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Compensation, Discrimination & Influencing Shareholders

1. Barbara purchases a Radartel cellular phone. One of the reasons she bought this was for security because she lives alone and often travels alone. After using the phone for about a week, she noticed that the rechargeable batteries (supplied in the phone by the maker) lasted a shorter time than claimed by the manufacturer. One evening a few days later, Barbara was in bed, but not yet asleep, and heard someone in her living room. She picked up the cellular phone from beside her bed and attempt to make an emergency call to 911, but the batteries were dead. She panicked and stayed in her bed motionless. About five minutes later the burglar came into her bedroom, at which point she screamed. As he then tried to climb out the bedroom window she hit him with a lamp, but he kicked it back at her injuring her. The burglar got away and was never caught. Barbara sued Radartel, the maker of the phone. Prior to the lawsuit she returned the phone to the store where she bought it and learned that the batteries were defective, at which point she was provided with new batteries, which have worked properly since. Discuss the likely basis for Barbara's suit, the defenses that Radartel might raise, and the likely outcome.

2. Jenny has a checking account at Intrastate Bank. Jenny loses her checkbook. Richard finds it and forges a check payable to himself, endorses it, and properly negotiates it to Yummy Treats Restaurant. Yummy Treats cashes the check at Intrastate. Jenny learns of the forgery and complains to Intrastate. What are liabilities of each of the parties involved? What other steps can Jenny take?

3. Beth entered into a guaranty agreement with a furniture store in order for her sister, Sue, to be able to buy furniture on credit from the store. There is a security agreement with the furniture pledged as collateral. Sue ceases to make the payments because the furniture is defective. Several months later Sue receives a bankruptcy relieving all her debts. Who owes what to whom? What are the responsibilities of each party? The furniture store, Sue, and Beth? Discuss the final result of this situation.

4. Sam is a sales representative for a pharmaceutical firm. Sam frequently plays golf with his clients and potential clients. One summer weekend when he is on vacation at his family's home in Myrtle Beach, Sam runs into a couple of his clients who are attending a medical convention. They arrange to meet and play golf on Sunday. While on the sixth hole, another golfer tees off prematurely and Sam is struck in the head by a golf ball. He is severely injured and cannot work for an extended period of time. Can Sam recover under workers' compensation? What remedies are available to Sam?

5. Learned University is an exclusive university in the city of Boston. This private school admitted only women until 1990 when it became a coeducational institution. Two of the factors in the school's success and reputation have been its focus on service to its students and its hiring only its own graduates whenever possible. The school has tripled in size since it became a coeducational institution. Because of the increased number of graduates available to work, the school has made being a graduate a requirement for most of its positions. Are learned University's policies legal or illegal? Why? Discuss the employment discrimination aspects of this policy.

6. Sam operates a small business with 12 employees. Sam says to his employees, "I?m not required to give you a pension plan. But, I will do so. The plan is that if you stay employed with me until you reach age 65, I will give you a pension of $1,000 per year during retirement for each full year you have worked. Because I believe so strongly in this company, if I invest any money in the fund in advance, I will put half of it into stock of this company. If you leave before retirement, you don't get it. That way, you'll have more incentive to work hard and stay with the company." Is this plan legal? Why? As an employer of a company of this size, what type of plan, if any, would you offer your employees? Why? Comment on the legal aspects of this plan.

7. Jane wishes to create a corporation to operate an art gallery. She completes the articles of incorporation and mails them to the appropriate state office. Then, she leases space, hires a receptionist, buys supplies and contracts with artists to exhibit their artwork, all on behalf of her corporation. Sometime later, the state issues its certificate of incorporation.

A. If Jane refuse to let the artists exhibit their artwork, could she use the defense that her corporation was not legal when the contract was signed? Why? Discuss the liability of Jane and the corporation with regard to these contracts Jane has made.

B. Discuss novation based upon the facts of the above situation.

8. Donna formed a corporation several years ago by issuing 500 shares of stock. There are 10 shareholders with the smallest shareholder owning 25 shares and Donna holding the most at 100 shares. The corporation needs additional cash, but the current shareholders do not wish to have any additional shareholders. What are their options and what additional factors should the current shareholders consider in raising the additional cash? What can Donna do to add additional shareholders, if anything?

9. Ted has just been elected to the board of directors of Funfones Corporation at their January annual meeting. Ted has considerable business experience and will be a valuable addition to the board. Ted was heavily promoted for the board by Tim, the president of Funfones and owner of 24 percent of the shares of Funfones' common stock. Tim and Ted were fraternity brothers in college and have had business contact for almost 20 years. Less than a week after being elected to the board, Ted and Tim end up in a dispute over a bet on the Super Bowl . Tim properly gives notice for a special shareholder meeting to vote to remove Ted from the board. Ted is voted off the board and he objects. Does he have any recourse? If so, what? Discuss Ted's legal situation and what actions he can take.

10. Mary is an assembly line worker at a computer company. Mary becomes aware that an improvement is being made in the company's primary computer that will significantly increase profits. Mary tells a friend to buy stock in the company, but instructs her not to tell anyone else. The friend buys stock, but tells two other persons to do the same. The company's profits increase greatly, and all three who purchased stock sell at a great profit. Is what Mary did illegal? Have the three people who made money on this deal done so illegally? Please compare this with the Martha Stewart case. How is it similar or different? Discuss this situation and possible results.

Solution Preview

1. She can sue the manufacturer of cell phone because of the false claim about the product. The rechargeable batteries lasted a shorter time and resulted her to be a victim of a crime. However it is very difficult to demonstrate, so the outcome of the suit will probably be a fine or compensation for the false claim.

2. Since Jenny did not immediately cancel the check after she lost, it will be difficult for her to get her money back. The bank may think that Jenny made a payment to Richard. However since it is not signed by her maybe it will be possible to prove that the check is not signed by the owner. If she can demonstrate this, the restaurant will have to pay the money back because the account does not belong to Richard and the payment made in an illegal way.

3. Since Sue received a ...

Solution Summary

Almost 600 words answer 10 questions on compensation, fair stock trading, the power of shareholders and directors, and discrimination.