:1g stL:Uie.:; the expansion ofBigCo's product line co include cra:~herry far~-,1ing.
:hough B1gCc did r:o: 2:.:rrcntly eng::ge 111 any ::ypc cf fanning (it b:;lLg i:llhe
\\·o:-kcd ic yeats.
A ce:c:ract betwee~13igCo and Dactn's f8f:er, \VmTen, a r::(ircd tr~e sur:;ecn:, imd..:r •xhich Vv'aTTen wo:.:JG agree to be '·or, call'' ~:J case ar:y of trc:c.s 2J
corporate heaCqnn1ers :1eeded p::miEg C! care.
(:::r A c:aJ.lract he~wce:J BigCo and Wi:helmi;'la, for be:· to lo0by ll.cr e>:-colle:;.gucs Congrec-o;, for kgislaticr. ':J:ncficial to BigCt..1 (fo; t:-~is purpose. v •. -~_lhch.it:a ,l;lly n:.git:Lercd as ;;..lobbyi 3Jid :ncorpo:.atcd h~rself.
·,,-."''. oJ·er,arr•l,_,. , ..... 111= ,, a.:::Lion :o ce;;chld the :1bove-co:1t:<t-:;ts and 'J:e av"·ar\~ of•J,c , ~;;;c J.:: ; • b cV • """'
stoc·k opLions.
Professor Devlin Business As-soc1ations Fall, 1997 Final Exan~
iNS f RUCTllli!S
This final examination cor:slsts of five questions" Each quc~tion is \<.,Orth 20 poi:-:ts, and each question stands alone, \.J.'hich means that you should :lot answer one question by referring 10 your answer to a separate question. Budget your time welL Your final grade will incorrorate your gpH.!e on your research paper as welL
Good luck, and write welL
Your buslnes<' dlent, who runs his own pizza and suhmarine sarHhvich establishment as a partn~rship with his brother, has five employees, plus a :::ouple of guys he caas independent contractorS who deliver pizzas on weekend nights, He thinks he should bccrporate, but is more interested in hecmning a;J: LLC or an LLP. What thoughts do you have on this matter to share with your client?
Assume that you have a long-standing busines.') client who is a sole proprietor. She comes to you with a plan to expand her business by hringing ln her college buddy as a partner, The college huddy has some cash to contribute, and some genera! busine5;s CXiJCrience. How would you counsel you: client'!
Assume that you repre5C!1t a hushand and wife \'Vhc wish tn go into the restaurant business together. They know they want to incorporate, but they really don't know why, ncr do they know the important decisions and issues which must he addressed up fron:. How would you advise them?
/\ business client of yours attended a huSiness law seminar and came away with some very fuzzy ideas on all sorts of things. SpecificaUy, he wa~ts you tc explain the concepts 0f actual authority and apparent authority in simple, undero.:tatldahle terms. and how those concepts tie in with the doctrine of resPondeat superior and the borwwed servant rule.
You represent a shareholder in Mega Corp,, a publicly traded Massachusetts r ' ; , . 1 "
~1ASSACfllJSET!"S SCHOOL OF LAW
BUSINESS ASSOCIATIONS
PROFESSOR JOSEPH Dl'VLIN FALL, 1990 FINAL EXAM
There arc tWtJ fact patterns on thi$ tina! exam. You have I l/2hours to ;:m,.;wcr each quc~iion. no more anJ no less. For the first l/2 hour of each question. you arc rcquc,\led to outline your answer in the bluebook provided, The outline will be collected hut not gradctt You may not hcgin writing your answer to either question until the 1/2 hour ha:. elapsed. You wit! be instructed when to begin writing the answer to each cs:;ay question.
My wife amJ I and our aJorablc kids wish you a safe and happy holiday seasun!
Pete. Tom, anJ Juanita were r.:hitdtwml bu-.!tlic~. They played hitle and ~cek together. They ran track together. Thty did everything togdher. So it ~a me a.s no sm prise lhat one day Tom aml j uanila annoum:eti to the entire world that Lhev were engaged to be married. Everyone was so happy fur them, and cverbot!y had a;1 :;nnrmously good time (al nr~t)at tht:: wedJillg. wh.ich wa:-; paid for hy Ju~Htita's p:m:nh, Ozt.ie anJ Harriet
Everyone but Pete. (Pete had always held a torch for Ju;wita, hul since he was shy hy nalurc and she was not the nwst observant and distcrning of fH.:r.sons, nothing evt'r came of ir.)
Let's get back tu the wedding. H was held at the Old Grange Hall, ow11Cd by a corporalitm, appropriately named Old Grange Hall, fnc f'OG B I} The prt:>ident uf OGHI wa~ Boh Uhmkwn. He was also the treusurt"r and cleric Be was a dirt:clur of OG HI aiong with hi;> e:-.trartg.ed wife, Judy, Bob owru:d 515 ot' the share:- outs!amlirtg, and Judy owned 485 sh;jres. Since lhey argued about everylbing these days, the Old Grange Hall was starting to get run down, because Bob anJ Judy fought tooth anti nail nvr:r expenses. So Bub figured it was just easier not to spent! any money on the upkeep or the huilrling, so he wouldn't have to hL'ar about it from Judy,
The Old Gfange Hall was not covered by insuran-.:e. It seems I hat an employee of OGHI, Loretta La~i:iviou;-;, was informed in writing hy the Gigantu ln::.uraoce Cotllpany that the poli-cy was about lo Japsc unless the premium;., were pai(l She n;;ver got the chance W tdl anybody about the letter, becau~c she wa;., fire-d hy B<.}b hecause she threatened to tdl Judy about Bob\ ~candaluus relationship wtth Juanita's mont
What scandalous rdationship, you ask?
It 1urn.'> out that Juanita's mom wa.\ having an affair with Bob, so he gave her a Uistounl rate on the hall n:ntaL The going rate lo rent the hall was $2,000 fm a wtdding, which includet.J the hiring of one policeman, just in case lhings got out of hand. (Actually. this was a ,~mall, dying miH tuwn, ami weddings were alway:-: gettint,; oui of hand, so the !own passed a law that rtquired the hiring of ;1 policeman for any event aHt;mleJ by nHJrc than 100 people.) TtH~re wen: at leasllwu hundred pcoph.: at the wedding or Tom and Juanita.
Bob chat_ged Juanita's parents only $500 for the hall rentaL
The wedding was ~:atcrcd by Wcddingii R Us, a parinershir formed many years ago by two ~istcrs, Joan and Mary Tattalonia. Mary TaHalonia wa.s Pete's mom, and she ~om~;timt::. kl him help out with preparing the f<wi.l On this occasion, for this weJJing, Pete was a.:.;signcd w help spoon the tuna aml egg sal<td into those little ruU.s that ptople
Like I salJ, Pete was upstt about the wedding_ So it ~houJJ l'ome as lH) ~urprisc to you that he used 1nayonnaise that had been sitting in the sun for five hvurs on those little luna ami egg salad sandwiches"
The band hired by Juanita\ parents, the Milltown Trio, ~bowed up in thclr powdef hlue tuxedos and played welt Every\me wantt:d them to succeed, btcause their lead singer Louie Fugouey, had had such a hard Jife, He was a cleanliness nut, am! had ret."ently served ten years into counly prison for kilfing a man wh<.l spilkd some amher cohm:d beverage on his powdtr tdue ~llil Juring a raw.:ou:; high sehoul reunhm
Can you guess what happ~:ned?
Lel me give you !he Reader's Digest cmuiensetl version. The wedding was guiHg great there w:.1s laughter and food heing consumed by hordes of smiling: people, am1 ... well .... that'~ when the problem~ started. Dino Sauro~, who- owned the town's only dry deanlng establi.shrnt:nt, was th~: fir.st to bcc,)me .sid;: {as a hoy) his mother would lata
. -re:can, he alwa~ had a weak ~tomach). He started projectile vomiling while doing the Macarena with Juanita. She, ~oaked from veil tu toe wilh his rnt:ss, :;.tarted vomiting also. This, <t'l' you can imagine, led 10 a rather ;Ji.:.gu:-;ting chain reaction, which got really had when sornc unsuspecting soul h.aU tht unfortunalt: luck of upchucking right inio Louie's lap.
Louie wen! ht:rserk, and started punching pi'-Ople. In the mad rush to the exits, the hired cop was valiantly trying to keep some semblance or order, lest ihe lillie unt:s get trampled. Jake Harding, the minister who performed the ceremony, started to fighl with the cop.
The top shot him dead.
In the melee, the wcddtng cake with all the pre:Hy canJk~ waS' knocked to the lloor, and the OIJ Grange Hall was quickly consumed in flames. The hoikliug, valued al $100,000, was a tutal loss. Luckily. nubody was burned. Welt, nol literally.
Then the lawsuits started tlying.
DISCUSS THOSE LAWSUITS.
Fre:sh out uf law ;;chool, anJ having pa:;set! the bar, Steve Williams and Gina Fuwc--:>s, s;H around ami puzzled out what w do next ll took lhem no time at all to decide to open up a law practice- together.
Willhuns & Furness. Attorneys at Law, opened for business the very nc\t week. Sl~ve had vety liLth: money, having wijletl oul all his savmg~ ami hi:.. crcdJt line lung ag•l paying fur his cducalion. Luckily fur him. he worked as a bartender al a gtJif cuurse through law school, anti malle a 1m of fricnJs in the local business cummunity, who promi\ttl to give him lucrative corporale work when he got his ticket
Gina, on ttu! olher hand, was fairly well-to-do, and h<H.l plenty Df mout:y still ki~king around after ::;he graduated. She wanted to do persnnal inJury work, but "he had no ready client base lined up,
So Steve agreed tn bring in all these clients, and Gina agreell W knd the partnership S20,DOO, with the stipulation that she would he paid hack her loan within two yean., provided that the partnership was making money ~an.:r a .\mall t.lraw to e<.tt:h partner.''
Each agreed that they would unly do the W\>rk tht:y were be:-;t suited fur. Sieve wouhl only Llo corporate work. Gina would only Jo pt:rsonal injury work
Ah, even the- hc-st ];tid plaus tend to go tl\vry It's a shame, reaily.
The $20,000 was qui~·kly used up_ They both went on a shopp~ng, :_.;pn::e to furnbh their ~,Jtlices in the best of tm.!e, and then you've got letterhe;H.L announce-ments, first and last mt>nth's r<:nt, ant! Steve'<: bar hill.
Steve\ har hill? What's that aJI about?
As Steve explained it to Gfna, it takes money to make mDney, and he wa~ uut smoot,ing those to~be corporate head honchos over at the golf ..:our.sc, huying them drinks, dinner, that type of thing.
But Steve's hureU~for dicnts never materialized. Gina wa~ forccti lo put anothtT SIO,OOH into the partnership, but thing'> went fmm bad w worse. The debts mounted. The phone never rang. Steve began coming into the ofiice only occasiona!Jy, .and even then, Gina smelled alcohol 011 his breath. One th.1y, sitting in her office, she noticed a moving, truck pull up_ \Vhcn they knocketl on the door of the law firm, Gina wa" really
worried.
The nke men from the moving comp;my informed her that lhey had a tlefault
Jud~::ment against the taw firm for Steve's unpaid debts, and tht.:y had a court on..let allowing them tu taketh~.: furnishings as payment Gina rushed into Stc.:ve's office, and ~ure enough, she found un Steve'~ fan::y desk many mwpcnetl lella.s frum the cnurt just pi!t:d up like newfalkn fcaves.
Clina asked what the debts were for. The mover~ tutd h~r that tht:y ;.:arne from unpaid bar tabs at the coumry dub_ Ant! thtn they rc!lHJvt:d everythmg, right down to the sta))lcrs_
They didn't take the phones. though, saying they'd be back for them another day. And then they lc(t. As she sat cross·lc-ggeti tlfl the floor, sohhing, a most wmtdc-rful thing happened.
The phoue rang.
li was a dicnt
H was Mr. Fatk·athers, head of the local hank Be wanted I he law [Jnn to represent H1e bank in :.ensitivr: "nU urgent nt.:gotiations to take ove1 a lucal 11yfi<:hing company. Without giving it a second thought, Gina an angeU for the bank to pay tht' law firm of Wilhams & Furnci'is a ~100,000 nonrefundable retainer. The funds were immediately wired inh>lhe- purtnershiJ1 acc..:ount, and Gina .Silent tht: 111.:xt two wu·b living ill the bank, hammering out a fairly complex merger agreement.
She unly took time out to hne her sister, hmet, :,t n:cent high st·hool drop out, as a :-.ccn:tary fnr the law firm, autl told ht'T l1) answer the phones, art<'wer tht;: !ll&il, aotl h\1)' .\tHue new furnitur~ charging it to th.; law firm.
Jantt turned aro-umt and charged $20.000 of white wi;;kcr furnitufc for the i<lw ortke_ Like I suid, shG was a high schoo-l JropouL She also purchased on nedit $5.000 worth of t'raser~, because :..he was atwJys making mistake•"
Steve ;;arne in hmg enough to lake a ":-.,mall draw" of $25,0LIO, and abo it' .:t~.lvt'c his first clie-nt. who happened to call jusl as h~ was leaving. The dient was a t:omputer programmer named MJtch .Mit::hcll, whu wanted to set up a corporation to htgin doing smne conlf}uttr cDn.wlting work. The aHached ;;h~ds arc StevG\ h<uH.Iiwork. ahmg wilh Steve's me-mo to the files.
Flushed wilh success, Gina returned to the ont<.·t' two \'d:<:ks latt"L She !ired h!net, sent b.ack the while wi;::kcr furniture, on.icred somc mahogany furniture, und tht:n d!scu.ssell a business propnsitwn wllh Larry Louugella. who wanted to set up a limited pari.nership to buy a piece or real cMate that he wanted to impmvc and theu rt;.sdt Gina xat back, listened to Larry, and lhen advised him about the best way to 8lruc!ure hi.; !\mired partnership.
Discuss tht;: nghl'\ and dutie:-. ot' all partie,,. concerned, and also write for me Gina's
memo to the file ahoul how ~he was going to ~trudure the limited partnership.
,-c '- •
THE COMMONWF_ALLH or- MASSAC}H;StTTS
ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER !56B_ SECTl01\ li
1 Ltrcb: <'Hiif>< 1tu:. \.f:-"1 ~-"· ~'""''~:ttio~ A l,_csc ~ni::~, m n~&~:1.t>~>Or:
~,,;,. t.uhrmtt~ct to mo i1 J.ppors th~l tc.c p"ovis~o:"_s ,-,f th~ {;n~~~~ L~wl r:Jari>c to th~
?d;;,r:f :f.; ~O"'ti~ w[ :tt c~rpr~::on. or of :15 ;j,.c,lcn or l\iX~~.:>ldtt1,N o: J."j' tiLl ci :::.d:l:cl.;:rl: (lf !'::\'''arc I'll\ ;n'.'5'0h' <!4" ··.'i-:P<--1
Note: If th~!~'-'-"1' provid-d und~r &nY Jr!ic:! or Atm rm 111;1 (Mm is in~uf(i::lcn:, ~.3d::n:n 1"'.J.!l ~ ut J,)rth on "'ran'~~-., J: I! lhct!< ;r( pa~r k:ovinr• \.ft hand mufin .:>( •llu•l l i"!dl. Add\tl<l"'l :o mort lha~ one artcl¢ may in co".tl"CU~J en t >in;ok 1h~~~ n Ions'' :a.d:; undo ·,-qu•rr'lf
u.:h ~w:h lll.iilion i~ d~uty ir.dkar•d
MAS5ACHUSETTS SCHOOL OF LAW
B\!SINESS ASSOCIATIONS -~---------- --- -
LNSI!ULCJJQJiS
There arc two fact patterns on this finai exam. You have 1 l/2hours to unswer eac!1 4ucstion, no more and no Jess. For the first i i2hom of each quc~tinn, you arc rc;:pa:stcd to outline your answer in the bluebook provided, The outline will be coilcw::d but nor graded. You may not begin writing your answe:- to either question until the 1/2 hour has clapseJ. You \ViH he imtru;:;ted when to begin writing the: answer to e;H:h essay
questi<ln.
My wife and 1 a:~d our adorable kids wish you a safe ami happy holi(!ay season!
QJJJ~.STI Q!':Liti
IL1rtholomcw Ca:>:.iJ.y liked to des-tribe himself w new a~:quaintanc...:s a:::; a Mama" buy~ And a Papas hoy. t:pon sedng a mixtur0 or f~ar and loathing on the Ia:::es: of these ncwco~<lc::s \vhcn given thts information, Bartholomew in!\)rmcd them that what he meant was that h-e was actually a Mamas and Papas boy, \\'hereupon he began belting out:
"All the lcuv~s arc hrown (leaves arc hro">vn) and the sky is gray (sky is gray).. "
lie would then break out tn gales of laughter, too misty eyed to see tt;c nmv more virulcm srrain of fear and loathing on the faces nf rh;:: newcomers. NceGks.s to say, h;; didn't Lave a hell of a lot of pcopk calling him on Friday nights to sec Vvhat he was doi11g_
In short, no one cared. Bartholomew was a :.ocial misfit. And, !ike r:1any sodal misf1E, he had no clue ahout why he was so wildly unpopular. (Thi~ wcti!d :Ill change suon, Lut there's no need to jump ahc3J so quickly.)
Alone on Friday nights, Bartholomew began to experiment in tbf• k.iicha .. He soon :·,:md he was a natural born chef. Everything h:.; wncoctcd \Vi:l'> delicious. i can attest lll this. I was VISiting his next door neighhor Barbara, who Hved in Apartment 3-g, and \\l:nm l 111ct through a mutual friend who was somC\vhat of a mJ.tchmakcr, <H:d she was n1;t cr:ly :.wnoingly attractivt:, she was aiso a great cook, and ha!f'Nay thwugh our t1r;,t t;L-L1'.1 of Gkn Ellen Private Reserve 1982 Chardonnay, I smelled something t:rrt:tn<1Lng from Bart's apartment, so I, seemingly transfixed, got up from the cou<:h. spilled the rest of the wine on the tlot)r, !:,7fabbcd my c(Jat, and walked out the door.
All because of lhc <>melt. Oooh oooh thal smell. Jt drc\v me like a magnet to Barth~>lom..:w's abode, which was Apartment 4~g.
You should know that cvcrythmg \Vorkcd out well hc:wecn Barbara .and me. She cam .. ~ around to forgi\'ing me, I swept her off her feet, and we were and still ate marri:d.
l knocked on Bartholomew's door, and we exchang<:d in~roduct:ons. Sec abov;:;. After ;,i!dl an awkward stan, I p!owctl on, rcmalning nice (as is ;:ny nature, hy th<: way·!, and e\'L'ntually 1 got invited in to Mmple a taste of what I could only s.mclL It wus a heavenly pasta dish.
l asked Bartholomew what it \vas, He said it wasju:,t something he whippet! up, a combination of !ayers of ltngulnc interspersed with parmr:san, ricotta a::~.d fcta cheeses overiaid with a red sauce (homemade, from scratch) comprised uf zesty plum tomatoes, hcrh:.., a good dose of garlic, and sweet red and ycHow pepper:-:. It tasted phennmcn:d,
and It look:.:d positivdy rnncthwatering.
r a~ke<l him \Vhar is it 1h0.1 he called thi" dck.::tabk mb..rur::: tlf sp<~t:;hctti and lasa1:ma. He :.mikd, and told me he calkd it "Spagagna."
i im;;~, Jiatd)' dragged him dowmown to the oft icc of an a~tor~;cy fri:.:nd of mine named Patty unvlcss, who was \VOrking late on a Friday night (laugh all you want 1\J now, you just wait ~:od s..:c), and we immediately incorporated (sec attacheJ doct:mcnts). !\(!
ctanges have ever bc;;n made to tile Articles uf IncorporatiGn.
Now !nc years later, Barfs Bistro's are a huge success, with 88 r..:staurants all over the country. i am still President of the corporation, and the s:ock is currently own;.;d cs foliows:
Bart ~~ 10,000 shares me -- 10,000 shares Pat~y Lawlcs~ ~· 3,000 shares (Party got them as her fcc for in::orpmating us.) Various investors ~- 20,000 sharC's
Bart ,;,rs hJs his own \VCckly cooking show, wlticlt pays him $100,000 per s!;ow lk's even;' 't hi" {'\'.Jl hotlint, l-800·RECIP!::. l-Ie gds t1own tD l:L; man; appcaranc.._·:, \ i;J our z:or1uraw JC:L
The Treasurer of the corporation is Johnny Paycheck. :1 long rime acquaimar.u: of Patty. (Ar: asid,~. Joh;wy Paycheck, a :though his crcd(:ntia!s checked out, wit:, an MBA ir. Fir:ancc imm Harvard Business S2hool, never rold us that he servctl four year> ir; :he [('\kral pcnitt:ntiary fM e;nbczzlcmcnt Patty knew about the jail scrucnc\::, but nc\cr inform;,;d ci:hcr me or Dart) I took a look at the corporate b(•oks the ctha da~, and it seems a rc:di<;ti( possibility that Jnhnny has b.:en overstating in;;orr.c for some yl:tus n;w;: hy hookmh 3Jlcs before dcliH:rics were ~hipped_ Damn. ,\1aybc I should sell r;,y swck hcfor~,' the dung hits the faiL
Som.:thing you ought h> know ahout the various lnvc:-tors. They arc crcp!oyc.::s. family, ;'ril:nds, etc. who put up some money so we could start hrand:ing out into ~n:JCr states. Tlk :.· have not made any fuss whatsoever, and lt's prohahly gnoU !n:;:;in;;ss kr them that !hey don't, because utherwisc f would flre them or cut i.Hf dividend> (1;1 rhc cJst.: of l:LHt's f~nhcr. \vhn p;tid SJ,fXXWO for his 1,000 :;hates nf st••;,;L and who h a quahty curmol supervisor hv1ng on a fairly fixed income, 1 had to do both ~- thr...::Hen him with hdng fired and telling him 1 would stop pa)ing dividends-~ ~hat shul him and his wrinkkd old mouth up right away.)
One reason Jam wealthier than everyone else is the great idea t ha~i ycaJs ag.__\ when this \Vhn!c thing began to take off. As soon as the corruration dcc:id..;d td huy a plm of !ar;J to build a lll:">V restaurant, I would buy up all the land surro'-!nding th..: plm w he bou~-,ht at hargain bas~mcnt prices. :\ short time later, whe-n the re::.tauram was up
and rur:n;ng nnd land vaiue:-. had thus iHcrcased, I \v<tuld ;,eli the surruunding p::.rcds a~ <I
Mayhc what l should do is buy out the various invcst~>rs, h..:ca~J>C f beard from a friend u:;e well--cormecu:d head of the American Rc:..taura!curs As;-;ociation; tL:tt the MdJocal:l's pcopk arc considering narfs a:. a poss!hlc takeover candiJi!t;.;.
DISCU;;O, '/fiE HI GifTS AND DUTIES Of THe l't\l< ilES,
-- ~. . . •"-
THE- COMMONWEALTH OF M/·.SSACHUSETTS
AR11CLES Of ORGA."-ill.ATTON
GE/'.;ERAL LAWS, CHAPTER l56H, SECTJO/': 12
i her:':ly n;tif} dn.t. urwr. a•, ,;.um1-.~:im> of these •nid« of wp·.i:atwn,
·Hcl!o. Pkased to make your al\.jUJln!ancc You CUCll.: higniy r.::::D;:;mcn{Jt:d hy yo;Jr ft1rma Business Associat:ons prof.;s,or. Ile \V<ls rc<Jlry qcit1.: surprised that ycu Jid \O \VC!! or; his final cx;En, giver; that he couldn't recall cv:r s~;;::ng you jn c;;,ss" I understand n,Jw that you'vt.: hcen prac!lr.:ing Ia\'-' nov.; f'~r a f~w years. It mu::t he k;;uh.J nice til sec your name always being mentioned as;~ possihk ap;111i:1tcc for 1\.la::sadJusctb Suprcm.;.: Ct1urt J usticc.
"Vi!tal's that? You have alreudy bc~.:n nominated? Well, congratuLltiur.'!. l g,tcS.'> [ am really fortunate that you have decided to hdp me with what l consider to be my minor problems, in your last act as a practicing attorney ht'LJrc donning !he r11bcs of the judiciary.
"My proT-.!cms are really qultc minor. You sec, 1 am a "'-omfl!Her con,~Jlt:wt ! g-raduated with a degree in computer engineering fr;Jm BcntJcy:.: f,_:w yea~:; hack, and my friend Ju.mie and l started a consulting hu~incss immcdlatdy upon gradua:inu. W:: earned a few lmcks showing attorneys how to haul themselves in w t'w 20th ;;cn:ury. and we split all pElfits 50-50. Al leGSL we did unril t\vo yc.ars ago, \vhen Ja:'ilic g;_H r:;uritd to so;r,c wOI:-",an he met only t\1.-'D weeks earlier named Janet Planet, and t<lok :1 fGHr \~t·ck honevm;)tJn to tht' Himalavus. tan vuu hdicvc thar? Since he\ ccn;:,(: hack. he's r..:allv . - . - " hccn doing little, he doesn't even seem to ca;-c. so :,m;:e that time l hav~.· h,;cn kc\:ping 90% of \vhat l have earncU, ar.d havt: only hccn giving him spcndmg mon;:y. 11:.: d,;cs:t't s~::cr., to mint!.
'·As a matter of fact, J was a little taken aback hy yuur rcqun;;;d $10,000.00 r.nr.reiundablc retainer, and l don't keep th:Jt kind 11f tn0flL'Y lyi:!g ar<HilHi, sn! had to pay ym; ou: of Ousincss :funds, \:.hlch didn't leave rnc anything to pay Jami;; thi.\ mzmth. My guc<>s is that he \von't ever nntic:.:.
"\Vhat's that? You cashed the d1.::fk.'' Good.
"Let me rell you a lirtie mor,~ of what hJs happ~ncd. \',Ju :Sec, v,..·!J,:n we fi~st sta;tc(1, i: v:a<; jusr Jamie and me, and \VC w<~rkcU out of my parent:-' lhHi:.:c. O:.Jr of;Jc: i:.: still rhere, \vc·ve gnt a busines" line, a fax m:Jchinc, ;1 modem, ::tc After:: '--\'hflv, \\c hired Jamie's sister Jocelyn ro do our typing for us. She JUSt recently got ,,ut uf the si:.ltc penitentiary, whae she wa<; serving time for ;;~rson, and she nc~:kll a jnb. We hc;;an p<:.ying her $100 bucks a week, under the tablt:, and '.h<.: Wi.l) really il real glHrd typr·a. Sh(:·s hccn in the hospital the lasr few week<;, because of some really fn:aKv acc!UcclL She v.·as <:pparently m\.!King some coffee ill my parents' kitcih~n when tiw ~ttJH,; hL:w up. She WdS hmnt pretty hadly, but she's likely to mnkc a g;Jod rc;·cv,··ry. ffl;_~ ki:chL·o1 suftcn:d massive damag(;. My pJrcnts don't know ahout it yc:, hc:.:at.::-,\:: t!n~y havt: re-tired to Florida, and I Just dm1't. have the heart ro call them. Rcfor.:; they kft, Jilcy tolil rr...:
ihat they had contacted their insurance guy, his name is Ned, to mak-:: sure rh~n their policy would cover a h()me business iil\c ours.
~A couple of oth::r things. Jamie and J bought a van a h:w years hack. '>1! that \'.'C could travel awnnd and visit clients comfortably, in style. We formed a corpo:ation, complete with papers anU cvcry1h\ng, to own the van, for Eability purposes. .:\t least. that\ what our old attorney told us. But l've been making the pJyracnts on it ;mt of our business account ali akmg. Two momhs ago, J told Joceiyn to run downtuwn ~o buy some fax paper, cos w.:: were running lnw. She apparently was too husy or roo lay to run the errand, so she asked my younger sister Therese, to run the errand. Therese, you know, still Jives in the house, she's a senior in college, and J fc0! real had for h\:r, becaus~ '>he'' not th;r:: gond a driver, and she accidently hit a little old blue haired lady, who suffered massive hemorrhaging, hut is expected to live.
'"Oh, one last thing, before 1 forget Bill Gates called last week Yup, that's righL Th~ Bill Gates. He called nn my parents' home phone, not the husines::: plwnt'. ;md he said he wanted to meet with me to discuss me doing some type of lucrative int,;mct interfacing for Microsoft in my free time. I think I will need you tn look over the contract 1 have heard he's pretty ruthless.
B~si fl~~..:;~~uc ia t! o n;i_El.ni!J_E_::-.;.a m De;:emher. !993 -
There are \WO fan patterns on this final exam. You will hav.c 1 I, h~_>ut<, tu answ~r ea.:h questi~.w. no more and nu le')S. For tJ.e first 1 i2 hour uf each qtt~:'.ti·Jr,_ .\ou arc requested to outline your answer in the bluelh)ok provided The outline w1li b;;: co!lectecL but not gratled. You may not begin writing your ;10:'.\\t:r hJ the q:.:t'ilion m:t!! the I ;2 hour ha) dapsett You wiil he imtru::te-d when HI beg~n writing_ a:id ~,_;u \.Vi\! have 1 hour to \Vtite a clear. cogent wdl·reasoncd answer to th~ question(s-J ib~ed.
I
In 1987. Beavis & Bu::h~.:ad, inc. (B&B) was organized and incorporateJ ac::.:unhng to tbe attached artides of organization. Out of the GriginaJ authorized capilal ~wck :1f lOJ/00 shares, 7,5(10 were duly issued to Billy Beavis and Bobby Bunhead. as jninr u:nant~. 2.400 shares \.vere issued to their corporate ::ounseL Larry Bt:efc:man. as pJymer.t tor :;ervh::cs ren~ier<::J, and t:Je remamJng 100 shares wer::: issued to 11m Ca):':lc. wto pa1J S::iOOU.OO for the stock. but who told everybody that h.: \vas really tvo bus~ pretending to practice law, and so could not be counted on to attend any meetings o: partidpare a'"·tivdy as a di:-e;,.·wr.
~Jt too loag: after incorporation, Butthead lent $100.000.00 of his own hard earned mor.ey to B&B. taking hack a demand note which pald quarterly interest at the rare uf !5 %. Beeferman :.:<Jcsed his corporation. Beeferman & Cagle. P.C, tu lend an addnlonai $50,000.00 w B& B. Thb loan was undoc:Jmented, no in:ere~t Wd~ ever paid, no prindpai was paid hack. and Cagle never even knew the money was missing from the corpoute coffers.
ilr 1991. at a sp;::;;ially called meeting of the Board of Directors. a quorum n;teG to pay a divider.d to every stockholder but Cagle. since he had llHd up to his word and hadn·r done a hkssed thing to help the company. WeU, actually. that's not true. He \vas Jriviag to the corporate offi.:::.;s one day to pick up some c1ings which we~e heing hdd fur bm anJ he did run over and negligently intlkt bodily harm on une Gladys ~ightir.gah.:, a reporter ft!r the local newspaper. whc had written some extremely unsavory (hut, unfo:-runately, true) thmgs about B&B. In::. helng a horrible czxporate polluter.
On September !, 1992. at their annual Labor Day company cookoul, B¢.11ti:; ht ButtheJ.t.f:. lmle \ister on fire. fiutthead rdaliared a week lat~r. torching Beavh' parent's ho~.be. a mod.t'st bunt::alow (owneJ for tax purposes hy the l"Drpuration) on the outskirts of t1nv:1. :-\eedlc:::.s w say. Hc;;vis and Butthead were really sore at each z•ther, and thdr long-~tJfH.iing ba\ine~:o and. ~udal rdarionship suffer¢d. Beavi'>. tearful ot' lleing arresr~J. fled the state. bu: did nnt r.:sign frl1m his pos1tion(s) with B&B.
ln Au:;mt uf 1988. Buuhead hall been approached by a guy named ~ed Needle, w;-ro anparemly had develupeJ a new prototyre device which 'Nuuld, i: ~uccc-,,~fuL ;,ignnk:m;i)' reliuce the c~Jst oi ir.puui:lg the- imaactive c.ata necessary to tr.ti.:rp,,!;.;tr.: CPJl'.fJ\.:tl'r fU';cd pcri;Jhc:;:L.J.b. Hutthe~d ar fir:.t thoug-ht t:,at the J;;:vice sucke:.L LJt th~n upon careful ret1cction rcahzed its almost revolutionary pntcntiat After Beavi.s skippeC wwn, Bunh(!ad and Bceferman furt:-~ed a partnership. BecfButl Enterprises, which purdtascd the machine from Ned Needle, BeefButt began to manufa:::ture and market the machine, making u ron of money,
B.&: B ha;) abvays p:.wl interest un the note it owes to Butthead. and ha::.. even p<ml hack $80.000.00 of principaL B&B has t>een scaled hack sig:nifkantiy. what with Beavis ;;one. and Burrhead and Beeferm::m busv wnrkinz to make BeefButt a smashim: suL·t.:es~ .. .· ~· .. As a. maw..:r of fa<:t. B&B is currently 1nso!vcnc as accou:1~ receivabk are way up. C<)lle::ti,1n\ are Jov.·n, and mtbod:;· i<, rnindin~ the store. AS president. Butthead has f.led suit against all 13&B customer<, whose accounts are 60 days overdue. Bankruptcy looms, an.G thee: arc creditor-; out there whn are mighty angry.
At a duly called directcr's meeting last week. which Cagle and Beavis r'ailed to atteml. the difecwrs vott:U w place the company in bankr:.~ptcy. Prior ro d:~nng so.
however. B&B paid off irs rernainir:;: deht to Bmthcad.
Dis;,:uss t.Je respective rights and duties of the parties.
( 0 ? :::J 'I 0
J{ c\ 0
/'~ .
OFFIC£ OF' T:i£ MASSACHUSETTS SFCRETAR Y OF S'I r\T£
:-.·cnr:.~ If ·:·.1 ~!rnd) ..:\; ·' h<; tof1><J>W.<l!1 ·s ;;-.;ti<~ ~ as '.ut( 'l"¢'a\0r, ryp.! 1n \h~ na.cl r,J~mt \l( the crrrpon!tion, the st:il~ or ether ju.risdieh.>rr wher>! i! v. "-" inc<>r)"lf'd<'cl, 1l·w nJme ,.-,f tror [>!'i'>i.'n ,lp,;,,~ .;,n ~IL<If ,,f ;aid <:0 rpur•tivn an.:! tl'>'l ci~ h~/ "~ OOids O< ut.Mr ~uthvdt)l Ly v. h.i<.h ;ud\ ~~!i01< ;:; t:!.i..er..
Tina and Lomse entered into a 12 yeur parfnerstnr agrl:etnent ig l'J!;)0 UfH.ler ti:l(.:
name ot h;yous Overz~alous Educators (''JOE"). The primary husmt:::.s of the partncr,').hip i:. to produce subliminal motivational audiotapes for iaw stutierm. Busines:. ;;oo:J boom ell (apparently. law students are a notoriouslv im.ecurc bunt:h). anC. uo;:m tht advice nf counseL rhe partners dissolved the partnershiP in early 1992, and. une ~1onth later. with cumpletely di1ferem funds bt)rrow::d fmm Ti:'la\ morher, Jane Hathaway. in.: or;; urat ;;d.
'.i'h.: name of their C;.!rpo::-atwn was TinaLouhc. ln..:. Th;: anumev \\ 'h ::.'i\'.;:!'l lU shares in fiuaLouis.;, !nc. as payment tor his services. Both Tina and Lo:.Jisr: v.eu: w r~1\ SJ.O(JO.OO for their :,tock. but since Tina du.i not have her check bvuk that IJ.tdul da!. oniy LPuise put up money for the srock purchase. As l stated previou;jiy, busint:::.:~ hoomeJ. so much su that. soon after incorporating. Tina Louise. [nc. was s:tir'f,:C hy a suppliet'. who iniormed the corporate clerk that he wouiJ nm be delivering blr.nk tJpt:· t1l than. u:1U hi: woulJ not be returning their Sl,C~JO,OOO 00 Jcpusit lhe corpu:-ate .::erk \vhv r;;ccivcd tills mes;;,uge fatled to ir.form anybody of thi-, dire l!ltn of .:.:ve:n:;.
lnitiaii;.. ITW\t of t!le audiotape work wa~ f<lfmed out W independent '"·,}ntra.;:,;::~Jr Jr'"s)\·,r~, wh1) \\.:(;u!d prepare s.:ript;; for trar:scription ::.nd uitim;.J.te ;:;_;:-m~. ; hi! L!i'-:':~
w::r.:: :rans;::ribed hy Bob"s Secretarial Service, which was a soic proprietOrship run n:-. You zue11.~ed it Bob. B~1b's sccrctarv. GJadvs. did all thz· wmk. "t1m she wa~ o\d. ami t:;c . ~ . . -e,:. c-;ight and h::arintt. \v::re n•Jt \Vhat they once were.
WelL you guessed it Glady'> screwed up some or tbe tape;; {apparenliy. S•>me uf the tape;; were m:~liciously scripted by certain professor .... :;,} GlaJy~ tlocs no: Cc>;erv(: ail the hlamc:: in this matter). The suhliminal message which was supposed 10 he rcali .:\.:-:. "~ou are :t cvnlaw ar1ciunauo·· came otJt as ''You a;e <1 ton and !he law is nut r<• ge; }·~Hl. A:wther mcssa~e. \vhich was s:.~pposed to be "Contrat:ts arc yi.'ur lite'' came vu" ., fhe;..:. i:, a contract out on your !if~.·· AeJ anothc:· message. \Vhich W"<tS suppn;.t:d tu h 'Yc.u \'<ill g-:-ad:..~are at th.:: top cf your class' came out 'You will have t1atu!cn;::: in r·rum ~n· th8 dJ.)),''
The errors wr:rc n::\cr caught. not hy GlaJys. nut by B1:h. not by the professor•; 1 ai !ecbt rh~-,s..: who wee not p!aying the jokcL not h;,.. Tin<.'., nm hy Louist. Nvho(ty. Ala" J.nJ alack. scven:e.:-n Jaw stuJcnt:- who pur~ha:-:.eJ tht tap~;, <:~<lllffllth'J :..u~~·iJe. ;\H kft \kkiJc notes saying that law schuo! ~A-· a<; hdi, ami daHniTJg nu pet.,nn in tncir rigtt mmd \\ouiu chli''''-' '\uch <: can:er. The rcprescntat:vcs ,,( rhc:r t''>t<ttC'> ha\-;; di<>-.:O'-Gcc: the o:!'ensi\e sut<!lmmal audwtapes and ha\'e handed together to research the possihuay of filing suit
!n !Y92. pri:Jr to incorporatln,tZ. the panners purchased a new office complex. and wok title in the name of the partnership. 'I ina, who was having marital problems with
her OlJ~~,,od hum pf J. hush and Gilli£an at the time, immedlare!v tramtcrreJ her intcr-:"l in th~ P:orcrty to Tht,rsten Howell fu. A few wee-ks after th::: transfer. GillH!JD sued lor
divon.:e,
Ab() in l9'J2" and also rrior to incorporating, Louise tra;.sferrtd half of h.;r pal,nf'fr,hip i:ntt:ntst tu her brother frank in exchange fo': 5250.000.00 (see att~f-:ht:d contra~t) Frank showed thi<i: contract to the Hasbro To~ Company. Frank then ag:re;;:J. with th~ H ashro Toy Company that JOE would ship it 100.000 tapes in t~rne for the holiday seasun ar discount rate\_ Hashro paid Frank $10,000.00 up front on the contract, hm the tapes were never dellvered. Frank. appa:-ently. has since l.er't ;he juri~d1ction. a:-:.J was las: seen lnungi:1~ a:ound 2: Las Vegas resort ·s pooL
in early !993. Louise Jecided to aJd another .sha.reholdt:r, and to dn SJ .;;he so(J 1 ~DDO shar~s of h~r stock to Gililgan_ Gilligan immediately so~d all 50\) ~hare~. ;H u substantial profit. to tlve hundred of !lis individual ''tittle baddy" friend\. AU r"i"e hundred irr:mediau:ly !and ! mean Jmmediatclv} then br~ng a derivarlve suit agaimt the supplier . -
who -~uffed the corporation fx)r its Si,000J)01100 deposiL
Finally, at tb.: urgin~ ot Gillipn. Louise decides hi fire Tina. At a duly ..:a!h;d shan: holders rneeting. she conspir-:s wnh Gilligan's friends and elects herself ar,d Gi!Ugan to the fi;)ard ;__1f Direcwrs. refusing to count Tina's votes again:,:t such an arranf:::meot. the new Board of Direc~ors then fire:, I ina,
FaJtSem~st~r 1992 Professor De v!in B_t;~sine~ AssogaiioQ~~Jinai Exam December, 1992 ~---~----
There are two fact patterns on this final exam. You will have 1 1 !2hours to ans">ver each question, no rr..ore and no less. For the first 1!2 hour of each questloo, you are requested to outline your answer in the bluebook provideC. The outline wiil be collected, but not graded_ You may not begin \'lriting your answer to the question !lntil the 1/2 hour has elapsed. You will be instructed when to begin writing, and you wiH have 1 hour to write a clear, cogent well-reasoned answer to the question(s) asked.
I
Dmitri Kvartalnovski came to this country (and to this state) with his lovely but ovenvorked wife Irina and their handsome son, Dmitri, Jr. in the Sum;:ner of 1990, after the faiJ of communism and the demise of their country. Dmitri came here, to this bastion of free enterprise capitalism, armed with only a hockey stick and au idea. The idea involved some rather complicated biophysics, the calculations alone being enough to boggle anyone's brain. Suffice it to say that Irina was a better hockey player than Dmitri, in fact~ she certainly wore the hockey pants in fJe family.
Back to the idea Stripped of its difficult-to-comprehend biophysics, it essentially was a way to package fresh Atlamic fish (such as salmon) in such a manner as to re~ain fresh11ess and reduce the possibU1ty of spoliation, tltereby ailowing for shipment of fresh fish to regions outside of New England (to the Midwest, for example, where the good corn-fed folks crave a little Atlantic: fish as a break from the constant platters of beef and groens).
To implement the idea, Dmitri knew that he would have to develop and patent the biophysics gizmo, purchase a fleet of fishing boats, equip the boats "ith the biophysics gizmos~ purchase (or Jease) a warehouse to store the caught fish, and arrange for trucking and shipping companies to deliver tbe fish to the Midwest Dmitri knew that o:tce the fish arrived in the Midwest, it would have to be sold or consigned to restaurants, flsb stores1 and supermarket chains. Supervising all of this minutiae was well beyond even Dmitri's organization'al abilities, and Irina 1 for aU she was wonh, was too busy practicing her backhand and reading the sports page to be of any assistance.
For this idea to get off the ground, Dmitri needed money, big time. He looked high and low for funding, but nobody would lend any money to a grimy Russian emigre whose wife was a better hockey player than be was.. (She was also a better karaoke performer, in case you were interested.) Out of iw::k, down in the damps, and aU those other cliches that let you know it is always darkest before dawn, Dmitri started hitting the vodka bottle. Hard
Finally, a ray of light burst upon Dmitri's pitiful world. Another Russian emigre, Bor!s Badanov, who earlier had made it big in animation, heard of Dmitri's plight\ researched Dmitri's ideal and ultimately offered to contribute to Dr.r..itri's new venture rhe sum of Sl million doHars, as well as a new waterbed and .a cocpte of paintings from Sears (which, in all honesty, were worthless).
Boris talked with Dmitri, and they agreed to the foilowingtenns: First, Boris would get his good friend Bobinski Fischer to chip in $2 million dollars. To do this, Boris would have to lie to Bobinski, telling rum that both Boris and Dmitri would also be contributing $2 miHion dollars into the business. Next. Boris would put Dmitri ir. contact with Boris' own personal attOrney, Ed ("PorpoiseR) Sharkey. Sharkey would draw up all of the corporate documents necessary to begin operations. The new corporation to be formed by Sharkey would issue to Boris Badanov, Inc. (Boris' wholly owned corporation)
10,000 shares of $1.00 par vaiue common stock in exchange for the waterbed and other stuff, plus a :Sl million rioHar 12% convertible debenture (interest oni:y for the first five years, then amortized over ten years) which would give Boris Badanov, Inc. the right to
exchange the unpaid principal portion of the debenture for an equivalent number of $1.00 par shares of stock. ln addition, Dmitri and Boris made a secret agreement to only vote for themselves as Directors of the to~be-formed corporation.. Dmlui and Boris agreed to vote for Boris as treasurer of the company and Dmitri as president for a perioG of 11 years (this agreement was never reduced to writing). Dmitri would receive 1,0C'O shares of common stock, while Bobinski would receive 10,000 shares.
Absolutely, positively, and unequivocally delighted, Dmitri went home to celebrate with his wife and son. They splurged that nJgbt on a delicious meal of beers and potatoes at Babushka's their favorite Russian restaurant Dmitri ran up quite a tab and bar bill, charging the expense to his new corporate account
The next day, Dmitri went to see Ed Sharkey. Ed drew up various contracts for Dmitri) incorpnrated him, and took 10,000 shares of the new corporation, DFF, Inc. as payment for his services. Shares of stock were issued to the stockholders according to the tenus outlined above. In addition, Irina was issued 100 shares of stock Sharkey also filed a bunch of other forms for the new corporation, including one electing S corporation status under tbe Internal Revenue C-ode. At Drnltri's request, Sharkey added other provisions to the corporation's articles of incorporation. The articles of incorporation filed by Ed in the Secretary of State's office are attached as Exhibit A to this exam.
The gizmos were produced, operations began. and business began to boom. The com-fed Midwest cowpokes just couldn't get enough of Dmitri's fresh fish. In its first full year of operation (1991), DFF, Inc. had gross sales of $500,000.00 dollars, and expenses of SJOO,OOO.OO (everything was leased, nothing was bought outright). All money left over after payment of these expenses went into research and development Dmitri begao spending all of his time at the dock, ar.d when he did tome home be smelled like fisJ, One rlay in eariy February 1992t upon arriving at his house, he found the house completely dark, and on the kitchen table was a hastily scribbled note from lrina, in which she confessed to no longer lovi."lg him, and stating that it was useless to try and find her, as she had run away with a physical therapist Dmitri, Jr. was sleeping upstairs, obtiv!ous to the emotional turmoil roiling all about him. Dmitri sat dov.'ll and began to cry. It was slowly be~oming evident to him that making money ln America was not acPJeved without great and even unbearable personal sacrifice. Dmitri right then and there decided w rledicate his life tCJ finding Irina.
He began taking a lot of time away from work, cbeddng out all of the hockey rinks on the east coasl
The business, as you would expect, began to suffer. Sales plummeted. ln March, 1992, Boris decided something had to be done. Firs~ he caused his corporation to immediately exercise the conversion feature of the debenture, giving him beneficial
3
ownership of approximately 99% of DFF, Jnc. As holder of approximately 99% of the v-oting stock of the company, he voted to tire Dmitri as president, and instaH hirnsdf. He also voted to replace Dmitri as director, voting in 5 of his cronies to a reconstituted board of directors. The new board and Boris Badanov, Inc, in accQrdance with all statutorily required formalities immediately agreed to sell aU of the assets of DFF, Inc. to Boris Badanov, lnc" for $500/)00.
Completely demoralized, contemplating suicide (or at least a night of heavy drinking\, Dmitri went home. On his doorstep he found ( l) the IRS, which served him with a lav.'Suit; {2) Irina, who sen•ed him witb a lawsuit; (3) Sharkey, who served him with a lawsuit; (4) an a[torn~y representing DFF, Inc.. wbo served him with a lawsuit; (5) Ivan Ivanov, owner of Babushka's; and (6) a heavy-lidded woman named Natasha, ..,·ice-president of Boris Badanov. Inc., who served him with a lawsuit
Dmitri wondered what the hell was going on. He wondered what these lawsuits could be about After the requisite night of heavy drinkJng, unshowered, smeHlng like a moth.-eaten old bear, he comes to you, an attorney expert in corporate law. You make yourself a fresh pot of coffee, and attempt to begin to unravel this sordid tale. \Vhy is Dmitri, poor Dmitri, being served with lawsuits? \Vbat are the causes of action? What defenses do you envision raising'!
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To
OFFICE Of TH2 MASSACHUSETTS SECRETARY 0? S~.-\TL
MICHAEL JOSEPH CO~';\OLL Y~ Setret:Jry O.'ii ASHS!JRTOX PLACE, BOST00, ;'>L.\SS:\CHl"SETTS 02iCS
ARTICLES OF ORG,'u;lZATlOl' (t:nder G.L. Ch. 156E)
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ARTICLE II
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ARTICLE IX
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;;-: WJT;<ESS WHEREOf )f,C ur;d~rth~ ~air<> J'<d r~r.,~\lk' ol p~:ju:;- ,l/ WI:,"''~'"$~ :i;:;r;.>!U~c(~) JH~" bdow as bcor;;::-J:Qr(i~ ln·:! whoso :-.a::-:~:; ~r..-:! h.li:-.c:s t>r :~1\d~~tia: add~•~>(~\) AR!. CLE.A.RL y TYP£0 :JR PRL'HED bcae::.th ~l~h ~!,p:mt~ do l"m,~y asscd::::e v.O:h 1':~ ;_,.,;~.,t:c:: cf fM~·i"g thi~ ~u;~n·.io" u·1'k' the prc;>;.,),ycs of Gt;-.u~J L!A'! ChJ;rtc; l55B and do ::nrb:-· 1igt :'n"be Act':c\cs. of Or_p:t',:r.:o:J a:; it:t\l\']Wr2l<=-:ii':
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7
Th-e DooRonRor. Company is a Massachusetts limited partnership, duly formed by five childhood buddies - Archie, Betty, Jughead, Reggie, and Veronica, ail of \Vhorn a;e timi~ed partners. The general partner is ABJ RV Corp.j a Massachusetts corporation whose president is Betty, whose treasurer is Archie, and whose clerk is Veronica. Each of the five friends owns 100 shares of stock in ABJRV Corp., which they each agreed to pay $100 for. Only Reggie has actually paid the money as yet The rest of the friends have been issued stock, and their unpaid capital contributions are listed as loans to stockholders on the books of the corporation. DooRonRon is in the business of manufacturing and pubiishing educational software games for childrer... The biggest seller is a \ideo game named "Shoot the Law Professor," a silly little game which allows users to take potshots at a crustv old nrofessor whenever the user answers a 1e£al ouestion ., . ~ . correctly.
The gang did some brainstorming and came up with a truly ingenious interactive vide.G called "Smell the Flowers", which emitted any number of a wide variet]· of scents when the user correctly guessed the answer to a question of generat scientific interest A disgruntled) geek-tech nerd DooRonRon employee named Joe slipped into the game a scent t.har none of the limlted partners knew about- something he called "roadkill", a pWlgent, tart, slightly nauseating aroma guaranteed to wake the user /smellersEght1y queasy (to say the least), The game, when introduced, sold like hotcake~
As a matter of fact, the DooRonRon Company ex:perienced difficulty keeping up \Vith demand for the product, and this problem was exacerbated by the fact that the company had difficulty in finding enough employees to keep deliveries of the video game on schedule. Ooe day, when shipments were hopelessly behind, Archie, treasurer of A BJ R V Corp., called the Chester Porter lcdepencent Contractor Delivery Service, a well-respected and nationally known courier service, to make some deliveries. Chester to~d Archie that he wa<; booked solid, and his company could not do the work. Archie however was insistent, and literally got down on his hands and knees to beg Chester to help him (Archie could do this fairly easily, because he had a speakerphone)"
Chester finally relented" He agreed to make the deliveries. personally, in }tis own car, after working hours. At the time, Archie knew that Chester had been imprt>~cC 10 years ago for various lewd and lascivious acts. He was so. elated at Chester's agreeing to help him out that he never cor:.sidered the matter when Chester dropped by after dark in a l:rown rumpled raincoat to pick up the videos and his dropoff destinations. While caking a delivery of the ·new video product to an aH~girl's school on L1:1e east side of tO\\'TI, Chester ran amok, committing se:x crimes and other mayhem with absolute impunity, The mother of one of the girls, a Mrs. Bro¥~nsizer1 sued Chester personal!~' net k!l.owing (and quite frankly, not bothering to check. but, then again, put yourselr lfl her shoes, she must have been absolutely devastated) that he was making deliveries for the DooRonRon Company. She recovered a judgment of$l,Q((i,OO:tOO against Ches:e::-, and he paid$! 12.36 of the judgment against him before filing for bankruptcy protecuorL
g
Prior to Chester running amok, the five friends had been slowly but inexorably gro\ving up and grvwing apart. (This kind of stuff happens in rea[ life- Jook at the Beatks, fvr insta;Jce.) Reggie wanted to cash in his !/5th ownership share in DooRonRon, as well as his ll5thownership interest in ABJRV Corp. Seems he and Midge decided to elope to the west coast while Moose was off playing football. Betty wante~ out also, because she and Archie (who wanted oct also) were thinklng of marry1ng and settling down, and wished to cash out in order to pay for {a) their wedding and honeymoon, and (b) a new waterbed and a couple of paintings from Sears. This left Veronica and Juggie in a bind, as they had no ready cash with which to redeem Reggie's, Bettis, and Archie's interests in the partnership or their stock ownership interests in ABJRV, Corp.
The limited partnership had been plowing back all profits into research and development of a new educational toy which promised to have the excitement of SuperMario combined with the (totally excellent) graphics of Tron, two very popular video games.. Any m-oney that the corporation ever had was long ago loaned (at below market rates) to Ms. Grundy1 a teacher in the local high scbooi, for a facelift Ms. Grundy was in actuality Jughead's mother, but no one knew this juicy bit of gossip except Ms. Grundy and lughead.
Mr. Lodge, Veronica's father, was approached to assist in the buyout, but he turned the gang down flal All of the (soon-to-be-ex··) friends were fresh out of ideas, s0, after a few hours at the Cbok'lit Shoppe, they aU went ~orne. Later that night, Jughead and Veronica met with a mysterious Mr. Weatherbee, president of Cybergraphics,lnc., DooRonRon's chief competitor. He agreed to fund their purchase of Reggie•s stock. Without telling the others the source of their funding, Jughead and Veronica bought Reggie's stock for $1(~\000.
The next day, Veronica and Jughead, now owning 60% of the ABJRV Corp. stock, cated a stockholder's meeting and elected Mr. Weatherbee to the board of Dircerors) taking the resigning Reggie's place. The new Board of Directors immediately fired Archie and Betty from their corporate positions. Feeling betrayed, Archie and Betty' wem an.d told everything to Pop~ proprietor of the Chok'lit Shoppe. Pop, having beer: burned in an earlier franchising deal with Weatherbee, immediately went to his. cash register, pulled out $150,000~ and bought Archie and Betty's partnership interests and s:ock interests. Once sad but now brimming with gtee, Archie and Betty married (So did Gilligan and Mary Ann, but that is a different screenplay altogether).
Reggie, secretly in love with Betty {and whose child Betty was carrying, not Archie's) immediately died of a broken heart Veronica, secretly in love 'Nith Reggie, gave her partnership and stock interests to Mr. Weatherbee, and then fled to Burma (where there is no such thing as extradition) with all of her money, intending to dedicate her life to working with the poor.
q
The new game, "Smell the Flowers", was, I repeat, a smash. Only one small {huge} problem. Seems that the smell the geek employee icserted caused ever 15,0:'.:0 glassy~eyed children to die painful and excruciating deat:1s. The smell was not just !:!B:useati11g. it was deadly.
Discuss the rights and liabilities of Archie, Betty, Jcghead, Reggie, and Veronica \-'is~a-vis each other.
;o
Fall Semester, 1990 Professor Devlin Business Associations Final Exam December 12, 199o ··--
Leona came up with the brilliant and technologically innovative idea of selling fresh peaches to retail grocery stores using a new refrigeration method in distrihution to preserve their freshness. Leona approached her friend The Donald to join forces with her in her proposed business. While Leona and The Donald were still making plans. Leona approached Imelda and entered into a long-term contract to supply peaches to her; Leona signed the contract as president of Perfect Peaches, inc.
Leona then told The Donald of the contract and he, suitably encouraged, Joined Leona ln forming Perfect Peaches, Inc., as a Massachusetl'\ corporation. The two were equal stockholders, with Leona serving as president (not queen), The Donald as treasurer{ a mistake), and both of them as directors.
Later, Leona and The Donald brought Marla int9 the business, transferring io her 2.5% of the stock Stnce Maria did not know Leona and The Donald very welt, and since she feared that they might take some corporate action inimical to her interest, she insisted upon a provision in the by-laws of the corporation requiring an affirmative voie of 80% of the outstanding stock for any action affecting corporate policy.
While the business began to grow (Leona knew how to keep things cold), Leona and the Donald started fighting. Leona became difficult to deal with, causing discontentment among the company's customers. During this time, the corporation hegan to experience serious tax difficulties because Marla refused to vote to declare dividends.
Upset\ The Donald wanted out, offering to sell his stock back to the corporathm. His offer was refused. with Leona and Marla voting the proposal down. The Donald, absolutely livid, and not even bothering to resign as. officer or director, started his own fresh peach delivery business. Several of Perfect Peaches, Inc. customers switched to The Donald's company. While The Donald's company prospered, Perfect Peaches hegan to slide toward bankruptcy, and has breached its contract with Imelda, who suffered substantial losses as a re:.ult of the breach.
What are the rights and liabilities of the parties?
llil.ESililtU.2
Harry is the president of Harry's Metal Shop, [nc., a Massachusetts corporation, primarily engaged in the production of specially-ordered sheet metal. Harry called up a good friend of his, John, who ran his own machine shop, Custom Metalworking, Jnc., also a Massachusetts corporation. Harry asked if he could horrow John's expensive metal~ henJing machine for a job be needed to complete. John said he could horrow it, and Harry sent one of his employees, Jim (Death Wish~) Desoto over to John's husines'i to pick up the machine.
When Jim got to John's business, he was met hy John's employee Jake {"The Snake") Kravitz, who helped Jim load the machine onto the truck Jim was driving. Jake asked Jim to sign a receipt for the machine, which Jim dhl Jake gave a cupy of the receipt to Jim. who gave it to Harry when he got hack to the shop. On the back of the receipt, in small print. was a clause requiring Harry to indemnify John for any damage the inherently dangerous metall,ending machine might cause. (And, of course, it does cause damage, but first I want to tell you about Jim's ride back to the shop")
Before going back, Jim stopped at the toea\ greasy spoon for lunch, found a fellow patron to his liking, and after lunch stopped at a local motel for what can discreetly he described as a romantic interlude. While pulling out of the motel, Jim ran over 5 obnoxious teenagers. Unaware of the havoc he caused (he had the radio turned up real loud to his favorite country music station), ~e blissfully drove back to the shop,
Alas and alack, 2 days later, Jim inadvertently flipped the wrong lever on the metal bending machine, bending another of Harry's employees into a gory mess, the like~ of which you should never live to witness.
Discuss the rights and liabilities of the parties to this saga.
ABC Company, a Massachu;;etts partnership, was a toy manufacturer, formed by three childhood buddies, Alicia, Barbara, and Carot Their main product was a very cute little doll which grew underarm hair at the press of a button. Sales boomed, Life was good. The partners agreed to share in profits as follows: Alida, 75 %; Barbara. 15 %; and Carol, lO %.
Alicia finaHy got grossed out hy the product they were marketing, and told her partners she wanted oul Barbara and Carol told her this was impossible, because she was not only the brains behind the whole affair, hut a1so because all of the prutits had heen plowed back into the business, in the form of a huge downpayment on a manufacturing complex. Alicia demanded that they pay her what they owed her, and then went to lunch in Cambridge, wolfing down a vanilla yogurt and some CheezDoodles, and washing it aU down with a raspberry lime rickey. The waltre5s was so nice, Alida decided to go into the restaurant business with her, and they immediately {well, after paying the blll and leaving a generous tip) incorporated. As her capital contrihution to the new corporation, Alicia assigned aU of her interest in the profits of the ABC partnership to the corporation in ex<:hange for 20,000 shares of $5.00 par value stock. Her new friend contributed her life savings, $100,{)(X), in exchange for the same number of shares.
Barbara and Carol, by the by, were not just sittlng around scratching their armpits. Barbara became insolvent, and fled the country. Carol, fearing unlimited liability, decided to incorporate, and called the new business CD Corp, Inc,, transferring all of the partnership's assets into the corporate name, and adding a new member, Doreett
Turns out the underarm hair in the dons is toxic, and on one fateful post-holiday afternoon more than 4,500 screaming children need to he rushed to area hospi!al emergency rooms. Symptoms indude vomiting, diarrhea. temporary (I sincerely hnpe) blindness, general agitation, and an uncontrollable desire to eat broccoli.
Discuss everyone's rights against everyone else.
Business Associations Final Examination FalL 2010
Instructions:
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Student JD Number
This is a closed book, 3 hour examination, consisting of 3 questions, the first 2 worth 40 points each, the last one worth 20_ You should budget your time accordingly.
Good luck, and have a safe and happy holiday season.
QUESTION ONE
Stephan Jameson, freshly graduated from Babson College with an MBA, decided to go into the business his mother started years ago. His mother, Jane, operated a sole proprietorship out of her kitchen, selling delicious chocolate treats which she packaged and sold to specialty stores. After a few years learning the business, Stephan and his mother branched out to other confectionary treats, and then realized they might be able to expand dramatically if they began selling their treats to big stores, like Stop & Shop, with the catch that the treats, which children loved, would pack l 50% of the recommended vitamins in each bag. They figured children would always eat sweets, and their parents might be more inclined to buy the treats for them, if they contained vitamins.
So they expanded operations, and, as 60-40 partners (Jane was 60%), they signed a lease in an industrial park close to home, where they could set up a more professional operation. They then purchased (on credit from the seller) a $25,000 piece of machinery. Then they brought in Fred Grimley, a noted expert on childhood nutrition, with Jane and Stephan each giving up 5% of their interests. Then they purchased all sorts of supplies, also on credit, totaling $50,000. Six months later, after they got all the information they needed from Fred, they told him be was no longer welcome in the business. As Fred was leaving the plant, he had a heart attack, and died before he made it out the door. He left a grieving widow and 2 lovely children.
Stephan and Jane closed up shop immediately, and walked away, leaving behind their creditors.
Two months later, on the advice of their (sleazy and not very astute) attorney, they set up a limited partnersmp, called Stephjane LP. Since neither wanted to be a general partner, the attorney concocted a plan under which the general partner of the limited partnership would be a corporation, called Kidhealth, lnc. So all the paperwork was filed.
The corporation leased a building in Lawrence. Stephan signed the lease as President on April 1 51
h, 2008. He remembers that date clearly, because he also filed his tax returns on that date. The lease was a 1 0 year lease, with a 1 0 year option to renew. The rent was fair market rent. The lease specifically limited the operations at the building to the manufacturing of candy.
KidHealth, Inc. became a duly organized corporation in Massachusetts on May 1, 2008. Its Articles of Incorporation states that it was organized for the purpose of manufacturing and selling tasty candy confections at wholesale to stores like Stop & Shop (nothing was mentioned about selling them at retail, at KidHealth's own outlet stores). KidHealth was authorized to issue 2,000 shares of stock. Stephan owned 500 shares. Jane, getting up in years, got 250 shares. Both were on the Board of Directors, and Stephan was the CEO, and Jane was given the title of CFO.
In the middle of2008, Stephan brought in Chrissy Slater. He met Chrissy at a candy trade show, and lured her to quit her job with Nestle's, Inc. (the maker of many confections for kids, and which had been branching out into the field of children's vitamins for a few years, because business was beginning to really heat up). To entice her, he gave her a pretty good starting salary ($85,000), a nice title (Executive Vice President) and l 00 shares of stock in the corporation. Chrissy had the responsibility of making sure that the office was running smoothly, while Stephan was out and about, manufacturing the candy and making sales calls to get the candy onto store shelves.
Chrissy, you should know, was previously Notheast Regional Director of Quality Control at Nestle's, Inc., and she signed a noncompete agreement in 2003, after she had been at Nestle for 2 years, rising through the corporate ranks. lt provided the typical language limiting the scope of duties, was for 5 years, and had a geographical noncompete area in the "Northeast."
ln late 2008, Stephan also brought his college buddy Greg into the business. Greg was a nice guy, but essentially useless, and he was given a lofty title and a pretty good salary to do basically nothing.
Just 8 months ago, with excess inventory of candy, KidHealth opened a little retail store in the foyer of the leased building. They did some advertising and, since there was an elementary school nearby, they soon did a brisk after-school business.
One fateful day a little while back, the following things happened.
First, some background. It was a cold morning. It had rained a little the night before, and the roads were stiJI a little slick, and it was also very foggy. Stephan was driving his fine European touring sedan to work. On the way, he picked up his mother (who no longer drove, having gotten into an accident a little while back while driving to King's Subs to pick up lunch. Not paying enough attention, Jane blew through a red light, and ran into a little old lady named Bertha in a small Toyota, badly injuring her, and demolishing both cars. Bertha was on her way to pick up some office supplies for her husband's business at the time of the accident. Bertha was taken by ambulance to the hospitaL She was treated and released a week later).
After picking up his mother, Stephan stopped at the local Staples (in a strip mall) to pick up some cellophane packaging for the office. When he came back out to the car, he
slipped and fell on some puddles in the parking lo1 and hurl his hip very badly. His mother, who had volunlarily relinquished her license afler 1he bad accidenL gol him inlo lhe car, and drove him to Lawrence General Hospilal. She was rear-ended at a stop light by a Federal Express truck driven by Randy McDowell. The truck's brakes failed. (Randy was heading home to check on his new-bom son, who was very colicky. He wasn't on his scheduled route at the time). The accident pushed Jane's car into oncoming traffic, and Jane hit Moe Joe Jones, a new attorney walking with his briefcase to the courthouse. Moe was filing a huge class action case, and the deadline for filing was that very day. The briefcase went flying, and hit a young girl named Laura in tbe head, knocking her out cold. Moe died. The suit never got filed. Moe's fiance, Rita, saw the whole thing, and when she fainted, she cracked her knee on tl1e sidewalk.
So many ambulances showed up, it was hard to count tbem all. The one that took Stephan to the hospital got into an accident with a Home Depot truck, whose brakes had failed (might have been the rain,] am not sure) and ran through a stop sign. Stephan arrived at the hospital with a broken ann, a concussion, and two fractured ribs.
Later that day, Chrissy visited Stephan in the hospital. He told her about his awful morning, and also told her that he had an epiphany. The epiphany was that, since Chrissy was such a good teacber, and since she had taught Greg how to run the office and make sure the KidHealth, Inc. quality control procedures were followed, that he no longer needed her services. So he fired ber. Chrissy slapped him across the face, and left to go back to the office to check her mail and clean out her office. ln the mail was a copy of a complaint filed by her former employer against her for breach of the covenant not to compete she signed. It also named KidHealth, Inc. and Stephan, individually, as codefendants.
When Greg got to the office, and learned of his promotion from Chrissy as she left the building (taking with her her personal computer, which had all sorts of KidHealth, lnc. proprietary information stored on it), Greg immediately ordered $500 worth of champagne and chocolates on the company credit card, so that he could celebrate his promotion later that night.
At the hospital, Jane was treated by the esteemed Dr. Howard, who was given the wrong chart by a nurse, and who then managed to tum two badly bruised ankles into a hip replacement.
The hip replacement, by the way, was successful.
Four more things. lt turns out that, unbeknownst to Stephan, Chrissy had misread the FDA's vitamin limits, and thus the KidHealth candies had to be recalled. And Stephan, or Chrissy, or Greg (or whomever was responsible for doing so), not only didn't keep proper corporate minutes over the last five years, they also forgot to file annual reports and renew the corporate liability insurance, which lapsed last month. Stephan and Jane got into an argument while they were recuperating in the hospital, and he fired her.
Finally, it tumed out that KidHealll1 was deeply in debt. and has to file for bankruptcy.
THOROUGHLY DJSCUSS ALL POSS1BLE CAUSES OF ACTJON.
QUESTION TWO
Freddy, Benny, Sarah, and Pixie all met in college, and soon became BFFs. After college, they worked at various jobs, climbing the corporate ladders at their respective companies, but they were never satisfied with the glacial pace of their corporate progress. One Friday night, over drinks at a local bar, they all agreed to quit their jobs, pool their savings, and start their own company.
Their idea, after brainstorming over some rum? They would manufacture and sell ice cream cones. Not just any ice cream cones, by the way. Specialty ice-cream cones. How speciaJ'7 Special in two ways. First, the cone would have a lip on it, about 3~ of the way up the cone. This would act as a catch basin for all those nasty and sticky drips caused by summertime heat. Second, the cones themselves would come in many, many flavors.
So they all marched in and quit their respective jobs the very next Monday. Well, everybody but Freddy. He liked his job in a local accounting firm just a little too much, but he really wanted to stay with his friends. Later that day, they met in Benny and Pixie's house (they had been living together almost since right after college) and agreed to form a partnership, with each being a 25% partner. To save money, they did not hire an attorney to formalize the agreement, nor did they file any documents. AJJ agreed that each would contribute $25,000 to the partnership except for Freddy, who would contribute $50,000, and who would only be a limited partner, because he wouldn't be around to make the day-to-day business decisions anyway. They called it Sticky Drips, LP.
The first thing they did was tum Benny and Pixie's basement into an office/manufacturing room. The next thing they did was sign a lease for some manufacturing machinery from Industrial Leasing Corp. Sarah signed the lease on behalf of the limited partnership. Then, after many unsuccessful attempts, they were able to come up with a workable ice cream cone prototype. Then they began selling. Their first big customer was Friendly's, Inc., which entered into a long term requirements contract (signed by Sarah only) with the limited partnership. Once that big score came in, they decided to do two things. First, they moved out ofthe basement and leased nearby industrial space. Next, they went to an attorney, Jesse Clammer, who helped them form an LLC, named ConeKing, LLC. All appropriate paperwork was filed. Each of the four friends was a "member," and each had the same voting rights. ConeKing, LLC borrowed $20,000 for worbng capital from BigBank, Inc. The Joan agreement was signed by Benny in his capacity as managing member, but all of the 4 oral1y agreed with the bank to be on the hook for the loan.
Pixie got pregnant, and stopped working, because she was having a hard time with the pregnancy. All agreed that Benny would oversee all aspects of cone production. since Pixie didn't want to have him around much. Sarah reported to Benny. Freddy signed them up as a client of his accounting firm, and he was responsible for all filings and administrative stuff, again under Benny's supervision.
They also bought a delivery van on credit from a local dealership, and then formed a corporation called KingCone Delivery, Jnc., to hold title to the truck. Sarah, Benny, and Pixie and were equal shareholders, and all were on the board of directors. They said nothing about this to Freddy. The corporation's by-Jaws contained a right of first refusal clause, entitling the corporation (or the other shareholders) to buy the stock of any shareholder wishing to sell. Sarah signed the financing agreement as president of KingCone Delivery, lnc. Benny hired his ne'er-do-well cousin, Manny, as an independent contractor (recently released from jail after serving time for a drug conviction), to drive the truck and make cone deliveries to area Friendly's outlets. Benny never told the others about his relationship with Manny, nor did he tell them of his criminal record.
Manny was not a very careful driver, and got into an accident on Route 93S when he was making a delivery. Manny and the other driver sustained injuries, but none were too serious, even though both went to the hospital. One injury suffered by the other driver, Ralph, was a black eye, which happened when Manny slugged him as they argued about who was more at fault for causing the accident (Manny was more at fault, of course). The van was wrecked, and it turns out that Freddy had forgotten to make insurance payments, so there was no insurance money available to pay for anything.
Prior to the accident, Manny being Manny, he used the company van to deliver pizza for a local pizza shop. As an independent contractor, he made $1 0 per hour. He also made significantly more money in tips. At the time of the accident, Manny had 10 pizzas in the back of the van. Needless to say, they were never delivered to the buyer, a local hairdressing salon which was having a smal1 party, and which had prepaid by credit card for the pizzas.
Sarah ended up getting very sick from the fumes emitted in the production process, was hospitalized, and took 3 months off of work to recover. She also stated that she would never step foot in the manufacturing plant again.
Not surprisingly, things went from bad to worse. Deliveries to Friendly's were late, and of insufficient quantity and quality. Friendly's attorney, Shania Tweedle, sued ConeKing and Kingcone and added a claim for piercing the limited partnership, naming all four members.
Freddy only paid $30,000 of the $50,000 he was supposed to pay into the partnership.
Six weeks ago, Sarah, recovering nicely, hired her brother Mark as VP of Finance of both Con eKing and King Cone, at an inflated salary. She promised him (in a signed
writing) an up-front signing bonus of$ J 0,000. At the time he was hired, Mark, a high school dropout, was working as a handyman.
Two weeks ago, attorney Sam Slade bought 5 shares of King Cone stock from Pixie, not knowing of the aforementioned right of first refusal. He then filed a derivative lawsuit against Sarah and Benny as directors.
THOROUGHLY DISCUSS THE RIGHTS AND LJABJLJTJES OF THE PARTIES.
QUESTION THREE
Bob and Carol and Ted formed a corporation in the late 1970's. lt was called Ratkill, lnc. All three were given 400 shares. All were members of the board of directors, along with Rick Cheney, Ted's uncle, who joined as a favor to Ted. Rick promptly forgot about it, and went on to much bigger things. He never at1ended a single board meeting. The company, as you might have guessed, was in the pest eradication business, and was mildly successful, providing Bob (President), Carol (Executive VP), and Ted (Treasurer) with comfortable salaries. No dividends were ever paid.
Here are some things that happened.
1. ln 2005, Bob hired his son Scot1to be in charge of scheduling jobs. In 2006, Bob gave 100 shares of his stock to Scot1, on the advice of his estate planning attorney.
2. In 2007, Carol became upset with how things were being run. She voiced her displeasure to Bob and Ted. Bob and Ted soon started avoiding Carol altogether, always outvoting her at board meetings.
3. In 2008, Bob told Carol to just stop complaining and do her job. They ye1Jed at each other. At the board of directors meeting the fo11owing month, the board voted to fire CaroL
4. Carol had expected this tum of events, and had already begun preparations to go out on her own. Once fired, immediately started her own pest eradication company, with two of her friends, Maude and Gladys. Upon advice of their attorney (Moe!), they created a limited partnership, and since none of them wanted to be general partner, they also formed a corporation to act as the genera] partner. Carol and Maude and Gladys were limited partners, and a1J were shareholders in the corporation, with Carol acting as president. And, since her (unJistened-to) ideas were good ones, Ratkill's customers soon switched their business to the limited partnership.
5. Jn 2009, Scot1 was going through a nasty divorce, and wasn't paying enough attention to his job. 1-Je mixed up a customer's address, and sent one of the company employees, Zach, to place rat traps around the wrong residential address. The traps killed the homeowner's pet cat.
6. Upon learning of the mix-up, Ted fired Scot1 and the employee, Steve, who set the traps.
7. Scott sued, claiming a freeze-out.
8. Steve sued, claiming a wrongful discharge.
9. ln 20 l 0, short of funds (because of a bad gambling habit, and bad luck), Bob authorized the company to loan him $50,000, payable in l 0 years, with no interest. Ted found out about it, but he was placated with a $30,000 distribution from company funds.
l 0. Last week, it was discovered that the company accountant had not only embezzled funds from clients who never got any work done, but that he also falsified tax returns, which has left the company with a huge tax payment, plus interest and penalties.
l 1. And, of course, there is no money left in the corporation.
THOROUGJ-JL Y DlSCUSS TJ-JE RJGHTS AND LlABlLlTlES OF TJ-JE PARTIES.
