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

Rutgers School of Law-Camden
Business Organizations
Fall 2015
– Apparent Agency: one of the approaches (express, implied, apparent) of proving agency
– Apparent Authority: a way to expand the power of the agent once agency has already been established (different from apparent agency) expanding over a series of transactions
– Fenwick Partnership Factors: community of power and administration (is there joint control in the administration of the partnership)
– the reservation (provision) in the agreement of the exclusive control in the business excludes this element
– Can a creditor of the corporation pierce the corporate veil to go after the assets of investors? Yes they can (contractual and tort)
– Is reverse piercing of the corporate veil only necessary or possible in the context of enterprise liability?
NO, not really necessary or possible in the context of enterprise liability at all.
                – for enterprise liability it does not need to be the same type of business.
Enterprise liability is when you find that the separate corporations are all a part of the same enterprise and you can go after the resources of the other corporations.
– Agency relationship may not by part in parcel with the contract (separate)
– fiduciary obligation is separate from the contract (so breach of fiduciary duty and breach of contract are 2 separate claims)(dominate view)
– does the business entity at issue have anything to do with whether the contract and fiduciary claims can be separate?
Yes the type of business entity can be relevant (partnerships: courts are much less willing to say that fiduciary duty is part and parcel of the contract; LLC: not necessarily the case; Corporations: open to debate)
– Limited liability Partnership: only protect against negligence claims (only limited liability with respect to tort claims)
                – wanted to limit the liability of general partners for the misdeeds of one partner
                – can have a managerial role and still only be subject to limited liability
– Limited Partners: limited liability with respect to both tory and contract claims (need to have a general partner and a limited partner)(came into being for investment arrangements (silent partners))
                – General partners are subject to unlimited liability
                – limited partners are mere investors
Collins v. Lewis: the court distinguishes between an inherent power to dissolve (violating the contract) and a legal right to dissolve (partnership)
What are the circumstances that would give the partners a legal right to dissolve and not make them rely on violating the contract?
                – UPA 31: defining a definite term in the contract; if theres no definite term and a partner wants to end th contract they are allowed to (unless they are the one doing bad things)
The Agency Relationship
Agency Generally: the fiduciary relationship that arises when one person manifests assent to another person that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to act.
– Principal is responsible for the actions of its agent
– Relationship is established when agent manages some affair by authority of the principal
                                – owner of something lets someone else use something of theirs (Gorton v Dolty)
– Contract or compensation not essential
– if the principal asks someone to do something on their behalf then the relationship is established
– Gay Jenson Farms v. Cargill: There are 3 requirements of liability:
(1) the agent must act on behalf of the principal,
                – principal financing agent, or ordering them to do something
(2) the principal must consent
                – agreeing to get the agent to do something on their behalf
(3) and the principal must have some control over the agent in order for the relationship to        exist.
                – must show control by controlling money or reviewing their business or something.
– Creditors can become principals if they manage the debtor’s business and direct what contracts may or may not be made.
– only arises when these elements are met, a contract stating an agency relationship will not suffice

rincipal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agents actions on the principal’s behalf and without actual authority of the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
– an agent as well as the principal can be personally liable to the third party if he is acting under actual authority.
                – no apparent authority here because a 3rd party would not know of the agency relationship
– an undisclosed principal may not rely on instructions given to an agent that qualify or reduce the agents authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed.
– in other words if the agent would have had the authority (implied, apparent, actual) to act as they did under a regular agent principal theory they cannot rely on secret instructions they may have given the agent.
Ratification: this is a theory of principal liability when an agent acted without authority to do so.
– the affirmance by the principal of a prior act which did not bind him but which was professedly done on his account.
– it’s a means by which the principal can say: may agent didn’t have authority to do this, but im glad he did so I will accept it.
– principal must have the intent to ratify (agree with the terms) and have full knowledge of the circumstances
– can occur through:
                – express affirmance
– implied affirmance through acceptance of benefits when they can still be rejected, through silence or inaction, or suing to enforce the contract.
Courts don’t like the wait and see approach