Business Associations/Corporations Outline

Corporations Outline

I. The Law of Agency (Chapter 1)

a. Creation of the Agency Relationship, S&W pp. 1-9
i. Agency- fiduciary relationship, results from consent from a principal person to another that the other acts on his behalf and subject to control and consent to act
1. Mutual Consent- fiduciary relationship, results from consent from one person to act on the other’s behalf
2. Benefit- results from manifestation of content the other acts on the other’s behalf
3. Control- 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
ii. Restatement (third)- fiduciary relationship, arises when principal manifests assent to another person, agent shall act on other’s behalf
iii. Assent v. Consent- emphasize that unexpressed reservations or limitations do not restrict the principals expression of consent to agent
b. U.S. v. Cyberheat, Inc.
i. Issue: is website operator vicariously liable when a hired advertising company violates the CAN-SPAM act
ii. Holding: Summary judgment denied, left for jury to decide
iii. Facts: cyberheat did not screen affiliates, should cyberheat be liable when it didn’t intend to violate the law, know of the violations, or avoid the violations consciously
iv. Analysis: how much power does a company have to monitor and supervise affiliate operations
1. Control over the affiliates and knowledge of violations are the pivotal issues
2. Requires:
a. Constructive knowledge
b. Control or ability to control affiliates
c. Failure to terminate otherwise adequately address violations

c. Agents Fiduciary Duties to Principal, S&W pp. 10-15
i. Duty to principal
1. Agents must deal in good faith (section 8.15) principal has a duty to deal with agent fairly and in good faith, including providing agent with information about risks, harm, etc.
2. Agents must deal fairly (section 8.15) (basically same as above)
3. Agent has a fiduciary duty to act loyally (section 8.01) for the principals benefit in all matters connected with the agency relationship
a. 8.03- duty not to deal with principal as or behalf of an adverse party connected with the agency relationship
b. 8.04- agent has duty to refrain from competing with principal
c. 8.05- agent has a duty not to use property or information from principal for it’s own purposes
ii. Duty to agent
1. Principal has duty to indemnify an agent (section 8.14)
2. Principal has a duty to act in accordance with express and implied terms of any contract between principal and agent (section 8.13)
3.
d. Food Lion, Inc. v. Capital Cities/ABC, Inc.
i. Issue: whether the ABC employees breached a fiduciary duty of loyalty to food lion
ii. Holding: ABC employees breached a fiduciary duty of loyalty to food lion
iii. Facts: Double agents, apply for jobs with food lion, use concealed cameras and videotape recording bad meat handling practices
iv. Breach: competition, misappropriate of profits or opportunities, disclosure of information
1. ABC’s interests were adverse to food lions
2. Limiting the General Principle
3. “Our holding on this point is not a sweeping one. An employee does not commit a tort simply by holding two jobs or by performing a second job inadequately. For example, a second employer has no tort action for breach of the duty of loyalty when its employee fails to devote adequate attention or effort to her second (night shift) job because she is tired. That is because the inadequate performance is simply an incident of trying to work two jobs. There is no intent to act adversely to the second employer for the benefit of the first. Because Dale and Barnett had the requisite intent to act against the interests of their second employer, Food Lion, for the benefit of their main employer, ABC, they were liable in tort for their disloyalty.” (emphasis added)

e. Apparent Authority & Estoppel, S&W pp. 21-32
i. What circumstances must one person answer for actions of another?
1. Restatement (second)- inherent agency power
2. Restatement (third)- apparent authority
a. belief is reasonable and is traceable to a manifestation of the principal. As to the third person, apparent authority when present trumps restrictions that the principal has privately imposed on the agent. The relevant appearance is that the principal has conferred authority on an agent
b. The doctrine stated in this section applies to any set of circumstances under which it is reasonable for a third party to believe that an agent has authority, so long as the belief is traceable to manifestations of the principal.
c. “A person manifests assent or intention through written or spoken words or other conduct.”
ii. Apparent authority
1. Manifestation must emanate from the principal and must be received by the third person
2. Scope of the agent’s apparent authority depends on third person’s reasonable interpretation of the manifestation
iii. Estoppel
1. Based on tort law, requires reliance of the 3rd party, estoppels allows 3rd party to hold principal liable but does not give principal rights against 3rd party
2. Estoppel- restatement (third) of agency (section 2.05) estoppels to deny agency relationship
a. § 2.03. Estoppel links the legal consequences of the actor’s actions to the person estopped on different bases. These are the third party’s justifiable and detrimental change in position and the third party’s belief in the actor’s relationship to the person estopped, which induced the change in position for which the person estopped is held responsible
b. it protects third parties who reasonably believe an actor to be authorized as an agent when the belief cannot be shown to follow directly or indirectly from the principal’s own manifestations. Restatement (Third) Of Agency § 2.05 comment d

f. Bethany Pharmacal Co. v. QVC, Inc.
i. Issue: Whether QVC created an apparent agency in Janis.
ii. Holding: Based on QVC’s repeated disclaimers regarding the need for a purchase order, Bethany could not reasonably interpret Janis’ actions as authorized to bind QVC.
iii. Court: “Bethany has not established that QVC took any steps that would make a reasonable person believe that Janis had the authority to contract on its behalf.”

II. General Partnerships (Chapter 2)

a. Formation, S&W pp. 53-65
i. Two or more people want to associate as co-owners rather than principal and agent
ii. Major advantages over corporations
1. Simple to form
2. Flexible in organization
3. Pass through taxation
4. Shortcoming: NO LIMITED LIABILITY
iii. Statutory definition: (UPA sect. 6(1)) (RUPA sect 202 (a)) – a partnership is an association of two or more persons to carry on as co-owners of a business for profit. (residual control interest, financial interest)
iv. Intent- formed whether or not persons intended to form a partnership (RUPA section 202)
1. Must intend only to do the things which constitute a partnership
2. Many are inadvertent
v. Most important factor- profit sharing
1. Profit sharing is prima facie evidence of partnership, but can be rebutted (UPA sect. 7 (4)) cf. RUPA sect. 202 (c) (3) – receipt of profits raises a presumption of partnership
2. Profits, not revenues
vi. Co-ownership- implies the power of ultimate control of the business.
vii. Partnership v. Agency
1. Partnership, like agency, is defined objectively by conduct and contractual rights
2. NOT putative partners’ subjectively held beliefs.

b. Holmes v. Lerner
i. Issue: Whether Holmes and Lerner had formed a general partnership.
ii. Holding: An express agreement to divide profits is not a prerequisite to prove the existence of a partnership. The oral partnership agreement was sufficiently definite to allow it to be enforced.
iii. Analysis:
1. “An express agreement to divide profits is not a prerequisite to prove the existence of a partnership”
2. Splitting profits is prima facie evidence of a partnerships, but given that Urban Decay had not yet made a profit, the lack of profit sharing was not determinative.
3. Since there was an agreement to start a for-profit business, there was the creation of a partnership.
4. Holmes had unlimited authority to write checks on behalf of urban decay- major indicia that a partnership was formed!

c. Fiduciary Duties, S&W pp. 79-85, 86-95
i. Loyalty, Anti theft, Standard of Care, Good Faith and Fair Dealing
ii. Anti-theft” standard
1. Every partner must account to the partnership for any benefit, an