Business Associations (3 absences allowed) y Chapter 1 Agency o Section 1 Who is an Agent?

o Agency is the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act  Must be an agreement, but not necessarily a contract between the parties (circumstantial evidence to show principal consent to agency) o Gorton v. Doty, 1937  Coach of a football team borrowed car from Doty and accident occurred injuring Gorton. TC held for Gorton.  Issue Was Garst the agent to appellant while and in driving her car from Soda Springs to Paris and in returning to the point where the accident occurred  Agency indicates the relation which exists where one person acts for another y 3 principal forms o Principal and agent o Master and servant o Employer or proprietor and IC  Affirmed Doty was an agent o Gay Jenson Farms Co. v. Cargill, Inc., 1981  P group of farms brought suit against Cargill and Warren for losses sustained when Warren defaulted on the contracts made with P s for sale of grain.  Jury trial found for P, Cargill appealed  Issue whether Cargill by its course of dealing with Warren became liable as a principal on contracts made by Warren with P s  Factors in determining if Cargill had control over Warren y Constant recommendations y Right of first refusal  Supplier versus a Agent y 1 he is to receive a fixed price for the property y 2 acts in his own name y 3 independent business in buying and selling similar property  Affirmed Cargill did have control o Mill Street Church of Christ v. Hogan, 1990  Mill Street petition for review from a decision the New Workers Compensation Board which reversed a decision that ruled Hogan was not an employee of the MISC and not entitled to any workers comp benefits, the New Board reversed and ruled that Hogan was an employee  Brother hired Sam Hogan to help, fell from ladder and suffered injury. Church elders hired Sam s brother and were unaware that Bill Hogan asked Sam to help. Sam filed claim under workers compensation act with the church  Sam relied on payment, and was even paid  Affirmed o Dweck v. Nasser, 2008 1

Class Notes 1/13 Overview and Intro to Agency y Restatement 3rd §1.01 - Agency defined fiduciary relationship that arises when 1) one person manifests assent to another person (an agent), 2) that the agent shall act on the principals behalf and subject to the principals control, and 3) the agent manifests assent or otherwise consents so to act y Gorton v. Doty, 1937 o Court looked a lot at control o Dissent says agency is more than passive permission. o The objective was to push insurance policies o Sovereign immunity cant sue school or county o Analysis  Dissent says the agency test was not met, it was more passive, but majority said there was a condition put on it  Who was he really the agent for? For the school, but also Doty since she loaned the coach the car  All you need is an agreement by both parties, not an official contract (payment isn t necessary either)  Advice to Doty to avoid liability? o Principals remedy is to sue the agent Gay Jenson Farms v. Cargill o Supplier v. Buyer o Creditor v. Debtor o Security agreement loaning of money and a interest in collateral o Cargill did have financial control and was an agent o Analysis  Why did Cargill keep extending more credit? They probably wanted to keep that supply of grain  Farmers to protect themselves from nonpayment? Insisted on cash  Deal directly with farmers Four Types of Authority o Actual Authority (look at what the principal tells agent to do) Restatement 3rd §2.01 an agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believe, in accordance with the principals manifestations to the agent, that the principal wishes the agent so to act  Restatement 2.02 an agent has actual authority t take action designated or implied in the principals manifestations to the agent and acts necessary or incidental to achieving the principals objectives  Express agent has been told by principal to do something  Implied principal has made manifestations to what the agent needs to do to carry out the task (can arise by previous course of dealing among parties)




is Paul bound? Apparent because of business custom (even if principal says not to do something. Ted claims Alan entered into contract on Pam s behalf to sell Blackacre to Ted. Nasser . manifestation from Pam o Suppose Pam had been present when Alan made his statement to Ted. communication directly from A to P o Ratification o Inherent Agency Power o NOTE: Authority is authority. is Paul bound? Yes. building and hires Ann to manage it y Paul tells Ann to hire a company to cut the grass.03 is the power held by an agent or other actor to affect a principals legal relations with 3rd parties when a 3rd party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal s manifestations  Custom.o Apparent Authority (look at communications between principal and 3rd party) restatement 3rd §2. custom overrides principals) HYPOS: Pam owns Blackacre. not so ambiguous and back and forth y y 3 . but just sign it o If Nasser wanted to avoid this. he should have been in more control. as well as implied and. Actual Implied Authority o Suppose Alan tells Ted that he is Pam s agent. o Apparent authority also. is Paul bound? Actual Implied y Paul specifically instructed Ann not to hire a janitor but that local custom gives manages power to hire janitors. but didn t say anything. Actual Express y Without express. does Alan have apparent authority? No. Ann does it. Any type of authority suffices to bind Principal y Mill Street Church v. Ann hires janitor to clean building.Apparent Authority o Issue whether Shiboleth reasonably believed he had authority to settle the case based on Nasser s actions o Had actual express authority. does Alan have apparent authority? Yes. Hogan o Analysis  Sam s belief that his brother Bill had authority relevant? More to apparent than actual  Paul owns apt. his statements to Dweck s husband about he wasn t going to read it. Alan is real estate agent. may he advertise the property in MLS? Yes. Pam s conduct(silence) was her manifestation of not denying it Dweck v. Evidence of an email from Pam to Alan telling him to sell Blackacre o What type of authority? Actual express authority Pam told Alan to sell Blackacre by email o If Pam did tell Alan to sell. Now.

everyone assumed it was Humble s business. Humble was acting with an authority that was inherently reasonable for an agent in that position. Fenwick. Ampex Corp. The situation is analogous to a partnership wherein one partner is silent but is still liable for actions of the partnership as a whole. y 4 .. a reasonable person would have talked to someone of higher authority  3. Salesman  3. What could Joyce have done? When she got the contract back and it wasn t signed. 31-54 y Three Seventy Leasing Corp.1/18 p. Business resolution company says they are going to take a certain action y Inherent Agency Power extension of UDP rule and only applies when there is an UDP o General rule for undisclosed principal: UDP is personally liable for debts incurred by agents within the scope of their authority  IAP applies when there is an undisclosed principal to make the principal personally liable for debts incurred by agents for acts that are prohibited by the principal. just saying they have authority is insufficient. Joyce and Kays are friends. Joyce needs to get these memory units to EDS (3rd party company) o Held there was apparent authority led a reasonably prudent person to suppose that the agent had the authority he purports to exercise o Problem with apparent authority is if Kay just tells Joyce he has authority to enter into the agreement the memo was strong evidence o The entire manifestation of setting Kay up to deal with Joyce which was set up by Mueller and the memo o No authority by principal is not enough. Ampex could have made it clear on the form contract making it clear an officer has to sign off on such a thing  2. the memo was enough o Analysis:  1. v. not Fenwick o Defendant is liable for damages. Salesperson probably doesn t have the authority to lend such money  4. but here. but are within the scope of authority for agents engaged in similar business activities Watteau v. 1892 o Any manifestations of new owners for apparent authority? No. 1976 APPARENT AUTHORITY case o 370 formed by Joyce and had contract with Ampex (Kays/salesman and Mueller) for purchasing hardware. D manifestations were the memo and was reasonable for Joyce to believe o Planning and Economic Efficiency  1.  2.

Wants to exercise option to buy and Mrs. Pam would win because she knew nothing about it because it already occurred  4. Gosh. Al wins. you can try to argue under apparent authority o Review Problems p. What types of acts constitute an affirmation by the principal?  2. so probably not. Hoddeson v. what a wonderful deal. you will be liable  If there is disclosed principle. 3rd. it has to come at a time when you have a choice. Worried about apparent authority. S was unwilling to sell. Botticello v. then there is a manifestation of authority  2. 1979 . My agent didn t have the right to enter into this contract. Stefanovicz. 1957 . Koos Bros.0? .o Not apparent authority because the principal is disclosed under that doctrine. Pam wins. the principal is liable for actions by an agent that are expressly forbidden. but the case limits a principal to actions of an agent are reasonable under the circumstances  If you choose to be undisclosed. Actual implied? Told to hire for 9 an hour and the assistant was okay with it so maybe if Allie thinks Paula is mistaken. still need manifestation and elements of agency o Ratification? Court said she did not ratify by accepting benefits o Analysis and Problems:  1. she didn t know (no intent or knowledge of material circumstances)  3. For ratification to occur. what the principal can do to control. 30 . ABC wins because she ratified  2. (impostor) o Court held the law cant allow these people to get away but it is the responsibility of the store to ensure this doesn t happen o Remanded to see if the store took precautions or not 5 y y . 4.Authority  1.Ratification o Husband and Wife conflict with Botticello purchase provision for 85. there may be implied actual. sales guy says it will be delivered later. Actual express? By Paula telling Allie to hire a research assistant with conditions. What effect should we give to that affirmation? o Obviously one can expressly affirm a contract (ex. o Botticello s mistake was that he should have had his attorney do a title search o B argues ratification by conduct (collecting rent and benefits) and the husband was an authorized agent o Marriage is not in and of itself authorization. Ill go forward with it.Rest. y y Ratification . but I m glad she did so o 2 important questions  1..000. and with full knowledge of all the material circumstances Ex. Make a form contract that Millie has to sign for control. She impliedly confirmed it by cashing the checks and accepting the benefits. Paula had intent and knowledge because of the first statement and she took a wait and see attitude  5.Acceptance of the results of the act with an intent to ratify.ESTOPPEL o Went to purchase furniture and pays cash. Apparent authority? If Paula told Allie she has the authority to hire on her behalf.

or  having notice of such belief and that it might induce others to change their positions. the person did not take reasonable steps to notify them of the facts y y Agents Liability on the Contract Atlantic Salmon A/S v. a person who makes a contract with a 3rd party purportedly as an agent on behalf of a principal becomes a party to the contract if the purported agent knows or has reason to know that the purported principal does not exist or lacks capacity to be a party to a contract o * Gold standard of how to sign on behalf of a corporation disclose agent. 3rd § 6. would be disclosed  2. The result would have changed if Marketing Designs was reinstated.05 person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that persons account is subject to liability to a 3rd party who justifiably is induced to make a detrimental change in position because the transaction is bleived to be on the persons account. 3rd § 6. . Curran o Issue is whether there is personal liability of an agent who at the relevant times was acting on behalf of a partially disclosed or unidentified principal o Rest. Does it seem that the P got more than they bargained for?  3.10 o Reversed.o Rest. The person intentionally or carelessly caused such a belief. and capacity of agent o Rest. principal. What should the P have done to protect against the need for litigation to enforce their claims? Tried to see if the company was in existence. a person purporting t make a contract with another for a partially disclosed principal is a party to the contract o Rest.04 Principal Does not Exist or Lacks Capacity  Unless the 3rd party agrees otherwise. 3rd 2. 2nd §4(2) if the other party has notice that the agent is or may be acting for a principal but has no notice of the principals identity. and  b) the fact that work is performed gratuitously does not relieve a principal of liability 6 . An employer is subject t vicarious liability for a tort committed by its employee acting within the scope of employment  2. unless otherwise agreed. the principal for whom the agent is acting is a partially disclosed principal .07 Employee Acting Within Scope of Employment  1. An employee acts within the sope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employers control ..  3. 3rd § 7. A) employee is an agent who s principal controls or has the right to control the manner and means of the agents performance of work. What should Curran have done to protect himself from liability? Signature (gold standard capacity)  4. One of the first thing to do is look to see if it is a domestic or foreign corporation and in good standing o Rest. . D is liable for specified amounts o Analysis  1. if  1.

A narrower test of control and nature.07 Scope of Employment  Rest. Martin. IC can be liable if inherently dangerous  3. as opposed to the result alone)  Humble was in control and liable o Hoover v. she left car to get repairs.y Section 3 Liability of Principal to 3rd Parties in Tort o Servant versus IC o Humble Oil v. McDonalds isn t in control because they weren t in control of the instrumentality of what caused the harm (security) different than the other cases where it was a broad test of control y Would Humble have been liable under this test? Depends because they didn t have control over the instrumentality of what caused the harm but. Holiday Inns  SJ granted and affirmed because the franchise contract did not constitute control within the definition of agency  Critical test is the nature and extent of the control agreed upon Holiday Inn was not deemed the employer o Analysis  1. station did repairs and sold gas. 2nd §219 a master is subject to liability or the torts of his servants committed while acting in the scope of their employment  General rule a principal is not liable for the torts of his non-servant agents  2. 1949  Rest. Sun Oil Company. 1965  SJ granted. the manner in which the job is performed. Franchisors make money by uniformity (charge fee to franchisees). 2nd §§1 and 2 a master servant relationship exists whether the servant has agreed a) to work on behalf of the mater and b) to be subject to the masters control or right to control the physical conduct of the servant (that is. Barone was an IC  Day to day operation of the service station was under Barone s control Sun had no control over day to day operation o Murphy v. franchisees make money on the name that franchisors portray 7 . 3rd § 7. Rest. and court never talked about the repair business and if Humble exercised control over that business  4.

whether 3K was an agent of McDonalds o TC granted SJ on grounds that it did not own or operate the restaurant. agency creates an agency relationship that does not otherwise exist. not whether 3K had apparent authority o Analysis:  Why is franchisor fighting this case? Want to set a precedent  With tort cases. apparent agency o Problem p. so as to avoid the risk of liability in cases such as this one? y Franchisor allow franchisee exercise more control y Express contracts  4. 54-64 y Tort Liability and Apparent Agency y Miller v.. 1983 8 y . Grimsley. 3K Restaurants.Most courts look at whether they were serving any purpose of the master. 3rd §707(2) .forseeability o Whether this was in the scope of employment o Court looks at reasonable foreseeabiity of what may happen while on the job o Affirmed. while apparent authority expands the authority of an actual agent In this case.58  Control over day to day operations. Yes. somehow convey they are independent (similar lobbies but not all the same) y Ex. US. Was a sign that said it was owned and operated by 3K. signage. Should McDonalds reduce the amount of control it exercises over its franchisees. that held a franchise o Reversed. 1997 o P seeks damages from D when she bit into a stone while eating a big mac. McDonalds Corp. and assumed it to be owned by McDonalds because of all the signs. not foreseeability o Analysis:  Manning v. o Issue: is there the necessary typical agency relationship? o Issue 2: apparent agency. name. the precise issue is whether 3K was D apparent agent. Imposing liability because they benefit economically  5. Government was responsible because it is foreseeable damage will be done o Rest. Bushey and Sons v.1/25 p. jury could find that a consumer would reasonably believe they owned and operated because they hold their employers out to resemble McDonalds as uniform o Apparent agency and apparent authority distinguished common element is the manifestations coming from the principal. Best western uses different names to avoid liability and customer confusion y y Scope of Employment Ira S. but as the court points out. etc. owner was a non-party. better to make apparent agency argument  3. 1968 . ER visits.

Use your position to make a profit Regem case (sargeant escorted smugglers trucks through Cairo using his status in uniform) y *Rest. Conflicts of interest by Agent (if agent is secretly dealing with principal and making money)  3. Inc. 2nd §387 agents shouldn t act against their principal o Reading v. o Exceptions to IC rule of no liability  1. Cashing in on fame is not a breach usually. and the remedy will be a trust imposed o P. Landowner retains control over work done  2. Same facts as Regan case.78 Problems  1. its more notoriety than using his position  3. not even in uniform.y y y o Must be shown that employees response to P conduct which was presently interfering with the employees ability to perform his duties successfully o Rest. Conoco. Agent getting a kickback (agent says to 3rd party. Per se nuisance  * Inherently dangerous activity peculiar risk of harm to others and takes special precautions principal will remain liable o Ultra hazardous serious risk of harm Fiduciary Obligations of Agents o Duties During Agency 3 ways to breach DOL:  1. transaction Liability For Torts of Independent Contractors Majestic Realty Associates. 2000 o Scope of employment when Conoco owned the store? Yes. I will make sure my principal gives business to you if you give me some kind of payment)  2. Regan  Rest. 2nd §231 within scope although criminally or tortuous but serious crimes are outside the scope o Res. v. liable due to their own negligence  3. there is a trust held for benefit of the principal. doesn t rise to the level.02 duty not acquire material benefit from 3rd party in connection with transactions connected with principal or use of the agent position  Duty to act solely for principal as an agent  Analysis: when the agent acquires some type of secret benefit. result would not change because they used their position to reap the benefit if sergeant was discharged 30 days before leaving on smuggler truck in uniform  2. §228(2) Arguello v. Toti Contracting Co. Hires incompetent contractor y if hired an insolvent contractor. Inc.. Not use of position. 3rd §8. just royalties from a book y 9 .

2nd §387 unless otherwise agreed.03 Acting on Behalf of an Adverse Party  Duty not to deal in transactions questioning duty to principal  * disclosure is huge.. because its more like a trade secrets case  * Rest.06 principals consent  Fully disclose to principal and obtain consent is the safe harbor o Analysis: rest.V. 2007 o Issue: fiduciary relationship. 3rd §8. an agent is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency o Held Rash was an agent of JVIC hired to start Tulsa division from scratch. He never disclosed this to Auto and they brought suit for breach of fiduciary duty o Court affirmed lower court decision that by receiving secret profits from these orders.  Court held they would not solicit its customers any longer because they had special knowledge and access to the customer list that could not be obtained by just looking in the phone book  Presidents wife found all the customers over 3 years of work (240 customers after the time) only 13 went to the employees after leaving  * Different than a breach of fiduciary duty. Ltd. Obligation of Agents y Rash v. Singer. 1963 o Singer hired as GM and when Singer realized Auto couldn t do some of the work. was there a breach (scope)? Yes o Rest. just disclose and you will avoid litigation y General Auto Manu. J. special way of doing such business  Group of former employees targeted only former clients and nobody else to get business with a new company they started after leaving TandC. V. Newbery. 79-111Chapter 1 . use of confidential information 10 . 1958  Brought for an injunction and damages for unfair competition assembly line of cleaners.05 use of principals property. Singer violated his duty to act solely for the benefit of Auto y Duties During and After Termination of Agency: Herein of Grabbing and Leaving o Town and Country v. and Rash doesn t deny he was an agent but didn t include scaffolding related ventures o Court held Rash did breach because he failed to disclose his interest in TIPS to JVI o * Rest 2nd §13 employee duty to deal openly with the employer and to fully disclose to the employer information about matters affecting the company s business o Would have been okay if Rash had specific permission to do this o Rest3rd §8. if so.Fiduciary Relationships. Rash contractually agreed to perform the duties of an agent (full-time). he would do it on his own by finding another company and keep the difference in price. Intermediate. 3rd §8.2/1 p.

and y Duty not to communicate confidential info of principals information for agents own purposes Analysis y 1. like a partnership. Jones) y Relevant factors: see UPA § 7 o Intent of the parties o Sharing in profits/losses o Initial contributions to the business o Conduct towards each other (control) y S corporations o Limited to 75 shareholders or less o No corporate or alien shareholders o Limited to one class of stock o Requires SHs to include corporate income on their individual returns. and losses apply the way they do to corps y y y What is a Partnership and who are the Partners? Partners Compared with Employees Fenwick v. 1945 11 . Good reason why the D s should not be permitted to hire a detective to do the same sleuthing and then use the list put together by the detective as a basis or telephone solicitation? 2 arguments but authors think it would be okay y Chapter 2 Partnerships p. 87 y Fundamentals o Association of 2 or more persons to carry n a business for profit UPA §6 o Default rules  See slides o Taxes: partnerships v. go to the contract (confidentiality) y 2. Corp s. Duty not to use property of the principal for the agents own purpose or those of a 3rd party. Comm n) o Partner or lender (Martin v.  Partnerships are pass through entities meaning that the partnership reports gains and losses to the individual partners who then report gains or losses on their individual returns  Corporations pay tax on their net profits  No tax to owners until dividend or other distribution (but then double taxation) y Partnerships arise in 3 ways o Partner or employee (Fenwick v. Unemp. Unemployment Compensation Commission. What could D s do to avoid liability? Go to the phone book. Peyton) o Partnership by estoppel (Young v. which helps investors in the early years because usually the corp will lose money in the early years o But some restrictions on allocation of profits.

. Inc. veto rights. sharing profits and more control with RIBA.UPA §16  Held no partnership.o Whether Chesire was a partner or employee of Fenwick (Beauty Shop) because it would determine if he would have to pay money to the commission o SC held she was not a partner. etc. include sharing of losses o Young v.5. is liable to any 3rd person who extends credit in good-faith reliance on such representations . controlled all the capital and Chesire had no right to share in capital upon dissolution o UPA partnership as an association of 2 or more person to carry on as co-owners a business for profit y y Partners compared with Lenders Martin v. o Held that absence of a partnership agreement they would not be held partners. 1928 y 12 . o Issue: whether this was a partnership o PPF would get 40% of KNK profits up to 2 years. PPF provide collateral for bank loan in securities. not a partner AFFIRMED o Notes:  Some things that could have changed the decision were veto power. Inc. the court requires that one party holds itself out as a partner. but here there was really a falsified financial statement  For estoppel. Rhode Island Builders Association. 1927 o KNK trying to get bank loan for 2. Fenwick liable for losses. Peyton. rights to inspect. Jones. giving great weight to the fact the contract called themselves partners not a lot of control. couldn t buy in. v. Salmon. it s a loan agreement. P s did not extend reliance part to PW-US o * Meinhard v. don t really see any problems with the company. or who expressly or impliedly consents to representations that she is such a partner. 1992  Unqualified audit clean opinion. took resignations of partners of KNK y Why wasn t it enforced? They wouldn t veto anything speculative because they want to make money y Was Hall PPF s agent or KNK? Partnership versus Contract o Southex Exhibitions. they are entitled to their share of the partnership assets  Should have drafted more precisely if they wanted to be partners. Bank wouldn t accept KNK securities because they fluctuate. 2002  DC ruled non partnership  Southex has control to put on the shows and bear the risk of loss  UPA §6 Partnership defined as 2 or more persons to carry on as co-owners a business for profit  The contract had expired and basically was an at will contract from then on  Looks as they are an IC for one show a year  Why doest it matter if they re legally partners under UPA §24 and 25.

larger building. improperly handling cases for their own.  Fid. Gerry approached Salmon and entered into a lease on all the ground (renewable up to 80 years). Kightlinger and Gray. 1990  Alleged wrongfully expelled  Court said there was a partnership agreement and allowed the expulsion. Gerry wanted to level the building and put up a new building. Shaughnessy. but including them in the activity  The business was the intent to buy and sell when they entered into them o Grabbing and Leaving o Meehan v. TC held Meinhard was entitled to ½ interest in the new lease and assume half of obligations affirmed by reducing shares to keep Salmon in control Duty owed? Salmon should have at least disclosed it to Meinhard. Supposed to give 3 months notice but gave 30. Near end of lease. LaCrosse. Meinhard as a joint venture was to help Salmon. breach claim by taking clients. not partnership y UPA 404(b) y Held . they gave him a 2nd chance when the initial agreement said no second chances  Case brings up the point of what you would do if a partner begins to have a problem like this? Would you take away all their client files? Look at the impact it would have on clients  Class Discussion: y Can you waive FD? If you don t set forth in the agreement. secretly competing with the partnership. and some say at least include him in the opportunity to go broader/longer UPA §404(b) o Fiduciary Duties of Partners o Sandvick v. go back to default rules 13 . it was part of the agreement and no bad faith was present. They leased a building and prepared for new firm. 2008  JV is more limited in scope and limited duration  Defined business as a series of acts directed toward an end  Found a JV. not partnerships benefit  Obligation to render on demand true and full information of all things affecting the partnership to any partner UPA §20 y By not truthfully answering people in the firm questioning if they were going to leave was a breach o Lawlis v. Meinhard found out about it and demanded he be held as an asset of their joint venture.Breached their duty of loyalty by taking advantage of a JV opportunity when they purchased top leases without informing Bragg and Sandvick  Reads Meinhard as not just telling. eventually calling for the destruction of the hotel and the building of a new. 1989  Group of partners at a law firm attempting to leave firm.    To help finance the building and make improvements.

Shoaf. not her actual interest. when one couldn t work. not for their personal benefit y UPA § 27 if you just assign it. he signed papers. Summers could have tried to gain more control on paper  Why could Freeman bind his partnership but Summers couldn t? Between partners and 3rd parties they will honor it as a partnership (J and SL) but between 2 parties they must have majority y Day v. he wanted to stay in charge. Husband dies and P argues that her conveyance was personal property. 1981  P and D shared gin business. it says no second chances. Stroud. they are bound on the parnership because there was nothing in the statement to indicate Freemans power and authority was restricted or limited o UPA §15 J and SL o Derives from apparent authority in agency law o If in a 2 party partnership. no breach because D did not benefit in any way 14 . Dooley. so it would have been okay because they can expel you under the 2/3 majority vote in the agreement o Partnership Property o Putnam v. but the court found that she conveyed everything and will not get anything back after the fact  It belongs to the partnership and P is out of it because she conveyed everything to D s  P can get what is in her capital account for her interest at that time  Class discussion: y UPA §25 and 26 using assets for the business. all partners liable.y What if Lawlis was expelled right away? After looking at the agreement. 1977 o Day resigned after a merger and move to a new office. o What either party does. you could dissolve it y Class Notes: o * 2 party partnerships are dangerous. 1971 o The 2 parties entered into a trash collection business. they would find a replacement at their own expense o UPA §18(e) and (h) any difference be decided by a majority of partners o * Court held that it would be unjust to permit recovery of an expense which was incurred individually and not for the benefit of the partnership but rather for the benefit of one partner o Agency principle Summers argues Dooley ratified by accepting profits o Analysis: what should Summers have done? Dissolve the partnership  On the front end. He would no longer be in charge of the office. breach of FD o No legal cause of action. Alleges fraud. be careful how you draft it o What to do to prevent this?  Arbitration clause y Summers v.40-60 y National Biscuit Company v. Sidley & Austin. 1959 o Partnership bound. the assignee gets profit share only 2/8 The Rights of Partners in Management p.

and the TC properly denied foreclosure of the mortgage. Also Collins failed to protect Lewis from any demand for payments as long as Lewis met his obligation o Analysis:  Power v. Right? y Partnership for a term and he can get out of the partnership because he has the power to get out. but may not have the right since it is a term (could be wrongful dissolution)  What does Collins do now? Keep going. practical effect may be that one partner may buy out the other and continue y Collins v. o P appeals from judgment declaring this partnership to be for a term rather than at will. Never happened because Lewis couldn t come to terms with building owners.o Executive agreements controls all affairs and has more interest.000 for land.000. buyout formulas are helpful to consider on how to get people out/get rid of people Section 6 Partnership Dissolution y Owen v. From 49-57 it was unprofitable. Lewis. stuck with each other and see how to make it work  What could Collins have done to protect himself? Some kind of cap or limit on the cost/expenses y Page v. Court rejects this because it wasn t a definite term or particular undertaking 15 . machinery. 1961 o Partners in a linen supply company. Lewis met his obligation. o Court affirmed TC denying all relief sought by appellants o Reasoning: Lewis paid out of earnings of the business during the first year of its operation. previous terms. Oral partnership. not reasonably practical o Reasoning: breach was in large part due to the D s persistent endeavors to become the dominating figure of the enterprise and to humiliate the P before the employees and customers of the bowling-alley o Partnership for a term o Analysis:  Legal effect of the order for dissolution? Sell the business. 1955 o Lewis obtained commitment conditioned upon financial backing from BrownBellows-Smith Corporation for lease on a basement under then the San Jacinto Building for purpose of constructing and operating a large cafeteria. splitting control evenly. Reversed. o For a term factors in argument: previous partnerships. Eventually came to terms and the formed partnership. Cohen o Issue: whether or not the evidence warrants a decree of dissolution of the partnership o * Affirmed: UPA §32(b) rule willful breach. within 2 years each contributed 43. Lewis contracted Collins proposing he (Lewis) would furnish the lease and Collins would furnish with money and profits would be divided equally between Lewis and Collins. Days interest is not as great as the other exec members o Provision for exit. and linen needed to begin the business. losing close to 62. Page.

Waste and Land Inc. 1999 o Derivative suit is a suit brought by members or shareholders of the LLC on behalf of the company or corporation(usually against a 3rd party) o Elf was a PA corporation and Malek was a CA corporation. LLC o LLC statute is more flexible than Corp.161-181 . 1998 o Whether members or managers of a LLC are excused from personal liability on a contract where the other party to the contract did not have notice that the members or managers were negotiating on behalf of a limited liability company at the time the contract was made o Court says that company would have to disclose they were an LLC under the statute and replaces common law agency.bylaws y Partnerships file certificates of limited partnership sometimes partners own part (GP and LP) partners agreement y Water. Lanham. what to do? Good faith and FD 2/10 Business Associations p. statutes courts leave it to the parties to draft agreements they want to make o Agreement is binding on the LLC as well as the members on the basis of freedom of contract and arbitration clause is valid o You can set standards but cannot not be immune from all liability o Corporations would allow provisions to do away with liability indemnification y Fisk Ventures. Inc. and they formed Malek. v. 2008 o Class A 55% Segal (patents) o Class B Johnson/Fisk LLC (money) 16 .286-309 Limited Liability Companies Section 1 Formation y * To form an LLC. Lanham and Clark didn t disclose they were working for the LLC and they are liable o The agent has to disclose they are acting on behalf of the principal and the capacity in which you are acting (as manager. 1973  Whether 2/15 p. v.. you must file articles of organization with the Secretary of State members own part (managers) operating agreement y Corps file articles of incorporation shareholders own part . secretary. Segal. what should Page do? Appraisal remedy buy out to bring in another  Liquidate and pick up its better accounts. Jaffari.missed y Consequences of Dissolution o Prentiss v. etc) o Analysis  If you work for a principal who doesn t want his identity known.The Operating Agreement y Elf Atochem North America. Sheffel. agent should contract for indemnification provision from principal Section 2 . LLC v.o * Rule: show mutual understanding that there is a definite term or particular undertaking that can be accomplished a certain time o Problems  If you want to bring a new partner.

Hunt Sports Enterprises o Parties trying to get an NHL team but everything fell through o Operating agreement allowed competition between parties.182-213 y Chapter 3 Nature of the Corporation y Created and governed by state. cannot constitute a breach of the implied covenant of good faith and fair dealing  Negotiating forcefully and within the bounds of rights granted b the LLC agreement does not translate to a breach of the implied covenant on the part of the Class B members o The operating agreement here was not to front all the money. the lender) o Put right would subrogate what would otherwise be senior claims of new investors o Court held that the mere exercise of ones contractual rights.o Class C passive members ( o Convertible debt is debt that is convertible into equity. etc. s and individually as members they can be liable o Analysis  Differences between LLC and corporation relevant to piercing? y LLC can be managed by members while corp. forming a corporation as the vehicle for investment by other people o Considered to owe a fiduciary duty to corporation they work for (they are agents) 17 .certificate of authority foreign companies register within a state y Promoter refers to a person who identifies a business opportunity and puts together a deal. Haack o Members of an LLC can be held personally liable for the debts of their LLC if they fail to properly dissolve the LLC under the relevant statutes y y y 2/17 and 2/22 p. without more.) o Problem p. s usually have a board of directors  Failure to observe formalities (organizational things) is a factor to be considered but there needs to be more (unjust practices.297  There was not enough to rise to the level of unjust McConnell v. they both signed it o Members of an LLC can define their scope of fiduciary duty. Flahive. they were limited y y Piercing the LLC Veil Kaycee Land and Livestock v. generally at the option of the holder of the debt (that is. therefore it was not violated since both signed away on it Dissolution New Horizons v. 2002 o P trying to pierce the veil of LLC to hold Flahive personally liable o Some states specifically authorize piercing the veil but the LLC statute does not o Court said they would treat LLC s as Corp. not federal law (Congress could adopt federal laws of corps but haven t) y Complex mix of federal and sate laws cover: o The issuance of securities by corporations ( primary market ) o Trading securities (secondary market) o See slides o COA .

A court may treat it as a corp. Inc. 9. PS stiffed Sea Land on the freight bill. is present when you plan on doing so other theory  *De facto corp. v.y y y Owner/manger model close corporation. Sea Land filed diversity suit for money it was owed 18 y y y . . its common in the industry and run normally  Factors in piercing analysis y Comingling funds if personal funds are comingled with corporate funds then it could lead to trouble y Not following corporate filings y Undercapitalization o Enterprise liability breaking down the horizontal barriers of a corporation to make them all liable  Factors for enterprise liability y Common name. Inc. Camcraft. no managers Hypos: o No agency duty but she cant lie Southern Gulf Marine Co. presidents of both parties signed o *Court reversed saying there was a contract in place. the boat had been partially built and financing by the buying party had occurred  *A corp. Carlton. pay y Undocumented transfers between companies y Same telephone number y Same building o Respondeat superior he is entitled to hold the whole enterprise responsible for his acts o Piercing and enterprise liability as possible P arguments Sea-Land Services. P alleges negligently owned and defraud members of the general public because these 10 corporations are all run as one o Lower court granted motion. appellate reversed on grounds there was a cause of action o 3 legal doctrines o Can you get to Carlton individually by piercing the corporate veil? No. services. Inc.. Pepper Source. 1966 o P injured by cab owned by D. act in good faith try to incorporate but unsuccessful other theory o P legal status is not germane to any cause for contract and should not be grounds for avoidance of contract Walkovsky v. 1991 o Sea Land shipped peppers on behalf of Pepper Source. v. shareholders also manage Publicly traded corporation many shareholders. No. 1982 o 1978 letter signed B individually signed and president of SGM o 1979 VCC signed by president of SGM o 1980 signed letter by B individually and president of SGM (now a Cayman corp.) o Breach of contract issue o D claims lack of corporate existence at the time of entering into the contract TC sustained motion for no cause and this court reversed o Letter of agreement to purchase 156 boat.

and PS had no assets. and promoting injustice o Reversed to DC because Sea Land needed to prove more wrong for the injustice test  Found for Sea-Land against Marchese y Roman Catholic Archbishop of SF v. Must be such unity of interest and ownership  2. Commingling of funds y 3. but that there is such a unity of interest and ownership that the individuality. is controlled b another to justify disregarding their separate identities 4 factors y 1. sanction a fraud or promote injustice o Cant hold separate liable because there not so related. Sea Land then brought this against business owner o Sea Land sought to pierce the corporate veil and hold Marchese personally liable for the judgment of 86K and reverse pierce so all entities he owned would be on the hook for 87K (reverse pierce you can get to assets of other corps. a major supplier of implants. general partners would be liable 19 y y . of such person and corp. would under the particular circumstances. has ceased. but PS had been dissolved for failure to pay state franchise tax. o Limited partners would not be held liable. or shareholders of the corporate general partner affirmed appeals court o P tried to get to limited partners of CI. or separateness. 1977 o Fridgeaire appeals on a holding that limited partners do not incur general liability for the limited partnerships obligations simply because they are officers.o DC entered judgment for Sea Land for 86K. commingled. Sheffield. not granted because of corporate control and direct liability Fridgeaire Sales Corporation v. and the acts are such that an adherence to the fiction of the separate existence of the corp. One corp. Union Properties. treating other assets as their own  Policy behind piercing veil y If you re going to disregard the veil then why should we make creditors respect it. 1971 o Alter ego rule must be made to appear that the corp. holding another out as liable for others In re Silicone Gel Breast Implants Products Liability Litigation. is not only influence and governed by that person. Circumstances must be such that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice  To determine if corp. And first in line to get them) o **A corporate entity will be disregarded and the veil o limited liability pierced when two requirements are met (2 parts)  1.. directors. Undercapitalization y 4. Failure to maintain corporate records or comply with corporate formalities y 2. but never manufactured or distributed them  Asserts evidence is insufficient for P to proceed through piercing the veil and direct liability o Bristol sought SJ. 1995 o Bristol Myers is sole shareholder of Medical Engineering Corp.

Co.  Special injury test determine if direct or derivative separate injury o A. the suit should not be considered derivative for the purposes of requiring a posting of security for opposing legal expenses. because those decisions are covered under the business judgment rule. o Problems p. Beneficial Industrial Loan Corp. or if the expansion is wise. Notably. but the gift should be less than 1% of capital and surplus and directed to an institution owning no more than 10% of the company stock. 1949  Issue: The issue is whether New Jersey s statute requiring the payment of legal fees in the event of an unsuccessful derivative suit should be followed by the federal courts. However. 1976 o Hurt the company . Chapter 5 Duties of Officers. Barlow.Derivative brought by 2 minority stockholders of AmEx claiming a certain dividend is a kind of waste of corporate assets Amex chose to distribute dividends to shareholders rather than sell it (it would look like a 25mil. Ford did not deny himself a large salary for his position with the company in order to achieve his ambitions.280  1. o Eisenberg v. Directors. Smith Mfg. American Express Company. the court will not question whether the company is better off with a higher price per vehicle. and Defendant is arbitrarily withholding money that could go to the shareholders. v.  Courts aren t going to second guess the judgment of the board of directors as long as its in the corporations interest like the business judgment rule o Class Notes  When there are few shareholders..P. but a court will not interfere with decisions that come under the business judgment of directors  The purpose of the corporation is to make money for the shareholders. rather than an injury of the corporation. Loss) 20 .214 223 y Section 3 Shareholder Derivative Actions o If they have personal injury then it should be brought as a personal suit o Cohen v. 1953  Corporate gift-giving is an allowable method of increasing goodwill. Ford Motor Co.  A shareholder s derivative suit will follow state non-procedural laws regarding the derivative suits when possible.  The purpose of a corporation is to make a profit for the shareholders. and Other Insiders y Kamin v.o Limited partners cant be liable when acting in their official capacity even if they are exercising control 2/24 p. Flying Tiger Line  When the injury suffered was personal. what would you do to protect yourself? o Dodge v.

directors just overlooked facts called to their attention. are the business judgment decisions of corporate directors judicially rescindable for alleged imprudence or mistaken judgment? o Holding: (no) o No fraud. reversed o BJR presumes that directors act on an informed basis. which require a general monitoring of its affairs and policies o Directors and officers do not owe fiduciary duty to 3rd parties 1. Popular in the early 90 s 3. in good faith. LLC s Guest Speaker 2. United Jersey bank. 1985 o Harm is to the shareholders direct class action o Issue: did the directors act in accordance with the requirements of the business judgment rule o No. 1981 o P s did nothing and that violates their duty to act in good faith as ordinarily prudent persons would under similar circumstances in like positions  Generally should have a basic understanding of the corporations business and knowledge about its ongoing activities. and in an honest belief that their actions are for the good of the company  You have to inform shareholders. fraud.o With business judgment rule doesn t matter if directors make dumb decisions but don t act selfishly or with gross negligence or egregious misconduct o Issue: minus a showing of bad faith. they gave consideration and attempted to view the total picture in arriving at their decision y Smith v. Van Gorkom. oppression. Not large LLC s because its so hard administratively (so many stockholders to take care of) 21 . or breach of trust. directors were grossly negligent (failing to provide info to shareholders) in the way they acted in the first board meeting that approved the merger receiving premium price over market is not enough evidence of intrinsic value y Francis v.

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