Business Associations Outline

Fall 2008 Business Associations Outline- Scarlett
EXAM: essay and short answer; open book à be careful when deleting; just put [delete] at beginning of paragraph
-identify issue, cite relevant legal authority, explain law and analyze facts (can do these simultaneously) REACH A CONCLUSION
-Citing authority:
*Restatement (Second) of Agency
* Uniform Partnership Act of 1914 (UPA)
*Model Corporation Business Act

à exam question MAY state applicable law of jx at issue, if not, apply: RS, UPA, MCBA, Securities statutes
**** READ THROUGH MBCA (universal demand requirementà NEVER excused) à having made demand that has been rejected, have to argue about demand being wrongful in your suit)
*problems: shareholder derivative suit, close corp. and issues of control, insider trading and short swing profits, agency, partnershipà a lot like BAR exam, practical
-agency and partnership law could be in SAME fact pattern

I. Agency

A. Who Is an Agent? CB 1-13; RS §§ 1, 3
1. Business Organizations
a. sole proprietorships
b. partnerships
i. general partnerships
ii. limited partnerships
iii. limited liability partnerships
c. limited liability companies
d. corporations
2. Agency law applies to all business organizations
a. Agency: relationship that results from manifestation of consent by P to A that A shall act:
i. on P’s behalf and
ii. subject to P’s control
iii. AA’s consent to so act (Restatement §1(1)
a. initial question: does an agency relationship exist
b. 2nd question: what are the consequences of that relationship
i. is the problem between the agent and the principal?
ii. does it involve a third party trying to hold the principal to an agreement
based on the agent’s conduct or on express agreement?
iii. does it involve a third party trying to hold a principal liable for the agent’s torts?
3. Agency law in general:
a. three principal forms of agency:
i. principal and agent
ii. master and servant
iii. employer/proprietor and independent contractor
b. EVERY AGENT IS A FIDUCIARY OF THE PRINCIPAL
a. must avoid conflicts of interest, self-dealing, disloyal acts, etc.
c. Creation of agency relationship
i. by agreement
ii. by ratification
iii. agency by estoppel
3. Cases:
a. Gorton v. Doty: Doty (D) offered coach use of her car to help transport team members to away game. Coach involved in car accident, injuring Gorton (P).
i. Coach was agent of D while driving her car. Agency relationship between principal and agent, agent’s dealings with third party creates legal liability of principal to agent.
b. Gay Jenson Farms Co. v. Cargill, Inc.: Cargill in K with Warren Grain and Seed Company to loan money and working capital to W, and W appoint D its grain agent; after W face financial difficulties from falsified statements, W and C sued.
i. to form an agency relationship there must be an agreement but a K is not necessaryà doesn’t have to be written but does have to have a “meeting of the minds”
i. Restatement §26: Manifestation of consent: 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 to so act on the principal’s account.
ii. Cargill is a creditor and becomes a principal when it assumes control over the conduct of the debtor (Restatement §14O);
a. anything beyond what a typical bank would do in lending money (right of first refusal, constant criticism, constant telling how to run business, drafts/letters with Cargill’s name on it, etc.) makes Cargill a principalà de facto control
iii. one who contracts to acquire property from a third 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 (Restatement §14K)
iv. HOW TO AVOID THIS SITUATION:
a. Ps (farmers) could have protected themselves by asking for upfront payment from Cargill
b. Cargill could have not kept extending line of credit (to make sure grain bought from W was paid for), insist on seeing documentation, put indemnity clause in K, reduce control over W, or take on additional control

B. Liability of Principal to Third Parties in Contract
1. Restatement §144: principal is subject to liability upon Ks made by an agent acting within his authority if made in proper form and with the understanding that the principal is a party.
a. TYPES OF AUTHORITY (doesn’t matter what kind of authority when it comes to liabilityà authority is authority; can be more than one kind of authority)
i. Actual (what the AGENT thinks his authority based on relationship/past conduct/communication with principal)
a. Express
b. implied
ii. Apparent – some kind of holding out to third partyà focusing on what third party thinks is authority
iii. Estoppel
iv. Inherent
v. Ratification
1. Actual Authority CB14-16; RS §§ 5, 7, 26, 33-35, 144
a. REQUIRES manifestation of consent from P to Aà all has to do with communication between principal and agent
i. express: look at the agreement between the principal and the agent
ii. implied: Prior practice, industry custom, incidental authority, etc.
a. incidental authority: includes authority to do those things that usually accompany or are reasonably necessary to accomplish the actions authorized. (Restatement §35).
i. ex.: as manager of a building implied that you would be able to hire a janitor
b. act of putting agent in position leads agent to believe he has authority
b. Cases:
i. Mill Street Church of Christ v. Hogan: IMPLIED ACTUAL AUTHORITY FROM PAST CONDUCT; Church hired Bill Hogan to paint church, in the past when worked for the church he had hired brother, Sam and he hired him again this time…Sam fell off ladder and filed a Worker’s Compensation
a. party alleging agency and resulting authority has burden of proving the agency relationship
b. Bill reasonably believed he had authority to hire Sam due to past conduct
i. implied authority includes such powers as are reasonably necessary to carry out the duties
ii. other type of implied authority: did A believe based on present or past conduct that he had authority?
c. Sam reasonably believed that Bill had the authority to hire him for the project as he had done in the past

2. Apparent Authority CB 16-25; RS §§ 4, 8, 27, 159
a. Restatement §8: