Essay stuff to know III Flashcards
Liability of the partners
Partners are jointly and severally liable for obligations of the partnership meaning that each partner can be held liable to a third party for the entire obligation of the partnership. It is up to the partners to allocate losses among themselves.
However, a partner cannot be held liable for a partnership obligation unless the partner was personally served in the lawsuit in addition to the partnership and the judgement against the partnership was not fully satisfied out of the partnership’s assets.
How to start an agency question
The issue with respect to each contract is whether Taster acted with authority. Generally, an agency relationship is created when one person (the principla) manifests an intent that another person (the agent) act on his behalf and both parties consent to the agreement. A principal is contractually bound to the acts of the agent if the agent acted with actual or apparent authority.
Actual authority is authority that the agent reasonably thinks he possesses based on the principal’s dealings with him. Actual authority can be express (contained within the agreement between the aprties) or implied from the actions of the principal.
Apparent authority arises when the principal “holds out” the agent as having certain authority, causing third parties to reasonably believe the agent has such authority.
General partnership statement
A general partnership is created when two or more people associate themselves to have a business for profits. To determine whether the general partnership was formed we do not look at the subjective intent of the parties in forming the partnership. To create a general partnership the partners do not have to file any documents, do not need a writing nor any consideration. To determine whether someone is a partner in the partnership the court looks at factors such as whether they share the profits and the losses and whether they have some management rights.
Effect of an ultra vires act by the corporation
Common law an ultra vires contract was said to be illegal and unenforceable. Today, however, by statute in the vast majority of jurisdictions, the ultra vires doctrine is quite limited. It may be raised only by: a) a shareholder seeking to enjoin a proposed ultra vires action, b) the corporation seeking damages against the officers or directors who authorized the ultra vires act, c) or the state seeking to dissolve the corporation for engaging in an ultra vires act.
Injunction
Nothing in the facts indicate that any shareholder is seeking to enjoin the deal with GP. The facts only state that A and B would like to get out of the deal, and they are not shareholders.
This is because injunctions are equitable actions, and an equitable court would not enjoin an action that would harm an innocent third party, such as a third party who entered into an ultra vires contract with a corporation not knowing that the contract was ultra vires.
Action for Damages:
A shareholder could bring an action against the three directors for breach of the duty of care for authorizing the ultra vires act. Directors are fiduciaries and owe the corporation the duty to act with the care that an ordinary person would exercise in his own affairs. Taking on business outside the scope of the corporation’s stated purpose violates this duty.
Dissolution by State
It also is doubtful that the3 third exception to the ultra vires doctrine would result in avoiding the contract. The state likely would not seek to dissolve the corporation for entering into the ultra vires contract. Usually, the state seeks dissolution only when the ultra vires act violates regulatory laws.
Duty of loyalty in relation of corporations
As discussed above, directors are fiduciaries of their corporations. One of their fiduciary duties is the duty of loyalty. This duty prohibits a directors from competing with his corporation. It also bars a directors from usurping corporate opportunities – a director cannot take for himself a business opportunity in which his corporation might have an interest unless he first offers the opportunity to the corporation and the corporation rejects the opportunity.
A corporation’s interest does not extend to every conceivable business opportunity, but neither does the opportunity have to be necessary to the corporation’s current business. The closer the opportunity is to the corporation’s line of business, the more likely a court will find it to be a corporate opportunity. The corporation’s lack of financial ability to take advantage of the opportunity typically is not a defense. The director should still present the opportunity to the corporation and allow the corporation to decide whether it can take advantage of the opportunity. If a director does not give the corporation an opportunity to act but rather usurps the opportunity, the corporation can recover the profits that the director made from the transaction or may force the director to convey the opportunity to the corporation, under a constructive trust theory, for whatever consideration the director purchased the opportunity.
How to remove directors
Generally only the shareholders have the power to remove directors. The directors have no power to remove fellow directors unless the corporation’s articles or bylaws provide otherwise. The shareholders may remove a director with or without cause.
Thus the only way A and B could remove C is by calling a special shareholder meeting to vote on C’s removal. The meeting must have at least 10 but no more than 60 days notice to the shareholders and must specify the time, place, and purpose of the meeting. However if C was elected through cumulative voting, he may not be removed if the votes cast against removal would be sufficient to elect him if cumulatively voted at an election of the board. While no grounds for removal are necessary, A and B can raise their suspicions of C’s skimming corporate funds as a reason to remove him.
Corporation and pre-incorporation contracts.
As a general rule, corporations are legal entities separate and apart from their shareholders. One consequence of his status is that corporations are not liable for contracts made prior to incorporation. Generally, only the promoters (the people who undertake to form the corporation) are liable on pre-incorporation contracts. The corporation may become liable on pre-incorporation contract only if it adopts the contracts. Adoption may be explicit (ex. resolution of the board of directors) or implicit (by accepting the benefits of the contract).
Can shareholders be creditors of the corporation?
Another consequence of a corporation being an entity separate and apart from its shareholders is that the shareholders may become creditors of the corporation by lending the corporation money.
Deep Rock doctrine or equitable subordination.
Corporation Essay 2
As a general rule shareholders who are unsecured creditors are not subordinate to other, outwise unsecured creditors. Thus, if the general rule is followed, EC, M and R each would be entitled to a pro rata share of D’s 50,000.
Since EC is owed 90,000 of the total 120,000 debt it would be entitled to ¾ of the 50,000 (37,500), and M and R each would be entitled to 1/8th share (6250). However, a court might subordinate M and R’s claims if any kind of wrongdoing is attributable to them. This is known as the Deep Rock doctrine or equitable subordination. In such a case, Dryco would receive the entire 50,000 and M and R each would receive nothing.
“Piercing the corporate veil”
As a general rule, shareholders in a properly formed corporation are not personally liable for the obligations of their corporation. This is another consequence of the corporation being an entity separate and apart from the shareholders. However, a court will ignore this separateness – and pierce the corporate veil to hold shareholders personally liable for the corporation’s obligations – if the privilege of conducting business as a corporation has been abused. The corporate veil usually will not be pierced unless one of the following is present: a) corporate formalities have been ignored and injustice has resulted, b) the corporation was inadequately capitalized at the time of formation or c) the corporate form is being used to perpetrate fraud.
S16 of the Securities of Exchanges Act
Section 16(b) of the Securities Exchange Act of 1934 provides that any profit realized by a director, officer, or shareholder owning more than 10% of the outstanding shares of the corporation from any purchase and sale, or sale and purchase, of any equity security of his corporation within a period of less than six months must be returned to the corporation. The section applies to a publicly held corporation whose shares are traded on a national exchange or that have a) at least 2000 shareholder (or 500 nonaccredited shareholders) and b) more than 10 million in assets. The purpose of section 16(b) is to prevent unfair use of inside information and internal manipulation of price. This is accomplished by imposing strict liability for recovered transactions whether or not there is any material fact that should or could have been disclosed – no proof of use of inside information is required.
To be considered a 10% owner for purpose of section 16(b) the shareholder must have owned 10% of the corporation’s stock immediately before both the purchase and the sale of the stock. In other words, the purchase that brings a shareholder over the 10% threshold is not within the scope of section 16(b)
Section 10-b-5
Under rule 10 b5 it is unlawful for any person directly or indirectly by the use of any means of interstate commerce to in connection with the purchase o rsale of any security: a) employ any device, scheme, or artifice to defraud, b) make any untrue statement of a material fact or omit to state a material act, or c) engage in any act, practice or course of business that would operate as a fraud.
A prima facie case for breach of the rule requires proof of: a) fraudulent conduct, b) in connection with the purchase or sale of a security, c) use of a means of interstate commerce, and in some cases, d) reliance and e) damages in private causes of action.
Insider Trading Action
A fact will be considered material under rule 10b5 if a reasonable investor would consider it important when making an investment decision. Conduct will be considered fraudulent only on proof of scienter (intent to deceive).
One of the most common forms of fraudulent conduct under rule 10b5 arises from insider trading. The Supreme Court has held that a corporate insider who breaches a duty not to use inside information for personal benefit can be held liable under rule 10b5. Typical securities insiders such as directors, officers, controlling shareholders, and employees of the issuer are deemed to owe a duty of trust and confidence to their corporation that is breached by trading on inside information. Moreover, the Court has found that the duty is breached by trading on inside information, but also when the insider gives a tip of inside information to someone else who trades on the basis of the information fi the tip was made for an improper purpose.
Where an insider gives a tip of inside information to a frined or a relative whotrades on the basis of the inside information, the tipper can be liable under 10b5. By making a gift of confidential information to a trading friend or relative a benefit to the tipper is inferred by the relationship
[look at corporation 3]
Claims that shareholders can bring
Shareholders may bring both direct and derivative actions. Direct actions seek to redress injuries to the personal rights of the plaintiff. Derivative actions seek to redress injuries to the corporation. Generally remedies in direct actions inure to the shareholder directly. Remedies in derivative actions generally inure to the benefit of the corporation.
Can a shareholder argue that three directors owed them fiduciary duties?
Personal Claims against shareholders:
P does not have any personal claims against A,b, or E sinve none of these people owed P any duties personally. All three are directors. Directors owe their corporation fiduciary duties (as will be discussed below), but as general rule they do not owe duties to the corporation shareholders.
Shareholders personal action again corporation?
Personal Claim against Sellco:
As a general rule, shareholders are not fiduciaries of the corporation and do not owe the corporation or fellow shareholder any duties. However, many courts hold that majority shareholders have a duty to refrain from using their control to obtain a special advantage or to cause the corporation a duty to refrain from using their control to obtain a special advantage or to cause the corporation to take action that unfairly prejudices the minority shareholders.
Some courts have also held that in a close corporation (owned by only a few persons), each shareholder owed the others the same duty of loyalty and good faith as are owed by partners to each other.
Bringing a derivative action
If a shareholder believes that the corporation has been harmed, but the corporation does nothing to vindicate the harm, the shareholder may try to bring a derivative action if the following pre-requisites are satisfied: a) the shareholder bringing the action was a shareholder at the time of the act or omission complained of (or obtained his shares by operation of law from one who was), b) the shareholder makes written demand on the board to take suitable action, c) the shareholder remains a shareholder throughout the pendency of the suit, and d) the shareholder can fairly and adequately represent the interests of the corporation.
A derivative proceeding may not be brought until 90 days after the demand is made unless the shareholder is notified earlier that the corporation will not take action or irreparable injury will occur. Moreover, if a majority of directors (but at least two) who do not have a personal interest in the transaction find in good faith after reasonable inquiry that the suit is not in the corporation’s best interest, a derivative action cannot be brought. In some states, demand will be excused if it is futile (such as where the shareholder is seeking damages from the entire board). However, the Revised Model Business Corporation Act does not provide for such an exception so that the directors accused of wrongdoing have the opportunity to resolve the issue through means other than litigation.
Paid repairs and taxes:
We are told that B remained in charge of paying “house related bills, cost of repairs and taxes”.
Joint tenants have a right to compel contribution from other cotenants for the cost of necessary repairs, taxes and payments due on mortgages, she does not have the right to compel contribution for the cost of improvements”.
A’s estate may try to argue that because B was in sole possession, he should be the only one in charge for these payments. However, this argument would be unsuccessful since all joint tenants have equal access to the entire property. Therefore B will be able to ask contribution to A for the house related bills, cost of repairs and taxes”.
However, a co-tenant in sole possession will receive reimbursement only for the amount that exceeds the rental value of the property. Therefore B will be reimbursed only if he paid more that the rental value of the property.
Rent when there has been ouster
An ouster occurs if one tenant wrongfully excludes another from possession of the premises. An ousted cotenant is entitled to receive his share of the fair rental value of the property for the time he was wrongfully deprived of possession.
However, because they agreed here, there is no need for B to pay A for the rental value that T gave B.
Implied covenant of quiet enjoyment
Implied in every lease is a covenant that neither the landlord nor someone with paramount title will interfere with tenants quiet enjoyment and possession of the premises. Under the implied covenant of quiet enjoyment, the landlord cannot constructively evict the tenant. A constructive eviction occurs when a landlord caused the injury, that substantially and materially deprived the tenant of use and enjoyment of premises, the tenant gives landlord notice and reasonable time to repair and the tenant vacated the premises.
However, note that landlord has not common law duty to repair or maintain the premises, the duty must be provided for in the lease or required by statute or by the implied warranty of habitability. Therefore, if T can prove that B had to fix the toilet, then there might be constructive eviction.
What is a deed of trust
A deed of trust is a security interest in real estate, which may secure a loan represented by a promissory note. If the loan is not paid when due, the holder of the security interest amy take title to the real estate or have it sold and used the proceeds to pay the debt. In that way, a deed of trust operates similarly to a mortgage.
Deed of trust is executed differently from a mortgage. Debtor gives a deed of trust to a third party trustee (ex. lender’s lawyer). In the event of default, the lender (the beneficiary) instructs the trustee to foreclose the deed of trust by sale. Generally the sale may be either judicial as with a mortgage or nonjudicial under a power of sale clause that authorizes the trustee to advertise give appropriate notices and conduct the sale personally.
[note here the race notice statute did not actually mention beneficiaries under deeds of trust that had NO notice. “every conveyance shall be good….. or beneficiary under a deed of trust who provides valuable consideration and who interest is firstly duly recorded.” Yet here person is not a bona fide purchaser. I guess stick to the definition of race notice statute – BFP who records first wins-]
What are the covenants for the general warranty deed and what remedies are there?
A generally warranty deed is one in which the grantor covenants against title defects created by himself and all prior title holders.
When someone gives away property through a warranty deed, there are six covenants that they make. Three present covenants: seisin (met here), right to convey (met here), and no encumbrances. This is present covenant which means that the grantor is in breach if the property is encumbered when it is conveyed and a cause of action arises at that time.
This third aspect would be breached since here there was a clear easement which was not disclosed. The remedy here can be either the cost of repair or the diminished market value.
The covenant of warranty is a covenant wherein the grantor agrees to defend on behalf of the grantee any lawful or reasonable claims of title by a third party, and to compensate the grantee for any loss ustained by the claim of superiod title. This covenant generally is considered to be similar to the covenant for queit enjoyment which assures that the grantee will not be disturbed in her possession or enjoyment of the property by a third party’s lawful claim of title. The covenant for further assurances is a covenant to perform whatever acts are reasonable necessary to perfect title conveyed if it turned out to be imperfect.
Future covenants are not breached until third party interferes with possession + party claiming breach must give notice.
What do you say in relation to covenants?
A real covenant, normally found in deeds, is a written promise to do or not to do something on the land. Real covenants run with the land at law, which means that subsequent owners of the land may enforce or be burdened by the covenant.
If all requirements are met for the burden to run, the successor in interest to the burdened estate will be bound by the arrangement entered into by her predecessor as effectively as if she had herself expressly agreed to be bound.
For the burden to run with the land, a) the original parties must have intended successors to be able to enforce the covenant, b) the successor must have notice under the relevant recording act, c) horizontal privity must exist between the original covenanting parties, d) vertical privity must exist between the successor and her predecessor and e) the covenant must touch and concern the land.
Intent:
Intent can be inferred from circumstances surrounding creation of the covenant or evidenced by language in the conveyance creating the covenant.
Notice:
Under the common law, a subsequent purchaser of land subject to a covenant was burdened by the covenant whether or not she had notice. However, under modern recording statutes, a bona fide purchaser who has no notice of the covenant and who records her own deed will take free of the covenant.
Notice may be acquired through either actual notice (direct knowledge of the covenant), inquiry notice ( notice from the appearance of the neighborhood), or record notice (notice charged under the recording acts if the prior deeds are in the grantee’s chain of title
Horizontal Privity
Horizontal privity requires that at the time the promisor entered into the covenant with the promise, the two shared some interest in the land independent of the covenant. This is satisfied if they had a grantor grantee relationship.
Vertical Privity
To be bound, the successor in interest to the covenanting party must hold the entire durational interest held by the covenantor at the time she made the covenant.
Touch and Concern
A covenant touches and concerns land when it affects the legal relationship of the parties as landowners and not merely as members of the community at large.
what do you say in relation to equitable servitudes?
An equitable servitude is a covenant that regardless of whether it runs with the land at law, equity will enforce against the assignees of the burdened land who have notice of it. The usual remedy is an injunction against violation of the covenant. Generally, equitable servitudes are creates by covenants contained in a writing that satisfied SOF. As with real covenants acceptance of a deed signed only by the grantor is sufficient to bind the grantee as promisor.
So, what about the general scheme?
The issue here is whether Buyer was obligated to pay the security deposit. One such doctrine that would oblige Buyer to pay is the doctrine of a general scheme doctrine.
This doctrine a developer that intends to create an equitable servitude for ALL subdivision in the land. If this intent can be proven, then any subsequent purchaser with notice is bound by the equitable servitude. Notably there are three types of notices: actual notice, constructive notice and record notice).
Assignment and delegation of duties
Generally, all contractual rights may be assigned, and all duties delegated. However, if an assignment of rights would substantially change the obligor’s duty, the assignment will be barred. This is the case when an assignment would result in the obligor having to perform personal services for someone other than the original oblige. What constitutes personal services is determined by whether the performance so involves the personality or personal characteristics of the obligor that it would be unfair to require the obligor to perform for a third person.
Delegation of Duties:
ASI delegated its duties to MPI.
Duties generally may be delegated unless they involve personal judgement or skill, the relationship between obligor and oblige requires special trust, or performance by the delegate will materially change the obligee’s expectancy under the contract.
Anti-assignments cluases
Absent an express restriction in the lease, a tenant may freely transfer her leasehold interest in whole or in part. If she makes a complete transfer of the entire remaining term, she has made an assignment. If she retains any part of the remaining term, the transfer is a sublease. However, many leases contain covenants on the part of the tenant not to assign or sublease without the landlord’s consent. These covenants are strictly construed against the landlord. Thus a covenant prohibiting assignment does not prohibiting subleasing and vice versa
What do you start by saying in easements
The holder of an easement has the right to use a tract of law for a special purpose but has no right to possess and enjoy the trace of land.
An easement in gross is created where the holder of the easement acquires that right independent of his ownership or possession of another tract of land.
An easement by reservation arises when a landowner conveys land but reserves the right to continue to use the tract for a special purpose after the conveyance. (in effect, the grantor passes title to the land but reserves for himself an easement interest.
TRANSFER OF THE BURDEN
when a servient parcel is transferred, its new owner takes it subject to the burden of the easement unless she is a bona fide purchaser with no notice of the easement. There are three ways the person who acquires the servient land might have notice of the easement: a) actual knowledge, b) notice from the visible appearance of the easement on the land, c) notice from the fact that the document creating the easement is recorded in the public records
remedies for failure to pay rent
At common law, a breach such as failure to pay rent resulted only in a cause of action for money damages and not in a right to terminate the lease. However nearly all states have enacted an unlawful detainer statute, which permits the landlord to evict a defaulting tenant. In some states a commercial landlord who does not receive rent when due can assert a lien on the personal property found on the leased premises. Nonetheless most states statutorily prohibit forcible entry and prevent a landlord from using self-help to remove a tenant. Furthermore, some states also bar the landlord from mores subtle methods of regaining possession such as changing the locks.
So what do you write in relation to private and public nuisance?
Private and public nuisance
Private nuisance occurs when the land is invaded by intangibles such as odors or noises, that substantially and unreasonable interfere with a private individual’s use or enjoyment of her property.
In contrast, a public nuisance is an invasion by intangibles that unreasonably interfere with the health, safety, or property rights of a broad segment of the community, rather than one or a few individuals. However recovery is available for public nuisance only if a private party has suffered some unique damage not suffered by the public at large.
Substantial and unreasonable interference
Interference is substantial when it would be offensive, inconvenient, or annoying to an average person in the community, as opposed to merely the result of the plaintiff’s hypersensitivity. Interference is unreasonable when the severity of the inflicted injury outweighs the utility of the defendant’s conduct.
To make this balancing determination, courts take into account that every person is entitled to use his own land in a reasonable way, considering the neighborhood, land values, and existence of any alternative courses of conduct open to the defendant.
What do you say in relation to total taking
The Fifth Amendment to the United States Constitution, which is applicable to the states through the Due Process Clause of the 14th Amendment, provides that government shall not take private property for public use without just compensation. The Fifth Amendment limits the power by prohibiting a taking unless it is for a public purpose. The Fifth Amendment also requires payment of just compensation for the property taken.
Preserving land would surely be found to be public purpose that would allow a taking, but that does not mean that what County did actually amounted to a taking.
Physical Appropriation
The clearest cases of taking arise when the government physically appropriates a person’s property. A taking will almost always be found in such a case. This is true even where the appropriation is of only a part of a person’s property.
Regulatory taking:
A taking can also be found when a regulation affects the value or use of a person’s property. In such a case, a property owner may bring an inverse condemnation action seeking to recover just compensation for the property taken.
In an inverse condemnation proceeding, the court will first look to see if a regulation has deprived an owner of ALL economic value of the property. If so, the regulation is considered to be equivalent to a physical appropriation and the government will be required to pay just compensation.
What do you say in relation to partial takings?
Partial taking
Regulations that merely decrease the value of property (prohibit its most beneficial use) do NOT constitute a taking if they leave an economically liable use for the property. The Supreme Court would consider the economic impact of the regulation and whether the regulation substantially interferes with distinct, investment backed expectations of the claimant.
What do you say about delegation?
- talk about standard of having enoguh details
- then talk whether the delegate acted within its scope
