The board of directors of Filex Corporation, at a regular meeting of the board,

Question

The board of directors of Filex Corporation, at a regular meeting of the board, entered into a contract with Ginger Grant, one of the directors. This contract called for Filex to purchase 120 acres of land from Ginger. Of the ten members on the board, eight were present at the meeting. One of the directors present was Ginger. All the other directors were disinterested in the transaction and not related to Ginger. After a lengthy discussion, six directors voted in favor of the contract and two voted against it. Ginger voted for the contract. Which of the following is true?

The contract is voidable unless Ginger proves that the contract is fair to the corporation.

The contract is valid since it was approved by a majority of a quorum of the board.

The contract between Ginger and the corporation is illegal and invalid.

The contract becomes void if the corporation proves that the contract was unfair to it.

Explanation / Answer

Among the all statements,the last statement i.e The contract becomes void if the corporation proves that the contract was unfair to it,is true.Because the contract of a sale of property between a corporation and one of its directors is voidable at the opinion of the corporation when unfair to it,notwithstanding the fact that transaction was approved by a disinterested majority of the board of directors.

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