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Corporations Attack Outline

Law Outlines > Corporations, Agency, and Partnership Outlines

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I. AGENCY 1) IS THERE AN AGENCY RELATIONSHIP?
*Person: any entity that has legal capacity to possess rights and incur obligations. (Persons, corps, etc) 1) Principal manifests assent to the agent
-Assent = manifestation implied from circumstances, current/prior conduct, written, oral, etc.
-subjective intent irrelevant. Could disclaim agency, but still have it. No K, consideration needed 2) that the agent shall act on the principal's behalf
-Agent must be acting primarily to achieve principal's goals (Or at least attempting to do so).
-Favor to A: P lends A her car. A acting as P's agent (employee?!). (Gorton).
-presumption that when you lend someone your car they're your A. (get $ from pty w/ insurance)
-procuring grain that P had right of first refusal over, financed by P's credit. (Cargill).
-Supplier-buyer: supplier not agent if he is acting for himself rather than for the other. FACTORS: 1) fixed price 2) acting in own name; 3) independent biz => probably not agent. 3) and subject to the principal's control Principal may direct the result or ultimate objectives of the agent relationship.
='may be exercised by prescribing the agent's obligations before or after the agent acts, or both' OR during, can give interim instructions or directions.
-Control: condition precedent on use of car - that agent use it - sufficient. (Gorton).
-Control: creditor-debtor = de facto principal-agent. 1) regular comm. and suggestions; 2) power to control some decisions; 3) other factors (right of 1st refusal on grain, right of entry on A's premises, P's name on A's checks. Active participant, not financier. (Cargill)
-BUT if potential A bears the risk of loss or benefits of profit, usually suggests no P-A control. 4) Agent manifests assent or otherwise consents so to act [for P's benefit and s/t P's control]
-no need to communicate. Just needs to act on P's behalf. No consideration required. Can be gratuitous. 5) POLICIES that make finding of agency more likely.
-principal best able to insure against loss (Gorton - car owners)
-with power comes responsibility (Cargill - benefits+power of owner => liability too)
*BURDEN: is on party asserting agency relationship.
=>IF NO AGENCY => SKIP TO #5, could have apparent agency or estoppel.

2) IF SO, WHAT TYPE OF AGENCY RELATIONSHIP IS THIS?
-Employee: agent whose physical conduct in performance is controlled or s/t a right of control by master.
-Independent Contractor: person who contracts w/ another to do something for him, but who is not controlled by the other nor s/t the other's right to control w/r/t his physical conduct in the performance
***Non-agent ICs: operates independently, just enters into arms' length transactions w/ others. FACTORS suggesting employee
*can be employee for some purposes, IC for others, depending on what things are controlled. Ex: McDonald's is centralized in some things, but security is local, so IC for security.
-P gets share of revenues, or even better revenues and losses (total net) => IC. Person w/ residual share (who is getting benefits or taking risks) will want more control.
-(Important) custom in the locality - whether this kind of occupation is usually done under the direction of the employer or by a specialist without supervision.
+(Important) less skill required in the particular occupation (easier for P to supervise A).
+extent of control which, by agreement, the master may exercise over the details of the work.
-Day-to day, NOT just the basic objective. Power to fire on short notice suggests ctrl.
+the one employed is not engaged in a distinct occupation or business
+the employer supplies tools and the place of work for the person doing the work
+longer length of time for which the person is employed
+method of payment is by time, rather than by job
+the work is part of the regular business of the employer, (AND they actually have a business)
+parties believe they're creating a master-employee relationship as opposed to IC (labels of K). Rationale: ease with which the output can be specified =>, then easier for IC relationship, no need to constantly supervise. Franchises - give them a set standard to comply with, easy to monitor the standard and don't have to monitor how they achieve it. (Holiday Inn case).

3) LIABILITY IN CONTRACT TO 3Ps (Agent's Authority) POLICY: Generally, principal should be bound if they are the cheapest cost avoider. (Which is usually when they are idiosyncratic in some regard - key is reasonable 3rd party expectations). 1) FIRST: NATURE OF THE PRINCIPAL. Four options. Undisclosed: 3d pty is unaware that the agent is acting on behalf of a P. Existence and ID is unknown. Partially disclosed: 3d pty reasonably should have known that the person with whom he was dealing was acting as an agent on behalf of the principal, but doesn't know the ID of principal No principal at all. (Atlantic Salmon).
=>Whenever there is not a disclosed principal (and no contract out of the default) => A is bound.
-IF A had authority => P is bound too
-IF A didn't have authority=>P is not bound (absent inherent authority or ratification) Atlantic Salmon: looked at purpose of rule to expand. You assume you are dealing with agent unless some other person is disclosed.
-Disclosed P (there is a P and 3P knows ID):=> P is bound to 3P
-Atlantic Salmon: avoid shady shit. Basically, unless there is a P and 3P knows who it is, A should be bound to the 3P. Agent generally not bound to 3P. UNLESS EITHER
-Parties contract out of the default - clear intent that A be a party to the contract.
-A had no auth., and P refuses to ratify K. MAJ let 3P get compensation from the agent. (implied warranty of authority unless 3P knows no auth; breach of K, tort for deceit,.). DISCLOSED Principal is bound to contract (and A isn't) if A had ANY of the below. 2) SECOND. WAYS IN WHICH PRINCIPAL CAN BE BOUND TO THIRD PARTY

-Actual Authority: agent reasonably believes he has authority based on his interactions with the P. Agent reasonably believes the principle has consented to a particular course of conduct.
-EXPLICIT Actual Authority: Creation: principal tells agent he has the authority in question (oral/written).
-even if P didn't intend to confer authority. Scope: strictly construed - limit to the business actually intended by the parties, specific language prevails over general grants.
-IMPLICIT Actual Authority Agent reasonably believed that the action was within the scope of his authority in light of the principal's objectives and other facts known to the agent? Examples...
*UNLESS express instructions otherwise.
-incidental auth. to use means reasonably necessary to carry out P's express objective.
-customary agent powers in the trade/community;
-course of dealing in similar transactions (ex: this transaction delicate, so no urchin).
-the less similar, the less strong the evidence of course of dealing. Church of Christ v. Hogan: Agent employee had implied authority in two ways.
-incidental: the job required two men. So authority to hire a helper.
-conduct: past practice was to hire his bro. Church had to specifically instruct him not to.

-Apparent Authority: 3rd party reasonably believes based on manifestations of the P to the 3P.
*even if there was no actual agency relationship anymore. Rationale: prevent P from avoiding contractual obligations they don't like by claiming they gave some private instructions to their A that took away actual authority. If A doesn't follow your private instructions, you'll be bound to 3P, but can sue agent. 1) Principal held out the agent as possessing certain authority
*Actual authority for some things can lead to apparent authority for others. (370 Leasing). Express: clear letter to 3rd party stating that the agent has authority. Implied thru inaction of P when A asserts that there is such an agency relationship to 3rd party. Ampex: apparent authority thru P's inaction. 1) held out by placing A in position where such authority was customary. 2) reasonable: Never told 3P party that A lacked authority, memo saying that A would be channel for all of P's communications w/ 3P. Implied thru course of conduct: P allows A to carry out a series of transactions over an extended period of time, => 3P can reasonably believe that most recent transaction is authorized. Implied thru custom: (NEXT PAGE) (Apparent authority implied thru custom).

Rationale: the idiosyncratic owner who goes against custom should be the one that has to take precautions - rather than potential third parties. And P can always sue A.
=3P knows P put A in position that has generally recognized authority to enter into the agreement in question.
-Knowledge solely from manifestations of A?
OK if A had actual authority to make the manifestations at issue Authorized manifestations can imply authority broader than that which is actually authorized. (370 Leasing). IF NOT, then could still be inherent authority. 370 Leasing: Apparent authority 1) implied thru custom - employee's title was sales rep=>suggests authority to make sales; 2) implied thru inaction - P met w/ 3P and A, said A had actual authority to negotiate and didn't say he lacked authority to close. 2) Third party reasonably relied on the agent having such authority Practically, 3P likely won't argue that they weren't listening to the reasonable manifestation. a) 3P had notice from principal that agent lacked such authority? => not reasonable b) Reasonable diligence? (split)3P has duty to exercise reasonable diligence to verify A's authority-IF circumstances put 3P on notice of need to inquire, then must exercise reasonable diligence to verify A's authority. c) Reliance by 3P? (split) (but lack of reliance suggests didn't think A had authority). REMEDY===>P is bound to 3P, but P can recover against A who lacked actual authority.

-Inherent Authority (some allow): (should be) principal reasonably foresees. (like Ira Bushey). Rationale: enterprise liability - principal is getting benefits of the agency relationship, should bear burdens.
-Unauthorized acts of a general agent of an undisclosed principal. (RTA: estoppel of undisclosed P) Undisclosed P who entrusts an A w/ management of his biz [grants inherent authority to A to enter into] transactions usual in such biz and on the principal's account, although contrary to the directions of the principal.
-AND P didn't take reasonable steps to notify 3Ps of facts, AND 3P relied to his detriment.
-Watteau v. Fenwick. No actual authority - P expressly told A not to buy Bovril. No apparent authority - 3P didn't even know that P existed, so couldn't be holding out. BUT AUTHORITY Protect 3Ps: Undisclosed principal is cheaper cost avoider than third party: cheaper for the idiosyncratic Ps (pub owners here, abnormal in preventing agent from buying bovril) to take precautions, than for all Bovril sellers to take precautions. (How could they take precautions anyway if they didn't know P existed?). POLICY: might make more sense to define this by reasonable foreseeability of the P. Cost avoider. When you put someone in biz, you might have obligation to ensure they aren't harming others. REMEDY===>P is bound to 3P, but P can recover against A who lacked actual authority.

-Ratification 1) Agreement that purports to bind the 3P and principal was made by agent who lacked authority Botticello: Initial contract wouldn't have bound P even if A had authority. Can't be ratified. 2) BUT Principal ratifies after the fact, through...
-Express ratification if P was fully informed of material facts and ratified in reasonable time/manner
-Ratification by litigation: Implied affirmation by suing to enforce the K. Ratification is all or nothing.
-Implied ratification by accepting benefits of transaction, 1) P fully informed of the material facts at the time of ratification.
-Ex: NO if didn't know what the check was for. 2) Objective intent to ratify (based on reasonable interpretation of their intended actions)
***P must have had ability to decline such benefits from the 3P. If not, not really acceptance.
-Ex: NO when P returns home to find grass cut at direction of unauthorized A. 3) P didn't promptly disavow the transaction as soon as the P had reason to know of it. Ex: NO when P received stock statement w/ unauthorized stock. 'wait and see' then tried to disavow next month. Implied affirmation through silence/inaction.

4) PRINCIPAL'S LIABILITY IN TORT TO THIRD PARTIES
*APPARENT AGENCY TOO: if P made representations about care/skill.

-IF THE AGENT IS AN EMPLOYEE:
=>Master can be directly liable for negligent hiring/supervision of employee.
=>Master (strictly) liable for torts of A committed within scope of the employment. Strict liability: even if conduct was expressly forbidden, it can be within the scope of employment. Can't just issue boilerplate instructions and get off the hook. Would defang. But limited to acts w/in scope. Can't make employer the insurer of their employees. Inefficient to make them the constant watchdog of employee. Need a line. But precautionary incentives don't explain it, ABILITY TO INSURE does. Need effective information. 1) ***employee actually committed a tort. 2) NOT 'frolic and detour' conduct far removed from time and space limits of employment
*but in modern times when employees work outside office and outside regular hours.
-Snowbird Ski Resort: taking a few pleasure runs, then heading for restaurant. Could reasonably find that he had resumed is employment, deviation [?] 'total abandonment' 3) Within the scope of employment (SPLIT/use both).
-Purpose to serve conduct motivated, at least in part, by an intent to advance the interest of P.
-Less liability than foreseeability approach)
-Nelson: w/in scope: intentional tort 'get up you big son of a bitch, and turn to'
-Grimsley: w/in scope: intentl tort in response to plf's conduct which was presently interfering w/ employee's ability to perform duties.
-Foreseeability: the fact of employment made this general type of accident more likely.
*can define the "type" of accident broadly or narrowly. Conduct was of the same general nature as, or incidental to, the task that the servant was employed to perform.). (Ira Bushey):
-General type of harm foreseeable => P liable (even if specific type wasn't). (Ira Bushey):
-Conduct by servant that creates risks different from general community activities
-employee in unusual situation that only encountering bc employed => suggests P liable. (Ira B)
-Incentives: forcing employer to internalize costs of misconduct only makes sense if the principal can take steps to prevent the misconduct (so need more than just basic relationship w/ time-space). (Ira B).
-Fairness: enterprise liability - biz should take responsibility for accidents that may fairly be said to be characteristic of its activities. Enterprise liability for costs of doing business. (Ira Bushey).
*cheapest cost avoider is employer? Principal has most information, can insure against the likeliest harms incidental to line of business. (can take car in hiring, tasks assigned, equipment, etc).
=>Master strictly liable for torts w/in scope of employment, but has a claim against employee himself.

-IF THE AGENT IS AN INDEP. CONTRACTOR: => Generally not liable, with exceptions.
-non-delegable duty? (Ex: atty-client, or landlord-tenant).
-Principal retains control over aspect of the activity in which the tort occurs. (unclear whether SL)
-Negligent hiring of IC: Principal negligently hires an incompetent IC by failure to check competence. AND IC commits a tort.
-Reasonable care. No duty to inquire into minutia if IC has a generally good rep. (Hixon).
-(dispute) financially irresponsible (lack of insurance/assets) IC = incompetent IC Pro: loss-spreading, compensation thru allowing victims deepest pocket. Can't really supervise the IC (that's why they're an IC), but can buy insurance. Con: costs of precautions too high, detailed financial inquiry. Counter: often easy to check credit w/ agency and require adequate insurance. Easier than competence inquiry.
-Inherently dangerous activities: IC's performance involves an inherently dangerous activity. 1) activity can be carried on safely only by exercise of special skill and care 2) activity involves grave risk of danger if negligently done. 3) IC was in fact negligent Majestic: hired IC to demolish bldng. ("I goofed").
-Ultrahazardous activities
-SL for activities that involve serious risk that can't be eliminated w/ due care, and not common. Policy: activity-level incentives need to be transmitted to the P, P makes decisions in 1st place. Also want incentives to 'rack brain' for precautions (applies to inherently dangerous too?)
=>Master liable for TORTS of IC. AND IC independently liable to both master and harmed party.

5) LIABILITY DESPITE LACK OF AGENCY RELATIONSHIP

-Estoppel: (not well established): agency by estoppel (or tortious dereliction of duty). Basically an affirmative duty to take reasonable steps to keep people from misrepresenting themselves as your agent. Rationale: whenever something weird happens between plf and def and plf should be able to recover. CL is more sure of the answer than the doctrinal category. 1) P's intentional or negligent acts/omissions created an appearance of authority in the agent
-need duty to reasonably supervise something. (ex: premises - Hoddleston)
*if P actually made manifestations, then would be apparent authority. Rationale - people who run establishment where risk that others might think impostors are their agents have an obligation to take reasonable steps to prevent that from happening. Counter: people already have incentives to stop this from happening, and impossible to catch everyone. 2) On which 3P reasonably and in good faith relied 3) and such reliance resulted in a detrimental change in position on the part of the 3P Hoddleston: the impostor furniture salesman.

-Apparent agency tort liability Contract-like: reliance-misrep. + tort-like: safety. Developed to deal w/ franchises. It's not apparent authority, because we don't think P authorizes As to be negligent. 0) STILL APPLIES WHEN THEY ACTUALLY ARE AN AGENT. 1) One who represents that another is his servant or other agent and possesses certain care and skill (NOT a representations about product quality - representation that product won't harm)
-"Branding" from franchise center. 2) Causing a 3P justifiably and detrimentally to rely upon the care or skill of such apparent agent 3) is liable to the third person for the harm caused by the lack of skill or care of the one appearing to be a servant or other agent, as if he were such. (last prong is tort-like). Miller v. McDonalds Corp.

6) LIABILITY OF P's and A's TO EACH OTHER (Fiduciary Obligations)
*DEFAULT RULES - so can be contracted out of.
-Duties of Principal to Agent
-duty to reasonably compensate the agent.
=>with reasonable value of services rendered.
-duty of care (in the training, surroundings of the agent).
-duty to indemnify the agent...
-when the A suffers a loss that fairly should be borne by the P in light of their relationship
-when agent makes payment that is EITHER
-within the scope of A's actual authority
-beneficial to the principal, unless A acts [without permission] in making the payment
-duty to deal fairly and in good faith with the agent
-including informing agent of financial/reputational risks potentially posed by work to be done.
-DUTIES OF AGENT TO PRINCIPAL
-AFTER AGENCY: AGENT'S DUTY OF LOYALTY (to act solely for the benefit of P in all matters connected w/ his agency )
*allowed to prep for competition during agency, and compete after. But hard to specify which info they can't use, and enforce it. So easier to just say they can't work for competitors at all. (Non-comp clause). 0) Agency relationship terminated: whenever one side withdraws consent that A should act on behalf of and s/t control of P. 1) Agent has duty not to use confidential information learned during course of agency relationship Rationale: incentivize development of that information. A can free-ride, P won't develop. Town + Country: stealing customer list that took long time + effort to develop. DURING AGENCY ... NEXT PAGE
-DURING AGENCY: DUTY OF LOYALTY (to act solely for the benefit of P in all matters connected w/ his agency)

1) NO CONSENT BY PRINCIPAL (these are all default rules). Conduct that would otherwise constitute a breach of duty doesn't if a) P consents, and scope of consent covers the acts at issue. (Either specifically consents to this act; or consents to acts that could reasonably be expected to occur during the agency relationship). b) in obtaining consent, A acted properly: A acted in good faith and disclosed all material facts that the A has reason to know or should know would reasonably affect P's judgment, and otherwise dealt fairly w/ the P 2) DUTY OF LOYALTY VIOLATED: (basically defined by scope). Contract (implicitly or explicitly) can allow this conduct. (Ex: gov't K implicitly allows memoirs). Or impose even greater restrictions (like 'no moonlighting').
-Duty not to acquire material benefits arising out of the agency: 1) without knowledge (consent) of P; 2) A receives something (usually from a 3P) in connection with or because of a transaction conducted for the P (tip, kickback, bribe, etc).
-Duty not to act as (or on behalf of) an adverse party, or compete:
-A acting as an adverse party to transaction w/ P w/out P's knowledge/consent => violates duty.
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Rash: didn't let employer know, burden on agent to do so.
-A who acts for more than one P in a transaction between or among them has duty to a) deal in good faith with each P b) disclose to each P the fact that he is acting for other P, and all other facts that he knows or has reason to know would reasonably affect the P's judgment c) and otherwise deal fairly w/ each P.
-A competing with the P within the scope of his agency.
*even when acting on own time w/ own supplies.
-Abuse of A's position: A has duty not to take advantage of his position
-A cannot usurp biz opportunity that should've gone to the P (usually in P's line of business).
-A cannot use confidential information learned during course of relationship for personal profit.
-A who uses the assets of the P's business for his own/3P's purposes. If using P's assets to compete w/ P is breach, then using them do something illegal should be treated the same way.
=>s/t liability for the value of the use, and profits made. Reading v. Regem: even though P not harmed, A cannot use position for own benefit. Use of uniform was enough connection to agency position. 3) PRINCIPAL'S REMEDY
-Disgorgement: P has effective property right in ill-gotten gains. No need to show loss to P. Incentives: effective deterrence given lower probability of catching and winning against violator. Also difficult to prove proper measure of compensatory damages.
-AND if A acted adversely to the P's interest=> P need not compensate the agent. (some) AND can recover compensation paid to A while he was violating duty.

II. PARTNERSHIP
-OR MERE PASSIVE CO-OWNERS. No fiduciary duties at all. PARTNERSHIP: Association of two or more persons to carry on as co-owners of a business for profit.
*No formalities/contract required, based on objective interpretation of intentional acts.

FACTORS: sharing of profits/losses (prima facie evidence of partnership, unless re-characterized); right to control biz - not just passive ownership; objective interpretation of actions; subjective intent; contribution of capital. Carry on: on-going biz relationship, not a single transaction
-LIMITED PARTNERSHIP? (SEE "E" BELOW) JOINT VENTURE: association or cooperative arrangement between two or more persons or companies to carry out a single specific undertaking for a profit. (Sandvick elements) 1) Contribution by the parties of money, property, time or skill in some common undertaking. (Though the contributions need not be equal or of the same nature) 2) A proprietary interest and right of mutual control over the engaged property 3) Express or implied agreement for the sharing of profits, (and usually losses). 4) Express or implied contract showing a joint venture was formed. Ex: Sandvick: JV not partnership. Limited time (5yr) leases, just one sale, specific plan to sell leases.
=>MOST just impose the same legal requirements as a partnership. JVs just have more limited scope.

A. Fiduciary Obligations [DURING] Partnerships
-DUTY OF LOYALTY: Within the scope of the partnership, partners must act for the p-ship and not for themselves. (When dealing w/ the outside world). CAN'T BE GENERALLY CONTRACTED OUT OF. Avoid conflicts of interest against the partnership. (But unavoidable w/ other partners, pie-sharing) WITHIN THE SCOPE: general or specific (and how specific?) Custom in the industry; prior dealings of the parties; number of other ventures partners/JVs involved in (many others suggests limited scope for this particular one); terms of the agreement; duration; roles of the partners (if one is financier, suggests he doesn't have role in future business, just financed this specific venture) Sandvick: Scope of the JV was sale of the leases. Found new leases were an extension of old ones,
-Meinhard v. Salmon: (Probably wouldn't come out same way today, outside scope) During time of lease, partnership extends to opportunities connected to it. APP: subject matter of the new lease was sufficiently related to the old one, and brought to him because of partnership (but for the partnership, he wouldn't have gotten the opportunity). Must disclose (But don't have to include him in it). Pro: Cardozo's view encourages investment. Duty of loyalty is LIMITED to the following (UPA SS404)
*Note: doesn't violate merely bc the partner's conduct furthers his own interest. (UPA SS404(e)). (1) No using partnership property/benefit/opportunity for personal benefit: to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct (scope) and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity; Partnership opportunities: Opportunity came to partner because of partnership.
-opportunity OUTSIDE SCOPE of p-ship => NOT partnership opp.
-opportunity (though it came to attention because of p-ship) arises AFTER partnership term is over => DISCLOSURE SUFFICIENT.
-Other disclosures
-Must render true and full information of all things w/in scope on demand.
-OLD (Sidley): only duty to disclose info that produces profit for concealing partners or loss for the partnership. (So no duty absent conflict of interest).
-UPA(97): duty to disclose any info concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties. (Info w/in the scope of the partnership)
+Need some sort of prejudice from the false/hidden statement. (2) No self-dealing with the partnership: to refrain from dealing with the partnership in the partnership business as or on behalf of a party having an interest adverse to the partnership; and (3) No competing against partnership: to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership. Meehan: no breach. Made logistical arrangements, such as getting an office, prepping client lists, getting financing, etc. BUT breached dty to disclose, lied and misled clients.
-DUTY OF CARE: (c) A partner's duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. Generally don't want to impose liability for making unsuccessful (or even bad) biz decisions.

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