Business Associations Basic

No ratification unless....(4)

(1) Act is ratifiable (3R §4.03) - person who did act must purport to have done it on behalf of someone else, not on own volition (2) Ratifier capacity (3R §4.04) - you can ratify the act of another if you were alive when act was performed AND had capacity to ratify at the time of the act. (3) Timeliness (3R §4.05) - must ratify BEFORE occurrence of circumstances that would cause ratification to have adverse and inequitable effects on 3P rights (3P wants to withdraw, inequitable to bind 3P unless they want to be bound, or 3P deprived of right/subject to liability) (4) Encompasses act in entirety (3R §4.06) - No ratification if you don't know certain facts about the act AND you're clueless to your ignorance about those facts.

What does "inherently dangerous" mean in independent contractor-principal liability? What type of liability is this?

(1) Activity which can be carried on safely ONLY because of exercise of special skill and care, AND (2) involves grave risk of danger to persons/prop if performed negligently. Non-strict liability.

Six types of P/A cases

(1) Actual express authority (2) Actual implied authority (3) Apparent authority (4) Inherent agency power/undisclosed principal (5) Ratification (6) Estoppel

What duties do partners owe each other?

(1) Duty of loyalty - account to PSHIP all prop/profit/benefit; don't deal another entity in a way that's adverse to the PSHIP; don't compete with PSHIP before it's dissolved. (2) Duty of Care - don't conduct/wind up PSHIP biz in grossly negligent, reckless, intentionally bad, or in knowing violation of the law. (3) GFFD.

What are three ways to prove liability of principals to 3Ps for acts of an agent?

(1) Express/real authority, definitively granted (2) Implied authority, to do all that is proper, customarily incidental, and reasonably appropriate to exercise authority granted, or (3) Apparent authority, principal by words, conduct, or other manifestations has "held out" person as his agent

Elements of an Agency relationship (3)

(1) Fiduciary (legal/ethical) = owes a duty to another party (2) Consent by principal for agent to act on their behalf (3) Consent by agent to act on behalf of principal

What are some ways to show a PSHIP exists other than 2+ people in biz together for purpose of sharing profits? (8)

(1) Intent of parties to create PSHIP (2) Right to share in profits (3) Right to share in losses (4) Sharing PSHIP prop (5) Power to make biz decisions (6) PSHIP agreement language (7) Conduct to 3Ps (8) Rights of dissolution

What does "ultra hazardous" mean in independent contractor-principal liability? What type of liability is this?

(1) Necessarily involves a serious risk of harm to person, land, chattels, or others which CAN'T be eliminated by exercise of utmost care, AND (2) not a matter of common usage. Strict liability.

What are some factors to show that you can pierce the corporate veil?

(1) No separate finances for corporation and SH (2) BOD has no meetings (3) Person doesn't treat corp as a separate entity

Types of Agency relationships (3)

(1) P/A (2) M/S (3) Employer or proprietor / IC

Factors to show SOE (5) (2R of Agency §219)

(1) Time/place/purpose of the act (2) Similarity to acts which the servant is authorized to perform (3) Whether the act is commonly performed by servants (4) Extent of departure from normal methods (5) Whether master would reasonably expect such an act would be performed

What are the three ways a P can recover against a corporation?

(1) enterprise liability - many corps coming together, no individual SH liability. (2) respondeat superior (agency) (3) Pierce corporate veil - disregard corp entity if people operating biz for own personal gain rather than corp benefit. ("alter ego theory")

Estoppel (definition, policy)

(3R §2.05) Person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person's account is subject to liability to 3P who justifiably is induced to make a detrimental change in position because transaction is believed to be on person's account, if... o Person intentionally/carelessly caused such belief, or o Having notice of such belief and that it might induce others to change their positions, the person didn't take reasonable steps to notify them of the facts. Policy prohibits notion that customers must inquire with every employee if they're an agent of proprietor principal. Customers can rely (if reasonably vigilant), proprietors must protect.

Ratification (results, definition, exception)

(3R §4.01) Past acts without agency are accepted by principal and now principal is responsible. Asks (1) what constitutes affirmation by principal, and (2) what effect should affirmation have? Affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account. Binding as if actual authority by that person. Ratify by either (1) manifest assent that act will impact person's legal relations (intent + full knowledge of all material consequences), OR (2) conduct that justifies reasonable assumption that person consents to (1). If original transaction not purported to be done on account of a principal, the fact the the principal receives its proceeds does not make the principal a party to the transaction.

Partial ratification

(3R §4.07) There is no such thing. Ratification must encompass ENTIRETY of an act, contract, or single transaction.

Rights of Ps in Management (UPA '14 §18(e),(h)

(e) all Ps have equal rights in management and conduct of PSHIP biz (h) Settle disputes via majority vote, but if DM acts in contravention of PSHIP agreement then you need a unanimous vote.

PSHIP - what is it? How is it formed? (UPA §202)

2+ people are co-owners of a business for profit regardless of intent to make a PSHIP. Formed by... (1) more than just mere sharing of property (2) more than just sharing gross returns (3) receiving share of profits creates presumption of PSHIP unless profits received from payment of debt, IC, rent, annuity, interest on loan, or sale of goodwill of biz/prop.

What is the main difference between the 2R and 3R definitions of agency? What result?

2R says "consent" and 3R says "assent". 3R is higher standard, less passive.

What is the difference between 2R/3R apparent authority?

2R says "manifestation CAUSES 3P to believe..." which is difficult because chain of causation must be shown. 3R says "belief is TRACEABLE to principal's manifestations" which is easier because plaintiff only has to point to possible source of belief, not prove it.

Auerbach v. Bennett

A BOARD OF DIRECTORS MAY GRANT AUTHORITY TO A SPECIAL COMMITTEE TO MAKE RECOMMENDATIONS ON A DERIVATIVE CLAIM INSTANT FACTS A corporation appointed a special committee to investigate the basis of a shareholders' derivative suit charging mismanagement of corporate funds, and the committee determined the suit should be terminated. BLACK LETTER RULE A special litigation committee's determination forecloses further inquiry into a matter, provided the committee's investigation is bona fide.

Wilkes v. Springside Nursing Home, Inc.

A CLOSE CORPORATION'S SHAREHOLDERS NEED A LEGITIMATE BUSINESS PURPOSE TO TERMINATE ANOTHER SHAREHOLDER'S EMPLOYMENT INSTANT FACTS Wilkes (P), who formed a real estate investment business/nursing homes with three other men who shared equally in the business, created disharmony and was fired when he struck a particularly hard bargain with one of the other shareholders in the sale of some corporate property. BLACK LETTER RULE Majority shareholders acting to ―freeze out a minority shareholder by terminating his employment without a valid business purpose have breached their duty to act as fiduciaries.

Essex Universal Corporation v. Yates

A CONTRACT TO SELL A CONTROLLING INTEREST IN A CORPORATION MAY INCLUDE CONTROL OF THE CORPORATION'S BOARD INSTANT FACTS (D) agreed to sell a controlling block of shares in (P), and the sale agreement required (D) to deliver a board of directors filled with members nominated by (P). BLACK LETTER RULE If the transfer of shares is sufficient to constitute the transfer of a controlling interest, a seller may lawfully agree to assist the buyer in installing a favorable board of directors.

Haley v. Talcott

A CONTRACTUAL DISSOLUTION MECHANISM MUST OFFER AN ADEQUATE SEPARATION OF INTERESTS INSTANT FACTS A disgruntled LLC member sought judicial dissolution of the LLC Seafood Restaurant when the contractual exit mechanism failed to free him from personal liability for a business debt. BLACK LETTER RULE A court may decree the dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.

Perlman v. Feldmann

A CONTROL PREMIUM MUST BE SHARED AMONG ALL STOCKHOLDERS IF IT REPRESENTS THE TRANSFER OF A CORPORATE ASSET INSTANT FACTS Feldmann (D), a majority shareholder in a steel mill business, sold a controlling interest in the mill to a company that required steel in the fabrication of its products, and the minority shareholders brought a derivative action against Feldmann (D) to recover the amounts he received in excess of the shares' market price. BLACK LETTER RULE A shareholder with a controlling interest who transfers his or her shares is accountable to the minority shareholders for the amount in excess of the market price if the premium is attributable to the sale of a corporate asset.

Crane Co. v. Anaconda Co.

A CORPORATION MUST GRANT A REQUEST FOR ACCESS TO A SHAREHOLDER LIST TO ENABLE TENDER-OFFER DISCUSSIONS INSTANT FACTS (P) sought to acquire twenty percent of (D)'s shares and asked to have access to (D)'s shareholder list to distribute information on the tender offer directly to (D) shareholders. BLACK LETTER RULE A corporation must grant a shareholder who wants to discuss a tender offer's terms directly with the corporation's shareholders access to the shareholder list, unless the corporation can establish a wrongful purpose.

Waltuch v. Conticommodity Services, Inc.

A CORPORATION MUST INDEMNIFY CERTAIN INDIVIDUALS FOR LEGAL EXPENSES IF THEY ACTED IN GOOD FAITH INSTANT FACTS (P) sued his employer for indemnification of the legal expenses he incurred in defending himself from numerous civil lawsuits and an enforcement proceeding brought by the Commodity Futures Trading Commission. BLACK LETTER RULE A corporation must indemnify its officers, directors, and employees against legal expenses related to the defense of any legal action brought against them by reason of their position or capacity, provided the individual acted in good faith.

A.P. Smith Mfg. Co. v. Barlow

A CORPORATION NEED NOT HAVE SPECIFIC AUTHORITY TO MAKE VALID CHARITABLE CONTRIBUTIONS INSTANT FACTS (P), a (D) shareholder, brought an action seeking to find that a charitable donation made by the corporation was invalid. BLACK LETTER RULE A corporation may make reasonable charitable contributions, even in the absence of express statutory provisions.

Kamin v. American Express Company

A CORPORATION'S DIRECTORS ARE NOT LIABLE MERELY BECAUSE A BETTER COURSE OF ACTION EXISTED INSTANT FACTS Stockholders brought a derivative action, asking for a declaration that a certain dividend in kind was a waste of corporate assets. BLACK LETTER RULE A complaint alleging that some course of action other than that taken by the board would have been more advantageous does not give rise to a cause of action for damages.

Walkovsky v. Carlton.

A COURT MAY DISREGARD CORPORATE FORM TO PREVENT FRAUD OR ACHIEVE EQUITY INSTANT FACTS. MVA between cab/pedestrian. Many corps operate a cab company as enterprise, each owns 1-2 cabs carrying minimal insurance. Corps kept poor by paying all profits to SH. BLACK LETTER RULE. Piercing the corporate veil disregards corporate form to prevent fraud/achieve equity. Dummy corp (vertical) - impose personal liability on SH when necessary to prevent fraud/achieve equity. Applies when SH uses corp for OWN benefit rather than biz benefit. Enteprise liability (horizontal) - corp is fragment of larger corporate combine which actually conducts all the biz. Result is larger corporate entity is financially responsible, not the individual SH(s).

Ramos v. Estrada

A COURT MAY ENFORCE SHAREHOLDER VOTING AGREEMENTS EVEN IN CORPORATIONS THAT ARE NOT CLOSE CORPORATIONS INSTANT FACTS (D) did not vote her stock in accordance with a shareholders' agreement, and (P) brought suit for breach of contract (D defected from Ventura 41 Voting bloc). BLACK LETTER RULE Voting agreements between two or more shareholders of a corporation are enforceable, even if the corporation does not qualify as a close corporation.

Jenson v. Cargill

A CREDITOR WHO CONTROLS ITS DEBTOR'S BUSINESS OPERATIONS IS LIABLE FOR THE DEBTOR'S DEBTS INSTANT FACTS. The plaintiffs entered into grain contracts with another, who was financed and controlled by (D), a separate entity. BLACK LETTER RULE A creditor that assumes control of its debtor's business may become liable as principal for the debtor's acts in connection with the business. Veto power only is not P/A, but taking over management is. Look at totality of circs. BLACK LETTER RULE. Buyer/supplier relationship is not P/A because A contracts to buy prop from 3P to convey to P, acting primarily for benefit of P, not A. In B/S, the buyer acts for own benefit, not as source of income for another.

Dodge v. Ford Motor Co.

A FOR-PROFIT CORPORATION MUST PAY DIVIDENDS ABSENT A JUSTIFIABLE BUSINESS REASON INSTANT FACTS (D) made extraordinary profits and its founder, (D), intended to use those profits to lower the price of its cars and expand its factories' capabilities by adding a steel plant, but shareholders (P) objected to these policies claiming that the company's first obligation was to make profits for its shareholders. BLACK LETTER RULE Although a corporation's directors have discretion in the means they choose to make products and earn a profit, the directors may not reduce profits or withhold dividends from the corporation's shareholders in order to benefit the public.

Jordan v. Duff and Phelps, Inc.

A FORMER EMPLOYEE MAY RECOVER DAMAGES FOR INCREASED STOCK VALUE AFTER SELLING STOCK BACK TO A CLOSELY-HELD CORPORATION INSTANT FACTS (P), an employee of and stockholder in (D), left the closely-held company and cashed in his stock according to his stockholder agreement; a pending sale of the defendant firm would have made his stock far more valuable. BLACK LETTER RULE If a closely held company withholds from an employee-stockholder material information about possible increases in stock value in breach of its fiduciary duty, the employee-stockholder may be entitled to damages if he or she can show that the nondisclosure caused the employee-stockholder to act to his or her financial detriment.

Murphy v. Holiday Inns, Inc.

A FRANCHISE AGREEMENT THAT PROVIDES AN OPERATION SYSTEM FOR A FRANCHISEE DOES NOT ESTABLISH A PRINCIPAL-AGENT RELATIONSHIP. INSTANT FACTS (P) slipped and fell in a motel owned and operated by a franchisee under a license agreement. Held for D, saying no M/S relationship. BLACK LETTER RULE. If a franchise contract so regulates the activities of the franchisee as to vest the fran- chiser with control within the definition of agency, the agency relationship of master/servant arises even if the parties expressly deny it.

Brodie v. Jordan

A FREEZE-OUT DOES NOT AUTOMATICALLY ENTITLE THE MINORITY SHAREHOLDER TO A FORCED BUYOUT OF HER SHARES INSTANT FACTS A minority shareholder claimed that the majority shareholders froze her out and that she was entitled to a buyout of her shares, as well as other remedies; on appeal to the state's highest court, the majority shareholders did not contest their liability, but only what remedies should be available. BLACK LETTER RULE The proper remedy for a freeze-out is to restore the minority shareholder as nearly as possible to the position she would have been in had there been no wrongdoing.

Martin v. Peyton

A LOAN AGREEMENT THAT ALLOWS FOR SHARING OF PROFITS AS REPAYMENT DOES NOT ESTABLISH A PARTNERSHIP ABSENT INTENT TO CREATE A PSHIP. INSTANT FACTS. Elaborate loan agreement allowed borrower to keep control of company. No PSHIP found in loan agreement. BLACK LETTER RULE A partnership is created by an express or implied contract between two persons with the intention to form a partnership. However, if profits are simply to repay a debt, no PSHIP is formed. UPA §202(c)(3)(i)

Smith v. Atlantic Properties, Inc.

A MINORITY SHAREHOLDER MAY ACT IN A MANNER THAT BREACHES HIS FIDUCIARY DUTY TO THE OTHER SHAREHOLDERS INSTANT FACTS (D), who owned part of a corporation that purchased property for investment, blocked dividend payments to other shareholders, leading to substantial IRS penalties and limiting the others' returns from their investments. BLACK LETTER RULE A minority shareholder may abuse his position by using measures designed to safeguard his position in a manner that fails to take into consideration his duty to act in the ―utmost good faith and loyalty toward the company and his fellow shareholders.

In re Silicone Gel Breast Implants Products Liability Litigation

A PARENT CORPORATION IS LIABLE FOR ITS SUBSIDIARY'S TORTS IF THE PARENT CONTROLLED THE SUBSIDIARY AS ITS ALTER EGO INSTANT FACTS Breast implant recipients brought a products liability action against Bristol-Myers Squibb Co. (D), which was the sole shareholder of Medical Engineering Corporation (D), a major supplier of breast implants. BLACK LETTER RULE. Two theories for P to recover against corporation: (1) Corporate control (pierce corp veil) - single SH has high probability of abuse, mere alter ego for parent. (2) Direct liability (strict products liability) -

Putnam v. Shoaf

A PARTNER HAS NO INTEREST IN THE UNKNOWN CHOSES OF ACTION BELONGING TO THE PARTNERSHIP INSTANT FACTS (P) sold all her interest in her partnership to Shoaf (D) in exchange for Shoaf's (D) assumption of personal liability on a bank note. When D recovered money after learning of embezzlement of employee, P wanted a chunk of it. BLACK LETTER RULE A partner's property rights include rights in specific partnership property, interests in the partnership, and the right to participate in the partnership's management.

Summers v. Dooley

A PARTNER IS NOT LIABLE FOR EXPENSES INCURRED BY ANOTHER PARTNER'S UNILATERAL DECISION TO HIRE AN ADDITIONAL EMPLOYEE INSTANT FACTS (P) incurred expenses when he hired a partnership employee for garbage business despite Dooley's (D) objection. BLACK LETTER RULE Absent a contrary agreement, each partner possesses equal rights to manage the partnership's affairs, and no partner is responsible for expenses incurred without majority approval.

Collins v. Lewis

A PARTNER'S INTERFERENCE IN A PARTNERSHIP'S PROPER MANAGEMENT MAY NOT CREATE A RIGHT TO DISSOLUTION INSTANT FACTS (P) and (D) entered into a partnership to operate a cafeteria, with (P) providing the financial backing and (D) devoting his experience and management ability. BLACK LETTER RULE A partner may not obtain a judicial dissolution of the partnership if his own interference causes the partnership to be unprofitable.

Fenwick v. Unemployment Compensation Commission

A PARTNERSHIP IS NOT FORMED BY MERELY AGREEING TO SHARE BUSINESS PROFITS, ESPECIALLY IF PROFITS ARE ONLY FOR WAGES/COMPENSATION. INSTANT FACTS. Hairstylist wants to share in profits, owner agrees to structure as commission only, no control/liability of biz to hairstylist. Holding says no PSHIP since "profit sharing" was only for wages. BLACK LETTER RULE A partnership is an association of two or more persons to carry on as co-owners of a business for profit. However, sharing profits is not conclusive, esp. if only for compensation/wages. Examine also: intent of parties, sharing profit/losses, control/ownership of prop/biz, admin power, K agreement, conduct to 3Ps, rights of dissolution.

Alaska Plastics, Inc. v. Coppock

A SHAREHOLDER MAY NOT REQUIRE A COMPANY TO PURCHASE ITS STOCK FOR FAIR VALUE IF THE COMPANY HAS NOT DONE SO FOR OTHERS INSTANT FACTS (P) received half of her husband's shares in (D) Company in a divorce; the com- pany offered to buy her shares at a price (P) believed to be too low. BLACK LETTER RULE A shareholder may require a corporation to repurchase its own shares upon the company's breach of fiduciary duty, but the remedy should be less than liquidation, if possible, and a fair price may be less than the appraised value.

Pedro v. Pedro

A SHAREHOLDER MAY OBTAIN VALUE FOR SHARES IN EXCESS OF THAT PROVIDED IN A VALID STOCK REDEMPTION AGREEMENT INSTANT FACTS Members of a family-run business terminated one of the shareholder's employment when he refused to ignore a substantial accounting discrepancy. BLACK LETTER RULE A shareholder-employee of a closely held corporation, who was fired by other share- holders in a breach of fiduciary duty, is entitled to damages equal to the total of the difference between his stock's fair value and any lesser amount required by a stock retirement agreement, in addition to the damages arising from his loss of life-time employment.

Grimes v. Donald

A STOCKHOLDER GENERALLY MUST DEMAND THE BOARD BRING AN ACTION BEFORE HE OR SHE BRINGS A DERIVATIVE SUIT INSTANT FACTS (P), who learned of the extremely generous compensation package DSC Communi- cations (DSC) (D) had extended to Donald (D), demanded DSC cancel Donald's (D) contract. BLACK LETTER RULE A shareholder need not make a demand that a company's board institute a lawsuit before bringing a derivative suit on behalf of the corporation on a showing the demand would be futile, and if a demand is made and rejected, a shareholder may still proceed by establishing that the board's refusal was wrongful.

Zahn v. Transamerica Corporation

A STOCKHOLDER VOTING AS A DIRECTOR MUST VOTE IN ALL SHAREHOLDERS' BEST INTERESTS INSTANT FACTS Stockholders of the Axton-Fisher Tobacco Company sued (D) claiming (D) caused Axton-Fisher to redeem its Class A stock at $80.80 per share, instead of allowing them to participate in the liquidation of company assets, in which case they content they would have received $240 per share. BLACK LETTER RULE If a stockholder who is also a director is voting as a director, he or she represents all stockholders in the capacity of a trustee and cannot use the director's position for his or her personal benefit to the stockholders' detriment.

Sinclair Oil Corp v. Levien

A TRANSACTION BETWEEN A PARENT AND ITS SUBSIDSIARY MUST BE INTRINSICALLY FAIR INSTANT FACTS Shareholders brought a derivative action against (D) to require an accounting for damages sustained by its subsidiary, Venezuelan Oil Company. BLACK LETTER RULE If, in a transaction involving a parent company and its subsidiary, the parent company controls the transaction and fixes the terms, the transaction must meet the intrinsic fairness test.

Agency (definition)

A fiduciary relationship which results from a 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. (Manifestation by P for A to act for him + acceptance by agent + understanding between P/A that P is in control)

Inherent Agency (definition)

A's power derived solely from agency relation to P existing for protection of 3Ps that P/A deals with. Not actual, apparent, or estoppel.

Rosenfeld v. Fairchild Enginge & Airplane Corp.

ABSENT A CLAIM THAT PROXY FIGHT EXPENSES WERE EXCESSIVE, A COMPANY MAY REIMBURSE THE PARTIES FOR THEIR COSTS INSTANT FACTS Stockholders brought a derivative action arising out of money paid by the corporation to defray rival factions' expenses in a proxy fight. BLACK LETTER RULE Absent a claim that the expenses were unwarranted, excessive, or otherwise improper, a corporation may reimburse factions for costs associated with a proxy fight involving a policy contest, but not one involving a personal power contest.

Three-Seventy Leasing Corporation v. Ampex Corporation

ABSENT CONTRARY KNOWLEDGE, A SALESPERSON HAS APPARENT AUTHORITY TO BIND HIS PRINCIPAL TO SELL ITS PRODUCTS FACTS. (P) executed a shipping confirmation letter provided by (D's) agent for the purchase of computer leasing equipment. D's agent had no express or implied authority to do so from D. Agreement held enforceable against D. BLACK LETTER RULE. An agent has apparent authority sufficient to bind the principal when the principal's acts would lead a reasonably prudent person to believe that the agent had the authority he purports to exercise.

Eisenberg v. Flying Tiger Line, Inc.

AN ACTION TO REVERSE CORPORATE ACTIONS THAT DEPRIVED SHAREHOLDERS OF A VOICE IN OPERATIONS IS NOT DERIVATIVE INSTANT FACTS A stockholder in a corporation that ceased to exist post-merger, brought an action on behalf of himself and all other stockholders of the dissolved corporation, to enjoin the plan of reorganization and merger. BLACK LETTER RULE An action seeking to overturn a reorganization and merger that deprived an acquired corporation's shareholders from having a voice in the surviving corporation's business operations is a personal action rather than a derivative action under the New York statute requiring the posting of security for the corporation's costs.

Implied Authority

Actual authority circumstantially proven which principal actually intended agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated. A acts with the reasonable belief that A had the authority to act as he did. BOP is on person alleging P/A relationship and resulting authority via circumstantial evidence including (1) acts of parties, (2) continuous course of conduct, and (3) successive transactions.

Partnership liability

All Partners are liable for conduct of all other partners. Personal assets of a partner may be seized if partnership debts require.

How are undisclosed principals similar to silent partnerships?

All partners in partnership (silent or not) are liable for acts of other partners, similar to undisclosed principal being liable or acts of agent which would reasonably be in agent's scope of power under the circumstances.

What is a common way for PSHIPS to resolve disputes? NEED MORE INFO - LIKE WHAT?

Arbitration agreements.

Corporations (management; liability; taxes; founding requirements)

BOD, Officers have right to management, not SH No liability to SH for corporate debts unless pierce the corporate veil Taxed twice: corporate profits + SH's dividends How to incorporate: file charter/cert of incorporation with state office (name, purpose, choice state); NOT mere conduct.

Majestic Realty Associates, Inc., v. Toti Contracting Co.

BUILDING OWNER MAY NOT BE LIABLE FOR A DEMOLITION CONTRACTOR'S NEGLIGENCE INSTANT FACTS. (P) suffered property damage to its building caused by the negligent demolition of an adjacent building. Held for P. BLACK LETTER RULE Ordinarily, if a principal (P) engages an independent contractor (IC), who conducts an independent business by means of his own employees, the P is not liable for the IC's negligent acts in performing the contract. However, if work is controlled by P, the IC is incompetent, or the activity is nuisance per se, then liability extends to P.

State ex rel. Pillsbury v. Honeywell, Inc.

COMPANY MAY DENY ACCESS TO A STOCKHOLDER WHO PURCHASED STOCK SOLELY TO ACCESS CORPORATE BOOKS AND RECORDS INSTANT FACTS (P) purchased (D) stock in order to bring suit to compel production of the defendant's corporate books and records because he didn't like their stance on the Vietnam War. BLACK LETTER RULE A stockholder who purchased stock for the sole purpose of bringing suit to compel production of corporate books and records, who was motivated by his belief that the corporation should not be manufacturing ammunition to be used in the Viet- nam War, and who had no concern for the corporation's economic well being, cannot compel production of the corporation's shareholder lists or business records.

Mill Street Church of Christ v. Hogan

CONTINUOUS PAST AUTHORIZED ACTS SUFFICIENTLY CONFER IMPLIED AUTHORITY ON AN AGENT INSTANT FACTS. Usual A-handyman authorized in past by P-church to use his brother for extra help. Brother gets injured. P is liable under implied authority based on past approval. BLACK LETTER RULE Implied authority is actual authority that the principal intended the agent to possess and includes such powers as are practically necessary to carry out the delegated duties.

Levin v. Metro-Goldwyn-Mayer

CORPORATE MANAGEMENT MAY USE CORPORATE ASSETS TO PROVIDE SHAREHOLDERS WITH INFORMATION THAT IS RELEVANT TO A VOTE INSTANT FACTS P and five other shareholders of (D) Company brought an action against its directors, arguing the management was using illegal and unfair methods of communicating with stockholders and had forced the corporation to bear the expenses of a proxy solicitation. BLACK LETTER RULE Incumbent management may make reasonable use of corporate assets to inform shareholders of its position in a proxy contest involving corporate policy issues.

Scope of Employment, generally (2R of Agency §228) (4 factor test)

Conduct is within SOE IFF... (1) It's kind that servant is employed to perform, (2) It occurs substantially within the authorized time and space limits of the job, (3) it's actuated, at least in part, by purpose to serve the master, AND (4) If force is intentionally used by the servant against a 3P, the use of force is not UN-EXPECTABLE by the master.

Scope of Employment (2R of Agency §288.1)

Conduct of an employee is within the scope of employment IFF it's actuated at least in part by purpose to serve the master.

Factors that can show master/servant relationship

Control hiring of employees, require performance of duties as required by master company, provision by master of stuff (ads, equipment, goods, operation guidelines, operating costs, etc), ability to terminate contract at any time

HYPO: ski instructor relieved of one class at the top of the mountain, is supposed to go teach another at the bottom. Does a fun run the long way around on the way and whacks plaintiff. Was instructor acting within scope of employment to create employer liability?

Court held yes, within scope of employment. Despite instructor not going directly to next shift, deviation is not substantial enough to constitute abandonment of employment to be outside SOE.

Benihana of Tokyo, Inc. v. Benihana, Inc.

DIRECTORS COULD PUT TWO AND TWO TOGETHER INSTANT FACTS A board member of (D) arranged a stock sale between (D) and BFC, another company for which he served on the board, and the majority shareholder of (D) contested the deal. BLACK LETTER RULE Delaware General Corporation Law § 144 provides a safe harbor for interested trans- actions if the material facts as to the director's relationship or interests as to the contract or transaction are disclosed or are known to the board of directors, and the board in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors.

Citadel Holding Corporation v. Roven

DIRECTORS MAY RECEIVE AN ADVANCE ON INDEMNIFICATION INSTANT FACTS (P), a former director of (D), sued (D) for indemnification of sums he paid to defend a federal court action (D) brought against him. BLACK LETTER RULE A corporation may advance a director the costs of defending a lawsuit.

Francis v. United Jersey Bank

DIRECTORS MUST DILIGENTLY DISCHARGE THEIR DUTIES INSTANT FACTS The bankruptcy trustee of various creditors brought suit against Pritchard's estate to recover misappropriated funds. BLACK LETTER RULE Directors have the duty to act honestly and in good faith and with the same degree of diligence, care, and skills that a reasonably prudent person would use in similar circumstances.

Broz v. Cellular Information Systems, Inc.

DIRECTORS MUST PUT A CORPORATION'S INTERESTS BEFORE THEIR OWN INSTANT FACTS P filed suit against D for breach of fiduciary duty, alleging he put his own interests before that of the corporation when he took a business deal, held it for company, and that sold it to them later on when they could afford it. BLACK LETTER RULE Under the doctrine of corporate opportunity, a corporate fiduciary must place the corporation's interests before his or her own interests in appropriate circumstances, but a corporate fiduciary does not breach his or her fiduciary duty by not considering the interests of another corporation proposing to acquire the corporation in deciding to make a corporate purchase.

In re Oracle Corp. Derivative Litigation

DIRECTORS WITH TIES TO WRONGDOERS ARE NOT INDEPENDENT INSTANT FACTS Oracle shareholders filed a derivative suit against Oracle directors, which an Oracle special litigation committee sought to dismiss. BLACK LETTER RULE A director's lack of independence turns on whether the director is, for any substantial reason, incapable of making a decision with only the best interests of the corporation in mind.

In re The Walt Disney Co. Derivative Litigation

DISNEY'S HIRING AND FIRING OF A NEW COMPANY PRESIDENT WERE IN GOOD FAITH INSTANT FACTS Disney shareholders brought a derivative suit against the directors and officers of the company, claiming breaches of fiduciary duty and waste in connection with the hiring and firing of, and payment of a $130 million severance package to, the new compa- ny president. BLACK LETTER RULE The law presumes that in making a business decision, the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company.

Difference in standards for dissociation/dissolution based on judicial determination?

Dissociation can kick bad P and maintain biz, dissolution takes into account not reasonably practicable to carry on PSHIP in conformity with PSHIP agreement.

What is the difference between PSHIP dissolution vs. dissociation?

Dissolution - one P leaves, PSHIP destroyed. Remaining Ps can reorganize into a new PSHIP. Dissociation - one P leaves, but PSHIP survives.

Can PSHIP agreements modify the fiduciary duties of care, loyalty, and GFFD? (UPA '97 §103)

Duty of Loyalty - Not generally. OK to approve non-loyal specific activities if not manifestly unreasonable. OK to approve non-loyal specific act if all Ps agree. Duty of Care - Can't unreasonably reduce it. GFFD - not generally. Can define standards for measuring GFFD if not manifestly unreasonable.

Prentiss v. Shelfful

FORMER PARTNERS MAY PURCHASE THE PARTNERSHIP ASSETS AS LONG AS NOT DONE IN BAD FAITH. GF EXAMPLE IS PSHIP CAN'T OPERATE PEACEFULLY, SO BUY OUT BAD P. INSTANT FACTS Upon dissolution of a partnership, the former partners purchased the partnership assets at a judicial sale. Minority P was upset. Held for majority Ps because no bad faith by majority in purchase. BLACK LETTER RULE Upon dissolution of a partnership, a former partner may bid on the partnership assets at a judicial sale.

Giles v. Giles Land Company

Facts Partnership/Defendant was a family-owned farming company. The partners were all related. The partnership held a meeting to consider converting the partnership to a limited liability company (LLC). One of the D's children, Kelly (plaintiff), was unable to attend the meeting, but later received notice of the partnership's determination to convert to an LLC. Plaintiff formally requested the partnership's books and records for his review. He was not satisfied with the books and records turned over, so he brought suit against the partnership and the other partners (defendants), claiming that he was improperly denied access to the books and records. The defendants filed a counterclaim, arguing that Plaintiff should be dissociated from the partnership. The defendants presented evidence that Plaintiff had threatened them and that the family relationship was broken beyond repair. The defendants also presented evidence that they did not trust Plaintiffs and vice versa. The trial court ruled in favor of the defendants on all counts, finding that it was not practicable to continue the partnership with Plaintiff as a partner. Plaintiff appealed the trial court's order regarding his dissociation from the partnership to the Kansas Court of Appeals, arguing that he had not engaged in conduct relating to the partnership. Issue Is dissociation appropriate where the partner engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with the partner? Holding Yes. Dissociation may be proper based on impracticability or a partner's wrongful conduct. Dissociation on account of impracticability is based on dissolution law. Dissociation is appropriate if the partner engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with the partner. Just as "an irreparable deterioration of a relationship between partners is a valid basis to order dissolution, [it is also, therefore] a valid basis for the alternative remedy of dissociation." Alternatively, dissociation may be ordered if a partner has engaged in wrongful conduct that adversely and materially affected the partnership

Ira S. Bushey & Sons, Inc. v. United States

GOVERNMENT IS LIABLE FOR DAMAGE CAUSED BY DRUNKEN SAILOR RETURNING TO A DOCKED SHIP INSTANT FACTS. A drunken sailor employed by the U.S. Coast Guard caused damage to the plaintiff's drydock while returning to the ship from leave. Held for damaged plaintiff. BLACK LETTER RULE. Respondeat superior imposes liability on an employer for an employee's conduct which is in the employee's scope of employment.

Manning v. Grimsley

HECKLING INTERFERES WITH A BASEBALL PLAYER'S ABILITY TO FULFILL HIS EMPLOYMENT DUTIES. INSTANT FACTS. (D) threw a baseball at (P) in response to (P) heckling at a baseball game. Held for P. BLACK LETTER RULE. To recover from an employer for an assault committed by its employee, the plaintiff must show that the employee's assault was in response to the plaintiff's conduct and that conduct was presently interfering with the employee's ability to perform his duties to master successfully.

Meinhard v. Salmon

IF A PARTNER JOINS A DIFFERENT PARTNERSHIP AND SEIZES HIS OLD PSHIP'S OPPORTUNITY, THAT PARTNER BREACHES HIS DUTY OF LOYALTY TO THE OLD PARTNERSHIP. MUST DO LEGITIMATE DISCLOSURE SO OLD PSHIP HAS OPPORTUNITY TO COMPETE. INSTANT FACTS (D) terminated a lease belonging to his joint venture with Meinhard (P) to enter into a new lease on behalf of his solely owned business. Court held D breached duty of loyalty to old PSHIP. BLACK LETTER RULE. Duty of loyalty between partners is stricter than morals of the marketplace (Cardozo: "duty of finest loyalty"). Partners have fiduciary obligations unlike regular contract parties (stricter than arms-length negotiations).

Sea-Land Services, Inc. v. Pepper Source

INABILITY TO SATISFY A JUDGMENT IS INSUFFICIENT TO PIERCE THE CORPORATE VEIL INSTANT FACTS (D) owed (P) for the cost of shipping peppers; however, (D) was dissolved before (P) could enforce a judgment against it. BLACK LETTER RULE In order to pierce the corporation veil and impose individual liability, a creditor must show (1) that there was such a unity of interest between the individual and the corporate entity that separate identities no longer existed, and (2) that a failure to do so would promote ―injustice‖ in some way beyond simply leaving a creditor unable to satisfy its judgment.

Zapata Corp. v. Maldonado

INTERESTED BOARD MEMBERS MAY APPOINT A DISINTERESTED COMMITTEE TO INVESTIGATE LITIGATION INSTANT FACTS (P), who was a (D) shareholder, sued D officers and directors for breach of fiduciary duty, but (P) did not ask the board to bring the action, considering the request to be futile. BLACK LETTER RULE While a majority of a board may lack the independence to evaluate a derivative claim, the taint of self-interest is not necessarily sufficient to prevent the board from delegating the evaluation to an independent committee comprised of disinterested board members who may recommend dismissal of a shareholder's action.

Fliegler v. Lawrence

INTERESTED SHAREHOLDERS CANNOT RATIFY THEIR OWN TRANSACTIONS WITH THEIR CORPORATION INSTANT FACTS A shareholder brought a derivative action against the officers and directors of Agau Mines, Inc. and the United States Antimony Corp. (USAC) to recover 800,000 shares of Agau stock transferred to USAC. BLACK LETTER RULE A majority of disinterested shareholders must ratify corporate transactions with an interested director.

Lawlis v. Kightlinger & Gray NEED MORE INFO

INVOLUNTARY EXPULSION FROM A PARTNERSHIP WITHOUT BAD FAITH DOES NOT GIVE RISE TO DAMAGES FOR WRONGFUL DISSOLUTION INSTANT FACTS. (P) was expelled from the law partnership (D) despite complying with all conditions for his continued relationship. Held for D because firing process was in GF. BLACK LETTER RULE. When a partner is involuntarily expelled from a business, his expulsion must be in good faith/without predatory purpose. A PSHIP agreement can have firing without cause or notice provision (guillotine method) if entered into freely by all partners. Good because quick and easy.

Instrumentality approach to agency (Holiday Inn example)

In holiday inn case, master DID have architectural control (all motels look the same). Since plaintiff slipped and fell because of placement of AC unit, that would fall under ambit of architectural control, indicating master DOES have control and thus tort liability.

HYPO: Franchisor controls design, operations of franchisee restaurant. 3P gets robbed at restaurant. Will there be liability to franchisor?

Instrumentality theory says no liability for franchisor, because they didn't have control over SECURITY aspects of franchisee.

Franchise (definition)

K to sell goods/services under a brand name via outlets owned by independent businessmen. Franchisor supplies know how, brand ID, supply of goods to achieve standardization. Franchisee gets profits and runs the risk of loss. Can be either IC or M/S depending on level of control. Examine who assumes risk (franchisee takes risk, then IC. Franchisor takes risk, then M/S).

Holzman v. De Escamilla

LIMITED P SHALL NOT BECOME LIABLE AS A GENERAL P UNLESS, IN ADDITION TO EXERCISE OF RIGHTS AND POWERS AS A LIMITED P, HE TAKES PART IN CONTROL OF THE BIZ. INSTANT FACTS. General partner runs the farm, but two limited partners are sticking their nose in with management decisions. Held that LPs are now GPs due to their control (withdrawing money without consent/knowledge of GP, firing GP, outvoting GP, etc) BLACK LETTER LAW. (above)

Frigidare Sales Corporation v. Union Properties, Inc.

LIMITED PARTNERS ARE NOT LIABLE FOR A LIMITED PARTNERSHIP'S DEBTS INSTANT FACTS (P), a creditor of Commercial Investors, a limited partnership, brought an action against the corporate general partner and its limited partners individually when the partnership failed to pay installments due on contract. BLACK LETTER RULE Limited partners are not liable for the debts of a limited partnership simply by their status as officers, directors, or stockholders of the corporate general partner as long as they conscientiously keep the corporate matters separate from their personal business and no fraud or manifest injustice results.

What is the main question in Master/Servant vs. Independent Contractor cases for establishing what type of relationship exists? What's the best indicator?

Level of control between master vs. servant. Look how money changes hands: who gets the cash during fat times and who loses during lean times.

Limited Liability Partnership (LLP) - how does it work

Limited partners are not personally liable for PSHIP losses, only the general partner. Limited partners are not involved in management, only general partners,

Miller v. McDonald's Corp.

MCDONALD'S CAN BE LIABLE FOR ITS FRANCHISEES' NEGLIGENCE. INSTANT FACTS (P) was injured when she bit into a sapphire found in her Big Mac and sued McDonald's Corp. (D) which had "McDonalds system" in place for franchisees. Held for P. BLACK LETTER RULE A franchisor can be held liable for its franchisee's negligence if the franchisor retains a right of control over the franchisee's business operations or holds the franchisee out as its agent.

Frandsen v. Jensen-Sundquiest Agency, Inc.

MERGERS DO NOT TRIGGER THE RIGHT-OF-FIRST REFUSAL UPON SALE PROVIDED IN A SHAREHOLDER AGREEMENT INSTANT FACTS The majority block of shares in (D) was owned by a group of individuals that entered into a shareholders' agreement providing them with protec- tion in the event of a sale of the corporation's stock, and when the company attempted to transfer its primary asset, one of the shareholders demanded to exercise his right of first refusal. BLACK LETTER RULE A minority shareholder's right of first refusal that is triggered by the majority shareholders' sale of their stock does not apply to a transaction in which an acquiring entity purchases the corporation's principal asset, after which the corporation is liquidated.

Stuparich v. Harbor Furniture Mfg., Inc.

MINORITY OWNERS ARE NOT GRANTED JUDICIAL DISSOLUTION WITHOUT EVIDENCE OF PREFERENTIAL TREATMENT OF MAJORITY SHAREHOLDERS INSTANT FACTS (P) and (P), minority shareholders in (D), received regular dividends, but wanted to be bought out because they were not on good terms with the other shareholders and their family members. BLACK LETTER RULE A court will not order dissolution of a close corporation if the plaintiffs fail to show the dissolution was reasonably necessary to protect their rights.

Owen v. Cohen

MUTUAL DISHARMONY AND DISRESPECT ARE BASES FOR A JUDICIAL DISSOLUTION OF A PARTNERSHIP; PSHIP LENGTH CAN BE LIMITED IN A NUMBER OF WAYS (UPA '14 §32) INSTANT FACTS. The court dissolved (P)'s and (D)'s bowling alley partnership upon finding that the parties could not practicably continue bowling business together. Held for not-a-jerk P. BLACK LETTER RULE. Courts of equity may order the dissolution of a partnership if... (1) P guilty of conduct that prejudicially affects carrying out biz (2) P willfully/persistently commit breach of PSHIP agreement or conducts self in way not reasonably practicable to carry on PSHIP, or (3) Other circs which render dissolution equitable. PSHIPS can be limited by: obligations being met, certain sum earned, 1+ P recoups investment, debts paid, prop disposed on favorable terms.

Factors to show Independent Contractor relationship vs. master-servant? NEED MORE INFO: SEE 2R §220(2)

Main indicator: Person who assumes financial risk is usually in control. FREEDOM TO CONTROL OPERATIONS (hours, hiring/training/firing, etc); payment of own bills (i.e. utilities); K duration; K terminable by either party; appearance of biz (all identical?); set rent rate (more sales --> profits to servant; fluctuates with sales --> profits to both); who assumes risk of loss

Doing the DOL analysis for a PSHIP, what are three seminal cases to remember? Can a PSHIP agreement modify PSHIP fiduciary duties?

Meinhard - DOL = #1! Meehan - lying to other partners and getting a head start with clients is bad. Poaching associates and administrative planning for your new PSHIP is OK. Lawlis - guillotine method of firing is OK if all partners agree ahead of time. PSHIP agreement can modify fid duties SOMETIMES.

Sadler v. NCR Corporation

NEW YORK LAW ENTITLES SHAREHOLDERS TO SHAREHOLDER AND NON-OBJECTING BENEFICIAL OWNERS LISTS INSTANT FACTS AT&T hired Shareholder to bring an action against a corporation to obtain its shareholder list and to demand the corporation create a list of nonobjecting beneficial owners. BLACK LETTER RULE A New York law entitling resident shareholders to shareholder lists and lists of nonobject- ing beneficial owners does not subject the corporation to inconsistent regulation prohibited by the commerce clause nor discriminate against or burden inter- state commerce.

Hoover v. Sun Oil Company

NO AGENCY EXISTS IF AN OIL COMPANY DOES NOT CONTROL A SERVICE STATION'S OPERATIONS. INSTANT FACTS. (P) was injured when his car caught fire while a service station employee was fueling it. But the Oil Company did not control the service station's operations. Held for Oil Company, no master/servant relationship, it's independent contractor. BLACK LETTER RULE. Agency arises if a principal retains the right to control the details of the day-to-day operation of the agent's business. Control/influence over results ALONE are insufficient to find master/servant relationship.

How can a partner exit a PSHIP?

No partner may transfer all or a part of its interest in the Partnership to anyone other than another Partner without the prior written consent of the other partners.

Does joint tenancy = agency? What about marital partnerships?

No to both.

Do you need to prove control for apparent agency?

No, because principal can be liable even without master/servant relationship. But you should argue both anyway.

Even if an agent's biz must appear identical to principal, is that indicative of a master/servant relationship?

No, it may just be for brand uniformity and that's all. Examine freedom to control operations instead.

Do parties have to INTEND to create a P/A relationship for one to exist?

No, just examine their conduct. However, elements still must be present (fiduciary duty, consent of P, consent of A).

Signature block on K offered - can it show meeting of the minds for binding a K?

No.

HYPO: a porter is sweeping in a department store, and someone insults the porter. the porter slaps that person. Is the store liable?

No. Although masters are liable when servants injure 3Ps who interfere with the servant doing the job instructed by the master, this was not within that scope. Must be sufficiently interfering (i.e. constant heckling at baseball game interferes with practice pitching) to compel employee/servant to act out and harm 3P.

If a K between P/A explicitly states "this is not a master servant relationship, it's an independent contractor" is that definitive?

No. Examine reality.

What forms/paperwork are required to start a PSHIP?

None. Conduct between two or more individuals without any other steps can establish a PSHIP.

Does a partner violate duties to the PSHIP simply by furthering his own interest?

Not per se. Additional circumstances may transform into violation of duty to PSHIP.

In re eBay, Inc. Shareholders Litigation

OFFICERS AND DIRECTORS MAY NOT USURP A CORPORATE INVESTMENT OPPORTUNITY INSTANT FACTS Individual directors and officers accepted high-profit IPO investments from Goldman Sachs as an incentive for maintaining a future business relationship. BLACK LETTER RULE The fiduciary duty of loyalty requires directors and officers to offer investment opportunities derived from corporate business to the corporation before acting on them individually.

Shlensky v. Wrigley

OFFICERS' AND DIRECTORS' DECISIONS ARE PROTECTED BY THE BUSINESS JUDGMENT RULE INSTANT FACTS Shlensky, a Chicago Cubs' shareholder, brought a derivative suit against the Chicago Cubs and its directors for negligence and mismanagement and for an order that the defendant install lights for night baseball games. BLACK LETTER RULE A shareholder fails to state a cause of action unless it alleges that a corporation's directors' conduct was causing financial loss to the shareholder and was based upon fraud, illegality or conflict of inter- est.

Meehan v. Shaughnessy

ONE-SIDED SOLICITATIONS TO A PARTNERSHIP'S CLIENTS BREACH THE DUTY OF GOOD FAITH AND FAIR DEALING. LYING TO PARTNERSHIP ABOUT CREATING A NEW PSHIP IS BREACH OF DOL. INSTANT FACTS P's separated from old law partnership (D), to form a new law firm with cases/associates removed from (D). Held partly for Ps (OK to scope out new premises, recruit employees), partly for D (not OK to take clients without disclosing what's happening). BLACK LETTER RULE. (1) PSHIP fiduciary duty = utmost GF, care, loyalty (consider other partner's welfare when acting for your own personal gain) (2) P can plan to compete with old PSHIP IFF doesn't otherwise violate fiduciary duty to that PSHIP (3) Transparency - A partner must render on demand true and full information of all things affecting the partnership to any partner (4) MPRE - notice to client of change of firm must say client has right to decide where they want to go.

Humble Oil & Refining Co. v. Martin

OWNER IS LIABLE FOR AN OPERATOR'S NEGLIGENCE IF THE OWNER DIRECTS THE MANNER UNDER WHICH THE STATION IS OPERATED (MASTER/SERVANT). INSTANT FACTS. (P) was injured by a vehicle that rolled away from the service station owned by (D), but operated by another person under contract. BLACK LETTER RULE. One who maintains control over a business enterprise's operation, even if it entrusts the operation to one acting without meaningful discretion, is liable as a principal for the negligence of those entrusted with his business. Master/servant relationship.

Gordon v. Doty

PERMISSION TO DRIVE ONE'S VEHICLE CREATES AN AGENCY RELATIONSHIP INSTANT FACTS. P loaned car to someone specific, that person gets in an accident. P/A relationship created. BLACK LETTER RULE An agency relationship results from 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. (2R Agency, §1); No need for there to be a "biz" per se, K, or compensation, only an agreement. LEVINSON SAYS: weak agency argument here, no real "fiduciary" duty from car owner to car borrower.

Hoddeson v. Koos Bros.

PROPRIETOR IS ESTOPPED FROM CLAIMING LACK OF AUTHORITY IF REASONABLE DILIGENCE COULD HAVE PREVENTED THE ACTIONS INSTANT FACTS (P) paid money for the purchase of furniture to an impostor salesperson in (D) furniture store. Held for P. BLACK LETTER RULE. Apparent authority covers scammers (apparent authority agents) if persons of ordinary prudence and circumspection (3Ps) are deceived. Proprietors (principals) have duty of care and vigilance to protect customers from these deceptions.

Day v. Sidley & Austin

PSHIP AGREEMENTS ARE BINDING ON ALL THE PARTNERS. INSTANT FACTS. (P) sued (D) law firm for breach of contract, fraud, and breach of fiduciary duty after he resigned due to the defendant's decision to merge with another law partnership and trying to make him share chairman of that city's branch with new merged firm partner. Held for (D) firm because P agreed to PSHIP K, could've negotiated for more. Also, D didn't enrich itself at expense of P. BLACK LETTER RULE. Partners bind themselves to pSHIP agreements. Partners must fully and family disclose to all other Ps info which is of value to PSHIP (no advantaging self at expense of PSHIP)

Nabisco v. Stroud

PSHIPS ARE LIKE PRINCIPAL/AGENCY: ALL PARTNERS ARE J/S LIABLE FOR ACTS OF OTHER P. INSTANT FACTS. Partners create grocery store. One P orders more bread when other P tells him not to. Held that PSHIP is liable for costs of bread to supplier. BLACK LETTER LAW. Each partner is an agent of the PSHIP and their acts in the usual course of biz for the PSHIP bind the other P/PSHIP unless P had no authority AND 3P had knowledge of the fact that the P had no authority. All Ps are jointly and severally liable for acts/obligations of PSHIP. All Ps have equal management and conduct rights in PSHIP biz. If Ps disagree, use majority vote (half =/= majority). If Ps want to contravene PSHIP agreement, need unanimous vote.

What are the tax consequences of a Partnership?

Partners pay tax only on individual tax returns ("flow through") and not twice like corporations do (corporate and individual taxes)

Apparent Agency (definition)

Person who represents that another is his servant/agent and thereby causes a 3P to justifiably rely upon the care/skill of agent is subject to liability to the 3P for harm caused by lack of care or skill of age as if he were such.

Public vs. Private Corporation

Public - freely tradable stocks Private - Closely held and publicly unavailable stocks, only the people who start the corporation can own shares.

Agency - procedure

Question of fact; BOP is on plaintiff; standard of proof is preponderance of the evidence

Arguello v. Conoco

RACIAL EPITHETS MADE DURING AN EMPLOYEE'S NORMAL, AUTHORIZED EMPLOYMENT DUTIES CAN BE WITHIN THE SCOPE OF EMPLOYMENT INSTANT FACTS. Several Hispanic plaintiffs were treated badly in stores owned or branded by (D). Held for Ps showing agency between employee and Conoco and that employee acted in tort within SOE, but not franchisee store and Conoco franchisor. BLACK LETTER RULE A master is liable for his servants' intentional tortious acts if they occurred within the servants' scope of employment.

Botticello v. Stefanovicz

RECEIPT OF RENT MONEY UNDER A LEASE WITH AN OPTION TO PURCHASE DOES NOT CONSTITUTE RATIFICATION OF THE LEASE INSTANT FACTS. Ds (H+W) own property as TIC. D-H negotiates alone with P about P leasing it. P agreed with D-H to lease property with option to purchase without consulting D-W. D-W receives rent payments, but disagrees when P wants to exercise option to buy. Held that D-W didn't ratify agreement by accepting rent. BLACK LETTER RULE. Ratification requires affirmance by a person with full knowledge of the material terms of a prior act which did not bind him but which was done or professedly done on his account.

Bayer v. Beran

RULE REQUIRING DIRECTORS' UNDIVIDED LOYALTY AVOIDS POSSIBILITY OF FRAUD AND THE TEMPTATION OF SELF-INTEREST INSTANT FACTS Shareholders brought a derivative suit against the Celanese Corporation of America's di- rectors (D) for breach of fiduciary duty for approving and extending a $1,000,000 per year radio advertising program. BLACK LETTER RULE A director does not breach his or her fiduciary duty by approving a radio advertising pro- gram in which the wife of the corporate president, who was also member of board of directors, was one of the featured performers.

What is the typical remedy for equitable dissolution of a PSHIP where one P was a jerk?

Reimburse the harmed P for losses caused by bad P. THEN split remainder between Ps equally/as K requires.

Apparent Authority (relationship, definition, result)

Relationship between principal and 3P. A doesn't have authority to make K/act, but 3P believes A did based on reasonable belief from/traceable to manifestations of P. Apparent authority exists when a 3P reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations. Binds the principal. Unless 3P knows better, agent can do things which are usual/proper to conduct of biz which he is employed to conduct. Example: P discusses making a K with a 3P. P then asks A to do it but to notify P before sealing the deal. A makes K with 3P without notifying P. No actual or implied authority, but apparent because 3P reasonably believes A is acting for P and that belief is traceable to P's manifestations.

Actual Authority

Relationship between principal and agent where P says "do this" to A, and A does it. P is bound to 3P for A's actions. Example: CEO passes resolution to hire Mr. T. Company now bound to hire Mr. T. CEO = A, Company = P, Mr. T = 3P. Company bound to hire Mr. T because of CEO's actions under actual authority.

What does it mean for an independent contractor to be "competent"?

Requisite skill + financial ability to deal with mistakes i.e. that lead to tort claims.

Liability of Principal to 3P in Tort - Master/Servant

Respondeat superior apples, master is liable for torts caused by servant. Created by servant agreeing to (1) work on behalf of master, AND (2) be subject to master's control of physical conduct of servant (manner in which job performed)

Liability of Principal to 3P in Tort - Independent Contractors (rule, in practice, policy)

Respondeat superior does not apply, principal is not liable for torts caused by servant EXCEPT when (1) principal retains control of manner/means of doing work, (2) principal engages an incompetent IC, OR (3) activity contracted for constitutes a nuisance per se ("inherently dangerous") Typically, an agent agrees to work on behalf of principal but isn't subject to principal's control over how the result is accomplished. Agent operates independently and enters into arms length transactions with 3Ps. Policy extends liability to principal under exceptions above only IC and principal can prevent harm, not the injured person. Accomplished by hiring competent IC and getting insurance.

What is a policy argument against the outcome in the taxi corporation case?

SH of corp that is vested with public interest (driving a lot means high likelihood of harm) which has insufficient $$ to meet its liabilities which are certain to arise in the ordinary course of corp's biz should be held personally liable. (Keep your corp poor, corp likely to harm people, you are liable).

How is the corporation controlled?

SH vote for BOD (not employees, but make major DM and are liable to corp) --> BOD hires officers who report to the BOD

Ingle v. Glamore Motor Sales, Inc.

SHARE OWNERSHIP IS NOT A GUARANTEE OF CONTINUED EMPLOYMENT ABSENT AN AGREEMENT PROVIDING LIFETIME EMPLOYMENT INSTANT FACTS (P) was a sales manager and a shareholder of Glamore Motor Sales, Inc., (D), and when the company terminated his employment, his shares were bought back under a shareholders' agreement. BLACK LETTER RULE If a shareholders' agreement provides for the right to repurchase shares upon the termination of a shareholder's employment with the issuing company, the employment is treated as employment at will and the shareholder has no claim for damages upon termination.

McQuade v. Stoneham

SHAREHOLDER AGREEMENTS MAY NOT RESTRICT A BOARD'S AUTHORITY INSTANT FACTS (P), who was employed as corporate treasurer pursuant to a shareholder's agreement, was discharged. but claimed that he couldn't be discharged per the Shareholder agreements. BLACK LETTER RULE A shareholder agreement may not control a board of directors' exercise of judgment.

Clark v. Dodge

SHAREHOLDER AGREEMENTS REGARDING OFFICERS' EMPLOYMENT MAY BE ENFORCEABLE INSTANT FACTS (P), who was employed as treasurer and general manager of a corporation pursuant to a shareholder's agreement, was discharged (secret formula case). BLACK LETTER RULE A shareholder agreement regarding employment of certain individuals as officers is enforceable if the directors are the sole shareholders.

Galler v. Galler

SHAREHOLDER AGREEMENTS RELATING TO THE MANAGEMENT OF A CLOSE CORPORATION MAY BE ENFORCED INSTANT FACTS (D) entered into a shareholders' agreement with his brother, Benjamin, to provide for their wives after their deaths, but Benjamin later refused to abide by the agreement. BLACK LETTER RULE Shareholder agreements that relate to the management of a close corporation will be upheld, even if the agreements violate corporate norms.

Lovenheim v. Iroquois Brands, Ltd.

SHAREHOLDERS MAY INCLUDE SIGNIFICANTLY RELATED MATERIALS WITH A COMPANY'S PROXY STATEMENTS INSTANT FACTS (P) asked to have information about a resolution (on foie de gras) he proposed to make at an upcoming shareholders' meeting included in the company's proxy materials, but the company refused. BLACK LETTER RULE Under § 14(a) of the Securities Exchange Act, shareholders may include in the com- pany's proxy statements certain materials that have limited, if any, economic impact on the company as long as they are ―otherwise significantly related‖ to the issuer's business.

Zeitlin v. Hanson Holdings, Inc.

SHAREHOLDERS MAY RECEIVE A PREMIUM ON THE SALE OF THEIR SHARES FOR THE CONTROL REPRESENTED BY THEIR SHARES INSTANT FACTS (P) owned two percent of Gable Industries when (D) and (D), which owned a controlling interest in Gable Industries, sold their shares to Flintkote Co. for $15 per share at a time the common stock was trading at $7.38 per share. BLACK LETTER RULE In the absence of an allegation that a shareholder is looting corporate assets or has committed fraud or other acts of bad faith, a shareholder may obtain a premium price for the sale of a controlling block of shares.

Stroh v. Blackhawk Holding Corp.

SHARES MAY REPRESENT A PROPRIETARY INTEREST EVEN IF THEY DO NOT ENTITLE THE HOLDER TO DIVIDENDS OR OTHER PROPERTY INSTANT FACTS (P) purchased shares of D Holding Corp.'s Class B stock, which permitted voting rights in corporate matters, but did not receive dividends or other corporate assets. BLACK LETTER RULE A corporation's shares of class B stock, which permit voting rights, are valid shares of stock, notwithstanding the fact that the stock is not entitled to dividends.

Ringling Bros.—Barnum & Bailey Combined Shows. v. Ringling

STOCKHOLDERS MAY MAKE BINDING AGREEMENTS ON HOW TO VOTE THEIR STOCK INSTANT FACTS (P) agreed to vote her stock in agreement with (D), but then refused to do so. BLACK LETTER RULE A shareholder may agree with another shareholder to vote his or her stock in a par- ticular way.

In re Wheelabrator Technologies, Inc. Shareholders Litigation

STOCKHOLDERS MUST BE FULLY INFORMED WHEN THEY RATIFY AN INTERESTED TRANSACTION INSTANT FACTS The shareholders of (D) sued the company's directors for breach of fiduciary duty, alleging the proxy statement issued in connection with its merger was misleading. BLACK LETTER RULE An interested transaction between a corporation and its directors is not voidable if it is approved in good faith by a majority of fully informed, disinterested stockholders.

How does voting function in a PSHIP?

Simple majority rules. Majority is determined by each P's aggregate capital contribution at time of determination.

Smith v. Van Gorkom

THE BUSINESS JUDGMENT RULE PRESUMES ALL DECISIONS MADE BY A COMPANY'S DIRECTORS ARE INFORMED INSTANT FACTS Trans Union's (D) stockholders brought a class action suit against the company's board of direc- tors for negligent decision-making. BLACK LETTER RULE The business judgment rule presumes that, when making business decisions, directors act on an informed basis, in good faith and in the company's best interests.

Marx v. Akers

THE PLAINTIFF MUST PROVIDE MORE THAN CONCLUSORY STATEMENTS TO ESTABLISH THAT A DEMAND WOULD BE FUTILE INSTANT FACTS A shareholder brought a derivative action charging breach of fiduciary duty and corporate waste by International Business Machines' (IBM) board of directors for excessive compensation of IBM's executives and outside directors. BLACK LETTER RULE A plaintiff establishing that a demand on a company's board would have been futile must show either that the measure furthered the board's self-interest, that the directors did not fully inform themselves about the challenged transaction, or that the challenged transaction was so egregious on its face that it could not have been the product of the directors' sound business judgment.

How do the public view franchises? What consequences?

They don't. They assume all franchises are the same corporation, relying in part on franchisor's insistence on sameness and uniformity for the brand. People injured at franchises that are substantially the same due to franchisor control can't be expected to differentiate.

How is "purpose to serve the master" in scope of employment cases construed in traditional vs. modern courts? What are the policy considerations?

Traditional courts may view it narrowly, modern courts consider foreseeability of human nature and what's involved on the job. Expanding the SOE is expensive, but since injured plaintiffs frequently can't pay for their injuries, expanding liability serves respondeat superior objectives by spreading loss to people who CAN pay. Induces employers to fix dangers.

Watteau v. Fenwick

UNDISCLOSED PRINCIPAL IS LIABLE FOR HIS AGENT'S DEBTS OWED TO AN UNKNOWING 3P INSTANT FACTS. Agent operated Principal's tavern under Agent's name and credit and purchased goods from 3P without Principal's express authority. Held for 3P because Agent's acts were reasonably in the scope of that agent's authority (tavern "owner.") BLACK LETTER RULE The Principal is liable for ALL acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and agent, put on that authority.

Dissociation by judicial determination (definition)

UPA '97 §601(5)(iii) P dissociated when on application by PSHIP/another P, P's expulsion by judicial determination because P engaged in conduct related to PSHIP biz which makes it not reasonably practicable to carry on biz PSHIP with that P.

Dissolution by judicial determination (definition)

UPA '97 §801(5)(ii, iii) PSHIP is dissolved, biz must be would up, only if... on application of P/Judicial determination that either... Another P engaged in conduct relating to PSHIP which makes it not reasonable practicable to carry on PSHIP with that P, OR... it's not otherwise reasonably practicable to carry on PSHIP biz in conformity with PSHIP agreement.

What happens if the PSHIP agreement doesn't state the percentage for sharing profits among the partners?

UPA controls.

What is the remedy for dissociation?

UPA §701(b) Evaluate biz as a "going concern" and then pay out appropriate portion to exiting partner. If there's an offer to pay more than the going concern price, pay higher amount to outgoing partner.

Stone v. Ritter

WITHOUT RED FLAGS, DIRECTORS HAVE NO REASON TO SUSPECT WRONGDOING INSTANT FACTS After the corporation's banks were assessed significant fines for employee misconduct, shareholders initiated a derivative action but failed to make a demand on the board prior to filing suit. BLACK LETTER RULE To excuse the statutorily required pre-suit demand on directors, a court must determine whether the particularized factual allegations of a derivative stockholder complaint create a reasonable doubt that, as of the time the complaint was filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand. (But in this case the company had placed a decent amount of precautions in place).

Hidden/Undisclosed Principal (relationship, definition/result, policy argument) 2R §194-195; 3R §2.06

When an agent and a 3P interact, and the 3P has no notice that the agent is acting for a principal. The principal is liable for ALL acts of the agent which are usual or necessary in such transactions and within the authority usually confided to an agent of that character, notwithstanding explicit limitations, as between the principal and agent, put on that authority. However, under 3R principal must have notice of agent's conduct knowing it might induce others to change positions AND principal didn't take reasonable steps to notify 3P of facts (that undisclosed principal exists). Policy requires holding undisclosed principals liable for agents' acts because since there is no "apparent authority," there is no recourse for 3Ps for losses caused by agents. Agents may have zero money and just be a shell for undisclosed principal, meaning damaged 3P has no restitution.

Can consciously criminal or tortious acts be within the SOE?

Yes, unless serious crimes. (2R of Agency §231)

Will a master be liable to injured 3P for servant's use of force if that use of force is in the SOE and expected by the master? Example?

Yes. Example: bouncers are employed to eject people, will probably hurt people. Nightclub owner is liable to injured ejected people because ejecting is expected to be violent and within SOE of employee.

Can a partner sell his ownership interest? what about liquidation?

Yes. Liquidity depends on PSHIP K.