Select Page

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

Fall 2008 Corporations Outline: Westbrook
 
I. Introduction to Business Actors
                1. Actors
-the relationship among natural persons and legal persons and business entities is complex and important when studying Corporation law
a. Types of Business entities
-Sole Proprietorship, Agency Relationship, Partnership, Limited Partnership, LLP, LLC, S Corporation, C Corporation, Not for Profits (501(c)(3)). 
                2. Context
                                -law creates the entity known as the business corporation through statute
                                -There is law internal to a corporation: charters/articles of incorporation
                                -Laws are made between a Corporation and a third party: Contract
-Law that regulates the circumstances in which the corporation operates: property, tort, tax, and regulation.
                3. Motivations
                                -Four motivations of Actors
                                                1. Maximize profit
                                                2. fulfill trust (fiduciaries)
                                                3. Retain or Extend Control (takeover)
                                                4. Benefit Others (Charitable Purposes and Not-For-Profit’s)
                                -Blanket General purpose is to make money
II. Agency
                1. Definitions
                                a. Agent and Principal
– Indicates the relation which exists where one person acts for another. Three principal forms are:
1. The relation of principal and agent.
2. The relation of master and servant; and
3. The relation of employer or proprietor and independent contractor. 
                                                -Test:
1.   Manifestation of consent by one person (principal) that another person (agent) act
                                                                                                                     i.        On principal’s behalf
                                                                                                                    ii.        Subject to principal’s control
2.   And agent’s consent
 
-Agents Liability: IN order to escape liability, agent must make it clear to third party that agent is acting on behalf of principal
Atlantic Salmon A/S v. Curran (Mass 1992) – Agents Liability: in order to escape liability in contract, agent must demonstrate they are acting on behalf of another solely
·         Defendant is a con artist who claims to be operating as an agent for a company. 
·         Unless otherwise agree, a person purporting to make a contract with another for a partially disclosed principal is a party to the contract. It is the duty of the agent, if he would avoid personal liability on a contract entered into by him on behalf of his principal, to disclose not only that he is acting in a representative capacity, but also the identity of his principal. It was not the plaintiff’s duty to seek out the identity of the defendant’s principal; it was the defendant’s obligation fully to reveal it. 
-Gorton v. Doty: Unintended Agency Relationship
Facts- Father and son commenced separate actions consolidated for trial to recover expenses and damages for injuries sustained as a part of an accident. The jury returned a verdict of $870 for the father and $5,000 for son. Son, Richard Gorton, was a member of the Soda Springs High School team. He was injured while riding in the private car of defendant teacher that was driven by his coach, Mr. Garst. Defendant knew the team was playing that day, volunteered her car if the coach would drive it, did not receive any compensation, the school paid for the gas, did not employ the coach or at any time direct his work or services.
-Rationale- Agency is the 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. Principal is responsible for the acts of his or her agent. Defendant made it a condition precedent that the person she designated should drive her car. Thus both consented – a contract or compensation is not necessary. Prior ruling states that a prima facie case against the owner is established on the presumption that the driver is the agent of the owner. 
Everyone working for someone is an agent, making agency important. Also, for manifestation of consent you do not have to actually intend to agree
-A. Gay Jensen Farms Co. v. Cargill, Inc.: Unintended agency relationship
-Facts: Farms brought action against defendants Cargill and Warren Grain & Seed Co. to recover losses sustained when Warren defaulted on its contracts. Court ruled that Warren was an agent of Cargill due to amount of control.
-Rule- Agency is the fiduciary relationship that 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 so to act. To create agency there must be an agreement and evidence of consent and control.                        
Liability: A creditor who assumes control over his debtor’s business -may become liable as principal for the acts of the debtor in connection with the business. The point of assumption of control is de facto control over the conduct of the debtor. Regardless of contract. 
-Buyer-Supplier: 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 himself. Factors indicating that one is a supplier:
1.       That is to receive a fixed price for the property irrespective of price paid by him.
2.       That he acts in his own name and receives the title to the property which he thereafter is to transfer.
3.       That he has an independent business in buying and selling similar property. 
Rationale- Cargill by its control and influence over Warren, became a principal with liability for the transactions entered into by its agent Warren.
1.       By directing Warren to implement its recommendations, Cargill manifested consent that Warren would be its agent.
2.       Warren acted on Cargill’s behalf in procuring grain for Cargill as the part of its normal operations which were totally financed by Cargill.
3.       Cargill’s interference with the internal affairs of Warren constituted de facto control of the elevator. 
Factors indicating Cargill’s control: Constant recommendations, right of first refusal on grain, Warren’s inability to make decisions w/o approval, audits and checks, correspondence & criticism regarding finances, provision of drafts and forms with joint names, financing of grain purchases and operating expenses, and power to discontinue the financing of operations. Also, all portions of Warren’s operation were financed by Cargill and almost all grain sold to Cargill. 
                                b. Independent Contractor
-Independent contractor is defined as someone who is employed by someone else but still retains the right to control the detail of the day to day operations of their business
-Independent Contracts are of two types: Agents and Non agents
i. Agent Types: agreed to act on behalf of another, the principal, but not subject to the principals control over how the result is accomplished (physical conduct)
ii. Non Agent Types: Operates independently and simply enters into an arms length transaction with others. 
– Hoover v. Sun Oil Company (DE 1965) – Station is an independent contractor, not enough control exercised by the oil company
·         Advertising was Sunoco, employees wore Sunoco uniforms, weekly visits by Sun employees, competitive allowan

s conduct which was presently interfering with his ability to pitch in the game if called upon 
-Arguello v. Conoco, Inc. (5th Cir. 2000) – Scope of Employment
·         Discrimination case against Conoco gas station employees.
·         Scope of employment factors: (1) the time, place and purpose of the act; (2) its similarity to acts which the servant is authorized to perform; (3) whether the act is commonly performed by servants; (4) the extent of departure from normal methods; and (5) whether the master would reasonably expect such act would be performed.
                                e. Vicarious Liability
-Vicarious Liability: One who represents another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such.
-requisite that vicarious liability can only be held if actions were within the scope of agents power
-Franchises: Based on a business concept theory: need to replicate the concept to make money. Many of the are self financing by the franchisor. 
-Miller v. McDonald’s Corp. (Ore. App. 1997) – Apparent Agency Tort, to hold differently would require a greater degree of sophistication regarding franchising then the general public holds
-Rule- “If in practical effect, the franchise agreement goes beyond the stage of setting standards, and allocates to the franchisor the right to exercise control over the daily operations of the franchise, an agency relationship exists.” Can established vicarious liability.
-Vicarious liability is holding a principal (here a franchise) liable for the actions of its agent (Respondeat superior is a subcategory of this)
-Actions must be within the scope of authority to be vicariously liable
-Further, cannot stop an agency relationship through a contractual agreement designating is not as a agency relationship.
Murphy v. Holiday Inns, Inc. (VA 1975) – Franchise, test is degree of control similar to test for independent contractor, no principal/agent relationship because there was not day to day operational control
·         Plaintiff sought damages against Holiday Inns for personal injuries received as a guest at a motel in Danville – slip and fall case. License agreed requires adherence to provisions of the license and the holiday inn construction and other stipulations. Licensee observes rules of operation, makes quarterly reports concerning operations, and submit to periodic inspections.
·         Rule: When an agreement establishes an agency relationship the parties cannot effectively disclaim it by formal consent. Critical test for agency is the nature and extent of the control agreed upon. 
                2. Authorities Under an Agency Relationship
                                a. Actual Express Authority 
-Defined as actually stated (as through a contract) that the agent will work on behalf of the principle: ex. Employment Contract
                                b. Actual Implied Authority