Question

Nick, a director of the NH Oil Corporation, is specially trained in petroleum trading. The Corporation’s board approves several deals in which it pays too much for petroleum. If Nick approves all the deals without first reviewing them, he is most likely:

1. not liable under the business judgment rule.
2. liable for breach of the business judgment rule.
3. liable for breach of the duty of loyalty.
4. liable for breach of the duty of care.

_____6) Daisy is a director of Extra Corporation. At a meeting of the board of directors, Daisy strongly opposes a proposal for Extra to merge with Filler Inc. because the merger would result in Daisy losing her board position and certain private benefits. If the merger would otherwise be an excellent financial deal for Extra, Daisy’s opposition likely:

1. breaches her duty of care.
2. is permitted under the business judgment rule.
3. breaches her duty of loyalty.
4. is permitted because she has no financial interest in Filler.

Answer 1

• (D) LIABLE FOR BREACH OF DUTY OF CARE.

Reason- A director agrees to act in the best interests of the company. This is called duty of care or fiduciary duty. Nich here approved all the deals without reviewing them which has breached his duty of care. If it leads to serious losses to the company, then he can be held liable for his breach of duty and the company can seek compensation in serious cases or can even terminate him.

• (C) BREACHES HER DUTY OF LOYALTY.

Reason- Another fiduciary duty of a director is DUTY OF LOYALTY. It means the director has to act in best interest of the company and in case of conflict of ineterests, the director must keep aside his/her personal interests and must not usurp any corporate opportunity for own interest. Here Daisy has breached her duty of loyalty because she is opposing the merger for her self interset despite knowing that it is a good opportunity for the company.