Question
Silly is a shareholder who owns 92% of the shares in Putty, Inc., a California corporation. The other 8% of the shares are owned by
Silly is a shareholder who owns 92% of the shares in Putty, Inc., a California corporation. The other 8% of the shares are owned by a trust for which Silly is the trustee and his minor son, Stanley, is the beneficiary. (The 8% will be transferred to Stanley on his 18th birthday.) The board members are Silly, his wife, Morgan, and their adult son, Slime, who has disowned his family and not been in contact with them since 2002. Silly is the CEO of Putty, Inc., and he makes all of the major decisions. Minor decisions are delegated to the four department heads. Putty, Inc. has 50 employees. Putty, Inc. has not had any shareholders' meetings in its ten years of existence. It did have one board of directors' meeting (back in 2001), but this meeting was attended by Silly and his wife only and the conversation was dominated by Silly's stories about his new yacht. Silly regularly pays personal expenses, such as house and car payments, with checks drawn on the account of Putty, Inc. Silly has told friends that "I work all the time so why shouldn't the company pay for my house and cars." In fact, Silly paid for the installation of a new pool at his house with corporate funds. A creditor of Putty, Inc. recently sued the corporation, Silly, Morgan, Slime and Stanley for the failure of Putty, Inc. to repay a loan made by the creditor. Assume for the purposes of this exercise that the creditor will win. Against whom should judgment be entered? Why?
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