BUSINESS ASSOCIATIONS
MENDALES – SPRING 2015
EXAM
½ MC (approx. 40) – choose the best of 5 answers
½ Essay – 2 Fact patterns with 4 questions each for total of 8 brief essay questions. (Identify the problem, identify the rule, and apply it – if you can support answer with Statute Section, or Case Name, it will give points to show that they support your answer!)
Questions will provide jurisdiction
OPEN BOOK – casebook, statute book, and class notes!
Know difference btw bylaws and Articles and Incorp – General Partnership vs. Limited Partnership vs. LLC etc.
How things fit together – principles of P are basically built on Agency Law.
Why would you want to incorporate? Why does it make a difference to a Close Corp vs. Public Corp?
Why a form of business with limited liability, veil can be pierced
How are profits and losses shared?
Hamilton Book is Mendy’s favorite.
X happened in a UPA state with this result, what would happen if it was decided in a RUPA state?
Know different types of agency
Agency à Partnership à LLC à Corp
S-Corps
Every BA except General Partnership and Sole Proprietorship must be filed with the state!!! IF you are going to sell your shares to the general public they must be registered under the 33 Act.
CHAPTER 1 – AGENCY
1. SOLE PROPRIETORSHIPS
· Firm owned by a single person
o Owner carries unlimited personal liability for obligations incurred in the conduct of the proprietorship business
o Must personally and directly own the business
· Have no separate identity from the owner
o Can carry a name separate from that of the owner, BUT must register under the Fictitious Name Statute – d/b/a
o All contracts with the business are contracts with the owner – proprietor and business are the same!
o Direct personal liability for torts
o ALL PROPRIETOR”S WEALTH IS COMMITTED TO THE BUSINESS!
o Has no legal existence outside of the proprietor.
o Proprietor pays taxes on business at personal income tax rates.
· Typically, the owner hires ppl to act on their behalf; therefore, sole proprietorships are considered “business associations”
2. AGENCY
· Agency Law – deals with relationships btw agents and 3rd parties in which the agent works with 3rd party on behalf of the principal. à FIDUCIARY RELATIONSHIP that arises when principal manifests assent to an agent that the agent shall act on principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to so act.
· Principal – 3 types
o Fully Disclosed – 3rd person is on notice that the agent is acting on behalf of the principal, and knows the principal’s identity.
o Partially Disclosed/Unidentified – 3rd person is on notice that the agent is acting on behalf of a principal, but is not on notice of the principal’s identity
o Undisclosed – 3rd person has no notice that the agent is acting on behalf of a principal.
· Agent – 2 types
o General Agent – have a broad range of duties – Koutsogiannis v. BB&T (pg. 22) – attys are usually general agents unless specific restrictions are made.
o Special Agent – narrowly defined duties – special agents must be made known to 3rd parties! (ex. real estate agent)
RULE à if an agent has actual, apparent, or inherent auth to act then the principal is bound by the agents actions!
Authority of Agents
· Actual Authority – RST. 2.01, 2.02, 3.01 – created if the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the principal wishes the agent to so act.
o Contractual – arises our of an agreement btw the principal and agent
o Interpretation of the agency K is ambulatory and focuses on the reasonability of the agent’s interpretation of his authority at the time he acts!
o An agent is authorized to do what he reasonably believes the principal desires him to do, in light of what he knows or should know of the principal’s purpose and the existing circumstances. RST 2nd § 33.
o May be expressed or implied
§ Expressed – principal specifies exactly what the agent is/can do
§ Implied – auth inferred from the words used, customs, and from the relations of the parties.
· Incidental Auth – auth to do incidental acts that are reasonably necessary to accomplish an actual authorized transaction or that usually accompany a transaction of that type (ex. pg. 8)
-Under common law, principal always has the right to terminate the actual authority of the agent because he’s an employee at any time. Agent still has apparent authority until 3rd party learns of termination.
· Apparent Authority – RST 2.03, 3.03 – created if manifestations by principal or agent to a 3rd party would lead a reasonable person in the 3rd party’s shoes to believe that the principal had authorized the agent to so act. ***always look to reasonableness of the 3rd party.
o Power of position – creates apparent auth when a principal gives a job to an agent that carries
e of the material facts, either:
(1) affirmed the agent’s conduct by treating agent’s past conduct as authorized (express ratification); OR (2) engaged in conduct that is justifiable only if he has such intention (implied ratification)
o Ratification is ineffective if 3rd party withdraws before the agent makes the transaction, or if the circumstances have changed.
o Ratification can be used to clarify the existence of a K where evidence of that K is non-existent or unclear.
o Agreement by Acquiescence – agent performs acts with 3rd party that creates a K, and principal doesn’t object, then any acts following that K are binding as acquiesced to by the principal and the 3rd party.
· Termination of Agent Auth – RULE – a principal has the power to terminate and agent’s auth at any time, even if doing so violates a K btw the principal and agent, even if it had been agreed that the agent’s auth was irrevocable.
o Ks relating to personal service will not be specifically enforced, BUT such a K is effective to create liability for wrongful termination.
LIABILITIES:
à General Rule – if an agent and a 3rd party enter into a K, and the agent’s principal is liable to the 3rd party under the K, then the 3rd party is liable to the principal. RST 6.01-03.
· Exception – 3rd party is not liable if the principal is undisclosed and the agent or the principal knew that the 3rd party would not have knowingly dealt with the principal. RST 6.03, Comment d.
· Where principal is NOT bound – if principal is not bound by the agent’s acts bc the principal didn’t give actual, apparent, or inherent auth, and the agent’s act wasn’t ratified, the general rule is agent is liable to the 3rd party!
o Liability-on-the-K Theory – the 3rd party will recover against the agent the gains that the 3rd party would have earned under the K – expectation damages…
o Implied-Warranty Theory – maybe the 3rd party would recover only the losses he suffered by having entered into the transaction – reliance damages…
