CORPORATIONS

9/7

9/8

White v. Thomas
White’s allowed to get off the hook in the contract Betty made on his behalf, because no
actual (direct or incidental PA) or apparent (T infers from P) authority.

Inherent authority is a court-created doctrine used to bind principals to contracts when

there’s no other way (i.e. actual, apparent authority or estoppel) and it seems like the right
result. It wasn’t used here.

Gallant v. Isaac
Facts on ppt.
1—Why no actual or apparent authority to bind the insurance company? That’s easy: No
actual, because arrangement between P and A says no binding until paperwork’s all done.
And no apparent, because the only communication between P and T actually indicated
that A didn’t have authority to bind in this situation.

2—Court finds inherent authority and binds. What factors does it use? A has general
authority to bind them, it’s A’s common practice for them to tell T’s that they can bind on
the spot and P had done nothing to correct it, and T had no notice whatsoever that there
wasn’t actual authority.

3—You’re P. What do you do to prevent this kind of thing from happening in the future?
Maybe be really explicit in telling A what to tell Ts? But that’s basically what they did
here. Plus, you can’t really predict how a change in notice will affect court outcome. A
better idea would be to put in a clause in their agreement with A that says ‘if you
misrepresent our relationship, you’re going to be the one who has to pay for coverage
resulting from that misrep’ or whatever.
Restatement Third (new) sort of disembowels inherent authority (? Missed this). Could
this court have come to this decision via apparent authority? (Missed, but no). So what
about agency binding by estoppel? Look at the supplement. May not work here. What
about restitution?
*
From a policy perspective, how would we explain the different outcomes of White and
Gallant? There’s the shift-the-risk-to-the-more-sophisticated idea. Poor insurance seeker
vs. expert auction person.

Liability in tort
Restatement Third says employer-employee, Second says master-servant. Not just an
independent contractor.

Let’s look at how Restatement Third defines “employee” (in Supplement). It’s a lot about
right to control. This is cheapest cost avoider in part. The person with the most control
can avoid the outcome most eaily.

9/13
The more control the principal exerts over the agent, the more likely the court will find a
employer-employee relationship and impose tort liability on the prin6cipal. Idea: Impose
liability on a party that has ability to affect whether or not the tort occurs.

How do you distinguish the two types of gas cases? (Humble/Schneider vs.
Sunoco/Barone). See the slides, to start.

What’s most important here? Look at that 75% of utility bill paying on the Humble side.
That looks like some control there. You wouldn’t agree to pay the expenses if you had no
control over the variables leading to the expenses. Paying bills gives a big inference to
control.

Some girl who Fried agrees with thinks the termination at will factor is the most
important. Schneider has to do everything Humble wants him to do or else he can up and
lose the lease, immediately.
Rel’p. between principal and agent
Agent has fiduciary duty to principal—duty of loyalty and duty of care. Courts take the
duty of loyalty very seriously.

Tarnowski
Supp. p. 35, Section 8 of Restatement 3. Series of provisions dealing with agent’s duty to
principal.

Why do we want 8.06 in addition the general 8.03 prohibition on acting as adverse party?
Well, blanket prohibition just doesn’t make sense—there are a lot of places where a carve
out would be nice.

Dude gets overcompensated, but secret commissions are secret, and if there’s no deterrent
force that A will just say, hey, I’ll take the secret commission and then let P sue the third
party later.

In re Gleeson
Trust
--Pool of assets administered by trustee for the beneficiaries of the trust
--Trustee and creditors can’t get their hands on the assets of the trust
--Limited liability: If trust assets are used to cause harm to a third party, the creditors of
the trust can’t go after the beneficiaries.

See slides for some facts. Why did Mary set up a trust? (Missed)

P. 39 of supplement explains why the appeals court reversed here. Section 203 of
Restatement of Trusts says that trustee has to return to the trust any profits he makes from
the trust.

Here, there was no evidence that what Con Colbrook did hurt anybody, and conversely
there is reason to believe that he helped the parties, because he increased his own rent.
*
Under agency law, as long as 8.06 is satisfied, agent can transact with principal. Under
trust law, we don’t allow trustee to transact with beneficiaries, period. One reasons is that
trusts are set up to protect parties that are seen to be somehow at risk or unable to x, so
there’s more chance that they’re going to be taken advantage of?
__
Joint ownership
Why joint ownership? Sometimes there are limits to debt financing, so you give someone
a stake in the business. Or you want to get some skill action.

Meinhard v. Salmon
Most famous case ever.

Cardozo says Salmon’s fiduciary duty was to take info from Gerry about the opportunity
and present it to Meinhard. Why? Salmon got this information because he was the
managing partner in this joint venture—because of the partnership.

9/14

Meinhard, cont.
*
Partnership exists in the common law. No need to “register” it. And partnership can be
inferred from the facts of a relationship.

Check out p. 42 of the Supplement—the criteria for a General Partnership:

(6) "Partnership" means an association of two or more persons to carry on as co-owners

a business for profit formed under Section 202, predecessor law, or comparable law of
another jurisdiction.

Section 7 – Sharing profits indicates partnership; sharing gross returns doesn’t

necessarily. Why? Profits means you care both about revenues and expenses. More direct
involvement.

Vohland
Take-home: Parties’ conception of whether there is a partnership doesn’t control—just
like Jensen v. Cargill re agency. Can be inferred from profit-sharing and other factors.
And second, you can be a partner even if you don’t make a capital contribution to the
business.
*
Partnership Relations with Third Parties
See slides: Difference between UPA and RUPA is this. When partners are jointly liable,
the creditor has to sue all of the partners together. Joint and several means that the
creditor can sue just one partner for everything, then partner can go after other partners
for their share of the liability.

9/15

Very briefly: How do creditors of the partnership have to compete with the creditors of
the individual partners?
Partnership assets are made available first to the partnership’s creditors. Partnership’s
creditors can also go after individual partner’s assets, but there they’ll have to compete
with the individual partners’ creditors. It’s complicated, is all JF wants to say.

Partnership governance and authority

p. 46 of the Supplement: Individual partners are bound by majority decisions of the
partners

Nabisco v. Stroud
See slides for facts

Nabisco can recover from Stroud, even though he told them he “personally would not be
responsible” for the bread delivered to the partnership’s store. Since Stroud is not a
majority of the partnership, he can’t bind the partnership to a decision.
The result seems sort of odd, for a two-person partnership. Court might have been
concerned that Freeman didn’t know that Stroud was going off disclaiming liability,
while he operating under the assumption that they’d be splitting profits. Not fair to
burden Freeman with all the liability while allowing Stroud half the profit.

Dissolution and Disassociation

See slides. The problem with the UPA approach is that it creates instability. Somebody
leaves, and you gotta wind up. So under RUPA, the partnership can continue operating
after a partner leaves. Dissolution under RUPA thus becomes like Winding Up under
UPA, since the partner leaving doesn’t trigger liquidation. Remember, these are default
rules that can be opted out of. . . as Adams v. Jarvis examines

Adams
Adams claims that his walking away constitutes a dissolution that requires a winding-up.
Under UPA, unless otherwise agreed, dissolution triggers winding up, with splitting up
cash and everything.

But the agreement seems to be in conflict with the rules. A partner leaving doesn’t
terminate the partnership.

Notice the drafting of the withdrawal clause of the agreement is messed up: What it
should have said is that if a partner decides to withdraw, it shall not start a wind-up.

Wisconsin Supreme Court doesn’t allow Adams’s departure to cause the statutory wind-
up. Why did it let the partners off the hook with respect to their sloppy drafting? Because
the court is worried about the stability of this sort of partnership. And not everybody has
perfect lawyers.

Dreifurst
See slides for fact set-up.
UPA38(1)
(Stopped listening for a few—the appellate court reverses the in-kind split-up in favor of
cash liquidation, in part due to creditors’ interests. But aside from protecting creditors, a
sale is the best way of determining the fair market value of the assets, rather than what
the court would figure out on its own. On top of everything, the statute itself—“pay in
cash”—seems to contemplate a sale of the assets.)

(Stopped listening for a few)

Page v. Page
See slides for facts.

In prior partnerships between these two, court notes, there was an agreed-upon term. The
reason the trial court finds a term here is that it senses that Big Page is about to exploit
100% of the opportunity that would have otherwise been available to the partnership by
getting his brother out of the action.

But Traynor reverses, refusing to infer a term. There’s simply no evidence of a term here.
These guys clearly knew about terms, because they had terms in other partnerships. And
the risk of implying terms when there aren’t any is making parties lazy in drafting.

READ ABOUT LLC’S

9/27

The Corporate Form

Look at that table at the beginning of today’s slides. GP has a legal personality but it’s
fragile.