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Business Associations/Corporations
University of South Carolina School of Law
Yablon, Charles M.




Smith’s board of directors donated $1500 to Princeton University. Stockholders say no authority. Court says businesses can make judgment decisions regarding what is best investment for the business.

Ultra vires: beyond the power
Intra vires: within the power

Who is Barlow and on what grounds does he contend that Smith’s charitable contributions were illegal?

Shareholder; Beyond the power to make the donation, and then a breach of fiduciary duty.

On what grounds does the Court defend those contributions?

Business gets to choose what is best for them.

Do you think a Delaware or South Carolina court today would reach the same conclusions?

Who is O’Brien? Where do you think he went to college? Is O’Brien getting any private benefits by spending the corporation’s money?

President. Princeton. No.

Does the court recognize any legal limitations on management’s right to use corporate funds for charitable purposes?

§ 101(b): A corporation can do any legal valid business or purpose.
§ 122: Corporations can (1) have perpetual succession, or not; (2) sue and be sued; (3) have a corporate seal; (4) deal in property; (5) appoint and compensate officers and agents; (6) write and change by-laws; (7) dissolve according to law; (8) move the business across state lines; (9) make donations for charity, science, education, or emergency; (10) manage other corporations; (11) participate in other types of businesses; (12) transact legal business with consent of board of directors; (13) make contracts; (14) make financial and property transactions to accrue income; (15) establish retirement/pension/profit sharing benefits; (16) provide insurance; (17) renounce interests.
§ 33-3-101: Corporations have the purpose of engaging in lawful business unless a more limited purpose is set forth in articles of incorporation. Corporations created by other statute may only engage in business under this section if the other statute permits.
§ 33-3-102: Corporations may have same powers as individual to do all things necessary or convenient to carry out business and affairs, including: (1) sue and be sued; (2) have a corporate seal; (3) make and change bylaws; (4) sell property; (5) buy property; (6) acquire and dispose of interests and property; (7) contract; (8) lend and invest money; (9) participate in other businesses; (10) conduct business granted by this section; (11) appoint directors, officers, employees and agents; (12) pay pensions and retirement plans; (13) make donations for public welfare or for charitable, scientific, educational purposes; (14) transact business that aids government policy; (15) make legal payments/donations that further the business and affairs of the corporation.
§ 33-3-104: Validity of corporate action may not be challenged on the ground that the corporation did not have the power to act except for (1) in a proceeding by a shareholder against the corporation to enjoin the act; or (2) in a proceeding by the corporation against an incumbent or former director, officer, employee, or agent of the corporation; or (3) in a proceeding by the attorney general.


Agency Hypothetical

Yablon tells Sam Student that Yablon has an extra copy of the Corporations casebook and asks Sam Student to sell it on Yablon’s behalf. Student agrees. What kind of relationship has been created? Is it a contract?

Principal-Agent relationship on express authority. No contract for lack of consideration.

Student then goes to the Copy Shop and makes 100 copies of a flyer offering the Corporations casebook for sale, which he posts around the law school. He tells the copy shop to bill Yablon directly. Is Yablon liable to the Copy Shop for the amount of that bill?

Yes. Implied authority so long as reasonable.

Yablon announces to the class that Sam Student has a casebook for sale and that if they want to buy it they should see Student after class. Yablon tells Student privately that he should not accept any offer under $60. After class, a friend of Student informs that she really needs the book but can only afford to pay $10. Student says that is fine and to tell Yablon it’s a “done deal.”

Is Yablon legally obligated to sell her the book for $10?

Apparent authority to do so.

If student has run off with Yablon’s money, is Yablon still liable to the classmate who purchased the book?

Yes. Has cause of action for breach of fiduciary duty against Sam.

What principle of agency law is involved in this hypothetical?

Apparent authority

Where is that principle found in the Restatement of Agency?

Restatement (Third) of Agency § 2.03

How is it applied in the Ampex case?

Unbeknownst to Yablon, Student convinces another classmate that he has been authorized by Yablon to sell copies of the casebook at bargain prices. He takes $90 from the student and tells her to “go see Yablon” to get a copy of the book.

Is Yablon obligated to sell the book to this classmate?
How is this case different from the preceding hypothetical?
How is this case different from the rule announced in Watteau v. Fenwick?
Where is the rule found in the Restatement of Agency?

Unbeknownst to Yablon, Student convinces another classmate that he has been authorized by Yablon to sell copies of the casebook. The classmate, who really needs a copy of the book, writes a check for $50 payable to Yablon. On the check is written, “for used casebook.”

If Yablon cashes the check, is he obligated to provide a Casebook?

What principle of agency law is involved in this hypothetical?

Ratification: affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.

Where is that principle found in the Restatement of Agency?

§ 4.01


Issue: whether Bill Hogan had implied authority as an agent to hire Sam Hogan.

Implied Authority: actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated.

Factors: (1) focus on agent’s understanding of his authority. Did he reasonably believe because of present or past conduct that the principal wishes for him to act in a certain way or to have certain authority? (2) nature of the task or job (3) existence of prior similar practices.

Apparent Authority: not actual authority but is the authority the agent is held out by the principal as possessing. (a matter of appearances on which third parties come to rely).

Holding: Because the church allowed Bill Hogan to hire helpers in the past, and an assistant was needed for this job, and Bill Hogan was never told that this case was different from any other job, Bill Hogan is an agent of the church and Sam Hogan is an employee for the purposes of Workman’s Compensation.


subject to the right to control by the master. (3) an independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking. He may or may not be an agent.
§ 3: (1) a general agent is an agent authorized to conduct a series of transactions involving a continuity of service. (2) a special agent is an agent authorized to conduct a single transaction or a series of transactions not involving continuity of service.
§ 4: (1) If, at the time of a transaction conducted by an agent, the other party thereto has notice that the agent is acting for a principal and of the principal’s identity, the principal is a disclosed principal. (2) if the other party has notice that the agent is or may be acting for a principal for whom the agent is acting is a partially disclosed principal. (3) if the other party has no notice that the agent is acting for a principal, the one for whom he acts is an undisclosed principal.
§ 7: Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him.
§ 8: Apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other’s manifestations to such third persons.
§ 8A: Inherent agency power is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.
§ 8B: (1) A person who is not otherwise liable as a party to a transaction purported to be done on his account, is nevertheless subject to liability to persons who have changed their positions because of their belief that the transaction was entered into by or for him, if (a) he intentionally or carelessly caused such belief, or (b) knowing of such belief and that others might change their positions because of it, he did not take reasonable steps to notify them of the facts. (2) an owner of property who represents to third persons that another is the owner of the property or who permits the other so to represent, or who realizes that third persons believe that another is the owner of the property, and that he could easily inform the third persons of the facts, is subject to the loss of the property if the other disposes of it to third persons who, in ignorance of the facts, purchase the property or otherwise change their position with reference to it. (3) change of position, as the phrase is used in the restatement of this subject, indicates payment of money, expenditure of labor, suffering a loss or subjection to legal liability.