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Business Associations
Elon University School of Law
Molony, Thomas J.

Business Associations Molony Fall 2015

AP Smith v Barlow

Whether a NJ corporation formed before the 1930 statue authorizing a corp to make donations give the power to a corporation to make donations when the corporate charter does not state a position

Yes a corp can so long as its made for corp ends and not pub ends, it’s a reputable charity, modest in amount, and within the limits of the statute, and made with the reasonable belief it was made in the public welfare and for the betterment of the company

Corporations can be treated as a person under the law à for particular purposes but not for all instances. Corporations need to be specified, i.e. this case deals with a NJ corporation

Internal Affairs Doctrine: The laws of the state of corporation governs the internal affairs of the business entity

Shareholders: the charitable donation statute of 1930 cannot apply to corporation created before 1930. Charter also does not apply for the donations. Common law also does not suggest that the corp has the power to make donations

Reserve Power Statute 1846: if we change the statute we can apply it even to corps before the statute was created

Dodge v Ford

Ford cancels special dividends and instead reinvest the money into the Ford company and lower the price of cars and create jobs as a way to promote general welfare

Dodge is seeking the dividends, and an injunction against the creation of the smelter

Mich SC à pay dividends (a business corporation is organized and carried on primarily for the profit of the stockholders). But reverses the injunction on the smelter

How could Ford spin his position off of the general welfare and instead for his company profits? Selling cars at a cheaper price would allow more people the opportunity to purchase and thus profits would increase. Also, if you pay your workers better they are generally happier to work and thus creating less turnover. Less turnover is a good business practice.

Sole proprietorship and general partnership are the default structures

Corp, LP, LLC not default structures. You must take an affirmative act to become one of these

Unlimited v limited liability

Steve à 200k in bank

House & Car

Sally à 1.1M

House & 10 cars

Want to start a restaurant. They each put in 100K. business has 200K.

Start serving bad fish. 50 customers die, and wrongful death claims are brought.

P get 5B$ Judgment. If unlimited liability P can receive all the money and also go after Sally and Steve, Sally and Steve have the possibility of losing everything

If Steve and Sally had formed a Corp, LC, or LLC they would have been shielded from the full liability. Thus, steve and sally would only lose what they put into the company.

Taxation – Single v double level

Sally – Sole owner of the restaurant

Rest has taxable income of 1m – Tax rate for every person is 50%

Bus is disregarded and all income is treated as Sallys income

Sally must pay 500k in taxes

However, the business could be taxed first. Thus the bus would pay 500k and sally has 500k of income left from the bus and she then gets taxed at the 50% and is left with 250K


Unity – Management and the owners are one

Separate – Management and owners act on their own accord

Sole Proprietorship

Business has one owner and has done nothing else

Don’t have business organizational issues because there is nothing to be done due to only being one person

Unfavorable from a liability standpoint especially in comparison to an LLC.

Generally want our clients to avoid.

READING – 8/26/15

Gorton v. Doty

Agency – 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 Restatement of Agency §1

Principles (3)

The relation of principle and agent

The relation of master and servant

The relation of employer or proprietor and independent contractor

It is not essential to the existence of authority that there be a contract between principle and agent or that the agent promise to act as such R. Agency §15,16
Nor is it essential to the relationship of principle and agent that they or either receive compensation R Agency §16

Willi v Schafer Hitchcock – case law used

The fact of ownership alone regardless of the presence or absence of the owner in the car at the time of the accident establishes a prima fiace case against the owner for the reason that the presumption arises that the driver is the agent of the owner


Penalizing the individual for partaking in a nice gesture and allowing the coach to drive her car as means of transportation
Furthermore the individual was only making sure that none of the young boys would be allowed to operate the vehicle
The court sh

e contract however they did not decide whether it was an offer to sell or an offer to purchase when signed by Joyce
Document at most was an offer by him to purchase
An agent has apparent authority sufficient to bund the principal when the principal acts in such a manner as would lead a reasonably person to suppose that the agent had the authority he purports to exercise
Absent knowledge on the part of third parties to the contrary an agent has the apparent authority to do those things which are usual and proper to the conduct of the business which he is employed to conduct
Kays had apparent authority for Amex

Watteau v. Fenwick

The liability of a principal for the acts of his agent, done contrary to his secret instructions, depends upon his holding him out as his agent that is upon the agent being clothed with an apparent authority to act for his principal
You cannot hide behind the front of another, and then claim them as the principal. If the individual knows nothing of the “claimed” principal they more than likely will not be held liable as it would allow for much mischievous consequences

Apparent authority involves a third party
Incidental authority involves incidental to it, usually accompany it, or reasonably necessary to accomplish it


Fiduciary (trust) relation resulting from manifestation of consent by one person (the principal) to another (the agent) that the other shall act on his behalf and under his control. Consent by the other person (the agent) to so act R-2 § 1
Gorton v Doty

Yes there is an agency relationship
Manifestation of Consent?

He drives her car, when she was capable of driving the car

Under her control?

He has to be the one who drives the car instead of anyone else

He consented by driving the car

For agency it does not matter whether there is a contract or not (formal written agreement) – consideration is not required, agency is created by mutual assent
A Gay Jenson Farms Co. v. Cargill, Inc