Corporations Final Exam
Professor J. L. Bader
Spring 2003
General Instructions
1. You have three (3)
hours to complete this exam. This is a
relatively short exam and you should have adequate time in which to complete it
and do a good job.
2. This is a closed
book exam. No materials may be
used. You are allowed to use a
calculator.
3. There are three (3)
questions. Please note the relative
weight of each question.
Short Answer: Question 1 = 15%
Short Answer: Question 2 = 40%
Essay: Question 3 = 45%
Total = 100%
4. Please write only on
the front side of the pages in the blue books provided to you. Please double-space your answers (written or
typed). Make sure all your answers are
in the blue books.
5. Please remember that
I want and value short, not long, answers. Please just answer the call of the question; do not give me anything
that I have not asked for. If there
is any fact that you believe is either missing or ambiguous, and without which
you cannot answer the question, please assume whatever you believe is
necessary, tell me what your assumption is, and answer the question.
6. Write your exam
number on your exam envelope, blue books and at the top of this exam
packet. Do not use your name,
student ID number or Social Security Number on any exam materials.
7. At the conclusion of
the exam, return all exam materials, including blue books, scratch paper and
this exam question packet to the exam envelope. Please submit the envelope to the proctor. Do not seal the envelope.
Good Luck!
Essay Section
Question 3: (45%)
Michael, a promoter, enters
(in the State of Magenta) into a promoter’s contract with Klystron, his uncle,
and Frank, his brother. The contract is
signed “Bellaire Acres, Inc., a Magenta Corporation, by Michael, President”.
The contract obligates Bellaire Acres to separately convey to both Klystron and
Frank a one acre parcel of prime development land. Although Frank believes that
Bellaire Acres is a valid and subsisting corporation and is the owner of the
land it has purportedly agreed to convey to him, in fact it has not yet been
formed and the land is owned by Michael. Klystron, however, knows that Bellaire
Acres has not yet been formed. At the same time that Michael enters into the
contract (in the name of Bellaire Acres), he purportedly causes Bellaire Acres
to issue 10 shares of stock to both Klystron and Frank, for $100 per share. He
tells both Klystron and Frank that he will deliver the stock to them in 10
days.
Magenta has adopted a
statute that provides as follows:
“Upon the issuance
of the certificate of incorporation, the corporate existence shall begin, and
such certificate of incorporation shall be conclusive evidence that all
conditions precedent have been complied with except in a proceeding to cancel
or revoke the certificate of incorporation or for involuntary dissolution of
the corporation.”
Shortly after the execution of the contract by Klystron and
Frank, Michael has his lawyer prepare the articles of Incorporation for
Bellaire Acres. The lawyer does so, and places them in the mail to the
Secretary of State to be filed and informs Michael that in 10 days Michael may assume
that the Bellaire Acres articles have been filed and that he may conduct
business in the corporate name. Michael then waits 10 days and, believing that
the articles have been filed, (i) delivers a Bellaire Acres stock certificate
for 10 shares to both Klystron and Frank and (ii) enters into a long term lease
(in the name of Bellaire Acres) with Offices, Inc., on space for the Bellaire
Acres corporate offices. In fact, the articles had gone astray in the mail, and
did not reach the office of the Secretary of State for another 30 days, when
they were filed.
1. Bellaire Acres almost immediately goes into default with
respect to its lease payments to Offices, Inc.
Offices, Inc. discovers that at the time that it entered into the lease
with Bellaire Acres the articles had not been filed, and instructs its lawyer
to sue Michael and Klystron and Frank individually. If it should do so, would
either Michael or Klystron or Frank have any viable defenses to the Offices,
Inc. action? Explain.
2. The first one to find out about the threatened lawsuit is
Klystron. Realizing that Frank, who is traveling in Malaysia, knows nothing
about what has happened, Klystron calls him (Frank) and, believing that if he
can get rid of his shares before Offices, Inc. files its law suit he will have
no liability, Klystron tells Frank that he has just been diagnosed with a
terminal illness, wants to settle his affairs, and will sell his 10 shares in
Bellaire Acres to Frank for $5 per share. Frank agrees to purchase them. When
Frank returns he discovers that none of what Klystron told him was true; does
he have any recourse against Klystron?
3. Klystron and Frank (having settled their dispute with each
other amicably) jointly consult you. They explain what has happened. Bellaire
Acres has collapsed and has become insolvent, and Michael never conveyed the
land (which he still owns) to it. Do either Klystron or Frank have any recourse
against Michael and, if so, for what?
End of Exam