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Business Associations/Corporations
University of California, Hastings School of Law
Lambert, Frederick W.

Corporations  
 
I. Basic Creditor’s Rights and Business Orgs
 
 
 
Liability Claimant v. Equity Ownership
Liability Claimants ownership are fixed, but for the equity owner they are unlimited
                                                               i.      Both have good and bad sides- for the liability claimant, they are always owed the same, save bankruptcy, but for the Equity owner, they can make a lot, but they can also loose all value
Liability claimants have a lot less risk and this is why many prefer to be them
                                                               i.      This is difference between ownership interest and liability claimant
Debtors v. Creditors
Creditors
                                                               i.      Secured
1.        First to effect a secured interest gets priority in having their debt paid off
2.        Does not matter the magnitude of the creditor, but only the order of securitization
a.        One of the reasons that this is less harsh than it sounds is because of INSURANCE
3.        UCC gives the right to a creditor to take back the collateral at a certain point if the debts are not paid timely
4.        In CA, if a proprietor gets house taken for non-payment and it is worth less than when they bought it, the creditor cannot sue them for the difference
a.        Many other places the homeowner still owes for the difference in value
5.        Ex. Cars, homes,
                                                              ii.      Unsecured
1.        Part of doing business of unsecured creditor is not getting paid, and this means that they factor it into their price
                                                            iii.      Big concern of a Lender is Personal Guarantee
                                                            iv.      Key Rule: Creditors in the scheme of assets, liability must be paid before the owner can get paid.
Sole Proprietorship
Business organization owned by one individual, which has no separate identity from its owner and the owner has unlimited liability for its obligations
 
II. Agency
 
 
 
 
A. Agency Defined
R2d §1 DEF: An agency is a fiduciary relationship which results from the manifestation of consent by the principal to the agent that the agent shall act on his behalf, and subject to his control, and consent by the agent to so act
R3d §1.01 DEF: agency is the fiduciary relationship that arises when one person (principal) manifests assent to another person (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 to so act
Requires CONSENT ON BOTH SIDES
Agent- Person who acts on behalf of, and subject to the control of another (principal)
An agent is a fiduciary with respect to matters within the scope of his agency. R2D § 13
General agent: person authorized to conduct a series of transactions involving continuity of service
Special agent: person authorized to conduct only a single transaction not involving continuity of service
BOARD MEMBERS ARE NOT AGENTS
                                                               i.      Officers and Employees are
                                                              ii.      Directors are like agents, but they are not agents in the true sense of the law
 
Principal- Three Types
Disclosed= 3rd knows both A is acting on behalf and who it is
Partially Disclosed= 3rd knows A is acting on P’s behalf, but does not know who P is
Undisclosed= 3rd does not know A is acting on P’s behalf
 
B. Agency Creation/Termination: basic requirements
Creation
Basic Rule: Whether an agency is created or not depends on the existence of the required factual elements, not whether the parties think of themselves or intend to be agent and principal. The key is to analyze the facts
CONSENT- of both the agent and the principal
                                                               i.      Can be EXPRESS or IMPLIED (based on course of prior dealing between the parties)
                                                              ii.      Can be written, oral or based on actions of parties
Agent must agree to ACT ON BEHALF OF and SUBJECT TO CONTROL BY the principal
                                                               i.      Test: did the agent really want to act on P’s behalf, or his own
NO CONSIDERATION required
BURDEN of proof for the existence of the agency relationship is on the person that is claiming the agency relationship existed
Termination
A principal can terminate an agency or terminate authority at any time, regardless of any contractual provisions. Rationale: personal services contracts will not be specifically enforced.
Even if the agency or authority is terminated, the principal can still be liable for breach of contract or for wrongful termination
Exception: agency coupled with an interest
 
C. Jenson Farm

tions, title transfers to Warren who then transfers it to Cargill
                                                            iii.      Nine Specific Actions Requested
1.        Yet Warren did not do any of them!!!
a.        Is this really control?
b.       When you are told to do something and you do not do any of them, this seems to suggest that there is not any control at all!
2.        Nine Acts
a.        (1) Daily phone calls asking about the status of their relationship and making recommendations
b.       (2) Right of First Refusal on grain
c.        (3) W’s inability to enter into Ks, give dividends
d.       (4) C’s ability to carry on periodic audits
e.        (5) Financing of all grain and operating expenses
                                                                                                                                       i.      This is only financing
f.         (6) C’s recommendation that W needed strong paternal help
g.       (7) Drafts and forms with Cargill’s name on it
                                                                                                                                       i.      May help for apparent authority, but this is an actual authority
h.       (8) power to discontinue financing of W’s operations
i.         (9) C sent out an agent to oversee everything that was going on in W
j.         Many of these things would be important in Apparent Authority, but this was not raised. We are only looking at actual authority!!!!!
3.        The only real CONTROL was the manager that was sent to monitor day to day
a.        BUT this was in the last few days before bankruptcy, so it is hard to say that this is really a lot of control
b.       This is not really business control that dated back to 1973!!
4.        But, there is no agreement of Warren to act on Cargill’s behalf and in their best interest
5.        But 25% of Warren’s total sales were to parties that were outside and independent of the relationship with Cargill