Business Associations Outline

Business Associations
Week One 8/25/08 to 8/29/08
 
Reading 1-20
 
I.                   Business Organizations
a.       Sole Proprietorships
                                                              i.      Single individual – no separate identity from owner, owner is fully responsible for everything debts incurred by the company
                                                            ii.      On the hook, no distinction between personal and business
                                                          iii.      Unlimited Liability
                                                          iv.      Will often employ agents to do work on their behalf
b.      Corporations
c.       General & Limited Partnerships
d.      Limited Liability Companies
II.                Beginning a Business
a.       Debt Financing – Taking on the debt and getting a percentage interest
b.      Equity Financing – buy a stake in the business
c.       Shareholders – Residual Holders – last ones to be paid upon dissolved
d.      Publicly held corporation sold on the open market
                                                              i.      More disclosure
                                                            ii.      More information
e.       Privately held corporation sold privately
                                                              i.      More personal, might not be able to sell the company
III.             Agency
a.       Agent – a person who by mutual assent acts on behalf of another and subject to the other’s control
b.      Principal – The person with whom the agent acts
c.       Third Party – someone else, an outside business contact
d.      Agency Law, the principal agency relationship
IV.             Authority
a.       When does the agent have the authority or deemed to have the authority to act on behalf of the principal, and what are the duties that each have to each other?
b.      Agent owes a fiduciary duty to its principle, and a duty of loyalty
c.       Cannot necessarily get out of the relationship by matter of simply writing it into a contract, there are many caveats.
d.      Actual Authority – if the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the principal wishes the agent would act.
                                                              i.      Express – actually told he has such authority
                                                            ii.      Implied – from words used, from customs and relations
                                                          iii.      Incidental – acts reasonably necessary to accomplish an actually authorized transaction
e.       Apparent Authority – if manifestations to the TP by P would lead a reasonable TP to think the agent has the power to act
f.       Agency by Estoppel – if the person intentionally or carelessly caused such a belief, or person did not take reasonable steps when knowing others were interpreting his actions in that way
g.      Power of Position – cashier can do what most cahiers do, etc.
h.      Inherent Authority – reasonable expectation based on actions by the P that Agent has the authority
i.        Ratification – principal knows what the agent did, and affirms or acts to affirm the decision
j.        Acquiescence – does not basically object to the agent actions, letting them go on even without the property authority – each principal is allowing
V.                Disclosure of Principal
a.       Disclosed – TP has notice of the Principal and knows its identity
b.      Partially Disclosed – Knows there is a Principal, but not who it is
c.       Undisclosed – No notice A is acting for his principal
 
Cases
 
Morris Oil Co. v. Rainbow Oilfield Trucking
NM Court App. 1987
 
Facts: Plaintiff is seeking money from defendant because defendant’s agent racked up a $25,000 bill, which was never paid. The Agent went bankrupt, is the principal liable for the money?
Holding: The Defendant (Dawn) was principal to the agent (Rainbow Oilfield Trucking); despite the contract in place that said expressly they were not the agent.
Reasoning: The K had a provision, which said that Rainbow could incur debt on behalf of Dawn in its normal day-today business operations. Rainbow incurred the debt while “ordinary course of business” of operating the terminal. Also, the K does not bind a third party who had no knowledge of the instructions in the original K. Plaintiff has no prior or actual knowledge that Rainbow was acting as an agent.
Additionally, Dawn ratified the open account when learning of its existence; It knew of Rainbow’s debt fund, and charged it 1,000 for clerical fees, it retained the benefit of Rainbow’s operations, and must therefore be held liable. They cannot have it both ways.
Judgment: For Plaintiff, Morris Oil, for all of its outstanding debt.
 
The Principal had contracted with Rainbow to conduct business operations. Morris had no idea that Rainbow was acting as an agent for Dawn at that time. Therefore the principal is undisclosed, but the agent had inherent authority, and also a ratification of the agency relationship.
 
Tarnowski v. Resop
S.C. of Minn. 1952
 
Facts: Principal’s agent breached duty of loyalty, when acting as agent, used seller’s false representation to buy property for principal, while picketing 2,000 bribe from the sellers
Holding: Seller needs to pay back money to principal, agent is liable for all profit, whether the deal went through or not, and all attorney’s costs and expectation damages to the Principal. Atty’s fees and expenses of the suit are directly traceable to the harm caused by the defendant’s wrongful act.
 
 
Pages 27 – 57
 
Chapter Two: General Partnerships
 
I.                   Code Provisions
a.       Uniform Partnership Act (UPA)
                                                              i.      Adopted by all states originally, modified by state law
                                                            ii.      Written under the assumption that most partnership are friends and family and the like
b.      Revised Uniform Partnership Act (RUPA)
                                                              i.      Adopted by 2/3 of states
                                                            ii.      Notable exceptions: PA, NY, OH
                                                          iii.      Many are adjusted by state statute and UPA both together
II.                Cases
a.       Martin v. Peyton; NY Court App 1927
                                                              i.      Involves the lending of money to a company
                                                            ii.      Does the lender breach the line to become a partner?
                                                          iii.      Although he had access to the books, although he could veto certain business decisions, these are all things based on being an investor and protecting his loan to the company; no affirmative control (if there was more affirmative control, then would be problematic) (the fact that he had resignations of certain partners, then you could get rid of them, most close to partnership)
                                                          iv.      Really, he is just a lender in this situation, does not cross the threshold
                                                            v.      Was receiving profits, but just as interest on loan, and until the loan was completed, with minimum and maximum (limit)
                                                          vi.      Option to buy equity interest in KNK (become partner)
                                                        vii.      Again, writing instruments are not dispositive
                                                      viii.      Such instruments, when taken as a whole can constitute a partnership, but this is not the case in this matter
b.      Lupien v. Malsbenden; SC of Maine; 1984
                                                              i.      Defendant Malsbenden appeals from judgment rendering him a business partner in the York Motor Mart
                                                            ii.      He was getting a car from them, and made substantial investment in the firm (85K loan w/ no interest), however, he conducted business for the firm
                                                          iii.      He was there on a day to day basis, and had liability for the operations, he was a manager in the firm
                                                          iv.      Also the loan had no interest payments, his “total involvement” was one of a partner; right to participate and control in the business
                                                            v.      “carried on as co-owners a business of profit”
III.             Notes on the Formations of Partnerships
a.       Formality
                                                              i.      Corps, LLP, LP all require formal writing