Question

Oya Paka and two business associates formed a corporation called Paka Corp. for the purpose of selling computer services. Oya, who owned 50 percent of the corporate shares, served as the corporation’s president. Oya wished to obtain a personal loan from her bank for $250,000, but the bank required the note to be cosigned by a third party. Oya cosigned the note in the name of the corporation. Later, Oya defaulted on the note, and the bank sued the corporation for payment. The corporation asserted, as a defense, that Oya had exceeded her authority when she cosigned the note on behalf of the corporation. Had she? Explain fully.

CONFLICTS OF INTEREST

Oxy Corp. is negotiating with Wick Construction Co. for the renovation of Oxy’s corporate headquarters. Wick, the owner of Wick Construction Co., is also one of the five members of Oxy’s board of directors. The contract terms are standard for this type of contract. Wick has previously informed two of the other directors of his interest in the construction company. Oxy’s board approves the contract by a three-to-two vote, with Wick voting with the majority. Discuss whether this contract is binding on the corporation. Explain fully.

Answer 1

Ans A.

Oya Paka's action regarding the signing of her personal  note on behalf of the Corporation is ultra vires. As the President of the Corporation Oya Paka can sign the documents that are required for the regular business transactions of the Corporation but the personal loan was not a part of the Corporatoin's regular business. Therefore the action is clearly ultra vires and she exceeded her authority in signing the Note.

Ans B.

When any contract in which there is personal interest of any member of the Board of Directors has to be approved by Board , the following conditions are to be satisfied:

1. The beneficiary Director need to inform the matter to all other members of the Board.

2. The beneficiary Director cannot take part in the voting for  the contract approval.

In the case of Oxy Corp, the beneficary Director has not informed all the other ( he informed only two of other four board members) Board members , and he also partcipated in the voting for contract .

Therefore , the contract is not binding on Oxy Corp for above non compliances.