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Business Associations
University of Iowa School of Law
Yockey, Joseph W.

BUSINESS ASSOCIATIONS
Professor Yockey – Fall 2016
 
Intro Remarks
Lawyers are the tailors when it comes to assisting with business ventures (take state law and snip away) – they ADD VALUE by:
Minimizing personal liability
Transaction cost “engineers”
Lower agency costs
Bring people together
 
 
Issues to consider:
1. Business Issues
2. Legal Issues
3. Personal Issues
 
Unifying Elements/Primary Concerns of Most People Getting Involved: (can’t look at each in isolation)
1. Risk of Loss
2. Return/Profit
Many types – ex: how will I benefit?
3. Control
How much will I have? Am I passive or do I have a say?
4. Duration
How long will this venture last? (scarcity of product, etc.)
 
How the elements get sorted:
1. Public Law – State/Federal
2. Private Law – Contracts
 
Range of Options for a Business/Choice of Form:
1. Flying Solo (Sole Proprietor) [not a focus of this class] Clive would be principal, employees are agents
Clive bears all risk, all return, all control, etc. (all up to him)
Only risk employees bear is the risk of losing their position
2. Partnership
Managers/supervisors/partners have more of a stake – more liable, but more control
3. Corporation
Easier to assemble cash than others
Only out the money that was invested if go belly up
Entitled to dividends
 
Goals of Business Association Law:
1. Personal Liability
How and when can parties minimize exposure to personal liability and shift risk of loss to the business entity?
2. Transaction Costs
Lower the costs of doing a deal
3. Agency Costs
Minimize ability of agents to act in their own self interest
What happens when agents don’t do what they are told? – create manager/supervisor
 
 
AGENCY
Intro to Agency
Gorton [sets low bar for future cases to establish agency – just need manifestation of consent by P and A – here: teacher offered car if coach drove (consent by P), coach did drive it (consent by A)] :
Son was injured in accident – car driven by coach, car belonged to teacher
Teacher told coach he could take her car if he drove it
:
Did the teacher loan the car or did she create an agency?
Note:
If loan = teacher not liable
If agency = teacher is liable as the principal
When an agent does something on behalf of the principal, it is like the principal was acting, so the principal is liable
:
Teacher is liable b/c was the agent – see 1.01 below for test of agency relationship
Said coach could take her car to the game if he drove it (teacher consent)
Coach did drive it (coach consent)
 
PAT Triangle:
 
 
 
 
 
 
 
:
Third party must prove the P-A relationship existed
 
Planning Ahead: How should someone in the teacher’s position protect herself in similar future situations?
Need written K clearly communicating intent
 
What was really going on in Gorton:
CHEAPTER COST AVOIDER
Teacher had insurance so she could protect herself at a

s of Authority: (only need one in order to hold the P liable)
Principal tells Agent to do X. Agent does X. = Principal is bound.
To carry out P’s express instructions, A takes some other steps necessary to carry out those instructions. = Principal is bound.
Principal does something to cause a third party to reasonably believe the agent has authority to do X. Agent does X. = Principal is bound.
 
Mill Street Church of Christ
P: Church
A: Bill
T: Sam
Church needed painting
Hired Bill to do it. Previously let Bill hire brother Sam to help with projects
Discussed hiring someone else
Sam injured
Wants work comp. – so sues Mill Street.
Did Bill have authority to hire Sam?
If Sam is an employee = church must compensate him for injury.
No express authority
Would have had to tell Bill: “You can hire Sam.”
Yes, implied authority:
1. Past practice
2. Nature of the task
Test applied to this scenario:
1. Past practice – could and had hired Sam in past w/ no complaints from the church
Church knew Bill needed help painting
2. Nature of the task – reasonable for Bill to imply he has authority to get help
Church paid Sam for the half hour