Case Study – Peoples Dept. Stores Inc. v. Wise Flashcards
(13 cards)
What were the names of the companies involved in Peoples v. Wise?
Wise Stores and Peoples Department Stores, both run by the Wise brothers.
Who sued whom in Peoples v. Wise?
The trustee in bankruptcy sued the Wise brothers personally on behalf of unpaid trade creditors.
Why did the lawsuit occur?
After both companies went bankrupt, there was not enough money to pay trade creditors. The trustee alleged the Wise brothers breached their fiduciary duty to creditors.
What legal question was central to the case?
Whether corporate directors owe a** fiduciary duty** to creditors under CBCA Section 122(1).
What does CBCA Section 122(1)(a) require of directors?
To act honestly and in good faith in the best interests of the corporation.
What does CBCA Section 122(1)(b) require?
To exercise the care, diligence, and skill that a reasonably prudent person would in similar circumstances.
What was the Supreme Court of Canada’s ruling on fiduciary duty?
Directors owe a fiduciary duty to the corporation itself, not to creditors or shareholders.
Did the Wise brothers breach their fiduciary duty?
No. The court found no fraud or dishonesty, and thus no breach of fiduciary duty.
Did the Wise brothers breach their duty of care?
No. They acted in a reasonable and prudent manner based on the information available at the time.
What is the business judgment rule?
It protects directors who act prudently and reasonably, judged based on what they knew at the time, not with hindsight.
How did the court apply the business judgment rule in this case?
The Wise brothers’ actions were reasonable at the time, so they were protected under the business judgment rule.
What duty do directors owe to creditors of a company?
Directors owe a duty of care, not a fiduciary duty, to creditors.
Were the Wise brothers held personally liable?
No, the Supreme Court ruled they acted reasonably and did not breach any duties.
