Alfred, Beth, and Charles orally agreed to start ABC Computers (“ABC”), a business to manufacture and sell computers. Alfred contributed $100,000 to ABC, stating to Beth and Charles that he wanted to limit his liability to that amount. Beth, who had technical expertise, contributed $50,000 to ABC. Charles contributed no money to ABC but agreed to act as salesperson. Alfred, Beth, and Charles agreed that Beth would be responsible for designing the computers, and that Charles alone would handle all computer sales.
ABC opened and quickly became successful, primarily due to Charles’ effective sales techniques.
Subsequently, without the knowledge or consent of Alfred or Charles, Beth entered into a written sales contract in ABC’s name with Deco, Inc. (“Deco”) to sell computers manufactured by ABC at a price that was extremely favorable to Deco. Beth’s sister owned Deco. When Alfred and Charles became aware of the contract, they contacted Deco and informed it that Beth had no authority to enter into sales contracts, and that ABC could not profitably sell computers at the price agreed to by Beth. ABC refused to deliver the computers, and Deco sued ABC for breach of contract.
Thereafter, Alfred became concerned about how Beth and Charles were managing ABC. He contacted Zeta, Inc. (“Zeta”), ABC’s components supplier. He told Zeta’s president, “Don’t allow Charles to order components; he’s not our technical person. That’s Beth’s job.”
Charles later placed an order for several expensive components with Zeta. ABC refused to pay for the components, and Zeta sued ABC for breach of contract.
Not long afterwards, ABC went out of business, owing its creditors over $500,000.
1. How should ABC’s debt be allocated? Discuss. Be sure to address what type of formation ABC Company is.
2. Is Deco likely to succeed in its lawsuit against ABC? Discuss. Be sure to address contract law and duties.
3. Is Zeta likely to succeed in its lawsuit against ABC? Discuss. Bd sure to address authorities.