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Business Associations/Corporations
University of Nebraska School of Law
Harner, Michelle M.

I.                   INTRODUCTION
a.       Key Concepts
i.      Sole Proprietorship
1.      A business in which one person owns all the assets, owes all the liabilities, and operates in his or her personal capacity
a.       This is risky because it creates personal liability
2.      Jack Hypo – Jack sets up a bar review course and has enough money to own the business solely
ii.      Partnership
1.      A voluntary association of two or more persons who jointly own and carry on a business for profit
a.       This usually exists only for a specified term
b.      This is risky because it creates personal liability
2.      Partners share ownership, responsibilities, and liabilities
3.      Jack Hypo – if needs monetary help or administrative skill he can go get a partner
iii.      Corporation
1.      A fictitious entity (usually a business entity) having authority under law to act as a single person distinct from the shareholders who own it and having rights to issue stock and exist indefinitely
a.       This is fictitious – it exists only because the law says it does
2.      This is the law’s way of not making a person who goes into business have unlimited liability
3.      Corporate law focuses on the relationship between the corporation and other people
b.      Key Terms
i.      Debt – a specific sum of money due by agreement or otherwise
ii.      Equity – an ownership interest in property, especially, in a business
1.      Equity is tied with ownership
iii.      Creditor – one to whom a debt is owed
1.      This is broad
a.       i.e., an employee can be a creditor to a corporation if the corporation does not pay wages
iv.      Shareholder – one who owns or holds a share or shares in a company
v.      Owner – one who has the right to possess, use, and convey something
vi.      Residual Owner – one who will reap the marginal dollar of the firm’s gain or suffer the marginal dollar of its losses
1.      In essence, this is what a shareholder is
II.                AGENCY
a.       The PAT Triangle
(1)
P                                                    A

(2)
(3)
T

b.      The Agency Relationship
i.      Three Parties in an Agency Relationship
1.      Principal – the party for whom an act is being done; the principal usually is the one that stands to benefit from the agent’s conduct
a.       The principal does not always have to benefit; see Gorton v. Doty
2.      Agent – the party doing the act for or on behalf of the principal
3.      Third Party – the target of the agent’s conduct; does not necessarily have contact with the principal
ii.      RST 2d Agency § 1(1)
1.      “Agency is the fiduciary relations 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.”
2.      Requirements of an Agency Relationship
a.      Consent by the Principal that the agent will act on its behalf
b.      Agent will be subject to the principal’s control
c.       Agent consents to act on behalf of the principal
3.      The above three-part test is what to use when analyzing whether there is an agency relationship or not
a.       Gorton v. Doty – the teacher consented that the coach would drive on her behalf; the teacher had control because of the condition that only the coach drive; the coach consented to so act when he drove the car
4.      There has to be an agreement
a.       This does not necessarily mean a written contract
b.      All that is needed is an agreement and consent
i.      Gorton v. Doty – there was not a contract, but there was an agreement and consent to only have the coach drive
5.      Marriage does not make spouses agents of each other (Botticello v. Stefanovicz)
iii.      General and Specific Agents RST 2d Agency § 3
1.      General – “an agent authorized to conduct a series of transactions involving a continuity of service”;
a.       Jenson v. Cargill – Warren was hired to be the conduct all business on behalf of Cargill
2.      Specific – “an agent authorized to conduct a single transaction or a series of transactions not involving continuity of service
a.       Gorton v. Doty – the coach was only authorized to drive on this single, identified instance of agency
iv.      Common Issues in the Agency Relationship
1.      Does an agency relationship exist between the principal and the agent?
2.      What consequences follow to the principal from the interaction between the agent and the third party?
v.      Control and the Agency Relationship
1.      Courts love control
a.      Control of the day to day operations of a party will make the controlling party a principal and the controlled party the agent
b.      When they smell control, they will usually find an agency relationship
2.      Courts will look at different factors to determine if there is enough control to rise to an agency relationship
a.       Jenson v. Cargill – court looked at nine factors to determine if there was enough control to create an agency relationship
i.      Constant recommendations by the Cargill to the Warren
ii.      Right of first refusal on grain
iii.      Cargill’s mandatory approval for mortgages, purchase of stock, or payment of dividends
iv.      Cargill’s right of entry to inspect premises and books
v.      Cargill’s criticism of the running of the company by Warren

m so to act on the principal’s account”
iv.      The PAT Triangle in Contract

(1) – Actual Express or Implied Authority
P                                                    A

(2) – Inherent Authority
(3) – Apparent Authority
T

v.      Actual Express Authority
1.      This focuses on Line 1 of the PAT Triangle
2.      Example
a.       P tells A to do X; A does X; P is bound
b.      Browns Hypo – Harner hires an agent to hire Cowher; agent hires Cowher; Harner is bound to pay on the contract to Cowher
c.       Manager Hypo – P hires A as manager of apartment and tells A to hire a landscaping company; A hires a landscaping company and P is bound on the contract to the company
vi.      Actual Implied Authority
1.      This focuses on Line 1 of the PAT Triangle
a.       Is what the agent did reasonable and customary to accomplish the expressed instructions of the principal (look at the agent’s belief; did the agent reasonably believe he had the authority to act)?
b.      This really focuses on the reasonableness of A’s belief
2.      Example
a.       If, in order to do X, A must take some other steps, P is bound
i.      This authority allows an agent to take the reasonable, unenunciated steps to accomplish the tasks the agent was hired for
b.      Browns Hypo – Harner hires agent to hire a coach; Harner did not tell agent to travel; but, Harner is liable to pay for travel contracts for agent to travel to find a coach
3.      The agent’s actions must be reasonable and customary
a.       The inquiry
i.      Is it reasonable and customary to think an agent hired to do this job would take these actions?
1.      Look at agreement and agent’s belief to determine reasonableness
a.       This can be garnered from past practices with the agent
i.      Mill Street Church v. Hogan – the court focused on the relationship between Bill and the Church to determine that Bill reasonably thought he could hire Sam to finish the painting of the Church (Bill had previously hired Sam to work on the Church)
2.      Look at local custom to determine customary