Corps Outline – Black – Fall 2008
I) Basic Concepts
1) Sole Proprietorships:
(a) This is the default rule when a biz is owned by a single individual; one legal entity—unlimited personal liability.
(b) Ms. Smith sells pies from the back steps of her rural home. This is a sole proprietorship bc its just one person and she hasn’t filed any legal docs.
(i) To become a corp, she must incorporate with the Sec of State.
(c) Sole Proprietor has an agency rel’p w/ EEs.
(i) Assume Ms. Smith hires A to deliver orders and prepare her taxes. A is an agent and Ms. Smith is the principal. We know its an agency relationship bc Ms. Smith communicates authority to the agent and the agent agrees to follow Ms. Smith’s directions and be her agent. As long as there is mutual consent, we assume the agent is working on behalf of the principal.
(ii) Assume Ms. Smith hires a bunch of EEs, including a manager. All EEs are agents and mgr probably has actual authority to do a lot, like give discounts.
(iii) The more responsibility Ms. Smith delegates, the greater the possibility sth will go wrong. There are agency costs: agents don’t always care as much as the principal. A biz needs systems to guard against agent’s inattention, self-interest and fraud. This is a theme of the course.
2) General Partnership:
(a) This is the default rule when a biz is owned by multiple entities or individuals. Each partner can bind the partnership and each partner has unlimited personal liability.
(i) To become an LLP, also must file w/ Sec of State.
3) Types of Agents:
(a) General Agents are authorized to conduct a series of transactions involving continuity of service.
(b) Special Agents are authorized to conduct only a single transaction or a series of transactions not involving continuity of service.
4) Types of Principals:
(a) Disclosed: 3P has notice that the agent is acting for a principal and has notice of the principal’s identity.
(b) Partially Disclosed/Unidentified: 3P has notice that the agent is acting for a principal but does not have notice of the principal’s identity.
(c) Undisclosed: 3P has no notice the agent is acting for a principal.
5) R2d § 1 Agency
(a) (1) Agency is the fiduciary relation 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.
(i) B: A has responsibility to act on behalf of and for the benefit of the P.
(ii) B: There are different types of agency rel’p (EEs v. ICs [UPS])
6) R2d § 7 [Actual] Authority
(a) (1) Authority is the power of the agent to affect the legal relations of the principal by acts don in accordance with the principal’s manifestations of consent to him.
(b) R2d § 26 Creation of [Actual] Authority
(i) Except for the execution of instruments under seal or for the performance of txns req’d by stat to be authorized in a particular way, [actual] authority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal’s account.
(c) B: Fo
ity doesn’t. Casebook discusses As who act against authority but for P’s benefit.
9) R2d § 140 Liability Based upon Agency Principles
(a) The liability of the principal to a 3P upon a txn conducted by an agent, or the xfer of his interests by an agent, may be based upon the fact that
(i) (a) the agent was authorized
(ii) (b) the agent was apparently authorized; or
(iii) (c) the agent had a power arising from the agency relation and not dependent upon authority or apparent authority
10)Blackburn v. Witter (Cal):
(a) Mr. Long was a financial advisor for P who advised Mrs. Black, a widow with no financial experience. Long sold Mrs. B a fake security.
(b) HELD: P is bound by Long’s action bc he had apparent authority to sell this fake stock to Mrs. B. Mrs. B reasonably believed Long’s explanation about why this txn was diff, P knew about Long’s gambling problem and knew he was in a specialized craft and CLs relied on him, and P put Long in the position to defraud.
(c) TITLE is a great way for P to communicate actual or apparent authority!
Hypo: Make Jack VP of biz but tell him he can’t order paperclips without the permission of the company. He still has apparent authority bc of his title unless the co takes away the title or inform the biz community of the restrictions.