AGENCY.........................................................................................................................................

9
Who Is An Agent.........................................................................................................................9
Gorton v. Doty.........................................................................................................................9
 RS 2nd Section 1 -....................................................................................................9
Jenson Farms v. Cargill...........................................................................................................9
 RS 2d of Agency Section 14O.................................................................................10
 RS 2ed of Agency section 14K................................................................................10
Quiz 1.................................................................................................................................10
Liability Of Principal To Third Parties In Contract...................................................................11
 RS 2d §7 - authority...............................................................................................11
 RS 2d §26 - creation of authority...........................................................................11
 RS 2d §35 - when incidental authority is inferred.................................................11
Mill Street Church V Hogan..................................................................................................11
370 Leasing V Ampex...........................................................................................................12
 RS 2d §§ 8 and 27 - apparent authority and creation of apparent authority.......12
 RS 3d §2.03............................................................................................................12
Watteau V. Fenwick..............................................................................................................12
 RS 2d §§8A, 161, 194, 195.....................................................................................12
 RS 3d approach......................................................................................................13
 §2.06(2) liability of undisclosed principal..............................................................13
 §1.03 - manifestation.............................................................................................13
 §2.03 - apparent authority....................................................................................13
Nogales V Argo.....................................................................................................................13
quiz 2.................................................................................................................................13
Botticello v. Stefanovics - Ratification..................................................................................14
 RESTATEMENT 2ND OF AGENCY, SECTION 82, 83, 91...........................................14
 RESTATEMENT 3RD OF AGENCY, CHAPTER 4 – RATIFICATION.............................14
Hoddeson v. Koos Bros – Estoppel.......................................................................................14
 Restatement 2nd of Agency, §8B..........................................................................14
 Restatement 3rd of Agency, §2.05........................................................................14
quiz 3.................................................................................................................................14
Agency Review Question 1...............................................................................................14
Liability Of Principal To Third Parties In Tort.........................................................................15
Humble Oil v. Martin............................................................................................................15
Hoover v. Sun Oil..................................................................................................................15
 Respondeat superior liability - Restatement 2nd of Agency, §219......................15
 Definitions of master and servant - Restatement 2nd Agency, Section 2.............15
 Definition of independent contractor - Restatement 2nd Agency, Section 2.......15
 Definition of Servant, Restatement 2nd of Agency,§220 (2) – Some Relevant
Factors...........................................................................................................................15
 Definition of Servant, Restatement 2nd of Agency,§220 (2) – Some Relevant
Factors...........................................................................................................................16
Murphy v. Holiday Inns.........................................................................................................16
quiz 4.................................................................................................................................16
Miller v. McDonald’s Corp...................................................................................................16
 Apparent agency - Restatement 2nd of Agency, §267..........................................16
 Agency - scope of employment - Restatement 2nd of Agency, §228(1) – When
conduct is within the scope of employment.................................................................16
 Restatement 2nd of Agency §229 (1.....................................................................17
 Restatement 2nd of Agency §229 (2)....................................................................17
 Restatement 3rd of Agency, §7.07........................................................................17
Majestic Realty v. Toti..........................................................................................................17
 Servant v. IC §229..................................................................................................17
 Servant vs. Independent Contractor - R2d Agency, Sections 2, 220.....................18
 R2d Torts Section 416............................................................................................18
quiz 5.................................................................................................................................18
Agency Review Question 2...............................................................................................18
Fiduciary Duties of Agents........................................................................................................18
Reading v. Regem..................................................................................................................18
 Agency - fiduciary relationship - Restatement 2d Agency §1................................18
 Agency - duty of loyalty - Restatement 2nd of Agency, §387 – Duty of Loyalty...18
 Restatement 2nd of Agency, §388 – Duty to Account for Profits Arising out of
Employment...................................................................................................................18
 Restatement 2nd of Agency, §404 – Liability for Use of Principal’s Assets..........19
 R 3rd of Agency, §8.02 – Material Benefit Arising out of Position........................19
 R 3rd of Agency, §8.05 (1) – Use of Principal’s Property.......................................19
 General Automotive v. Singer...............................................................................................19
 Restatement 2nd of Agency, §393 – Competition as to Subject Matter of Agency
19
Town and Country v. Newberry............................................................................................19
 Restatement 2nd of Agency, §395........................................................................19
 Restatement 2nd of Agency, §396(b)....................................................................19
quiz 6.................................................................................................................................19
Agency Review Question 3...............................................................................................20
PARTNERSHIP............................................................................................................................20
Formation of Partnership...........................................................................................................20
Fenwick v. Unemployment Comp Comm.............................................................................20
 Partnership – Definition - UPA, §6(1)....................................................................20
 Equal sharing of profits and losses - UPA, §18(a)..................................................21
 Sharing of profits - UPA, §7(4)...............................................................................21
 Equal control rights of partners - UPA, §18(e)......................................................21
Partnership by Estoppel.............................................................................................................21
Young v. Jones.......................................................................................................................21
 Joint and Several Partner Liability - UPA, §15.......................................................21
 Partnership by estoppel - UPA, §16.......................................................................21
quiz 7.................................................................................................................................21
Partnership review Question 1...........................................................................................21
Limited Partnership...................................................................................................................21
Holzman v. De Escamilla......................................................................................................22
Fiduciary Duties of Partners......................................................................................................22
Meinhard v. Salmon...............................................................................................................22
o Partnership - fiduciary Duty of Loyalty - UPA, §21................................................22
 RUPA, §409(b) – Duty of Loyalty...........................................................................22
 RUPA, §409(c) – Duty of Care................................................................................22
 Partnership - information......................................................................................22
o UPA, §20................................................................................................................22
o UPA, §19................................................................................................................22
o RUPA, §403............................................................................................................23
 Partnership – Fiduciary Duty of Good Faith in Expelling Partner - UPA, §31(d). . .23
 Quiz 8.................................................................................................................................23
Partnership Property..................................................................................................................23
Putnam v. Shoaf.....................................................................................................................23
o UPA §24 EXTENT OF PROPERTY RIGHTS OF A PARTNER.......................................23
o UPA §25 NATURE OF PARTNER’S RIGHT IN SPECIFIC PARTNERSHIP PROPERTY...24
o UPA §26 NATURE OF PARTNER’S INTEREST IN THE PARTNERSHIP.......................24
 UPA §27 ASSIGNMENT OF PARTNER’S INTEREST..................................................24
Rights of Partners in Management............................................................................................24
Nabisco v. stroud...................................................................................................................24
Partners - management and voting...............................................................................24
Partnership - partners as agents...................................................................................25
Quiz 9.................................................................................................................................25
Dissolution.................................................................................................................................25
o (UPA, §29) - Definition of Dissolution:...................................................................25
o (UPA, §30) - Dissolution versus Winding Up.........................................................25
o Causes of Dissolution (UPA §31)............................................................................25
o Dissolution by Court Decree (UPA §32).................................................................25
o Compare RUPA §801(5).........................................................................................25
Owen v. Cohen......................................................................................................................26
Page v. Page...........................................................................................................................26
o Right to Require Liquidation, UPA §38(1)..............................................................26
o Right to Damages and to Continue the Business UPA §38(2)...............................26
o Rules for Distribution – Payment of Liabilities, UPA §40(b)..................................27
o Rules for Distribution – UPA, §40(d)......................................................................27
Jewel v. Boxer.......................................................................................................................27
quiz 10...............................................................................................................................27
partnership review 3..........................................................................................................28
INTRO TO CORPORATIONS.....................................................................................................28
Incorporation Process................................................................................................................28
 Steps in setting up a corporations.........................................................................28
 Certificate of incorporation, DGCL §102...............................................................28
 Incorporators.........................................................................................................29
 Filing requirement.................................................................................................29
  Amendments permitted (DGCL §§ 241, 242)........................................................29
 Commencement of corporate existence...............................................................29
 Registered office....................................................................................................29
 By-laws...................................................................................................................29
 Dissolution.............................................................................................................29
 Promoter's liability.................................................................................................30
quiz 11...............................................................................................................................30
Piercing the Corporate Veil.......................................................................................................31
Walkovsky v. Carlton............................................................................................................31
Sealand v. Pepper Source......................................................................................................31
In re Silicone Gel Products Liability Litigation....................................................................32
 Direct liability - Direct liability (R2nd Torts, §324A)..............................................32
quiz 12...............................................................................................................................32
corp. review 1....................................................................................................................33
Shareholder Derivative Litigation.............................................................................................33
Cohen v. Beneficial Industrial...............................................................................................33
Eisenberg v. Flying Tiger......................................................................................................33
Grimes v. Donald...................................................................................................................33
Quiz 13...............................................................................................................................33
Zapata v. Maldonado.............................................................................................................33
In re Oracle Corp. Derivative Litigation................................................................................34
quiz 14...............................................................................................................................34
corp. review 3....................................................................................................................34
Role and Purpose of Modern Business Corporation..................................................................34
Smith v. Barlow.....................................................................................................................34
Dodge v. Ford........................................................................................................................34
quiz 15...............................................................................................................................35
Corp. review 2...................................................................................................................35
LIMITED LIABILITY COMPANIES..........................................................................................35
§201 - legal entity distinct from members....................................................................35
westec v. Lanham – organization..........................................................................................35
Elf v. Jaffari – operating agreement......................................................................................35
Kaycee v. Flavin – piercing the veil......................................................................................35
quiz 16...............................................................................................................................35
 McConnel v. Hunt – duty of loyalty......................................................................................35
§409(a) - standard of conduct.......................................................................................35
New Horizon v. Haack. – dissolution....................................................................................35
§701 - dissolution..........................................................................................................36
§703 - winding up..........................................................................................................36
§704 - notice to creditors..............................................................................................36
§705 - publishing notice................................................................................................36
§707 - creditors paid first..............................................................................................36
quiz 17...............................................................................................................................36
LLC review 1.....................................................................................................................36
CORPORATE FIDUCIARY DUTY.............................................................................................36
Duty of Care..............................................................................................................................36
Kamin v. Amex......................................................................................................................36
Smith v. Van Gorkom............................................................................................................36
o §251(b) - board approval.......................................................................................36
o §251(c) - SH approval.............................................................................................36
quiz 18...............................................................................................................................36
Francis V. United Jersey........................................................................................................36
In re Caremark.......................................................................................................................37
quiz 19...............................................................................................................................37
Duty of Loyalty..........................................................................................................................37
Bayer v. Beran.......................................................................................................................37
Opportunity Doctrine.................................................................................................................37
Broz v. Cellular......................................................................................................................37
In re Ebay...............................................................................................................................37
quiz 20...............................................................................................................................38
Corp. Review 4..................................................................................................................38
Duty of Dominant Shareholders................................................................................................38
Sinclair v. Levien...................................................................................................................38
Shareholder Ratification............................................................................................................38
Fliegler v. Lawrence..............................................................................................................38
§144(c) - ratification......................................................................................................38
Quiz 21...............................................................................................................................38
Corp. Review 5..................................................................................................................38
FEDERAL SECURITIES REGULATION...................................................................................39
Definition of Security................................................................................................................39
Robinson v. Glynn.................................................................................................................39
Securities Registration Process and Exemptions from Registration..........................................39
Doran v. Petroleum Management..........................................................................................39
quiz 22...............................................................................................................................39
Securities Fraud and Insider Training........................................................................................39
Escott v. BarChris..................................................................................................................39
Suit - §11 fraud in registration statement.....................................................................39
SEC v. TGS...........................................................................................................................40
quiz 23...............................................................................................................................40
Corp. Review 6..................................................................................................................40
Insider Trading...........................................................................................................................40
In re Cady Roberts Co...........................................................................................................40
Chiarella v. US.......................................................................................................................40
Dirks v. SEC..........................................................................................................................40
Salman v. US.........................................................................................................................40
US v. O’Hagan.......................................................................................................................40
quiz 24...............................................................................................................................40
Short Swing Profits Rule...........................................................................................................40
Reliance v. Emerson..............................................................................................................40
quiz 25/36..........................................................................................................................40
Corp. Review 8..................................................................................................................40
Indemnification and Insurance for Corp. Management.............................................................40
Corp Review 2C and 2D....................................................................................................40
Proxy Regulation.......................................................................................................................41
Levin v. MGM.......................................................................................................................41
Rosenfeld v. Fairchild............................................................................................................41
Corp. Review 9..................................................................................................................41
Inspection Rights.......................................................................................................................41
Crane v. Anaconda.................................................................................................................41
Pillsbury v. Honeywell..........................................................................................................41
Class Review.................................................................................................................................41
Agency Review..........................................................................................................................41
Partnership Review....................................................................................................................42
LLC Review...............................................................................................................................43
Corporations Review.................................................................................................................44
Federal Securities Regulation Review.......................................................................................46
Finals Prep Info..........................................................................................................................46
AGENCY
Who Is An Agent
The relationship between an agent and a principle that arises from:
1. the manifestation of consent by one person to another that; 
2. the other shall act upon their behalf and be subject to their control; 
3. by consent of the other.
-not required to be a matter of business or be paid
*MANIFESTATION: can be direct/indirect; written or spoken; can be made public or directly to
a third party; or recognized duty assigned to agent
Gorton v. Doty
 needed an agency finding to make Doty liable.
 principal-agent relationship exists when two persons agree that one person will act
on behalf of, and subject to, the control of the other person

 "agency" is the 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.

 RS 2nd Section 1 -
o Manifestation of consent by principal
o That the agent shall act on principal's behalf and subject to principal's control
o Consent by agent to act for principal
 How does court apply
o Manifestation by doty by volunteering her car under the condition that coach
drives
o Was subject to dotys control based on condition
o Coach consented when he drove the car to the game
Jenson Farms v. Cargill
 A principal-agent relationship exists between a creditor and debtor when the creditor
intervenes in the business affairs of the debtor.
 Contracts of sale between warren and farmers w delayed payment. Warren received grain
but never payed
 P needed to link cargill to receive payment since warren was gone
 Was an agency - farmers win
 What legal tests
 Creation of agency relationship w focus on control
 How does it apply
 Cargill consented by provided advice
 Warren acted on cargills behalf by securing grain
 Cargill exercised control by influencing business; daily progress updates,
advice, cargill sent representatives to warrens base
 Agency v. Debtor-creditor relationship
  RS 2d of Agency Section 14O
 Creditor who assumes control of his debtor's business…with liability for
acted and transactions of debtor in connection with his business
 Comment - "merely exercising veto power…by preventing
purchases or sales above specified amounts does not thereby
become a principal"
 Comment - creditor becomes a principal when it exercises de facto
control over conduct of debtor
 RS 2ed of Agency section 14K
 One who contracts to acquire property from a third person and convey it to
another is the agent of the other only if agreed that he is to act primarily
for benefit of the other and not for himself
 Comment - factors indicating that one is a supplier and not an
agent are :
 Receives a fixed price for property no matter what price
paid by him
 Acts in own name and receives title to property later
transferred
 Has an independent business in buying and selling similar
property
Agent authority to bind a principle to a third party:
-Actual: power of A to affect legal relations of P (manifested and consented)

-Express: P manifested to A, A believes they are authorized based on manifestation

-Implied: incidental and reasonably necessary for the task, P did not expressly manifest
the specific action

-Apparent: A holds out to 3rd party that they are authorized to act for P; 3rd party
believes that A is acting for P with permission

-Inherent: A is given authority to act based on their position and the expected actions of
their position; even lacking direct permission of P
Quiz 1
1. who won gorton v doty
a. football player gorton and his father
2. according to court, who was principal and who was agent
a. garst – agent and Doty prin.
3. which is required for agency relationship
a. principal asks agent to complete task, agent agrees, principal directs the method
and means of how agent completes
4. who won jenson v. Cargill
a. farmers
5. a creditor should never try to exercise any form of control over the debtors business
because any attempt to do so will lead to a finding that agency has been created
a. false
Liability Of Principal To Third Parties In Contract
 Attribution rules
 Issue: does the agent have the authority to bind the principal to third party (3P) and
3P to principal?
 "qui facit per alium facit per se"
 He who acts through another does the act himself
 Rules
 Actual
 Express
 Implied
 Apparent
 Inherent
 Estoppel
 Ratification
 Issue analysis
 Is there an agency relationship
 Does the agent have the authority to act on principals behalf; what type of
authority
 Actual authority
 RS 2d §7 - authority
 Power of A to affect legal relations of P done in accordance with P
manifestation of consent to A
 RS 2d §26 - creation of authority
 Objective manifestation of P
 A's reasonable interpretation of that manifestation
 A's belief that she is authorized to act for P
 Incidental (implied) authority
 RS 2d §35 - when incidental authority is inferred
 Acts which are incidental, usually accompany, or are reasonably necessary to
accomplish a transaction
 Fills the gaps in express authority
Mill Street Church V Hogan
o How does authority issue arise and why is it important
 Was sam an employee of church
 Sam wasn’t hired by church elders, just his brother who had been hired
 If brother didn’t have authority to hire sam, church isn't liable
o What theory of authority is discussed
 Implied actual authority
o What must be proved
 Court states that a implied auth is actual circumstantially proved when p intends
agent to possess.
 P must have intended to give A power to carry out such task
o What evidence was introduced
 One of church elders discussed w bill that he'd need help
o Who wins
  Court concludes that brother had implied auth to hire sam; had hired him in past
and no express direction on who to hire for help. Church elder told him to hire
whoever he wanted. Sam is deemed employee of church and is entitled to
workers comp

370 Leasing V Ampex

Apparent auth when principal acts in a manner that a reasonably prudent person to suppose that
agent did have the authority to exercise. Absent knowledge to contrary of 3P, an agent has
apparent authority to do things that are usual and proper to conduct of business
 Court held that Kays had authority to enter sales, and following letter constituted Joyce's
reasonable belief that a sale had been entered, i.e. acceptance
 Apparent authority
 RS 2d §§ 8 and 27 - apparent authority and creation of apparent authority
 Objective manifestation from one party (apparent principal)
 Which reaches a 3P
 Causing 3P to reasonably believe that another party (apparent agent) is
authorized to act for apparent principal
 RS 3d §2.03
 3P reasonably believes actor has authority to act on behalf of P and that
belief is traceable to P's manifestations
 Comments
 Manifestation may consist of "written or spoken words or other conduct"
 Direct communications from principal by letter/word of mouth
 Auhtorized statements of the agent
 Documents from 3P who have heard of the agent's authority from
auhtorized or permitted channels of communication
 Appointing a person to a position like manager or treasurer
which carries with it generally recognized duties
 Communication to the public through signs or advertising
 Continuously employing the agent
Watteau V. Fenwick
secret limitations cannot be used to defeat a 3P claim
 Inherent authority
 RS 2d §§8A, 161, 194, 195
 Principal iable for acts done on his account that usually accompany or are
incidental to transactions against unauthorized conduct
 What authority is CUSTOMARY for someone in that position
 Exists for the protection of persons harmed by or dealing with a servant or other
agent
 Covers actions by general agent or general manager
 §3A - general agent is an agent authorize to conduct a series of transactions
involving continuity of service
 §3B - special agent is an agent authorized to conduct a single transaction or a
series of transactions not involving continuity of service
  RS 3d approach
 Declines to recognize inherent authority BUT state rule for undisclosed
principals that achieves the same result:
 §2.06(2) liability of undisclosed principal
 "undisclosed principal may not rely on instructions given an agent
that qualify or redue the agents authority to less than the authority
a 3P would reasonably believe the agent to have under the same
circumstances had been disclosed"
 §1.03 - manifestation
 A person manifests assent or intention through written or spoken
words or other conduct
 §2.03 - apparent authority
 3P reasonably believes actor has authority to act on behalf of P and
that belief is traceable to P's manifestations
 Comment - a P's manifestation to A may differ from P's
manifestation to 3P and carry different legal consequences. If
the P places a person in a position or office with specific
functions or responsibilities from which 3P will infer that P
assents to acts by the person requisite to fulfilling some, P has
manifested such assent to 3P
Nogales V Argo
o Jury instruction on apparent authority
 “An employee agent has apparent authority to make an agreement binding on his
employer-principal if, but only if, the latter through officers or other agents
authorized to do so has held out that the employee-agent…has such authority.
 “In this case, in order to find Tucker had apparent authority…you must find that
ARCO had actually or by necessary implication represented to the officers of
Nogales Service Center that Tucker had such authority, and you must find
further that such representations were made by officers or other agents of Arco
having authority from the company to make them.”
o Requested jury instruction on inherent authority
 “ARCO’s employees who dealt with Service Center in the claimed oral
agreements made ARCO responsible for any such agreements if they are acts
which usually accompany or are incidental to transactions which the agent is
authorized to conduct, even if the employees were forbidden to make such
agreements, if persons from Nogales Service Center reasonably believed that
ARCO’s employees were authorized to make them, and has no notice that
ARCO’s employees were not so authorized.”
quiz 2
6. a principal can never be found liable for actions of an agent that are contrary to principals
instructions
a. false
Botticello v. Stefanovics - Ratification
 RS 2d § 1 - creation of agency
o Manifestation
 o Acceptance
o Understanding beween parties
 What needs to be proved to establish ratification?  
o Consists in affirmance of a person in a prior act, which did not bind him but was
done or professedly done on his account - rs 2d §82
o Requires acceptance of results of act with an intent to ratify and with full
knowledge of all material circumstances
 Ratification
 RESTATEMENT 2ND OF AGENCY, SECTION 82, 83, 91
 Retroactive approval of a previously unauthorized act
 Affirmance through words, conduct, silence indicating consent
 Requirement of intent and knowledge of all material facts
 RESTATEMENT 3RD OF AGENCY, CHAPTER 4 – RATIFICATION
 Timing: Cannot follow events that would cause ratification to have
adverse/inequitable effects on 3P
Hoddeson v. Koos Bros – Estoppel
Imposing Liability based on estoppel – ensures customer wont be harmed by purposeful
deception
 Estoppel
 Restatement 2nd of Agency, §8B
 Principal allows another (who has no authority) to create appearance of
authority and does not correct the misimpression
 Reasonable belief by third party
 Change in position of third party (reliance)
 Restatement 3rd of Agency, §2.05
 Liable to 3P who has made a detrimental change in position due to belief it
was for another person’s account
 Such person intentionally or carelessly caused such belief
 With notice of such belief, such person did not take reasonable steps to
notify them of facts
quiz 3
4. which is required for someone to be bound under ratification doctrine
1. affirmance, intent, and knowledge of all material facts
5. which is reuired for agency by estoppel to apply
1. apparent principal allowed another to create an appearance of authority and did
nothing to correct it, 3P reasonably believed authority, and 3P relied on authority
Agency Review Question 1
o Issue
o Is CCC liable on contract with Sam Sly?
o Is CCC liable on contract with ATC?
o Rules of Law
o Agency: Were Lucille and Jimmy agents?
 R2d Agency Section 1 test
o Theories of authority: Did Lucille and Jimmy have authority to bind CCC?
 Actual authority (express or implied Restatement tests)
 o Apparent authority (3 part test from Restatement)
 Inherent authority (Restatement test)
o Analysis of Facts
o Contract with Sam Sly
 Was Lucille an agent?
 What authority did she have?
o Contract with ATC
 Was Jimmy an agent?
 What authority did he have?
o Conclusion
o Is CCC liable on contract with Sam Sly?
o Is CCC liable on contract with ATC?
Liability Of Principal To Third Parties In Tort
Respondeat Superior: a master is liable for the torts of their servant if:
a. The servant agrees to work on behalf of the master; AND
b. The servant agrees to be subject to masters control
Independent Contractor (yes to a, no to b): a principle does not have physical control over the
conduct of the IC, nor liability for their torts, typically. (see below for test)
Humble Oil v. Martin
liable for employees action based on amount of control (legal right to decide on employees
work) – not independent contractor
Hoover v. Sun Oil
independent contractor b/c station operator and his business was not controlled
 Respondeat superior liability - Restatement 2nd of Agency, §219
 Master is subject to liability for torts of his servants committed in the scope of
employment
 Definitions of master and servant - Restatement 2nd Agency, Section 2
 Master = principal who employs an agent to perform service in his affairs and
who controls or has the right to control the physical conduct of the other …
 Servant = agent employed by a master to perform service in his affairs whose
physical conduct in the performance of the service is controlled or is subject to the
right to control by the master
 Definition of independent contractor - Restatement 2nd Agency, Section 2
 Independent contractor = person who contracts with another to do
something for him but who is not controlled by the other nor subject to the
others right to control with respect to his physical conduct … may or may
not be an agent
 Servant or independent contractor?
 Definition of Servant, Restatement 2nd of Agency,§220 (2) – Some Relevant
Factors
 Extent of control over details of work
o Right to terminate relationship
o “I’ll make him an offer he can’t refuse”
 Engaged in distinct business or occupation
  Whether occupation is usually directed by employer or independently
carried out
 Level of skill
 Definition of Servant, Restatement 2nd of Agency,§220 (2) – Some Relevant
Factors
 Who supplies the tools and place of work
 Length of time of employment
 Method of payment (hourly or per job)
 Is work part of regular business of employer
 Do parties believe they are creating master/servant relationship
 Is the principal in business
Murphy v. Holiday Inns
for master/servant relationship, there must be explicit control of day-to-day operations, “methods
or details” of work being done. The control here was standardized over all commercial
franchises, and not specific enough to control day-to-day
quiz 4
1. a contract clause declaring a party as an IC and disclaiming agency will NOT always be
upheld by court
2. a principal will NOT always be vicariously libale for negligence of agents under
respondeat superior
3. most important factor in humble oil and sun oil decisions
a. amount of control that oil company exercised over day to day business operations
of service station
4. A franchisor will be held responsible for an accident caused by a franchisee if the
franchise agreement includes a clause requiring the franchisee to adhere to system-wide
standards put in place to preserve the value of the franchise.
a. false
Miller v. McDonald’s Corp.
need a finding of actual and apparent agency
 Apparent agency - Restatement 2nd of Agency, §267
 One who represents another as his servant or agent
 Causing a third party to justifiably rely on care or skill of such agent
 Is liable for harm caused by lack of care or skill of such agent
 Restatement 3rd of Agency,§7.08
 Agency - scope of employment - Restatement 2nd of Agency, §228(1) – When conduct is
within the scope of employment
 Of the kind he is employed to perform
 Within authorized time and space limits
 Purpose to serve the master
 If force intentionally used, use of force is not unexpectable by the master
 (2) Conduct of a servant is not within the scope of employment if it is different in
kind from that authorized, far beyond authorized time or space limits, or too little
actuated by a purpose to serve the master.
  Restatement 2nd of Agency §229 (1): To be within the scope of employment,
conduct must be of same general nature as that authorized, or incidental to the
conduct authorized.
 Restatement 2nd of Agency §229 (2) Factors to be considered for scope of
employment:
 Act commonly done by servants
 Time, place & purpose of act
 Previous dealings between principal & agent
 How business is apportioned between different servants
 Act outside of enterprise of master or not entrusted to servant
 Master expectation that act will be done
 Similarity to act authorized
 Instrumentality of harm was furnished by master
 Extent of departure from normal methods
 Is act seriously criminal
 Restatement 3rd of Agency, §7.07
 Employer vicariously liable for torts of employee acting within scope of
employment
 Scope of employment = performing work assigned by employer or
engaging in course of conduct subject to employer’s control
 Scope of employment ≠ occurring within independent course of conduct
not intended by employee to serve any purpose of the employer
Majestic Realty v. Toti
typical governing of negligent independent contractor – no vicarious loiability, only respondeat
superior.
exceptions - Retain control of manner and means of doing work; Engages an incompetent
contractor; And inherently dangerous activity
 Agency - liability for torts of independent contractor
 Servant v. IC §229
It is often difficult to determine whether a person is a servant or an independent contractor. The
Second Restatement includes the following factors: 
(a) the extent of control which, by the agreement, the master may exercise over
the details of the work; 
(b) whether or not the one employed is engaged in a distinct occupation or
business; 
(c) the kind of occupation, with reference to whether, in the locality, the work is
usually done under the direction of the employer or by a specialist without supervision; 
(d) the skill required in the particular occupation; 
(e) whether the employer or the workman supplies the instrumentalities, tools,
and the place of work for the person doing the work; 
(f) the length of time for which the person is employed; 
(g) the method of payment, whether by the time or by the job; 
(h) whether or not the work is a part of the regular business of the employer; 
(i) whether or not the parties believe they are creating the relation of master and
servant; and 
(j) whether the principal is or is not in business.
  Servant vs. Independent Contractor - R2d Agency, Sections 2, 220
 General rule: One who hires an independent contractor is not liable for such
contractor’s negligent actions
 Exceptions: 1) retain control of manner and means of doing work; 2) engages an
incompetent contractor; 3) inherently dangerous activity
 R2d Torts Section 416: One who hires an independent contractor to conduct
inherently dangerous activity requiring precautions is liable if contractor is
negligent in taking precautions
 Distinguish ultra-hazardous activities
quiz 5
1. if franchise agreement goes beyond setting standards and allocates to the franchisor the
right to exercise control over the daily operations of the franchise, the franchisor may
become vicariously liable for negligence of the franchisee.
2. Apparent agency is a distinct concept from apparent authority; apparent agency creates an
agency relationship that does not otherwise exist while apparent authority expands the
authority of an actual agent.
Agency Review Question 2
o issue
o liability of route 66 fro neg of STL hotel
o rule
o respondeat superior liability
o apparent agency
o anal
o franchise cases, even without franchise agreement in this case
 Murphy and Mcdonald
 respondeat superior and apparent agency
o concl.
Fiduciary Duties of Agents
Reading v. Regem
 If servant takes advantage of service and violates his duty of honesty and good faith to
make a profit for self, in the sense that assets, facilities, or his position of control and
enjoys are real cause of earning money (opposed to just opportunity) then money should
go to master
 Agency - fiduciary relationship - Restatement 2d Agency §1
 “Agency is … [a] fiduciary relationship”
 A fiduciary relationship is one involving trust and confidence
 Agent must place principal’s interests over her own
 Agency - duty of loyalty - Restatement 2nd of Agency, §387 – Duty of Loyalty
 A is subject to a duty to act solely for the benefit of the P in all matters relating to
the agency
 Compare R3rd of Agency, §8.01
  Restatement 2nd of Agency, §388 – Duty to Account for Profits Arising out of
Employment
 If A makes a profit in connection with transactions conducted by
him on behalf of the P, A must turn over profit to P
 Example: P authorizes A to sell land for a fixed price. A makes a
contract to sell land to 3P who makes a nonrefundable deposit. 3P
does not conclude the sale and forfeits the deposit. A sells the
land to another person. A is under a duty to P to turn the forfeited
deposit over.
 Compare R3rd of Agency,§8.02
 Restatement 2nd of Agency, §404 – Liability for Use of Principal’s Assets
 A must pay over profit if uses assets of P in violation of a duty
 A not liable for profits made by use of time to be devoted to
principal unless he violates duty not to act adversely or in
competition with P
 R 3rd of Agency, §8.02 – Material Benefit Arising out of Position
 Agent has a duty not to acquire a material benefit from a third party in
connection with transactions conducted or other actions taken on behalf of the
principal or otherwise through the agent’s use of his position
 R 3rd of Agency, §8.05 (1) – Use of Principal’s Property
 An agent has a duty not to use the property of the principal for the agent’s own
purposes or those of a third party
General Automotive v. Singer
 Agency - fiduciary duty - no competition
 Restatement 2nd of Agency, §393 – Competition as to Subject Matter of Agency
 Agent under a duty not to compete with principal concerning the subject
matter of the agency
 After termination of agency, barrier to competition ends §396(a)
 Exception: cannot use confidential information §396(b)
 Note impact of non-compete contract clauses
 Compare R3d of Agency §8.04: during the agency, A under a duty to refrain
from competing with P and from taking action to assist P’s competitors; however,
A may take action to prepare for competition following termination of agency
Town and Country v. Newberry
 Agency - fiduciary duty - confidential information
 Restatement 2nd of Agency, §395: During agency, A has duty not to use or
disclose confidential info given to him or acquired by him during course of
agency…[to compete with or harm principal]
 Restatement 2nd of Agency, §396(b) After termination of agency, A has duty not
to use…in competition with the P or to his injury…trade secrets, written lists of
names, or other similar confidential matters…given to him for principal’s use or
acquired by agent in violation of duty
 Compare R3rd of Agency, §8.05(b)
 Agent has a duty not to use or communicate confidential information of
the principal for the agent’s own purposes of those of a third party
quiz 6
1. in reading, the court held tht reading breached his fiduciary duty of loyalty and is liable
for the breach
2. court would have used section 404 in reading if it was in America under RS 2d of agency
3. According to the court in General Automotive Manufacturing Co. v. Singer, Singer was
NOT free to engage in his side line business of manufacturer’s agent or consultant in
direct competition with his employer and without disclosing the existence of such
conflict.
4. The usual remedy for breach of the duty of loyalty is for the agent to disgorge profits
illegally received.
5. The court in Town & Country House & Home Service, Inc. v. Newbery found that
former employees who used employer’s confidential information in the form of a
customer list after termination of their employment had acted wrongfully
Agency Review Question 3
does USAE have any basis for complaint against Cecil?
o issue
o claim of fiduciary duty – agent duties in week 1
o any grounds means list all of them
o rule
o agency relationship rule
o fiduciary duty
o duty of loyalty
 several of them that should be included – not to compete, not to use
confidential agreement, not to profit from business transactions
o analysis
o concl.

PARTNERSHIP
o Uniform Partnership Act (1914)
 Not legally binding, but will reference this on ein court since it forms basis for
state laws
o Default rules vs. contract clauses
 Rules in UPA can be altered in private contracts as long as it isnt against public
policy or default rules
Formation of Partnership
Fenwick v. Unemployment Comp Comm
 Definition of partnership - §6
 Partnership – Definition - UPA, §6(1)
 An association of two or more persons to carry on as co-owners a business
for profit
o Existence of Partnership - Judicial Factors used in Fenwick
 Intention
 Sharing of Profits
 Sharing of Losses
  Contribution of Capital and Share in Capital Upon Dissolution
 Control of Business
 Language in Agreement
 Conduct towards Third Parties
 Equal sharing of profits and losses - UPA, §18(a)
 Partners share equally in profits and losses
 Sharing of profits - UPA, §7(4)
 Share of profits is prima facie evidence of partnership but not if received…as
wages of an employee…or as interest on a loan… (see other exceptions)
 Equal control rights of partners - UPA, §18(e)
 All partners have equal rights in the management and conduct of the partnership
business
Partnership by Estoppel
Young v. Jones
 Joint and Several Partner Liability - UPA, §15
o All partners are jointly and severally liable for debts and obligations of the
partnership
 Partnership by estoppel - UPA, §16
o If a person represents himself as a partner in an enterprise (or allows another to so
represent him) and
o 3P relies on that representation and enters into a transaction with the supposed
partnership (“has given credit”)
o That person is liable to 3P on that transaction
quiz 7
1. UPA test for partnership existence - parties are operating a business for profit under a co-
ownership
2. require for partnership by estoppel?
a. person represents themselves as a partner, 3P relies on representation, and 3P acts
in reliance by giving credit to partnership
3. Under the UPA, partners may be jointly and severally liable for debts and obligations of
the partnership.
Partnership review Question 1
o issue
o partnership?
o what is B entitled to?
o rule
o fenwick case and factors
o def and creation of partnership
 agreement doesn’t have to be in writing, no gov’t filing required
o analysis
o concl
Limited Partnership
o DIFFERENCES FROM GENERAL PARTNERSHIP
  Formalities: Need to file certificate of limited partnership
 Two categories of partners: General Partners and Limited Partners
 Personal liability: Limited liability for Limited Partners; Unlimited for General
Partners
 Management in General Partners; Limited Partners are passive investors
 Profit and Loss Sharing: Limited Partners share in profits and losses based on
their contributions
 Dissolution: Dissociation of Limited Partner does not dissolve
 Name requirement: Must signify status as limited partnership.
Holzman v. De Escamilla
limited partners are as liable as general partners when they exercise control over business
o California Civil Code §2483
 “A limited partner shall not become liable as a general partner, unless in addition
to the exercise of his rights and powers as a limited partner, he takes control of the
business.”
o ULPA (2001, 2013) §303(a):
 (a) A debt, obligation, or other liability of a limited partnership is not the debt,
obligation, or other liability of a limited partner. A limited partner is not
personally liable, directly or indirectly, by way of contribution or otherwise, for a
debt, obligation, or other liability of the partnership solely by reason of being or
acting as a limited partner, even if the limited partner participates in the
management and control of the limited partnership. This subsection applies
regardless of the dissolution of the partnership.
Fiduciary Duties of Partners
Meinhard v. Salmon
 Salmon had breached fiduciary duty of loyalty. Rule of undivided loyalty, not rule of
standards. Standards were especially high as manager
o According to Cardozo, how should Salmon have handled the 1922 lease?
 Took it in secrecy and silence, should have disclosed opportunity to Meinhard and
offered him ability to include
o Partnership - fiduciary Duty of Loyalty - UPA, §21
o Partner must account/hold as trustee (disgorgement)
o Profits/benefits derived from any transaction connected with partnership or use of
its property
 RUPA, §409(b) – Duty of Loyalty
o Duty of loyalty to account/hold as trustee profits/benefits derived from a use of
partnership property including partnership opportunity
o Refrain from conflict of interest transactions
o Refrain from competing before dissolution of the partnership
 RUPA, §409(c) – Duty of Care
o Partner must not act in a manner that is grossly negligent or reckless or engage in
intentional misconduct or knowing violation of the law
  Partnership - information
o UPA, §20
 Partners shall provide on demand true and full information of all things
affecting the partnership to any partner
o UPA, §19
 Partners may inspect and copy partnership’s books
o RUPA, §403
 Partners may inspect and copy books and records
 Partner entitled to information from other partners and partnership that is
needed for exercise of partner’s rights and duties without making demand
 Partner entitled to other information upon demand
 Example (offer information without demand needed):
 Rachel and Sam are partners and Rachel is considering selling her
transferable interest to Sam. Sam learns of some information
suggesting the partnership is entering a boom period. Rachel is
unaware of that information. He must disclose that information to
Rachel even though she has not made demand.
 Partnership – Fiduciary Duty of Good Faith in Expelling Partner - UPA, §31(d)
o Dissolution is caused without violation of the partnership agreement by expulsion
of any partner from the business bona fide in accordance with such a power
conferred by the agreement between the partners.
Quiz 8
1. in a limited partnership, both general partners and limited partners are
personally liable for all debts and obligations of the partnership.
a. false
2. Formation of a limited partnership requires the filing of a certificate with
a state government official.
3. these are all included under the umbrella term of duty of loyalty
a. duty not to compete w the partnership before dissolution, duty to account for
profits from use of partnership property and from taking a partnership
opportunity, and duty not to act adversely to partnership
Partnership Property
 Partnership – Financial Investment and Return
o Partners contribute capital and/or labor
o Financial return (UPA §18(a))
 Right to repayment of contribution
 Right to share equally in profits and surplus after payment of liabilities
 Obligation to contribute to losses sustained by partnership according to
share in profits
o Right to indemnity against expenses and liabilities incurred in partnership
business (UPA §18(b))
Putnam v. Shoaf
 UPA §24, 25, 26, and 27
  Putnam can only have tranferred economic rights, not in specific partnership property,
like what the claim against bookkeeper was for
Partnership - property rigths
o UPA §24 EXTENT OF PROPERTY RIGHTS OF A PARTNER
o Property rights of a partner are
 (1) his rights in specific partnership property,
 (2) his interest in the partnership, and
 (3) his right to participate in the management
o UPA §25 NATURE OF PARTNER’S RIGHT IN SPECIFIC PARTNERSHIP
PROPERTY
 UPA §25(1)Partner is co-owner with partners of specific partnership property
holding as a tenant in partnership.
 UPA §25(2)(a) Partner has equal rights with his partners to possess specific
partnership property for partnership purposes (but not for other purposes unless
other partners consent).
o UPA §26 NATURE OF PARTNER’S INTEREST IN THE PARTNERSHIP
 Partner’s interest in the partnership is his share of the profits and surplus and is
personal property.
 UPA §27 ASSIGNMENT OF PARTNER’S INTEREST
 Assignee may only receive profits of assignor, but may not participate in
management of partnership, or require information or account of
partnership transactions, or inspect partnership books unless there is an
agreement with the other partners
o Partners may only assign their economic interests in the
partnership
o Consistent with UPA §18(g): No person may become member of
partnership without the consent of all the partners.
 Partnership - default voting rules
o Disagreements among partners are decided by a partnership vote
o One partner = one vote, even if contributions are not equal (unless changed by
contract)
o Some matters are decided by majority vote (UPA §18h)
 ordinary business decisions
o Other matters require unanimous consent (UPA §9(3), §18g, §18h)
 Assign partnership property in trust to creditors/secure payment of debt
 Dispose of good will of partnership
 Do an act making it impossible to carry on partnership’s ordinary business
 Confess a judgment against partnership
 Submit a claim involving the partnership to arbitration
 Admit new partners
 Contravene any agreement of the partners
o This may include extraordinary matters that substantially change
past practice e.g. entering new lines of business
Rights of Partners in Management
Nabisco v. stroud
Notice wasn't effective; UPA 18 said that partnership was bound when carrying on in usual way
of business unless a partnership majority made decision
Partners - management and voting
o All partners have equal rights in management - (UPA §18(e))
o Any difference arising as to ordinary business matters connected with the partnership
business may be decided by a majority of the partners - (UPA §18(h))
Partnership - partners as agents
o Each partner is an agent for partnership and binds the partnership when apparently
carrying on in the usual way the business of the partnership (UPA §9(1))
 Exception: Partner has no authority to act for partnership in the matter and 3P
knows that
o Partners are jointly and severally liable for debts and obligations of partnership (UPA
§15)
Quiz 9
1. Under UPA, partners in general partnerships are NOT entitled to receive a pro rata share
of profits in business
2. Under the UPA, if partners in a general partnership do not have an agreement about
sharing of losses, a court will allocate any losses according to the formula for sharing of
profits.
3. Under the UPA, all partners have equal rights in the management and conduct of the
partnership business.
4. The court in Putnam v. Shoaf found that Mrs. Putnam was not entitled to any share of the
recovered funds because she had conveyed her entire interest in the partnership and
retained no ownership rights in specific items of partnership property.
Dissolution
o (UPA, §29) - Definition of Dissolution: Dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be associated in the carrying on
as distinguished from the winding up of the business.
o (UPA, §30) - Dissolution versus Winding Up: Partnership is not terminated upon
dissolution but continues until winding up of business is completed.
o Causes of Dissolution (UPA §31)
 Without violation of partnership agreement:
o At the end of a fixed term or with consent of all partners if partnership for
a term
o By express will of any partner if partnership at will
o Upon expulsion of a partner under a clause in the partnership agreement
 With violation of the partnership agreement, if dissolution not permitted by any
other section, by express will of any partner at any time
 Business becomes unlawful
 Death or bankruptcy of partner or bankruptcy of partnership
o Dissolution by Court Decree (UPA §32)
 Upon application, court shall decree a dissolution whenever:
 o If partner is insane or unable to meet requirements of partnership
agreement
o If partner guilty of such conduct as prejudices carrying on the business
o Partner willfully or persistently breaches the agreement or makes it not
reasonably practicably to carry on business with him
o Business can only be carried on at a loss
o Compare RUPA §801(5)
 Partnership is dissolved on application by a partner through judicial determination
that
o Economic purpose of partnership is likely to be reasonably frustrated
o Another partner has engaged in conduct relating to the partnership
business that makes it not reasonably practicable to carry on the business
in partnership with that partner OR
o It is not otherwise reasonably practicable to carry on the partnership
business in conformity with the partnership agreement
 Duration of partnership
o At will - no limitation on duration; default rule
o Express term – “Together for [5, 10, 15…]years”
o Implied term
 Until certain sum of money earned
 One or more partners recoup investment
 Certain debts are paid
 Certain property disposed of on favorable terms
Owen v. Cohen
Page v. Page
not enough strong evidence to suggest a term or partnership, only that partners expected to regain
expenses
 Dissolution
o Right to Require Liquidation, UPA §38(1)
 If dissolution caused in any way except in breach of agreement, each
partner may request liquidation…
 Liquidation or continuation
o Default rule is that upon dissolution caused in any way (except in breach of
partnership agreement) any partner may request liquidation.
o In practice, partners often agree to continue the business because liquidation will
not produce maximum value to partners.
o Partners may agree to continue the partnership rather than liquidate and pay out
the partners in cash.
 Buy-sell agreement
o Purpose: Allows partners to part ways based on negotiated terms agreed to upon
formation of partnership
o What are common terms in such agreements?
 Trigger events
 Obligation versus option to buy
 Price
  Method of Payment
 Protection against partnership debts
 Procedure for offering to buy or sell
 Dissolution
o Right to Damages and to Continue the Business UPA §38(2)
 If dissolution in violation of partnership agreement occurs: non-breaching
partner may claim for damages against breaching partners and may
continue the business and possess the partnership property for that purpose
 If business continued, breaching partner entitled to receive value of her
interest less damages but not including good will
o Rules for Distribution – Payment of Liabilities, UPA §40(b)
 Payment to creditors other than partners
 Payment to partners other than for capital or profits
 Payment to partners for capital
 Payment to partners for profits
o Rules for Distribution – UPA, §40(d)
 Partners must contribute the amount necessary to satisfy the liabilities in
§40(b)
As provided in §18(a)
 Distribution following dissolution
o Partnerships establish capital accounts for each partner where the following are
recorded:
 Additions: initial capital contributions and additional capital
contributions, fair market value of contributed assets at time of
contribution, profits allocated to partners from ongoing activities
 Subtractions: interim withdrawals of capital, losses allocated to partners
from ongoing activities
 Post-contribution appreciation or depreciation of contributed asset does
not affect capital accounts.
o In a rightful dissolution, where the partnership is liquidated, the assets are sold.
o Out of the proceeds, partners receive value of their capital accounts after creditors
and partner loans are paid off.
o Profits are what remains and that is divided according to the default rule of equal
sharing or as agreed by the partners.
o In a wrongful dissolution, settling among partners is the same except breaching
partner share is decreased by damages under UPA §38 (2)(a)(II)
Jewel v. Boxer
o Rule against extra compensation
 What is the relevance of §18(f) to the result in this case?
 “Under the UPA, a dissolved partnership continues until the winding up of
unfinished partnership business. No partner (except a surviving partner) is
entitled to extra compensation for services rendered in completing unfinished
business. UPA § 18(f)”
 What are the “sound policy reasons” for and against such application?
o No competing cases/files/personal gain upon dissolution
  Would there be an “unfair result” if rule applied?
o Allocating fees could lead to some partners not being compensated for
time and effort;
 How do fiduciary duties mitigate such “undue hardship”?
o Each partner has duty to finish business of partnership
o No partner may take action on any unfinished business for personal gain
quiz 10
1. in Owen v. Cohen, the court found that Owen was entitled to judicial dissolution and was
entitled to be repaid $6,986.63 he lent to the partnership before any other distribution was
made to the partners.
2. Partnership dissolution under UPA, all are true –
a. A partnership at will may be dissolved at any time by the express will of any
partner.
b. A partnership for a fixed term may be dissolved at the end of such fixed term or
with the consent of all partners.
c. A partner who dissolved a partnership in breach of the partnership agreement is
liable for damages to the other partners and such partners may continue the
business using the partnership property.
3. Under the UPA, in the event of dissolution, the claims of third party creditors have
priority over the claims of the partners.
partnership review 3
o issue
o obligations
o partnership termination
o what is owed
o rightful or wrongful dissolution
o property rights of partners
o rule
o analysis
o concl.

INTRO TO CORPORATIONS
Incorporation Process
 Steps in setting up a corporations
o Focus on Delaware General Corporation Law
 Concept - most popular state, bc corporation code is up to date and
favorable to management
 Well developed body of juris prudence that jurisdictions look to for
guidance
 Is you understand DE law, you will understand other states laws,
even if they are not identical
o Reserve corporate name
o Name must be distinctive
o Indicate corporate status
 o Draft, sign and file certificate of incorporation
o Hold first meeting of directors
o if directors named in certificate of incorporation
o if directors not named, hold meeting of incorporators
o at first meeting of directors, adopt by-laws and take other action
o Issue shares and accept paid in capital
o Take steps to qualify as a foreign corporation in all states where corporation will
be doing business
 Certificate of incorporation, DGCL §102
o Mandatory Provisions
o Name (include the words Inc. or Corp.)
o Address
o Business/Purpose (“any lawful business”)
o Capitalization structure (shareholders have identical rights unless
specified)
o Incorporators’ names and addresses
o Directors’ names and addresses
o Optional Provisions
o Provisions on management and provisions limiting powers of corporation,
directors, shareholders (however these are usually included in by-laws)
o Preemptive shareholder rights
o Provisions changing the voting rules of DGCL
o Optional Provisions
o Limit on duration of business
o Exceptions to limited liability of shareholders
o Limits on monetary damages for director breach of fiduciary duty
 Note that some fiduciary duties cannot be eliminated
 Incorporators
o DGCL §101 – any person may incorporate a corporation by filing certificate with
Division of Corporations of Secretary of State
o DGCL §103 – signed & dated, pay filing fees
o DGCL §107 – if no directors named in certificate, incorporators manage business
until directors elected
o Distinguish roles of shareholders, directors, & officers in the corporation
 Filing requirement
o DGCL §101(a) File with Division of Corporations of the Secretary of State
o Filed documents are a matter of public record
 Amendments permitted (DGCL §§ 241, 242)
 Commencement of corporate existence
o DGCL §106 - corporation exists from the date of filing until dissolution
 Registered office
o DGCL §131 – Registered office required; may or may not be place of business of
corporation
o Receives service of process within the state
o Must be a resident person or corporation
 By-laws
o DGCL §108 – By-laws adopted at organization meeting of directors or
incorporators
o DGCL §109 – May contain provisions on conduct of affairs, rights or powers of
shareholders, directors, officers
 May be amended by directors until payment of initial capital; after that,
shareholders must vote to amend
o Not filed with the Secretary of State
 Dissolution
o DGCL §275: Procedure for dissolution
 (a) & (b) Resolution to dissolve by majority of old board + vote of
majority of outstanding stock entitled to vote, and filing of Certificate of
Dissolution with Secretary of State, OR
 (c) All stockholders consent to dissolution in writing and filing of
Certificate of Dissolution with Secretary of State
o DGCL §275: Procedure for dissolution
 (d) Certificate of Dissolution must be executed, acknowledged & filed in
accordance with DGCL §103;
 (d) Contents: name of corporation; date dissolution authorized; whether
authorized under (a) and (b) or under (c); names and addresses of directors
and officers; and filing date of original certificate of incorporation
 (f) Corporation shall be dissolved upon certificate becoming effective in
accordance with DGCL §103
 Promoter's liability
o Fiduciary duties
 Problem of self-dealing
 Promoter has status akin to joint venturer or partner
 Duties owed among promoters and to corporation to be formed
o Liability for pre-incorporation contracts
 If promoter forms corporation later:
o Can corporation become party to contract?
o Can promoter avoid liability?
 If corporation is never formed or if promoter forms a different
corporation:
o Who is liable?
o Corporation by estoppel
 Would earn a windfall if allowed to evade liability based on absence of
incorporation
 Person acted as though he was dealing with a corporation
 Test: were substantial rights affected?
o De Facto Corporation
 Promoters tried in good faith to incorporate
 Had a legal right to do so
 Acted as a corporation
quiz 11
1. The internal affairs doctrine means that the law of the jurisdiction of incorporation
governs all legal letters involving the corporation
a. False
2. Under Delaware law, a corporation comes into existence as of the date and time that the
executed certificate of incorporation has been filed with the Secretary of States office
a. True
3. Under Delaware law, a corporation must maintain a registered office in such state, which
is the same as its principal place of business.
a. False
4. Under Delaware law, which of the following is not required to be included in the
certificate of incorporation?
a. The names and addresses of the incorporators
b. The total number of shares of stock authorized to be issued and whether such
shares have a par value or are without par valueclose
c. The corporate name, which shall be distinctive and include a designation like
“incorporated” or “corporation” or other approved term
d. A statement of the management structure of the corporation
5. Which of the following is not a characteristic of a corporation?
a. Separation of ownership and control
b. Formation, operation, and dissolution involve the use of formalities
c. Equity owners are liable for debts and obligations of the business that exceed
its ability to paycheck
d. The corporation continues in existence even if ownership changes hands
Piercing the Corporate Veil
Walkovsky v. Carlton
Enterprise liability vs. piercing
 Enterprise Liability
o Treat all corporations as one
o All assets available to creditor
o Example: Assets of all ten corporations owned by Carlton available to satisfy
judgment in favor of Walkovszky
 Compare Piercing the Corporate Veil
o Shareholder’s personal assets may be available to creditor
o Example: Carlton’s personal assets available to satisfy judgment in favor of
Walkovszky
Sealand v. Pepper Source
 Piercing the corporate veil test
o Factors
 Unity of interest (alter ego)
o Van Dorn test (Illinois): failure to maintain corporate formalities,
commingling of assets/funds, undercapitalization, one corporation
treats assets of another as its own
 Fraud or injustice
 need more than creditor’s inability to collect
 o Undercapitalization as a factor in piercing
 Shareholder siphoning of available corporate assets without disclosure to
creditors, such that corporation is deliberately made insolvent, justifies
piercing in some cases.
 Deliberate insolvency defeats creditor’s expectation that business will set
aside adequate reserves to pay corporate obligations when due.
 Example: Flemming was the sole shareholder of a fruit brokerage
business in which he acted as a middleman between growers and buyers.
He collected the sales price from the buyers, deducted his commission and
the transportation charges, and sent the balance to the growers. However,
he also paid himself a salary from time to time that included the amount
withheld from the growers’ payment to take care of transportation charges.
When truckers sued for unpaid bills, he claimed insolvency. Court pierced
and held Flemming personally liable. De Witt Trucking v. Flemming (4th
Cir. 1976)
o Assumption of risk in contract cases
 Some courts impose a third prong in contract cases: assumption of risk
o Did the creditor know of the risk of nonpayment? If so, creditor
should have taken steps to mitigate the risk.
In re Silicone Gel Products Liability Litigation
 Piercing -
o Substantial domination test - evidence that BMS controlled MEC (and MEC was
so not independent)
o “Parent-Subsidiary Relationship”
o “Substantial Domination” Test
 Common directors & officers
 Common business departments
 File consolidated financial statements/tax returns
 Parent formation & financing of subsidiary
 Gross undercapitalization
 Payment of salaries and other expenses
 All business of subsidiary provided by parent
 Parent uses property of subsidiary
 Daily operations not separate
 Failure of subsidiary to maintain corporate formalities
 Direct liability - Direct liability (R2nd Torts, §324A)
o One who undertakes to render services is subject to liability to 3P for physical
harm due to failure to exercise reasonable care if:
 Failure to exercise reasonable care increased risk of harm
 Undertaken to perform duty owed by the other to 3P
 Harm by 3P suffered because of reliance
quiz 12
1. In the case of Walkovszky v. Carlton, the plaintiff’s complaint was adequate in pleading
grounds for piercing the corporate veil and holding the shareholder of Seon Corporation
personally liable for damages caused by the taxicab.
a. False
 2. Enterprise liability would allow a judgment creditor to collect from other corporations
under common ownership with the corporate debtor.
a. True
3. In the case of Sealand v. Pepper Source, the court applied Illinois law on piercing the
corporate veil, which required a finding of unity of interest between the corporation and
the shareholder along with a determination that failing to pierce would sanction fraud or
promote injustice.
a. True
4. In the case of Sealand v Pepper Source, the court stated that the inability of a creditor to
collect on a debt owed by a corporation out of such corporation’s assets was sufficient
evidence of the “fraud or injustice” needed for veil piercing.
a. False
5. The test for veil piercing discussed by the court in the case of In Re Silicone Gel Breast
Implants Products Liability Litigation required an evaluation of the totality of the
circumstances and a showing that the subsidiary substantially dominated the operations
of the parent.
a. false
corp. review 1
Shareholder Derivative Litigation
Cohen v. Beneficial Industrial
Shareholder Derivative Lawsuit: shareholder bringing suit in name of the company & right of
corporation to redress wrong done to corporation
Strike Suit: non-meritorious claim
Eisenberg v. Flying Tiger
Test:
 If injury is to corporation, then derivative
 If injury is to P, then direct
Grimes v. Donald
*invalid CEO employment K*
Claims are divided
Derivative claims: waste, excessive compensation, breach of fiduciary duty
Demand requirement? - either need to make the demand or prove that making the demand would
be futile
Wrongful refusal - when demand is made but it is refused
Business Judgement Rule Protection
Quiz 13
1. In a shareholder derivative lawsuit, a shareholder is suing in the name
of the corporation alleging harm to the corporation and seeking recovery
for the benefit of the corporation.
2. Which of the following claims would likely be brought as a derivative
(rather than a direct) lawsuit?
a. Claim that corporate directors wasted corporate assets and breached fiduciary dutie
3. under DE law, each us a required elemant for demand futility
 a. pleading with particularity, creating a reasonable, that board lacked independence
or failed to valid exercise business judgment
Zapata v. Maldonado
Derivative suit - claim of breach of fiduciary duty
Special litigation committee composed of 2 new directors
I - does SLC have special power to cause action to be dismissed?; after investigation, can SLC
file pre-trial motion to dismiss derivative suit?
Here, ct. doesn’t give business judgment rule deference due to the lack of independence of the
board & investigators
Intermediate standard of review:
 Burden on corporation to establish good faith & fair investigation
Consider
 If there is a compelling corporation interest?
 If it is in the corporation's best interest?
 Applicable laws
 Public policy
In re Oracle Corp. Derivative Litigation
Claims - insider trading; breach of fiduciary duty
SLC comprised of 2 law professor who joined board after the alleged events occurred
Investigation done by outside consultants, analytical work, doc work culminating in 1000 pg doc
BUT neglected to include ties that the SLC had with the Ds of the case
Ct. denies SLC motion due to lack of independence of SLC and Ds
Test:
 Is director unable (for substantial reason) to remain impartial for corporation decision
making?
 Burden is on SLC to prove impartiality
quiz 14
A plaintiff in a shareholder derivative action who makes demand on the board that is rejected
may proceed with the lawsuit if she pleads facts with particularity creating doubt that business
judgment rule deference is warranted
corp. review 3
o issue
o direct or derivative suit?
o would he need to make demand first?
o what is corp response
o why would they form a committee? would court have to hold the committee’s
decision?
o rule
Role and Purpose of Modern Business Corporation
Smith v. Barlow
*charitable gift to Princeton*
Seeking declaratory judgement - claims that charitable gift is ultra vires (outside judgment of
business)
Ct. sustained gift:
  Lawful exercise of implied power
 Within express authority of state legislature
 NJ reserve power (compelling public interest to alter charter to allow this type of
behavior)
Limits?:
 No pet charities
 Reasonable amount
Dodge v. Ford
2 types of dividends - plan to stop special dividend payout in order to re-invest in company
Dodge Bros. - minority SHs bring suit to reinstate special dividends, enjoin construction of
smelting plant under abuse of discretion reasoning
Ct. - reinstates special dividends but allows for plant to be built
**Hunter v. Roberts - director have discretion on when to pay out dividends but not when it
could be fraud; misappropriation; abuse of discretion; bad faith
quiz 15
1. business judgment rule is a judicial presumption tht directors act in good faith and in best
interests of corporation
2. Courts will defer to board decision-making under the business judgment rule, except in
cases involving fraud, illegality, conflict of interest, lack of due care, or abuse of
discretion amounting to bad faith.
Corp. review 2
o 2A
o is board decision protected by business judgment rule
o 2B
o direct or derivative?
 whats the test?
 application of test to facts

LIMITED LIABILITY COMPANIES

Hybrid between corporation & partnership
ULLCA
§201 - legal entity distinct from members
Need Articles of Organization & Operating Agreement
westec v. Lanham – organization
Westec had no knowledge of PII LLC.
application of notice provision of LLC Act
Westec wins - notice provision doesn't supplant common law; constructive notice isn't good
enough
Elf v. Jaffari – operating agreement
Certificate of formation exists
Operating agreement includes exclusive distributor agreement & employment agreement
Operating agreement has arbitration & choice of forum provisions
Freedom to K
Push to arbitrate by ct.
Not change to §105(c)
Comply with §105(d)
Kaycee v. Flavin – piercing the veil
personal liability for members of LLC?
Piercing is available - treat test for LLC the same as Corp.
quiz 16
1. features of LLCs
 flexible management structure, flow through tax treatment, and limited liability
McConnel v. Hunt – duty of loyalty
Operating agreement allowed for competition
§409(a) - standard of conduct
duty of loyalty/care
New Horizon v. Haack. – dissolution
Suit for unpaid debt
LLC not properly dissolved
§701 - dissolution
§703 - winding up
§704 - notice to creditors
§705 - publishing notice
§707 - creditors paid first
quiz 17
1. In a member-managed limited liability company, members owe duties of loyalty and care
to the company and its members.
2. In a manager-managed limited liability company, matters relating to the activities and
affairs of the company are decided by the manager(s), subject to certain enumerated
exceptions.
3. Under the Uniform Liability Company Act, where statutory dissolution procedures are
followed and assets of the company have been distributed after dissolution, a member’s
liability to creditors could be limited to the amount received by the member in the
distribution.
LLC review 1
o issues
o signs without checking with partners
o don’t disclose second location
o marcus dips, other partners need to pay
o likelihood that outside entities could collect on debts

CORPORATE FIDUCIARY DUTY

Duty of Care
Kamin v. Amex
Gross negligence standard - fraud, illegality, bad faith, malfeasance, nonfeasance
Smith v. Van Gorkom
 Merger Approval
o §251(b) - board approval
o §251(c) - SH approval
 No notice, documents, appraisal provided to Board during meeting to discuss cash-out
merger
 After approval, no auction to entertain other offers, no ability to furnish proprietary info
 Failure to inform = failure of duty of care
 SH ratification made on good faith reliance on records/reports
quiz 18
1. Under Delaware law, a merger transaction must be approved by a vote of both the board
of directors and the shareholders of the target corporation, conducted in accordance with
the statutory requirements and the organizational documents of the corporation.
Francis V. United Jersey
"ordinarily prudent business owner standard"
Failing to act accordingly = gross negligence
In re Caremark
Test:
 Knowledge
 No action to mitigate action
 Action is proximate cause of injury
quiz 19
1. according to Francis, these are not required of corp. directors to fulfill fiduciary duty
a. Acquire at least a basic understanding of the business of the corporation.
b. Keep informed about the activities of the corporation and its financial status.
c. Attend board meetings.
d. Take action on corporate misconduct.
2. According to the court in the Caremark case, duty of care cases consist of two categories:
those involving potential liability for directorial decisions that are not the product of good
faith and rational decision-making and those involving a failure to adequately monitor the
activities of the corporation.
Duty of Loyalty
Bayer v. Beran
*radio ad case*
Suit claims negligent waste & providence - ad is expensive, format questionable, ulterior
motivation (president's wife is involved)
Rigorous scrutiny - whether action was intended/calculated to subserve corporate interest
Burden here is on D to prove action doesn't subserve
Holding - no breach; as long as ad served legitimate & corporate purpose, it is okay
Opportunity Doctrine
Broz v. Cellular
*cell phone licenses*
Broz took license opportunity for himself after casually mentioning it to other board members
Suit brought for unlawful taking of corporate opportunity
Test:
 Financial ability
 Same line of business
 Interest/expectancy
 Taking opportunity would create conflict between self-interest & corporation
Here -
No financial ability
Was same line of business as corp
No interest/expectancy - corp was divesting licenses
No conflict - wholly consistent, not competing with CIS
In re Ebay
Allocation of other company IPO shares
Use test from above
Here -
eBay had financial ability
Investing in marketable securities is in line of business
Yes interest/expectancy
Yes conflict of interest
quiz 20
1. all of these can be used to uphold a contract or transaction of conflict of interest under
DE statutory law
a. Disclosure of the conflict to the board and majority disinterested director approval
of the contract or transaction
b. Disclosure of the conflict to the stockholders and stockholder approval of the
contract or transaction
c. The contract or transaction is shown to be fair to the corporation as of the time it
was authorized, approved, or ratified
2. for corporate opportunity doctrine to apply:
a. The opportunity must be in the same line of business as the corporation
b. The corporation must have the financial ability to take the opportunity
c. The corporation must have an interest or expectancy in the opportunity
d. There is a conflict between the corporate officer’s or director’s self-interest and
the best interests of the corporation
Corp. Review 4
Duty of Dominant Shareholders
Sinclair v. Levien
Wronged Acts:
 Payment of dividends (excessive)
 Denied business opportunity
 Breach of K
Parent co. breached fiduciary duty by domination
Intrinsic fairness (objectively fair) - burden on the D
Business judgment rule - burden on P
Here,
 Minority received fair share of dividends
No usurped opportunity
K was breached
Shareholder Ratification
Fliegler v. Lawrence
§144(c) - ratification
Not void/voidable if:
 Material fact disclosure/disinterested director approval
 Material fact disclosure & SH approval
 K is fair
Quiz 21
Under the Gottlieb standard, shareholder ratification of an interested transaction in Delaware
shifts the burden of proof to an objecting shareholder to demonstrate that the terms are so
unequal as to amount to a gift or waste of corporate assets.
Corp. Review 5
o issue
o has any director breached a fiduciary duty
o did directors act properly according to corporate procedures
o was the purchase properly notified

FEDERAL SECURITIES REGULATION

Definition of Security
Robinson v. Glynn
What is a security?
Howey Test:
 Investment of money
 In a common enterprise
 With the expectation of profits
To come solely from the efforts of others
Securities Registration Process and Exemptions from Registration
Doran v. Petroleum Management
Public v. private?
Did offerees need protection?
4 Factors:
 # of offerees & relationship to each other & issuer
 # of units offered
 Size of offering
 Manner of offering
quiz 22
1. The policy behind the Securities Act of 1933 and the Securities Exchange Act of 1934 is
to protect investors and the integrity of the securities markets through a focus on
disclosure and anti-fraud measures.
 2. According to the Supreme Court’s opinion in SEC v. Howey, which of the following
characteristics are needed for an investment contract within the meaning of the definition
of “security” in the Securities Act of 1933 and the Securities Exchange Act of 1934?
a. investment of money
b. In a common enterprise
c. With the expectation of profit
d. To come solely from the efforts of others
Securities Fraud and Insider Training
Escott v. BarChris
Suit - §11 fraud in registration statement
P purchased debentures
Claims there are material misstatements/omission in registration document
I - misstatements? Material? Does affirmative defense of due diligence work here?
Here,
Y - misstatements exist; sales & earnings, BarChris liability
Y - they are material to decision regarding purchase
Utilize the average prudent investor standard
Issuer is held strictly liable
SEC v. TGS
I - what is "disclose or abstain" rule & who does it apply to?
Can't trade on material, non-public info
what standard of materiality does the ct. adopt?
Reasonable investor standard (total mix - a fact-specific inquiry into the likelihood that
disclosure of omitted facts would have been viewed by the reasonable investor as having
significantly altered the total mix of information made available)
quiz 23
1. defenses under §11
 defense based on running of applicable SoL
Corp. Review 6
Insider Trading
In re Cady Roberts Co. (SEC) - 1961
Common law duty to disclose nonpublic information
But who does this apply to?
Chiarella v. US (SCOTUS) - 1980
Relationship of trust & confidence is key
Duty to disclose applies to corporate insiders
Dirks v. SEC
Dirk is informed of insider trading activity
Discusses this action with his clients & those clients use that info to trade their own stock
Does the Chiarella Rule apply? - N; not corporate insider
SEC claims that anyone who gets this kind of info inherits duty
SCOTUS disagrees but defines tippee liability:
 Tipper breached fiduciary duty
 Tippee knew/should have known of breach
Did the tipper receive personal benefit? - N; Dirks not liable
Salman v. US
What counts as personal benefit?
I - does gift of material, non-public info to family member count as "personal benefit?"
Holding - Y; gratuitous nature doesn't negate action, is personal benefit itself in addition to
reasonable beneficial actions that could stem from gift
US v. O’Hagan
quiz 24
Short Swing Profits Rule
Reliance v. Emerson
quiz 25/36
Corp. Review 8
Indemnification and Insurance for Corp. Management
Corp Review 2C and 2D
o 2C
o are directors entitled to receive advances
o 2D
o is stockholder entitled to receive shareholder list and all books/records pertaining
to audits
Proxy Regulation
Levin v. MGM
Use of corporate funds for proxy contest
I - unfair/illegal means for fighting insurgents in proxy contest
Holding - appropriate for incumbents to fight proxy contest
Test:
 Are their policy reasons for the proxy contest?
Are the costs incurred reasonable?
Rosenfeld v. Fairchild
Derivative suit for reimbursement of expenses for proxy contest where insurgents won
Test is the same as it is in Levin; as long as there are policy reasons for the contest and the costs
incurred are reasonable, then they can be reimbursed, even for the insurgents
Corp. Review 9
Inspection Rights
Crane v. Anaconda
Exchange Offer - type of tender offer where securities are consideration in the transaction
Requested the SH list
Holding - inspection compelled due to proper purpose
Pillsbury v. Honeywell
Became SH to persuade munitions shutdown
Requested SH list & all weapons records
"any proper purpose" - typically economic goals
Holding - request denied due to political purpose behind request

Class Review
Agency Review
 Source of Law: common law; Restatement Second of Agency
 Who is an agent
 Definition §1 (creation of agency relationship)
 Distinguish principal-agent from debtor-creditor and buyer-supplier §14O, §14K
 Liability of principal to third parties in contract for acts of an agent
 Actual authority §1
 Apparent authority §8, 27
 Inherent authority §8A, 194, 195
 Liability of principal to third parties in contract - Other principles of liability
 Ratification §82
 Estoppel §8B
 Liability of principal to third parties in tort
 Principle of liability
 Doctrine of respondeat superior §219
 Master-servant relationship versus independent contractor status §2
 Application in retail gasoline outlet cases
 Use of actual agency and apparent agency principles to establish liability in franchise
cases
 Exception to non-liability for torts of independent contractors
 Scope of employment
 Statement of doctrine §228
 Kind of Conduct within Scope of Employment §229
 Fiduciary duties of agents
 Duties during agency
 Duty of loyalty §387
 Duty to account for profits §388
 Liability for use of assets §404
 Duties while leaving
 Use of confidential information §396
Partnership Review
 Source of Law: Uniform Partnership Act (1914); Case law
 Characteristics of partnerships
 Default rules versus mandatory rules
 Formation
 Definition of actual partnership §6
 Indicators of partnership
  §7 profit sharing is prima facie evidence subject to exceptions
 Factors used by courts in Fenwick case
 Formation
 Partnership distinguished from
 employer-employee relationship
 Partnership by estoppel §16
 Fiduciary duties among partners
 Classic statement of duty of loyalty in Meinhard case
 UPA §21, RUPA §404
 Property rights
 Nature of property rights §8, 26
 Right to use partnership property for partnership business, to share in
income stream from partnership, to participate in management
 Property rights
 Sharing of profits and losses §18a
 Default rule is equal sharing of profits
 Can change default rule by contract
 Losses are usually shared the same way as profits
 Management rights §18e
 Default rule is equal control rights
 Use of management committees
 Can change default rule by contract
 Dissolution
 Causes of dissolution §§31 & 32
 Without judicial involvement
 By judicial decree
 With and without violation of the partnership agreement
 At will versus term partnership
 Term can be express or implied
 May impact whether a dissolution is in violation of the partnership
agreement or not
 At will dissolution must be done in good faith
 Right of non-culpable party to damages for wrongful dissolution & right to
continue the business and possess partnership property §38
 Right of culpable partner to receive value of partnership interest (excluding good
will) less damages payable to non-culpable partners
 Order of distribution of property §40
 Limited Partnerships
 Definition
 Two categories of partners
 Unlimited liability for general partners
 Limited liability for limited partners
 Limitation on limited partners’ right to manage
  May result in losing limited liability if limited partner participates actively
in management
LLC Review
 Source of Law: Uniform Limited Liability Company Act (1996); Case law; Articles of
Organization; Operating Agreement
 Characteristics: “hybrid” form
 Combines characteristics of partnerships and corporations
 Formation
 Articles of Organization §§202-203
 Operating Agreement §103
 Piercing the LLC veil
 General rule of limited liability §303
 Use of corporate piercing factors by state courts
 Fiduciary duties of loyalty and care owed among members in member managed LLC
§409
 Managers owe such duties in manager managed LLC
 Can be waived by contract subject to limitations contained in ULLCA and public
policy considerations
 Management
 Can designate either member-managed or manager-managed
 §404 – rules for management and voting in LLCs
 Dissolution
 Articles of termination §805
 Procedure for settling claims §807, 808
 Orderly dissolution according to statutory procedures can limit liability to amount
received in liquidation §808(d)(2)
Corporations Review
 Source of Law: Delaware General Corporation Law; Case law; Articles of Incorporation;
By-laws
 Characteristics: formation requires formalities, limited liability, continuity of existence,
free transferability, centralized management, double taxation
 Formation
 Articles of incorporation §101, 102, 106
 Incorporators §107
 First meeting §108
 By-laws §109
 Registered office §131
 Promoters & liability for pre-incorporation contracts
 Piercing the Corporate Veil
 Legal rule of limited liability
 Equitable exception fashioned by courts when it would be unjust to allow limited
liability to stand
 Closely held corporations
  Alter ego
 Fraud or injustice
 Assumption of risk
 Parent-subsidiary relationships
 Substantial domination
 Shareholder derivative lawsuits
 Definition of derivative law suit
 Definition of direct lawsuit
 Reasons for development of derivative lawsuits
 Potential for abuse by shareholders: procedural restraints on use of derivative
lawsuits like security for expenses statutes
 Shareholder derivative actions (Delaware)
 Demand required actions:
 Procedural requirement for shareholder plaintiff to proceed with action
 Boards will likely move to dismiss if demand is made; shareholder cannot
proceed with case
 Wrongful refusal cases – shareholder will likely fail unless she can
overcome the business judgment rule
 Demand excused cases:
 Shareholder may proceed with the action if she can plead demand futility;
courts may recognize demand futility exception where can show lack of
independence of board
 Use of special board committees to dismiss derivative actions; examples
of cases in which demand was not made because futile
 Two step scrutiny by court
 Role and purposes of the corporation
 Power and purposes §122, 121
 Purpose of modern business corporation is to maximize shareholder value
although some flexibility to consider other constituencies
 Charitable giving is a well-established power of corporations as long as there is
some benefit to corporation and within certain limits
 Role of shareholders, directors and officers
 §141 Corporation is run by the board of directors
 Shareholders delegate their control right to the directors by electing them
at the annual meeting
 Board delegates day to day business decision making to officers
 Business judgment rule shield for most management decisionmaking
 Control rights of shareholders are limited – electing directors, approving major
corporate transactions such as mergers
 Access to corporate shareholder list and other corporate books and records
is regulated by state law
 Voting rules for shareholders and directors
 Use of proxies is regulated by state and federal law
 Fiduciary duties of officers and directors
  Duty of care
 Decisionmaking
 Focus on following proper procedure
 Gross negligence standard
 Use of reasonably available information
 Due deliberation
 Oversight
 Duties to become familiar with the business and to monitor
activities
 Value of compliance programs
 Duty of loyalty §102(b)(7)
 Conflict of interest
 Identify the conflict of interest
 How is the conflict resolved – there must be a corporate benefit
 Judicial scrutiny to establish fairness
 Director or stockholder ratification of conflict of interest transactions
under DGCL §144; can substitute for proof of fairness to corporation
 Corporate opportunity doctrine
 Guth v. Loft factors for existence of corporate opportunity
 No corporate opportunity found: may take corporate opportunity; no
formal procedure for formal disclosure and rejection by corporation
required in Delaware but such procedure acts as safe harbor (but other
jurisdictions may require disclosure and rejection)
 Corporate opportunity found: must present to board and receive rejection
before taking opportunity
 Fiduciary duties of dominant shareholders in a parent-subsidiary context
 Use total fairness test if self dealing
 Otherwise use business judgment rule
Federal Securities Regulation Review
 Source of Law: 1933 and 1934 Acts; SEC Regulations; Case law
 Definition of security (threshold issue)
 Statutory definition
 Howey definition of investment contract
 Status of LLC interests as securities
 Definitions of materiality (threshold issue)
 Reasonable investor test (historical fact)
 Probability/magnitude test (speculative information)
 Registration
 1933 Act Section 5
 Private Placement exemption from registration
 1933 Act Section 4(2)
 Corporate disclosure fraud
 1933 Act §11
  1934 Act §10b and SEC Rule 10b-5
 Insider trading rules
 1934 Act §10b and SEC Rule 10b-5
 Classic theory
 Tippee liability
 Misappropriation theory
 SEC Rule 14e-3(a)
 Short swing profit rule of 1934 Act §16b
Finals Prep Info
 Tips for Objective Portion
 Questions will be multiple choice and true/false including application of law to
hypothetical facts.
 There is only one correct answer.
 There is no penalty for wrong answers.
 Tips for Essay Portion
 Questions will be similar in format to the review questions discussed in class.
 Answer all parts of all questions.
 If possible, use IRAC and IRAC headings.
 Most of your time should be spent on identifying and discussing relevant rules of
law (R) and applying law to facts in the hypothetical (A)
 Only discuss law that is relevant to answering the question presented.
 Not every rule of law discussed this semester will be relevant.
 Avoid extended policy discussions.
 Final exam questions are similar those on the bar exam. Try to answer the
question presented using black letter rules of law.
 Cite to relevant authority. Do not set forth “general principles of law” without
citation.
 Cite to name of case or section number of statute or restatement or
regulation that is the source of the rule.
 Do not write out statutes, regulations or sections of the restatement
provisions. Only the words or phrases on which you are relying should be
written out.
 Do not discuss the facts of cases you cite; only the principle of law that is
relevant.