CT Bar Business Organizations & Contracts 3 — Questions and Answers
Question 1: A Connecticut corporation's board of directors wants to declare a dividend. Which of the following tests must the corporation satisfy?
- The dividend must not exceed retained earnings only
- The corporation must be solvent and able to pay its debts as they come due (Correct answer)
- The dividend requires approval by a majority of shareholders
- The corporation must have a positive book value after the distribution
Correct answer: The corporation must be solvent and able to pay its debts as they come due
Connecticut follows an insolvency test: a corporation may not make a distribution if it would be unable to pay its debts as they become due in the ordinary course of business.
Question 2: Which of the following best describes a material breach of contract?
- Any deviation from the contract's terms, however minor
- A breach significant enough to excuse the non-breaching party's further performance (Correct answer)
- A breach that automatically entitles the non-breaching party to punitive damages
- A breach occurring before the contract's performance is due
Correct answer: A breach significant enough to excuse the non-breaching party's further performance
A material breach defeats the essential purpose of the contract and discharges the non-breaching party from its remaining obligations.
Question 3: Two parties enter into a written contract for the sale of land. They later orally agree to modify the price. Under the Statute of Frauds, this oral modification is:
- Valid because modifications need not be in writing
- Unenforceable because the underlying contract was required to be in writing (Correct answer)
- Valid if supported by new consideration
- Enforceable only if both parties acknowledge the modification in court
Correct answer: Unenforceable because the underlying contract was required to be in writing
A contract subject to the Statute of Frauds must be modified in writing; an oral modification of a land contract is unenforceable.
Question 4: A limited partner in a Connecticut limited partnership actively manages the business. What is the likely consequence?
- The limited partner becomes personally liable to third parties who reasonably believed the partner was a general partner (Correct answer)
- The limited partner loses all economic rights in the partnership
- The limited partnership is dissolved by operation of law
- No consequence, because limited partners may manage without restriction
Correct answer: The limited partner becomes personally liable to third parties who reasonably believed the partner was a general partner
Under Connecticut LP law, a limited partner who participates in control of the business may be liable to third parties who reasonably believed the limited partner was a general partner.
Question 5: Which doctrine allows a court to reform a written contract that does not reflect the actual agreement of the parties due to a mutual mistake in drafting?
- Rescission
- Reformation (Correct answer)
- Novation
- Accord and satisfaction
Correct answer: Reformation
Reformation allows a court to rewrite a contract to conform to the parties' true intent when the written instrument fails to express that intent due to mutual mistake.
Question 6: A Connecticut S-corporation shareholder sells her shares. Which consequence automatically follows?
- The corporation loses its S-election if the buyer is an ineligible shareholder (Correct answer)
- The buyer must assume the seller's allocated share of corporate debt
- The corporation must distribute its accumulated earnings to the seller upon sale
- The IRS must approve the transfer within 60 days for S-status to continue
Correct answer: The corporation loses its S-election if the buyer is an ineligible shareholder
An S-corporation loses its S-election if shares are transferred to an ineligible shareholder, such as a nonresident alien or another corporation.
Question 7: Under contract law, an anticipatory repudiation occurs when:
- A party fails to perform on the contract's due date
- A party clearly and unequivocally refuses to perform before performance is due (Correct answer)
- A party requests a modification of the contract terms
- A party assigns its rights to a third party without consent
Correct answer: A party clearly and unequivocally refuses to perform before performance is due
Anticipatory repudiation is a definitive, unconditional statement made before the time for performance that the promisor will not perform.
CT Bar Business Organizations & Contracts 3
A Connecticut corporation's board of directors wants to declare a dividend.
Which of the following tests must the corporation satisfy?