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Business Associations
University of North Carolina School of Law
Haynes, Kevin

BA Short Outline:
 
BACKGROUND:
– Corp law based on:
1.       Economic efficeiency (Pareto vs. Kaldor Hicks)
2.       Fairness to sh’ers (sh’er primary norm)
 
AGENCY: fiduciary relationship that arises when one person has authority to act for another
1.       Sources of agency costs:
a.      Monitoring costs: costs to ensure agent loyalty
b.      Bonding costs: to ensure owners of reliability
c.       Residual costs: from differences of interest remaining after monitoring/bonding costs incurred
d.       *executive compensation justified as way to mitigate agency costs
2.       Formation of agency relationship: formed when both the P and A manifest assent to establish an agency relationship
a.       Only external manifestations are important à does NOT matter that parties intended or what they say/don’t say
b.       assent can be implied from type of control exercised by P (ie aggressive financing agreement in Jenson Farms)
3.       P’s can define the scope of an A’s authority:
a.       special agents: agency limited to single act or transaction
b.       General agents: agency contemplates series of acts or transactions
4.       Disclosure to 3p’s:
a.       Disclosed P’s: 3P’s transacting w/A understand that A is acting on behalf of particular P
b.       Undisclosed P’s: 3P’s unaware of principal and believe that agent herself is a P
                                                               i.      Don’t want anyone to know that seeking to buy/sell something
c.       Partially disclosed: 3P’s understand that dealing w/agency but don’t know identity of P
                                                             ii.      Know that agent for someone, but don’t know who that person is
5.       Termination: either P or A can terminate agency at any time; no agency over any parties’ objection *unless there is contractual agreement otherwise
6.      when is P held to a K entered into by A?):
a.      to be held liable in contract, A must have one of these types of authority:
                                                               i.      Actual Authority: authoritythat a reasonable person in position of agent would infer from conduct of P (can be explicitly stated, etc)
1.       Includes incidental authority to do implementary steps that are ordinarily done in connection w/facilitating authorized act)
                                                             ii.      Apparent authority: is what reas 3P would infer from P’s actions/statements
1.       must be P’s actions that knowingly permit A to exercise authority OR hold A out as possessing authority
2.       Can reasonably infer this from prior dealings *Jennings looked to (1) measure of similarity btw acts; AND (2) a degree of repetitiveness
a.       Diff btw buying/selling land too dissimilar to recognize A’s authority
3.       Want to protect reasonable inferences of 3P’s ( accept agency as way of business)
                                                           iii.      Inherent Authority: authority granted bc A would ordinarily have power to enter in such a K AND 3P unaware that doesn’t have the authority (ie what usually happens)
7.      When is P held liable for torts committed by A?:
a.      P responsible for torts of employees, but not of indep contractors
                                                              i.      Control is key here: the more control which the P exercises over the A, the more likely that employee/employer relationship
                                                           ii.      *see chart of Humble/Sun Oil
8.      Fiduciary duties used to ensure that A’s fulfill their obligations: Fiduciary: to act for someone else’s interests
a.       3 categories of duties imposed on A’s: law seeking to protect P’s interests
                                                               i.      duty of obedience: duty to obey P’s demands
                                                             ii.      duty of loyalty: duty to act in best interests of P & not exercise power for personal gain
1.       violated in Resop: A charged investigating business venture, but A only did superficial investigation, fraudulently got paid by 3P’s
                                                           iii.      duty of care: duty to act as a reasonable person would in becoming informed and exercising any agency or fiduciary power
1.       duty to bring level of care to agency responsibilities that would use in own endeavors
b.       enforcement methods: *using these penalties to deter breaches
                                                               i.      criminal prosecutions seemingly ap

of a partnership doesn’t in itself affect a partner’s individual liability on partnership debtsà typically, parties negotiate some kind of release
a.       generally, withdrawing partner still liable for obligations incurred before departure, but not liable for obligations incurred after departure
a.       UPA 36(2): releases departing partner if court infers an agreement btw continuing partners and creditor to release w/drawing partner
b.       UPA 36(3): release departing partner when creditor renegotiates his debt w/continuing partners after receiving notice of departing partner’s exit
8.       3P claims a/g partnership assets and property:
c.       segregated business assets:
                                                               i.      available to secure business debts
                                                             ii.      partnership creditors have priority on claiming partnership assets
9.       Partnership Governance:
d.       Control: unless otherwise agreed upon, control divided equally among partners
                                                               i.      Under the UPA, partners have equal right in mgmt & conduct of partnership business
e.       Generally, agreements made by any partner and a 3P are binding on the p-ship
                                                               i.      activities w/in the scope of business cannot be limited except by the expressed will of a majority of partners (1/2 of members not a majority)
                                                               i.      If not a matter ordinarily connected to p-ship business: under UPA, such an agreement does not bind p-ship unless authorized by other partners
b.       Least Cost Avoider Policy: incentive for p-ship to work together (burden on partners bc they’re bound, rather than on 3P’s to ensure info/orders)