Chapter 31, Problem 5Q

Little Switzerland Brewing Company was incorporated on January 28. On February 18, Ellison and Oxley were made directors of the company after they purchased some stock. Then on September 25, Ellison and Oxley signed stock subscription agreements to purchase five thousand shares each. Under the agreement, they both issued a note that indicated that they would pay for the stock “at their discretion.” Two years later in March, the board of directors passed a resolution canceling the stock subscription agreements of Ellison and Oxley. The creditors of Little Switzerland brought suit against Ellison and Oxley to recover the money owed under the subscription agreements. Are Ellison and Oxley liable? Why or why not?

86. The following rights of partner who has not caused dissolution wrongfully, except: a. To have the partnership property applied to discharge the liabilities of the partnership. b. To have the suplus, if any, applied to pay in cash the net amount owing to the respective partners. c. To continue the business in the same name either by themselves or jointly with O others during the agreed term of the partnership and for that purpose may possess the partnership property. d. To be indemnified for damages caused by the partner who did not caused the dissolution wrongfully.

Tri R Angus, a closely held corporation, was owned 80 percent by Jon and Frances Neiman, who were also directors of Tri R Angus. Troy Neiman and Carol Lewis owned 12 percent of Tri R Angus’s shares. Troy and Carol asked a court to remove Jon and Frances as directors of the corporation on the grounds that they authorized Tri R Angus to distribute its assets in violation of state law, inappropriately mortgaged or sold corporate assets, misused corporate earnings, and wasted corporate assets. Jon and Frances denied the allegations. At trial, Troy and Carol entered as evidence pleadings from other actions against Jon and Frances and introduced no objective evidence of current conduct by Jon or Frances. What standard of misconduct did the court require Troy and Carol to prove in order to remove Jon and Frances? Did the court find they had proved their case?

Madison and Tilson agree to form a limited partnership with Madison as general partner and Tilson as the limited partner, each to contribute $12,500 as capital. No papers are ever filed, and after ten months the enterprise fails, its liabilities exceeding its assets by $30,000. Creditors of the partnership seek to hold Madison and Tilson personally liable for the $30,000. Explain whether the creditors will prevail.

In late 2013 or early 2014, the plaintiff, Lan England, agreed to sell 258,363 shares of stock to the defendant, Eugene Horbach, for $2.75 per share, for a total price of $710,498.25. Although the purchase money was to be paid in the first quarter of 2014, the defendant made periodic payments on the stock at least through September 2014. The parties met in May of 2015 to finalize the transaction. At this time, the plaintiff believed that the defendant owed at least $25,000 of the original purchase price. The defendant did not dispute that amount. The parties then reached a second agreement whereby the defendant agreed to pay to the plaintiff an additional $25,000 and to hold in trust 2 percent of the stock for the plaintiff. In return, the plaintiff agreed to transfer the stock and to forego his right to sue the defendant for breach of the original agreement. In December 2016, the plaintiff made a demand for the 2 percent stock, but the defendant refused, contending that the 2 percent…

Chris and Maurice formed a new limited liability company and invested $1,000,000 of equity in an apartment building in Santa Ana, California with Chris investing $950,000 and Maurice $50,000. Their LLC operating agreement provided that: (A) the annual cash distributions would be split 90% to Chris and 10% to Maurice, and (B) the net cash proceeds from the sale of the property would be distributed first to each of them until they have received an amount equal to their original cash investments less any cash distributions they had previously received, then the balance of the net sale proceeds would be split 60%/40% between Chris and Maurice. How much would Maurice receive upon the sale of the property if the sale generates net cash proceeds of $3,250,000 after paying off the mortgage loan, the brokerage commission, and other closing costs, and if the LLC had previously distributed $400,000 collectively to Chris and Maurice? a. $1,110,000 b. $2,180,000 c.$1,060,000 d. $1,070,000

Michael Ross formed a limited partnership with his father-in-law, Robert Zane, to open a seafood restaurant in a mid-western town. Mr. Ross was the general partner and Mr. Zane was a limited partner and invested $100,000. After one year, difficulties in the restaurant’s operation caused business to drop off, and Mr. Ross called Mr. Zane for advice. After hearing of the difficulties and concerned with the security of his investment, Mr. Zane traveled to visit the operation. After observing the operation for two days, the two partners jointly decided to launch a large and expensive television ad campaign to increase lagging sales. Mr. Zane designed the campaign with the help of Brandon Advertising and Video, a local advertising agency specializing in television commercials. Despite an immediate increase in sales, volume continued to decline, and finally, three months after the ad campaign launched, the restaurant closed its doors. Total debts at the time the restaurant closed equaled…

Dozier and his wife, daughter, and grandson lived in the house Dozier owned. At the request of the daughter and grandson, Paschall made some improvements to the house. Dozier did not authorize these, but he knew that the improvements were being made and did not object to them. Paschall sued Dozier for the reasonable value of the improvements, but Dozier argued that he had not made any contract for such improvements. Was he obligated to pay for such improvements? Why or why not? Provide a rationale or explain how you came to this conclusion.

Theo, a member of TGI partnership, withdrew from the partnership and duly notified the other members. The firm was an at-will partnership and the parties parted amicably, posting a notice in the local newspaper of the dissolution of their firm. Cosmo, a customer who had conducted business with Theo several times, did not see the newspaper notice and was not informed of the dissolution. Later, Theo approached Cosmo concerning a transaction similar to those Cosmo had engaged in before with Theo acting on behalf of TGI. Cosmo placed an order, gave a substantial down payment to Theo, and received a receipt on TGI stationery from him. Theo thereafter absconded with the down payment, and TGI failed to honor the contract. Cosmo sued the other members of TGI partnership. Discuss their potential liability.