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Business Associations/Corporations
SUNY Buffalo Law School
Westbrook, David A.

Corporations Outline 2011
·       Agency
o   You need to care about what your agents are doing
§  Ex: Employment-Someone works on behalf of someone else
o   Bilateral agreement- Principal and agent agree that agent will work under benefit of principal
o   If its not spoken about, its implied
Agency v. Authority
Creates actors within a business or can be looked at as creating the structure of the business
Agents are fiduciaries
Owe duty of care and loyalty
Put the principals interest ahead of their own
Who is an agent?
Legal relationship people have is determined by the system
Who gets money? Who has legal power?
Gordon v. Duty
Teacher lends car to coach to drive. Teacher says coach has to drive. Coach crashes. He dies, student hurt. Student sues teacher and wins. Coach was teachers agent. Teacher is liable for injuries coach caused.
Why implausible? Dissent says
Coach was no acting on behalf of the teacher
There was no benefit to the teacher
This could be looked at as a gif or a loan
3 factor test of agency: Principal manifests asset that the agent shall act:
On the principal’s behalf
Subject to the principals’ control
The agent manifests assents or otherwise consents
Whether a relationship is characterized as an agency in the context of industry or popular terms is not controlling
Must have elements
Must manifest through written words, spoken words, or other conduct.
Co agency
if you both work for principal, you are co-agents. Co agent could still be your supervisor but you are still co-agents. Each coagent owes duties to the common principal.
Subagent
A person appointed by an agent. This person has two principals.
Who is a principal?
Disclosed Principal
When agent an third party interact, the third party knows the agent is acting for the principal
Ex: Hi, I work for target.
Undisclosed Principal
When agent and third party interact, the third party has no notice that the agent is acting for the principal
Happens in franchises
Unidentified Principal
When agent and third party interact, third party knowns they are dealing with agent but do not know principal’s identity
Most consumer situations
Control
Remember: the agent shall act on principal’s behalf and subject to the principals control
Jensen v. Cargill
Warren did not grow grain. They had a middle man. Cargill needed warren to gather grain for them. This is their business model. Cargill lends a lot to Warren and now Cargill becomes invested. Warren’s business was in trouble. Cargill increases supervision.
 Cargill took effective control and that means they are liable
Cargill made a mistake because they did not have backdoor exit
Should have just bought them out to get all the upside
Martin v. Peyton
Giving loans do not create a partnership and therefore, you do not become a principal.
Essential Elements
Acting on behalf of  and subject to the control of!!
Categories of Agency
Actual Authority
Based on communications between principal and agent
Principal tells agent to bind him
Agent acts on behalf of principal and subject to the control of him
Actual Express
Explicit words or conduct granting the agent the power to bind the principal
Actual Implied
Grows out of words or conduct taken in the context of the relations between he principal and the agent
Apparent Authority
Based on communications between principal and third party
Principal manifests agency relationship to third party and agent does something to make him look like an agent
Principal says someone will act. Agent acts like agent. Third party believes that’s the agent.
Inherent Agency/Liability of undisclosed principle
Principals are responsible for some acts of their agents which, while unauthorized, closely resemble to that which they are allowed to do.
Watteau v. Fenwick
Watteau and other defendants owned the Victoria Hotel. This was kept secret. Humble appeared to be the owner. Humble was told he had ot buy everything from Watteau. He bought Bovril from Fenwick. Fenwick sues Watteau for humble not paying.
No actual or apparent authority
Court creates implied authority
Flow of capital implies an associated or reflected relationship
Structure of business requires boss to pay
Liability of undisclosed principal is introduced in 3rd restatements
Undisclosed principal is liable for debts incurred by their agents acting within the scope of their authority
Rationale
Third party ends up with more than it bargained for or had any reason to expect
But the undisclosed principal certainly should not be entitled to the gains from the endeavor without exposure to the loss
Undisclosed principal is in best position to avoid the loss
Franchises
Deal with undisclosed principal all the time
Agent=Manager
Principal=Owner
Third party= Franchise owner
At what point does corp. become principal?
Theories of argument if you are attorney for plaintiff
Franchise is agent of McDonalds and they are vicariously liable
Best argument but won’t w

8.02-Material Benefit arising out of position
An agent has a duty not to acquire a material benefit from a third party in connection with transactions conducted or other actions taken on behalf of the principal or otherwise through the agent's use of the agent's position.
8.03-Acting as or on behalf of an adverse party
An agent has a duty not to deal with the principal as or on behalf of an adverse party in a transaction connected with the agency relationship.
8.04-Competition
Throughout the duration of an agency relationship, an agent has a duty to refrain from competing with the principal and from taking action on behalf of or otherwise assisting the principal's competitors. During that time, an agent may take action, not otherwise wrongful, to prepare for competition following termination of the agency relationship.
8.05-Use of principals property and confidential information
An agent has a duty
(1) not to use property of the principal for the agent's own purposes or those of a third party; and
(2) not to use or communicate confidential information of the principal for the agent's own purposes or those of a third party.
8.06-Principals OCnsent
Lengthy
Generally, agent may not put his own interests and interests of a third party ahead of the interests of the principal
Breach of duty of loyalty
Agent receives payment from a third party in connection with some transaction between the principal and the third party.
The side payment breaches duty of loyalty
Cases in which the agent uses her position to make personal profit from someone who has no relationship whatsoever to the principal
Reding  v. Regem
Sargeant in british army uses his uniform to help smuggle drugs through cairo. He gets a lot of money and buys a really nice car. They take money and he sues to get it back.
Material Benefit arising out of position
Agent was not allowed to enrich himself
Doesn’t matter if principal wasn’t really injured
Cant use the principals property for the agents own benefit