Business Associations Outline

Business Associations – Wagner Fall 2013
 
 
Focus on Delaware General Corporation (DGCL) Exam Answer- IRAC structure– Looking for a structured answer.  Two most important sections: rule of law and analysis section.  Spend most time doing these two section—Cite to Authority. No policy argument unless question calls for it.
 
CHAPTER ONE: AGENCY
SECTION ONE – WHO IS AN AGENT
  RST of AGENCY  § 1.  Agency; Principal; Agent
Ø (1) Agency is 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.
Ø (2)  The one for whom action is to be taken is the principal. (control)
Ø (3)  The one who is to act is the agent
—  Issues that arise in agency
            How does the agency relationship arise? (always the first issue to address)
            Under what circumstances can an agent bind a principal in contract and in tort?
            What duties does the agent owe the principal?
  Gorton v. Doty
Ø Facts: Football coach was driving Doty’s (D) car, he crashed and injured Gorton (P).  Gorton (P) sued to recover damages for negligence.
·         Why should D be liable for P’s injury caused by football coach? → there was an AGENCY relationship (Doty = principal, football coach/driver = agent), PRINCIPALS ARE LIABLE FOR THEIR AGENT’S TORTS [Respondeat Superior] ·         Remember how an agency relationship arises → Consent, Act on Behalf, Control
o   Doty volunteered her car for the football coach to drive – this is “manifestation of consent” (by principal for agent to act on behalf/subject to control) element
o   *Doty conditioned the use of her car on the fact that football coach would be the driver – this is “subject to her control” element
o   Doty wanted football coach to drive her car – this is “act on her behalf” element
o   Football coach drove car – this is “consent” (by agent to so act) element
 
v A. Gay Jenson Farms v. Cargill
Ø Facts: Cargill (D) was creditor of Warren.  Because it was going under, Cargill (D) took over the Warren Co.’s day-to-day operations.  Warren still defaulted on money owed under Ks with local farmers (P) for grain.  Farmers (P) sued to recover for breach of K.
·    Why should D be liable to P for Warren’s debt? → there was an AGENCY relationship (Cargill = principal, Warren = agent)
o   Warren entered into Ks with farmers FOR Cargill as Cargill’s agent – principal is liable for Ks entered into by his agent on his behalf
·         RST of Agency on Creditor-Debtor/Buyer-Supplier Relationships
o   § 14O – Creditor who assumes control of his debtor’s business may become a principal with liability for acts and transactions of debtor in connection with his business
§  Veto power OK…. It is normal for lenders to exercise some control without stepping into agency relationship. The amount of control is the key, examples are on the bottom of page 10.
o   § 14K – One who contracts to acquire property from a 3rd person and convey it to another IS the agent of the other ONLY IF it is agreed that he is to act primarily for the benefit of the other and not for himself
§  You are merely a SUPPLIER, not an agent IF you are to receive a fixed price for the property, you act in your own name and receive title to the property, you have an independent business in buying/selling such prop.
·         Remember how an Agency relationship arises → Consent, Act on Behalf, Control
o   Cargill directed Warren to enter into Ks with farmers – this is “manifestation of consent” element
o   Cargill totally financed Warren’s procurement of grain from farmers – this is “act on behalf” element
o   Cargill interfered with internal affairs of Warren – this is “subject to his control” element
§  Cargill telephoned Warren constantly to make recommendations for how to run its business operations;
§  Cargill had right of first refusal on grain in the Ks;
§  Cargill prohibited Warren from entering into mortgages, purchasing stock, or paying dividends without first obtaining its approval;
§  Cargill had right of entry onto Warren’s premises to carry on periodic checks and audits;
§  Cargill wrote correspondence to Warren, criticizing Warren’s finances, officers salaries, and inventory;
§  Cargill made finding that Warren needed “strong paternal guidance”;
§  Cargill gave Warren drafts and forms with Cargill’s name/logo on them;
§  Cargill financed ALL Warren’s purchases of grain and operating expenses; and
§  Cargill had power to discontinue the financing of Warren’s operations
 
SECTION TWO. LIABILITY OF PRINCIAP TO 3RD PARTIES IN CONTRACT
  A.  THE AGENT’S AUTHORITY
        RST OF AGENCY § 7.  Authority.
        Ø Authority is the POWER of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him.
·         SO, principal will be bound ONLY by those acts which agent has authority to do (acts which principal consented to)
o    THREE Types of Authority (Agent’s Power to bind Principal)
§  Actual authority
·         Express — § 26
·         Implied — § 35
§  Apparent authority
§  Inherent authority
·         Attribution rules: does the agent have the authority to bind the principal to 3P and 3P to principal?
o    Attribution rules: think about these in the order that we are studying them
§  Actual
·         Express
·         Implied
§  Apparent
§  Inherent
§  Estoppel
§  Ratification
v Actual Authority – express or implied
      Agent’s Power to bind his/her Principal MAY be established by Actual Authority
RST of AGENCY § 26.  Creation of [Express Actual] Authority; General Rule.
·         Except for the execution of instruments under seal or for the performance of transactions required by statute to be authorized in a particular way, authority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal’s account.
o    So to create authority: there must be
·         (1) An objective manifestation by the principal,
·         (2) Which causes the agent to believe that he/she is authorized to act, and
·         (3) Agent’s interpretation of principal’s words/conduct was reasonable
RST of AGENCY § 35.  When Incidental Authority Is Inferred [Creation of Implied Actual Authority].
·         Unless otherwise agreed, authority to conduct a transaction INCLUDES authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it.
o   Sometimes the implication is based on custom or past dealings.  Other times, the principal’s objectives and other facts known to Ag. cause an agent to infer that an act is authorized.
o   something that fills the gaps in express authority
v   Mill Street Church of Christ v. Hogan
Ø Facts: Mill Street Church (P) hired Bill to paint the church and Bill hired his brother, Sam Hogan (D), to help him finish.  Hogan (D) was injured on the job, and filed a claim for worker’s comp.  The Board granted his claim, and Mill Street Church (P) appealed. 
·         I: did Hogan have authority to bind the church?
·         Why should P be liable to D who was hired by Bill (not P)? → Bill’s POWER to hire Sam as a Church employee was established by Implied Actual Authority
o   Although Church did not expressly tell Bill he could hire Sam as an employee (express actual authority), Church DID give Bill authority to paint the whole church
§  AND “authority to conduct a transaction includes authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it” [§ 35] → it was reasonably necessary to hire Sam to paint the church, therefore Bill’s power to hire Sam as a Church employee was established by Implied Actual Authority
§  don't have express actual authority unless the P says “do this”. Here they did not say “hire your brother”, instead they discussed hiring someone else and that he could paint the church
o   H: same is an employee of the church because Bill had implied actual authority to hire a helper
§  The church had allowed Bill to hire his brother or other persons when assistance was needed; no mention to Bill about who should be hired; Bill needed to hire someone to complete the project; and Sam believed that Bill had the authority to hire him as had been the practice in the past.
§  Hypo: if expressly said do not hire anyone, however if in the area it is customary to hire someone cannot have authority express or implied when doing something contrary. On theory of actual agency, the hired person would not be able to collect.
§  However, this leaves a gap, so there are additional attribution rules. Under apparent authority, may still be stuck paying since the hired person assumed that he would be paid.
Implied authority is actual authority circumstantially proven which the principal authority intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated.
Important to focus upon the agent’s understanding of his authority.
It must be determined whether the agent reasonably believes because of present or past conduct of principal that the principal wishes him to act in a certain way or to have certain authority.
The nature of the task/job may be another factor to consider
The existence of prior similar practices is very important
Specific conduct by the principal in the past permitting the agent to exercise similar powers is crucial
 
Apparent authority is not actually but is the authority the agent is held out by the principal as possessing. It is a matter of appearances on which third parties come to rely. 
 
The person alleging agency and resulting authority has the burden of proving the existence
Agency cannot be proven by mere statement, but it can be established by circumstantial evidence including the acts and conduct of the parties 
 
v Apparent Authority
      Agent’s Power to bind his/her Principal MAY be established by Apparent Authority, i.e. the power to bind the principal arising from and in accordance w