ESSAY #1. Twenty-eight point value.
Hamilton has recently been hired as a sales representative by ABC Jewels (“ABC”). ABC’s business is the diamond and fine jewelry industry. The agreement between ABC and Hamilton provides that employment of Hamilton as a sales representative would be for a period of two years and his duties would include selling merchandise and collecting accounts. Over the course of the next several months, the following transpired:
1. ABC sent a letter to Wholesaler Jewelry Company, one of its largest suppliers, informing them of Hamilton’s employment and that he would be servicing their accounts.
1. Hamilton, on behalf of ABC, entered into a signed a contract with Goldbug Jewelers by which GoldBug agreed to sell its computer equipment to ABC. Hamilton disclosed to GoldBug that he was acting on behalf of ABC. However, ABC refused to pay or be held liable on the contract with GoldBug.
3. Hamilton, on behalf of ABC, entered into a very lucrative contract with a client to sell him a 20-carat diamond. The client was delighted with the price of the diamond and gave Hamilton a big screen TV for his hard work in obtaining such a good price.
4. Hamilton entered into a contract that he quickly wrote on a piece of paper because he feared that he may loose the deal if he waited for the paperwork from the home office of ABC. It was signed by both parties and read:
“I, Hamilton Jones, agree to sell, and Ray Smith, the
representative of Donald Tomp, agrees to buy two pearl
necklaces, one ruby ring and a tennis bracelet for the
aggregate purchase price of $195,000”.
______
/s/ Hamilton Jones
______
/s/ Ray Smith
5. On his way back from the meeting with Ray Smith, Hamilton decided to visit his girl friend to tell her about the great deal he just completed. On his way to her house, he ran a red light and collided with another car. Two weeks later, ABC and Hamilton both were served with a complaint, which alleged damages of $26,000 resulting from the collision.
6. ABC has not been thrilled with Hamilton’s performance over the past several months and Hamilton’s supervisor called him into the office to inform him that he was fired.
7. The next day, Hamilton, who was very upset, went to the office of Wholesaler Jewelry Company and entered into a contract for the sale of $10,000 worth of jewelry and collected a check in the amount of $3,000 for payment on the account. He cashed the check and left town with the money. Wholesaler Jewelry Company telephoned ABC’s office to confirm the order and delivery date.
Discuss all issues.
ESSAY #2. Twenty-six point value.
Alicia, Patrick, Cheryl and Casey, all furloughed charter pilots, decided to start their own charter airline company. It was called AirLine Charters, Inc. and organized under the laws of the State of Colorado. Alicia was a director, the president and in charge of developing the business. Patrick was a director and the secretary/treasurer and in charge of operations and maintenance. Cheryl and Casey were directors and vice-presidents, respectively. All four individuals are also shareholders of AirLine Charters, Inc. They have approached and asked you to become part of AirLine Charters, Inc. because of your expertise and knowledge about the airline industry. They have offered you a position on the board as a director. You agree to accept the position.
During the next three months with AirLine Charters, Inc., two business prospects arose which you believed should be pursued aggressively. One involved negotiations with Unity Airlines regarding the purchase of two Boeing 747s, which were in need of repair and, if purchased, would involve a substantial amount of cash. The second involved negotiations with First Bank of America regarding a $500,000 loan. You successfully completed the negotiations and signed the contracts on behalf of AirLine Charters, Inc. evidencing the agreements. Furthermore, you became aware of a lear jet that had been put on the market by a private seller at a very competitive price. You know that if the lear jet was purchased at that price and resold, a considerable profit would be realized. You decide to purchase the lear jet with your own money.
Over the next year, AirLine Charters, Inc. financial performance was satisfactory. Additional capital was needed though for the repairs on the two Boeing 747s. You decided that Airline Charters, Inc. should offer and sell shares of its common stock in order to raise capital. Six of your business friends agreed to invest in AirLine Charters, Inc., and each purchased 5,000 shares of common stock. During the second year, additional capital was raised by offering $2.00 cumulative preferred shares of stock. For the next three years, business was up and down. At the end of the third year, your business friends as shareholders of AirLine Charters, Inc. demanded that you pay them those dividends you “promised” when they initially invested. You refused. They subsequently demanded to see the books and records of AirLine Charters, Inc. You refused them access but instead had checks issued to them reflecting payment of a dividend.
Last, but not least, the board of directors had a meeting during which it was discussed that BoJo Airlines (a public company) had just signed the letter of intent agreeing to negotiate a possible acquisition of AirLine Charters, Inc. Immediately, dollar signs went off in your mind as you contemplated the possible increase in the value of shares of stock in BoJo Airlines. You immediately returned to your office and telephoned your broker to arrange for the purchase of 10,000 shares of stock in BoJo Airlines. And, you telephoned your best friend to inform her of this prospect.
Discuss all issues.
ESSAY #3. Twenty value.
Suella, Corrine and Beth decided to go into business together to run a specialty grocery store called SC&B Specialty Grocery. Since they were such good friends, they agreed that they would commit to run the business for a period of ten years. Suella agreed to provide a cash register and several store decorations. Corrine agreed to provide a small commercial space, which she had title to. Beth agreed to provide many “family-prized” recipes for creation of the in-store specialty products and to act as the day-to-day manager of the store. They further agreed that each of them would have an equal voice in the decisions of the business and that profits, if any, would be divided equally among themselves. Over the next six years, the business flourished and became quite successful. They amassed a large amount of inventory, installed granite countertops and barstools for customers to sit on, and renovated the store with features unique to their specialty business. During the seventh year, however, things started to go badly among the three friends.
Suella decided that she would like a new car to go around and visit prospective wholesalers. She entered into a contract with VedMed Dealers for a new 2002 Jeep Cherokee in the name of SC&B Specialty Grocery without consulting Corrine or Beth.
Corrine and Beth got very upset over the purchase of the 2002 Jeep Cherokee and refused to be bound by the contract and, furthermore, decided between themselves not to allow Suella a voice in the decisions concerning the business nor a distribution of her share of the profits (to “show her who’s boss”).
Suella became infuriated at the actions of her friends and informed them that she was going to resign from the business and wanted her share. Suella informed Corrine and Beth that she wanted to take the cash register, her personal belongings and the 2002 Jeep Cherokee. Corrine then stated that she wanted the commercial space (since title was in her name). Beth felt left out at this point.
Corrine and Beth subsequently found out about two large personal withdrawals made by Suella and hired an attorney to resolve the situation. Suella informed them that in the event it was determined business losses exceed assets, Corrine and Beth could “eat it and pay her share because she was not giving a penny more”.
Discuss all issues including those regarding termination of the relationship among the three friends.
ESSAY #4. Twenty point value.
Thomas has invented a motorized skateboard with a balancing system that will enable even the most inept person to use the skateboard and reach speeds of up to 5 miles per hour. He wishes to market and distribute his innovative product but needs working capital. So he has formed a corporation and needs approximately $200,000 to jump start his manufacturing and marketing/distribution operations. He has come to you and several of your friends “asking for a loan” and telling you that “you’ll be glad you believed in him because he will triple your money within the next 2 years.”
Thomas also hires two individuals as employees to assist him with the business operations. After two weeks, he decides to fire one of the employees because he continuously criticizes people who ride skateboards as being obnoxious.
Advise Thomas as to all the securities law issues he should be aware of. Also, advise Thomas as to potential wrongful discharge issues he could face, including steps he could take to mitigate such issues in the future.