Key Man Life Insurance and Corporate Knowledge: A Lesson for All to Remember

Key Man Life Insurance and Corporate Knowledge: A Lesson for All to Remember What a corporation’s officers and shareholders know concerning the business of the corporation, the corporation knows.  This knowledge that is imputed to a corporation remains with the corporation throughout its life, and a recent case involving “key man life insurance” highlights this important lesson for all business owners that a corporation is not allowed to suffer from “amnesia” and to otherwise ignore information that its officers have been told or that is in the corporate files. Key man life insurance is an important tool for all small business owners, as it allows the company or the other shareholders to purchase the shares from a family of another shareholder who may have deceased.  The proceeds of that life insurance policy are used to purchase those shares, thereby allowing continuity of ownership but also providing some value for those shares to the decedent’s estate. In a recent case decided by the 7th Circuit, a corporation had purchased key man life insurance, insuring the life of the majority shareholder.  The beneficiary originally was the other shareholder, but that was then changed so that the beneficiary was the corporation itself.  There was evidence that the intent did not change, i.e., it was the intent to have the shares of the “key man” purchased with the proceeds of the life insurance. The key man eventually retired, and sold his shares to a new owner, who became the president of the corporation.  The insurance policy remained in place.  When the retired “key man” died, the insurance company paid the $1,000,000 of proceeds...

Say What You Mean; Mean What You Say

When a person files bankruptcy, the law allows for certain “exemptions” so that the person can keep certain things that the legislature has determined are the bare necessities of life in order to make a fresh start.  Any property that is not “exempt”, and assuming it is of sufficient value, is to be gathered and then sold for the benefit of the creditors of the person filing bankruptcy. Different States have different laws about what exemptions are allowed.  While there are many similarities, each State is allowed to make its own laws concerning what is exempt and what is not or it can utilize the exemptions created by Congress.  In Illinois, one of those things that a person is allowed to keep is a bible.  In a recent case, we were again reminded that courts, when faced with unambiguous language in a law (similar to what courts will do with a contract) will enforce the exact terms of the law and not attempt to infer any intent from those words or give those words any different meaning other than their plain and ordinary meaning. In the recent case, the person who filed bankruptcy (“debtor”) had a bible.  But it was no ordinary bible.  It was a first edition Book of Mormon from 1830.  Everyone agreed that the bible was worth $10,000.  The bankruptcy trustee, and the bankruptcy court, said that the debtor should not be allowed to keep this very rare bible, but instead it should be sold for the benefit of her creditors.  It was also noted that she had several additional copies of the Book of Mormon...

Ag Lending: Could Selling Crops Be a Crime?

Ag Lending: Could Selling Crops Be a Crime? In an agriculture heavy state such as Indiana, lenders necessarily will have a certain portion of its lending dedicated to agricultural and farming operations.   There are certain protections for lenders under both Indiana law and federal law, which, while easy to follow, may not often be employed by lenders. The Uniform Commercial Code (“UCC”) was written to provide guidance concerning commercial transactions, and has been adopted in some fashion throughout the United States, including Indiana.  States are free, however, to adopt certain other provisions or deviations from the UCC.  As a general rule under the UCC, someone who buys a product in the “ordinary course” of the seller’s business buys that product free from any security interest or lien that a lender may have attached to that product.  This is true even if the lien is perfected and the buyer knows about the lien. Historically, there was an exception to this rule for “farm products”, which includes crops.  Therefore, under the UCC, a wholesale buyer of a farmer’s crops bought those crops subject to any lender’s lien. Congress, however, passed a federal law in 1985 to override this UCC exception, and stated that a buyer who in the ordinary course of business buys a farm product from a seller engaged in farming operations buys that farm product free of any lender’s lien. As with every rule, there are exceptions, and this one is no different.  This same federal law provides that the buyer of farm products will take the farm products subject to the lender’s lien if the buyer has been...

Mediation? Arbitration? Same Thing, Right?

Mediation? Arbitration? Same Thing, Right? There is often some confusion on the part of business clients concerning the differences between mediation and arbitration.  Some people tend to use the terms interchangeably, but in actuality mediation and arbitration are quite different. In a mediation, typically the parties hire a third party “neutral” person who, while she may be a lawyer, does not need to be in order to help facilitate settlement discussions.  Sometimes the attorneys involved will suggest a mediation as a way to have their clients listen to a neutral third party describe the strengths of the opponent’s case and the weaknesses of their own client’s case so that the parties can try to reach a resolution before incurring significant costs.  As previously noted in this blog, you are not sacrificing anything legally by engaging in mediation or other forms of settlement negotiations.  That is because if the case does not settle at mediation, any judge or jury who ultimately tries the case in court will never hear what offers of compromise may have been made by the parties. It is important to remember that in a mediation, the mediator makes no decisions.  Rather, all of the ultimate decisions about whether to settle, and for how much, are left to the parties.  The mediator cannot force a settlement on anyone.  The mediator can make suggestions, and the parties can agree on different ways to mediate.  However, ultimately it is up to the parties to decide if the case will settle or not.  This is one of the big advantages of mediation, because the parties control their own destinies.  After...

Ten Years to Fight Over a Contract?

Ten Years to Fight Over a Contract?! We are constantly emphasizing to our clients the importance of reading and understanding all of their contracts before signing them.  We also continually counsel our clients about the incredibly slow pace of litigation and how resolving business disputes through the courts can take many years.  A recent decision by the 7th Circuit Court of Appeals (which would hear federal cases under Indiana law) serves as a good illustration of these points: In that, the 7th Circuit reversed a jury’s award of $1,500,000.00 in favor of a sales representative, and found that the plain language of that representative’s contract showed that he was only entitled to $54,000.00 in commissions.  The reason for the reversal was that his contract very clearly stated that in order for the sales person to receive commission credit under the employer’s previous compensation plan, any sale must close on or before December 25, 2005.  The sale at issue did not close until March, 2006.  During the original trial, the trial court allowed evidence to be introduced concerning what was intended by the parties, as opposed to simply enforcing the plain terms of the contract.  With the introduction of that extra evidence, the jury awarded $1,500,000.00.  The Court of Appeals reversed that ruling and directed that the employee was only entitled to $54,000.00. A few interesting points that came out of this recent decision include the fact that this dispute has been ongoing for ten years.  For some perspective, the sale at issue closed about 18 months before the introduction of the iPhone and the decision was entered on July...
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