Years ago, Peter incorporated Fitness, Inc. He paid $100 for 100 shares of stock and, at the same time, loaned Fitness, Inc. $50,000. Peter elected himself, his wife, Mary, and adult son, Paul, to the Board of Directors, which in turn hired Peter as President.

Two years after incorporation, Peter sold 20 shares of his stock to Barbara.

After Barbara became a shareholder, Peter, Paul and Mary voted to acquire 30% of the surplus inventory of Barbells, Inc., which Peter solely owned, for the price of $30,000. The Board relied on Peter's opinion, as owner of Barbells, Inc., that this was a fair price for the inventory. In fact, this price was greatly inflated. Peter began gradually taking much of this inventory for his personal use without paying for it.

Also after Barbara became a shareholder, Peter, Paul and Mary hired Paul and Mary as additional officers of the corporation and paid them a salary sufficient to ensure that there would be no profits remaining to pay as dividends to Barbara.

In order to fund the purchase of the surplus inventory of Barbells, Inc., Fitness, Inc. took out an unsecured loan from Bank of America for $25,000. Two days before the Bank of America loan was due to be paid back, Fitness, Inc. repaid the $50,000 loan from Peter. This left Fitness, Inc. with only $5,000 in total assets.

Bank of America filed a lawsuit against both Fitness, Inc. and Peter, seeking to recover its $25,000 loan. Barbara files a derivative action against Peter, Paul and Mary, alleging that the directors had breached their duty of care to Fitness, Inc. when it acquired the surplus inventory of Barbells, Inc. Barbara also alleged that Peter and the Board had oppressed her as a minority shareholder of the corporation. The directors filed a motion for summary judgment in Barbara's lawsuit, claiming that their decisions were protected by the business judgment rule.

1. On what theory can Bank of America sue Peter personally for the loan that it made to Fitness, Inc.? Is Bank of America likely to prevail? Why or why not? [20 points]
2. Did Peter, Paul and Mary breach their fiduciary duties to the corporation and to Barbara? Which duties and why? Were the decisions of the Board protected by the business judgment rule? Why or why not? [30 points]