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Business Organizations
Rutgers University, Camden School of Law
Laby, Arthur B.

Business Organizations, Laby, Fall 2013

UNIT 1. THE AGENCY RELATIONSHIP

· Gorton v. Doty (Idaho Supreme Court, 1937)

o Liability of the Principal for the acts of the Agent follow from the Principal’s authority over the Agent.

· A. Gay Jenson Farms Co. v. Cargill, Inc. (Minnesota Supreme Court, 1981)

o There is no set formula to determine whether the third element of an agency relationship, control, exists. Instead, the determination is heavily fact-based.

UNIT 2. CONSEQUENCES OF CREATING AN AGENCY RELATIONSHIP: CONTRACT

· IMPLIED AUTHORITY

o Mill Street Church of Christ v. Hogan (Kentucky Court of Appeals, 1990)

§ Determining whether Implied Authority is established

· APPARENT AUTHORITY

o Three-Seventy Leasing Corporation v. Ampex Corporation (United States Court of Appeals, Fifth Circuit, 1976)

§ Determining whether Apparent Authority is established

o Watteau v. Fenwick (Queen’s Bench, 1892)

§ Principal liable for contract Agent entered into with Third Party even though Principal expressly prohibited Agent from doing so if Third Party reasonably believed Agent contracted with Principal’s authority.

· RATIFICATION

o Bontticello v. Stefanovicz (Connecticut Supreme Court, 1979)

§ Determining whether Ratification is established

· ESTOPPEL

o Hoddeson v. Koos Bros. (New Jersey Superior Court, Appellate Division, 1957)

§ Determining whether Estoppel is established

· AGENT’S LIABILITY ON THE CONTRACT

o Atlantic Salmon A/S v. Curran (Massachusetts Appellate Court, 1992)

§ When an Agent, not the undisclosed Principal, is personally liable on a contract

UNIT 3. CONSEQUENCES OF CREATING AN AGENCY RELATIONSHIP: TORT

· SERVANT VERSUS INDEPENDENT CONTRACTOR

o Humble Oil & Refining Co. v. Martin (Texas Supreme Court, 1949)

§ One is a Servant rather than an Independent Contract if one is controlled and does not share any risk of loss.

o Hoover v. Sun Oil Company (Delaware Supreme Court, 1965)

§ One is an Independent Contractor rather than a Servant if the details of one’s day-to-day activities are not controlled.

o Murphy v. Holiday Inns, Inc. (Supreme Court of Virginia, 1975)

§ Determining whether a franchise agreement establishes an agency relationship

· TORT LIABILITY AND APPARENT AGENCY

o Miller v. McDonald’s Corp. (Oregon Appellate Court, 1997)

§ Principal’s vicarious liability as a result of the tortious conduct of his Apparent Agent

· SCOPE OF EMPLOYMENT

o Ira S. Bushey & Sons, Inc. v. United States (United States Court of Appeals for the 2nd Circuit, 1968)

§ Motive Test and Respondeat Superior Foreseeability Test for determining whether an Agent’s actions are within the Agent’s scope of employment, consequently rendering the Principal vicariously liable for the Agent’s actions

o Manning v. Grimsley (United States Court of Appeals for the 1st Circuit, 1981)

§ Determining whether a Servant’s intentional tort is within the scope of his employment, consequently rendering the Master vicariously liable for the Servant’s actions

· LIABILITY FOR TORTS OF INDEPENDENT CONTRACTORS

o Majestic Realty Associates, Inc. v. Toti Contracting Co. (Supreme Court of New Jersey, 1959)

§ Determining whether a person is liable for the acts of an Independent Contractor in the performance of the contract

UNIT 4. AGENTS AS FIDUCIARIES

· DUTIES DURING AGENCY

o Reading v. Regem (1948)

§ Agent breaches his fiduciary duty of loyalty by using his position as Agent to profit for himself, but not in a way that directly has anything to do with the Principal.

o Rash v. J.V. Intermediate, Ltd. (Court of Appeals for the Tenth Circuit, 2007)

§ Agent breaches his fiduciary duty of loyalty by: (1) Failing to deal openly with the employer and to fully disclose to the employer information about matters affecting the company’s business; and (2) using confidential information of the principal for the agent’s own purposes.

· DUTIES DURING AND AFTER TERMINATION OF AGENCY: HEREIN OF “GRABBING AND LEAVING”

o Town & Country House & Home Service, Inc. v. Newbery (Court of Appeals of New York, 1958)

§ Agent breaches his fiduciary duty of loyalty by leaving Principal’s employ and using confidential information of the principal for the agent’s own purposes. To remedy such a breach, Agent pays Principal some of the profit earned as a result.

UNIT 5. PARTNERSHIPS

· PARTNERS COMPARED WITH EMPLOYEES

o Fenwick v. Unemployment Compensation Commission (Court of Errors and Appeals of New Jersey, 1945)

§ Determining whether a partnership is established by distinguishing between a Partner and an Employee

· PARTNERS COMPARED WITH LENDERS

o Martin v. Peyton (Court of Appeals of New York, 1927)

§ Determining whether a partnership is established by distinguishing between a Partner and a Lender

o Southex Exhibitions, Inc. v. Rhode Island Builders Association, Inc. (Court of App

UNIT 10. LIMITED LIABILITY

· Walkovszky v. Carlton (Court of Appeals of New York, 1966)

o Theories of liability that allow a corporation to be treated as an Agent and the corporate veil to be pierced to reach the Principal: (1) Enterprise Liability; (2) Respondeat Superior (agency); and (3) Piercing the Corporate Veil.

· Sea-Land Services, Inc. v. Pepper Source (Seventh Circuit Court of Appeals, 1991)

o Determining whether Piercing the Corporate Veil theory applies

· Roman Catholic Archbishop of San Francisco v. Sheffield (California Court of Appeals, 1971)

o Under the Piercing the Corporate Veil theory, where a “parent” controls several subsidiaries, each subsidiary is not liable for the actions of all other subsidiaries.

UNIT 11. THE LIMITED PARTNERSHIP AND THE LLC

· Holzman v. De Escamilla (Court of Appeals of California, 1948)

o Determining whether a Limited Partner becomes liable as a General Partner

· Frigidaire Sales Corporation v. Union Properties, Inc. (Supreme Court of Washington, 1977)

o Parties may form a Limited Partnership with a corporation as the sole General Partner.

· FORMATION

o Water, Waste & Land, Inc. d/b/a Westec v. Lanham (Supreme Court of Colorado, 1998)

§ For a Limited Liability Company member to be protected against personal liability under agency theory, the member must disclose the existence and identify of the Limited Liability Company.

· THE OPERATING AGREEMENT

o Elf Atochem North America, Inc. v. Jaffari (Supreme Court of Delaware, 1999)

§ Once members exercise their contractual freedom in their Operating Agreement, the members have a great deal of certainty that their Operating Agreement will be enforced in accordance with its terms.

o Fisk Ventures, LLC v. Segal (Court of Chancery of Delaware, 2008)

§ An LLC Operating Agreement’s implied covenant of good faith and fair dealing cannot be invoked where the contract itself expressly covers the subject at issue.

· PIERCING THE LLC VEIL