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Business Associations
University of Dayton School of Law
Chaffee, Eric C.

Business Organizations FINAL OUTLINE
The five main legal differences among the various business associations are:
1) Tax treatment
2) Owner’s liability exposure
3) Management of the business
4) Opportunities to raise funds for the business
5) Exit strategies
I.                  Agents
§1. Who is An Agent?
·         Gorton v. Doty: What an agent and a principal are: A principal directs someone else to do something. In terms of figuring out whether or not an agency relationship has been formed, one looks for consent by the principal and consent by the agent or the amount of control that’s be exercised. It doesn’t matter how the individual parties characterize the relationship. It may matter if the agent is doing something that requires writing.
·         A Jay Jenson: A control test used rather than a consent one, although it’s likely if they had been in a jurisdiction where the consent test is prevalent, the result would have likely been the same. Parties that form an agency relationship is not always intended to be that way. Whether employer/employee, principal/agent etc; there must be some sort of authority given to the agent by the principal in some way.
·         Restatement definition of agency: 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.
·         *No need for contract or compensation for an agency relationship.
§2. Liability of Principal to Third Parties In Contract
A. The Agent’s Authority
P–àA-à3rd party
Types of Authority
1)     Actual (implied v. express)
2)    Apparent
3)    Inherent
4)    Ratification
5)    Estoppel
If there is no actual or apparent, you use the control test to determine.
·         Implied authority is actual authority circumstantially proven which the principal actually INTENDED the agent to posses and includes such powers as are practically necessary to carry out duties.
·         Apparent Authority: Principal makes representations to a third party as to what the agent is allowed to do.
·         Inherent Authority: The reason why we blame the principal in circumstances of inherent authority is because the principle created this situation. This is seen in both actual and apparent authority. They have to be the one responsible for creating the problem.
·         Express Authority: Person actually says that you are the agent.
·         Consensual relationship; an agent will be able to bind a principal when the agent has either actual authority ( which is express or implied) or where they have apparent authority to do something (Example: When the principal makes representations that an agent was allowed to do something and based on those a third party relies on the agent. Both would cause liability to be placed on the principal and you can have them at the same time. Make both arguments on exam.
·         Dweck: There are a variety of different types of authority, in DE there’s a default rule that one who is an attorney of record, the person is the agent of the person that they represent, and in those cases you will have express authority. In most cases, the client has held out the attorney to act out on their behalf.
·         370 Leasing: Apparent authority…Principal making certain representations to a third party. Even if it’s against what the company had in mind
·         Watteau: In certain instances, notions of actual and apparent authority arguably do not apply. The reason why we blame the principal in circumstances of inherent authority is because the principle created this situation. This is seen in both actual and apparent authority. They have to be the one responsible for creating the problem.
B. Ratification
·         Botticello: The concept of ratification; a party can still end up bound by the acts of another in circumstances in which the original party knows all the material facts(!!!) of what has gone on and has the intent to ratify or agree to those facts. Restatement of Agency Section 82
C. Estoppel
·         Hoddeson: Estoppel is a legaldoctrine at common law, where a party is barred from claiming or denying an argument on an equitable ground. Estoppel complements the requirement of consideration in contract law. In general, estoppel protects an aggrieved party, if the counter-party induced an expectation from the aggrieved party, and the aggrieved party reasonably relied on the expectation and would suffer detriment if the expectation is not met.
·         The fact that when it comes to figuring out the liability of the principal to a third party in K, even in circumstances where you have no form of authority, there are circumstances where an entity can still be held liable by someone who is not their agent, this is agent by estoppel. This is when the principal has some sort of duty to the 3rd person involved, usually involving a premise and the principal happens to be negligent in undertaking that duty.
D. Agent’s Liability on the Contract
Partially disclosed principal v. Undisclosed Principal
Test used: Actual Knowledge
Atlantic Salmon: When it comes to cases where there is a partially disclosed, the agent remains liable on the K with the third party. Undisclosed means that you flat out do not know the principal exists. Partially means that you know of the existence of a principal but you do not know who that principal is. The principal always remains on the hook as well.
HYPO: Chaffee hires someone to manage an apartment complex and tells them not to hire any janitorial staff, and the Agent goes behind the back and hires a janitor. Can the person be held liable if they did not have actual authority? Apparent Authority
One example of when an agent is held liable on a K (Atlantic Salmon) but in this hypothetical, the principal can still recover from the agent.
§3. Liability of Principal to Third Parties in Tort
A. Servant Versus Independent Contractor
·         Humble Oil: The fact that when it comes to figuring out a principal’s liability in tort is the amount of control that is exercised. This is contrasted versus liability in contract; in contract it is all about consent. There is not a bright line rule as to how much control must be exercised. In this case, part of the reason that Humble can held liable is that h

e of the employment. Another test focuses on what the agent was doing if it was in fact that was interfering with their job responsibilities. Basically whether or not the heckling was a slight annoyance or whether or not it was a constant annoyance. Bushey was a foreseeability test, Clover is the detour or frolic test, Manning is in response to something within their job responsibilities.
D. Statutory Claims
·         Arguello: In this case the court relies heavily on the franchise agreement and specifically a provision that an agency relationship is not formed. In most cases, courts will completely disregard this type of provision in a K. Ultimately it becomes a question of the facts surrounding the particular relationship. In certain cases, this type of provision could work, like in this case. Also, the fact that even though you tend to see a consensual test for agencies used in this contract, it is not always the case. They are using both consent and control here. The third thing is that when it comes to liability of an agent, it turns on whether or not the employee is acting within the scope of the employment. In this case, we see a new one that relies on a variety of factors (Top of page 70). Once again is not a bright line test, pile up the facts. Scope of employment is generally defined very broadly, meaning that even though Conoco in no way authorized these types of acts, even under the facts they could be held liable.
·         Restatement of Agency-219- Factors for determining employment. Page 69-70
E. Liability for Torts of Independent Contractors
·         Majestic Realty: Exceptions for when a person who engages a contractor who conducts independent business by means of his own employees, to do work not itself a nuisance, he is not liable for the negligent acts of the contractor except for a few exceptions:
1)     Where the landowner retains control of the manner and means of the doing of the work which is the subject of the contract.
2)    Where he engages an incompetent contractor.
3)    Whereas noted in the statement of the general rule, the activity contracted for constitutes a nuisance per se.
§4. Fiduciary Obligations of Agents
A.    Duties During Agency
Generally 4 duties when it comes to business law:
1)     Duty of Loyalty (A particular entity cannot compete with another.)
2)    Duty of Care (Must be reasonably diligent)
3)    Duty of Good Faith
4)    Duty of Disclosure (Within a fiduciary relationship, there are certain instances where they have to disclose certain information.)