agency bar problem

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University of Tulsa *

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Jan 9, 2024

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July 2022 MEE Question 3 Corporations & Agency Copyright © 2022 by the National Conference of Bar Examiners. All rights reserved.
JULY 2022 MEE QUESTION 3 - CORPORATIONS & AGENCY Brian, a home builder, and Danielle, a land developer, properly formed a corporation. The articles of incorporation state that the corporation's purpose is to pursue property development opportunities and any other lawful business. Brian owns 20% of the corporation’s shares, and Danielle owns 80%. Under their shareholders' agreement, Brian and Danielle serve as directors on the corporation's three-member board of directors, and Danielle selects the third director. Shortly after the corporation's formation, the corporation (following unanimous board approval) purchased a parcel of land for $5 million for the purpose of dividing it into residential lots and constructing a single-family home on each lot. The board also decided that (1) Brian would be responsible for the construction of all homes on the parcel, (2) Danielle would be responsible for securing the financing necessary to build the homes, and (3) the proceeds from home sales would be paid to the corporation. After setting a reasonable salary for Brian during the home- construction period, the board agreed to periodically consider whether to issue dividends. The board unanimously authorized Danielle to hire Carol, a consultant, to negotiate financing agreements on behalf of the corporation with several banks. Danielle asked Carol to act on behalf of the corporation to obtain the loans, and Carol agreed to do so. The first bank that Carol contacted declined to provide financing to the corporation but offered instead to buy the parcel for $6 million. Without discussing any of this with any of the corporation's directors, Carol signed a written agreement with the bank on behalf of the corporation to sell the parcel to the bank for $6 million. The next day, Carol informed Danielle about the terms of the sale agreement with the bank. Danielle agreed with Carol that the deal was in the corporation's best interest and properly called a special meeting of the board to approve it. At the special meeting three days later, Carol described to the board the terms of the agreement. Danielle and the third director voted to approve the land sale under the terms of the written agreement signed by Carol. Brian voted against approving the sale. Danielle and the third director then voted to distribute all the sale proceeds to Danielle as a "bonus payment." Brian, who would receive no payment from the sale, properly made a request to see all accounting records related to the purchase and sale of the parcel. But the board refused Brian's request, with Danielle and the third director voting against it. The corporation was incorporated in a jurisdiction whose corporation statute is modeled on the Model Business Corporation Act (MBCA). 1. Is the corporation bound by the land-sale agreement with the bank signed by Carol? Explain. 2. Was the bonus payment made to Danielle, which was approved by a majority of the board of directors, proper? Explain, 3. Does Brian have sufficient grounds to seek the judicial dissolution of the corporation? Explain.
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