Next Generation Bar Exam Quiz
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BUSINESS ASSOCIATIONS AND RELATIONSHIPS
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Greenfield Manufacturing, Inc. has three principal divisions: automotive, chemical, and packaging. Without obtaining board approval, Greenfield's president contracts to sell the entire chemical division to Nubo Industries. The chemical division constitutes 35% of Greenfield's assets and 30% of its revenue. Greenfield's board had regularly permitted the president to negotiate ordinary supply contracts and equipment leases without prior approval, but it had never sold a division. Nubo knew the president's title and knew of those past contracts. Greenfield later refuses to close. A court in this jurisdiction held in Reyes v. Calder:
A corporate president has actual authority to bind the corporation to contracts in the usual and ordinary course of its business. Extraordinary transactions—such as selling a principal division or a significant operating asset—require specific board authorization. A corporation may be bound by an unauthorized extraordinary transaction only if it knowingly acquiesced in a course of prior substantially similar transactions and the person dealing with the corporation reasonably relied on that course of conduct. A president's title alone does not create apparent authority to enter extraordinary transactions.
Is Greenfield bound to sell the chemical division to Nubo?
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