Exam Id # _________________

FACT PATTERN I:

QUESTION 1 (6 points):
Partnership is sold for a profit, what should the partners receive on dissolution? (1)

Upon dissolution, partners first receive a return of the their capital contributions and
then share in the profits and surplus. By default, partners share in profits and surplus
equally. (2)
___A made a capital contribution of $100,000 and should receive that out of the sale
proceeds.
__We are told to assume that A and B do not have an agreement that value B’s
services as a capital contribution.
__That leaves $300,000 of the sale proceeds to be split equally between A and B
($150,000 each).
(2)
Thus, in total, A receives $250,000 and B receives $150,000 upon dissolution. (1)

(Relevant Extra Credit Point(s), if any)

------------------------
Point deductions:
_Irrelevant/Extraneous Discussion (-)
_Poor organization (-)
TOTAL (6):

QUESTION 2 (6 points):
Partnership is sold at a loss, how should the loss be allocated among the partners? (1)

Upon dissolution, partners first receive a return of the their capital contributions and
then share in the profits and surplus. If there are losses, by default, partners share in
the losses equally. We are told to assume that the service-only partner exception
does not apply (the service only partner exception would not require B, a service-
only partner, to contribute toward losses). (2)
___ A made a capital contribution of $100,000 and the partnership is sold for
$50,000. A should receive the entire $50,000 in proceeds from the sale
__ The $50,000 loss should be shared equally among the partners. In other words, B
should contribute $25,000 to B to share equally in the loss.
___ If the service-only partner exception applied, B would not have to make that
contribution (theory: he lost his labor).
(2)
Thus, A receives $50,000 and B must contribute $25,000 upon dissolution. This
leaves them both with a $25,000 loss. (1)

(Relevant Extra Credit Point(s), if any)

------------------------
Point deductions:
_Irrelevant/Extraneous Discussion (-)
_Poor organization (-)
TOTAL (6):
FACT PATTERN II:

QUESTION 3(a)
Did court correctly hold that SH agreement is enforceable?
A transfer restriction is enforceable if (1) the SH is on notice and (2) it is reasonable. (2)
___ P on notice: signed agreement
___ reasonable: not an outright prohibition
___ it is a first right
___ bad price does not make agmt unreasonable
(4)
Thus, Ct correctly held that enforceable

(Relevant Extra Credit Point(s), if any)

------------------------
Point deductions:
_Irrelevant/Extraneous Discussion (-)
_Poor organization (-)
TOTAL
(6):
Question 3(b)
Did court correctly hold that Bd mismanaged MJ? Did Bd breach duty of care (2)
Bd members owe fiduciary duty of care, which requires them to act in good faith and
with prudence. The duty of care applies to both the process of making decisions and
the substance of the decisions. The duty of care requires that the Bd take reasonable
steps to inform itself of decisions it makes for the corp. Further, absent bad faith,
fraud, self-interest or failure to reasonably inform itself of decisions being made, the
Bd is entitled to the presumptions of the BJR and cts will not second guess Bd
decisions. If BJR applies, Bd need only show that decision was attributable to a
rational business purpose. If the BJR does not apply, the ct will assess whether the
Bd’s decision was grossly negligent. (10)
(7)
___ P argues breach of duty of care and may have valid claim
___ process: did not do homework; did not hire expert; did not hear data
____ had Bd done more thorough investigation, would have seen that lots of
competition and restaurants struggling.
___ if failed to take reasonable steps gather information: not entitled to presumption
of BJR and court will assess whether grossly negligent to open in CI
Thus, Ct correctly held that Bd breached its duty of care. (1)
(Relevant Extra Credit Point(s), if any)
------------------------
Point deductions:
_Irrelevant/Extraneous Discussion (-)
_Poor organization (-)
TOTAL
(20):

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Question 4
Is Mary liable to Lew for construction?
Promoter is organizer of corp. Promoters are liable for pre-incorporation
contracts unless (1) corporation affirms and (2) novation (3d party agrees to
substitute corp for promoter). (4)
(2)
___ Corp affirmed: board vote after incorporation
___ However, no facts suggesting a novation
Thus, as promoter, Mary is personally liable on the pre-incorporation k
(Relevant Extra Credit Point(s), if any)
------------------------
Point deductions:
_Irrelevant/Extraneous Discussion (-)
_Poor organization (-)
TOTAL (6):

Question 5
Is the contract with Duff voidable?
Where a director is interested, he may participate in the decision whether to
approve the transaction with the corporation. BCL 713 provides a safe harbor
for the transaction if: (1) the director’s interest is disclosed and (2) there is a
sufficient vote or unanimous vote of disinterested directors. For purposes of
the vote, the interested director may count toward the quorum but the interested
director’s vote does not count. If this procedure isn’t followed, the burden is
on the interested director to show that the transaction is fair and reasonable to
the corporation. (5)
(5)
___ disclosure by Cal (Cal is interested)
___ quorum: all present: 5/5 (Cal counts)
__ suff vote: no: 2/5 vote in favor (Cal vote doesn’t count
__ Burden on Cal to show fair and reasonable to the corp,
which may be able to prove bc 10% discount
Thus, transaction is not voidable only if Cal can show it is fair and reasonable
to the corporation
(Relevant Extra Credit Point(s), if any)
------------------------
Point deductions:
_Irrelevant/Extraneous Discussion (-)
_Poor organization (-)
TOTAL (10):

FACT PATTERN III / QUESTION 6:

Would I advise client to form LP in FL or NY?

FL because statute provides that limited partner is never personally liable.

In NY, client/ limited partner would risk losing the shield of limited liability by
participating in the control and management of the partnership.
(6)
TOTAL (6):

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