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Business Organizations
Touro Law School
Miller, Meredith R.

 
Business Organizations Outline
 
FOR THE MOST PART BUSINESS LAW IS A SET OF DEFAULT RULES
 
I.                   Sole Proprietorships
a.       Single person owns
b.      Don’t have to do anything to bring it into existence
c.       No statutes/ its all CL contracts
d.      Owner takes all profits and bears all the risks
e.       Only taxed once during the year
f.       Unlimited liability
g.      When he dies business is over
h.      No restrictions on transferability of interest
 
II.                Fundamental Principles of Agency: Agency Law forms the basis of all bus org laws
a.      Creation of Agency: Who is an Agent?
                                                              i.      Rest. Of Agency 2 §1: Agency def. : 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.
                                                            ii.      RofA 3 § 1.01 Agency Defined: Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.
                                                          iii.      Differences between 2 and 3 definitions
1.      semantic differences
2.      R2d uses “consent”, R3d uses “assent”
3.      changed to downgrade consent
4.      adds fiduciary
                                                          iv.      Focus on agency relationship is control (jenson farms v. cagrill)
                                                            v.      Factors determining control pg. 10-11
1.      Principle’s constant recommendations to the agent
2.      Principle’s right of first refusal
3.      Agent’s inability to enter into K’s w/o the principle’s approval
4.      Principle’s right of entry onto agent’s premises to carry on periodic checks and audits
5.      Principle’s correspondence and criticism re. agent’s finances, officers salaries and inventory
6.      Principle’s determination that agent needed “strong paternal guidance”
7.      Provision of drafts and forms to agent upon whichthe principle’s name was imprinted
8.      Financing of all agent’s purchase of products and operating expenses
9.      Principle’s power to discontinue the financing of agent’s operations
 
 
b.      Scope of Authority and Power:
 
                                                              i.      Liability of Principal to Third Parties in Contract/ Actual, Apparent, and Inherent Agency
1.      Actual: we look at interaction between principal and agent/ What the agent reasonably believes the principal authorized him to do
 
a.      Express: Situation where the principal tells the agent that the agent is authorized to do something
                                                                                                                                      i.      Ex. Joe owns house, wants to sell, gets real estate agent. Agent is expressly authorized to sell Joe’s house
                                                                                                                                    ii.      Looking for the manifestation of the principal agent relationship/ could be in words or acts(ex. Such as here you go, sell the house)
 
b.      Implied: Authority given to the agent is incidental/ infer from the facts Different way authority may be conferred that is not expressed
                                                                                                                                      i.      Ex. Joe never says to real estate agent: “take an ad out in the paper.” But this is incidental to sell the house. So it is implicit in the authority
                                                                                                                                    ii.      Also look to custom and prior dealings
2.      Apparent: we look at interaction between the principal and third party
a.      The key is that it “appeared to the world” that the agent was authorized/ what a third party believes with respect to the relationship to agent and principal
b.      However, IN ACTUAL AUTHORITY WE LOOK TO WHAT THE AGENT REASONABLY BELIEVED, WHEREAS, IN APPARENT IT IS HOW IT APPEARED TO THE WORLD (THE 3RD PARTY)
 
c.       Two Elements
                                                                                                                                      i.      The principals actions or inactions/ What did the principal manifest to indicate to the 3rd party that the agent had authority
                                            

tentionally or carelessly caused such belief, or
2.      Having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts
b.      Estoppel v. Apparent Authority
                                                                                                                                      i.      Difference is that Estoppel requires Detrimental Change in position in the third party (i.e. giving the money to the fraudulent sales person)
                                                                                                                                    ii.      Could argue both in a lot of cases
c.       Liability of Undisclosed Principal (RIII §2.06) (INHERENT AUTHORITY ALSO)
                                                                                                                                      i.      (1) An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
                                                                                                                                    ii.      (2) An undisclosed principal may not rely on instructions given an agent that qualify or reduce the agent’s authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed.
 
2.      Ratification
a.       Someone acts on behalf of principal with principal knowing of circumstances surrounding transaction and principal held liable b/c they affirmed by accepting the benefits of the contract