Business Associations

Three Areas we will cover

1. Agency law (about a month) 2. Partnerships, limite partnerships, !imite liability partnerships (mi ". #orporations (!astly) le)

Agency law $ common law % statutory &estatement o' Agency( American !aw )nstitute *very business relationship starts with Agency law.

CLASSIFYING AGENTS
Agency is the 'i uciary relation which results 'rom the mani'estation o' consent by one person to another that the other shall act on his behal' an sub+ect to his control, an consent by the other so to act. The one 'or whom action is to be ta,en is the principal. The one who is to act is the agent.
-i''erence between ./!A 101B an ./!A 101 #A2*2 Demian, Ltd. v. Charles A. Frank Associates, et al Iss e! Franko "as a #roker and Demian sold leather goods. Demain enters into a contract "ith $rank and "ith his hide %erson. A$ter getting a letter o$ credit the goods "here shi%%ed and they "ere cra%. &o" Demain is o t all this money. ' estion is son(s negligence going to #e im% ted to $rank. )hether an agent can a thori*e another %erson to %er$orm his d ties to the %rinci%al(s "+o the %rinci%als a thori*ation or consent, -olding! . /01 lia#ility o$ s #agent cond ct. Son "as merely a s #agent o$ $ranks. All they had to do "as 2 st $ind someone, then their 2o# "as com%lete. Frank is not o$$ the hook #eca se he delegated it to someone. Frank %romised to ins%ect son, # t he didn(t so he is ltimately res%onsi#le. )hat d ty do yo have,
Restatement

2d Section 1 Agency

!etter o' #re it( buy goo s 'rom someone you ont ,now in another country you go through a ban, who will issue a letter o' cre it saying you are goo 'or the money then the goo s pro ucer will ,now they are getting pai .
-Im%ortant #eca se they $acilitate international commerce
if other person was employed by the agent then liability to perform duties to principal rests with the other person if other person is independent contractor of the principal

if other person was agents sub-agent, then agent would be liable to principal Damages: are they foreseeable? Is there negligence? Harm not only physical but financial harm. Fran is arguing that !un was a co-agent rather than a subagent, but the court found differently. Fran and !un split the commission "#$"#, so De%lin thin s they should ha%e been considered a &oint %enture since they might be partners.

HYPO: Devlin has a three year old girl names pheona. There is this next door neighbor and he is law student can you recommend someone? Pattys son JS. Devlin enters into contract to have JS babysit and does a bad job. Pheona goes out the front door gets sick goes to hospital. Hospital bill goes up to $3,000. He breached the contract. Can Devlin sue Patty because he is her son?
3o, because she was not pai to o the +ob 2he was pai to 'in someone, you are on the hoo, i' you were negligence on hiring them
3roker

Contract!

*nter into a contract to 'in a buyer They have a +ob to 'in someone else to o the wor, they elegate the +ob to another

Agency Relationshi% #agent!

purely consensual no money nee s to pass 4or,s 'or the person who hires them 2cope o' employment is to o the +ob as,e 5 'in me someone 3ot responsible 'or the +ob they o, unless they were negligent in oing so. .ust use ue6 iligence, i' it was obvious you ma e a ba ecision then you are on the hoo,. As, what uty o you have7 #an not elegate the +ob to another person. other wise you become a bro,er HYPO: go to a big law firm, BOB and associates, Meet with bob for 10 minutes and its a huge medical malpractice case. Bob then is going to delegate it to a lower associate. Lower associate screws up. Is bob responsible?
8es, because Bob promise to o the wor, but elegate it to someone else.
S

4aren )endell 5ormo and -enry )endell v. 6ilton 7ormark, et al v. 8d"ard Devlin! Da ghter got in #oating accident. Call a layer to retain him. La"yer delegates the 2o# to another attorney. Calls 7ormark and he says he is a 9I and $amiliar "ith the case. Devlin says he doesn(t do 9I so take the case. Devlin called the &: #ar and they said nothing is "rong "ith 7ormark. It "asn(t ntil a$ter he started on the case that he got indicted. Da ghter goes to s%ain, d ring that time they o$$er 1;0,000 settlement. 7ormark gets indicted # t devlin doesn(t kno" #eca se he is not re< ired to read % on &: #ar st $$. =et(s check and cashes it Issue! )hether a %rinci%al is res%onsi#le to %revent harm to another #eca se o$ the criminal acts o$ >rd %arties not s #2ect to his control, Holding: An agent "ho is a thori*ed to em%loy other agents to handle his %rinci%al(s a$$airs is nder a d ty to select com%etent and %ro%er agents

 the attorney did not assist in any case therefore he would not get a cut of the money and therefore is not liable

Phoebe goes to Sarah with the big case. Sarah doesnt do private investigation work but refers her to her friend Jodi. The case is going to make about $150,000 and Jodi will profit 50,000. Does Sarah get a cut of the fee?

2arah can get a "r o' 9o is see i' she continues to wor, on the case an assumes responsibility 'or
5he

attorney re$erral$ee sharing

you can share 'ees when you re'er a client to another attorney as long as when he re'erre them you agree to assist an assume responsibility attorney is suppose to ,now that when another attorney calls up an says that 'amiliar with the case that attorney either solicite in person or there'ore you ,new or shoul have ,nown that he woul embe::le a convicted criminal named Kevin. Kevin did his time and repaid his debt to society. Everybody knows that he will commit the acts again. Patty hires him regardless because while in prison he took a couple of accounting courses. Patty hires him to work in the law firm on the books. While Patty was in one day Kevin goes in cracks the safe and opened it up. It takes out $100,000. You little old lady client Sarah and he sees her and grabs her purse and runs off with it. There was 1 million dollars in the purse. is Patty responsible for Kevins actions?
no Patty woul not be liable because there was no way 'or her to ,now that ;evin woul commit a crime

Re$errals

3reach o$ $id ciary tr st ? &8=LI=8&C8, em#e**lement, $ra d, dealing "ith client(s %ro%erty $or o"n se. 5he general r le is that there is no a thority to re@delegate. 3 t "+in act al a thority yo have im%lied a thority. Co rts have held that delegation #y an agent is acce%ta#le i$! the delegated task is merely ministerial as o%%osed to discretionaryA or i$ it(s c stomary $or agents in similar sit ations to delegate their tasks. @Devlin claims he sho ld not #e lia#le #eca se he "asn(t %aid, # t that is 3S #eca se attorneys get a c t $or trans$erring cases to other attorneys. I$ some#ody comes to yo as a client, and yo say BI(ll see "hat I can do a#o t it,C that esta#lishes and attorney@client relationshi%. Sho ld Devlin have reasona#ly $oreseen that an attorney "ho solicits clients may em#e**le money,
68ou only have to use ue care in 'in ing the person you 'oun . )n this case, 8ormar, 'oun -evlin an -evlin loo,e him up to iscover that 8ormar, was a license attorney. This was ue care accor ing to the +u ge an that is why -evlin was not 'oun guilty un er these 'acts. This is why convicte 'elons cant get +obs because owners o' businesses woul be liable 'or what they o since the owners i not use ue care in 'in ing the employee.

6-ont ever ma,e a settlement chec, payable to the client<<<<

 3 cholt* v. Sirotkin 5ravel, Ltd. DRestatement Agency 2d .>E Iss e! )hether an agent is lia#le $or de$a lt in %er$ormance o$ "holesaler to make travel arrangements to the %rinci%al Dc stomerE "hen c stomer did not consent eF%ressly or im%liedly the se o$ a "holesaler, -olding! 5he agent m st take reasona#le d e diligence in selection %rocess. I$ no consent $rom %rinci%al then agent res%onsi#le $or any damages s stained that res lted $rom acts o$ another. @Did the agent kno" or sho ld have kno"n that the cr ise line "as a#o t to go #ankr %t, I$ the agent kne" they "ere going #ankr %t, then there is lia#ility $or not sing d e care and d e diligence. I$ the agent didn(t kno", then the agent is o$$ the hook.

Sam goes to cruise line to book a cruise and then the company goes bankrupt so now Sam is out $3000. You can sue the bankrupt company but probably the indispensable party at this point but why bother. You then go to the deep pocket, the travel agency. Kevin the travel agency believed his job was to find same somebody to cruise with and he found Carnival cruises. Sam checked his bona fides and they were not bankrupt at the time. what did Kevin do wrong? nothing, however kevin was an agent and his job was to find sam a cruise

TYPES OF AGENTS

 1. Provi e continuity o' service 'or their employer $ principal 1. =ire to con uct a single transaction. 2. Possess limite power to bin their principals 1. *mployment arrangements 1. #ontracts between agents an "r parties nee to consi er the reasonable e>pectations o' the "r parties. 2. #ourts will strive to protect these reasonable e>pectations. ". )' agents allowe to act 'or principals then "r parties shoul be able to rely on the vali ity an en'orceability o' their contracts with agents
"r parties reliance .?2T be base on reasonable e>pectations.
D. C. 3.

A.=eneral

Agents

S%ecial Agents

6aster+Servant Contract Considerations

TYPES OF PRINCIPALS
(4e will only protect your reasonable e>pectations)@?sually principals are (about AAB o' the time) an are always on the hoo,
1. !iable to "r party 2. #an not sue agent 'or a isclose principal 1. #an sue Principal an Agent
2ue the Agent 'irstC uring eposition or interrogatory 'in out name o' Principal then amen cDo
C. 3. A.

isclose

Disclosed

9artial Disclosed 9rinci%al

Gndisclosed 9rinci%al 5hings to Ask

1. #an sue Principal an Agent 1. -o you own the buil ing7 (-i &owen an Blair even chec, who owne the buil ing be'ore they 'ile the lien7 Probably not) 2. 4hat is your scope o' authority7 ". )s there a writing7 )s there vali ation o' the allege 'acts7 E. )s there un+ust enrichment7
D.

THEORIES OF LIABILITIES
A. 3.

Contract 5orts

1. Protect reasonable e>pectationsC you get to eci e i' you want to enter ; 1. &espon eat 2uperior

 2. *mployerD*mployee
3egligent wDin scope o' occupation 2cope F' ones (=is) Fccupation are attribute to employer (2F=F) GF=F Grolic Fn =is Fwn (employee liable)

". Always sue negligent party in a scope o' occupation

ition to PrincipalDemployer i' the negligent party per'orming wDin the

certain occupations come with certain ris,s (police) )' you put an employee in a position where the use o' 'orce is li,ely, then you are going to be responsible 'or their actions, most o' the time. Gor e>ample, a bouncer. But i' the bouncer brings in a gun an shoots everyone, then they were not acting within the scope o' their employment an the employer will not be liable unless they ,new to his pree>isting psychosis.

LIABILITY
)' agent is an )# liability 'or negligence o' the agent will not be impute to the principal (respon eat superior oes not apply) ?3!*22(
angerous isrepair nuisance inherently angerous activities non elegable uties (lan lor s)
Lia#ility

o$ 9rinci%al "+ Inde%endent Contractor DICE

all go to public policy concerns

Ro"en 3lair 8lectric Co. v. Fl shing H%erating Cor%. Iss e! )hether an ndisclosed %rinci%al is lia#le $or its s%ecial agent(s #reach o$ contract "+ >rd %arty, -olding! A s%ecial agent $or an ndisclosed %rinci%al has no %o"er to #ond his %rinci%al #y contracts or conveyances "hich he is not a thori*ed to make G&L8SS! the s%ecial agent(s only de%art re $rom his a thority is! in not disclosing his %rinci%alA or in having an im%ro%er motiveA or in #eing negligent in determining the $acts %on "hich his a thority is #asedA or in making misre%resentationA or the s%ecial agent is given %ossession o$ goods or commercial doc ments "+ a thority to deal "ith them. @I$ yo give a lessee the a thority to make renovations "ith a ca%@o$$ %ay o t, then c t them a check $or the ca%@o$$ %ay o t so they don(t eFceed the ca%@o$$ and hold yo lia#le $or %ay o ts. @Fl shing "as an agent, # t they had in "riting that they "ere only lia#le $or I/;,000. An agent is only lia#le $or their a thority.
Lia#ility

o$ S%ecial Agent

MECHANICS LIEN = statutory lien MGLA 254 c2

purpose o' security o' payment o' price 'or the per'orme services (repair structure or buil ing) 'ile in 2uperior #ourt per'ecte when 'ile recor e in registry o' ee s base on the contract between the parties 2F! 2 years #an place a lien a'ter per'ormance
Lia#ility

o$ 6aster+Servant

 Always sue the negligent party 'irst loo, 'or eep poc,ets
Res%ondeat

S %erior

agents are either employees or in epen ent contracts -i the principle have the right to control the actions o' the agent i' the principal oes have the right to control it becomes an employeeDemployer relationship Grolic, Fn =is (Fr =er) Fwn respon eat superior 2cope F' =is (Fr =er) Fccupation
Co"an v. 8astern Racing Assn! Iss e! )hether a %rinci%al is lia#le $or the tort o s acts o$ its servants, -olding! Res%ondent S %erior and 5ort Lia#ility eFisted the relation o$ master and servant eFisted at time o$ in2 ry right to control %hysical cond ct servant acted in $ rtherance o$ em%loyer(s interestsJ Can #e a 3orro"ed Servant tooK 7o can have t"o lia#le masters. "ithin the sco%e o$ em%loyment d ties A master not in$re< ently may #e lia#le $or cond ct o$ a servant "ho ses means not intended or contem%lated #y the contract o$ em%loyment DRestatement Agency 2d .2/;E
'espondeat !uperior ()*+ ,--*I! .( /mployer$/mployee 'elationships
SH-H-H FH-H

oes not apply

An employment relationship (A,B,C)

Service performed by an individual, except in such cases as the context of this chapter otherwise requires, shall be deemed to be employment subject to this chapter irrespective of whether the common-law relationship of master and servant exists, unless and until it is shown to the satisfaction of the commissioner that
(A) 'ree 'rom control or irection o' the employing enterpriseC (b) outsi e o' the usual course o' business, or outsi e o' all the places o' business, o' the enterpriseC an (c) as part o' an in epen ently establishe tra e, occupation, pro'ession, or business o' the wor,er.H

Forten#acher v. Common"ealth

)' it is iscretionary or not, whoever you are trying t sue is immune i' it is not a iscretionary act not immune 4hen you eneter into a contract with the agent that bin s the principle...bin s the agents authority

Authority
cashier authority
8F%ress

A thority

Im%lied

A thority a thority

treasurer6 its inherent that they can write a chec, Joe corp. Ed is the president. Sell tires. Joe is the board of directors. Ed doenst have any express authority. He has implied authority and it is inherent. Glow 'rom the principal to the agent

Inherent

al A thority Apparent Authority

Working at home depot and a nice young man comes in with work cloths. 8ou can let own your guar a'ter you shoul let own your guar Fnce

Act

Ratification
&ati'ication o' unauthori:e authority by principal rests on intention6
.ay be e>presse or in'erre by con uct 'rom surroun ing circumstances

-)here an agent has acted o tside the sco%e o$ his a thority a %rinci%al may rati$y the act and render it o#ligatory %on a thori*ation and con$irms that "hich originally "as an na thori*ed act. - the %rinci%al needs to have kno"ledge o$ the $acts to either re2ect or acce%tA not a$ter the $act
YO !""# $O %!O& '(O $ )$ O$*"+&)S" $*"+" *'S!,$ (""! ' -'!)."S$'$)O! O. ' $*O+)$Y 11 +atification saves the /rd party0 aE )f a1ent enters into a contract to bind 2rincipal but lac3s either actual or apparent authority 4 2rincipal is not liable in the event of a breach5 however #E $he principal , 3nowin1 all the material facts of the contract, subsequently manifests his a1reement w6 contract either expressly or impliedly, then the contract is said to be ratified and will be bindin1 on the principal0 (1) 2rincipal - S$ *'7" 8'2'8)$Y to ratify the contract entered into by the a1ent9 (a1 at time the a1ent entered into the a1reement (b1 when the 2rincipal ratifies the a1reement 11

3ridge enter%rise! Agent signed the eFtension and the third %arty in 6A has to %rove Fran* Farr v. =eorge ). &e"man and 8l#ert C. -ardy! Farr entered into an agreement to % rchase %ro%erty o"ned #y &e"man(s $or >,000. 5hen -ardy came along and o$$ered /,000. -ardy(s attorney had kno"ledge o$ the agreement #et"een Farr and &e"man

Covenant not to compete

 Arth r 6 rray Dance St dios o$ Cleveland!

Covenant not to compete

Because be'ore you start tal,ing about scope, uration, an geography you nee as a pre6reIuisite a legitimate protectable business interest 4e have to be worrie about losing pro'it, losing customers, losing reputation, losing goo will.
1.) Scope 2.) Area 3.) Duration 1st American Systems, Inc v. 3rian :. Re*atto! )illiams v. Investor syndica

Devlin agrees to buy a car from sue for 10,000. Sue sells it to Celina for more money. Devlin sues Sue for breach of contract. Sue was actually acting as an undisclosed agent for Celina.

Partnerships
an associate o' tow or mores persons engage as co6owners in a business 'or pro'it. Partnership- 4 partners- netted 100,000 then each partner will get a K-1 and they are responsible for 1/4 $25,000. then they file their own 1060 with the 1/4 as their earning. Being a partner is the same as being a sole proprietor 4hen you bring in another person Gile an in'ormation return because a partnership oesnt typically 'ile .ust have the intent to ma,e a pro'it even i' you ont 4ithout an agreement to the contrary all partners have an agreement to manage it. Devlin is in a partnership with kevin. Kevin was texting and driving and ran over a bunch of mensas. the estates of those children are going to sue. Is kevin on the hook. 100% reliable. Under respondeat superior so is Devlin. 4hen you enter into a partnership with someone you are +ointly an severely liable 'or all o' the ebts o' the other partner in the partnership.

 devlin and kevin are business partners. Kevin gets divorced and has to pay alimony. Is devlin on the hook for the alimony kevin does not pay.
3o you are on the hoo, 'or all o' the PA&T3*&2=)P ebts

Kevin runs over linda while texting and driving and she sues kevin and the partnership. Linda gets a million dollar judgement. Kevin runs away how much is devlin liable for
1JJB because you are +ointly an severely liable

Can Devlin find kevin and sue him for all of it?
3o only 'or hal' because it is +ointly an severely liable B?T, -evlin can sue the employee 'or negligence

Sole proprietor
you start a business an ta>es you earn money the money goes on sche ule # o' your

4a $man@#ro"n v. -orton Alho se! Contract #et"een 43 and -A. 43 sharing %ro$its $rom %otato(s $rom -A. 5he arrangement is an arms length agreement. 43 is a distri# tor and -A gro"s the %otatoes. Contract al relationshi%, yo give s the %otato "e sell it and it "ill #e ;0+;0 or /0+10. 5he %artnershi% "ere made % o$ #oth distri# tor and $arm. =-F %icks % the cost. -orton got into $inancial di$$ic lties and are going to $ile $or #ankr %tcy. Creditors "anted to go a$ter 43 as a %artner to them. )hether this is a %artnershi% or an arms length arrangement, -8LD! co rt said they "ere %artners. 43 claims they "ere a creditor.
!haring of profits is not %indicti%e of a partnership

We will grow you distribute. Grower goes bankrupt. When that happens they have creditors. They go after the partner in the arrangement and if they were a partnership they are jointly and severely liable. Is this an arms Arms length6 3o Partnership 6 8*2

Profit sharing
Pro'its that are share amongst employees. 8ou are not on the hoo, 'or all o' the ebts o' the business Kevin ownes BUSH Devlin distributor. They are going to split the profits from their arrangement What if the distributor starts to tell the maker how to make the beer...Maker says get out dont tell me how to run my business
3ot managing not a partnership

6artin v. 9eyton! 3rokers %artnershi% that # y stock and lost money. 5he #rains goes to a $riend and "ork o t an agreement $or a loan $or 2,;00,000. 5hey loan 2.; million in sec rities. /0L is going #ack to 9eyton. Agreement, Loan and Indent re. 9eyton has letters o$ resignation $rom everyone o$ the %artners.

 securities that are easy to convert into cash

- m#le oil and re$ining Co Roach v. 6ead!

Li<

id sec rities

Limited Liability:
i' we +ust say 1JJ,JJJ up'ront that is the limit o' your liability )' you are incorporate you nee to have limite , !t , )nc 8ou sue the principle an all the in ivi uals why not have an !!P
Commissioners

Limited liability Company

3assan! Sel$ deals
as partners you owe a high le%el of fiduciary duty

9 leo v. to%el -ar#ison v. Strickland &e%t ne

Corporations:
restriction agreement The Business Judgement Rule:
Smith v. 3arlo"!
Stock

 3ayer v. 3eran!

Piercing the Corporate Veil

Mem%el v. li#erty!

Closely held corporations:

Devlin bob mike and courtney all have a company and all are on the board of directors. Court nominates herself. Bob treasurer, mike- CFO, Devlin- Maintenance. e'ine by +u icial ecision
1.) =as 'ew share hol ersC 2.) 2hare hol ers (many most oes not have to be all) are actively involve in the management o' the corporationC an ".) There is no rea y mar,et 'or the sharesC not publicly tra e . S garman v. s garman! $o r #rothers $ormed a %artnershi% to sell %a%er. > o$ the $o r #rothers o"ned e< al shares and managed the %artnershi%.

Mergers
Coggins v. &e" 8ngland 9atriots!

Derivative Suits:
a lawsuit brought by a sharehol er on behal' o' a corporation against a thir party Fn behal' o' a corporation the boar o' irectors is the only group authori:e to 'ile suit on behal' o' the corporation
Cohen v. 3ene$icial Ind strial Loan Cor%oration! a shareholder "ith less then .01L share in a com%any s ed the cor%oration directors $or engaging in cons%iracy to enrich themselves "asting a#o t 100,000,000.00 dollars. Derivative s it.

Massachusetts 23.1 Derivative Actions by Shareholders:

)n a erivative action brought by one or more sharehol ers or members to enforce a right of a corporation (notice it is the right o' the corporation the corporation which is harme or o' an unincorporate association) the corporation or association having 'aile to en'orce a right which may properly be asserte by it, the complaint shall( 1.) be veri'ie by oath an C 2.) shall allege that the plaintiff was a shareholder or member at the time o' the transaction an C
which is one way o' attorneys rea ing the business sections an buying stoc, o' which he complains or that his share or membership therea'ter evolve on him by operation o' law that is i' the harm happene to your mother an when she was a stoc,hol er an you inherite the stoc, an now youve got cause o' action 'rom one who was a stoc,hol er or member at such time.

 ".) shall also allege with particularity the e''orts, i' any, ma e by the plainti'' to obtain the
action he esires 'rom irectors or comparable authority K
5-i you ma,e a eman an you have to allege it with particularity7H

Insider Trading
i' a irector has insi er in'ormation then he is 'ree to buy an sell be'ore the mar,et a +usts 'or it 1A2A crash ue to people speculating in the stoc, mar,et )' the stoc, ippe you ha to come up with more money )nsi er6 very broa ly e'ine , everyone is an insi er that is connecte in any way i' you tell someone material insi er in'o then you are a tipor telling a tipee