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Business Associations/Corporations
St. Louis University School of Law
Wagner, Constance Z.

Business Associations (Condensed) ~ Wagner ~ Fall 2007
 
I.                    AGENCY
 
o         Agency Formation
o         Liability of Principal to 3rd Parties in Contract
o         Actual Authority (Express & Implied)
o         Apparent Authority
o         Inherent Authority
o         Ratification
o         Estoppel
o         Liability of Agent to 3rd Parties in Contract
o         Liability of Principal to 3r Parties in Tort
o         Servant versus Independent Contract
o         Tort Liability & Apparent Agency
o         Scope of Employment
o         Liability for Torts of Independent Contractors
o         Fiduciary Obligations of Agents
o         Duties During Agency
o         Duties During & After Termination of Agency
 
 
II.                  PARTNERSHIPS
 
o         Partnership Formation
o         Elements
o         Characterizations
o         Partners Compared w/ Employees
o         Partners Compared w/ Lenders
o         Partnership by Estoppel
o         Fiduciary Obligations of Partners
o         Introduction to Fiduciary Obligations
o         Fiduciary Obligations –
§          After Dissolution
§          When Grabbing & Leaving
§          Regarding Expulsion
o         Partnership Property
o         Rights of Partners in Management
o         Partnership Dissolution
o         Right to Dissolve
o         Consequences of Dissolution
o         Sharing of Losses
o         Buyout Agreements
o         Law Partnership Dissolution
 
 
III.               CORPORATIONS
 
o         Introduction
o         Promoter Liability & Corporate Form
o         Corporate Form & Limited Liability
o         Shareholder Derivative Actions
o         Introduction
o         Requirement of Demand on Directors
o         Role of Special Committees
o         Role & Purpose of Corporations
 
 
IV.                LIMITED LIABILITY COMPANY
 
o         Introduction
o         Formation
o         Operating Agreement
o         Piercing LLC Veil
o         Fiduciary Obligations
o         Dissolution
 
V.                  DUTIES OF OFFICERS & DIRECTORS
 
o         Duty of Care
o         Duty to Reach Informed Decisions
o         Duty to Monitor (Comply with the Law)
o         Duty of Loyalty
o         Directors & Managers
o         Corporate Opportunities
o         Dominant Shareholders
o         Ratification
 
 
VI.                SECURITIES REGLATION
 
o         Disclosure & Fairness
o         Introduction
o         Definition of a Security
o         Registration Process
o         Anti-Fraud Provision & SEC Rule 10b-5
§          Insider Trading
·          §10(b) –  Rule 10b-5
o         Classic Theory
o         Tippee/Tipper Theory
o         Misappropriation Theory
·          §14(e) – Rule 14e-3(a)
o         Tender Offers
·          §16(b) – Short-Swing Profits
 
 
VII.             Miscellaneous Issues
 
o         Indemnification & Insurance
o         Problems of Control
o         Shareholder Proposals
 
AGENCY
 
Agency Formation ~ Who is an Agent?
 
Test for Agency Formation ~ Restatement 2nd of Agency §1 (Restatement 3rd of Agency §1.01) ~
(1) Manifestation of consent (assent) by the principal; &
(2) That the agent shall act on principal’s behalf & subject to the principal’s control; &
(3) Consent (assent) by the agent so to act for the principal.
 
Characteristics of Agency Formation –
In order to find an agency relationship ….
Court does not require the relationship between the principal & agent to necessarily involve a business matter.
Rather, the Court requires that the relationship be one such that “A” undertakes to transact some business or manage some affair for “P” by authority & on account of the “P”.
Regarding Authority …
It is not essential to the existence of authority that there be a contract between “A” and “P” or that the agent promise to act as such. ~ §§ 15 & 16.
Regarding Compensation …
It is not essential to the relationship of principal and agent that they receive compensation. ~ §16.
It is typical, however, for the principal to benefit in some way from the agent’s actions.
Hallmark Characteristic of Agency …
Look for *Control*
 
Gorton v. Doty (1937) ~
Facts –
A teacher allowed the football coach to driver her car to drive to the game. The football coach was in an accident, killing himself & injuring the Π’s son.
Holding –
The Court looked to Restatement 2nd of Agency, §1 and determined …
[1] By designating the coach as the driver, the teacher consented;
[2] The teacher alluded that the coach should act for her and on her behalf while driving the car to and from game; &
[3] The coach consented by driving the car.
Therefore, because of the agent-principle relationship which had arisen b/w the teacher and the coach, the teacher can be held liable as the principle.
Policy of Majority … Teacher-principle is in a better position to cover the Π’s loss & prevent such an outcome.
Dissent … Argues that agency requires more than passive permission (need a command or instruction).
 
A. Gay Jensen Farms Co. v. Cargill, Inc. (1981) ~
Facts –
Farmers (Π) ó Warren (agent) ó Cargill (∆-principal)
F

y” is the …
Power of the agent to affect the legal relations of principal done in accordance with principal’s manifestation of consent to agent.
 
Test for the Creations of Authority ~ Restatement 2nd of Agency, §26 ~
(1) Objective manifestation of principal; &
(2) Agent’s reasonable interpretations of that manifestation; &
(3) Agent’s belief that she is authorized to act for principal.
 
Test for Implied Authority ~ Restatement 2nd of Agency, §35 ~
Implied authority is inferred to extend to [incidental] acts which usually accompany or are reasonably necessary to accomplish a transaction.
*Implied authority fills in the gaps in express authority.
Implied authority is the actual authority circumstantially proven in which the principal actually intended the agent to possess & includes such powers as are practically necessary to carry out the duties actually delegated.
 
Mill Street Church of Christ v. Hogan (1990) ~ Proving Implied Authority ~
Facts –
Church hired Bill Hogan to paint its chapel. Bill believed that he needed help to finish the job & that he would not be able to finish without another person.
Bill believed he had the authority to hire Sam Hogan because he had been permitted to hire Sam in the past.
Sam fell from a ladder while working & sued the Church for compensation.
Holding –
Court determined that Bill Hogan (agent) had the implied authority of the Church (principal) to hire Sam Hogan (agent #2). This implied authority bound Church-principal as liable for Sam’s injury.
Proving Implied Authority …
*Focus on the agent’s understanding of his/her authority.
Determine whether the agent reasonably believed that because of his present or past conduct with the principal that the principal wished him to act in a certain way or to have certain authority.
*Factors:
Nature of the task;
Prior similar practices by the agent;
*Specific conduct by the principal in the past permitting the agent to exercise similar powers.*
Burden of proving implied authority is on the party alleging agency existed.