BORGS slide deck Flashcards
______ is the fiduciary relationship that arises when one person [principal] manifests assent and the other [agent] likewise manifests assent to act on his behalf.
Agency
Agency is a ____ relationship requiring assent to form from [Principal] and [agent.]
Fiduciary
“Who acts through another, acts himself.” What does this quote define in lamens terms?
Agency defined
Agent : Is an “employee” if the principal has the right to ______ physical details of the work.
Control
When is Principal “liable” for agents acts under Vaughn?
Only if Principal
1. Intended; or
2. Authorized
the result or manner of performance.
An employer is liable for the torts of employees when?
When employee acted “within scope of employment.”
Principals face liability for the “_____” act while employers face liability for the “unauthorized” tort.
Authorized act
When is non-employer liable for torts of an independent K?
- Abnormally dangerous
- negligent supervision, selection, etc.
- Apparent agency
5 theories for holding principals liable?
- Actual
- Apparent
- Inherent
- Ratification
- Estoppel
[Actual] agency hinges on whom’s “reasonable belief” that they are acting in according with the agency relationship?
The agents
[Apparent] agency hinges on whom’s “reasonable belief” that the agent is acting in according with the agency relationship?
3rd party
- Are agents permitted to manifest their own authority?
- Can the principal authorize the agent to manifest their own authority?
- No. [Verizon]
- Yes. “You are not authorized to sign K but tell them you are.” Principal WILL be liable under apparent authority.
“Post on website that you are authorized to sign Ks, but don’t sign anything over 1 million.”
Will principal be liable if agent signs for 2 million? If so, why?
- Yes. Apparent agency. Remember, this is judged from “reasonable belief” of 3rd party.
- Secret limitations do not cut off liability.
Inherent authority judged from whom’s perspective?
3rd party
Is principal liable for acts of “inherent” authority?
Yes, if 3rd party reasonably believed agent had agency to act.
T/F) All theories of authority have the same effect, Principal is liable.
True
_________ is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with authority.
Ratification
Persons may only ratify acts done by another when?
When the actor purportedly acted as agent on the person’s behalf.
Ratification is not effective unless it ______ the occurrence of circumstances that would cause the ratification to have adverse effects on 3rd party.
Precedes
When is Principal liable under theory of estoppel?
When 3rd party induced to make detrimental change and principal:
- Intentionally caused such belief
- Or failed to correct the belief
[Verizon]
Theory of estoppel is also known as duty to _____. [Verizon]
Duty to Rescue
Who is liable under actual authority?
Disclosed principal.
Principal and 3rd party
Who is liable under actual authority?
Unidentified principal.
All. [Winer v. Valentino]
Who is liable under actual authority?
Undisclosed principal.
All. [Winer v. Valentino]
When is only time an agent may NOT be liable under a theory of actual authority?
Disclosed principal
Winer v. Valentino shows that agent is liable under actual authority liability when?
Undisclosed; or
Unidentified principal
Best practice signature?
- Principal name and unique identifier
- Agent name, signature, and capacity.
3 inferences from BP signature?
Parties intend for (1) principal to be liable, (2) agent not to be, and (3) agent warrants his authority to bind the corp.
2 theories for agent-3rd party liability?
- Winer v. Valentino
- Breach of warranty [SL]
Agent fiduciary duties?
- Care
- Loyalty
- GF
- Don’t compete
- No side hustle
Confidentiality
[Pompa]
Principal duties?
- Indemnify
- GF
You interview for job at law firm. Offered job on phone. You accept. Firm bound?
Maybe under “apparent agency” if you “reasonably believe” he had authority to offer job.
T/F) Nobody has apparent or inherent authority to act for the US gov.
True
T/F) Ticket agents have no authority to K.
True
Whats the difference between liability existing for apparent and inherent authority?
- Apparrent = RB of 3rd party based on agents CONDUCT.
- Inherent = RB of 3rd party based on agents JOB TITLE.
T/F) Under Delaware Corporate Law, the board of directors may be elminated.
False.
DGCL and MBCA provide that Corporations SHALL be managed by what?
BOD of Directors. Default rule.
- Do individual board members have authority?
- Can board members also be employees?
Bonus: Case name?
- No.
- Yes
Bonus: Baldwin
When may the board of directors take action without a meeting?
When all members of board have consented in writing.
If a board of directors takes action – and there was not a legal meeting – is the corporation bound?
No. Unless the board previously consent [unanimously] in writing to the action.
Can Board authority be delegated? If yes, how?
- Yes.
- Bylaws, resolution, or in the original articles of incorporation itself.
T/F) A CEO is presumed to have binding powers of a corporation.
True, in the ordinary course of business. IE: The CEO of Meta could not sell land to you. Meta’s ordinary course of business doesn’t involve land sales.
Corporations:
What level of authority?
- Board
- CEO
- Actual authority
- Apparrent authority [in ordinary course of business]
Each partner is an ____ of the partnership.
What does this mean?
Agent. Each partner can bind the partnership.
For limited partnerships, are all partners agents with binding power?
No. Only the GP.
T/F) A member of an LLC is an agent solely by reason of being a member.
False.
In an LLC, whom may bind?
Members ONLY WHEN voting together as a group.
T/F) Single manager of multi-manager LLC can bind the LLC by themselves.
True
Whats the difference in “purpose” between a Partnership and an LLC?
- Partnership = for business / profit
- LLC can be any purpose
CEO may have actual authority if delegated by Board but usually has what level?
Apparent authority by reason of office. Make this argument!
Besides the Board, who can bind a corporation?
CEO in the “ordinary course of business.”
Who can bind a partnership in the ordinary course of business?
Any partner [GPs only in LPs]
Who can bind a manager-managed LLC in ordinary course of business?
Any member
Who can bind in ordinary course of member-managed LLC?
No one individually, must act collectively.
- Who can bind a Corporation outside ordinary course of business?
- Partnership?
- Member managed LLC?
- LP?
- Board at meeting or Bd + Shareholders
- All partners consenting
- All members consenting
- Consent of all partners
___ ____ is a document issued by law firm addressing a transaction.
Legal Opinion
Can one agent serve 2 co-principals?
Yes. Owes fiduciary duties to both.
- What is the general assumption by courts when Directors are wearing their subsidiary hats?
- How to rebut this presumption? [What test?}
- That they are acting for the subsidiary, not the parent. [Bestfoods]
- Plainly contrary test
__ ____ test: Used to rebut presumption of US v. BestFoods. Acts taken for subsidiary wanes as distance from norms of corporate behavior approaches point of plainly contrary to subsidiary interests but advantageous to parent.
Plainly contrary
- Registered entity created by _______ with the state.
- Unregistered entity creadte by _____.
- Registration
- Contract [partnerships only]
Examples of registered entities?
- Corporation
- LLC
- LP
Hint: Its everything but a partnership which is created by K for business purposes with at least 2 persons.
Examples of entities created by contract?
- partnership
- unincorporated association
Do partnerships have to file documents and pay state fees similar to other register entities?
No. Established by contract.
Difference between name choices for registered entities and unregistered [partnerships] entities?
- Partnerships not bound by state entity law, can choose any name so long as not violating trademark law.
Name registration:
- Smith Corp.
- Permitted when there is already a “Smith LLC?”
Why or why not?
No. Entity type designator is an insufficient distinction.
Name registration:
- A.B.C. Insurance
- Permitted when there is already a “ABC Insurance?”
Why or why not?
No. Differences in punctuation not sufficient distinctions.
Brown Corp. will not preempt Browne Corp. [T/F]
Yes. One letter is sufficient distinction.
Is a corporate name an IP right?
No.
____ name: Used by an entity to identify his or its business.
IE: “Starbucks” which is the business owned by an entity. When filing suit, you must serve the entity, not “Starbucks.”
Trade name
Under _____ agency, liability may exist for principal even if the act was not authorized.
Apparrent agency [Watteu]
Does the mere use of franchise logos and related advertisements indicate franchisor has control over the franchisee business?
No. Look to level of control.
Apparent agency established when π proves that she looked to hospital for services and the hospital selected/ provided Dr. who caused the injury.
Popovhich v. Allina health
What case showed apparent agency liability for Docs at hospitals?
Popovich v. Allina health
____ ____ are matters peculiar to the relationships among the corporation and its > Officers > Directors > and Shareholders.
Internal affairs
What are internal affairs?
Matters peculiar to a corporation and relationships among its > Officers > Directors > and Shareholders.
Law in all 50 states.
State doing business in will apply laws of state where formed.
Stronly endrosed by SC in CTS v. Dynamic corp
This doctrine says that the law of the formation state governs an entity’s internal affairs.
Internal Affairs Doctrine
3 categories of internal affairs rules?
- Jurisdiction: P
- Venue
- Conflicts
This category of Internal affairs asks what state law should apply to each issue?
- Conflicts
Internal affairs doctrine is a ___ ___ ___ rule.
Conflicts of law rule. 3 categories.
Jurisdiction
Venue
Conflicts
Jurisdiction ask what?
Does the court have power over ∆?
Venue ask what?
Is the court the convenient place to litigate?
Prevalence of Internal affairs doctrine?
The law in all 50 states.
Why does the internal affairs doctrine matter?
Courts apply this doctrine to avoid conflict of laws from various states. This simple rule states, [law of formation state governs.]
Why do companies incorporate in deleware?
IA Doctrine. Lax laws there and because of this doctrine, all 50 states will apply deleware law if formed there.
If a Delaware corporation operates in SC, maybe HQ here, what law governs?
IA Doctrine provides that Delaware law governs.
The Supreme Court strongly endorsed the IA doctrine in what case?
CTS Corp v. Dynamics Corp.
CTS corp. v. Dynamics Corp.
Supreme Court has strongly endorsed the Internal affairs doctrine.
____ ____ : Matters peculiar to an organization and relationships among its directors, officers, and SHs.
Internal Affairs
Define Internal Affairs
Matters peculiar to an organziation and among its Directors, Officers, and SHs.
Under I.A.D., a corporation is “domestic” where?
Where it was incorporated.
DL corp. operating heavily in FL.
1. Domestic where?
2. Foreign where?
- Deleware
- Florida
3 rationales of the I.A.D.?
- Consistency [know which laws apply]
- Certainty [know which laws apply]
- Consent [joining members know what laws they subject to]
3 rationales of I.A.D.
Why?
Consent, certainty, and Consistency. We know what laws applie and members that joined the entity consented to those known laws.
Whats a common criticism of the I.A.D.?
Encourages charter competition. [Shopping around.] McDermitt v. Lewis
Alternatives to the I.A.D. present almost intolerable consequences to the corporate enterprise and managers.
McDermott v. Lewis
- CTS v. Dynamics Corp.
- McDermit v. Lewis
- SC endorses I.A.D.
- Alternatives are almost intolerable
What case shows that alternatives to I.A.D. are intolerable?
McDermitt v. Lewis
- Entity can form anywhere
- Do business anywhere
- Only the formation state law applies.
Describing ______ competition.
Charter Competition
Strategic reaction to I.A.D.?
Buy the entity that enables you, not the one that regulates you.
____ rules: The statutory rules that apply when fundamental docs haven’t changed them.
Default
______ rules: The rules the fundamental docs cannot change.
Mandatory rules
______ rules: Rules that “enable” business to do what they could not in absence of rule.
Ex: Conversion
Enabling rule
Conversion is what type of rule?
Enabling
The requirement to have a B.O.D. is a [mandatory/default] rule.
Which one
Default
T/F) Nearly all corporate laws are mandatory rules.
False. Nearly all corporate laws are default rules.
Can fundamental docs / articles of incorp. override Deleware law?
Hint: Deleware laws more friendly and flexible, unlike MBCA rules when adopted by states.
Yes. Unless public policy provides otherwise.
Can fundamental docs / articles of incorporation override MBCA rules?
Hell no
Can the requirement that an LLC be governed by the law of the formation state by eliminated?
No.
Steps to form entity?
- Select entity type and state
- Register name
- Find office + agent
- File fund. doc with SOC
- Corporate kit
- Org. meeting to select directors + issue shares
T/F) Entity need only pay fees to formation state, not fees to other states it may do business.
False. Pay to all.
Every Corporation shall have a registered office. Does this office have to be in the same place as its actual business?
No.
How do you comply with registered office requirement if you don’t actually do business there?
Hire an agent to stay at that office.
Must LLCs have a registered agent in the state?
Yes and further, the agent must be for an LLC who has a “place of business” in the state.
What if LLCs purpose is to hold the client’s home and the client doesn’t have a place of business in the state?
Contract for resident agent.
Certificate of incorporation typically contains what?
- Name
- Registered office
- Purpose of corp.
- Stock amount + sell price
- Name & address of incorporator(s)
- How managed [Board of directors, etc.]
Then singed by the incorporator.
What case?
“A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law.”
How to get around this?
Dartmouth College v. Woodward
Corporate kit.
What is in a corporate kit?
Stock register
Sample docs
Corporate seal
Share certificates
EIN application
T/F) Discovery requests may be made for the books and records of the entity, including corporate kits.
True
First organizational meeting?
- Incorporator calls the meeting
- Selects Directors then Agents/Officers
- Adopts corporate seal
- Resolution pass for Bank Account
- Issue share certifications
Formation now complete
Two big steps to form an entity?
- Entity formation process; then
- First organizational meeting completed with all its steps.
When does a Corporation come into existence?
When the incorporator files the articles of incorporation.
When does an LLC come into existence?
Organizer files certificate of organization and 1 person becomes member.
When does a LP come into existence?
Files limited operating agreement and one person becomes GP and one becomes LP.
Whats unique about partnership formation?
- By contract not registration with entity state
- Can come into existence anytime two persons associate for profit, regardless of intent to form.
What are some factors we can look to to determine if two persons have formed a partnership?
Hint: “ICCS”
- They manifested intent to associate as partners
- Both contribute something
- Both control something
- Both share profits
How do you know 2 persons have formed partnership? IE: How to analyze since it can happen anytime?
1.
2.
3.
4.
- Manifest intent to associate
- Contribute
- Share
- Control
McArthur v. Stein
This does not include bank’s who loan money to company. This is not contributing.
What case gives you the four factors for partnership anaylsis?
MacArthur v. Stein
1. Manifest intent to form partnership
2. Control
3. Share
4. Contribute
MacArthur v. Stein?
General steps to form partnership analysis.
T/F) The filing of a partnership agreement with the state is required to form.
False
Steps to form LLP? [Partnership > LLP]
- Elect internally to become LLP
- File statement [of qualification]
- Adopt name
- Designate office + agent to receive service of process
Is there respondeat superior for LLPs?
No. They have paid for limited liability with the state.
________ : A person who participates in the organization of a business prior to the formation of the entity that will own the business.
Promoter
Promoter to do list/
Contract with persons to invest.
Contract for location.
Lease a location.
help form the corporation. [Add promoter not liable and doesn’t warrant authority]
If a promotor contracts in the corporate name before it actually exists….
How to get around this?
Will be liable.
Use best signature. “Camcraft, Inc. a corproation TO BE FORMED.”
Corporation can also ratify when created.
When promotor properly follows best signature practices?
- Intend for principal and 3rd party to be liable when the principal is formed.
- Parties intend promoter as agent be/not be liable.
No one can bind an entity prior to formation. If a K was made on entity behalf, the entity may adopt this after formation.
Ratification. Done by (1) formal decision or by (2) acceptence of benefits.
Ratification does not release promoter
Does ratification release promoter ?
No. Novation is required.
How is ratifcation done?
1.
2.
Formal decision
Acceptence of benefits
De Facto Corporation? [This doctrine largely obsolete]
- Laws permissive for such corp. to exist
- GF attempt to incorporate
- Unintentional omission of essential requirements of law / charter
Corporation by estoppel?
- Business held itself out as a corporation
- 3rd party dealt assuming such
Effect: Both parties “estopped” to deny corporate existence.
Rationale of corporation by estoppel?
3rd party may get what it bargained for.
Corporation by Estoppel. Is promoter liable?
No.
Who is your client in B.Orgs?
Who are the “Constituents?”
The entity
SHs, Directors, Agents, etc.
Cases:
1. Undisclosed principal liability
2. Agency establishment
3. Board has no indep. authority….
4. ….unless given more authority.
5. Franchise liability [control]
6. SC endorses Internal Affairs Doctrine
7. Alternatives to IAD not good.
8. Partnership formation analysis
- Winer v. Valentino
- Batz
- Baldwin
- Sienna
- eTeam v. Hilton
- CTS v. Dynamics Corp.
- McDermitt v. Lewis
- McArthur v. Stein
Business deal addresses what issues?
- Fiduciary duties
- Money coming in and out
- Decision making power
- Transferability
“May” language is clear indicator of what?
Default rule
Property acquired by a partnership belongs to whom?
The partnership, not the partners individually.
How to convert a partnership to LLC by forming a new LLC entity?
- File certificate of organization with SOS
- 1 person becomes member
How to transfer property without physically moving it from one entity to another?
Conversion plan. Statement of Conversion:
1. Record provides name of converting entity and information
2. Record provides name of converted entity and information
3. SOC signed by SOS for filing.
When looking for “apparent authority,” what is the key factor?
Manifestations of agency to the 3rd party FROM THE PRINCIPAL. [Trader Joes]
Perception from 3rd party not enough, that perception must be based on agency demonstrated by principal actor.
For inherent authority, what is the key factor?
An actual job must have been conferred to the agent. [Trader Joes]
Whats a good argument that a doctor at an emergency room will cause a hospital to be liable, regardless of employment status.
Apparent agency. Person went to ER for services and ER provided the staff, person didn’t select them. [Popovich v. Allina Health]
LLCs mandatory vs default statutes?
ULLCA S105
Partnership mandatory vs default statues?
RUPA S105
Limited Partnership mandatory vs default statues?
ULPA S105
Corporation mandatory vs default statutes?
MBCA S7.32
Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is………
Traceable to the principals manifestations.
Liability for undisclosed / unidentified principal?
All parties. [Bookstore]
Winer v. Valentino
The elective nature of entity law is most clearly visible in §__________ of RUPA, ULLCA, and ULPA. Each of those sections states that the entity’s fundamental documents govern relations among the entity and its principals.
S105. Look here for all entities except corporations to see what the fundamental docs allow for, including what rules FDs can override.
Two corporate statutes?
DGCL
MBCA
The rest in your book are for LLCs, Partnerships, and LPs.
Investment rights detailed where?
Fundamental docs
Statutory provisions that contracts can override are referred to as ______ _______. The policy for permitting override is to encourage what?
- Default rules
- Private ordering
T/F) A corporation can be governed by anyone or anything it chooses, including its shareholders, a manager, another artificial entity, or even kings and queens.
True. BOD requirement is a “default rule.” The fundamental docs can alter this.
Can an LLC be managed by a board of directors?
Yes. Typically managed by a group of members but the LLC can elect that it be managed by a BOD.
Even in the absence of actual or apparent authority, a transaction is binding on the principal if it has been __________. This occurs where the principal’s conduct justifies the assumption that the principal wants to be bound by the act undertaken by the agent.
Ratified
T/F) Under Deleware law, deleware registered office must be in the state.
True
