BA VIDEO Notes

Gordon v. Doty Analysis / hypo

3. After the case is decided, Mrs. Doty asks for advice. She wants to lend her car to the new
football coach to transport student to the game but wants to avoid personal liability. What advice
do you give her?
 A disclaimer clause  states that there is no principle/agent relationship to the parties.
Often used and can be effective if court upholds them.
 Eliminate the aspect of control  weaken condition that Garst is the driver. Do not set
the requirement the Garst must drive
 Insure against the risk of loss caused by Garst by obtaining insurance.
4. Did court have a policy agenda in using agency law to impose liability on Mrs. Doty, the
owner of the car? If so, what policy was it trying to implement
 Possibly if the point was to get people to take out insurance.
Hypo #A1
- Tabitha = principles / Thomas = agent
o Test applied to facts

 Manifestation of consent  Tabitha asks Thomas to find limo driver

 Consent  Thomas says sure
 Control  agent subject to principles control  Tabitha sets parameter
that driver should be licensed / insured / paid as Thomas is

Jenson Farms v. Cargill Analyis / Hypo

1. What could farmers have done to protect themselves from the risk of nonpayment?
a. Insisted on cash payment instead of having delayed payment terms
b.
2. What could Cargill have done to ensure grain bought from Warren was paid for?
a. Demanded evidence of payment
i. Control was the main reason Warren was determined to be an agent of
Cargill by the court
b.
Mill Street Church v. Hogan
- Parties
- Why does the authority issue arise?
 - RULE: Principle must have intended to give agent such power as needed to carry out the
task. Can be proven with circumstantial evidence
- Burden of proof to establish  the person claiming an agency exists
- Holding – What proved authority
o New Elder discussed with Bill about the need to hire another painter to help.
Discussed the option of another painter but the church elder indicated the guy was
difficult to reach. Church Elder told Bill to hire anyone and an assistant was
needed to properly complete the job.
o Sam = employee of the church and gets workers comp

HYPO #A2
- Paul owns an apartment building and hires Ann to manage it. Paul tells Ann to hire a
company to cut the grass. Ann hires ABC Landscaping and they cut the grass. Must Paul
pay the bill?
o YES – Paul is bound. His instruction to Ann created express, actual authority.
- Paul owns an apartment building and hires Ann to manage it. Ann decides to hire a
janitor without Paul’s direction. Must Paul pay?
o YES – incidental or implied authority. Agent had implied actual authority to use
all means reasonable necessary to carry out to
o Janitorial needs are incidental to the property management of the building.
- Paul owns an apartment building and hires Ann to manage it. Paul tells Ann not to hire a
janitor, although all apartment managers in the area customarily hire janitors. Ann hires a
janitor. Must Paul pay?
o Yes – Ann does not have actual authority, either expressed or implied, because
Paul gave clear instructions not to do something.
o Ann would have apparent authority because it was customary
370 Leasing Corporation v. Ampex Corporation.
- Relationships among the parties
o 370 Leasing – the buyer under sales contract for computer contract
o Ampex Corp – the seller in the sales contract
o Electronic Data Systems – had agreement with 370 to lease the computer
equipment being sold by Ampex to 370. Ampex was to deliver the equipment
directly to Electronic Data Systems.
o Joyce – owner of 370
o Kays – employed by Ampex as a sales person
o Mueller – Mr. Kays boss, also employed by Ampex.
o Ampex (Mueller and Kays)  Sale with Financing  370 Leasing (Joyce) -
Lease  Electronic Data Systems
Analysis Question after Nogales v. Arco
 - What proof might the plaintiff have offered in support of apparent vs. support offered in
support of inherent authority?
o Apparent  manifestations of the principle through other agents that reaches the
3rd party
 Proof of statements from others at Arco stating that he was the dealer
o Inherent 
 Proof that agents like Tucker generally have the authority to grant modest
price discounts on behalf of arco
 Shows customary

Hypo #A3
- Octavia is an art collector and asks Oscar to bid on some original Picasso drawings at an
upcoming auction at Christel’s, a famous auction house. Octavia sends a letter to
Christel’s stating: “Oscar will represent me and may bid for me at your upcoming
auction.”
- In the past, Oscar had placed bids up to $1mil for Octavia. However, Octavia tells Oscar
not to bid more than $750K for any item at this auction. Oscar attends the auction and
bids $1mil for a drawing. He wins the bid. Octavia tries to renege on the sale. What is the
result.
o 1st – does an agency relationship exist
 Yes there is an agency.
 Request by Octavia for Oscar to do something for her (buy the painting)
o 2 – does the agent have the authority to buy the painting
nd

 Yes – apparent authority

 Auction house did not know about limitation of $750K. Manifestation to
auction house that Oscar was authorized to ask.
 Test for apparent authority
 Objective manifestation from one party (apparent principle)
 Which reaches a third party
 Causing the third party to reasonably believe that another party
(apparent agent) is authorized to act for the apparent principal.
Week 2: Ratification and Estoppel
Ratification Hypos
Hypo #A4 (pages 28-29)
- Pam’s husband Alex enters into a contract for Pam’s new book with ABC Book
Publishers. Pam receives a check from ABC as advance on the book and P cashes it. She
 tries to sell book to another publisher and argues that Alex had no authority to act. What
is the result
o ABC would win. Implied affirmance because Pam accepted the benefits of the
transaction (cashed the check)
- Same Facts as first but Pam thinks check was for royalties from another book and says
she has not reason to know it was an advance on her new book. Result?
o Pam will win. She did not have knowledge of all material facts as required by the
test for Ratification.
- Alan, a deranged fan of Pam, poses as Pam’s butler and hires a landscaper to cut her
lawn. Pam arrives after the lawn as been cut and she thanks the landscaper. She refuses to
pay and says that Alan had not authority to act. What is the result?
o Pam probably wins. You cannot be held responsible if you never had the
opportunity to turn down the benefits given by a third party.
- Investor Paula instructs broker Al to put money into U.S. treasury bonds. Al puts her
money into high risk stocks. Paula receives brokerage statements but said nothing (wait
and see). When stock drops in value, she complains saying A had no authority to buy
stock. Can Paula recover?
o Likely that Al will win. Implied affirmation through silence. Paula cannot wait
and see to see if the stocks would result in a favorable result.
- Paula owns Whiteacre. Alan, without authority to do so, sells Whiteacre to Ted. Fire
destroys Whiteacre. Paula expressly affirms sales contract. Ted says she’s too late. Who
wins?
o Ted would win. Ratification is not effectively if it would cause an adverse impact
on a third party (ted). Paula cannot enforce the agreement unless Ted decides he
wants to be bound by the agreement.
o Material change in circumstances between contract and ratification

Agency Review Question #1 (rewatch video)

1. Cast of Characters
a. CCC
i. Agents = employees (includes officers)
ii. Lucille = chief executive
iii. Jimmy = appointed by Lucille to be on team
iv. Lucille’s secretary
b. ATC
c. Sam Sly
Liability in Tort Cases
Humble Oil v. Martin and Hoover v. Sun Oil  companion cases
- What is the issue? Large oil company leased gas station to station operator. Can the large
oil companies be held liable for negligence that happens at the gas stations?
 o Are the gas station operators independent contractors or employees of the oil
companies?

Franchisee
Murphy v. Holiday In
HYPO A5 (Humble and Sun Oil)
- Jack is offered the opportunity to deliver pizza for Vito’s. He sign an agreement stating
that he is an independent contractor. Either side can terminate their relationship at any
time with no hard feelings. Jack will drive his own car, will shall be insured, and will
dress in clothes he provided but within the dress code. Vitos will provide a proposed
schedule of which Jack can accept or decline. He is paid by the trip.
- Jack has only had odd jobs in his life and was out of work for a year before he got the
delivery job. He knows that the last person who held the position was fired for failing to
accept the proposed scheduled.
- If Jack negligently causes an accident while delivering the pizzas, can the victim
successfully sue Vito?
o Respondeat Superior – requires an employer / employee relationship.
o If Independent Contractor
o Burden – on the person trying to establish respondeat superior relationship
o Divide factors into categories, some point to IC while others point to Employee
 IC
 “he is not an employee”
 Paid by the job, not hourly
 Supplies his own car (tools of the job), insurance, and clean clothes
 Free to choose own delivery routes and schedule
 Allowed to work elsewhere
 Employee
 Last person fired for not accepting their schedule (formal freedom
of action but in order to keep it he prob has to accept)
 Delivering pizzas is regular part of pizzeria
 No special skills and is part of the regular work of the pizzeria
HYPO A6
- Buddy is the baker’s assistant at Carlo’s Bake Shop. Early one morning, while kneading
dough, he notices that a stray cat wondered into the kitchen. He picks up the cat and,
without looking, throws her out the back door into the alley. The cat lands on a crate of
fine china belonging to the neighboring housewares store, causing the crate to fall over
 and breaking the contents. Is Carlo’s Bake Shop Liable for the damages? Is Buddy acting
within the scope of his employment?
o This would most likely be in his scope of employment and Carlos will be liable
for the damages
- Agency – SCOPE OF EMPLOYMENT – R2d Section 228(1) – when conduct is within
the scope of employment
o Of the king he is employed to perform
o Within authorized time and space limits
o Purpose to serve the master
o If force intentionally used, use of force is not unexpectable by the master
- (2) Conduct of a servant is not within the scope of employment if it is different in kind
from that authorized, far beyond authorized time or space limits
#A6 variation 2
- On his way home from work that same day, Buddy stops at the bookstore. He wants to
read up on baking and he finds several books on the topic. On the way to the register he
dropped the books on the store owners foot and broke it. Is Carlos liable?
o No – time, place, purpose is not within the scope of his employment

Agency Review Question #2

- How would you characterize the business and legal relationship between and among
Route 66 Hotels and the hotels that formed it?
- Will Route 66 Hotels be liable for the accident
- If you were representing Route 66 Hotels what steps would you recommend to mitigate
the risk of liability?
AGENCY REVIEW QUESTION 3
- What role does each of the following play:
o Cecil – worked for USA Exports, went to Japan to con
o USA Exports
o Superior Exports
- Does USA Exports have any basis for a complaint against Cecil?
o List any grounds you can think of
o What result in this case?
-
HYPO A7 w/ Variations
Would these be violations of duty of loyalty?
- Sergeant had been discharged before riding on the truck? Wearing uniform for 30 days
after being discharged is allowed
o Yes – still involves misuse of assets (uniform) even if it was permitted
 - U.S war hero is given cash by restaurant owner for making public appearances
o No – he is not profiting from position / title but from his fame
- U.S. general gets royalties for writing memoir about his heroic feats during wartime and
promotes book in civilian dress
o No -- he is not misusing his position / employer’s assets

PARTNERSHIP
Partnership Review Question #1
- Were Amy and Betty in a partnership?
o Look at factors from
- Was Betty entitled to 50% of Abel and Baker?
- What additional information would you need to answer this question?
Hypo P1
- Assume that RULPA Sec. 303(a) is effect in the jurisdiction.
- A creditor of Hacienda Farms, who had delivered fertilizer to the farm on de Escamillas’s
order, saw and heard Andrews and Russell engaging in the conversations about which de
Escamilla testified.
- Would Andrews and Russell be liable to the creditor?
o Probably not  ULPA 303  a limited partner is not personally liable…even if
the limited partner participates in the management and control of the limited
partnership.

HYPO P2  Meinhard v. Salmon variation

- If you were Salmon’s lawyer at the time he entered into the initial lease, what type of deal
with Meinhard would you have recommended?
o Be precise about the term of the relationship
 Ie relationship ends when the initial 20 year lease ends

- If you were representing Meinhard, what would you have recommended?
o Specify that Salmon must notify, opportunity to compete for future lease, ect

Hypo P6
- Huey, Dewey, and Louie form a partnership to conduct a swimming pool maintenance
business. Huey and Dewey each contribute $10,000 and Louie contributes $5000. They
do not discuss the sharing of profits and losses. At the end of the first year the partnership
has profits of $10K.
o What is each one’s share of the profits?
 Under default rule (UPA Sec. 18)– each is entitled to 1/3 of the profits
  Language of default rule  profits are equally shared
 If they wanted pro rata (sharing by % of contribution) they would need to
explicitly provide for it in the partnership agreement.
Hypo P7
- Huey, Dewey, and Louie form a partnership to conduct a swimming pool maintenance
business. Huey and Dewey each contribute $10,000 and Louie contributes $5000. They
agree to share any profits 40% for each of Huey and Dewey and 20% for Louie. They do
not discuss losses. At the end of the first year, the partnership has a loss of $10K.
o Who is responsible?
 Court will apply the default rules  based on how the profits are shared
 “partners must contribute to losses sustained by the partnership
according to the share of profits”
 Loss sharing follows the sharing of profits
 Huey and Dewey  $4000 each
 Louie  $2000
- HYPO P8
o Suppose after Mrs. Putnam conveyed her one-half interest to Shoaf, it was
discovered to everyone’s suppose that an underground stream had undercut the
land on which the gin was located, and it was necessary to abandon the property.
Could Shoaf’s recover from Putnam?
 No, not under principles of partnership law
 Once she transferred her interest, she is no longer liable for liabilities
HYPO P9
- Laura is a partner in XYZ Consultant. She applies for a personal loan to buy sailboat
from Second Street Bank. The bank asks her to assign her XYZ partnership interest as
security for the loan. The security agreement provides that if Laura defaults on repayment
on the loan, Second Street Bank will exercise Laura’s management rights in, and have the
right to receive any income due to Laura from XYZ. There is not provision in XYZ
Partnership Agreement on Assignment. Can She enter into this assignment?
o No, she cannot transfer her management right
o She can transfer her economic interest, but not management right
HYPO P11
- Returning to facts of Page v. Page
o Suppose Plaintiff whishes to buy out his brother and continue with a new partner
who will take over as manager and will have a 25% interest (Continuation). How
should plaintiff proceed
o Support plaintiff wants to force liquidation (shut down business and sell physical
assets) (LIQUIDATION). He wants to bid for the better accounts of the business,
how should plaintiff proceed?
INCORPORATIONS
1. Important points of information to learn from these materials are as follows:
a. What are the procedural steps required for incorporation?
1. Choice of corporate form
2. Choice of State of Incorporation
1. Can choose any jurisdiction, even if that state is not where the
company’s principal place of business takes place
2. Internal affairs doctrine  conflict of laws principle  state of
incorporation governs affairs relating to internal governance of the
business
3. Reserve Corporate Name
1. Must be distinctive
2. Indicate corporate status
4. Draft, sign, and file certificate of incorporation
5. Hold first meeting of directors
1. If directors are named in certificate of incorporation  required to
hold first meeting
2. If directions are not named  hold meeting of incorporators
3. At first meetings of directors, adopt bylaws
6. Issue shares and accept paid in capital
7. Take steps to qualify as foreign corporation in all states where corporation
will be doing business.
b. What information must the certificate of incorporation contain?  What
information may it contain? DGCL Sec. 102
1. Mandatory provisions
1. Name  include words like Inc. or Corp.
2. Address
3. Business/Purpose  “any lawful business”
4. Capitalization Structure  shareholders have identical rights
unless specified
 5. Incorporators’ names and addresses
6. Directors’ names and addresses
2. Option provisions
1. Provisions on management and provisions limiting powers of
corporation, directors, shareholders (usually in bylaws)
2. Preemptive shareholder rights  gives shareholders right to buy
future issues of common stock before issuing to the public (usually
early investors)
3. Provisions changing the voting rule of DGCL
4. Limit on duration of business
5. Exceptions to limited Liability of shareholders
6. Limits on monetary damages for director breach of fiduciary duty
1. Some fiduciary duties cannot be eliminated
c. Who are the incorporators?  What function do they perform?
1. DGCL Sec. 101  any person may incorporate a corporation by filing
certificate with Division of Corporations of Secretary of State
2. DGCL Sec. 103  signed and dated, pay filing fees
3. DGCL Sec. 107  if no directors are named in certificate, incorporators
manage business until directors are elected
4. Distinguish roles of shareholders, directors, and officers in the
corporations.
d. When does the corporation come to life?  Why is it important to know that date?
1. DGCL Sec. 106  corporation exists from the date of filing until
dissolutions
e. Where is the certificate of incorporation filed?  What function does filing serve?
1. DGCL Sec. 101(a)  File with Division of Corporations in the
Department of State
2. Filed documents are a matter of public record
3. Amendments permitted (DGCL Sec. 241, 242)
f. What is a registered office and why does a corporation need one?
 1. DGCL Sec. 131  registered office is required, but it does not have ot be
the principal place of business
2. Receives service of process within the state
3. Must be a resident person or corporation.
g. In addition to the certificate of incorporation, corporations also adopt by-laws. 
What is the function of by-laws?
1. DGCL Sec. 108  Bylaws are adopted at organization meeting of
directors or incorporators
2. DGCL Sec. 109  may contain provisions on conduct of affairs, rights or
powers of shareholders, directors, officers
1. May be amended by directors of initial capital; after that,
shareholders must vote to amend
2. NOT filed with Secretary of state
h. Dissolution
1. DGCL Sec. 275  Procedure for dissolution
1. (a) and (b) Resolution to dissolve by majority of old board + vote
of majority of outstanding stock entitled to vote, and filing
Certificate of Dissolution with Secretary of State; R
2. (c) All stockholders consent to dissolution in writing and
Certificate of Dissolution filed with Secretary of State
3. (d) Certificate of Dissolution must be executed, acknowledged, and
filed in accordance with DGCL Sec. 103
4. (d) Contents: name of corporation, date of dissolution, whether
authorized under (a), (b), or (c); names and addresses of directors
and officers; filing date of original certificate of incorporation
5. (f) Corporation shall be dissolved upon certificate becoming
effective in accordance with DGCL Sec. 103.
i. Promoter’s Liability
1. Breach of Fiduciary duties
1. Problem of self-dealing
2. Promoter has status akin to joint venture or partner
3. Duties owed among promoters and to corporation to be formed
 2. Liability for pre-incorporation contracts
1. If promoter forms corporation later
1. Can corporation become party to a contract?
2. Can promoter avoid liability?
1. Principles of agency law  promoter can be held
liable
2. If corporation is never formed or if promoter forms a different
corporation
1. Who is liable?
1. De facto corporation
2.
3. Corporation by estoppel
1. Would earn a windfall if allowed to evade liability based on
absence of incorporation
2. Person acted as though he was dealing with a corporation
3. Test: were substantial rights affected?
4. De Facto Corporation
1. Promoter’s tried in good faith to incorporate
2. Had legal right to do so
3. Acted as corporation
4. Corporation is somehow never formed
- Piercing the Corporate Veil
o Judicially created exception to the legal rule of limited liability
o Not used to pierce large publicly traded corps
- In Re Silicon Gel Breasts Implants Product Liability Litigation
o Injured female patients who had breast implant surgery w/ defective implants
o Parent – subsidiary deal goin on
 MEC  manufactured implants
 BMS  Parent (BMS) – sub relationship
 BMS owns all the shares of MEC
o What legal theories tie defendant to MEC?
 Piercing/ Enterprise
 Direct Liability
HYPO C2
- How should plaintiff draft their complaint to state a cause of action against Bristol-Myers
Squibb?
o On a piercing theory?
 Alter ego
 Comingled
 On a direct liability theory?
Corporation Review Question #1
- Clockstoppers, Inc.
o Alfred
 Took earnings out in the form of salary
 Maintained a separate bank account for business
 Failed to hold directors’ and shareholders’ meetings
- All Right Realty, Inc
- Can All Right Reality collect the remaining lease payments from Alfred.
HYPO C3
- Agricorp owns and operates farms
o Five board members, including Alice (Chairman and CEO)
o Adam learns of a farm for sale in Indiana. She and two others decide to buy it for
themselves. Assume it is a breach of duty of loyalty.
- Direct or derivative lawsuit?
- If it is derivative, is demand required?
o How is corporation harm? Corporate opportunity doctrine
 Corporation could have found it to be lucrative opportunity in their direct
line of business
 Direct Harm to the corporation
 Harm to shareholder  indirect
o Demand requirement
 If it is a derivative action is demand required
 Procedural law in DE  yes demand is required.
 Court precedent  demand futility
o Not make demand, but allege demand would be futile.
 Demand could be excused
 3/5 directors are accused of breaching duty of loyalty
o Demand futility
 Allege facts with particularity creating reasonable doubt regarding board
independence
 EITHER
  Majority has material financial or familial interest OR
 Majority is incapable of acting independently for another reason
like domination or control OR
 Underlying transaction is not the product of a valid business
judgment

o What if only Alice buys the farm. She discloses the opportunity to the other
directors. The other directors vote to have the corporation reject the opportunity
and approve Alice’s purchase. If a derivative suit is brought, is demand required?
 No  demand would be required because using demand futility would be
difficult
 Under aronson test, majority of board members no longer have the
material familial or financial interest.
 Majority was capable of acting independently
 Passing up the opportunity to buy would be valid business
judgment
Corporation Review #3
- Monster Seed Corp. (MSC) PHC under Delaware
o Keynes – MSC shareholder
o John Smith, CEO and Chairman
- Food for All (FFA)
o Ricardo Smith, Founder  John Smith Son
- Loan form MSC to FFA in default and Keynes wants to force MSC to enforce collection.
- If Keynes files a lawsuit challenging boards failure to enforce terms of loan agreement,
would it be direct or derivative?
o Derivative  suing for damages / enforce the contract
o Will benefit the corporation
o Alleged harm  harm to the corporation by losing the $2mm
- Under Delaware law, would Kenes be required to make demand on MSC board before
filing such lawsuit?
- Would you advise Kenes to make demand? If not,
- How will MSC respond to filing of lawsuit by Keynes
o Most likely say they don’t want to pursue ti
o Delaware 141(a)
HYPO C4
- What is elephant bumping?
o Bringing a third party when you are attempting to raise funds
o Cynical view of corporate charitable giving
o
- Should corporate management be allowed to make charitable donations to charity?
 o Should align with mission and value of the companies
o

HYPO C5
- You are counsel to public corporation manufacturing auto parts. CEO wants to make a
$100,000 donation to a friend’s charity. Corporate before tax earnings are $20 mil. CEO
states that the gift must be anonymous to avoid ill will with other people who are
soliciting donations for other charities.
- Is this gift permissible?
o Under rule of Smith v. Barlow?
 Argument that It is not voluntarily made  friends charity
 Has to benefit the corp in some way  if anon then the benefit doesn’t
exist
o Under the statutes in the casebook?

HYPO C6
- American law Institute Principles of Corporate Governance Sec. 201
o Corporation’s objectives is to conduct business with a view to enhancing
corporate profits and shareholder gain
o Even if corporate profit and shareholder gain are not enhanced, corporation is
obliged to act within bounds of the law, may take into account ethical
considerations appropriate to conduct of business, may devote reasonable amount
of resources to public welfare, humanitarian, ect
- What view do the drafters of the ALI Principles of Corporate Governance have about the
purpose of modern business corp?
- Would they agree with Berle or with Dood?
Corporation Review Question #2B
- Is the lawsuit involving PI direct or derivative?
o What is the test? Donaldson Test  derivative L:<>?
 Who suffered the harm?
 Who would receive the benefit of any damages received?
o How would you apply the test to facts in the problem?

HYPO LLC#1
- In Elf v. Jaffari, Elf signed the Operating agreement but later sued challenging the
arbitration clause in that agreement.
o Why did Elf agree to include the arbitration clause in the operating agreement?
  Lawyer from Malek may have insisted it to be included and be in CA
 Lawyers for Elf thought it would be unenforceable
 Parties didn’t anticipate disputes arising from 13.7 and 13.8
o Lessons?
 Carefully scrutinize
HYPO LLC#2
- The court in Elf v. Jaffari stated that the policy of Delaware LLC statute was to give
maximum effect to the freedom of contract and to the enforceability of LLC agreements
- Should there be any limits to the freedom of contract principle for LLCS?
o Courts unwilling to enforce provisions contrary to public policy
- If this was included in LLC
o “each member agrees that the other shall be relieved of an immune to liability for
any act against the other or against the LLC, where
 No – violation of public policy
Hypo LLC4
- Alternative set of facts: Hunt, after getting approval of other members of CHL,
negotiated w/ Nationwide for the arena and was nearing an agreement. McConnell THEN
made a better offer to Nationwide and won the right to lease the arenda based on that fact,
was award the franchise.
- Would the result in McConnell v. Hunt be the same?
o Probably not. The court relied on Hunt denying the nationwide proposal and the
fact that McConnell did not approach them.
HYPO LLC5
- The court in McConnell v. Hunt stated
o “we conclude that Section 3.3 is plain and unambiguous and allowed members of
CHL to compete against CHL for an NHL franchise”
- DO you agree that it was clear and unambiguous?

HYPO LLC6
- How could Members of LLC protect themselves form personal liability in the context of
a dissolution.
o Folow the procedures in the statute
o Give notice to creditors to file claims
o If followed, Members total liability cannot exceed total value distributed to the
member in dissolutions.
- Suppose that Haack had proved that she had invested $2000 in the LLC and that she paid
off Kickapoo’s debts and then pocketed $500 from what was left over.
o What would her liability be to New Horizons?
  She had already lost $1500
 Statute relieves her of excess liability of the debt to New Horizons, so she
would only have to pay the $500 that she received in the dissolution.
LLC Review Question 1 – See video 17 part II
- What legal issues does the fact pattern raise?
o Can Markus bind BADS to the contract with BUSA and HOMU even though he
exceeded he financial limits set in the discussions with Pierre and Jorge?
o Did Markus breach his fiduciary duty by taking the $2000 per event facility for
his own use for the ping pong events?
o Cam BUSA and HOMU recover from Markus, Pierre, and Jorge on a piercing
theory or because of the informal way that Pierre and Jorge dissolved the LLC?
BA Review Question Corporate #4 10/27/20
- Was there a corporate opportunity?
o Under Guth test
 Yes
Corporation Review Question #5
- Silver Screen Cinema Inc
o Sam Golden – President, 30% shareholder, director
o Board: Golden, Robbins, Lanvin, Wolfe, Greenman
- Cable TV station
o Majority owned by Robbins
- Robbins Film Inc (RFI)
o Owned by Robbins’
- Has any SSCI director breached a fiduciary duty?
o Yes  Robbins
o Duty of loyalty  Bayer v. Beran
o Corporate Opportunity  broz v. cellular
 In Re Ebay
 Guth v. Loft test
 1  financial ability
 2  same line of business
 3  interest or expectancy
 4  taking opportunity would create conflict between self-interest
and interest of corporation
 Must meet all four factors
 If board turns down corporate opportunity, then can take it for yourself

Corporation Review #6
- US Way
o Sales agents sell microwaves door to door
 They keep 6% commission and send 94% to supervisor
 Supervisor keeps 6% and sends 88% to HQ
 Wholesalers and officers are paid from the 88%
 Sales agents can become managers if they recruit other sales agents
subject to 15% commission cap.
- Must the stock be registered?
o If president owns all stock  privately held company and there has never been
offers of stock to public, then NO requirement to register
- If it is traded on NYSE
o March – scientists discover risk of cancer from use of product
o April – USW issues stock without disclosing cancer risk
- Issues
o If registration statement is materially misleading, will plaintiff recover from
directors?
o Does plaintiff need to read the registration statement? NO
 No scienter, reliance, or loss causation requirements
 As long as other section 11 elements are met
o What are the damages?
 Price investor paid – actual value of securities
o Is the accounting firm that audited financials liable?
 No they are only liable for the expertise portion of the registration
statement
 Failure to state a risk  non-expertised portion
Corporate Review Question 8
- Missouri Cellular Corporation manufactures and sells cellular phones to consumers.
- Alfred is CEO and Chairman of the Board
- January 3  Alfred is informed by Barbie, head of R&D, that field tests of new
technology have failed. Alfred files the information in his own file and does not distribute
the information to the company or the public
- February 1  MCC raises capital by doing a public offering of common stock. No
mention of failed field tests.
- Alfred owns 5% of the stokc of MCC and purchases shares in the public offering
- April 1  Alfred sells most of his stock and earns a profit
- April 1  MCC issues press release on failed field tests and discontinuation of
development efforts
- Stock falls sharply
- Has any provision of the federal securities law been violated?
o Begin with Threshold question
  Was there a security?
 definition of 33 and 34 acts
 Timber case  has characteristics that must be met
 Would assume for purposes of answering the problem that it meets
the definition
 Was there materiality (if allegation of misstatement)
 Misstatement
 Omission
o Left out the valuable information of failed field tests
 Reasonable investor standard  would a reasonable investor think
it was material that the field test failed?
 Probability magnitude test  historical fact
o Securities Fraud
 2 causes of action 
 Section 11 of 1933 Act  covers material misstatements or
omission in registration statement  Escott v. Barchris
o Have to have allegation of misstatement or omission in
registration statement  Applies here
o Have to have standing  bought under registration
statement
o Suing proper defendants
o Burden shifts to defendant
 Due diligence defense
 MC issuer  cannot use due diligence
 Alfred  probably can’t use because failure
to fully disclose  non expert so non-
expertised portion (narrative)
o Can’t meet
 Loss causation  don’t know enough
 Statute of limitations  don’t know timeframe
o Plaintiff must have bought from public offering or bought
from someone who bought from public offering
o Defendant would have to be issuer and anyone who signed
registration statement (Alfred)
 Section 10 of 1934 Act  corporate disclosure fraud  Texas
Gulf
o Material misstatement of fact
o 10(b) cause of action
o Insider trading
 Insider Trading under 10(b) and 10(b)(5)
 10(b)(5) Classical theory  disclose or abstain
 o Alfred’s conduct would elude to this
o His purchase and sales of shares while having material non-
public information
 Tippee liability  Dirks test
 Misappropriation
 14(e)(3) – Tender offer
 No tender offer transaction so not usable
 16 – Short swing profit
 Covered persons Purchase and sales within 6 months that results in
a profit
 Director, officer, beneficial owner (10%)  Alfred is covered as
an officer and director
 Assuming they are registered
 Bought in February and sold on April 1 so short sale
 Liable for disgorgement of profits
Corporation Review #8

Corporation Review #9
Each throw lavish parties to win proxy votes
- Can Kane charge his expenses to Inquirer Corp.?
o
- Can Geddes obtain reimbursement from the Inquirer Corp. if he wins? If he loses?
o Asf

Corporation Review #2-C

- Are the directors entitled to receive the advances?
o Under DGCL 145(e)  Corporations MAY advance
o Not a requirement
o No requirement but it is allowed
o
Corporation Review #2-D
- Is stockholder entitled to receive the shareholder list and all books and records pertaining
to audit of overseas operations?
o If its for policy, not politics
o See Crane v. Anaconda / Pillsbury v. Honeywell