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Business Associations/Corporations
University of Mississippi School of Law
Davis, Donna Raye

 
CORPORATIONS
DAVIS
FALL 2014
 
 
CHAPTER 1: AGENCY CONCEPTS             
 
Legal Immortal Beings: What we’re dealing with
 
1. Corporations
2. Partnerships (four types)
3. Limited Liability Companies
4. Trusts (multiple types).
 
Vicarious Liability
 
Effectively, when is the corporation or entity at issue responsible for the acts of its employees? How is that scope determined, and how does one limit it?
 
Respondeat Superior
The notion of respondant superior is that an employer (corporate entity) is responsible for the conduct of his or her employee if it occurs within the scope of employment (and is done for the benefit of the corporation in the criminal context).  This definition extends to crimes and torts. In the business organization context, the analogous argument lies in the principle of agency, which defines the binding nature of a contractual relationship enacted on behalf of an employee.
 
Ware v Timmons
Timmons died b/c of anesthesia. Nurse Hayes, who was under supervision of Dr. Ware, screwed up.
 
There is no question that Nurse Hayes was liable. The question central to the case was: who else is liable? Dr. Ware? The Anesthesiology and Pain Medicine of Montgomery? (Procedurally: was the jury instruction that if Hayes was liable, the Dr and the entity were also liable, acceptable?)
 
Arguments Assessed:
·         Dr. Ware insisted he was a co-employee within the organization, though he also owned a large share in the company
·         He insisted that in his personal capacity as a Doctor, he did not have the capacity to choose, hire and fire, etc. his nurse. Thus, there was no respondeat superior relationship.
·         As such, the court found that he was not personally liable for the actions of Nurse Hayes.
·         Dissent: Dr. Ware, outside of his corporate consideration, was a doctor supervising a nurse. RESPONDEAT SUPERIOR WAS PRESENT. 
·         Dissent hedges by saying they would only apply RS in the Dr./Nurse relationship here.
 
Takeaway I:  B/c Dr. Ware formed a corporation, he was protected by his “corporate hat” for his actions with regards to the nurse. Thus, his personal capacity to act was limited  in the situation for which he would have been tortiously liable. Co-Employees are not liable for each other, even if one of the co-employees is a shareholder in the company.
 
Takeaway II: How could Timmons’ lawyers have been better? They could have made a claim of negligent supervision over Hayes. Everyone is responsible for their own tortes: direct liability v vicarious liability. The corporate shield never protects someone from their own tort.  But it may protect you from vicarious liability.
 
Gallant v Issac
P goes and buys a new car the day their insurance expires. They call their insurance agent and ask them to renew and transfer the insurance to the new car. The insurance agent says fine, binds everything orally over the phone, and asks the P to come in on Monday to pay and sign the papers. P totals the car over the weekend. The agent’s overseeing entity does not want to be bound to this contract, and insists that they agent had no authority to make it.
 
The court rules that the agent had “inherent authority” (see below) to make the contract, and thus, the entity will be bound by it.
 
Takeaway: Where the agent in question had inherent authority to execute the contract that was forbidden by the entity, the entity will still be liable.
 
Menard v Dage-MTI
·         CEO and board member
·         Sold property w/o board authority
·         Had attempted to do so several times before, and hadn’t been able to do so
·         Board waits 3 months to strike down K
·         Is it Valid?
·         The court finds he has inherent authority re: his title as CEO (even though the 3rd party knew he really didn’t have authority)
·         Shows how much equity courts want to help out and protect 3rd parties.
 
Takeaway: Be aware of how you award titles because it may give the employee unintended apparent authority.
 
Limiting Liability: 10 Steps
·         Define the scopes:  Smart job descriptions
o   This should define the exclusive limit of the EEs authority
·         Mind the memos and emails
o   You may accidentally give “apparent authority”
·         Repudiate fast
o   Otherwise, a reviewing court may bind you to a contract you never intended to enter into
·         Be careful with titles
o   Again, this is an issue of apparent authority.
·         Customize the insurance
o   Must cover specific risks of the business.
·         Check pedigrees
o   Make sure anyone you hire can play by your rules, and thus, remove you from liability.
·         Spread the word
o   If you are restricting the authority of an employee, be loud and proud about it.
o   The people you work with need to know of the change.
·         Emphasize the six “Big Nevers”
o   Never talk or even joke about hiring or firing on a basis that suggests

ract, as is the agent unless otherwise agreed.
 
§6.03: Agent for Undisclosed Principal
Agent and third party are parties to the contract. The principal is also a party, unless actually excluded.
 
§6.05: Contract that is Unauthorized in Part
The contract is valid up to the amount that the agent was authorized to contract for (so long as the amount is a severable part).
 
§6.10: Agent’s Implied warranty of authority
An agent who acts on behalf of a principal, but does not have the authority to bind them, and makes a contract with a 3rd party shall be liable to the 3rd party for damages for loss caused by breach of that warranty.
 
§6.11: Agent’s Representations
1. When an agent is acting for a disclosed or unidentified principal, and makes a false representation about their authority to a 3rd party, the principal is not subject to liability (providing there are no issues of apparent or actual authority).
2.  Representation made as part of a K w/ unidentified principal… its as if the agent were the principal (directly). Only binding if agent had requisite authority.
 
(see rule for more details)
 
§7.01: Agent’s liability
Agent is liable to 3rd party harmed by their tortious conduct.
 
§7.07: Employee acting within scope of employment
Employer is responsible for act of employee when employee is acting within the scope of their employment.
§8.07: Duty Created by Contract
Agent has duty to act in accordance w/ express and implied terms of any contract between agent and principal.
 
§8.08: Duties of Care, Competence, and Diligence
 
§8.09: Duty to Act Only within Scope of Acutal Authority and to Comply with principal’s lawful instructions.
 
§8.10: Duty of Good Conduct
Refrain from conduct likely to damage Principal’s enterprise.
 
§8.14: Duty to Indemnify
Principal must indemnify agent as per their contract or agreement, w hen agent makes a payment, when it is within the scope of the agent’s authority or is beneficial to the principal.