5. Julian, Cornelia, and Sheila petitioned for a corporate charter for the purpose of conducting a retail shoe busi- ness. They complied with all the statutory provisions except having their charter recorded. This was simply an oversight on their part, and they felt that they had fully complied with the law. They operated the business for three years, after which time it became insolvent. The creditors desire to hold the members personally and indi- vidually liable. May they do so? 6. Arthur, Barbara, Carl, and Debra decided to form a cor- poration for bottling and selling apple cider. Arthur, Bar- bara, and Carl were to operate the business, while Debra was to supply the necessary capital but was to have no voice in the management. They went to Jane, a lawyer, who agreed to organize a corporation for them under the name A-B-C Inc., and paid her funds sufficient to accom- plish the incorporation. Jane promised that the corpora- tion would definitely be formed by May 3. On April 27, Arthur telephoned Jane to inquire how the incorporation was progressing, and Jane said she had drafted the articles of incorporation and would send them to the sec- retary of state that very day. She assured Arthur that incorporation would occur before May 3. Relying on Jane's assurance, Arthur, with the ap- proval of Barbara and Carl, on May 4 entered into a written contract with Grower for his entire apple crop. The contract was executed by Arthur on behalf of "A-B- C Inc." Grower delivered the apples as agreed. Unknown to Arthur, Barbara, Carl, Debra, or Grower, the articles of incorporation were never filed, through Jane's negli- gence. The business subsequently failed. What are Grower's rights, if any, against Arthur, Barbara, Carl, and Debra as individuals? 7. The Pyro Corporation has outstanding twenty thousand shares of common stock, of which nineteen thousand are owned by Peter B. Arson; five hundred shares are owned by Elizabeth Arson, his wife, and five hundred shares are owned by Joseph Q. Arson, his brother. These three indi- viduals are the officers and directors of the corporation. The Pyro Corporation obtained a $750,000 fire insur- ance policy to cover a certain building it owned. There- after, Peter B. Arson set fire to the building, and it was totally destroyed. Can the corporation recover from the fire insurance company on the $750,000 fire insurance policy? Why? 15. Healthwin-Midtown Convalescent Hospital, Inc. (Health- win), was incorporated in California for the purpose of operating a health-care facility. For three years thereafter, it participated as a provider of services under the federal Medicare Act and received periodic payments from the U.S. Department of Health, Education and Welfare. Undis- puted audits revealed that a series of overpayments had been made to Healthwin. The United States brought an action to recover this sum from the defendants, Healthwin and Israel Zide. Zide was a member of the board of direc- tors of Healthwin, the administrator of its health-care facility, its president, and owner of 50 percent of its stock. Only Zide could sign the corporation's checks without prior approval of another corporate officer. Board meet- ings were not regularly held. In addition, Zide had a 50 percent interest in a partnership that owned both the realty in which Healthwin's health-care facility was located and the furnishings used at that facility. Healthwin consis- tently had outstanding liabilities in excess of $150,000, and its initial capitalization was only $10,000. Zide exer- cised control over Healthwin, causing its finances to become inextricably intertwined both with his personal finances and with his other business holdings. The United States contends that the corporate veil should be pierced and that Zide should be held personally liable for the Medicare overpayments made to Healthwin. Is the United States correct in its assertion? Why? 17. Berger was planning to produce a fashion show in Las Vegas. In April, Berger entered into a written licensing agreement with CBS Films, Inc., a wholly owned subsidiary of CBS, for presentation of the show. The next year, Stew- art Cowley decided to produce a fashion show similar to Berger's and entered into a contract with CBS. CBS broad- cast Cowley's show, but not Berger's. Berger brought this action against CBS to recover damages for breach of his contract with CBS Films. Berger claimed that CBS was liable because CBS Films was not operated as a separate entity and that the court should disregard the parent-subsidiary form. In support of this claim, Berger showed that the directors of CBS Films were employees of CBS, that CBS's organizational chart included CBS Films, and that all lines of employee authority from CBS Films passed through CBS employees to the CBS chairman of the board. CBS, in turn, argued that Berger had failed to justify piercing the corporate veil and disregarding the corporate identity of CBS Films to hold CBS liable. Decision