Business associations class 1 -- Aug 22, 2016

Administrative
Textbook -- sometimes goes into too much detail - so pay attention to
the cases that are listed in the syllabus specifically. Notes etc are
helpful but not required
Not discussed in class then don't have to worry about it.
Will also get preview slides previewing what we will be discussing in
class the next day.
Can use the 4th edition. Not a big problem. Also 3 case books on
reserve.
No other required materials besides what is on b-courses and textbook
-- but also has a rule book that might be good to get. GET THE
STATUTORY SUPPLEMENT. (Not required)
Use review slides to prepare outlines.

Goals of the course

Key stats, duties rights of action
Key terms
Key players
Business motivations, transaction types...

Overview of the course

Part 1: agency & Partnership

Explore basic form of enterprise organization: agency, partnership, LLC
Part 2 corporate form
Part 3 corporate governance
Part 4 fiduciary duties
Part 5 M&A

Why do we have corporations?

Aggregation of resources -- main goal of having business/corporations.
We need a legal mechanism to have investors aggregate money and
get that money to an entity that knows what to do with it.
Provide some oversight as to how the resources are being used --
provide oversight and a hierarchy. - internal structure that makes them
very different from the market
Who benefits from corporations ? -- investors, making profit for
shareholders,
Shareholders, managers, and employees are the people involved... But
there are others involved. Corporate law tries to manage all of these
relationships to achieve a hierarchy to manage resources accordingly.
How is business associations different than other courses?
Most areas of law involve two parties -- business associations are
multi-party relationships that are more complex.
3 basic problems of corporate law
Shareholders - contribute resources. They pick managers and the
people that run the corporation. Who in turn have a relationship with
employees, creditors, and others. Ok

Basic Agency Relationship

Relationship between principal and agent agent creates a contractual
relationship that binds the principal. This creates duties and obligations
between the principal and the third party.
Agency relationship arises out of consent both parties in the agency
agreed to this agency relationship

Formation: Types of Agency

Scope
o Special agents agents hired to one particular act
o General agents- series of acts or transactions
Disclosure to T
o P disclosed
o P undisclosed e.g. Art auctions
o P partially disclosed
Right to control
o Employee or servant
o Independent contractor agent undertakes to perform a specific
task, with the goal of presenting that task to the agent, but
without the agent having control over the means of
accomplishing that task.

When do agency formation rules matter

Typically when agents make mistakes

Jenson Farms v. Cargill

Agency law provided the legal basis to sue in this case.
RS3 1.01 Agency arises when a principal manifests assent to an
agent that
o The agent shall act on the principals behalf and subject to the
principals control
o The agent manifests assent or otherwise consents so to act.
Issue: was there consent?
Held: consent is inferred from the actions of the parties: parties
conception does not control it is objective manifestations of consent.
 Cargill gave the loan so it could have control of the grain supply so
Cargill can continue to get what it needs out of warran
o Because of this control the court is saying you can't have control
without liability. If you have control you have liability.

Liability in Contract
There are many ways where the agent can be liable to a 3rd party
Actual/Explicit authority the principal instructs the agent to perform a
certain task/action
o That which a reasonable person in As position would infer from
Ps conduct
o Express if communication was explicit
o Implied (or incidental) if As actions were reasonably calculated
to discharge Ps explicit.. (Look at slides)
Apparent authoritywhen the 3rd party is able to observe actions of
the principal,and these actions of the principal assure the 3rd party that
the agent can bind the principal.
White v. Thomas
o Clearly no actual authority in this case so any authority must
rest in apparent authority
o Simpson said yes, she is authorized to sell. They should have
asked Simpson to see the POA to sell the land if she had shown
something to them including whites instructions to sell the land
they would have been able to observe and then able to bind
white. Without actually lookin at thePOA they do not observe any
actions of the principal and therefore fail to obtain the factual
basis to argue that there was a successful power of attorney.
o The blank check is the only basis in which the thomas can claim
apparent authority because it is the only action of Mr. White that
is even observable.

Class 2 Aug 23, 2016

Last class review
o Cargill Extraordinary circumstances making it a principal agent
relationship
o Liability in contract
Actual authority- that which a reasonable person in As
position would infer from Ps conduct RS3 Agency 2.01
Apparent authority 2.03
Inherent authority where actions of the agent that allow
the T to infer that the agent can bind P
RS2 8A power derived from the agency
relationship, not from authority.
 Usually where P is unknown, or. Provides instructions
to A that are not apparent to the T.
RS2 161 actions that are done on P's account that
accompany or are incidental, that T reasonably
believes that A is authorized to do them and has no
notice that he is not so authorized
Gallant Insurance v. Isaac
o R: an agent has inherent authority to bind its principal where the
agent acts within the usual and ordinary scope of its authority, a
3P can reasonably believe that the agent has authority to
conduct the act in question and the third party is not on notice
that the agent is not so authorized
o Actual authority requires actions of the principal so not actual
authority
o Not apparent authority- Isaac never observed Ps actions
o Inherent authority
Held: Isaac could have reasonably believed that the agent
had authority to orally bind coverage because of hit its
past dealings with Thompson-Harris were conducted
The renewal of insurance policy usually accompanies
insurance transactions that T-H is authorized to
conduct.
Inherent authority is derived from the agency relation itself
Inherent authority theory exists for the protection of
persons harmed by or dealing with a principals servant or
agent.
o What about White case?
In the white case the thomass should have been more
careful here T-H was authorized to bind Gallant on new
insurance policies.
Agency costs
o The interests of the principal might be different than the interests
of the agent
Then the law faces a problem as how to address these
situations
Shirkingthe agent is not ___ enough and thus isn't
performing the way the P would like
Expropriationthe agent takes something that belongs to
the principal.
o Agency costs Alice because of the informational asymmetry
between agents and principals
o How can we afresh agency costs?
o Examples of agency costs
 Real estate agent selling own home the REA makes more
money by closing deals faster. So their interests diverge
from the interests of the buyer.
Sears auto unnecessary services rewards
Citigroup customer satisfaction relates to lower costs
Standardized tests -- teachers want to actual teach to
learn, standardized test scores don't necessarily teach
actual learning
Agency and torts: scope
o RS3 2.04 torts committed by employees by employees while
acting the in the scope of their employment
o RS3 7.07 an employee is an agent whose principal controls or
has the right to control the manner and means of the agents
performance of work
Independent contractors vs employees
Same product (e.g. Panini ting a house) can be structured
either as an independent contract or as employment.
To the extent that the principal controls the outcome then
she should be liable for any impact
o Humble oil v. Martin --> a party may be liable for a contractors
tort if he exercises substantial control over the contractors
operations
o Hoover v. Sun oil co a franchisee is considered an independent
contractor of the franchiser if the franchise retains control of
inventory and operations
The test in such situation is whether the franchise-or
retains the right to control the details of the day to day
operations of the franchisee
o ** clean bathrooms example employee would clean better,
independent contractor gets a cut of the profit and holds his own
liability.
Employee doesn't do job way supposed to (shirking)
These different levels of control over the company was the
deciding factor
o Connor v. Uber
Facts: Uber drivers class action claiming that they are
employees rather than independent contractors
Distinction between employee/independent
contractor why does it matter for uber?
o Taxes, social security, health insurance
o Unionization, collective bargaining
o Car insurance premiums
The agency costs are only re the
insurance premiums
 Held: The drivers are employees b/c they perform services
for the benefit of uber
The most significant consideration is the putative
employers right to control work details. The right to
control does not need to extend to every possible
detail of the work, Rather, the question is whether
the entity retains all necessary control over the
workers performance
o The fact that a certain amount of freedom is
allowed or is inherent in the nature of the work
involved does not preclude a finding of
employment status
o Not about how much the hirer exercises, but
how much control the hirer retains the right to
exercise.
Right to discharge at will without cause strong
evidence b/c gives them the means of controlling the
agents activities
Secondary indices p7
o Uber sets the fare/rate
o Background checks on drivers, interviews, etc
o Vehicle inspections
o Terminates drivers that don't meet its
standards
o Uber collects the fare
o Uber only makes money only if it's drivers
transport passengers
o Can't solicit passengers (for future rides for
example)
The governance of agency relationships: duties to principals
Agency as a fiduciary relationship
o Common law interventions (I.e. Court invented obligations) that
fill gaps or remedy inequities in the principal-agency relationship
So the court believes it has the right to intervene and
remedy that inequity
o Agents conduct toward principal
Fiduciary duties: to act with the principals interest in mind
agent always has to act in the interest of the P
Duty of loyalty A shouldn't appropriate for himself
something that belongs to P or should belong to the
P
Duty of care agent should perform her obligations
with the level of ordinary care that an ordinary
person in the situation would perform with.
 Duty of loyalty in agency law
o RS3 8.02 & 8.03
o Home sale example especially because of the extreme 50%
disparity it is definitely unfair. If it was less may have been
different.
Tarnowski v. Resop
o An agent is liable to P for the As profits made during the course
of the agency
o An A is liable to a P for the damages caused by the As breach of
his duty of loyalty
o RAgency 407(1) if an agent has received a benefit as a result
of violating his duty of loyalty, the principal is entitled to recover
from him what he so received its value or its proceeds and also
the amount of damage thereby caused
o This is to punish agents, so that they don't have any incentive to
defraud a P
Don't read Gleason (not in preview slides then not assigned)
Town & country house & home service Inc., v. Newbery
o Took some of old clients they used to serve when employed by
rossmores
o Q: did they take something that belonged to the P by taking
away the clients?
o In their K, there was no no solicitation/non-compete clauses so
NOT ABOUT THIS
o Held
Dist court- if the rossmores wanted to prevent this they
should have included this in the contract
App court NO this is about trust. The P-A relationship has
a fiduciary character. You need to see whether the A
abused this trust to gain a benefit that should not have
been. His/hers. App court found an abuse of this trust
Trust of clients abused. Housecleaning is personal,
unique, and confidential. These people come into
their homes.
Conducted under orders by housewife, who thus
reveals something about herself to the crew
Agents made all preparations before they terminated
their employment they were covert' suspicious
timing suggests malfeasance
Ruling: agents should regain from entering into the
same business and pay damages.
Case criticized recently on grounds of sexism and racism
b/c the housing crew were men, and the judge couldn't
believe that men could do what women were doing. Also
emphasis on her ability to win clients based on her race.