Business Organizations
Lee
Spring 2016
Agency Law
1. Agency: a consensual arrangement between a principal and agent whereby agent acts on behalf of, and is subject to control by, the principal
· You do not need to be paid to be considered a principal/agent arrangement
· An agent’s duty has to be within the scope of your job.
2. When can an agent bind a principal on contracts with 3rd parties?
· Agents can only bind to their scope of authority
· Actual
· P makes manifestations (words or conduct) to A
· A reasonably interprets the manifestations and acts within this interpretation
· It’s the P’s objective to be clear with his words and conduct
· Apparent
· 3rd party reasonably interprets manifestations of the P as giving an actor the authority to bind P
· Ratification
· P expressly or implicitly authorizes A’s acts after they occur
3. Fiduciary Duties
· Duty of Loyalty
· Agent is accountable to principal for profits from transactions agent conducts on the principal’s behalf
· Agent may not compete with principal concerning the subject matter of the agent
· Duty of Care
· Agent shall act with the care, competence, and diligence normally exercised by agents in similar circumstances
General Partnership – Title 9A
· Advantages:
· Reduced administrative hassle, no filing fees, no wait time
· Disadvantages:
· A partnership may be formed inadvertently and thus legal consequences incurred w/o intent or awareness
· Specific legal rules apply to partnerships (MD Code, common law, federal tax law) + Liabilities (derived in part from agency principles)
· Formation
· Formation: 9A-202. “The …association of two or more persons to carry on as co-owners a business for profit forms a partnership”
· A partnership can be formed w/o knowing that a partnership has been formed. 9A-202(a). “Whether or not the persons intend to form…”
· 9A-202(d): specific rules to determine whether a partnership is formed
· Management
· 9A-301: Each partner is an agent of the partnership for the purpose of its business. IMPORTANT rule affecting 3rd party.
· National Biscuit Co. v. Stroud:
· Issue:
· Must the partnership pay Nabisco, even though half the partnership disagreed with the purchase?
· Facts:
· The partnership routinely buys bread from Nabisco
· Stroud tells Nabisco that he will not be personally responsible for any more bread purchased by the partnership from Nabisco. But Freeman, on behalf of the partnership, purchases more Nabisco bread.
· Outcome:
· Partnership is bound to the contract
· Freeman’s act of buying bread in the ordinary course of the partnership’s business binds the partnership.
· Therefore the partnership is liable, as well as the partners (through their personal liability for partnership obligations)
· 9A-301; 9A-102(a) & (d) [Knowledge & Notice]
· 9A-303: A partnership may file a statement of partnership authority. The statement of partnership may contain the names of the partners who are authorized to transfer real property held in the name of the property…
· Limits to what you may change in the partnership agreement. 9A-103(b)
· 9A-401(f) – Each partner has equal rights
· They are subject to personal liability for partnership obligations. So they make contributions (services, expertise) of their personal credit.
· 9A-401(j):Course of business? Go to flow char
· 9A-403: A partnership shall provide partners and their agents and attorneys access to its books and records…
· 9A-103: Partnership agreement trumps statutory defaults, except for certain non-waivable provisions
· Summers v. Dooley: Course of business?
· Issue: Is the partnership obligated to pay the employee’s salary?
· Facts:
· Partners are Summers and Dooley
· After years of operating w/o employees, Summers’ asks Dooley about hiring an employee. He said no.
· Summers’ hires anyways and pays him out of pocket.
· Summers’ is now suing Dooley for ½
· He allegedly paid on behalf of the partnership and claims that Dooley must pay his share.
· Summers’ argues: Partners are jointly and severally liable for partnership obligations. 9A-306(a).
· Outcome:
· Dooley is not obligated to pay
· Summers did not have the authority to bind the partnership to the employment contract. Neither actual nor apparent.
· Financial Interests
· Partnership Accounting – PPT 5 – contribute, gain, risk
· Problem 4
· Financial statements:
· Income Statement: shows company’s “net profit” over a period of time
· Gross Profit (aka Revenues) – Expenses = Net Profit (aka income)
· Balance Sheet: shows company’s financial status at a specific point in time.
· Assets – Liabilities = Equity (“Net Worth” of business – what the owners are entitled
ntson, Mead’s partner (at the time of trial, former partner), personally liable for the loan.
· Outcome:
o Yes, the partner was liable for the bad act of his partner
o 9A-305(a): Mead committed a tort while acting in the ordinary course of the business of the partnership.
v And Berentson, is jointly and severally liable for this partnership liability under of 9A-306(a).
o The course of business was that Roach asked Mead for investment/legal advice. The partners were a law office.
· Duties of Partners
· 9A-404
· Two Duties:
o 1. Duty of Loyalty
v Meinhard v. Salmon: Partnership Opportunity
v Issue: Did Salmon, as partner, breach the duty of loyalty by entering into the new hotel lease?
v What was the opportunity taken from the p’ship:
v This new lease involved the same property, nexus between the opportunity and the partnership’s business, when the partner told the other partner, capacity in which Salmon received the opportunity.
v Dissent: the partnership was for a limited purpose and term. Original lease was for 20 years. Limited scope can affect whether this particular opportunity was a partnership opportunity or not
v Enea v. Superior Court: Self-dealing
v Issue: Partners leased partnership property to themselves at below-market rates. The other partners feel cheated. Did partners breach the duty of loyalty?
v Outcome: Court agrees there was a violation of the duty of loyalty.
v Benny claims that because William and Claudia were renting the property at less than fair market value, this amounted to a breach of their fiduciary duty of loyalty
v Rule: A partner may not take advantage for themselves at the expense of the partnership.
v Here the partnership lost the income it could have collected under a lease with FMV rent.
v 9A-404(e)
a. Court doesn’t find this to excuse the partner because it views this provision as permitting partners to retain incidental benefits without detriment to the partnership, but not as excusing partners who gain by depriving the p’ship
o 2. Duty of Care: 9A-404(c)
