Business Law

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National Electronics sold goods at a contract price of $160,000 to Hydro Corp.  Hydro is a corporation with Hunt as its sole shareholder and chief executive officer.  Hydro failed to pay the contract amount and filed bankruptcy, making National's claim against Hydro essentially worthless.  National discovered evidence of the following dealings between Hydro and Hunt:

Hunt received in excess of $ 2.8 million in "loans" from Hydro.  These "loans" or "advances" were not documented through ordinary loan documents or reflected in the corporate minutes.  No interest was paid on any of the moneys even though large sums remained outstanding for several years.  Although Hunt eventually repaid a large portion of the principal sum to the corporation, a substantial dispute still exists over whether additional moneys are owed by Hunt to Hydro.

Hydro also paid insurance, berthing fees, maintenance and fuel expenses for a boat owned by Hunt. Hydro leased an automobile for Hunt's wife, who was not a Hydro employee.  In addition, Hydro made over 30 monthly mortgage payments on Hunt's personal residence.  

Hunt used his personal funds to pay corporate obligations, including property taxes, building rent, payroll and legal expenses.  Hunt claimed these payments constituted partial repayment of the loans Hunt received from Hydro but, as noted above, the advances and repayments were not adequately accounted for by Hunt.

Questions:

Using the materials from Chapter 39 and the excerpt from the California Court of Appeals Greenspan v. LADT LLC case posted in the Week 9 section, discuss whether or not National may have a claim against shareholder Hunt, on what theory, and what facts support the elements required to prevail on that theory.

Each answer will be graded based upon the degree to which you completely and accurately answer the question, identifying the correct facts and applicable rules of law, and using proper sentence structure, grammar, and spelling.

    • 8 years ago
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