Final

Question 1

Definition of agency

Answer 1

“Agency is the fiduciary relationship that results
from (1) the manifestation of consent by one person
to another that
(2) the other shall act on his behalf and subject to his control, and (3) consent by the
other so to act.”

Question 2

Agent v Creditor

Answer 2

A creditor who assumes control of his debtor’s business may
become liable as principal for the acts of the debtor in connection
with the business.
* A security holder who merely exercises a veto power over the
business acts of his debtor by preventing purchases or sales above
specified amounts does not thereby become a principal.
* The point at which the creditor becomes a principal is that at which he
assumes de facto control over the conduct of his debtor, whatever the
terms of the formal contract with his debtor may be.

Question 3

Factors supporting supplier vs agent relationship

Answer 3

Agent vs. Supplier:
* Factors indicating that one is a supplier, rather than an
agent, are:
1. That he is to receive a fixed price for the property
irrespective of price paid by him. This is the most
important.
2. That he acts in his own name and receives the title to
the property which he thereafter is to transfer.
3. That he has an independent business in buying and
selling similar property.

Question 4

Things that do/do not create prima facie case agency

Answer 4

Owning a car and letting someone borrow it creates a prina facie case of agency

BUT . . . joint ownership and marriage DO NOT create agency relationship

Question 5

Non-agency relationships

Answer 5

Accommodation: A loan or other financial favor.
* Bailment: A delivery of personal property by one person (the bailor)
to another (the bailee) who holds the property for a certain purpose.
* Unlike a sale or gift of personal property, a bailment involves a change in
possession but not in title.
* May be gratuitous or for hire.
* Arms length relationships – buyer and supplier, independent
contractor and customer.
* Creditor and debtor.
* Lien holders.
* Unsecured creditors.

Question 6

Three types of agency

Answer 6

Express, implied, and apparent

Question 7

Definition of implied authority

Answer 7

The issue of apparent authority is one of fact to be determined based on two criteria….
First, it must appear from the principal’s conduct that the principal held the agent out as possessing sufficient authority…
Second, the [third party] must have . . . reasonably believed, under all the circumstances, that the agent had the necessary authority…
Factor to consider:
The nature of the task or job may be another factor to consider. Implied authority may be necessary in order to implement the express authority.

Question 8

Undisclosed principals - liability of principal

Answer 8

Undisclosed principals are “liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority.”
The law of partnership is, on such a question, nothing but

Question 9

Agency by estoppel

Answer 9

Authority by Estoppel – in the absence of actual authority, authority that a third party reasonably believes the agent to have based on:
the intentional or careless the actions of the principal, or
the principal’s knowledge of the 3rd party’s belief in the existence of authority and the failure to take reasonable steps to notify the 3rd party of the error.

Question 10

Ratification definition

Answer 10

Ratification is defined as “the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account.”
Ratification requires “acceptance of the results of the act with an intent to ratify, and with full knowledge of all the material circumstances.”
Before the receipt of benefits may constitute ratification, the other requisites for ratification must first be present.

Question 11

Undisclosed/partially disclosed principals -definition

Answer 11

“If the other party [to a transaction] has notice that the agent is or may be acting for a principal but has no notice of the principal’s identity, the principal for whom the agent is acting is a partially disclosed principal.”

Question 12

Undisclosed principals - liabilty of agent

Answer 12

“Unless otherwise agreed, a person purporting to make a contract with another for a partially disclosed principal is a party to the contract.” Id. at § 321

Question 13

IC v agency rule

Answer 13

“the test to be applied is that of whether the oil company has retained the right to control the details of the day-to-day operation of the service station;”
“control or influence over results alone being viewed as insufficient. . .”

Question 14

Franchise definition/how it works

Answer 14

Franchising is a system for the selective distribution of goods and/or services under a brand name through outlets owned by independent businessmen, called ‘franchisees.’
The franchisee enjoys the right to profit and runs the risk of loss.
The franchisor licenses several assets to the franchisee, including trade secrets, trademarks, or real property. The franchisor regulates the activities of the franchisee, in order to achieve standardization.

Question 15

When are franchisors agents - rule

Answer 15

“If, in practical effect, the franchise agreement goes beyond the stage of setting standards, and allocates to the franchisor the right to exercise control over the daily operations of the franchise, an agency relationship exists.”
Note: Some courts determine whether franchisors have sufficient control to bear tort liability by focusing on whether they have control over the specific area of the business that caused the tort

Question 16

Scope of employment - Factors

Answer 16

the time, place and purpose of the act;
its similarity to acts which the servant is authorized to perform;
whether the act is commonly performed by servants;
the extent of departure from normal methods; and
whether the master would reasonably expect such act would be performed.
TPP
S
Auth
Departs
Masters Expectations

Question 17

Scope of employment - two tests jrxs use (or both)

Answer 17

foreseeability test - “business enterprise cannot justly disclaim responsibility for accidents which may fairly be said to be characteristic of its activities.” Ira Bushey

motivations test - “conduct of a servant is within the scope of employment if, but only if: * * * (c) it is actuated, at least in part, by a purpose to serve the master.”

Question 18

When are ICs liable - rules
***
important one

Answer 18

A person who hires a contractor is generally “not liable for the negligent acts of the contractor in the performance of the contract…”
Exceptions to the general rule include:
where the landowner retains control of the manner and means of the doing of the work which is the subject of the contract;
where he engages an incompetent contractor, or
where, as noted in the statement of the general rule, the activity contracted for constitutes a nuisance per se. . . .

Question 19

Partnership definition

Answer 19

A partnership [is] an association of “two or more persons to carry on as co-owners a business for profit.”

Question 20

What creates prima facie case for partnership

Answer 20

Sharing of profits is prima facie evidence of partnership but “no such inference shall be drawn if such profits were received in payment . . .
1- as a debt by installments or otherwise;
2-as wages of an employee or rent to a landlord;
3 - as interest on a loan, though the amount of payment vary with the profits of the business;
as the consideration for the [sale of] property, by installments or otherwise.

[Joint ownership of business property] does not of itself establish a partnership, whether the co-owners do or do not share any profits made by the use of the property.

Question 21

Who has burden of proving the partnership

Answer 21

The burden of establishing a partnership is upon the one who alleges it to exist.

Question 22

Factors indicating/refuting existence of partnership

Answer 22

The Courts have considered several factors in determining the existence of a partnership, including:
the intention of the parties;IPLPAL3D
the right to share in profits;
the obligation to share in losses;
the ownership and control of the partnership property and business;
a community (sharing) of power in administration;
the language in the agreement;
the conduct of the parties toward third persons; and
the rights of the parties on dissolution.

Question 23

Determining partnership property

Answer 23

The intent of the partners determines what property shall be considered partnership property as distinguished from separate property.
Such intention of the partners must be determined from their apparent intention at the time the property was acquired, as shown by the facts and circumstances surrounding the transaction of purchase, considered with the conduct of the parties toward the property after the purchase.

Question 24

Rule for partnership 3p liability

Answer 24

Generally, partners are jointly and severally liable for everything chargeable to the partnership.
So what is chargeable to partnership?
1-All partners have equal rights in the management and conduct of the partnership business.
2-Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners;

See also - [UPA 1997] An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the affirmative vote or consent of all the partners.

Question 25

Partnership by estoppel

Answer 25

However, a person who represents himself, or permits another to represent him, to anyone as a partner in an existing partnership or with others not actual partners, is liable to any such person to whom such a representation is made who has, on the faith of the representation, given credit to the actual or apparent partnership.

Question 26

Joint venture v partnership

Answer 26

JVs are more limited in duration and scope - not a series of transactions

Question 27

What is a joint venture - ruile

Answer 27

For a business enterprise to constitute a joint venture, the following four elements must be present:
contribution by the parties of money, property, time, or skill in some common undertaking…;
a proprietary interest and right of mutual control over the engaged property;
an express or implied agreement for the sharing of profits, and usually, but not necessarily, of losses; and
an express or implied contract showing a joint venture was formed.

Question 28

Definition of corporation

Answer 28

Corporation n. An entity (usu. a business) having authority under law to act as a single person distinct from the shareholders who own it and having rights to issue stock and exist indefinitely; a group or succession of persons established in accordance with legal rules into a legal or juristic person that has a legal personality distinct from the natural persons who make it up, exists indefinitely apart from them, and has the legal powers that its constitution gives it.”

Question 29

Ways to form a corporation

Answer 29

De facto corporation and incorporation by estoppel`

Question 30

De facto corporation rule -

Answer 30

“When incorporators have [1] proceeded in good faith, [2] under a valid statute, [3] for an authorized purpose, and [4] have executed and acknowledged articles of association pursuant to that purpose, a corporation de facto instantly comes into being.
AND
“to all the world, except the State, [a de facto corporation] enjoys the status and powers of a de jure corporation.”

Question 31

Difference b/w de facto incorporation and incorporation by estoppel

Answer 31

[T]he de facto corporation doctrine establishes the legal existence of the corporation. By contrast, the corporation by estoppel doctrine merely prevents one from arguing against it, and does nothing to establish its actual existence in the eyes of the rest of the world.

Question 32

Incorporation by estoppel rule

Answer 32

Where a body assumes to be a corporation and acts under a particular name, a third party dealing with it under such assumed name is estopped to deny its corporate existence.”

Question 33

How are preincorporation acts treated under MBCA

Answer 33

MBCA § 2.04 Liability for Pre-incorporation Transactions
All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this Act, are jointly and severally liable for all liabilities created while so acting.

Question 34

Ratification under MBCA

Answer 34

MBCA § 1.45 Ratification of Defective Corporate Actions - Definitions
“Corporate action” means any action taken by or on behalf of the corporation, including any action taken by the incorporator, the board of directors, a committee of the board of directors, an officer or agent of the corporation or the shareholders.
MBCA § 1.46 Defective Corporate Actions
(a) A defective corporate action shall not be void or voidable if ratified in accordance with section 1.47 or validated in accordance with section 1.52.

Question 35

Default rule of 3p liability for corporate actors (MCBA)

Answer 35

A shareholder of a corporation is not personally liable for any liabilities of the corporation … except (i) to the extent provided in a provision of the articles of incorporation …, and (ii) that a shareholder may become personally liable by reason of the shareholder’s own acts or conduct.”

Question 36

When are shareholders liable?

Answer 36

Plaintiffs may pierce the corporate veil to reach the stockholder, if “the corporation is a “dummy” for its individual stockholders who are in reality carrying on the business in their personal capacities for purely personal rather than corporate ends.”

Question 37

Piericing the corporate veil test -

Answer 37

[A] corporate entity will be disregarded and the veil of limited liability pierced when two requirements are met:
First, there must be such unity of interest and ownership that the separate personalities of the corporation and the individual [or other corporation] no longer exist; and
second, circumstances must be such that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice.

Question 38

Factor (1) - separate personalities - factors courts consider

Answer 38

As for determining whether a corporation is so controlled by another to justify disregarding their separate identities, the Illinois cases . . . focus on four factors: “(1) the failure to maintain adequate corporate records or to comply with corporate formalities, (2) the commingling of funds or assets, (3) undercapitalization, and (4) one corporation treating the assets of another corporation as its own.”

Question 39

Factor (2) - fraud, unfairness, injustice

Answer 39

The courts that have properly pierced corporate veils to avoid “promoting injustice” have found that, unless it did so, some “wrong” beyond a creditor’s inability to collect would result…

Question 40

LLC v corporation veil piercing test

Answer 40

In the alter-ego analysis of an LLC, somewhat less emphasis is placed on whether the LLC observed internal formalities because fewer such formalities are legally required.

Question 41

When does the LLC agreement create liability?

Answer 41

When it is EXPLICIT:
Under a written operating agreement or under another written agreement, a member or manager may agree to be obligated personally for any of the debts, obligations, and liabilities of the limited liability company.
BUT! –>
Assumption of personal liability by a member of an LLC is so antithetical to the purpose of a limited liability company that any such assumption must be stated in unequivocal terms leaving no doubt that the member or members intended to forego a principal advantage of this form of business entity

Question 42

Injury v harm distinction

Answer 42

An harm to a person may not be a per se injury - AKA legally recognizable

Question 43

Voting Rights/Ratifications of corporate directors

Answer 43

The general rule is that directors acting separately and not collectively as a board cannot bind the corporation. (Authority)
But the failure to observe the formal requirements is by no means fatal.
Acceptance and retention of the benefits of [a conflicted transaction], with full knowledge thereof, [is] as complete a ratification as would have resulted from any formal all-inclusive resolution.

Question 44

Cumulative voting v standard voting

Answer 44

Standard voting - one share = one vote PER DIRECTOR SEAT but cannot group
(Ex - I have 100 votes for 2 seats can only vote 50/seat)
vs
Cumulative voting - one share = one vote but can group
(Ex - I can not vote 100/seat) = more minority shareholder power

Question 45

Compare - limits on corporate voting in eBay vs Ringling

Answer 45

In Ringling - the limits of control in a closely held company were an “acceptable stock pooling agreement” because they were (1) limited only to times that the parties disagreed and (2) the arbitrator had no express or implied power to vote for the parties (3) the agreement did not amount to the parties voting for one another

Question 46

Staggered v normal boards

Answer 46

Staggered boards take longer to replace people but does not redistribute the voting power

Question 47

Shareholder voting req’ts in MBCA v DGCL

Answer 47

Basic business items - More yes notes than no vs a majority of those PRESENT
Extraordinary items - majority of outstanding votes
Election of directors - a plurality

Question 48

When are interested trasactions by directors okay?

Answer 48

DGCL § 144 provides a safe harbor for interested
transactions if “[t]he material facts as to the director’s . . .
relationship or interest and as to the contract or transaction
are disclosed or are known to the board of directors . . . and
the board . . . in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the
disinterested directors. . . .”
After approval by disinterested directors, courts review the
interested transaction under the business judgment rule.

Question 49

What about director/stockholder dual roles?

Answer 49

The majority [shareholder] has the right to control; but when it
does so, it occupies a fiduciary relation toward the minority, as
much so as the corporation itself or its officers and directors.”
* …when voting as a stockholder [the majority stockholder] may
have the legal right to vote with a view of his own benefits and
to represent himself only;
* …when [the majority stockholder] votes as a director he
represents all the stockholders in the capacity of a trustee for
them and cannot use his office as a director for his personal
benefit at the expense of the stockholders.

Question 50

When can you question subcommittees

Answer 50

When they have not acted in good faith - The business judgment rule only protect the decisions of a subcommittee “if they possess a disinterested
independence and do not stand in a dual relation
which prevents an unprejudicial exercise of
judgment. . . .”