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Business Associations
University of California, Hastings School of Law
Dibadj, Reza

Business Associations
Fall 2017
Class 1:1. Agency
1.1 Introduction
2/3 companies in Delaware. Delaware offer law for companies corporately.
None jury trail. Delaware law v. Corporate law
Corporation (board, shareholders, officers); capital markets (security regulation), creditors (commercial law), government (admin law, local government law), employee/unions (employment law), competitors(entities), consumers, suppliers(contracts).
Corporation can vote, sue, sell
Law sums if you are principle to give the agent the money, then you are the shareholder. Under the law, the shareholder has much more power compare to the individual. They are looking for default.
What’s the points for the efficient system? Basic goal is to make the parties to the transaction better off. Increase the power of the shareholders, not concern the parties of that.
Corporation law are more concerning about the worse.
Both attribute to the obligation.
Formation: restatement do not have the common law.
Termination: either can terminate any time.
General partnership, requires special partnership.
Can the principle reactions to the agent?
3rd party
Actual authority: the actual express, implied (principle and the agent)
Apparent Authority: (principle and the 3rd party)
Inherent authority: (Agent and the 3rd party)
(1) Simplest form of joint economic organization
(2) Basic idea: a principal extends range of activity by engaging an agent to act on his/her behalf.
(3) Doctrine/Policy: Need extra-contractual (fiduciary) duties(契约外的责任) to protect P. The reason is that sometimes we may not have a contract. Even if there is contract, the principal is more vulnerable in a way that might not be controlled by contract and we want to protect the most vulnerable party to against agent’s wrong doing.
(4) Foreshadows(预示) core problem in corporate law: Ps = widely-dispersed shareholders; As = corporate insiders (board and officers); neither agency nor corporation is simply “nexus(关系) of contracts.”
1.2 Agency formation,agency termination and principal’s liability
Definition – RSTM (Third) Agency § 1.01: The fiduciary relationship that arises when
(1) one person (a “principal”) manifests assent to another person (an “agent”) – P granting authority
(2) that the agent shall act on the principal’s behalf and subject to the principal’s control, and
(3) the agent manifests assent (赞同)or otherwise agrees so to act.” – A accepting responsibility
Special Agency: the agency is limited to a single act or transaction.
General Agency: the agency contemplates a series of acts or transactions.
disclose: when the third party understand that an agent acts on behalf of a particular principal
undisclosed: when third party believe an agent to be the principal
partially disclosed: when third party deal with an agent without knowing the identity of their principal.
* Does not require formal agreements – can be entered into inadvertently by “course of dealing” (dangerous)
* An agency relationship can be expressly created, or implied.
1.2.2: Termination:
Either the principal or the agent can terminate an agency at any time. The principal’s decision to revoke or the agent’s decision to renounce(宣布放弃) gives rise to a claim for damages for breach of contract.
1.2.3 Parties Conception Does Not Control:
Agency relations may be implied even when the parties have not explicitly agreed to an agency relationship.
Jenson Farms Co. v. Cargill Inc.
Rule:A principal-agent relationship exists between a creditor and debtor when the creditor intervenes in the business affairs of the debtor.
Facts: Warren (a small farm) operated a grain elevator and purchased grain from farmers for resale. Cargill (a big company) financed Warren for Warren’s operations. Cargill also had a significant amount of control over Warren, including  (1) Cargill’s constant recommendations to Warren by telephone; (2) Cargill’s right of first refusal on grain; (3) Warren’s inability to enter into mortgages, to purchase stock or to pay dividends without Cargill’s approval; (4) Cargill’s right of entry onto Warren’s premises to carry on periodic checks and audits; (5) Cargill’s correspondence and criticism regarding Warren’s finances, officers salaries and inventory; (6) Cargill’s determination that Warren needed “strong paternal guidance”; (7) Provision of drafts and forms to Warren upon which Cargill’s name was imprinted; (8) Financing of all Warren’s purchases of grain and operating expenses; and (9) Cargill’s power to discontinue the financing of Warren’s operations. Warren had financial problems that worsened until Plaintiffs began questioning the ability of Warren to make payments, and Cargill reassured Plaintiffs otherwise. Warren was forced to close, owing Plaintiffs $2 million. Plaintiffs brought suit against both, claiming Cargill was a principal of Warren. Cargill argued that they never consented to the agency relationship, and each of their actions could fall under a debtor-creditor or a buyer-seller relationship.
History: this is a time that a lot of American farms went into bankruptcy.
Holding: Cargill was a principal over Warren and is therefore liable for the damages sustained by Plaintiffs. Cargill consented to be a principal once Warren agreed to implement the changes and policies that Cargill suggested. Cargill’s subsequent interference in Warren’s internal operations further established “control”.
1.2.4 Liability in Contract Actual and Apparent Authority:
The actual authority(实际权力) conferred on the agent is that which a reasonable person in the position of A would infer from the conduct of P. (incidental authority: authority to do those implementary steps that are ordinarily done in connection with facilitating the authorized act.) What is necessary is for the agent to reasonably understand from the action or speech of the principal that she has been authorized to act on the principal’s behalf.
The apparent authority(表面授权) is a reasonable third party would infer from the actions or statement of P.
Case: White V. Thomas
Rule: A purported agent’s claims regarding the existence or scope of his or her authority, without more, are insufficient to create apparent authority.
Fact: Simpson was a part-time employee of D, who performed various administrative task. D has once granted Simpson a power of attorney to sign real estate closing documents on his behalf, but did not authorized Simpson to negotiate or undertake any other deals. D asked Simpson to attend an auction and purchase a property on his behalf. D authorized Simpson to bid up to $250K but the final is $327.5K. Realizing Simpson’s mistake, Simpson negotiated to sell the property to P. Then P asked if Simpson was authorized and Simpson claimed the power of attorney. P did not ask D to confirm before sign

creating the relationship. (don’t worry about as much, not central to corporate law)
(2) Duty of care: the agent has to act as a reasonable person would under similar circumstances.
* This is apparently the negligence standard in torts. However, because of a doctrine known as business judgment rule, the duty of care standard is much more defendant friendly.
(3) Duty of loyalty: agent must advance the purposes of the principal’s and not his/her personal benefit.
* Most muscular fiduciary duties.
Tarnowski v. Resop (1950):
Agent made a secret commission while seeking juke boxes on behalf of the principal; the court said he had to return those profits because he had a duty to advance the interest of the principal over his own.
All profits made by A belong to P, whether or not in performance or violation of duties.
* If agent receives benefit as result of breach of his duty of loyalty → principal is entitled to the benefit.
In Re Gleeson:
Mary Gleeson leased farm land to Colbrook. Two weeks before the lease expired, Gleeson died. She devised the farm land to Colbrook as trustee for her children. However, the petitioner leased the principal’s land to himself with a much higher price; court said he could not deal with himself even though he was trying to keep the land in good shape. (no conflict transactions)
Prophylactic rule: tenant or trustee? You can only choose one of them.
* Duty of candor/Duty of good faith: it is not clear whether this duty exists. But even if it exists, it is pretty weak.
Class 2: 2. Partnership
2.1 Introduction
The partnership from follows agency law in structuring the claims and duties of the partnership toward third parties. A partner is a general agent of the partnership, each partner binds the partnership by contracting in the usual course of business and so on. Relationship among partners who paradigmatically manage small, jointly owned business was once the province of common law but was first codified in the Uniform Partnership Act(UPA). 
Partnership held by the UPA partnership is titled in a special form: ‘tenancy in partnership.” This type of estate provides that the partnership qua firm, rather than its individual partners.
(1) Beyond agency: allows partners to pool capital: partners are both Ps and As of partnership
(2) Partnership has a separate legal entity.
E.g.: if you are a partner, can you step into your law firm and take a beautiful painting away? No. that painting belongs to the law firm.
* Conceptual shift from “partnership as aggregate” (1914) to “partnership as entity” (1997): key historical step in the development of the business entities.
* As creditor, more attractive to contract with entity that possesses its own property