Court Report - Case Study Example

Investors who purchased a majority interest in a corporation did not commit fraud upon minority shareholder in either inducing him to execute employment and royalty contract, or during his subsequent performance under such contract; though following execution of contract investors failed to disclose their honest opinions on shareholder's job performance, failed to disclose facts concerning their attempts to sell corporation, and failed to disclose to prospective buyers corporation's potential liability to shareholder for enormous royalty benefits, such omissions and misrepresentations did not induce minority shareholder to execute contract, nor did he rely upon such omissions and misrepresentations to his detriment in his performance of the contract.

A shareholder of a corporation does not generally have a right to sue personally for alleged losses sustained by the corporation due to mismanagement or breach of fiduciary duties; a shareholder may only sue to recover losses to a corporation resulting from mismanagement and breach of fiduciary duties secondarily through a shareholder's derivative suit. When an officer knowingly and intentionally acts against the best interest of the corporation or outside the scope of his authority, he can be held liable by the party whose contract right has been damaged.

An action against a corporate officer for intentional and unjustified interference with contractual relations may be divided into separate elements: (1) the existence of a contract or a legally protected interest between the plaintiff and the corporation; (2) the corporate officer's knowledge of the contract; (3) the officer's intentional inducement or causation of the corporation to breach the contract or his intentional rendition of its performance impossible or more burdensome; (4) absence of justification on the part of the officer; and (5) causation of damages to the plaintiff by the breach of contract or difficulty of its performance brought about by the officer.

Conclusion: 1. A plaintiff claiming the existence of an oral contract greater than $500 in value may prove its existence and terms by at least one credible witness and other corroborating circumstances2. A plaintiff may serve as the one credible witness needed to establish existence and terms of an oral contract in excess of $5003. The elements are necessary to prove fraud are (1) the existence of a contract or a legally protected interest between the plaintiff and the corporation; (2) the corporate officer's knowledge of the contract; (3) the officer's intentional inducement or causation of the corporation to breach the contract or his intentional rendition of its performance impossible or more burdensome; (4) absence of justification on the part of the officer; and (5) causation of damages.

Court of Appeal of Louisiana,Fourth Circuit.SUN DRILLING PRODUCTS CORPORATIONv.Jerry J. RAYBORN, Sr.No. 2000-CA-1884.Oct. 3, 2001.STATEMENT OF THE FACTSIn 1994, Jerry J. Rayborn owned Sun Drilling Products Corporation. Rayborn began negotiations with a group of Philadelphia investors concerning the