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MGMT 597 Discussion Week 1 Part 1
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Contract law may seem simple on its surface. At its base you need an
offer plus acceptance supported by consideration. That seems easy
enough. However, there are endless nuances when it comes to
contract law and numerous ways a contract can go wrong. In keeping
with the TCO for this week (restated at the top of this page), it's not
enough that we are able to define a contract. In order to have a good
grasp of contract law, I think it's important to know a bit about the
sources and origins of contract law, and some of the theories that are
used to interpret contracts.
So, what are some of the sources of contract law? How has contract
law evolved over time?
Also, please take a look at Case 9.1 (Bickham v. Washington Bank &
Trust) on page 164 of your text. What do you guys think about this
case? Did the objective theory of contracts work here? Do you agree
with the court's decision?
Question
Class, consideration is another of the essential elements in contract
formation. I think it's fairly clear that in order to enter into a valid
contract, you must have an offer and an acceptance. That is logical.
What may not be quite as clear is the concept of consideration. Some
of you have mentioned it, but let's have a thorough discussion of what

consideration is. What is consideration? Why do you think the law
requires consideration to be present in order for a contact to be
considered valid and binding? What happens if consideration is
lacking? Are there any ways lacking consideration may be overcome?
Question
Elements of a Contract
Take a look at the Contract you pulled from your records when
reading our Week 1 Introduction. What is the Offer and what is the
Acceptance? What consideration was given by both parties to the
contract? What other clauses attracted your attention--Limited
Warranty and Disclaimer of Implied Warranties? Conflict Resolution?
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Mgmt 597 Discussion week 1 part 2
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Class, after viewing this video was there an offer of a lease for the
equipment? If so, how long was the lease? What price was the lease
in the offer? Was there an acceptance? What exactly was accepted if
there was an acceptance?
We will see that trying to answer all of these questions will lead us to
quite a bit of uncertainty, even from our objective viewpoint of trying
to determine whether a contract was formed. Remember that we
should approach this video and our question of whether there was an

offer or acceptance from the point of view of a judge who is asked to
view the video and decide whether a contract.
Question
Let’s assume for the moment that a contract is not formed in the video
because a judge finds that the language used is not sufficiently
definite to constitute an enforceable contract. Is the salesman out of
luck? What about promissory estoppel as another means for the
salesman to obtain a remedy for allowing the equipment to be used
for one month?
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MGMT 597 Final Exam 1
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Question 1. Question : (TCO A, C) Major Media Station, which
broadcasts TV and radio programs around the country, contracts with
shock jock Don Marco, who hosts the station’s most successful
morning drive radio program in the country: Mark My Words. The
program consists of traffic and sports updates, interviews with sports
figures and celebrities, and Mark’s Words, which are in the nature of
rants and opinions on whatever topic of interest the host decides to
focus on, including news articles and happenings around the country
and locally. Audience participation is encouraged by way of phone
calls to the station during the program.

On more than one occasion, Mark My Words has made national news
because of controversial statements made by the host regarding
people’s looks, religion, lack of intelligence, actions, race, etc. In fact,
the contract between Major Media Station and Don Marco specifies
that Mark My Words is to be controversial. The greater the
controversy, the higher the audience ratings and the higher Marco’s
compensation. However, the term controversial is not defined,
although the station manager who broadcasts Mark My Words is
responsible for activating a delay button in the event Marco uses a
word or makes comments that would cause the FCC to fine the
station.
One morning, Mark My Words featured a rant full of derogatory
sexual and racial comments about the members of a visiting ball team
that succeeded in beating the local favored team at the championship
game. As soon as the program aired, Major Media Station was
bombarded with complaints. Following letters to sponsors and
pressure from respected public figures, three large sponsors cancelled
their advertising contracts. This happened in spite of the host’s public
apology in which he claimed to have just made another stupid
comment. In spite of fan protests, the station terminated Don Marco’s
five-year $20 million contract. The contract was in its second year.
Marco is now suing Major Media Station for breach of contract, and
the insulted players are also suing the station for defamation and
intentional infliction of emotional distress.

i. What arguments do you think Marco will make in his suit against
Major Media Station?
ii. In order to support his claim against the station, Marco wishes to
introduce parol evidence regarding the term controversial. What
would be the purpose of introducing this evidence? What arguments
will Major Media Station make in opposition to the introduction of
this evidence? Will Marco be successful in this regard, and why?
iii. As for the tort claims by the insulted players, Major Media Station
argues it has no liability, as Don Marco is an independent contractor
who is solely responsible for his rants, and that his public apology
constitutes an admission of liability. Is Major Media Station off the
hook?
Question 2. Question : TCO B, D) Kimberly is a general partner with
Jared, Joshua, and Diane in a general partnership called KJJD
Partners. The partnership operates a fast food joint called We Nail
The Burger! Each partner contributed $100,000 to capitalize the
business. The partners hire staff to run the restaurant and stop in on
occasion for lunch. The business gets its chopped meat from a local
supplier to all the local diners.
While enjoying a beer and a burger after taking this Final Exam at We
Nail The Burger!, Patricia bites into her burger and cracks a tooth on
a fake nail, which is now embedded in her tongue. She gathers her
classmates as witnesses, and lisping heavily, says to the manager, “I
will THUU you.” The partners, who happen to be there for lunch,
laugh at the irony of a nail in the burger, but are not worried about
liability because they have insurance and they have nothing to do with
the running of the place, especially ordering food and cooking.
Unfortunately, Patricia loses half her tongue as a result of the injury,

and the judgment against the partnership exceeds the insurance
coverage and partnership capital by $1 million.
i. From whom may Patricia collect the extra $1 million in damages?
How much can she collect and why? Be sure to address the liability of
Kimberly, Jared, Diane, and Joshua, including the extent of liability
of general versus limited partners. Does the fact that they employ
others to run the restaurant make a difference?
ii. Let’s say Kimberly ends up paying the excess $1 million in
damages, can Kimberly collect anything from her partner friends?
Explain.
iii. Is there another type of business entity that KJJD could have used
in order to minimize personal liability for things like this?
Question 3. Question : (TCO E, H) Simple writes Sharp a $1,000
check and receives in return a defective computer. The transaction
from Sharp was fraud. Tonights LLP, a CPA firm, audits the financial
documents of Sharp. Sharp then negotiates the check to Trusty, who
qualifies as a holder in due course. Then Sharp buys back the check
from Trusty. Has Sharp, thereby, acquired the rights of a holder in due
course? What are the responsibilities of Tonights LLP in this
situation?
Question 4. Question : (TCO F, G) Your home is burglarized. Among
the stolen items is a $3,000 custom-made pendant from your
grandmother. You are heartbroken. The lead detective on the case,
Jack Clouseau, is as bad as the inspector in the movies, so you
circulate flyers around the neighborhood and the local stores and

pawn shops and offer a $500 reward for information leading to the
recovery of the item, no questions asked.
Shortly thereafter, you receive a call from Giovanni, the local pizza
parlor owner telling you he saw the local hoodlum’s girlfriend,
DeeDee Flat wearing the pendant described in your flyer. You call the
police and meet them at the pizza parlor, where DeeDee is confronted
and placed under arrest. DeeDee claims she purchased the pendant
from the local pawnshop and is a bona fide purchaser for value.
While this drama unfolds, Giovanni receives a certified letter
informing him that the pizza ovens he ordered F.O.B. point of
shipment from Philadelphia were destroyed in transit. The letter
includes a bill for the ovens. Giovanni is outraged. He never even saw
the ovens and he is being billed for them.
i. Giovanni is now claiming the reward. Does he collect? Explain.
ii. DeeDee claims because she is a bona fide purchaser for value, that
she is entitled to keep the pendant. Is she correct? Why or why not?
iii. Who is responsible for the loss of the pizza ovens in transit the
shipper or Giovanni? Explain.
Question 5. Question : (TCO C, D/G) Current legislation limits the
amount of economic-related liabilities to be paid by a company on
account of an oil spill to $75 million. A move to amend that
legislation and raise the liability cap to $10 billion was blocked in the
Senate because Big Petroleum, who is responsible for a recent spill
has given its word that it would cover the cost of all damages and

cleanup costs deriving from a recent oil spill in an ecologically
significant marine area that supports a thriving fisheries and
recreation industry and is home to many endangered and threatened
marine animals and waterfowl. Big Petroleum’s Chairman of the
Board made the statement after convening a Special Meeting of the
Board and studying videos of the damage taken by film crews.
It is estimated that actual costs of clean up and industry losses could
even exceed the $10 billion proposed cap. Meanwhile, other
companies involved in the oil spill have now gone to court invoking
limits on their liability as provided by law.
While you sympathize with the people, animals, and industries
affected, as a stockholder in Big Petroleum you are outraged at the
decision of the board of directors to accept full economic
responsibility for the damage when the total is unknown. After all,
there is a HUGE difference between $75 million and billions of
dollars! And, the board even voted to pay $25 million for an ad
campaign for one state to let tourists know its beaches are clean. Nuts!
This liability could wipe out your investment and ruin your retirement
and that of other investors, including several pension plans that are
heavily invested in Big Petroleum.
i. What kind of lawsuit would you bring and for what purpose?
Explain.
ii. What defense or defenses will Big Petroleum invoke?

Question 6. Question : (TCO C, D, G, H) Petunia is in the business of
selling flower bulbs. Petunia’s sales agent is Astilbe. While sales
agents generally warrant the quality of the goods they sell, Petunia
specifically told Astilbe not to make any warranties on the bulbs she
sells. Further, Petunia wrote each of her customers to inform them of
this policy. About two months later, Astilbe made a prohibited
warranty in order to sell Tulip 1,000 Gladioli bulbs. Tulip was an
established customer who knew that Astilbe was acting on Petunia's
behalf and who also had been informed of Petunia’s warranty policy,
but who honestly forgot about the policy while dealing with Astilbe
and truly thought Astilbe had authority to make the warranty. Is
Petunia contractually liable to Tulip here? Is Astilbe liable to Tulip?
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MGMT 597 Final Exam 2
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1.Question:
(TCO A, C) Jim worked for AAA Job Shop, Inc. for over 30 years.
Two months before Jim retired, the head of human resources told Jim
that the company would pay for health insurance for Jim and his wife
for the remainder of his life, and for his wife’s life if she were to
survive him, and handed Jim a letter from the company describing

this. Jim had always known that the company provided this benefit to
a few of its select employees. Jim didn’t really expect that he would
receive it, although he had secretly hoped so for some time. Four
years after retirement, Jim contracted cancer and incurred substantial
medical bills under his insurance plan. Jim then received a letter from
his former employer saying that the employer was discontinuing its
payment of health insurance for those retirees who were receiving this
benefit. Jim is considering suing the company to force it to live up to
its agreement. Discuss the issues and likely resolution of Jim’s case.
2.Question:
(TCO B, D) At Super Car Outlet, Joan was negotiating with Marge
for the purchase of a used car. Marge told Joan that she would fix any
problems with the drivetrain that arose in the first 1,000 miles. After
further negotiation, they signed a written agreement that provided that
the sale was made “as is, without any warranties.” After driving the
car for 400 miles, the antilock brake system failed. Marge denied
having made the repair promise. But she said she would cover $200 of
the repair costs. Joan then took the car to be repaired at a cost of $487.
Joan now wants to recover the full repair costs from Marge. Marge
refuses to pay any amount. Discuss the issues that would arise in this
case.
3.Question :
(TCO E, H) Determine whether the following instrument is a
negotiable instrument, addressing all the requirements of negotiability
in your response.

I, James Wyatt, promise to pay $12,000 to Buck’s Bikes in four equal
installments of principal, beginning on January 1, 2011, and on the
same day in each of the next three years. Each payment will consist of
$3,000 in principal, plus interest accrued since the date of this note, in
the case of the first payment, or since the prior payment in the case of
all other payments. Interest shall accrue at the rate of 4% per annum,
or in the event of default, at the maximum rate allowed by law until
the default is cured. This note is secured by collateral consisting of
various machines. This note may be paid in whole or in part prior to
the due dates, and the interest accrued will be reduced accordingly.
The due date for any payment under this note may be extended by
mutual agreement of the parties up to six months from the due date as
stated herein. The proceeds of this Is this case a contract agreement or
not?
4.Question :
(TCO F, G) Fred had been away at college getting his master’s degree
for 12 years and recently returned to his hometown. Some friends of
his parents had a carriage house above their garage that they
sometimes rented out. When Fred graduated, this carriage house was
vacant and the owner told Fred that he could stay there until he found
another place that he wanted. The owner initially did not want Fred to
pay anything, but Fred started paying $100 a week.
Fred then sent a note at the beginning of August saying, “Here is $500
for the month of August. I know I hadn’t planned to be here this long,
but I hope this is acceptable.” The owner cashed the check, but the
topic was never discussed. Fred sent $500 at the beginning of
September and October, but on October 15 the owner came to Fred
with $100 and said, “Enough is enough. Here’s some of the money

you gave for October. You are lucky to get that back. You have an
hour to get all your stuff out of here.” Fred says he paid for October
and is not leaving. He also said that he is entitled to at least a month’s
notice. Discuss the type of tenancy created, if any, and the rights of
the parties in these circumstances.
5.Question :
(TCO C, D, G) Fred is a director of the ALLSTAR Corporation,
which is engaged in the business of creating and marketing toys and
games. A proposal is made to the board to manufacture and market a
toy bird that really flies. Market surveys have been done to indicate
that the toy would be a good seller, and engineering studies have been
done testing the feasibility of such a product. Fred reviews this
information and votes in favor of producing this new toy. The vote
was 7 to 4 in favor. ALLSTAR produces and markets this new toy
bird, but sales are very slow. After several years of losing money,
ALLSTAR discontinues this toy. Tina, a shareholder of ALLSTAR,
thinks the toy bird venture was a waste of time and money. In fact,
she thinks the idea was so bad that she sues Fred for breach of his
fiduciary duty of due care in making the decision to proceed with the
bird. Discuss the general standards of due care of a director of a
corporation, and determine whether Fred is liable in this situation.
6.Question :
(TCO D, H) Jennifer has recently developed a software program
tailored for the upscale coffee shop industry. Jennifer has begun
marketing her program and has had some success selling to small
independent stores. She is now ready to begin marketing to

franchisees of the national chains with the hope that a franchisor
might make the software part of its required franchisee package.
Jennifer wants to keep the business separate from her personal affairs,
so she has set up separate checking accounts, separate phone lines,
and has set up a fictitious business name that does not use her name.
She has filed a fictitious business name statement in the appropriate
state office. She has written a will in which she has declared that in
the event of her death, her business and personal assets and liabilities
are to be kept separate, just as they were during her life. Her personal
checks say, “Jennifer Lones, personal account only.” Discuss the
extent to which Jennifer has insulated her personal assets from any
business losses.
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MGMT 597 Week 1 Homework Assignment 2 Sets
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MGMT 597 Week 1 Homework Assignment
case in chapter 9.4
case in chapter 10.7

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MGMT 597 Week 2 Discussion Part 1 Statute of Frauds
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MGMT 597 Week 2 Discussion Part 1 Statute of Frauds
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MGMT 597 Week 2 Discussion Part 2 Revocation of
Acceptance of Goods
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MGMT 597 Week 2 Discussion Part 2 Revocation of Acceptance of
Goods

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MGMT 597 week 2 homework assignment 2 sets
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14.2 Real Property
16.8 Specific Performance
18.2 Good or Service
20.3 Revocation of Acceptance
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MGMT 597 Week 3 Discussion Part 1 Negotiable
Instrument

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MGMT 597 Week 3 Discussion Part 1 Negotiable Instrument
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MGMT 597 Week 3 Discussion Part 2 Secured
Transactions
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1)-Problem Chapter 22.10 Reference to Another Agreement - Holly
Hill Acres, Ltd. (Holly Hill), purchased land from Rogers and Blythe.
As part of its consideration, Holly Hill gave Rogers and Blythe a
promissory note and purchase money mortgage. Does the reference to
the mortgage in the note cause it to be nonnegotiable?Holly Hill
Acres, Ltd. v. Charter Bank of Gainesville, 314 So.2d 209, Web 1975
Fla.App. Lexis 13715 (Court of Appeal of Florida)
2) Problem Chapter 23.8 - Business Ethics - Anthony and Dolores
Angelini entered into a contract with LustroAluminum Products, Inc.
(Lustro). Under the contract, Lustro agreed to replace exterior veneer
General, as a holder in due course, demanded payment of the note
from the Angelinis. Who wins? General Investment Corporation v.

Angelini, 278 A.2d 193, Web 1971 N.J. Lexis 263 (Supreme Court of
New Jersey)
3) 24.13 Business Ethics Warren and Kristina Mahaffey were
approached by a salesman from the Five Star Solar Screens Company
(Five Star). The salesman offered to install insulation in their home at
a cost of $5,289. After being told that the insulation would reduce
their heating bills by 50 percent
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MGMT 597 Week 3 Homework Problems 2 Sets
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1)-Problem Chapter 22.10 Reference to Another Agreement - Holly
Hill Acres, Ltd. (Holly Hill), purchased land from Rogers and Blythe.
As part of its consideration, Holly Hill gave Rogers and Blythe a
promissory note and purchase money mortgage. Does the reference to
the mortgage in the note cause it to be nonnegotiable?Holly Hill
Acres, Ltd. v. Charter Bank of Gainesville, 314 So.2d 209, Web 1975
Fla.App. Lexis 13715 (Court of Appeal of Florida)
2) Problem Chapter 23.8 - Business Ethics - Anthony and Dolores
Angelini entered into a contract with LustroAluminum Products, Inc.
(Lustro). Under the contract, Lustro agreed to replace exterior veneer
General, as a holder in due course, demanded payment of the note
from the Angelinis. Who wins? General Investment Corporation v.
Angelini, 278 A.2d 193, Web 1971 N.J. Lexis 263 (Supreme Court of
New Jersey)

3) 24.13 Business Ethics Warren and Kristina Mahaffey were
approached by a salesman from the Five Star Solar Screens Company
(Five Star). The salesman offered to install insulation in their home at
a cost of $5,289. After being told that the insulation would reduce
their heating bills by 50 percent, the Mahaffeys agreed to the
purchase. To pay for the work, the Mahaffeys executed a note
promising to pay the purchase price with interest, in installments. The
note, which was secured by a deed of trust on the Mahaffeys’ home,
contained the following language: “Notice: Any holder of this
consumer credit contract is subject to all claims and defenses which
the debtor could assert against the seller of goods or services obtained
pursuant hereto or with the proceeds thereof.” Several days after Five
Star finished working at the home, it sold the installment note to
Mortgage Finance Corporation (Mortgage Finance).
There were major defects in the way the insulation was installed in
the Mahaffeys’ home. Large holes were left in the walls, and heater
blankets and roof fans were never delivered, as called for in the
purchase contract. Because of these defects, the Mahaffeys refused to
make the payments due on the note. Mortgage Finance instituted
foreclosure proceedings to collect the money owed. The Mahaffeys
alleged that the Federal Trade Commission rule protects them and
allows them to assert the defense of breach of contract by Five Star
against the enforcement of the note by Mortgage Finance. Did Five
Star Solar Screens Company act ethically in this case? Can the
Mahaffeys successfully assert the defense of breach of contract by
Five Star against the enforcement of the note by Mortgage Finance?
Mahaffey v. Investor’s National Security Company, 103 Nev. 615,
747 P.2d 890, Web 1987 Nev. Lexis 1875 (Supreme Court of
Nevada)
4) 27.2 Priority of Security Agreements World Wide Tracers, Inc.
(World Wide), sold certain of its assets and properties, including
equipment, furniture, uniforms, accounts receivable, and contract
rights, to Metropolitan Protection, Inc. (Metropolitan). To secure
payment of the purchase price, Metropolitan executed a security
agreement and financing statement in favor of World Wide. The
agreement, which was filed with the Minnesota secretary of state,

stated that “all of the property listed on Exhibit A (equipment,
furniture, and fixtures) together with any property of the debtor
acquired after” the agreement was executed was collateral.
One and one-half years later, State Bank (Bank) loaned money to
Metropolitan, which executed a security agreement and financing
statement in favor of Bank. Bank filed the financing statement with
the Minnesota secretary of state’s office one month later. The
financing statement contained the following language describing the
collateral: “All accounts receivable and contract rights owned or
hereafter acquired. All equipment now owned and hereafter acquired,
including but not limited to, office furniture and uniforms.”
When Metropolitan defaulted on its agreement with World Wide six
months later, World Wide brought suit, asserting its alleged security
agreement in Metropolitan’s accounts receivable. Bank filed a
counterclaim, asserting its perfected security interest in
Metropolitan’s accounts receivable. Who wins? World Wide Tracers,
Inc. v. Metropolitan Protection, Inc., 384 N.W.2d 442, Web 1986
Minn. Lexis 753 (Supreme Court of Minnesota)
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MGMT 597 Week 4 Discussion Part 1 Your Property
Rights
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MGMT 597 Week 4 Discussion Part 1 Your Property Rights

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MGMT 597 Week 4 Discussion Part 2 Personal Property
And Bailments
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MGMT 597 Week 4 Discussion Part 2 Personal Property And
Bailments
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Week #4 Homework Assignment

Chapter # 47.1
For 12 years Theodore Buder’s father has been giving his minor
grandchildren substantial gifts. Theodore and his wife had divorced,
and the cash gifts that were giving were in the form of a check made
payable to the children. Theodore was responsible for safeguarding
the money and invested it on behalf of the children. Theodore had
invested in ‘blue chip’ stocks and he invested in penny stocks. Now
the stocks were purchased in Theodore’s name as custodian for the
children as required by the Uniform Gifts to Minors Act (UGMA).
All of the penny stocks, except one, suffered substantial losses. Now
Theodore’s ex-wife, Sartore, sued him alleging that he had breached
his fiduciary duty owed to the children under the UGMA. She’s trying
to recover the funds lost by Theodore’s lost by the investments. Who
wins?Chapter # 48.8
The Naab’s purchased a tract of land in the subdivision of
Williamstown, West Virginia. The tract of land that they purchased
included a house and a small concrete garage on the property.
Evidence showed that the garage had been erected sometime prior to
20 years earlier by one of the Naab’s predecessors in title. Now two
years after the purchase the Nolans purchased a lot contiguous to that
owned by the Naabs. The following year the Nolans had their
property surveyed and discovered that one corner of the Naab’s
garage encroached 1.22 feet onto the Nolan’s property and the other
corner encroached 0.91 feet over the property line. The Nolans
requested that the Naabs remove the garage from their property.
When the Naabs refused, a lawsuit ensured. Who wins?
Chapter # 49.2
Sharon Love entered into a written lease agreement with Monarch for
apartment 4 at 441 Winfield in Topeka, Kansas. After moving in, Ms.
Love noticed the apartment had a serious problem with termites. She
notified Monarch about the termite problem and they arranged for the

apartment to be fumigated. When the problem persisted, Monarch
moved Ms. Love to another apartment. When Ms. Love moved into
the new apartment she discovered it had roaches. Again Ms. Love
complained to Monarch about the roaches and Monarch had the
apartment sprayed. When the problem persisted, Ms. Love vacated
the premises. Did Ms. Love lawfully terminate the lease? Who wins?
Chapter # 49.5
The Chavez leased a house they owned in Arizona to the Diaz. The
lease clearly stated that no pets were allowed on the premises without
prior written approval of the Chavez. The Diazs kept two dogs on the
property a Pit Bull and a half Pit Bull and half Rottweiler without the
landlords consent. Two weeks later the dogs escaped and attacked and
injured Josephine Gibbons. The Gibbons sued the landlords for
damages. Are the landlords liable? Are the tenants liable?
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MGMT 597 Week 5 Discussion Part 1 Agency
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MGMT 597 Week 5 Discussion Part 1 Agency
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MGMT 597 Week 5 Discussion Part 2 Partnerships
General And Limited
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MGMT 597 Week 5 Discussion Part 2 Partnerships General And
Limited
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Mgmt 597 week 5 Homework Assignment 2 sets
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MGMT 597 Week 5 You Decide

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MGMT 597 Week 5 You Decide
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MGMT 597 Week 6 Course Project 14.2 Guaranty Contract
Page v. Gulf Coast Motors
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MGMT 597 Week 6 Course Project 14.2 Guaranty Contract Page v.
Gulf Coast Motors
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MGMT 597 Week 6 Course Project 37.2 Duty of Care Smith
v. Van Gorkom

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MGMT 597 Week 6 Course Project 37.2 Duty of Care Smith v. Van
Gorkom
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Mgmt 597 Week 6 Course Project 39.1 Siva v. 1138 llc
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MGMT 597 Week 6 Course Project 39.1 Siva v. 1138 LLC
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MGMT 597 Week 6 Discussion Part 1 Sarbanes-Oxley Act
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MGMT 597 Week 6 Discussion Part 1 Sarbanes-Oxley Act
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MGMT 597 Week 6 Discussion Part 2 Piercing The
Corporate Veil
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MGMT 597 Week 6 Discussion Part 2 Piercing The Corporate Veil
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36.11 Business Ethics John A. Goodman was a real estate salesman in
the state of Washington. Goodman sold to Darden, Doman & Stafford
Associates (DDS), a general partnership, an apartment building that
needed extensive renovation. Goodman represented that he personally
had experience in renovation work. During the course of negotiations
on a renovation contract, Goodman informed the managing partner of
DDS that he would be forming a corporation to do the work. A
contract was executed in August between DDS and “Building Design
and Development (In Formation), John A. Goodman, President.” The
contract required the renovation work to be completed by October 15.
Goodman immediately subcontracted the work, but the renovation
was not completed on time. DDS also found that the work that was
completed was of poor quality. Goodman did not file the articles of
incorporation for his new corporation until November 1. The partners
of DDS sued Goodman to hold him liable for the renovation
contracts. Goodman denied personal liability. Was it ethical for
Goodman to deny liability? Is Goodman personally liable? Goodman
v. Darden, Doman & Stafford Associates, 100 Wn.2d 476, 670 P.2d
648, Web 1983 Wash. Lexis 1776 (Supreme Court of Washington)

37.5 Dividends Gay &’s Super Markets, Inc. (Super Markets), was a
corporation formed under the laws of the state of Maine. Hannaford
Bros. Company held 51 percent of the corporation &’s common
stock. Lawrence F. Gay and his brother Carrol were both minority
shareholders in Super Markets. Lawrence Gay was also the manager
of the corporation &’s store at Machias, Maine. One day, he was
dismissed from his job. At the meeting of Super Markets &’s board of
directors, a decision was made not to declare a stock dividend for the
prior year. The directors cited expected losses from increased
competition and the expense of opening a new store as reasons for not
paying a dividend. Lawrence Gay claims that the reason for not
paying a dividend was to force him to sell his shares in Super
Markets. Lawrence sued to force the corporation to declare a
dividend. Who wins? Gay v. Gay &’s Super Markets, Inc., 343 A.2d
577, Web 1975 Me. Lexis 391 (Supreme Judicial Court of Maine)
37.7 Duty of Loyalty Lawrence Gaffney was the president and
general manager of Ideal Tape Company (Ideal). Ideal, which was a
subsidiary of Chelsea Industries, Inc. (Chelsea), was engaged in the
business of manufacturing pressure-sensitive tape. Gaffney recruited
three other Ideal executives to join him in starting a tape
manufacturing business. The four men remained at Ideal for the two
years it took them to plan the new enterprise. During this time, they
used their positions at Ideal to travel around the country to gather
business ideas, recruit potential customers, and purchase equipment
for their business. At no time did they reveal to Chelsea their intention
to open a competing business. The new business was incorporated as
Action Manufacturing Company (Action). When executives at
Chelsea discovered the existence of the new venture, Gaffney and the
others resigned from Chelsea. Chelsea sued them for damages. Who
wins? Chelsea Industries, Inc. v. Gaffney, 389 Mass. 1, 449 N.E.2d

320,Web 1983 Mass. Lexis 1413 (Supreme Judicial Court of
Massachusetts)
39.9 Duty of Loyalty Ally is a member and a manager of a manager-
managed limited liability company called Movers & You, LLC, a
moving company. The main business of Movers & You, LLC, is
moving large corporations from old office space to new office space
in other buildings. After Ally has been a member-manager of Movers
& You, LLC, for several years, she decides to join her friend Lana
and form another LLC, called Lana & Me, LLC. This new LLC
provides moving services that move large corporations from old
office space to new office space. Ally becomes a member-manager of
Lana & Me, LLC, while retaining her member-manager position at
Movers & You, LLC. Ally does not disclose her new position at Lana
& Me, LLC, to the other members or managers of Movers & You,
LLC. Several years later, the other members of Movers & You, LLC,
discover Ally’s other ownership and management position at Lana &
Me, LLC. Movers & You, LLC, sues Ally to recover damages for her
working for Lana & Me, LLC. Is Ally liable?
===============================================
MGMT 597 Week 7 Homework Questions 2 Sets

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Chapter 41.2
Definition of Security The Farmer’s Cooperative of Arkansas and
Oklahoma (Co-Op) was an agricultural cooperative that had
approximately 23,000 members. To raise money to support its general
business operations, Co-Op sold to investors promissory notes that
were payable upon demand. Co-Op offered the notes to both members
and non-members, advertised the notes as an “investment program,”
and offered an interest rate higher than that available on savings
accounts at financial institutions. More than 1,600 people purchased
the notes, worth a total of $10 million. Subsequently, Co-Op filed for
bankruptcy. A class of holders of the notes filed suit against Ernst &
Young, a national firm of certified public accountants that had audited
Co-Op’s financial statements, alleging that Ernst & Young had
violated Section 10(b) of the Securities Exchange Act of 1934. Are
the notes issued by Co-Op “securities”? Reeves v. Ernst & Young,
494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47, Web 1990 U.S. Lexis
1051 (Supreme Court of the United States)
Chapter 41.7
Insider Trading Donald C. Hoodes was the chief executive officer of
the Sullair Corporation. As an officer of the corporation, he was
regularly granted stock options to purchase stock of the company at a
discount. On July 20, Hoodes sold 6,000 shares of Sullair common
stock for $38,350. On July 31, Sullair terminated Hoodes as an officer
of the corporation. On August 20, Hoodes exercised options to
purchase 6,000 shares of Sullair stock that cost Hoodes $3.01 per
share ($18,060) at the time they were trading at $4.50 per share

($27,000). Hoodes did not possess material nonpublic information
about Sullair when he sold or purchased the securities of the
company. The corporation brought suit against Hoodes to recover the
profits Hoodes made on these trades. Who wins? Sullair Corporation
v. Hoodes, 672 F.Supp. 337, Web 1987 U.S. Dist. Lexis 10152
(United States District Court for the Northern District of Illinois)
Chapter 51.5
Ultramares Doctrine Texscan Corporation (Texscan) was a
corporation located in Phoenix, Arizona. The company was audited
by Coopers & Lybrand (Coopers), a national CPA firm that prepared
audited financial statements for the company. The Lindner Fund, Inc.,
and the Lindner Dividend Fund, Inc. (Lindner Funds), were mutual
funds that invested in securities of companies. After receiving and
reviewing the audited financial statements of Texscan, Lindner Funds
purchased securities in the company. Thereafter, Texscan suffered
financial difficulties, and Lindner Funds suffered substantial losses on
its investment. Lindner Funds sued Coopers, alleging that Coopers
was negligent in conducting the audit and preparing Texscan’s
financial statements. Can Coopers be held liable to Lindner Funds for
accounting malpractice under the Ultramares doctrine, Section 552 of
the Restatement (Second) of Torts, or the foreseeability standard?
Lindner Fund v. Abney, 770 S.W.2d 437, Web 1989 Mo.App. Lexis
490 (Court of Appeals of Missouri)
Chapter 51.7
Accountant–Client Privilege For five years, Chaple, an accountant
licensed by the state of Georgia, provided accounting services to
Roberts and several corporations in which Roberts was an officer and
shareholder (collectively called Roberts). During this period, Roberts
provided Chaple with confidential information, with the expectation
that this information would not be disclosed to third parties. Georgia
statutes provide for an accountant–client privilege. When the IRS

began investigating Roberts, Chaple, voluntarily and without being
subject to a subpoena, released some of this confidential information
about Roberts to the IRS. Roberts sued Chaple, seeking an injunction
to prevent further disclosure, requesting return of all information in
Chaple’s possession, and seeking monetary damages. Who wins?
Roberts v. Chaple, 187 Ga.App. 123, 369 S.E.2d 482, Web 1988
Ga.App. Lexis 554 (Court of Appeals of Georgia)
===============================================

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