English Summary question
Ana, Bob and Cal were the sole directors and sole shareholders of Feet, Inc., a closely held
New York corporation which owned and operated retail shoe stores. Ana, Bob, and Cal each
owned 75 shares in the company. On January 2, 2002, Ana, Bob and Cal signed a written
shareholders’ agreement which provided in pertinent part:
Upon the death of any shareholder, Feet, Inc. shall, within sixty (60) days of receipt of a
written demand from a duly appointed estate representative, purchase the shares of the
deceased shareholder for $1,000 per share.
When the agreement was signed, the three directors orally agreed that the buy back
provision would apply only if the corporation was making a profit.
In addition to being a director of Feet, Inc., Ana was also a licensed real estate broker and
the sole director and shareholder of Ana’s Realty, Ltd., a New York corporation. In June
2007, the directors of Feet, Inc., with Ana participating, voted to enter into a contract with
Ana’s Realty, Ltd. Prior to the vote, Ana disclosed to Bob and Cal that she was the sole
shareholder and director of Ana’s Realty, Ltd. The vote was two to one with Cal voting
against the contract. The written contract provided that if Ana’s Realty, Ltd. located a store
for Feet Inc. to purchase, Ana’s Realty, Ltd. would receive the customary commission of six
per cent (6%) of the sales price when title closed. Ana soon found a desirable store at a
favorable price, and in October 2007, Feet, Inc. purchased it.
In November 2007, Ana sent a written purchase order to Sal, the president of Shoe Co., and
ordered 2,000 pairs of boots, to be delivered to the new store on or about December 1, 2007.
The terms of the purchase order called for payment in full upon delivery.
On December 1, 2007, Shoe Co. delivered 2,000 pairs of running shoes to Feet, Inc.’s new
store. Ana immediately had the shoes placed in an unlocked storage shed on Feet, Inc.’s
property and notified Sal that she was rejecting the shoes. Sal told Ana that the shoes would
be picked up within the week. However, three days later the shoes were stolen, and Sal told
Ana that he was holding Feet, Inc. responsible for the loss of the shoes.
Cal died in December 2007. On February 1, 2008, Executor was duly appointed as the
executor of Cal’s estate. Executor gave Ana and Bob a written demand that Feet, Inc.
purchase Cal’s shares of stock pursuant to the written shareholders’ agreement. Bob then
informed Executor that Feet Inc. had not made a profit for the past three years, and
therefore, the corporation would not buy back Cal’s shares. Executor has confirmed that
Feet, Inc. has not made a profit for the past three years.
(a) Is Feet, Inc. liable to Shoe Co. for the loss of the running shoes?
(b) Was the contract between Feet, Inc. and Ana’s Realty, Ltd. voidable?
(c) Is evidence of the oral agreement admissible in an action by Executor to enforce Feet
Inc.’s obligation to purchase Cal’s shares of stock under the written shareholders’
agreement?
