Anicom Inc. was a wire distribution company founded in the early 1990s. Its stock became
publicly traded, and the company adopted a strategy to increase market share and to expand its
operations. Between 1995 and 1997, Anicom acquired 12 companies. Each of these transactions
involved some payment in the form of Anicom stock. During this time, PricewaterhouseCoopers LLP
rendered accounting, audit, and various types of consulting services to Anicom.
In 1996, Anicom began engaging in improper accounting procedures to enable it to report that
it had met sales and revenue goals. The procedures included the use of fictitious sales orders or
prebills for goods that were not ordered. PwC became aware of these practices in July 1997 when it
was asked to investigate Anicom’s billing practices. After conducting its investigation, PwC reported
to Donald C. Welchco, Anicom’s vice president and CFO, that improper billing had occurred at Anicom
branches and that, in the absence of controls, the practice might arise at other branches as well. No
mention of these irregularities was made in PwC’s audits of Anicom’s 1998 and 1999 financial
statements. Indeed, PwC issued opinions that Anicom’s financial statements were accurate, complete,
and conformed with GAAP and that its audits were performed according to GAAS.
In September 1998, Anicom made an asset purchase agreement to acquire the wire and cable
distribution assets of three companies: Texcan Cables Ltd. (known now as Tricontinental Distribution
Ltd.), Texcan Cables Inc., and Texcan Cables International Inc. Anicom acquired those assets in
exchange for cash and Anicom stock. After the transaction, Tricontinental Distribution and Texcan
Cables transferred their stock to Tricontinental Industries, Ltd.
On July 18, 2000, Anicom announced that it was investigating possible accounting irregularities
that could result in revision of its 1998, 1999, and first-quarter 2000 financial statements by as much
as $35 million. Accordingly, Anicom announced that its 1998 and 1999 financial statements should no
longer be relied upon. After conducting an internal investigation, Anicom further announced that,
subject to audit, it believed that, for the period from the first quarter of 1998 to the first quarter of
2000, the company had overstated revenue by approximately $39.6 million. None of the company’s
announcements or disclosures ever stated that full-year 1997 revenue or net income had been
materially misstated or that any of Anicom’s prior financial results were inaccurate in any way. On
January 5, 2001, Anicom filed for bankruptcy protection.
In July 2001, Tricontinental filed an action against PwC for negligent misrepresentation.
Tricontinental maintained that PwC knew that Tricontinental was relying on Anicom’s audited financial
statement for 1997 and, specifically, was relying on PwC’s representation that the audit was performed
in a manner consistent with GAAS and that Anicom’s financial statements conformed with GAAP.
These statements, Tricontinental alleged, were materially false, misleading, and without reasonable
basis.
PwC moved to dismiss Tricontinental’s complaint on the grounds that PwC owed no duty to
Tricontinental because the Illinois Public Accounting Act (IPAA) limited PwC’s liability to persons who
were either in privity of contract with PwC or for whose primary intent Anicom had secured PwC’s
services. The district court granted PwC’s motion. Tricontinental appealed.
Ripple, Circuit Judge
In order to state a claim for negligent misrepresentation under Illinois law, a party must allege:
(1) a false statement of material fact; (2) carelessness or negligence in ascertaining the truth of the
statement by the party making it; (3) an intention to induce the other party to act; (4) action by the
other party in reliance on the truth of the statement; (5) damage to the other party resulting from
such reliance; and (6) a duty on the party making the statement to communicate accurate information.
The Illinois courts have considered, on several occasions, the application of these requirements,
specifically, the element of duty, as it applies to public accountants. The Illinois Appellate Court first
spoke to this issue in Brumley v. Touche, Ross & Co., 463 N.E.2d 195 (Ill. App. Ct. 1984) (Brumley I). In
that case, the court reviewed the various approaches that courts around the country had adopted for
accountant liability to third parties: (1) the standard set forth in Ultramares Corp. v. Touche, 174 N.E.
441 (N.Y. 1931), which held that public accountants could not be liable in negligence to third parties
absent privity; (2) a reasonable foreseeability standard; and (3) a more limited foreseeability rule that
public accountants may be liable to plaintiffs, who are not exactly identifiable, but who belong to a
limited class of persons whose reliance on the accountant’s representations is specifically foreseen.
The appellate court held that the plaintiff’s complaint was insufficient to set forth a duty on the part
of defendant to plaintiff because “the complaint did not allege Touche Ross knew of plaintiff or that
the report was to be used by KPK to influence plaintiff’s purchase decision nor does it allege that was
the primary purpose and intent of the preparation of the report by Touche Ross for KPK.” Id. (emphasis
added).
In Brumley v. Touche, Ross & Company, 487 N.E.2d 641 (Ill. App. Ct. 1985) (Brumley II), the court
revisited this standard. In Brumley II, the plaintiff had argued that the Supreme Court of Illinois had
altered the standard for liability for attorneys, which necessitated a change by the appellate court with
respect to accountant liability. The appellate court rejected this argument: it is apparent that to be
sufficient plaintiff’s complaint must allege facts showing that the purpose and intent of the
accountantclient relationship was to benefit or influence the third-party plaintiff. 487 N.E.2d at 644–
45 (emphasis added).
Shortly after Brumley II, the Illinois legislature enacted the Illinois Public Accounting Act, 225 ILCS
450/30.1, which provides: No person, partnership, corporation, or other entity licensed or authorized
to practice under this Act . . . shall be liable to persons not in privity of contract with such person,
partnership, corporation, or other entity for civil damages resulting from acts, omissions, decisions or
other conduct in connection with professional services performed by such person, partnership,
corporation, or other entity, except for:
(1) such acts, omissions, decisions or conduct that constitute fraud or intentional
misrepresentations, or (2) such other acts, omissions, decisions or conduct, if such person,
partnership or corporation was aware that a primary intent of the client was for the
professional services to benefit or influence the particular person bringing the action;
provided, however, for the purposes of this subparagraph (2), if such person, partnership,
corporation, or other entity (i) identifies in writing to the client those persons who are
intended to rely on the services, and (ii) sends a copy of such writing or similar statement to
those persons identified in the writing or statement, then such person, partnership,
corporation, or other entity or any of its employees, partners, members, officers or
shareholders may be held liable only to such personsintended to so rely, in addition to those
persons in privity of contract with such person, partnership, corporation, or other entity.
Following IPAA’s passage, there was some question regarding the effect of the IPAA on
accountant liability. We are obliged, however, to follow the interpretation given the language by
the state appellate court in Chestnut Corp. v. Pestine, Brinati, Gamer, Ltd., 667 N.E.2d 543, 546–
47 (Ill. App. Ct. 1996). The Illinois court took the view that the first clause of subparagraph (2)
states the general rule of accountant liability as set out in Brumley while the second clause creates
a legislative exception to the general rule. Continued the court: [T]o adopt the defendants’
interpretation of the statute would require us to hold, as a matter of law, that accountants are
never liable to third parties, absent fraud or intentional misrepresentation, unless they agree in
writing to expose themselves to liability. The law in Illinois would have come full circle then and
returned to the rationale of Ultramares in 1931. Absent a clear signal from the legislature orthe
supreme court thatsuch a return isintended, we believe the observation of the trial court and the
evolution of the law since Ultramares provides a useful background as one measures the statute’s
meaning.
Id. at 547.
Although the Supreme Court of Illinois has not spoken to the issue, Illinois Appellate Courts
seem to agree that the IPAA embodies the rule applied to accountants in Brumley II: The plaintiff
must show that a primary purpose and intent of the accountant-client relationship was to benefit
or influence the third-party plaintiff.
The primary intent rule, however, has proven to be somewhat difficult to define in practical
terms. For instance, disputes have arisen regarding whether the “primary intent” of the client
must be contemporaneous with the accountant’s work product on which the third party relies.
With respect to this issue, the Illinois Appellate Court has stated:
In terms of timing, we do not read the statute to strictly require that an accountant be made
aware of his client’s intention to influence or benefit a third party only at the time the work
product was created as defendant contends. The standard requires that a plaintiff prove that the
primary purpose and intent of the client was to benefit or influence the third party. In Brumley II,
we held that the plaintiff in that case met the standard because he alleged that the defendant
knew of the plaintiff’s reliance on the defendant’s reports and that the defendant had
subsequently verified its accuracy. We do not, however, read Brumley II as per se requiring
independent verification in order to meet the standard in Pelham. Other conduct may be
sufficient to satisfy Pelham.
Builders Bank v. Barry Finkel & Assocs., 790 N.E.2d 30, 37 (Ill. App. Ct. 2003) (emphasis added).
Further, although Illinois case law has established that “independent verification” is not a per
se requirement, Illinois courts have not set forth in detail what “other conduct” may satisfy the
“primary intent” standard. The cases, however, do establish that some affirmative action on behalf
of the defendant-accountant is necessary. For instance, in Builders Bank, the record indicated
that Finkel, the accountant, was told by Urkov, the company owner, that UMC was applying for
a loan and requested that financial statements be furnished to UMC. The record further
establishes that Finkel personally met with UMC on two occasions to discuss issues related to the
loan. In at least one meeting, UMC was seeking an increase of $200,000 on a loan that had
already been approved. In our view, it is reasonable to infer that Finkel played an active role in
securing the loan or increasing the loan amount for UMC. From this evidence, a finder of fact
could conclude, pursuant to the statute, that Finkel knew its work was being used to influence
UMC at least at the time of the second meeting and that defendant, at minimum, presented its
work as accurate. Id.
Similarly, in Freeman, Freeman & Salzman, P.C. v. Lipper, 812 N.E.2d 562 (Ill. App. Ct. 2004),
the court held that the standard had been met by the allegation that the accountant to an
investment fund had “issued clean audit opinions on each investment partner’s capital accounts
for those years”; had “addressed and sent its clean audit opinions to the partners who invested
in those funds, including plaintiffs”; and had “prepared federal income tax Schedules K-l for
plaintiffs and the limited partners each year.” Id. at 566–67. Furthermore, “each Schedule K-1
purported to reflect each partner’s proportionate share of the partnership’s net income for the
year, as well as each partner’s capital account balance at the beginning and end of each year.”
Id. at 567.
Finally, in Chestnut Corp., the court held that the plaintiffs had stated a claim for negligent
misrepresentation by alleging that the plaintiff’s representatives had gone to the offices of the
defendantaccountantsto discusstheir possible investment in the client company and to review its
financial condition. In response to specific inquiries by the plaintiff’s representatives, the
defendants “stated that the audit was accurately performed according to generally accepted
auditing standards.” Chestnut Corp., 667 N.E.2d at 545.
In sum, the duty owed by a professional accountant to non-client third-parties is the
standard articulated in Brumley II and codified in the IPAA. The IPAA providesthat an individual
accountant, partnership or firm will be liable to a third party for negligence only “if such person,
partnership or corporation was aware that a primary intent of the client was for the professional
services to benefit or influence the particular person.” This “primary intent” may be demonstrated
by “independent verification” or by other affirmative actions taken by the accountant and
directed to the third party.
With this standard in mind, we turn to the allegations set forth in the Amended Complaint
to determine whether they state a claim for relief.
With respect to the negligent misrepresentation claim, Tricontinental alleged as follows:
163. Prior to the time that PwC conducted its 1997 audit, PwC had assisted Anicom in raising
money for acquisitions and finding acquisition candidates. And, in 1997, PwC well knew that
Anicom was seeking to complete additional acquisitions. PwC most certainly knew that
acquisition candidates, such as Plaintiffs, would rely on the 1997 Form 10-K in making their
decisions on whether to invest in Anicom’s securities. 164. PwC knew prior to the closing of the
Texcan transaction that Plaintiffs were negotiating to sell significant assets to Anicom in exchange
in part for Anicom securities. PwC was on the circulation lists for drafts of the Asset Purchase
Agreement and PwC conducted due diligence of Texcan for Anicom. PwC knew that Plaintiffs
had received and were relying on Anicom’s Form 10-K for 1997 and, in particular, PwC’s
unqualified audit report, and that Anicom intended that Plaintiffs rely on the 10-K and PwC’s
audit report in assessing an investment in Anicom. Despite its awareness of these facts, and
despite its knowledge from its own investigation and its involvement in the business of Anicom
that Anicom was engaged in improper accounting practices and lacked adequate controls to
prevent these irregular practices, PwC intentionally or recklessly failed to withdraw its audit
opinion on the 1997 financialstatements. Instead, PwCallowed Plaintiffs to rely on the false and
misleading information contained in Anicom’s Form 10-K for 1997.
As noted by the district court, these allegations do not demonstrate any “independent
verification” provided by PwC to Tricontinental. However, such verification to the third party is
not a per se requirement. “Other conduct” by PwC directed to Tricontinental also may satisfy the
“primary intent” requirement of the IPAA. Tricontinental alleges that PwC knew of its reliance on
the 1997 audit opinion, knew of the misrepresentation contained in the statement and “allowed
plaintiffs to rely on the false and misleading information.” However, Illinois cases, fairly read, make
clear that the IPAA requires more. In order to state a claim under the IPAA, Tricontinental must
allege that it was a primary purpose “of the accountant-client relationship . . . to benefit or
influence” Tricontinental. None of the allegations contained in the above-recited paragraphs
support such an inference. Indeed, the opposite appears to be the case. The actions taken by
PwC— assisting Anicom in raising money for acquisitions, conducting due diligence “for Anicom,”
and being included on the circulation lists during the transaction—are examples of Anicom’s use
of PwC’s services for its own benefit, not that of Tricontinental. Consequently, although we agree
with Tricontinental that neither privity nor independent verification need to be asserted or shown
in order to state a claim, Tricontinental must set forth a short and plain statement of the claim
showing that it is entitled to relief. Absent an allegation that fairly states that Anicom’s primary
intent in retaining and utilizing PwC’s services and work product during the transaction was to
influence Tricontinental, or absent factual allegations that support such an inference,
Tricontinental has not stated a claim for negligent misrepresentation under Illinois law.
Judgment for PricewaterhouseCoopers affirmed.
QUESTIONS:
2. Al Rizek was a vice president of PaineWebber of Puerto Rico. One of his clients was Jorge
Donato. Donato told Rizek that he was primarily interested in long-term bonds and the safety of
his investment. In early 1993, Rizek recommended to Donato a strategy of short-term trading of
zero-coupon bonds. Zerocoupon bonds are U.S. government instruments that accumulate
interest until maturity, rather than paying interest periodically. The value of a zero-coupon bond
is very sensitive to changes in interest rates. Rizek recommended that Donato purchase the bonds
on margin, thus magnifying the potential gains and losses. Purchasing on margin meant that
Donato had to make monthly margin interest payments to PaineWebber; it also placed him at
risk of being forced to sell at a loss to meet a margin call. During the 15-month period from
January 1993 to March 1994, Donato’s account had average monthly balances of $85,000. During
this time, Rizek carried out $2 million in transactions on the account. Rizek’s strategy led to losses
of approximately $12,000. Rizek received about $15,000 in commissions. Donato sued Rizek and
Paine Webber to recover the damages he suffered. Have Rizek and PaineWebber violated the
common law of negligence or Securities Exchange Act Rule 10b–5?
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
by
Robert S. Wiener
Problem solutions and examination essay answers are similar. Both call upon
you to apply legal principles to practical business situations. Your answers must set
forth reasons for conclusions stated. Organize and write them clearly using standardEnglish syntax and spelling. Include the area of law, parties, and legal issues. Include,
explain, and apply legal terms.
PROBLEM SOLUTIONS
Problem solving prepares you to write examination essays. Read the chapter and
assigned case opinions and write your case briefs. Then read the first assigned problem
a couple of times. Return to the text and analytically read the part of the chapter that
discusses the legal issue(s) raised in the problem. Keep an eye out for legal terms in
the problem. They are a key to the legal issue(s) and may appear in bold type in the
text. Read the problem again. You may want to make notes for your solution now — at
least, organize it in your mind. Do this without looking back at the text.
You are ready to write your problem solution. The advice given in “Cases and
Briefs” will help. For problems containing multiple questions, repeat the brief format writing your solution as an essay using separate paragraphs for separate sections. You do
not need to use headings. Leave space at the margins and between the sections of
your solution to revise it, for example, during/after classroom review.
The format for a problem solution and essay answer is a modification of your
brief format. It will generally look like this:
January 28, 211/28/21
1
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
I
JUDGMENT
II
A
B
LEGAL PRINCIPLE
ISSUE
(Question of Law)
HOLDING (Answer of Law)
A
B
REASONING
GENERAL ANALYSIS
APPLIED ANALYSIS
III
IV
JUDGMENT
I. JUDGMENT
In the first section, present your judgment. Omit the facts section. Copying facts
takes time with no benefit; however, you will refer to specific facts in your applied analysis section. Unlike briefs where you are asked to show your understanding of the
judge’s judgment, here you give your judgment (legal decision) based upon legal principles. Usually, in your problem solution you are called upon to judge a case, that is, to
decide who wins and explain why. If you are not yet clear on your judgment, leave this
section blank and return to it after you have written your reasoning sections.
II. LEGAL PRINCIPLE
Now your real work begins. In this section write the key legal principle guiding
your judgment, that is, your issue and holding. Merely writing the judgment is not
enough, even if it is correct. More importantly, you must explain your judgment. How
did you arrive at your conclusion?
!
1/28/21
2
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
I. REASONING
A. GENERAL ANALYSIS
This is General Analysis is the first part of your legal reasoning, your, including
the area of law. Elaborate on the issue and holding and discuss secondary legal issues.
This section should be fully developed, step-by-step, particularly for examination essays. You will base this on legal principles learned from reading the textbook, reading
and briefing cases, and class lecture and discussion.
B. APPLIED ANALYSIS
In Applied Analysis apply the general analysis to the problem’s relevant facts.
IV. JUDGMENT
Repeat your judgment to confirm that this is the legal decision to which your analysis leads. Has your judgment changed? If so, correct the judgment in your first section
so that both judgments match.
Problems and essay questions are often tricky. You may be unsure of the judgment. That is OK. There may be no clear answer. The correct answer usually earns only
10 points on an examination. And you may earn full credit for either of two different answers. Your objective is to convey that you have thought through the case from a business law perspective; therefore, the most important parts of your problem solutions and
essay answers are your legal principle and reasoning section.
How much time should this take? In order to be prepared to write well-organized
and thorough exam essays, for homework problem solutions, first read the relevant part
of the of textbook, then spend at least 20 minutes answering each problem.
January 28, 211/28/21
3
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
ESSAY ANSWERS
Essay answers are different from problem solutions in a few ways. Exams are
closed book and timed. You may have aout 40 minutes to answer an exam essay compared to 15-20 minutes on a CPA exam. First, read the question at the end of the essay. Next, use your case reading techniques to read the question’s facts several times.
Plan your answer before you begin writing. Crossing out and rewriting essay answers
wastes time. Exam questions are likely to be lengthier and more complicated than problems, with more facts and raising several legal issues rather than just one.
Grading of Essay Answers
Your grades on exam essay answers largely reflect your preparation. If you have
written your assignments (both case briefs and problem solutions), participated in class,
taken effective notes, and studied your assignments and notes well, reviewing them
soon after class, you should understand the legal principles and be able you to apply
them to new situations.
To earn more essay points, spot legal issues in essay questions. Then answer
those questions using legal terms to explain and apply relevant legal principles learned
in class. Basic terms, especially those written on the board, may earn credit if used appropriately and explained. A minimum of 120 points will be available for each exam; correct judgments earn 10 points. Sometimes, legal labeling of parties, for example, assignor and assignee in an assignment of rights contract case, will earn credit.
The better you prepare for exam essays by writing class assignments (and even
writing extra practice problem solution essays), the better you will perform on the exam
essays.
1/28/21
4
1
SmithStearn Yachts., Inc. vs. Gyroghraphic Communications
I.
JUDGEMENT
SmithStearn Yachts has absolute rights and duties of the initial contract. A company is
not confined by agreements agreed upon by an advertiser prior to its being. Nevertheless, if a
company adopts the contract, it attains the absolute rights and responsibilities of the initial
contract regardless.
II.
LEGAL PRINCIPLE
A. Issue
Whether the court should rule in favor of Gyrographic without knowing the breach of
contract laws?
B. No
III.
REASONING
A. A General Analysis
SmithStearn Yachts, Inc, accepted to relinquish into a pre-incorporation contract with
Gyrographic Communications, Inc. under the brand name SmithStearn, LLC. Gyrographic
ascended to the terms to offer advertising and marketing services to SmithStearn. However,
SmithStearn, LLC. was by no means shaped, but it was established under SmithStearn Yachts,
Inc. Eventually, “SmithStearn Yachts, Inc. sued Gyrographic” for violation of agreement, but
Gyrographic held that it had the agreement with “SmithStearn Yachts, LLC., not SmithStearn
Yachts, Inc.”
B. Applied Analysis
Contracts do not bind a company agreed on its behalf before its being. The company can
attain civil liberties and “subject itself” to responsibilities concerning pre-incorporation issues. A
2
contract agreed on in the name of a rudimentary company can be enforced after the company is
structured on the principles of ratification.
IV.
JUDGEMENT
SmithStearn Yachts has absolute rights and duties of the initial contract. A company is
not confined by agreements agreed upon by an advertiser before its being.
QUESTIONS:
3. Waddell is individually accountable as an advertiser for the building agreement ascended on in
the surname of R.H. Waddell Construction. He entered the contract on behalf of R.H. Waddell
Construction prior to its formation; therefore, he was a promoter. In this case, an advertiser is
individually accountable for any agreements entered in on behalf of the company awaiting both
the promoter, company, and “the third party agree to release the promoter.” Also, a promoter of
any organization is always an owner or director of a company responsible for forming or
founding the business and the business should be given a certificate of incorporation prior to
proceeding to its operation. However, if the corporation has not yet been given a certificate,
anyone who enters into a contract on its behalf or is an agent will be held liable. In this case, if
Valiga sues Waddell Construction for running minus the appropriate registration with the State
Tennessee prior to entering into a contract, Waddell, the promoter of R.H. Corporation, will be
held liable to Robert Valiga. Therefore, “Is Waddell personally liable as a promoter for the
construction contract signed in the name of R. H. Waddell Construction?”
3
8. I agree that Fujian paid an appropriate consideration for the shares. The law holds that the
board of directors is permitted to give shares on behalf of the company. In this case, the board of
directors did not give shares with proper consideration as there have to be necessities concerning
the actual value given to safeguarding the creditors’ and shareholders’ interests. Therefore, it is
not worth it to serve the corporation five years, issuing her nothing on the promissory note. In
this regard, has Fujian paid a proper consideration for the shares?
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
by
Robert S. Wiener
Problem solutions and examination essay answers are similar. Both call upon
you to apply legal principles to practical business situations. Your answers must set
forth reasons for conclusions stated. Organize and write them clearly using standardEnglish syntax and spelling. Include the area of law, parties, and legal issues. Include,
explain, and apply legal terms.
PROBLEM SOLUTIONS
Problem solving prepares you to write examination essays. Read the chapter and
assigned case opinions and write your case briefs. Then read the first assigned problem
a couple of times. Return to the text and analytically read the part of the chapter that
discusses the legal issue(s) raised in the problem. Keep an eye out for legal terms in
the problem. They are a key to the legal issue(s) and may appear in bold type in the
text. Read the problem again. You may want to make notes for your solution now — at
least, organize it in your mind. Do this without looking back at the text.
You are ready to write your problem solution. The advice given in “Cases and
Briefs” will help. For problems containing multiple questions, repeat the brief format writing your solution as an essay using separate paragraphs for separate sections. You do
not need to use headings. Leave space at the margins and between the sections of
your solution to revise it, for example, during/after classroom review.
The format for a problem solution and essay answer is a modification of your
brief format. It will generally look like this:
January 28, 211/28/21
1
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
I
JUDGMENT
II
A
B
LEGAL PRINCIPLE
ISSUE
(Question of Law)
HOLDING (Answer of Law)
A
B
REASONING
GENERAL ANALYSIS
APPLIED ANALYSIS
III
IV
JUDGMENT
I. JUDGMENT
In the first section, present your judgment. Omit the facts section. Copying facts
takes time with no benefit; however, you will refer to specific facts in your applied analysis section. Unlike briefs where you are asked to show your understanding of the
judge’s judgment, here you give your judgment (legal decision) based upon legal principles. Usually, in your problem solution you are called upon to judge a case, that is, to
decide who wins and explain why. If you are not yet clear on your judgment, leave this
section blank and return to it after you have written your reasoning sections.
II. LEGAL PRINCIPLE
Now your real work begins. In this section write the key legal principle guiding
your judgment, that is, your issue and holding. Merely writing the judgment is not
enough, even if it is correct. More importantly, you must explain your judgment. How
did you arrive at your conclusion?
!
1/28/21
2
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
I. REASONING
A. GENERAL ANALYSIS
This is General Analysis is the first part of your legal reasoning, your, including
the area of law. Elaborate on the issue and holding and discuss secondary legal issues.
This section should be fully developed, step-by-step, particularly for examination essays. You will base this on legal principles learned from reading the textbook, reading
and briefing cases, and class lecture and discussion.
B. APPLIED ANALYSIS
In Applied Analysis apply the general analysis to the problem’s relevant facts.
IV. JUDGMENT
Repeat your judgment to confirm that this is the legal decision to which your analysis leads. Has your judgment changed? If so, correct the judgment in your first section
so that both judgments match.
Problems and essay questions are often tricky. You may be unsure of the judgment. That is OK. There may be no clear answer. The correct answer usually earns only
10 points on an examination. And you may earn full credit for either of two different answers. Your objective is to convey that you have thought through the case from a business law perspective; therefore, the most important parts of your problem solutions and
essay answers are your legal principle and reasoning section.
How much time should this take? In order to be prepared to write well-organized
and thorough exam essays, for homework problem solutions, first read the relevant part
of the of textbook, then spend at least 20 minutes answering each problem.
January 28, 211/28/21
3
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
ESSAY ANSWERS
Essay answers are different from problem solutions in a few ways. Exams are
closed book and timed. You may have aout 40 minutes to answer an exam essay compared to 15-20 minutes on a CPA exam. First, read the question at the end of the essay. Next, use your case reading techniques to read the question’s facts several times.
Plan your answer before you begin writing. Crossing out and rewriting essay answers
wastes time. Exam questions are likely to be lengthier and more complicated than problems, with more facts and raising several legal issues rather than just one.
Grading of Essay Answers
Your grades on exam essay answers largely reflect your preparation. If you have
written your assignments (both case briefs and problem solutions), participated in class,
taken effective notes, and studied your assignments and notes well, reviewing them
soon after class, you should understand the legal principles and be able you to apply
them to new situations.
To earn more essay points, spot legal issues in essay questions. Then answer
those questions using legal terms to explain and apply relevant legal principles learned
in class. Basic terms, especially those written on the board, may earn credit if used appropriately and explained. A minimum of 120 points will be available for each exam; correct judgments earn 10 points. Sometimes, legal labeling of parties, for example, assignor and assignee in an assignment of rights contract case, will earn credit.
The better you prepare for exam essays by writing class assignments (and even
writing extra practice problem solution essays), the better you will perform on the exam
essays.
1/28/21
4
1
SmithStearn Yachts., Inc. vs. Gyroghraphic Communications
I.
JUDGEMENT
SmithStearn Yachts has absolute rights and duties of the initial contract. A company is
not confined by agreements agreed upon by an advertiser prior to its being. Nevertheless, if a
company adopts the contract, it attains the absolute rights and responsibilities of the initial
contract regardless.
II.
LEGAL PRINCIPLE
A. Issue
Whether the court should rule in favor of Gyrographic without knowing the breach of
contract laws?
B. No
III.
REASONING
A. A General Analysis
SmithStearn Yachts, Inc, accepted to relinquish into a pre-incorporation contract with
Gyrographic Communications, Inc. under the brand name SmithStearn, LLC. Gyrographic
ascended to the terms to offer advertising and marketing services to SmithStearn. However,
SmithStearn, LLC. was by no means shaped, but it was established under SmithStearn Yachts,
Inc. Eventually, “SmithStearn Yachts, Inc. sued Gyrographic” for violation of agreement, but
Gyrographic held that it had the agreement with “SmithStearn Yachts, LLC., not SmithStearn
Yachts, Inc.”
B. Applied Analysis
Contracts do not bind a company agreed on its behalf before its being. The company can
attain civil liberties and “subject itself” to responsibilities concerning pre-incorporation issues. A
2
contract agreed on in the name of a rudimentary company can be enforced after the company is
structured on the principles of ratification.
IV.
JUDGEMENT
SmithStearn Yachts has absolute rights and duties of the initial contract. A company is
not confined by agreements agreed upon by an advertiser before its being.
QUESTIONS:
3. Waddell is individually accountable as an advertiser for the building agreement ascended on in
the surname of R.H. Waddell Construction. He entered the contract on behalf of R.H. Waddell
Construction prior to its formation; therefore, he was a promoter. In this case, an advertiser is
individually accountable for any agreements entered in on behalf of the company awaiting both
the promoter, company, and “the third party agree to release the promoter.” Also, a promoter of
any organization is always an owner or director of a company responsible for forming or
founding the business and the business should be given a certificate of incorporation prior to
proceeding to its operation. However, if the corporation has not yet been given a certificate,
anyone who enters into a contract on its behalf or is an agent will be held liable. In this case, if
Valiga sues Waddell Construction for running minus the appropriate registration with the State
Tennessee prior to entering into a contract, Waddell, the promoter of R.H. Corporation, will be
held liable to Robert Valiga. Therefore, “Is Waddell personally liable as a promoter for the
construction contract signed in the name of R. H. Waddell Construction?”
3
8. I agree that Fujian paid an appropriate consideration for the shares. The law holds that the
board of directors is permitted to give shares on behalf of the company. In this case, the board of
directors did not give shares with proper consideration as there have to be necessities concerning
the actual value given to safeguarding the creditors’ and shareholders’ interests. Therefore, it is
not worth it to serve the corporation five years, issuing her nothing on the promissory note. In
this regard, has Fujian paid a proper consideration for the shares?
Purchase answer to see full
attachment
publicly traded, and the company adopted a strategy to increase market share and to expand its
operations. Between 1995 and 1997, Anicom acquired 12 companies. Each of these transactions
involved some payment in the form of Anicom stock. During this time, PricewaterhouseCoopers LLP
rendered accounting, audit, and various types of consulting services to Anicom.
In 1996, Anicom began engaging in improper accounting procedures to enable it to report that
it had met sales and revenue goals. The procedures included the use of fictitious sales orders or
prebills for goods that were not ordered. PwC became aware of these practices in July 1997 when it
was asked to investigate Anicom’s billing practices. After conducting its investigation, PwC reported
to Donald C. Welchco, Anicom’s vice president and CFO, that improper billing had occurred at Anicom
branches and that, in the absence of controls, the practice might arise at other branches as well. No
mention of these irregularities was made in PwC’s audits of Anicom’s 1998 and 1999 financial
statements. Indeed, PwC issued opinions that Anicom’s financial statements were accurate, complete,
and conformed with GAAP and that its audits were performed according to GAAS.
In September 1998, Anicom made an asset purchase agreement to acquire the wire and cable
distribution assets of three companies: Texcan Cables Ltd. (known now as Tricontinental Distribution
Ltd.), Texcan Cables Inc., and Texcan Cables International Inc. Anicom acquired those assets in
exchange for cash and Anicom stock. After the transaction, Tricontinental Distribution and Texcan
Cables transferred their stock to Tricontinental Industries, Ltd.
On July 18, 2000, Anicom announced that it was investigating possible accounting irregularities
that could result in revision of its 1998, 1999, and first-quarter 2000 financial statements by as much
as $35 million. Accordingly, Anicom announced that its 1998 and 1999 financial statements should no
longer be relied upon. After conducting an internal investigation, Anicom further announced that,
subject to audit, it believed that, for the period from the first quarter of 1998 to the first quarter of
2000, the company had overstated revenue by approximately $39.6 million. None of the company’s
announcements or disclosures ever stated that full-year 1997 revenue or net income had been
materially misstated or that any of Anicom’s prior financial results were inaccurate in any way. On
January 5, 2001, Anicom filed for bankruptcy protection.
In July 2001, Tricontinental filed an action against PwC for negligent misrepresentation.
Tricontinental maintained that PwC knew that Tricontinental was relying on Anicom’s audited financial
statement for 1997 and, specifically, was relying on PwC’s representation that the audit was performed
in a manner consistent with GAAS and that Anicom’s financial statements conformed with GAAP.
These statements, Tricontinental alleged, were materially false, misleading, and without reasonable
basis.
PwC moved to dismiss Tricontinental’s complaint on the grounds that PwC owed no duty to
Tricontinental because the Illinois Public Accounting Act (IPAA) limited PwC’s liability to persons who
were either in privity of contract with PwC or for whose primary intent Anicom had secured PwC’s
services. The district court granted PwC’s motion. Tricontinental appealed.
Ripple, Circuit Judge
In order to state a claim for negligent misrepresentation under Illinois law, a party must allege:
(1) a false statement of material fact; (2) carelessness or negligence in ascertaining the truth of the
statement by the party making it; (3) an intention to induce the other party to act; (4) action by the
other party in reliance on the truth of the statement; (5) damage to the other party resulting from
such reliance; and (6) a duty on the party making the statement to communicate accurate information.
The Illinois courts have considered, on several occasions, the application of these requirements,
specifically, the element of duty, as it applies to public accountants. The Illinois Appellate Court first
spoke to this issue in Brumley v. Touche, Ross & Co., 463 N.E.2d 195 (Ill. App. Ct. 1984) (Brumley I). In
that case, the court reviewed the various approaches that courts around the country had adopted for
accountant liability to third parties: (1) the standard set forth in Ultramares Corp. v. Touche, 174 N.E.
441 (N.Y. 1931), which held that public accountants could not be liable in negligence to third parties
absent privity; (2) a reasonable foreseeability standard; and (3) a more limited foreseeability rule that
public accountants may be liable to plaintiffs, who are not exactly identifiable, but who belong to a
limited class of persons whose reliance on the accountant’s representations is specifically foreseen.
The appellate court held that the plaintiff’s complaint was insufficient to set forth a duty on the part
of defendant to plaintiff because “the complaint did not allege Touche Ross knew of plaintiff or that
the report was to be used by KPK to influence plaintiff’s purchase decision nor does it allege that was
the primary purpose and intent of the preparation of the report by Touche Ross for KPK.” Id. (emphasis
added).
In Brumley v. Touche, Ross & Company, 487 N.E.2d 641 (Ill. App. Ct. 1985) (Brumley II), the court
revisited this standard. In Brumley II, the plaintiff had argued that the Supreme Court of Illinois had
altered the standard for liability for attorneys, which necessitated a change by the appellate court with
respect to accountant liability. The appellate court rejected this argument: it is apparent that to be
sufficient plaintiff’s complaint must allege facts showing that the purpose and intent of the
accountantclient relationship was to benefit or influence the third-party plaintiff. 487 N.E.2d at 644–
45 (emphasis added).
Shortly after Brumley II, the Illinois legislature enacted the Illinois Public Accounting Act, 225 ILCS
450/30.1, which provides: No person, partnership, corporation, or other entity licensed or authorized
to practice under this Act . . . shall be liable to persons not in privity of contract with such person,
partnership, corporation, or other entity for civil damages resulting from acts, omissions, decisions or
other conduct in connection with professional services performed by such person, partnership,
corporation, or other entity, except for:
(1) such acts, omissions, decisions or conduct that constitute fraud or intentional
misrepresentations, or (2) such other acts, omissions, decisions or conduct, if such person,
partnership or corporation was aware that a primary intent of the client was for the
professional services to benefit or influence the particular person bringing the action;
provided, however, for the purposes of this subparagraph (2), if such person, partnership,
corporation, or other entity (i) identifies in writing to the client those persons who are
intended to rely on the services, and (ii) sends a copy of such writing or similar statement to
those persons identified in the writing or statement, then such person, partnership,
corporation, or other entity or any of its employees, partners, members, officers or
shareholders may be held liable only to such personsintended to so rely, in addition to those
persons in privity of contract with such person, partnership, corporation, or other entity.
Following IPAA’s passage, there was some question regarding the effect of the IPAA on
accountant liability. We are obliged, however, to follow the interpretation given the language by
the state appellate court in Chestnut Corp. v. Pestine, Brinati, Gamer, Ltd., 667 N.E.2d 543, 546–
47 (Ill. App. Ct. 1996). The Illinois court took the view that the first clause of subparagraph (2)
states the general rule of accountant liability as set out in Brumley while the second clause creates
a legislative exception to the general rule. Continued the court: [T]o adopt the defendants’
interpretation of the statute would require us to hold, as a matter of law, that accountants are
never liable to third parties, absent fraud or intentional misrepresentation, unless they agree in
writing to expose themselves to liability. The law in Illinois would have come full circle then and
returned to the rationale of Ultramares in 1931. Absent a clear signal from the legislature orthe
supreme court thatsuch a return isintended, we believe the observation of the trial court and the
evolution of the law since Ultramares provides a useful background as one measures the statute’s
meaning.
Id. at 547.
Although the Supreme Court of Illinois has not spoken to the issue, Illinois Appellate Courts
seem to agree that the IPAA embodies the rule applied to accountants in Brumley II: The plaintiff
must show that a primary purpose and intent of the accountant-client relationship was to benefit
or influence the third-party plaintiff.
The primary intent rule, however, has proven to be somewhat difficult to define in practical
terms. For instance, disputes have arisen regarding whether the “primary intent” of the client
must be contemporaneous with the accountant’s work product on which the third party relies.
With respect to this issue, the Illinois Appellate Court has stated:
In terms of timing, we do not read the statute to strictly require that an accountant be made
aware of his client’s intention to influence or benefit a third party only at the time the work
product was created as defendant contends. The standard requires that a plaintiff prove that the
primary purpose and intent of the client was to benefit or influence the third party. In Brumley II,
we held that the plaintiff in that case met the standard because he alleged that the defendant
knew of the plaintiff’s reliance on the defendant’s reports and that the defendant had
subsequently verified its accuracy. We do not, however, read Brumley II as per se requiring
independent verification in order to meet the standard in Pelham. Other conduct may be
sufficient to satisfy Pelham.
Builders Bank v. Barry Finkel & Assocs., 790 N.E.2d 30, 37 (Ill. App. Ct. 2003) (emphasis added).
Further, although Illinois case law has established that “independent verification” is not a per
se requirement, Illinois courts have not set forth in detail what “other conduct” may satisfy the
“primary intent” standard. The cases, however, do establish that some affirmative action on behalf
of the defendant-accountant is necessary. For instance, in Builders Bank, the record indicated
that Finkel, the accountant, was told by Urkov, the company owner, that UMC was applying for
a loan and requested that financial statements be furnished to UMC. The record further
establishes that Finkel personally met with UMC on two occasions to discuss issues related to the
loan. In at least one meeting, UMC was seeking an increase of $200,000 on a loan that had
already been approved. In our view, it is reasonable to infer that Finkel played an active role in
securing the loan or increasing the loan amount for UMC. From this evidence, a finder of fact
could conclude, pursuant to the statute, that Finkel knew its work was being used to influence
UMC at least at the time of the second meeting and that defendant, at minimum, presented its
work as accurate. Id.
Similarly, in Freeman, Freeman & Salzman, P.C. v. Lipper, 812 N.E.2d 562 (Ill. App. Ct. 2004),
the court held that the standard had been met by the allegation that the accountant to an
investment fund had “issued clean audit opinions on each investment partner’s capital accounts
for those years”; had “addressed and sent its clean audit opinions to the partners who invested
in those funds, including plaintiffs”; and had “prepared federal income tax Schedules K-l for
plaintiffs and the limited partners each year.” Id. at 566–67. Furthermore, “each Schedule K-1
purported to reflect each partner’s proportionate share of the partnership’s net income for the
year, as well as each partner’s capital account balance at the beginning and end of each year.”
Id. at 567.
Finally, in Chestnut Corp., the court held that the plaintiffs had stated a claim for negligent
misrepresentation by alleging that the plaintiff’s representatives had gone to the offices of the
defendantaccountantsto discusstheir possible investment in the client company and to review its
financial condition. In response to specific inquiries by the plaintiff’s representatives, the
defendants “stated that the audit was accurately performed according to generally accepted
auditing standards.” Chestnut Corp., 667 N.E.2d at 545.
In sum, the duty owed by a professional accountant to non-client third-parties is the
standard articulated in Brumley II and codified in the IPAA. The IPAA providesthat an individual
accountant, partnership or firm will be liable to a third party for negligence only “if such person,
partnership or corporation was aware that a primary intent of the client was for the professional
services to benefit or influence the particular person.” This “primary intent” may be demonstrated
by “independent verification” or by other affirmative actions taken by the accountant and
directed to the third party.
With this standard in mind, we turn to the allegations set forth in the Amended Complaint
to determine whether they state a claim for relief.
With respect to the negligent misrepresentation claim, Tricontinental alleged as follows:
163. Prior to the time that PwC conducted its 1997 audit, PwC had assisted Anicom in raising
money for acquisitions and finding acquisition candidates. And, in 1997, PwC well knew that
Anicom was seeking to complete additional acquisitions. PwC most certainly knew that
acquisition candidates, such as Plaintiffs, would rely on the 1997 Form 10-K in making their
decisions on whether to invest in Anicom’s securities. 164. PwC knew prior to the closing of the
Texcan transaction that Plaintiffs were negotiating to sell significant assets to Anicom in exchange
in part for Anicom securities. PwC was on the circulation lists for drafts of the Asset Purchase
Agreement and PwC conducted due diligence of Texcan for Anicom. PwC knew that Plaintiffs
had received and were relying on Anicom’s Form 10-K for 1997 and, in particular, PwC’s
unqualified audit report, and that Anicom intended that Plaintiffs rely on the 10-K and PwC’s
audit report in assessing an investment in Anicom. Despite its awareness of these facts, and
despite its knowledge from its own investigation and its involvement in the business of Anicom
that Anicom was engaged in improper accounting practices and lacked adequate controls to
prevent these irregular practices, PwC intentionally or recklessly failed to withdraw its audit
opinion on the 1997 financialstatements. Instead, PwCallowed Plaintiffs to rely on the false and
misleading information contained in Anicom’s Form 10-K for 1997.
As noted by the district court, these allegations do not demonstrate any “independent
verification” provided by PwC to Tricontinental. However, such verification to the third party is
not a per se requirement. “Other conduct” by PwC directed to Tricontinental also may satisfy the
“primary intent” requirement of the IPAA. Tricontinental alleges that PwC knew of its reliance on
the 1997 audit opinion, knew of the misrepresentation contained in the statement and “allowed
plaintiffs to rely on the false and misleading information.” However, Illinois cases, fairly read, make
clear that the IPAA requires more. In order to state a claim under the IPAA, Tricontinental must
allege that it was a primary purpose “of the accountant-client relationship . . . to benefit or
influence” Tricontinental. None of the allegations contained in the above-recited paragraphs
support such an inference. Indeed, the opposite appears to be the case. The actions taken by
PwC— assisting Anicom in raising money for acquisitions, conducting due diligence “for Anicom,”
and being included on the circulation lists during the transaction—are examples of Anicom’s use
of PwC’s services for its own benefit, not that of Tricontinental. Consequently, although we agree
with Tricontinental that neither privity nor independent verification need to be asserted or shown
in order to state a claim, Tricontinental must set forth a short and plain statement of the claim
showing that it is entitled to relief. Absent an allegation that fairly states that Anicom’s primary
intent in retaining and utilizing PwC’s services and work product during the transaction was to
influence Tricontinental, or absent factual allegations that support such an inference,
Tricontinental has not stated a claim for negligent misrepresentation under Illinois law.
Judgment for PricewaterhouseCoopers affirmed.
QUESTIONS:
2. Al Rizek was a vice president of PaineWebber of Puerto Rico. One of his clients was Jorge
Donato. Donato told Rizek that he was primarily interested in long-term bonds and the safety of
his investment. In early 1993, Rizek recommended to Donato a strategy of short-term trading of
zero-coupon bonds. Zerocoupon bonds are U.S. government instruments that accumulate
interest until maturity, rather than paying interest periodically. The value of a zero-coupon bond
is very sensitive to changes in interest rates. Rizek recommended that Donato purchase the bonds
on margin, thus magnifying the potential gains and losses. Purchasing on margin meant that
Donato had to make monthly margin interest payments to PaineWebber; it also placed him at
risk of being forced to sell at a loss to meet a margin call. During the 15-month period from
January 1993 to March 1994, Donato’s account had average monthly balances of $85,000. During
this time, Rizek carried out $2 million in transactions on the account. Rizek’s strategy led to losses
of approximately $12,000. Rizek received about $15,000 in commissions. Donato sued Rizek and
Paine Webber to recover the damages he suffered. Have Rizek and PaineWebber violated the
common law of negligence or Securities Exchange Act Rule 10b–5?
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
by
Robert S. Wiener
Problem solutions and examination essay answers are similar. Both call upon
you to apply legal principles to practical business situations. Your answers must set
forth reasons for conclusions stated. Organize and write them clearly using standardEnglish syntax and spelling. Include the area of law, parties, and legal issues. Include,
explain, and apply legal terms.
PROBLEM SOLUTIONS
Problem solving prepares you to write examination essays. Read the chapter and
assigned case opinions and write your case briefs. Then read the first assigned problem
a couple of times. Return to the text and analytically read the part of the chapter that
discusses the legal issue(s) raised in the problem. Keep an eye out for legal terms in
the problem. They are a key to the legal issue(s) and may appear in bold type in the
text. Read the problem again. You may want to make notes for your solution now — at
least, organize it in your mind. Do this without looking back at the text.
You are ready to write your problem solution. The advice given in “Cases and
Briefs” will help. For problems containing multiple questions, repeat the brief format writing your solution as an essay using separate paragraphs for separate sections. You do
not need to use headings. Leave space at the margins and between the sections of
your solution to revise it, for example, during/after classroom review.
The format for a problem solution and essay answer is a modification of your
brief format. It will generally look like this:
January 28, 211/28/21
1
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
I
JUDGMENT
II
A
B
LEGAL PRINCIPLE
ISSUE
(Question of Law)
HOLDING (Answer of Law)
A
B
REASONING
GENERAL ANALYSIS
APPLIED ANALYSIS
III
IV
JUDGMENT
I. JUDGMENT
In the first section, present your judgment. Omit the facts section. Copying facts
takes time with no benefit; however, you will refer to specific facts in your applied analysis section. Unlike briefs where you are asked to show your understanding of the
judge’s judgment, here you give your judgment (legal decision) based upon legal principles. Usually, in your problem solution you are called upon to judge a case, that is, to
decide who wins and explain why. If you are not yet clear on your judgment, leave this
section blank and return to it after you have written your reasoning sections.
II. LEGAL PRINCIPLE
Now your real work begins. In this section write the key legal principle guiding
your judgment, that is, your issue and holding. Merely writing the judgment is not
enough, even if it is correct. More importantly, you must explain your judgment. How
did you arrive at your conclusion?
!
1/28/21
2
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
I. REASONING
A. GENERAL ANALYSIS
This is General Analysis is the first part of your legal reasoning, your, including
the area of law. Elaborate on the issue and holding and discuss secondary legal issues.
This section should be fully developed, step-by-step, particularly for examination essays. You will base this on legal principles learned from reading the textbook, reading
and briefing cases, and class lecture and discussion.
B. APPLIED ANALYSIS
In Applied Analysis apply the general analysis to the problem’s relevant facts.
IV. JUDGMENT
Repeat your judgment to confirm that this is the legal decision to which your analysis leads. Has your judgment changed? If so, correct the judgment in your first section
so that both judgments match.
Problems and essay questions are often tricky. You may be unsure of the judgment. That is OK. There may be no clear answer. The correct answer usually earns only
10 points on an examination. And you may earn full credit for either of two different answers. Your objective is to convey that you have thought through the case from a business law perspective; therefore, the most important parts of your problem solutions and
essay answers are your legal principle and reasoning section.
How much time should this take? In order to be prepared to write well-organized
and thorough exam essays, for homework problem solutions, first read the relevant part
of the of textbook, then spend at least 20 minutes answering each problem.
January 28, 211/28/21
3
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
ESSAY ANSWERS
Essay answers are different from problem solutions in a few ways. Exams are
closed book and timed. You may have aout 40 minutes to answer an exam essay compared to 15-20 minutes on a CPA exam. First, read the question at the end of the essay. Next, use your case reading techniques to read the question’s facts several times.
Plan your answer before you begin writing. Crossing out and rewriting essay answers
wastes time. Exam questions are likely to be lengthier and more complicated than problems, with more facts and raising several legal issues rather than just one.
Grading of Essay Answers
Your grades on exam essay answers largely reflect your preparation. If you have
written your assignments (both case briefs and problem solutions), participated in class,
taken effective notes, and studied your assignments and notes well, reviewing them
soon after class, you should understand the legal principles and be able you to apply
them to new situations.
To earn more essay points, spot legal issues in essay questions. Then answer
those questions using legal terms to explain and apply relevant legal principles learned
in class. Basic terms, especially those written on the board, may earn credit if used appropriately and explained. A minimum of 120 points will be available for each exam; correct judgments earn 10 points. Sometimes, legal labeling of parties, for example, assignor and assignee in an assignment of rights contract case, will earn credit.
The better you prepare for exam essays by writing class assignments (and even
writing extra practice problem solution essays), the better you will perform on the exam
essays.
1/28/21
4
1
SmithStearn Yachts., Inc. vs. Gyroghraphic Communications
I.
JUDGEMENT
SmithStearn Yachts has absolute rights and duties of the initial contract. A company is
not confined by agreements agreed upon by an advertiser prior to its being. Nevertheless, if a
company adopts the contract, it attains the absolute rights and responsibilities of the initial
contract regardless.
II.
LEGAL PRINCIPLE
A. Issue
Whether the court should rule in favor of Gyrographic without knowing the breach of
contract laws?
B. No
III.
REASONING
A. A General Analysis
SmithStearn Yachts, Inc, accepted to relinquish into a pre-incorporation contract with
Gyrographic Communications, Inc. under the brand name SmithStearn, LLC. Gyrographic
ascended to the terms to offer advertising and marketing services to SmithStearn. However,
SmithStearn, LLC. was by no means shaped, but it was established under SmithStearn Yachts,
Inc. Eventually, “SmithStearn Yachts, Inc. sued Gyrographic” for violation of agreement, but
Gyrographic held that it had the agreement with “SmithStearn Yachts, LLC., not SmithStearn
Yachts, Inc.”
B. Applied Analysis
Contracts do not bind a company agreed on its behalf before its being. The company can
attain civil liberties and “subject itself” to responsibilities concerning pre-incorporation issues. A
2
contract agreed on in the name of a rudimentary company can be enforced after the company is
structured on the principles of ratification.
IV.
JUDGEMENT
SmithStearn Yachts has absolute rights and duties of the initial contract. A company is
not confined by agreements agreed upon by an advertiser before its being.
QUESTIONS:
3. Waddell is individually accountable as an advertiser for the building agreement ascended on in
the surname of R.H. Waddell Construction. He entered the contract on behalf of R.H. Waddell
Construction prior to its formation; therefore, he was a promoter. In this case, an advertiser is
individually accountable for any agreements entered in on behalf of the company awaiting both
the promoter, company, and “the third party agree to release the promoter.” Also, a promoter of
any organization is always an owner or director of a company responsible for forming or
founding the business and the business should be given a certificate of incorporation prior to
proceeding to its operation. However, if the corporation has not yet been given a certificate,
anyone who enters into a contract on its behalf or is an agent will be held liable. In this case, if
Valiga sues Waddell Construction for running minus the appropriate registration with the State
Tennessee prior to entering into a contract, Waddell, the promoter of R.H. Corporation, will be
held liable to Robert Valiga. Therefore, “Is Waddell personally liable as a promoter for the
construction contract signed in the name of R. H. Waddell Construction?”
3
8. I agree that Fujian paid an appropriate consideration for the shares. The law holds that the
board of directors is permitted to give shares on behalf of the company. In this case, the board of
directors did not give shares with proper consideration as there have to be necessities concerning
the actual value given to safeguarding the creditors’ and shareholders’ interests. Therefore, it is
not worth it to serve the corporation five years, issuing her nothing on the promissory note. In
this regard, has Fujian paid a proper consideration for the shares?
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
by
Robert S. Wiener
Problem solutions and examination essay answers are similar. Both call upon
you to apply legal principles to practical business situations. Your answers must set
forth reasons for conclusions stated. Organize and write them clearly using standardEnglish syntax and spelling. Include the area of law, parties, and legal issues. Include,
explain, and apply legal terms.
PROBLEM SOLUTIONS
Problem solving prepares you to write examination essays. Read the chapter and
assigned case opinions and write your case briefs. Then read the first assigned problem
a couple of times. Return to the text and analytically read the part of the chapter that
discusses the legal issue(s) raised in the problem. Keep an eye out for legal terms in
the problem. They are a key to the legal issue(s) and may appear in bold type in the
text. Read the problem again. You may want to make notes for your solution now — at
least, organize it in your mind. Do this without looking back at the text.
You are ready to write your problem solution. The advice given in “Cases and
Briefs” will help. For problems containing multiple questions, repeat the brief format writing your solution as an essay using separate paragraphs for separate sections. You do
not need to use headings. Leave space at the margins and between the sections of
your solution to revise it, for example, during/after classroom review.
The format for a problem solution and essay answer is a modification of your
brief format. It will generally look like this:
January 28, 211/28/21
1
PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
I
JUDGMENT
II
A
B
LEGAL PRINCIPLE
ISSUE
(Question of Law)
HOLDING (Answer of Law)
A
B
REASONING
GENERAL ANALYSIS
APPLIED ANALYSIS
III
IV
JUDGMENT
I. JUDGMENT
In the first section, present your judgment. Omit the facts section. Copying facts
takes time with no benefit; however, you will refer to specific facts in your applied analysis section. Unlike briefs where you are asked to show your understanding of the
judge’s judgment, here you give your judgment (legal decision) based upon legal principles. Usually, in your problem solution you are called upon to judge a case, that is, to
decide who wins and explain why. If you are not yet clear on your judgment, leave this
section blank and return to it after you have written your reasoning sections.
II. LEGAL PRINCIPLE
Now your real work begins. In this section write the key legal principle guiding
your judgment, that is, your issue and holding. Merely writing the judgment is not
enough, even if it is correct. More importantly, you must explain your judgment. How
did you arrive at your conclusion?
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PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
I. REASONING
A. GENERAL ANALYSIS
This is General Analysis is the first part of your legal reasoning, your, including
the area of law. Elaborate on the issue and holding and discuss secondary legal issues.
This section should be fully developed, step-by-step, particularly for examination essays. You will base this on legal principles learned from reading the textbook, reading
and briefing cases, and class lecture and discussion.
B. APPLIED ANALYSIS
In Applied Analysis apply the general analysis to the problem’s relevant facts.
IV. JUDGMENT
Repeat your judgment to confirm that this is the legal decision to which your analysis leads. Has your judgment changed? If so, correct the judgment in your first section
so that both judgments match.
Problems and essay questions are often tricky. You may be unsure of the judgment. That is OK. There may be no clear answer. The correct answer usually earns only
10 points on an examination. And you may earn full credit for either of two different answers. Your objective is to convey that you have thought through the case from a business law perspective; therefore, the most important parts of your problem solutions and
essay answers are your legal principle and reasoning section.
How much time should this take? In order to be prepared to write well-organized
and thorough exam essays, for homework problem solutions, first read the relevant part
of the of textbook, then spend at least 20 minutes answering each problem.
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PROBLEM SOLUTIONS AND ESSAY ANSWERS
Langvardt et al., BUSINESS LAW (17th ed. 2018)
ESSAY ANSWERS
Essay answers are different from problem solutions in a few ways. Exams are
closed book and timed. You may have aout 40 minutes to answer an exam essay compared to 15-20 minutes on a CPA exam. First, read the question at the end of the essay. Next, use your case reading techniques to read the question’s facts several times.
Plan your answer before you begin writing. Crossing out and rewriting essay answers
wastes time. Exam questions are likely to be lengthier and more complicated than problems, with more facts and raising several legal issues rather than just one.
Grading of Essay Answers
Your grades on exam essay answers largely reflect your preparation. If you have
written your assignments (both case briefs and problem solutions), participated in class,
taken effective notes, and studied your assignments and notes well, reviewing them
soon after class, you should understand the legal principles and be able you to apply
them to new situations.
To earn more essay points, spot legal issues in essay questions. Then answer
those questions using legal terms to explain and apply relevant legal principles learned
in class. Basic terms, especially those written on the board, may earn credit if used appropriately and explained. A minimum of 120 points will be available for each exam; correct judgments earn 10 points. Sometimes, legal labeling of parties, for example, assignor and assignee in an assignment of rights contract case, will earn credit.
The better you prepare for exam essays by writing class assignments (and even
writing extra practice problem solution essays), the better you will perform on the exam
essays.
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1
SmithStearn Yachts., Inc. vs. Gyroghraphic Communications
I.
JUDGEMENT
SmithStearn Yachts has absolute rights and duties of the initial contract. A company is
not confined by agreements agreed upon by an advertiser prior to its being. Nevertheless, if a
company adopts the contract, it attains the absolute rights and responsibilities of the initial
contract regardless.
II.
LEGAL PRINCIPLE
A. Issue
Whether the court should rule in favor of Gyrographic without knowing the breach of
contract laws?
B. No
III.
REASONING
A. A General Analysis
SmithStearn Yachts, Inc, accepted to relinquish into a pre-incorporation contract with
Gyrographic Communications, Inc. under the brand name SmithStearn, LLC. Gyrographic
ascended to the terms to offer advertising and marketing services to SmithStearn. However,
SmithStearn, LLC. was by no means shaped, but it was established under SmithStearn Yachts,
Inc. Eventually, “SmithStearn Yachts, Inc. sued Gyrographic” for violation of agreement, but
Gyrographic held that it had the agreement with “SmithStearn Yachts, LLC., not SmithStearn
Yachts, Inc.”
B. Applied Analysis
Contracts do not bind a company agreed on its behalf before its being. The company can
attain civil liberties and “subject itself” to responsibilities concerning pre-incorporation issues. A
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contract agreed on in the name of a rudimentary company can be enforced after the company is
structured on the principles of ratification.
IV.
JUDGEMENT
SmithStearn Yachts has absolute rights and duties of the initial contract. A company is
not confined by agreements agreed upon by an advertiser before its being.
QUESTIONS:
3. Waddell is individually accountable as an advertiser for the building agreement ascended on in
the surname of R.H. Waddell Construction. He entered the contract on behalf of R.H. Waddell
Construction prior to its formation; therefore, he was a promoter. In this case, an advertiser is
individually accountable for any agreements entered in on behalf of the company awaiting both
the promoter, company, and “the third party agree to release the promoter.” Also, a promoter of
any organization is always an owner or director of a company responsible for forming or
founding the business and the business should be given a certificate of incorporation prior to
proceeding to its operation. However, if the corporation has not yet been given a certificate,
anyone who enters into a contract on its behalf or is an agent will be held liable. In this case, if
Valiga sues Waddell Construction for running minus the appropriate registration with the State
Tennessee prior to entering into a contract, Waddell, the promoter of R.H. Corporation, will be
held liable to Robert Valiga. Therefore, “Is Waddell personally liable as a promoter for the
construction contract signed in the name of R. H. Waddell Construction?”
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8. I agree that Fujian paid an appropriate consideration for the shares. The law holds that the
board of directors is permitted to give shares on behalf of the company. In this case, the board of
directors did not give shares with proper consideration as there have to be necessities concerning
the actual value given to safeguarding the creditors’ and shareholders’ interests. Therefore, it is
not worth it to serve the corporation five years, issuing her nothing on the promissory note. In
this regard, has Fujian paid a proper consideration for the shares?
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