Business Associations/Corporations Outline

Business Associations
Duke University
Prof. Bratton
 
Background
Agency
Agency – 1. manifestation by Principal (P) that Agent (A) shall act for him. 2. acceptance of undertaking. 3. understanding that P is in control.
prof def: a person who by mutual assent acts on behalf of another subject to another’s control.
unlike contract (K), A can be gratuitous
A imposes responsibilities on P (torts committed in course of agency)
A protects P (authority, fiduciary duty)
 
Authority
actual – P’s words or conduct leads reasonable A to believe P authorized act
expressed – specified action
implied – not specified action
incidental – incidental acts that are reasonably necessary to accomplish authorized act
factors: P’s instructions, size of transaction, customary and ordinary
apparent – words or conduct of P leads reasonable third party (3P) to believe P authorized act
usually hand in hand w/ actual authority
binding on P
reasoning: P has CoA against A if acting outside scope
w/o authority, 3P sue A for 1. K between A and 3P or 2. breach of implied warranty of authorization
estoppel – P has liability to persons who has changed their positions on belief A was acting for P if 1. P intentionally or carelessly caused such belief or 2. P knew of beliefs and did not take reasonable steps to correct belief
power of position – placing agent in position w/ recognizable duties and powers eg. cashier, manager
inherent – act usually accompanies or is incidental to transactions, and 3P reasonably believes A is authorized to the act
P gets benefit of A’s zeal, P should pay the price; P should foresee problems w/ A
information asymmetry. P can monitor A cheaper than 3P check up on A
ratification – even if A had no actual, apparent, or inherent authority, P can be bound if 1. manifesting an intention to treat A’s conduct as authorized (expressed ratification), or 2. engages in conduct that is justifiable only if P has such intentions (implied ratification)
must be before 1. 3P withdraws, 2. the agreement is otherwise terminated, or 3. the situation has so materially changed that it would be inequitable to bind 3P, and 3P elects to not be bound
a series of ratifications can create actual or apparent authority in future dealings
acquiescence – if A performs a series of acts of a similar nature, the failure of P to object to them is indication of consent to future conduct under similar conditions
termination of A – anytime, even if 1. violates a contract, or 2. authority was “irrevocable”
non-terminating party has CoA for breach of contract but not specific performance
 
Fiduciary Duty – entails a substitution of judgment from beneficiary to fiduciary
amount of duty varies w/ relationship
Restate 388 – A must turn over a profit made in connection with the agency
may be modified by K or custom. eg: waiter keep tips
Restate 388 – A can’t act as adverse party without Ps consent
§ 390 – A who wants to act on own account must take steps to put P back in an independent position
must be fair, disclose to P
Agent
general – authorized to conduct a series of transactions involving continuity of service. binding for unauthorized, incidental acts if 3P reasonably believes A authorized.
P has burden to monitor general A
factors controlling scope: foreseeability for P, 3P reasonably believed (customary and ordinary)
special – authorized to conduct only a single transaction, or a series of transactions not involving continuity of service
 
Principal
disclosed – 3P knows A is acting on behalf of P and P’s identity
partially disclosed – 3P knows A is acting on behalf of P, but does not know P’s identity
undisclosed – if 3P does not know of existence of P
P still liable to 3P. 1. P gained from transaction. 2. 3P sues A, A sues P.
similar to torts – master/servant, respondeat superior
 
Liability – 3P to P
3P equally liable to A and P unless 3P did not know P’s identity
Liability – A to 3P
P bound – A had actual, apparent, or inherent authority
undisclosed P – P and A bound, but only one judgment
minority – judgment discharged only by satisfaction
partially disclosed P – P and A bound
disclosed P – P bound
P not bound – no actual, apparent, or inherent authority
A liable to 3P
Liability – A to P
if A takes action w/o actual authority and binds P, A liable for resulting damages
Liability – P to A
if A acted within actual authority, P liable to A for payments authorized or made necessary
 
duty to inform/notify Meinhard v. Salmon must inform passive partner of lease renewal
P & D leased land. D manages land. P contributed half the capital.
D renews lease w/o notice to P. D had duty to notify P of renewal. Trustee relationship in agency
wrongly decided? unclear how much was “reasonable notice”, encourage free-riding, holding allow P to opt-in if deal results look good and risk nothing
duty to not use partnership assets for own benefit Latta v. Kilbourn
 
Business Organization
Characteristics of Corporation
limited liability, free transferability of ownership interests, continuity of existence, centralized management, entity status, separation of ownership and control
 
Partnership – An association of co-owners for profit. UPA 6 (1)
Characteristics
default organization. can involve employees and creditors
partners have equal rights in management and conduct of business. majority control
any partner has authority to act as agent
profits are distributed per capita (equally among partners)
no transferability of ownership
partners have fi