Soda Dispensing Systems, Inc., was owned by two shareholders, each of whom owned

Question

Soda Dispensing Systems, Inc., was owned by two shareholders, each of whom owned half of the stock. One shareholder, Ernie Wilson, was president of the corporation, and the other shareholder, Rita Newton, was vice president. Their shareholder agreement stated that neither shareholder could encumber corporate property without the written consent of the other.

When Soda Dispensing went out of business, Wilson and Newton agreed to sell the assets, split the proceeds, and pay $9,900 to their accountants, Cooper & Strassberg. Later, Wilson committed Soda Dispensing to pay Cooper & Strassberg more than $24,000, claiming that he had the authority, as president, to make that commitment. When the accountants tried to collect, Newton objected, asserting that Wilson had exceeded his authority. Cooper & Strassberg filed a lawsuit against Newton, seeking payment.

Could Cooper & Strassberg recover payment from Soda Dispensing? Why or why not?

a. No. The court most likely held that Cooper & Strassberg could not recover payment, because the accountants were unsecured creditors, and there were no remaining assets from which to pay them. b. No. The court most likely held that Cooper & Strassberg could not recover payment, because the president exceeded his authority when he agreed to pay, from company assets, amounts not agreed to by the vice president. c. Yes. The court most likely held that Cooper & Strassberg could recover payment, because the president did not encumber corporate property; he merely agreed to pay for services rendered to the corporation. d. Yes. The court most likely held that Cooper & Strassberg could recover payment, because the corporation had been dissolved and the creditors were entitled to payment.

Explanation / Answer

As per the agreement between both the owners must consult each other before encumbering any property. In this case the president did not encumber any property but accepted to pay the accountants for their services and hence they will get their payments. The will court most likely held that they could recover their payment because the the president did not encumber corporate property but agreed to pay for services rendered to the corporation . The answer is c.

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