BUSINESS ORGANIZATIONS OUTLINE – PROF. LABY (FALL 2007)
I. AGENCY Pg. 2
i. General…………………………………………………………… 2
ii. How relationship is formed……………………………………… 2
iii. Implied Authority……………………………………………….. 3
iv. Apparent Authority……………………………………………… 3
v. Inherent Authority………………………………………………….. 3
vi. Agency by Ratification………………………………………….. 4
vii. Agency by Estoppel……………………………………………… 4
viii. Agent’s Liability on Contracts………………………………….. 4
ix. Servants v. Independent Contractors……………………………….. 5
x. Franchises……………………………………………………….. 5
xi. Fiduciary Obligations of Agents………………………………… 6
II. PARTNERSHIPS Pg. 7
i. Comparing Partnerships & Corporations…………………………7
ii. Partners Compared with Employees……………………………..7
iii. Partners Compared with Lenders…………………………………7
iv. Partnership by Estoppel…………………………………………. 8
v. The Rights of Partners in Management………………………… 8
vi. Partners Property & Capital………………………………………9
vii. Fiduciary Duties Owed by Partners……………………………… 9
viii. Partnership Property & Capital…………………………………..9
ix. Fiduciary Duties of Partners…………………………………….. 9
x. Partner Duties After Dissolution………………………………… 9
xi. Grabbing & Leaving…………………………………………….. 10
xii. Expulsion………………………………………………………… 10
xiii. Partnership Dissolution…………………………………………..10
III. CORPORATION LAW Pg. 11
i. The Nature of the Corporation…………………………………… 11
ii. Promoters and the Corporate Entity…………………………….. 11
iii. The Corporate Entity and Limited Liability……………………. 12
iv. Piercing the Corporate Veil (i.e. “Alter Ego”)………………….. 12
v. Alter Ego Theory………………………………………………… 13
IV. THE LIMITED PARTNERSHIPS Pg. 13
i. Limited Partnerships (“LPs”)…………………………………… 13
ii. Limited Liability Companies (“LLCs”)…………………………. 14
iii. Limited Liability Partnerships (“LLPs”)………………………… 14
iv. LLC Formation………………………………………………… 14
v. The LLC Operating Agreement………………………………….15
vi. Piercing the LLC Veil……………………………………………15
vii. Fiduciary Obligations in LLCs………………………………….. 15
viii. Duty of Care & Business Judgment Rule……………………….. 15
ix. Obligations of Control: Duty of Care……………………………. 17
x. Duty to Monitor…………………………………………………. 17
xi. Indemnification and Insurance………………………………….. 17
xii. Derivative Actions………………………………………………. 18
xiii. Requirement of Demand …………………………………………19
xiv. Special Litigation Committees (“SLCs”)……………………….. 19
xv. Duty of Loyalty / Interested-Party Transactions………………… 20
xvi. Shareholder Transactions………………………………………… 21
V. PROBLEMS OF CONTROL Pg. 21
i. Proxy Contests……………………………………………………21
ii. Private Actions for Proxy Violations……………………………. 22
iii. Abuse of Control / Close Corporations…………………………. 22
iv. Mergers & Acquisitions…………………………………………. 22
+ AGENCY +
DEFINITION: the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act [RSA §1].
Restatement of Agency § 1
– There must be an agreement that an agent will act for the principal.
– There must be acceptance by the agent to so act subject to the principal’s control.
THREE PRINCIPAL FORMS
1. The relation of the principal and agent;
2. The relation of master and servant; and…
3. The relation of employer of proprietor and independent contractor.
+ HOW RELATIONSHIP IS FORMED +
Gorton v. Doty
– FACTS: football coach borrows a car from a teacher to shuttle athletes to a game. Teacher arguably sets condition precedent that coach drive.
– ISSUE: did this create an agent/principal relationship?
– HOLDING: Court reasons coach was acting on teacher’s behalf AND subject to her control. A contract is not necessary for a principal/agent relationship to be formed. Agency law is broader than contract law.
– DISSENT: teacher did not set condition precedent, merely instructed. Also, the benefit flowed to the team – not to the teacher.
– HOW TO AVOID LIABILITY?
o Waiver.
o Don’t dictate who drives the car – don’t set a condition precedent.
o Just say no.
o Make sure all parties are insured.
– INSURANCE / PUBLIC POLICY NOTE: court used this case to craft public policy, to urge persons to buy insurance.
A. Gay Jenson Farms Co. v. Cargill, Inc.
– FACTS: Cargill (farmer) gets way involved in the grain dealings of the insolvent Warren (another farmer).
– ISSUE: whether or not Cargill acted as principal to Warren (possible agent)?
– HOLDING: by telling Warren what to do, Cargill manifested their consent to act as principal; by continuing to do business with Cargill, Warren was essentially acting on their behalf.
– INSOLVENCY NOTE: why did Cargill keep extending credit to Warren?
o Long term benefits: though risky, could produce long term benefits.
o Bonuses
hired his brother, and history supports the authority.
o Did Hogan have apparent authority to hire his brother?
1. Maybe, though there no communication between P and the unauthorized TP.
2. Church paid for job, but to establish authority we need prior communication.
3. Because the brother had been hired before, this may be tantamount to a communication.
4. Brother’s belief he had authority is inconsequential.
+ APPARENT AUTHORITY +
Lind v. Schenley Industries, Inc.
– FACTS: Kaufman (as A for Schenley) hires Lind and will be compensated 1% commission for all sales.
– ISSUE: was Kaufman an authorized agent of Schenley? Is Schenley bound by Kaufman’s actions?
– HOLDING: court finds apparent authority; there was a communication by P to Kaufman that he could set Lind’s payment schedule. Lind had to reasonably believe Kaufman acted as P’s A.
– DISSENT: this is insane – the payout to Kaufman would have quadrupled his salary earning him more than the boss. There’s no way Lind could have reasonably thought this was legitimate.
Avoiding Compensation Pitfalls…
– Refine policies and procedures.
– Hire professional (third party) compensation consultants.
– Paper the deal – employment contracts.
370 Leasing Corp. v. Ampex Corp.
– FACTS: Joyce receives letter from Kays (presumably on behalf of Ampex) offering to purchase memory units, subject to a credit check by Ampex.
– ISSUE: did Kays have apparent authority to act as Ampex’s agent? Did the letter btw Joyce and Kays constitute an offer or a solicitation for an offer?
– HOLDING: yes, court finds apparent authority and also that the letter formed a contract to sell/ship. Third party (Joyce) reasonably believed Kays (a salesman) acted as an agent of Ampex (principal).
+ INHERENT AUTHORITY +
Watteau v. Fenwick
FACTS: bar sold to new principal but same manager kept; manager authorized to sell ale only, but purchases other items from third party. Manager’s name remained over house door
