Business Organizations
Outline
Economic and legal aspects of the firm
The firm and the law of agency
Fiduciary limits on the agent’s right of action
Community counseling service v. Rilly
Prior to severing the employment relationship, the employee cannot see out future business that conflicts with his employment obligations to the current employer.
Hamburger v. Hamburger
Merely arranging for financing for a new venture isn’t a breach of your fiduciary duty to the current employer. Logistical arrangements are okay.
Employee is also entitled to use his general knowledge, experience, memory and skills in establishing the new company, but he may not appropriate confidential information.
Limits [J1] on the Firms’ right to discharge an employee at will to protect against bad faith firing.
Foley v. Interactive Data Corp
No requirement for good cause to fire an at-will employee, but it must not be done for reasons that are offensive to public policy
Here, it is valid to blow the whistle when a public harm would result from silence, but this was just a private company, so there was no public harm and no reliance on this remedy.
However, this would apply if you were fired because you refused to violate the law.
Breach of the implied employment contract[J2] . This can be formed from personnel policies, employee longevity with the firm, acts, words or other conduct that would act as an assurance, or industry practices.
Conduct can give rise to an enforceable implied contract. This was the case based on his extensive employment, oral assurances, reliance on an employee manual that gave a mandatory policy for termination, and the suggestion of a long term relationship through his use of a non-compete clause in his contract.
Agency Law and Relations with Creditors
Agent’s actions in common law only bind the principal if assent was manifested actually [J3] or apparently [J4] (i.e. ostensible authority). Modern trend is to have inherent [J5] authority that protects 3rd party’s reasonable expectatio0ns.
Blackburn v. Witter
Trial court found that there was apparent authority because the principal was intentionally or careless in creating or allowing the third party to believe that the agent could do something. This is provided that the reliance is in good faith, reasonable and a liability incurred through the reliance.
Appellant tried to argue that the woman who relied on the false stock certificates the agent sold her was unreasonable in her reliance, but the court concludes that because the company assured her that the agent was working appropriately, they’re liable for his tort.
Sennott v. Rodman
A partnership will not be vicariously liable for the partner’s actions if the partner did not knowing assist and participate in efforts to defraud and fraud victim did not rely on the apparent authority of the defrauder.
Here, Sennott can’t hold the firm vicariously liable because he was willfully ignorant of the transaction. This is unlike the prior case where the widow was just stupid. Here, Sennott knew he wasn’t working with the firm and was told not to even discuss the arrangement with them.
Partnerships
Intro
Traditional noncorporate business associations
General Partnership[J6]
Joint Ventures
Unlike a partnership:
3rd party can’t assume party members are agents
Joint venturers have no fiduciary duties to one another.
Limited Partnership
Form
One or more general partner and one or more limited partner
Formed with a certificate of partnership filed with state secretary of state.
[J1]Modern exceptions to the traditionally hard line rule for at will employment:
· Discharge in violation of public policy
· Contrary employee han
strating that a partnership exists, the acts, dealings, conduct, admissions and declarations of the purporterd partners, in addition to other direct evidence, may be utilize. An unambiguous agreement to form a general partnership by itself does not establish as a matter of law that the parties to that agreement have formed a general partnership (Hynansky v. Vierti)
Two or more people to act as co-owners
When to use
Small firm with a lot of trust
All partners make similar contributions, because they (likely) have equal shares of the profit
Duties are shared equally
Risk
Execution
Management
Expensive to fire a partner because they must terminate the partnership and pay partner interest in cash
No limit or personal liability, so oversight is important
Joint and severable liable
Partners owe one another a fiduciary duty
No self dealing
Each partner is an agent of the principal – and the principal is the partnership itself.
Unanimous vote for extraordinary decisions
Each partner can leave the partnership and trigger dissolution unless other rules were agreed to
Problem with vicarious liability
One partner can be liable for the other. Each partner is the agent for the general partnership. So, liabilities are imputable to the general partnership and then jointly and severable trickles down to the partners.
Pro rata share
If you put in 30% of the capital, the UPA envisions a default where you would take 30% of profit and be liable for 30% of the loss.
