AGENCY

- Who is an Agent?
 Agency is a relationship manifestation of consent by one person to another that the other shall act on
its behalf and subject to his control, and consent by the other so to act
 Principal bound by acts of agent, and if the acts are wrongful, both the principal and the agent are
liable
 Policy- Ct wants to encourage people to get car insurance- makes it the laws choice to change
society, not the people’s
 §1 of Restatement of Agency: Relationship which results from the manifestation of consent by one
party to another that the other shall act on his behalf and subject to his control, and consent by the
other so to act
- Control and Liability of Creditors
o To create an agency relationship:
1. Principal must consent to the agency
2. Agent must act on behalf of the principal
3. Principal must exercise control of the agent
 Agency can be created both impliedly and expressly
 creditor who takes control of a company that owes it money, can be held liable for acts of the debtor,
in connection with the business – notion of control and liability
 Policy- Ct telling companies that want to have control over smaller companies- BUY them—argument
against arms-length deals
 §14 of Restatement of Agency: A creditor who assumes control of his debtor’s business for the mutual
benefit of himself and his debtor may become a principal, w/liability for the acts and transactions of
the debtor in context w/the business
- Contract Model of Agency v. Tort Model of Agency v. Non-Delegable Duty
o Contractually:
 Δ can argue that the K imposes no duty- the principal is not exercising control and is an independent
contractor
 A person Ks w/an agent to do a specific job
 You can define authority of agency by looking at K. Sometimes its obvious, sometimes not
 If agency is expressed in a doc, then it is expressed authority
 If the K is silent, but the relationship can be inferred, then it is implied authority
o Tort:
 Who is creating risk from a third-party point of view?
 If authority was reasonable then its apparent authrority
o Apparent authority applies agency even if the doc is silent
 Sometimes both the docs and circumstances are ambiguous, leading to inherent
authority, which looks at the nature of the relationship and how it is perceived from the 3 rd
party point of view
o Agency is formed regardless of intent
o Non-Delagable Duty
 Even if it K says otherwise, the duty cannot be escaped- can’t K out of liability
- Types of Agency:
1. Express Agency- explicitly stated in the K
2. Implied Agency- can be read into the K
3. Apparent Agency- inferred from perspective of a reasonable 3rd party
- Authority:
1. Actual- expressly or implicity (§33) given to the agent, incidental (§35)
2. Apparent- arises when the principle acts in such a manner as to convey the impression to a 3 rd party that an agent
has certain powers, which he may or may not possess—one “holds himself out” to look like he is in charge and has
authority (§2.03 of Rest 3rd)
3. Implied/Inherent (§89)- arises solely from the designation by the principal of a kind of agent who ordinarily
possesses certain powers
• This principle can ONLY be used if there was NO CONTRACT W/THE PRINCIPAL!
- Liability of Principal to 3rd Parties in Contract
- Employees v. Independent Contractor
o Legal issue is whether the operator of the station was an employee (servant) or an independent operator
(independent contractor/franchisee)
• Master-server relationship exists when the servant has agreed to work on behalf of the master and to be subject to the master’s
control or his right to control the physical conduct of the servant (how job was done, not just job result)
o if you want an arm’s length relationship (manufacturer/distributor), magic word is CONTROL
 o Servants distinguished from independent contractors
 Independent Contractors either Agents or Non Agents
 Agent- one who has agreed to act on behalf of another (the principal), but not subject to
principal’s control regarding the physical conduct of the task
 Non Agent- one who operates independently and enters into arms length transactions
w/others
- Liability Of Principals to 3rd Parties in Tort
 Party may be liable for a contractors torts if he exercises substantial control over the contractor’s
operationsmaster-servant relationship so Humble can be liable
 REMEMBER: No agency relationship applies in independent contractor (this theory of respondeat
superior would not apply)
- Franchises
o Regulated by state statute and focus on 2 things: termination and regulation of disclosures
o Agency Relationship involves 3 parties:
1. Principle
2. Agent
3. Third Party
• Acts of the agent via the 3rd party binds the principal
o Lots of problems arise when agents taking advantage of the principal- the Agency Cost Problem
 must ask if they are cheating, lying, stealing
 how much are they supervised?
 What should be in the contract?
o Deciding whether something is an agency relationship or not depends on the nature and extent of control
agreed upon by the parties
 if the franchise K regulates the activities of the franchisee so that control is vested in the franchisor
under the definition of agency, an agency relationship arises even though the parties may expressly
deny it
o Principals might say they are responsible for agents when in scope of employment- idea of Respondeat
Superior
o Alternative to Respondeat Superior
 Independent Contracting alleviates tort liability for principal b/c of CONTROL
- Idea of Control and Non-Delegable Duties- idea that you can’t K out of liability
o Following cases make sense when looking at them in terms of non-delegable duty which morphs into control
notion
o 2 ways to understand control which play off each other:
1. Potential for Influence- always find control
2. Actual Influence- less instances of control (never)
 Restatement Agency § 231: A servant’s act “may be within the scope of employment although
consciously criminal or tortuous” but the comments to that section indicate that ”serious crimes” are
outside the scope.
- Fiduciary Obligation of Agents
o Following cases present 3 views:
1. Agents cannot act in their own interest and can only act for their principal- give up own self
interest
2. agent can act in self interest so long as they disclose to principal and get permission from
principal
3. no harm no foul- so long as principal not harmed b/c he cant do it anyway, its ok
o UPA §21 (p. 85) mandates that every partner must account to the partnership for any benefit and hold as a
trustee for it any profits derived by him without the consent of the other partners from any transaction
connected with formation, conduct, or liquidation of the partnership or his use of the partnership property
 These fiduciary duties are made applicable to the representatives of the deceased partner and are
imposed by UPA §21(2) upon personal representatives of last surviving partner
o RUPA §404 (p. 133) requires each partner to satisfy specific duties of loyalty, care, good faith, and fair dealing
 These fiduciary duties may not be eliminated by agreement/contract
- Differences Btn Restatement 2nd of Agency and Restatement 3rd of Agency
o Restatement 2nd
 §1 Agency; Principal Agent
1. Agency is the fiduciary relationship which results from 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
2. the one for whom action is to be taken is the principal
 3. the one who is to act is the agent
 “results”: established, done- becomes feature of legal landscape, no change
 “manifestation of consent”- noun, signed
 Principal modeled approach- agent always acting in the interest of the principal unless he’s
told he doesn’t have to b/c he’s released
 When circumstances change, look to ratification
 2nd Restatement supposes that top down model of agency
o Restatement 3rd (most changes in §§2.01 & 2.02)
 §1.01 Agency Defined- Agency is the fiduciary relationship that arises when 1 person (a ‘principal’)
manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and
subject to the principal’s control, and the agent manifests assent or otherwise consents so to act
 “arises”: appears, shows up, presents itself
 “manifests consent”: could be any type of agreement
o magic word for Rest 3rd, in Rest 2nd, but not as much
 Inherent agency power no longer in 3 rd
 Apparent Authority changes:
o 2nd- emphasis on principal
o 3rd- emphasis on agent (§33) some degree of discretion to figure out his
responsibilities are restricted by:
 notice by the principal of what is acceptable and ratification
 putting himself in shoes of principal- can’t solely be thinking/acting
only in your own interest
 Totality of the circumstances approach
o Moves agency to more of a partnership level- key term of this Restatement is
Actual Authority
 when circumstances change, look to manifestation, not ratification like in the 2 nd
 notion of actual authority is the center of gravity – never have to talk about ratification after
the fact – invoke notion of actual authority and what is reasonable under the circumstances
PARTNERSHIP
- least regulated and most versatile way for 2+ persons to become co-owners of a business enterprise
- created by the associations of persons whose intent is to carry on as co-owners of a business for profit, regardless of their
subjective intention to be partners
- under the terms of UPA §18 and RUPA §401, in the absence of an explicit partnership agreement which defines
arrangement, each partner has a coequal right w/all others to participate in the firm’s business and equal vote in decision-
making
o RUPA declares that equal partnership is an entity distinct from its partners (RUPA §201) abolishes UPA rule
concerning the rights of individual partners in partnership property- under RUPA §501, partnership property
remains the property solely of the partnership until the firm is dissolved
- UPA
o 2 Different Theories in UPA
1. Entity Theory (Ames)
ii. Partnership a distinct legal entity
1. separate and distinct from partners
2. has and generates own property
iii. Debt of partnership slide to partners?
1. trying to compete w/corporate structure- trying to make partnership more attractive
2. Aggregate Theory (Lewis)
iv. Only partners- interaction is where the partnership lies
v. Has same property and agency notions as Ames
o Agreement the central notion- gives priority to agreement of the partners
 A partnership is an association of two or more persons to carry on as co-owners a business for profit

- RUPA
o Follows the entity theorychange from the UPA (which followed the aggregate mostly)
o Partners agents of the partnership
o Debt stays w/in the partnership, doesn’t reach individual partners (unless there is a separate judgment made against
partner)
o Treats the agreement as itself a statutory doc, subject to statutory regulation
o Treatment of a fiduciary duty up to a certain point + agreement= statutory regulation Agreement on same footing as
statement
o Most definitions straight forward
  §101(10): Definition of “person”- includes more than just an individual- can be made up of all types of
agencies
 §101(7): Definition of “partnership agreement”- doesn’t tell anything
o Omission of §7(1) (Inside Out Rule) may tell us how to think about partnership now
 Most think RUPA an Entity Theory approach to Partnership Law (§201)
 Multiplication of entities
o IMPORTANT SECTIONS:
 § 103 Effect of Partnership Agreement; Nonwaivable Provisions (Stat. 104)
 agreement becomes regulated by statute, under §103(b) ((b)(3-5) very important)
 § 105 Execution, filing, and recording of Statements (Stat. 109)
 §303 Statement of Partnership Authority (Stat. 120)
 §304 Right of Limited Partner and Former Limited Partner to Information (Stat. 261)
 “favorite statement, don’t know what its there for” (Guddy)
 Useful to remember if client is worried about being caught up in Fed Dragnets

- Important Parts of UPA

o Preliminary Provisions- Part 1
§4 Rules of Construction
§5 Rules for Cases not Provided in the Act
o Nature of Partnership- Part 2
§6 Partnership defined
§7 Rules for Determining Existence of Partnership
1. 3rd party perspective
2. co-ownership of property
3. sharing of profits
§8 Partnership Property
o Relations of Partners to Persons Dealing w/Partnership- Part 3
§9 Partner Agent of Partnership as to Partnership of Business
§15 Nature of Partners Liability
§16 Partner by Estoppel
o Relations of Partners to One Another- Part 4
§18 Rules Determining the rights and Duties of Partners
§20 Duty of Partner to Render Information
§21 Partner Accountable as a Fiduciary
o Dissolution and Winding up- Part 6
§29 Dissolution defined
§30 Partnership not terminated by dissolution

- Important Parts of Revised Uniform Partnership Act – pg. 90

o General Provisions – Article 1
 §101 Definitions 101.7, 101.13
 §102 Knowledge and Notice 102(e)
 §103 Effect of Partnership Agreement: Nonwaivable Provisions
 §104 Supplemental Principles of Law 104(a)
 §105 Execution, Filing and Recording of Statements
o Nature of Partnership – Article 2
 §201 Partnership as Entity
 §202 Formation of Partnership 202(a), 202(c)
o Relations of Partners to Person Dealing with Partnership – Article 3
 §301 Partner Agent of Partnership
 §303 Statement of Partnership authority (1st place where you see notion of statement)
 §304 Statement of Denial
 §306 Partner Liability103
o Relations of Partners to Each Other and to Partnership – Article 4
 §401 Partners Rights and Duties
 §403 Partner Rights and Duties with Respect to Information
 §404 General Standards of Partners Conduct
o Partners Disassociation – Article 6
 §602 Partners Power to Dissociation, Wrongful Dissociation
Partnership – UPA v. RUPA

UPA RUPA
Governing Law No provisions §106
Mandatory Rules No provisions §103
Formation of Partnership §6, §7 §202
Entity §8: property in partnership name. But Entity: §201
NOT an entity for all purposes
Agency §9 §301. NB change in wording. Filings re
authority
Liability of Partners §15 contract; joint. Other; joint and §306; joint and several. But look to
several partnership assets first §307
Partnership Property §8, §25 tenancy in partnership §203, §204, §501. Tenancy in partnership
is abolished
Profit Sharing, Loss Sharing, Management §18 §401
Fiduciary Duties §21 §404
Break Up §29, §31 Dissolution §601 Disassociation
§701 Buyout
§801 Dissolution/Winding Up
- Comparisons:
o UPA
 Partners are agents of partnership; they are interchangeable
 This poses a problem because it identifies partnership in terms of property law and draws the obvious
conclusion that partners are agents.
 There are very few models where everyone plays the same part
 The first part of UPA creates the problem of agency
 This sets a group of legal risk that requires each partner to need the others
 This motivates you to draft an agreement that supercedes the statute; however agreements are
the focus of the disputes
o RUPA
 Provides statements that can declare which partners do what
 This provides a considerable measure of transparency
 The 3rd Restatement says partnership is now the relationship between partners
 If they are no longer acting together, the partnership dissolves
 If a partner breaches an agreement, then he is liable for damages
 A partner leaving under UPA has bargaining power as he can put the other partners at risk; each
partner must be careful that he does not bring down the partnership
 A partner leaving under RUPA is more authoritative because he can be fired
o Agency Law
 Partnership law presupposes agency law
 Agency law asks how we know when one partner is acting on behalf of other and what the risks are
 Why do we need inherent authority?
 To look at it from view of 3rd party
 There might be some perspective of public at large
 We would miss cases where there are no agency implications
 Why are we looking for manifestations under the Third Restatement?
 Manifestation allows you to look at organization from perspective of agent
 This takes away the principal’s role as an entity
 Delaware v. N.Y. Demand Rules
When can a demand be excused?
Delaware and NY have the same underlying standards, but Delaware is more interested in the procedures used by the board, ex ante
and ex post
DELAWARE NEW YORK
 Harder to get demand excused
More interest in Del in the process
1. Conflict of interest, either familial or financial, for board 1. Conflict of interest, either familial or financial, for board

2. Control Lacking (independent review is important) 2. No investigation or ignorance

3. No Business Judgment 3. No Business Judgment
4. Breach duty of care only if negligence is sufficiently gross 4. Breach of Duty of Care (not just breach of loyalty
or reckless to take it away from protection of Business
Judgment Rule
What must a party plead? New York does not have a reasonable doubt standard
In Delaware, who attacks board decision must make a demand In New York, the Π must allege particularized facts that establish,
on the board unless he can show reasonable doubt about on their face, one of the demand excuses
whether the board either was:
o Disinterred and independent
o Entitled to protection of the Business Judgment Rule
Delaware is always protecting the corporation
o Shareholder must show with particularity that there is
a reason to doubt one of the reasons above and it
must be done in the complaint, prior to discovery
with tools at hand
o Must look ex ante at time decision in question was
made
 Ex ante-look what happened before
Ex post-look at what they did when they received demand
If demand is made and the board refuses in Delaware that
means:
 Shareholder has waived conflict of interest argument
 Still have to allege with particularity that there is
reason to doubt either the boards business judgment
or independence
 This look at the board ex post from the time the
decision in question was made

In Delaware, a Δ corporation can respond to a shareholder

complaint by:
 Stating the board was independent, and that it used
good business judgment
 Giving reasons for their decision
Need enough details to make sense, not raising questions or
doubts.

o Overview of Shareholder Cases in Delaware:

Step 1: Is it a direct or derivative suit?
Step 2: If derivative suit, is demand excused b/c its futile or required?
Step 3: Demand is futile when:
1. majority of board has a material, financial or familial interest
2. majority of board is incapable of acting independently for some reason such as domination
or control
3. underlying transaction is not the product of a valid exercise of business judgment (would
rather allege conflict over business judgment prong- b/c its hard to argue its not a valid
exercise of business judgment- ieallege 1 or 2, not 3)
Step 4: When demand is futile: Must allege facts w/particularity that demand is futile using the “tools at hand” [Del. Stat §220]
(difficult b/c no discovery but §220 lets Πs have access to corporate documents but not as extensive as discovery)
Step 5: When demand is required b/c not futile, BoD sets up a Special Litigation Committee to determine the validity of the claim
(Zapata Test)
 A. After Committee makes a decision on validity (these following
steps are generally when Committee rejects the suit) judge must determine if:
i. Independence of the Committee from BoD (not people implicated in original suit) ( Aurbach)
ii. Acted in good faith (hiring outside counsel, accountants and other professionals would NOT be
good enough in Del, but would be ok in NY) (Aurbach)
iii. Reasonable basis for recommendation (Oracle)
B. Judge can accept or reject the committees finding. If he rejects
their finding, he may exercise is own business judgment (looking at corporation’s best interest and pay
attention to law and public policy)
- this a big paradox chances are judges will not exercise their own business judgment if the board/ committee itself looks like they
are acting on the basis of written records (so therefore, advise your corporate client to KEEP BUSINESS RECORDS, set up committees
before problems arise)
- judge almost looking at the case on the merits- if it seems like the case is a winner for Π, but SLC rejected it, he will be more
inclined to exercise his independent business judgment
The Duties of Officers Directors and Other Insiders
- Obligations of Control: Duty of Care
o Four Fiduciary Duties:
1. Duty of Care- business judgment (weak- arguable chance that your choice works for the benefit of
the business)
2. Duty of Legality/Duty to Monitor (we want directors to be attentive to the legality and not just the
profitability of the business- cases show courts don’t have a handling on this yet)
3. Conflict of Interest
4. Corporate Opportunities
Overview of Sinclair, Fleigler, and Wheelabrator Burden Shifting Flowchart
1) Is there an actual conflict?
-A party is on both sides of the transaction
2) If an actual conflict, did the minority “lose”?
3) If Steps 1 & 2 are satisfied, the burden is on the defender of the transaction to show that the deal was fair
4) Was the transaction approved by a disinterested majority of shareholders?
-Approval by a majority of shareholders does not preclude the court making a fairness inquiry ( Fleigler)
-If so, burden shifts to the Π to show unfairness/waste
 Rule 10b-5
o Rule on p.444- understood as the basis for implied right of action in Fed Courts
 Allows shareholders to bring suit against people who gave “false” “omitted” info about a security-
must be a material fact
 This an alternative to a derivative suit
 actually purchased or sold stock and such fraud must be “in connection w/the buying or selling”
 Scienter Requirement- those making the statement must know that the statement was false or
omitted
o Requirements for Private Right of Action under 10b-5:
i. purchaser or seller (Standing)
ii. must be a false statement or material omission must matternot negligence, but gross negligence or
recklessness (weird to think about in Securities regulation) look at things usually in terms of omission
rather than false statements when looking at recklessness
 judge makes the determination of if Δs met professionally acceptable standards
 courts exercising their business judgment (even though it won’t actually call it this)
iii. must be reliance on statement
iv. scienter requirement- person making the false/omitted statement must have made it w/an “intent to
deceive, manipulative, or defraud” (trap for the unwary- anyone can plead it)

Definition of materiality - omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it
important in deciding how to vote- objective standard, but kinda subjective b/c it doesn’t “for sure” have to make a difference
Fraud on the Market TheoryReliance Issue: Shareholder relied on the market and since the market was affected by these false
statements, do not need to show individual shareholder reliance
 Burden shifts to Δ to show that their was NOT individual reliance on the market (impossible
to show that Π didn’t rely on market)- so makes materiality the focus of the lawsuit so if it
was not a material (important) statement, then Δ wins
 Relies Class Actions to go forward
 differing theories on how quickly market reflects information- SC has a presumption of reliance on the
market
 - Insider Information
 The basic rule is clear – disclose or abstain. If you are an insider you cannot trade for your own profits
unless you disclose – either to who you work for or from whom you buy shares
 If we think this rule is right, the cases cause difficulty and make it difficult to elaborate any rules
 The fraud model creates many complexities, have to continually look at the cases to
squeeze into the fraud model
 If Texas Gulf Sulphur is right, the idea is all about equal chance of obtaining info, and so
10b-5 cases are not about fraud, it’s about a market duty imposed on everyone
 moving away from fraud to perhaps idea of market stability – if there are too many people trading
w/insider information it will increase volatility of the market
Mergers, Acquisitions, and Takeovers
- Mergers, Acquisitions and Takeovers have 2 features:
1. Merger supposes 2 corporations- sometimes set up a 3 rd, which absorbs the other 2, or 1 of the existing corps
will merge into the other (was A and BC or was A and Bjust B)
2. Takeover applies to process right before merger- 1 comp acquires a lot of shares of another, enough to be able
to call the shots in the company its acquiring, and then the acquired comp will be merged into the other
company (shareholders all become holders of the surviving company)
- In Merger Cases:
o §262 of Del Corp Law (pp.597-603)- Appraisal Rights
 Right given to dissenting shareholders (don’t like terms of merger- their comp is going to be
acquired and they don’t think they got a fair deal, but don’t have votes to defeat it) which gives them
the right to get value (What is this “value”? Determined by Ct)
- De Facto Mergers:
 Both deal w/problem of avoiding appraisal procedure and have opposite results, both companies
arrange to have its assets acquired by the “loser company” who in turn issues a whole bunch of its
shares to the one surrendering its assets, who distributes the shares to its shareholders (small eats the
big)
- Freeze Out Mergers
o Beginning in 70s, Del Cts got interested in “Two-Step Mergers”
 Step 1: acquiring comp gets large stock in other comp- keeps it for a while can sell off stock for big
money (Market Transaction)
 Step 2: acquiring comp decides to merge acquired comp into itself, but doesn’t give the shareholders
of acquired comp stock, but gives instead money (cash-out) but less than in step 1 (Corporate
Transaction)
o Singer Test- merger must meet business purposes of both companies- discovered to be “silly” b/c the business
purposes would be opposite for the 2 companies- tension (overruled by Weinberger)
 To be a fair transaction:
1. Shareholder must be informed of all relevant facts prior to their vote (here,
plainly NOT- didn’t disclose, hurried, and didn’t bargain up)- fair dealing
2. price given must be fair- fair price
o Revlon v. Macandrews (DE, 1985)Lockups and related defensive measures are permitted where their
adoption is untainted by director interest or other breaches of fiduciary duty
 White trash grocer trying to acquire French makeup company- company wants anyone but grocer to
acquire and pull out all defensive measures
 Defensive measures are OK when you are trying to protect the company as it stands, but there comes
a point in these exchanges when its clear the company is up for sale, and then the duty changes- duty
no longer to protect shareholders interest in the previous comp, duty now is to conduct a fair auction
in order to maximize return for the shareholders and you must deal on equal terms w/the bidders
(cant rig and favor 1 bidder over another)
 this a big development b/c ct just announced that sometimes defensive measures no good- fact that
they are biased makes them suspect
 if company up for sale- Revlon
 if company not up for sale- Unocal
 but when are we in Revlon-land and when are we in Unocal?
o Elements of 14a-9 Action: interesting comparison to 10b-5 elements!!
1. Misrepresentation or Omission
2. Statements of Opinions, Motives, or reasons
3. Materiality – shareholder consider it important in deciding how to vote
4. Culpability – (scienter is NOT required; courts have not required the party making the statement to
know it was false or misleading)
5. Reliance – (not necessary, just material)
 6. Causation – (challenged transaction must have loss causation to the shareholder)
7. Prospective or Retrospective Relief
 Close Corporation Statutes:
 Opting In
o Delaware: §342 – close corporation has fewer then 30 shareholders; to fall under
these provisions must state in articles or amend by majority vote – §341, 342, 343,
344.
o MBCA- No “close-corporate category” and the opt-in is not necessary. However,
any shareholder agreement modifying control structure must be noted on share
certificate – MBCA §7.32(c). Approval by all shareholders §7.32(b).
 Getting Out
o Delaware: An amendment to the articles voluntarily terminates close corporation
status; it must be approved by a 2/3-majority vote. (§346). Close corporation
status terminates when the corporation files the charter amendment or if any
condition of close corporation status is breached. (§345).
o MBCA: All shareholders must agree to any amendment to the shareholder
agreement. (§7.32(b)(2)). Further, the agreement ends automatically after 10
years, unless the parties agreed otherwise, or if the corporation’s shares are
traded in a natinal stock market. (§7.32(b)(2), (d))
- Abuse of Control
 Closely held corporation like a partnership—one cannot get kicked out of a corporation but still hold
shares, must be bought out
Important Statutes:
RUPA§ 404. General Standards of § 404(b) in non-waivable Compare with UPA § 4(3) and 21
Partner’s Conduct. o ONLY fiduciary duties a partner o § 4(3): The law of agency shall
owes to the partnership are the apply under this act
duties of loyalty and care (b) o § 21: Partner Accountable as a
and (c) of the ACT Fiduciary – Every partner must
o Agreement may identify account to the partnership for
activities and determine any benefit, and hold as trustee
standards for measuring for it any profits derived by him
performance of the duties, if without the consent of the
not manifestly unreasonable other partners from any
transaction connected with the
formation, conduct, or
liquidation of the partnership
or from any use by him of its
property.

Del Gen Corp Law § 144: Interested
Directors; Quorum
Corporate law allows self dealing as
long as it is fair
Transaction should not be void for the
sole reason that the director is a party on
both sides if:
o Material facts are disclosed to
the disinterested directors who
approve the transaction; or
o The material facts are disclosed
to the disinterested
shareholders who approve in
good faith the transaction; or
o A judge determines it to be fair
Common or interested directors may be
counted in determining the presence of
quorum at a meeting authorizing the
transaction
Model Act Counterparts: Subchapter F:
Director’s Conflicting Interest
Transaction
§ 8.60 – Director Conflict of Interest:
When a shareholder alleges that the
Board breached the duty of loyalty by
approving a merger even though a
conflict of interest existed, the business
judgment rule and not the “entire
fairness” rule was the appropriate
standard of review. In Re Wheelabrator
Technologies, Inc. v. Shareholders
Shareholder Ratification of Self Dealing
Transactions:
o Cts will uphold if shareholders
disinterested and fully informed
o Burden then to plaintiff:
transaction constituted waste;
no person of sound business
judgment would find that the
considerations was fair;
shareholders were interested in
the transaction
Substantive Fairness:
§8.60(1)(ii): treats interlocking director
transactions as a “director’s conflicting
interest transaction” only if so signifigany
that it would normally require board
approval
§ 8.60 Defining disinterested director:
objective test that defines a “qualified
director” as one who is not a party to the
transaction, does not have a beneficial
financial interest that would influence the
director’s judgment, and has no familial
financial professional or employment
relationship influencing vote.
Objective test: transaction must replicate
an arm’s lengh transaction by falling into
a range of reasonbleness
Corproate value: transaction mut be of a
p[articular value to the corporation, as
judged by the corporation’s needs and
scope of the business
Procedural Fairness – Board Approval:
Fair Price and Fair Dealing –
Weinberger v. UOP, Inc – full disclosure
necessary so the board can review on the
merits of the case.
o Disclosure: courts differ in
standards: full fisclosure is a
factor baring on fairness;
disclosure only f the conflict of
interest to put board on guard;
full disclosure including profit
of intrest in transaction
o Disinterested approval: defined
as, (1) he is not directly or
indirectly interested in the
transaction—no financial or
family; (2) no dominated by the
interested director
Role of interested director: allow
interested director sto negotiate,
participate and vote without
undermining validity