Business Organizations
Final Exam (Take-Home) -- Summer, 1994(Professor Kleinberger)
Exam Available: In Student Services, during regular office hours, beginning at 10 AM,
Friday, July 15th
Time Limit: 72 hours from the time you pick up the exam, but in any event no later than
7:30 PM, July 22. Submit your answer to Student Services during that office's normal
business hours. You are responsible for learning what those hours are. Late submissions
are subject to being downgraded. You need not turn in this document. Keep a copy of
your answer for your records. Make sure to put your exam number on your answer.
Page Limit: Twelve Pages
Role of Exam in: As you elect, the exam will count either 50, 60, 70 or
Course Grade 80 percent of your grade. Class participation will count for the rest. To
make your election, complete the form at the back of this exam and submit the form to the
Registrar by the deadline that applies for submitting your exam answer. Separate the form
from this document before submitting the form to the Registrar. Do not put your exam
number on the form. If you fail to make an election, this exam will count for 70% of your
grade.
Instructions
Your answer must be typed, double-spaced and may not exceed twelve pages. Use reasonable
margins and do not use unusually small type sizes. If you have any questions about the
reasonableness of your margins or the size of your type, contact Professor Kleinberger's
administrative assistant, Resa Gilats, well in advance of your deadline for submitting your answer.
Her office is in room 217, and her telephone number is 290-6314.
This Exercise consists of six questions. Following each question a number in brackets indicates
the points available for that question.(1) You must decide how to allocate space among the
questions. A question's point value is not necessarily an indicator of how much space to allocate.
Points have been allocated in part in terms of the intricacy, complexity or sophistication of the
analysis necessary to solve each problem. A question might be "a tough nut to crack," but the
analysis, once found, might be quite succinct.
This is an individual, solitary exercise. Once you have picked up this document or have any
knowledge of its contents, you may not discuss the exam with anyone other than Professor
Kleinberger. If you have any questions about the examination, you must contact Resa Gilats
immediately and she will attempt to put you in contact with Professor Kleinberger.
This is a limited open book exam. You may use only the following materials ("Permitted
Materials"):
the assigned photocopied materials (including the Agency and Partnership book and the
corporate problems), and any additional photocopied materials distributed by the professor during
the semester,
any notes you have personally made or developed in studying for the course or this exam, and
outlines or other notes developed by a group of students enrolled in this course this semester if:
(a) the group outline or other notes were developed before any participant in the group picked up
this document or had any knowledge of its contents, and (b) you played a substantial role in the
development of the group outline or notes.
Once you have picked up this document or have any knowledge of its contents, you may not do
any research beyond the Permitted Materials. Except for Permitted Materials, you may not use
treatises, hornbooks, commercial outlines, other commercial works or any other materials
prepared by others.
Please keep in mind that "spotting issues" is only the first step in doing a legal analysis. You must
also take the issues you identify and organize them into a coherent structure. Then, within that
structure, you must examine those issues (by applying the law you see as relevant to the facts you
see as relevant) and argue for some conclusion.
Please do not write about subjects that are not germane to your analysis. Writing a "treatise" on
some area of law that the question does not put in issue wastes your time and conveys the
unfortunate impression that you do not understand which issues are relevant.
There is no need to cite case names. If citing case names helps you, feel free to do so. Do not,
however, use case names as a substitute for stating the law.
If you rely on a statute, you must cite that statute. If you are relying on a subdivision or a
paragraph, your cite should include that subdivision or paragraph. Do not worry, however, about
"blue book" form. For example, for the purposes of this examination "Minn. 302A.565, subd. 1,"
"UPA sec. 18(f)" and "Del. 144(e)" are all in adequate form.
The grading rewards coherence. It will probably be worth your while to take some time to think
about the organization of your answers before you begin writing. Ask yourself:
whether you have identified all the necessary parts to your analysis;
whether all the issues you have identified are actually necessary; and
whether you have organized your issues in a way that is likely to make sense to your reader.
Unless a question indicates to the contrary, assume that:
all partnerships are governed by the Uniform Partnership Act, and
all corporations are organized under the law of a state that has adopted the Revised
Model Business Corporation Act, except as to the duties of directors and as to derivative
lawsuits. On those two subjects, the state slavishly follows Delaware law.
1. Fifteen students are enrolled in a summer school class at Guillaume College. The class is
taught by Professor Baron, a fulltime faculty member and employee of the College. One day, two
of the students ("Otto" and "Robert") invite the entire class, including Professor Baron, "for
coffee, beer and strudel at our apartment after class next Wednesday." With the professor's
permission, Otto and Robert issue the invitation during class. The professor lets it be known that
she plans to attend.
The following Wednesday, just at the end of class, Otto and Robert renew their invitation. Eleven
of the 15 students attend the get-together, as does the professor. After about an hour, one of the
students says that he must be leaving, and the professor offers to give the student a ride. The
student accepts. On the way to the student's home, an accident occurs. The student is injured.
Assuming that the professor's negligent driving was the sole cause of the accident, can the student
make a successful claim against the Guillaume College? [6]
2. For the past three months Helen Sylvester ("Helen") worked in Rocco's Hair Salon and Nail
Emporium ("the Salon/Emporium") as a manicurist. She received her wages every two weeks,
through checks carrying the name "Rocco's Hair Salon and Nail Emporium" and signed by Rocco
Tweety ("Rocco"). Throughout Helen's time at the Salon/Emporium, Rocco ran things, telling all
the employees what to do, handling all the cash and making all the big decisions. In fact, it was
Rocco who hired Helen. Throughout her employment at the Salon/Emporium, Helen believed
Rocco to be the owner.
Three days ago, when Helen arrived for work, she discovered the door padlocked and a large sign
stating, "Gone Out of Business." Owed two weeks' wages, Helen located Rocco and asked for her
money. Rocco responded, "Sorry, but I'm not responsible. The place was owned by a
corporation, Rocco's, Inc., not me. The corporation was on the lease. The corporation paid
withholding taxes to the government. You were working for the corporation. In fact, when you
get your W-2 form next year, it'll show the corporation as your employer."
Assume that what Rocco has said is accurate and also is news to Helen. Can Helen hold Rocco
personally liable for her back wages? [In your answer use concepts covered by this course.
Do not consider the law of negotiable instruments.] [6]
3. Larry, Moe and Curley are partners in a farming partnership. The partnership owns three
trucks, purchased with partnership funds and used in the partnership business. Last week,
without the knowledge or consent of Larry and Curley, Moe took one of the trucks, sold it, and
spent the money gambling.
Moe has been arrested and charged with theft. Under the relevant criminal law a person commits
"theft" by, inter alia, "misappropriating another's property by using or disposing of that property
in a manner inconsistent with the owner's rights in the property." Moe's lawyer has moved to
dismiss the charges asserting that no theft occurred because the truck did not belong to "another"
but rather, to Moe, in tenancy in partnership. As a matter of partnership law, is Moe's attorney
correct? [8]
For problems ## 4 and 5 select the correct answer(s), if any. A problem may have more
than one correct answer, or no correct answer at all. Briefly explain your selections,
including why the answers you have not selected are incorrect. Explanations must include
citations to the relevant statutory sections.
4. Consider the following argument between two partners:
Constance: Listen, you signed a partnership agreement calling for a term of 10 years and you're
committed to that term. This partnership will be here for the next ten years, whether you like it or
not.
Fickle: Says who?
Constance: Says me, the partnership agreement and the UPA.
Fickle: Well, tough. As of this moment, this partnership is dissolved.
The partnership is:
A. Dissolved, but the dissolution is wrongful.
B. Unaffected.
C. Dissolved, and the business must be liquidated.
D. Changed in subtle and subjective ways that defy precise description, much less analysis. [3]
5. Same facts as in problem #4. Assume also that (i) the partnership agreement calls for a 50/50
split of profits; (ii) Constance's capital account has $50,000, (iii) Fickle's capital account has
$100,000, (iv) the partnership's assets are worth $300,000 when liquidated, (v) the partnership
owes third party creditors $50,000, which includes $10,000 of debts that the partnership would
not have incurred but for the premature dissolution. If the partnership business is liquidated:
A. Creditors will receive $50,000.
B. Constance will receive $50,000 in discharge of her capital account.
C. Fickle will receive $100,000 in discharge of his capital account.
D. The remaining $100,000 will be split 50/50 between the two partners. [9]
6. Avaler, Inc. ("Avaler") is a corporation whose stock is publicly traded and whose business
consists of buying up smaller businesses and either selling off their assets or "whipping things into
shape" and then reselling the business for a higher price. Its articles of incorporation authorize
two classes of stock:
20 million shares of common stock, of which 15 million are issued and outstanding;
10 million shares of $5 nonvoting participating cumulative preferred stock, with no shares yet
issued.
Avaler is well known in the business world, as is Avaler's CEO, Liston. Liston's main function is
to spot good opportunities for Avaler and to negotiate the best deal possible. Liston has been
CEO of Avaler for the past eight years, and during that time the Avaler board of directors has
approved every deal Liston has recommended. None of those deals have required shareholder
approval.
Two months ago Liston discovered what she considered an excellent opportunity for Avaler: Big
Fish, Inc. ("Big") and its wholly-owned subsidiary, Little Fish, Inc. ("Little"). Liston wanted Big
to become part of a business Avaler already owned, but thought that Little had no place in Avaler.
Liston therefore proposed the following deal ("the deal"):
Big will be merged into Avaler. Each of Big's 5 million shares will be cancelled and replaced
with a share of Avaler preferred stock.
Avaler will cause Little to issue additional shares of stock to Avaler, providing Avaler with
enough stock in Little so that Avaler can make a 1 for 1 dividend of Little stock to owners of
Avaler common stock. (That is, for each share of Avaler common stock a person owns, that
person will receive as a dividend from Avaler one share in Little.)
a. Liston and the CEO of Big sign a contract purporting to bind Avaler and Big to the deal,
subject only to the approval of Big's board of directors and shareholders. Assuming that Big's
board of directors and shareholders do approve, is Avaler then bound on the contract? [8]
b. Do the shareholders of Avaler have a right to dissent and seek appraisal on any aspect of this
deal? If so, what aspect? [8]
c. Assuming that the shareholders of Avaler have a right to vote on some aspect of this deal, do
they have a right to cumulate their votes? [2]
d. Assume that the Avaler board of directors wishes to put the deal to a vote at a special meeting
of Avaler shareholders, what is the minimum amount of advance notice the board must give the
shareholders? [4]
e. An Avaler shareholder proposes the following resolution for consideration at the special
shareholders' meeting and for inclusion in Avaler's proxy materials:
RESOLVED that the shareholders reject the deal proposed by management and approve a
transaction which is the same as the rejected transaction except that Avaler will sell off the assets
of Little Fish, Inc. to some third party and distribute the proceeds to the common shareholders of
Avaler as a dividend.
Assume that the SEC's Rule 14a-8 applies to Avaler and that the proponent has complied with
Rule 14a-8(a) and (b). May Avaler refuse to include the shareholder proposal in the proxy
materials? [10]
Grading Election: Exam/Class Participation
Business Organizations -- Summer, 1994
Professor Kleinberger
To: The Registrar
When my grade for Business Organizations is determined, the written exam should count for
_____________ percent(2) and class participation should count for _____________ percent.(3)
______________________________
signature
______________________________
print name
_________________________
date
1. The value in brackets assumes that the exam counts for 70% of a student's grade. On the same assumption, up to 6 additional points are available for exams that are noteworthy for lucidity and cogency. For students who choose a greater or lesser role for the exam, the point values will be adjusted accordingly.
2. Number must be 50, 60, 70 or 80.
3. Number must be 50, 40, 30 or 20. This number and the number for the written exam must total 100.