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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?

DEVRY MGMT 597 Discussion Week 1 Part 2 NEW
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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?

DEVRY MGMT 597 Entire Course NEW
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MGMT 597 Entire Course NEW
MGMT 597 Discussion Week 1 Part 1 NEW
MGMT 597 Discussion Week 1 Part 2 NEW
MGMT 597 Final Exam 1 NEW
MGMT 597 Final Exam 2 NEW
MGMT 597 Week 1 Homework Assignment (2 Sets) NEW
MGMT 597 Week 2 Discussion Part 1 Statute of
FraudsNEW
MGMT 597 Week 2 Discussion Part 2 Revocation of
Acceptance of Goods NEW

MGMT 597 Week 3 Discussion Part 1 Negotiable
Instrument NEW
MGMT 597 Week 3 Discussion Part 2 Secured
Transactions NEW
MGMT 597 Week 3 Homework Problems (2 Sets) NEW
MGMT 597 Week 4 Discussion Part 1 Your Property
Rights NEW
MGMT 597 Week 4 Discussion Part 2 Personal Property
And Bailments NEW
MGMT 597 Week 5 Discussion Part 1 Agency NEW
MGMT 597 Week 5 Discussion Part 2 Partnerships
General And Limited NEW
MGMT 597 Week 5 You Decide NEW
MGMT 597 Week 6 Course Project 14.2 Guaranty
Contract Page v. Gulf Coast Motors NEW
MGMT 597 Week 6 Course Project 37.2 Duty of Care
Smith v. Van Gorkom NEW
MGMT 597 Week 6 Course Project 39.1 Siva v. 1138 LLC
NEW

MGMT 597 Week 6 Discussion Part 1 Sarbanes-Oxley Act
NEW
MGMT 597 Week 6 Discussion Part 2 Piercing The
Corporate Veil NEW
MGMT 597 Week 7 Homework Questions (2 Sets) NEW

DEVRY MGMT 597 Final Exam 1 NEW
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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?

DEVRY MGMT 597 Final Exam 2 NEW
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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.

DEVRY MGMT 597 Week 1 Homework Assignment
(2 Sets) NEW
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case in chapter 9.4
case in chapter 10.7

DEVRY MGMT 597 Week 2 Discussion Part 1
Statute of Frauds NEW
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MGMT 597 Week 2 Discussion Part 1 Statute of
Frauds NEW

Revocation of Acceptance of Goods NEW
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MGMT 597 Week 2 Discussion Part 2 Revocation of
Acceptance of Goods NEW

(2 Sets) NEW
assignment-recent
14.2 Real Property
16.8 Specific Performance
18.2 Good or Service
20.3 Revocation of Acceptance

Negotiable Instrument NEW
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MGMT 597 Week 3 Discussion Part 1 Negotiable
Instrument NEW

Secured Transactions NEW
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MGMT 597 Week 3 Discussion Part 2 Secured
Transactions NEW

DEVRY MGMT 597 Week 3 Homework Problems(2
Sets) NEW
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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 Lustro Aluminum 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) Problem Chapter 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 ….. 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) Problem Chapter 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)….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)

DEVRY MGMT 597 Week 4 Discussion Part 1 Your
Property Rights NEW
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MGMT 597 Week 4 Discussion Part 1 Your
Property Rights NEW

Personal Property And Bailments NEW
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MGMT 597 Week 4 Discussion Part 2 Personal
Property And Bailments NEW

(2 Sets) NEW
assignment-new
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?

Agency NEW
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MGMT 597 Week 5 Discussion Part 1 Agency NEW

Partnerships General And Limited NEW
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MGMT 597 Week 5 Discussion Part 2 Partnerships
General And Limited NEW

(2 Sets) NEW
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MGMT 597 Week 5 Homework Assignment (2 Sets)
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DEVRY MGMT 597 Week 5 You Decide NEW
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MGMT 597 Week 5 You Decide NEW

DEVRY MGMT 597 Week 6 Course Project 14.2
Guaranty Contract Page v. Gulf Coast Motors NEW
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MGMT 597 Week 6 Course Project 14.2 Guaranty
Contract Page v. Gulf Coast Motors NEW

DEVRY MGMT 597 Week 6 Course Project 37.2
Duty of Care Smith v. Van Gorkom NEW
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MGMT 597 Week 6 Course Project 37.2 Duty of
Care Smith v. Van Gorkom NEW

DEVRY MGMT 597 Week 6 Course Project 39.1 Siva
v. 1138 LLC NEW
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MGMT 597 Week 6 Course Project 39.1 Siva v.
1138 LLC NEW

Sarbanes-Oxley Act NEW
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MGMT 597 Week 6 Discussion Part 1 Sarbanes-
Oxley Act NEW

Piercing The Corporate Veil NEW
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MGMT 597 Week 6 Discussion Part 2 Piercing The
Corporate Veil NEW

(2 Sets) NEW
assignment-new
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?

DEVRY MGMT 597 Week 7 Homework Questions
(2 Sets) NEW
questions-new
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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