Select Page

Business Associations/Corporations
University of Kansas School of Law
Hecker Jr., Edwin W.

BUSINESS ASSOCIATIONS I
HECKER
Table of Contents
I. AGENCY 3
A) General 3
B) Tort Liability 3
1) Vicarious Liability/Respondeat Superior 3
2) Master/Servant Relationship 3
3) Test for vicarious liability 4
4) Direct liability for principle 4
C) Contract Liability 5
1) General 5
2) Power of A to bind P 6
3) Ratification 7
D) Term of Agency 9
E) Termination of A’s power to bind 10
1) General Rule 10
2) P’s voluntary termination of A’s power to bind P 10
3) Termination by operation of law 11
4) Agency power 11
F) Agent’s duty to Principle 12
G) Agent’s liability to Third Party 13
1) Factors 13
2) Fully Disclosed P 14
3) Partially Disclosed P 14
4) Undisclosed P 15
II. GENERAL PARTERSHIP 15
A) General 15
B) Partners relation to 3rd parties 16
1) Contract liability (RUPA 301) 16
2) Statement of Partnership Authority 19
3) Partner’s Liability 21
C) Partner’s relation among themselves 22
D) Partnership property and interest 25
E) Fiduciary duties 27
F) Dissociation & Dissolution 28
III. LLP 30
A) General Partnership Liability Review 30
B) LLP Liability 31
C) How to become an LLP 31
IV. LIMITED PARTNERSHIP (LP) 31
A) LP 31
B) Formation of an LP (RULPA 201) 33


V. CORPORATIONS 33
A & B) Incorporation 33-34
1) Incorporators 34
2) Certificate of Incorporation (COI) 34
3) Filing Procedure 34
4) Post-Incorporation Acts necessary to perfect 35
C) Issuance of Shares of Stock 36
1) Authorization 36
2) COI must contain at a minimu, 102 (a) (4) 36
3) Qualititave considerations 36
4) Quantitative issues 37
5) Allocation and accounting 37
6) 2 ways to distribute surplus 38
7) 2 ways to buy stock on credit 38
D) Financing a Corporation 38
E) 3 ways shareholders subject to personal liability 40
1) Defective Incorporation 40
2) Pre-incorporation transactions 41
3) Disregard of the corporate entity 42
F) Allocation of Power among shareholders (141) 44
G) Blassius Analysis 47
H) Action by BOD 48
I) Management by BOD 49
J) Committees of the BOD 49
K) Power of Corporate Officers 50
L) Shareholder’s Meetings and Voting 51
M) Cumulative Voting, Removal & Classification 52
N) Shareholder Voting Agreements 55
BUSINESS ASSOCIATIONS I
Agency—
General
Involves 2 people – P and A Restatement of Agency § 1
mutually consensual
fiduciary (A fiduciary of P)
A acts on behalf of P
subject to P’s control (hallmark of agency)
Broad applicability of situations where agency is created:
Hired as employee
If p/ship has employees
Law firm hires associates
Corporation or p/ship can be principal or agent
Main areas of inquiry:
Circumstances where A causes P to be liable in tort
Circumstances where A causes P to be liable in K
Mutual rights and duties b/t P and A
B. Tort Liability
Vicarious Liability/Respondeat Superior
Employer is liable for the torts of the employee if –
Employment relationship is “master-servant” and
Tortious conduct occurred while in the scope of employee’s employment. Restatement § 219(1)
Actual tortfeasor remains primarily liable to the victim
(supp22)
Master/Servant relationship
Master
Servant
“servant” the key (includes most employees) — employer liable; if employer no rt to control physical conduct, employer not liable. Only look at scope of employment question if “servant”
Independent Contractor
Ind. K’er examples
Atty in private practice has clients – ind. k relationship! Not thought of as employer-employee. Even though client can tell atty what to do (atty an agent), atty’s physical conduct not subject to clients ctrl.
Real estate agent, stock broker, independent bldg contractor = nonservant agents = indep. k’er.
Servant or Independent contractor
Extent of control by master over details of work
Whether or not the one employed is engaged in a distinct occupation or business
Kind of occupation which is usually done under direction of employer or by specialist w/o supervision
Skill required in the particular occupation
Whether employer or workman supplies the instrumentalities, tools, and place of work
Length of time for which person is employed
Whether method of payment is by time or by the job
Whether or not the work is a part of the regular business of the employer
Whether or not the parties believe they are creating a master-servant relationship
Whether principal is or is not in business.
? — consider Rst. 220(2)::
— Rst. § 2(3): An independent contractor is a person who contracts with another to do something for him, but who is not subject to the other’s right to control his physicalconduct in the performance of the undertaking (i.e. NOT a servant). He may or may not be an agent – conduct is controlled by another – controls physical conduct of another (Rst. 2)(supp6)
Test for Vicarious Liability
Used to separate personal from “on the job” torts; employer not liable for personal torts of an employee
Rst. 228
Is kind of conduct that the servant employed to perform
Does not have to be the exact conduct employed to perform — enough if of the same general nature as that authorized (Rst. 229(1)) (supp24)
Substantially within authorized limits of time and space
Commuting is not w/in scope — considered personal
If A is driving for employer and takes a detour slightly off routh, then he is still within scope of employment
But, if A goes far off the route, he is on a frolic, and not withing scope of employment
Acting
Mixed motive enough—does not have to be exclusive motiv
Delivery man speeding b/c wants to get done so he can go home early enough motive
Use of force must not be wholly unexpected by employer (if intentional force is used)
If intentional, considered w/in scope only if intentional force is a part of the job: bouncer, repo man, security guard
at least in part by a purpose to serve the master (motive of furthering the employer’s business)
– Is w/in the scope of employment if:
Situations where there is direct liability for the principal
Principal intends conduct
Authorization
ex: hire a “hit-man”; Hecker hires Shapiro to punch Prater. Hecker liable.
Ratification
Servant/Scope irrelevant
P’s retroactive conferral of authority for a tort previously unauthorized.
ex: Shapiro punches Prater; Hecker says he liked it and pays Shapiro $20. Hecker liable.
of Authority to commit tort: Rst. 218 (p11) of Tort by P – Servant/Scope status irrelevant if employer authorizes the commission of a tort. Rst. 212 (p8)
Negligent or Reckless conduct by P
Negligent Employment
Examples
Delivery driver w/ DUI’s — co. knows or should know — co. liable regardless of servant/scope considerations
Pre-school hires convicted child molester w/out background check (negligent)
Sexual harassment reports but co. does not fire the employee or investigate and then another incident occurs (negligent)
– hiring unfit agents. Personal fault from unreasonably hiring or failing to fire a human dangerous condition with notice. Rst. 213
Performance of non-delegable duty
Inherently dangerous/Ultrahazardous Activities
fact ? re: what is an inherently dangerous activity: building demolition, crop dusting
(see 9/1 for hypos): P liable for any harm that occurs even if hired an independent contractor to do it. If an employer causes such activities to be engaged in, he is liable for the resulting injuries period.
. Rst. 214 (p10): P liable for his own negligent or reckless conduct. Rst. 219(2)(b) (supp22)
:—Servant acted within the scope of his employment when tort was committed—every master is a principal and every servant is an agent
C. Contract Liability
General
Power of A to bind P
Actual authority
Words: express (actual) authority.
Written
Oral (SOF may apply – see above)
Conduct: implied (actual) authority, based on:
Acquiescence
Position
However, if A is told he cannot do something, there can be no implied conduct of actual authority (see pg.11 text)
—incidental power, usually accompanies or is reasonably necessary to A in this business-customary practice
Past conduct w/ no objection from P
Conduct of P that leads A to believe A can do it again
Apparent authority
Words
Written
Oral
Conduct
Acquiescence
Position
***important if A lacks actual authority
Impossible if P undisclosed


!—incidental; usually accompany or reasonably necessary; customary practice
: past individual history; T has dealt with A before = manifestation from P to T that A has permission to do this or else P would have fired A, or
Inherent Agency Powe

ify (ex: initial K for assault weapons made 2 yrs ago cannot be ratified now).
If unlawful then, but lawful now — cannot affirm/ratify
T (3rd party) did not w/draw in interim
T did not w/draw from the K before P affirms; P cannot ratify if T w/draws first. T has the option to opt out prior to ratification/affirmance.
Circumstances did not materially change adversely to T in the interim.
Circumstances did not materially change before P’s affirmance. T must do this within a reasonable time.
Example
day 1: A K w/ T
day 3: the goods burn
day 5: P affirms b/c goods uninsured
day 6: T can avoid b/c P’s affirmance occurred after the situation materially changed, and it would be inequitable to bind T. Rst. 89.
Term of Agency
General Rule
Does not matter that A’s K states that A will be paid $35,000 per year. The employment is still terminable at will, and this does not create a term employment.
Term employment
A wins b/c clear K for 1 year; P breach of K.
Remedy
Good cause
will excuse the employer from liability for premature termination.: damages only! A stays fired.
P always has the power to terminate
The law will not enforce personal services K’s b/c agency requires mutual consent; if 1 party w/draws the agency relationship is over, but may have to pay damages.
hypo: same K for 1 year, but P fires A for incompetence. A stays fired. P does not pay damages b/c A breached K; P excused from performing P’s bargain.
; but P also has duty not to b/c there is a 1 year contract. P must pay damages for exercising that power in breach of K. (See pg. 14 photocopy Rst. 450)
If no K for employment for a specific period of time, P has the power and legal right to terminate K, but if there is a K for term employment, then P has the power to terminate, but no legal right to do so.
– “K to remain in effect for 1 calendar year, renewable each year”. P fires A after 6 months.
Three case law exceptions to employment at will
Actual (in fact) contract provision
Implied (in law) contractual duty: good faith and fair dealing
Retaliatory discharge
Express or Implied.
K to Employ for definite term (breach of K); or
K to Terminate for only good cause
Morriss
accepted in KS
N/A to employment K’s in KS
Covenant of good faith and fair dealing forbids termination without cause. Rst. 205
If employer fires employee in retaliation for employee conduct that is protected by public policy (perjury, whistleblowers, workmen’s comp claims) then employee has cause of action.
Tort
Allows punitive damages
KS accepts this
Retaliatory discharge claim cannot be made just for vindictive treatment. It must be when employee is fired for engaging in a publicly protected activity.
. No term in the actual K, but it is a question of fact whether or not the employee manual contained an implied K that employees would be fired only for good cause. The disclaimer in the employee manual “manual not a K” is not enough, standing alone, to prove that there is not an implied K in the employee manual! : Employment at will – The agency, upon notice, is terminable at will! Either party may terminate the employment at any time w/out cause provided notice requirements are met. Rst. 442.
Recently extended to retaliatory demotion (i.e., demotion from supervisor to janitor).
:the legal rules that apply when two people agree that one is to act in place of the other
HECKER