LOUISIANA STATE BAR EXAMINATION

BUSINESS ENTITIES

FEBRUARY 2022

QUESTION 2 (40 POINTS)

Part A - 24 Points

Claire, Andrew, and Rusty are avid homebrewers. They decided to go into business together and open a brewery. They agreed that they would share equally in the profits and losses of the business and that they would conduct the business as a limited liability company. They agreed to call the company Swamp Juice.

Claire, Andrew, and Rusty prepared and signed articles of organization and an initial report. Andrew told the others he would file the documents with the Secretary of State's office that day, but it slipped his mind, and he never filed the documents.

The following day, Claire informed Andrew and Rusty that a local brewery, Bad Beer, Inc., was going out of business and was seeking a buyer for its brewery equipment. The three agreed that Swamp Juice needed brewery equipment and that Claire should purchase Bad Beer, Inc.'s brewery equipment.

Claire contacted Bad Beer, Inc. and agreed to purchase the brewery equipment for $50,000. Claire did not inform Bad Beer, Inc. that she was purchasing the equipment for Swamp Juice, and she signed a purchase agreement as "Claire." The purchase agreement required payment in full within one month of delivery.

Later that same day, Rusty was driving through town looking for a suitable location for Swamp Juice's brewery. He spotted a vacant warehouse and contacted the owner. The owner offered to sell the warehouse for $40,000. Rusty called Claire and Andrew and informed them of the warehouse and the offer. Claire and Andrew were pleased with the amount of the offer, but they told Rusty not to accept the offer until they had a chance to visit the warehouse with him.

The warehouse owner overheard Rusty's conservation with Claire and Andrew. After the call, the warehouse owner said to Rusty: "I know your buddies want to see the warehouse first, but if you accept my offer right now, I'll agree to finance the entire purchase price." Rusty accepted the offer. He and the owner proceeded to a nearby notary's office and executed an act of sale and a $40,000 promissory note. Rusty signed each of the documents as "Swamp Juice, through Rusty, its representative."

One week later, the brewery equipment was delivered to the warehouse. Claire, Andrew, and Rusty began assembling the equipment in preparation for their first brew. The following day, a boiler tank collapsed, spilling hundreds of gallons of boiling fluid onto the warehouse floor. In the chaos of the accident, Rusty forgot to turn off the gas supply to the boiler. The warehouse caught fire that evening. The warehouse and all of its contents were destroyed in the fire. No payments have been made to date on either the purchase agreement with Bad Beer, Inc. or the $40,000 promissory note.

2.1. Who is liable to Bad Beer, Inc. for the purchase price of the brewery equipment? Explain fully.

2.2. Who is liable on the $40,000 promissory note for the purchase of the warehouse? Explain fully.