Question Analysis
In 2011, Molly and Lenny started a computer software business. Molly prepared marketing materials and Lenny made sales calls. During the first year, Lenny sold 10 copies of certain software programs for $50,000 each. The business had a net profit of $480,000 and Molly and Lenny each received $240,000. (General Partnership)
In January 2012, Molly and Lenny hired an attorney to incorporate their business under the name “Software Inc.” (Pre incorporation M and L are promoters) The attorney properly prepared all necessary documents to incorporate the business but carelessly failed to file them with the Secretary of State. (de facto corporation/corporation by estoppel)
Lenny continued to make sales calls to sell the software. He also sold a five-year service contract developed by Molly. Due to brisk sales, Software Inc. projected income of about $300,000 per year for the next five years from the service contracts alone. Software Inc. obtained a $100,000 business loan from National Bank secured by the accounts receivable for the service contracts. (partners or shareholder/employee's liability to the loan, piercing corporate veil)
In May 2012, Lenny had an automobile accident, caused solely by his own negligence, on the way to visit a prospective buyer. (on the scope of employment. L was an agent of Software Inc.) The accident injured a pedestrian. As a result of the accident, Lenny stopped working and sales collapsed.
In July 2012, Software Inc. went out of business, leaving negligible assets and the unpaid loan to National Bank.
1. Is Software Inc., Molly, and/or Lenny liable to the pedestrian for the injury? (#1) Discuss.
2. Is Software Inc., Molly, and/or Lenny liable to National Bank for the loan? (#2) Discuss.
Outline
1. Liability to P
(1) L
1) personal liable
(2) M
1) De facto corporation
2) Piercing corporate veil
3) partnership
(3) Software Inc.
1) Agency
2. Liability to Bank
(1) Software Inc.
(2) M&L
1) corporation
- de facto corporation
- corporation by estoppel
- piercing corporate veil
2) partnership