15-13) Lee Dennegar and Mark Knutson lived in Dennegar’s house in Raritan, New Jersey. Dennegar paid the mortgage and other household expenses. With Dennegar’s consent, Knutson managed their household’s financial affairs and the “general office functions concerned with maintaining the house.” Dennegar allowed Knutson to handle the mail and “to do with it as he chose.” Knutson wrote checks for Dennegar to sign, although Knutson signed Dennegar’s name to many of the checks with Dennegar’s consent. AT&T Universal issued a credit card in Dennegar’s name in February 2001. Monthly statements were mailed to Dennegar’s house, and payments were sometimes made on those statements. Knutson died in June 2003. The unpaid charges on the card of $14,752.93 were assigned to New Century Financial Services, Inc. New Century filed a suit in a New Jersey state court against Dennegar to collect the unpaid amount. Dennegar claimed that he never applied for or used the card and knew nothing about it. Under what theory could Dennegar be liable for the charges? Explain. New Century Financial Services, Inc. v. Dennegar, 982 A.2d 48 (A.D. 2007).

15-14) Su Ru Chen owned the Lucky Duck Fourtune Cookie Factory in Everett, Massachusetts, which made Chinese-style fortune cookies for restaurants. In November 2001, Chen listed the business for sale with Bob Sun, a real estate broker, for $35,000. Sun’s daughter Frances and her fiancé, Chiu Chung Chan, decided that Chan would buy the business. Acting as a broker on Chen’s (the seller’s) behalf, Frances asked about the Lucky Duck’s finances. Chen said that each month the business sold at least 1,000 boxes of cookies at a $2,000 profit. Frances negotiated a price of $23,000, which Chan (her fiancé) paid. When Chan began to operate the Lucky Duck, it became clear that the demand for the cookies was actually about 500 boxes per month—a rate at which the business would suffer losses. Less than two months later, the factory closed. Chan filed a suit in a Massachusetts state court against Chen, alleging fraud, among other things. Chan’s proof included Frances’s testimony as to what Chen had said to her. Chen objected to the admission of this testimony. What is the basis for this objection? Should the court admit the testimony? Why or why not? Chan v. Chen, N.E.2d 1153 (2007).

15-15) Sam and Theresa Daigle decided to build a home in Cameron Parish, Louisiana. To obtain financing, they contacted Trinity United Mortgage Company. At a meeting with Joe Diez on Trinity’s behalf, on July 18, 2001, the Daigles signed a temporary loan agreement with Union Planters Bank. Diez assured them that they did not need to make payments on this loan until their house was built and that permanent financing had been secured. Because the Daigles did not make payments on the Union loan, Trinity declined to make the permanent loan. Meanwhile, Diez left Trinity’s employ. On November 1, the Daigles moved into their new house. They tried to contact Diez at Trinity but were told that he was unavailable and would get back to them. Three weeks later, Diez came to the Daigles’ home and had them sign documents that they believed were to secure a permanent loan but that were actually an application with Diez’s new employer. Union filed a suit in a Louisiana state court against the Daigles for failing to pay on its loan. The Daigles paid Union, obtained permanent financing through another source, and filed a suit against Trinity to recover the cost. Who should have told the Daigles that Diez was no longer Trinity’s agent? Could Trinity be liable to the Daigles on this basis? Explain. Daigle v. Trinity United Mortgage, LLC, 890 So.2d 583 (La. Ct. App. 2004).

15-16) Juanita Miller filed a complaint in an Indiana state court against Red Arrow Ventures, Ltd., Thomas Hayes, and Claudia Langman, alleging that they had breached their promise to make payments on a promissory note issued to Miller. The defendants denied this allegation and asserted a counterclaim against Miller. After a trial, the judge announced that, although he would be ruling against the defendants, he had not yet determined what amount of damages would be awarded to Miller. Over the next three days, the parties’ attorneys talked and agreed that the defendants would pay Miller $21,000. The attorneys exchanged correspondence acknowledging this settlement. When the defendants balked at paying this amount, the trial judge issued an order to enforce the settlement agreement. The defendants appealed to a state intermediate appellate court, arguing that they had not consented to the settlement agreement. What is the rule regarding the authority of an agent to agree to a settlement? How should the court apply the rule in this case? Why? Red Arrow Ventures, Ltd. v. Miller, 692 N.E.2d 939 (Ind. Ct. App. 1998).

16-15) Charles Chaney and Lawrence Burdett were equal partners in a partnership in Georgia known as BMW Partners. Their agreement was silent as to the effect of a partner’s death on the firm. The partnership’s sole asset was real property, which the firm leased in 1987 to a corporation that the partners co-owned. Under the lease, the corporation was to pay the partnership $8,000 per month, but after a few years, the corporation began paying $9,000 per month. Chaney died on April 15, 1998. Burdett wanted to continue the partnership business and offered to buy Chaney’s estate’s interest in it. Meanwhile, claiming that the real property’s fair rental value was $4,500 (not $9,000) and that the corporation had overpaid the rent by $80,000, Burdett adjusted the rental payments to recoup this amount. Bonnie Chaney, Charles’s widow and his estate’s legal representative, filed a suit in a Georgia state court against Burdett, alleging in part that he had breached his fiduciary duty by adjusting the amount of the rent. Did Burdett’s fiduciary duty expire on Chaney’s death? Explain. Chaney v. Burdett, 274 Ga. 805, 560 S.E.2d 21 (2002).

16-16) In August 1998, Jea Yu contacted Cameron Eppler, president of Design 88, Ltd., to discuss developing a website that would cater to investors and provide services to its members for a fee. Yu and Patrick Connelly invited Eppler and Ha Tran, another member of Design 88, to a meeting to discuss the site. The parties agreed that Design 88 would perform certain Web design, implementation, and maintenance functions for 10 percent of the profits from the site, which would be called “The Underground Trader.” They signed a “Master Partnership Agreement,” which was later amended to include Power Uptik Productions, LLC (PUP). The parties often referred to themselves as partners. From Design 88’s offices in Virginia, Design 88 designed and hosted the site, and solicited members through Internet and national print campaigns. When relations among the parties soured, PUP withdrew. Design 88 filed a suit against PUP and the others. Did a partnership exist among these parties? Explain. Design 88 Ltd., v. Power Uptik Productions, LLC, 133 F. Supp. 2d 873 (W.D. Va. 2001).

16-17) On August 23, 1995, Climaco Guzman entered into a commercial janitorial services franchise agreement with Jan-Pro Cleaning Systems, Inc., in Rhode Island for a franchise fee of $3,285. In the agreement, Jan-Pro promised to furnish Guzman with “one (1) or more customer account(s) . . . amounting to $8,000.00 gross volume per year. . . . No portion of the franchise fee is refundable except and to the extent that the Franchisor, within 120 business days following the date of execution of the Franchise Agreement, fails to provide accounts.” By February 19, Guzman had not received any accounts and demanded a full refund. Jan-Pro promised “accounts grossing $12,000 per year in income.” Despite its assurances, Jan-Pro did not have the ability to furnish accounts that met the stated requirements. In September, Guzman filed a suit in a Rhode Island state court against Jan-Pro, alleging in part fraudulent misrepresentation. Should the court rule in Guzman’s favor? Why or why not? Guzman v. Jan-Pro Cleaning Systems, Inc., 839 A.2d 504 (R.I. 2003).

17-1) Explain the difference between notes, bonds, and debentures.

17-2) Describe the various types of corporations discussed in this chapter.

Closely held

Publicly held

Domestic, foreign, alien


Subchapter S



17-6) What is a single tax advantage of a limited liability company? Review Problems 17-7 A truck owned by Thoni Trucking Company was involved in an accident that caused severe injuries to the Fosters (the plaintiffs). After learning of the accident, the owner (the defendant) of all but two shares of the stock in Thoni Trucking and the rest of the board of directors, which consisted of the majority owner’s wife and his father, transferred substantial corporate assets to themselves as salary and dividends. The remaining assets and business operations were transferred to another company that the defendant owned. In the midst of these activities, the defendant kept sending misleading information to the plaintiffs, first telling them to seek recovery from the defendant corporation, then advising them that the corporation had no assets. Would the defendant’s actions allow him to reduce his liability?

17-8) Jumping Jills, Inc., was a corporation that provided trampolines for the use of the public. Defendant Jones owned 80 percent of the stock of Jumping Jills, Inc.; his wife owned 10 percent; and his stepson owned the remaining 10 percent. Jones also owned a drive-in theater located next to the trampoline business. The finances of the two businesses were kept completely separate, and the family finances were kept separate from those of both businesses. The public had no notice that the ownership of the two businesses was similar. Jumping Jills employed two persons. It had been in business for only three months when young Banks was injured on one of its trampolines. Jumping Jills’ insurance company went bankrupt and, thus, could not compensate Banks for his injuries. The corporation itself had no assets, so Banks sought to recover from the major shareholder, Jones. Would Banks be successful?

18-1) Did Congress or the president create administrative agencies? Explain.

18-2 ) What are the two major functions of administrative agencies? Explain. 1

8-3 ) Explain the distinction between executive administrative agencies and independent administrative agencies.

18-4 ) Do the courts check the power of administrative agencies? Explain.