LAW 3102 Study Guide - Final Guide: Rescission, Highway, Derivative Suit
Business Judgement Rule: precludes(makes impossible) imposing liability on directors and
officers for honest mistakes in judgement if they act w/ due care, in good faith, and in a
manner reasonably believed to be in the best interests of the corporation
1. It says that he was advised on good authority that a superhighway would be
constructed. Even if shareholders do file suit the corporation will indemnify
Brown.since he acted in good faith and was not adjudged negligent or liable for
misconduct
Answer: Business Judgment Rule.Decision in favor of Brown. An officer or director of a
corporation is not personally liable for loss sustained by the corporation as the result of the
exercise of poor or mistaken business judgment. An officer or director is liable for loss
resulting from his negligence of failure to exercise reasonable care. In this case, Brown was
not guilty of negligence. He merely exercised a business judgment in good faith with due
care and in a manner he reasonably believed to be in the best interests of the corporation
5.
Answer:
Director Duty of Loyalty: Conflict of Interests
.
(a) Absent approval by a disinterested board of directors or the shareholders, Smith must
prove that the contract is fair and reasonable to the corporation. Section 8.61, Revised Act.
If the land which cost Smith $200,000 was fairly worth at the time of its sale less than the
amount paid ($500,000), the transaction is unfair to the corporation and may be set aside.
However, if the land had a current market value of $500,000 or more, the sale will be upheld.
(b) The sale of the truck by Jones, a shareholder, to the corporation will not be set aside. A
shareholder is not a fiduciary and does not occupy a position of trust and confidence
merely by reason of his ownership of stock. The rules which apply to officers and directors
who actually manage the affairs of the corporation do not apply to those whose only
relation to the corporation is that of shareholder. A dominant shareholder who owns or
controls a majority of the stock and thereby effectively controls the corporation, is a
fiduciary. However, the facts do not indicate that Jones is a dominant or controlling
shareholder.
6.
Answer: Decree for D Company against X Corporation; there is not sufficient information to
decide what decree should be issued regarding Green and X Corporation.
(a)
Duty of Loyalty: Conflict of Interests
. The general rule is that a contract between
corporations with common directors is not voidable by either corporation even if the
interlocking directors constitute a majority of the board of the company challenging the
contract,
provided
the contract is fair and reasonable. If defendants can establish that the
contract is fair, most courts would deny rescission.
9.
24= 100(c)/ (9+1) +1
