Tank is a director and the majority shareholder of Unique New Investment Corporation (UNIC). Tank buys, for $1,500, an option to purchase a tract of real estate for $50,000. Tank forms Vista Property, Inc., to hold the option. As the majority shareholder, and thus controlling director, of UNIC, Tank orders the firm to authorize the purchase of the land from Vista Property for $500,000. Tank then has Vista Property buy the land, sell it to UNIC, and loan the money to UNIC for the purchase at a 10 percent interest rate. Wim, a minority shareholder in UNIC, complains to UNIC's board, which takes no action. Wim files a suit against Tank on UNIC's behalf. Will Wim prevail? Explain.
What will be an ideal response?
Yes. Wim will succeed in the suit against Tank, on UNIC's behalf. This is a shareholder's derivative suit, which may be brought by a shareholder on behalf of a corporation. Some wrong must have been done to the firm, and before the suit can be brought, the board of directors must be told of the wrong and refuse to act on it. Here, the wrong has been committed by Tank, the controlling director of the firm. A director is a fiduciary with respect to his or her firm, with a duty to act in good faith, a duty of loyalty, and a duty to make a full disclosure in any transaction in which the director has a conflict of interest. In this problem, the director made an undisclosed profit in a transaction with the corporation, a transaction that the director ordered the corporation to make. As a majority shareholder, Tank owed similar duties to Wim and any other minority shareholders. Tank also breached these duties.
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