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102 Cards in this Set

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Agency Defined
Fiduciary relationship resulting from consent of one person (principal) to another (agent) that the agent shall act on the principal's behalf and subject to the principal's control and consent by the agent so to act.
General Application - Physical Actions (Master/Servant)
Includes physical service - liability issues - what is the servant employed to do? If he is acting w/in the scope of his authority, he will bind the master and transfer liability to him - RESPONDEAT SUPERIOR
General Application - Contractual Actions (Principal/Agent)
Includes third parties - primary question - was the agent given the authority to bind the principal to the contract?
General Application - Employment/Independent Contractor
NOT agency - C's actions will NOT bind the employer. Employer retains control over work but exercises no control over actions of C - THIS severs the liability chain that would flow from a P/A relationship
Distinguishing Features Between Agency and Independent Contractors:
(1) Control over detail - greater control more likely agency;
(2) Distinct trade - IC is usually engaged in one (plumber, etc.);
(3) Length of time/method of payment - P/A is generally hourly and ongoing; IC is for a single task and paid upon completion (usually);
(4) Vicarious liability - IC torts are NOT imputable to his employer - unless the job is INHERENTLY DANGEROUS
Three Principal Relationships Governed by Agency Law:
(1) Principal and Agent
(2) Agent and Third Parties;
(3) Principal and Third Parties.
Elements of Agency - Basic
Burden on P to prove or disprove existence of relationship:
(1) Must be agreement btwn parties - no need for contract or intent;
(2) Must be manifestation by P that A will act for him;
(3) Must be A's acceptance/consent to undertaking w/ understanding that P controls relationship and A's actions.
Types of Agents - General
Agents authorized to conduct a series of Transactions involving continuity of service
Types of Agents - Special
Agents authorized to conduct a SINGLE transaction or a SERIES that does not involve continuity of service
Types of Principals - Disclosed
At time of transaction, third party knows and understand A is acting for P and he knows the P's identity
Types of Principals - Partially Disclosed
3rd party knows A is acting on behalf of P but he does not know who the P is.
Types of Principals - Undisclosed
At time of transaction - A purports to be acting on his own behalf.
Authority and Control - Actual
Authority
P's words and conduct would lead a reasonable person in A's position to believe P has authorized action
(a) Express - actual words or deeds authorizing A; or
(b) Implied - course of conduct, systematic and continuous btwn A and P that would leave A with belief he had authority to act.
(c) Incidental - custom and usage in industry or area establishes the relationship
Authority and Control - Apparent Authority
P's words or conduct would lead a reasonable person in 3rd party's position to believe P had authorized A to act on his behalf
Authority and Control - Agency By Estoppel
Where a P negligently or intentionally causes a 3rd party to believe his A has authority and 3rd party detrimentally relies on this - P is estopped from denying A's authority.
Authority and Control - Agency By Estoppel - ELEMENTS
(1) Principal's act or conduct;
(2)Causing 3rd party to believe A relationship exists;
(3) Reliance on relationship by 3rd party; and
(4) Damages.
Authority and Control - Inherent
Power derived from agency relationship itself and intended to protect those dealing w/ A (Pizanno thinks this is NUTS)
Authority and Control - Ratification
P will be bound to 3Pif P, w/ full knowledge of material facts, affirms A's conduct, or engages in conduct that would seem to affirm it.
Authority and Control - Acquiescence
Failure by P to object to A's performance could constitute this.
Liability
Attaches as to the P if the A is acting w/in the scope of his authority of employment
Liability - Master/Servant
REASONABLE FORESEEABILITY - what are these risks and how could they have been dealt w/ by the master in advance?
Liability - Principal/Agent - General
Type of P may be a factor as to liability - P may be liable to 3P but A may be liable to P - P may sue A for breach
Liability - Disclosed Principal/Agent
P is FULLY LIABLE on the transaction and A may be if expressly included - may depend on how document is executed
Liability - Partially Disclosed Principal/Agent
P is fully liable on T - same as Fully Disclosed P's.
Liability Undisclosed Principal/Agent
P remains fully liable for authorized actions of A, and A specifically binds himself on the transaction - P is the person who puts T in motion and in best position to prevent harm and bear loss
Corporation - Defined Generally
Framework for conducting modern business - the existence and attributes arise from state enabling statutes which give freedom to choose own organizational structure.
Attributes of the Corporation - (1) Independent and Perpetual Existence
C is entity distinct from those who contribute capital and those who manage the business - C owns assets and is liable for business debts and does not dissolve upon w/ drawal of an individual - the C is a LEGAL PERSON
Attributes of the Corp - (2) Centralized Management
Board of Directors - manages and supervises business - subject to fiduciary duties. Shareholders have limited governing role including voting power to elect directors and approving fundamental C change.
Attributes of the Corp - (3) Hierarchical Return on Investment
Creditors first and receive return on investment; shareholders are last and receive dividends as declared by discretion of board. Upon dissolution - creditors before shareholders.
Attributes of the Corporation - (4) Freely Transferable Rights
Shareholders interests are freely transferable and can sell to investors interested in acquiring financial rights. C has no obligation to repurchase these ownership interests
Attributes of the Corporation - (5) Limited Liability for Participants
C is liable for its obligations but C insiders are NOT personally liable to outsiders
Theories of Corporate Law - Generally
Premise of C is the shareholders and management cannot survive w/out the other
Theories of Corporate Law - Allocation of Risk
Between S and managers in attempt to minimize s-m conflicts and C's overall success
State Corporation Statutes
Corporate statues of each state describe basic corporate attributes including:
(1) formation of C;
(2) financial rights of S
(3) governance powers of S, D, and O;
(4) transferability rights of S;
(5) limited liability for S; and
(6) structural changes
III. ORGANIZATIONAL FORM
Determines legal relationship, financial rights, responsibility for business debts, and tax liability
Organization of Corporation - Life Span
Requires FILIING articles of incorporation w/ state official - corporate existence is perpetual, regardless of what happens to individual S, D or O.
Organization of Corporation - Claims
Financial rights are allocated according to shares and distributions must be approved by B of D
Organization of Corporation - Governance
Centralized management by B of D. Officers carry out policies of B of D. S elect the B and decide fundamental matters. Shares are freely transferable unless there are specific written restrictions.
Organization of Corporation - Liability to Outsiders
S have limited liability for C obligations. They can only lose what they invested unless there is fraud or inequity that "pierces the corporate veil."
IV. INCORPORATION AND THE CORPORATE FORM
Requires strict recognition of formalities - in place to protect public interaction w/ corp
Factors to Look For in A of I:
(1) Formalities of Org;
(2) Capitalization and credit;
(3) Management and control;
(4) Tax consequences.
Sample Articles - Article I - Exact Name of Corporation
Must designate C status (Inc.) Name cannot be in use by another C.
Sample Articles - Article II - Purpose of Corporation
Reason for C existence ("to engage in any lawful activity"). ULTRA VIRES comes into play - when C acts outside scope of authority
Sample Articles - Article III - Total # of shares and par value, if any, of each class of stock authorized
Financing of C here - (1) Debt - get a business loan (trade, bank, bonds and debentures); and (2) Stock - owner selling off ownership interest in C - right to ask questions, inspect books, vote (if granted), be consulted on fundamental changes, participate in profits.
Article III continued - NEW STOCK
Authorized Capital Stock - must be acquired for good consideration.
Common Shares
basic form of equity interest in C. Owner has no fixed claim on C and is generally subordinate to all other claims on the corp.
Preferred Shares
Owner enjoys preferences not available to common S. May guarantee certain rate of return, liquidation preference - slightly like bank debt and common stock combined
Sample Articles - Article IV - If more than one class of stock authorized, state distinguishing designation for each class.
Defines classes of S that are issued. Class A - position 1; Class B - position 2; Class C - position 3. Ex. three person board w/ three people who are responsible for incorporating business are going to issue three separate classes of stock to ensure that two members do not gang upon the third.
Sample Articles - Article V - Restrictions, if any, imposed by the A of O upon transfer of shares of stock
Generally for closely held corps: Restrictions must be reasonable
Sample Articles - Article VI - Other lawful provision for th conduct and regulation of the C
Just about anything can go here - where you would find preemptive rights - allow others to cut in line when new stocks or shares are issued.
Sample Articles - Article VII - Effective date of organization
If not provided - it will be the date approved and filed by secretary of state - which shall not be more than 30 days after filing.
Sample Articles - Article VIII - Street address of C, name and address of President, Treasurer, Clerk, and Directors.
Not a permanent part of articles - do not need to file a formal amendment when they do change.
Sample Articles - Article IX - Certification
Bylaws have been duly adopted and P, T, C, and D have been elected - this is before the C exists - a little strange but maybe so everything is set up and ready to go - to show that it can be set up.
Post-Filing of A of O - Formal Amendment Process
Required for changes up to Art. VIII - it may require votes to make the change
Post-Filing of A of O - Approval of the A of I
If approved - C is in existence (De Jure - following strict compliance - and corporate shield is applied).
Post-Filing of A of O - Meeting of directors
(a) when properly convened (notice and quorum) D may appropriately act; and (b) first meeting held to elect permanent officers and to ratify pre-incorporation K's.
Post-Filing of A of O - Meeting of Shareholders
Meet to approve director actions.
Pre-Incorporation Transactions by Promoters - Definition of Promoter
Those who undertake to form the C. They are fiduciaries of the incorporators (if not one themselves) and owe loyalty, good faith, fair dealing, full disclosure. Act as agents for one another - deals w/ Discovery, Investigation, Assembly
Issues re: Promoters
(a) Promoter liability and rights under the K;
(b) Corporate liability and rights under K;
(c) Intentions of the parties - this is KEY - expression of intent w/ respect to liabilites in light of transfer from promoter to C.
Problems with Pre-Incorporation Agreements
(1) no guarantee C will ever form;
(2) no guarantee C will form as intended;
(3) No guarantee C will accept P-I K
Liabilities of Promoter and the Corporation
(a) P personally liable to a K for the benefit of an intended C unless parties agree otherwise - he will be liable if the 3P doesn't know about the pre-C, he may be liable if the K states the pre-C.
(b) the C (to be) is generally NOT liable for K entered into by P b/c it is not in existence - C may become bound through ratification, adoption, novation, or other means.
Rule of Promoter Liability
When a promoter makes a K for the benefit of an intended C the promoter is personally liable on the K and remains liable after the C is formed. There is a presumption that the parties intended present, binding agreements between the parties w/limited liability incurred by the parties.
Novation provision
Provides (1) present obligation on the parties; (2) parties agree to a new K; (3) the new K extinguishes old agreement and shifts liability from P to the C; and (4) the new agreement must be valid
Defective Incorporation - Definition
When efforts to incorporate fall short - when parties believe there is a C but something makes that not true. Liability issue arise.
De Jure Corporation
C is formed in strict compliance w/ law - C status not subject to challenge - shield is effective but the court can go behind veil to hold O, D, etc personally liable for fraud or bad faith
De Facto Corporation
By virtue of the facts - if they made a colorable attempt to incorporation so long as there is (a) a statute permitting incorporation; (b) a colorable attempt to comply w/ that statute; and (c) actual good faith use of the corporate status and powers. Only vulnerable to attack by the state but not others. Errors occur through failure to deliver
Corporation by Estoppel
C DOES NOT exist but b/c of unique facts you are estopped from denying the C status.
Ultra Vires - Classic Theory
Powers of C are defined and limited by A of I. Classic case - someone challenges the C's act claiming it is outside the powers of the C and therefore void.
Ultra Vires - Continued
Applied to K cases - asserted as a D.
*Executory K - if neither party perform, both can plead UV;
*Full Execution - UV precluded if K has been fully performed
*Partial Performance - relief granted in quasi-K - fair value of goods or services
Modern Trend - Ultra Vires
DEAD - statutes permit incorp of ANY purpose - "established to engage in any lawful business," eliminating need for UV.
V. The Corporate Structure
**
Classic Model - Pyramid
Officers;
Directors;
Shareholders
Officers - Defined
Administer day-to-day affairs of C under supervision of board - may be hired and fired by board w/ or w/out cause
Officers - Authority
AGENT of the C and authority analyzed under agency principles - does not have auto right to bind corp
Officers - Binding Authority - Four Doctrines
(1)Express Actual - given in articles, bylaws, statute;
(2)Implied Actual - necessarily and reasonably implied by express Authority - acquiescence in conduct of officers;
(3)Apparaant - created by some action of the C that gives impression to 3P that agent has authority that she does not;
(4)Ratification
Directors - Defined
manage C's business - formulate policy and appoint officers to carry it out - always elected by S.
*Cumulative - can take all votes and vote for one candidate
Directors - Number
Usually fixed in A of I - statutes generally want at least three - others are flexible with the number.
Directors - Filling Vacancies and Removal
Vacancy - usually done by board or S. Removal - by S w/ or w/out cause - by fellow directors w/ cause.
Directors - Act of Board
May take action (normally) by a vote of a majority of the directors present at the meeting.
Shareholders - Defined
Act by electing and removing directors and approving or disapproving fundamental non-organic changes - hold power in C - it flows up from them
Shareholder - Rights
Certificate is E of stock ownership and will often determine rights of holder - contractual relationship - right to inspection, accounting, direct standing to challenge C activities, and right to vote
Shareholder - Voting
May be eligible to vote - determined in stock certificate - voting S do so on broad policy questions - must be a quorum (majority of outstanding shares) and the majority of shares ACTUALLY PRESENT vote in favor of action
Shareholder - Removal Actions
Most statutes allow S to remove D - generally w/ showing of cause. Must give notice, charges and defenses w/ regard to corporate rights as a whole
Shareholders - Fundamental or Organic Changes to Corporation
ALL S will vote on matters that will change nature of ownership - mergers, consolidation, sale of significant C assets, dissolution, terminations.
Shareholders - ORDER OF TAKING
(1)Secured Creditors - collateral or other security on debt;
(2)General Creditors - for every day transactions - office supplies
(3)Preferred S - provide liquidation preference or other special rights;
(4)Common S - wait until everyone gets their share
Voting - ONE VOTE
One vote/share of stock - for officer/board elections - one vote/share/officer or seat to be filled
Voting - CUMULATIVE
Formal or informal arrangement btwn S to vote their shares as a block - one way a minority can influence C activities
Voting - Requirements for QUORUM
Usually a majority in interest but can be defined either by statute or A of I.
Voting - PROXY
Employment of agent to vote on my behalf, different from traditional agency b/c the agent is often seeking MY authorization to vote for me.
Voting - MEETINGS
Annual meeting required by statute - if postponed - S can file WRIT OF MANDAMUS to compel. Special meetings can be held too - both require NOTICE
Meetings - Record Date
Generally 60 days prior to the vote - when S of record are notified - this doe NOT suspend trading of stock - closing day will - day before the S meeting - suspends stock until after the vote is made.
Charlestown Boot & Shoe v. Dunsmore
S voted to wind up C and elected committee to deal w/ it. B of D disagreed and continued business. - Management resides SOLELY in B of D and S unlawfully usurped B powers
Authority Issues - Delegation of Duties
Did B properly delegate authority to act on an issue?
(1)What did board instruct officer(agent) to do?
(2)Trace authority to the C - but C will defend as an ultra vires action in K matters - not for torts
Sources of ACTUAL AUTHORITY
(1)Bylaws; (2)Board resolutions; (3)Corporate status; (4)Certificate of Inc; (5)Express; (6)Implied - A performed act w/out comment from B in the past; (7)Inherent - virtue of position
APPARENT AUTHORITY
Holding out as possessing authority to engage in transaction - what 3P reasonably believes when entering into transaction. Normally arises w/ C's officers
Issues to think about re: authority
(1)Corporate waste;
(2)Fiduciary duty;
(3)Closely held C v. Publicly held C;
(4)Total C assets;
(5)Actual v. apparent authority
Actual v. Apparent Authority
If O is selling all or most of C's assets then 3P is on notice that the O may be acting beyond scope of authority - 3P must make reasonable inquiries - Apparent Authority is context driven
Limitations on Liability - PIERCING THE CORPORATE VEIL
When court holds some or all of the shareholders PERSONALLY LIABLE for the C's debts.
Walkovsky v. Carlton - Distinguishes C from I
C id. in relation to participants
Minton v. Cavaney - Inadequacy of C capitalization
Atty involved in formation of C and served as D, secretary, and treasurer. Commingling of C and I assets of D - C was undercapitalized as well.
Inadequate Capitalization - defined
You MUST hold sufficient capital to meet existing obligations - $2:$1 - capital:debt - critical as it provides guarantee to investor there is something to the C.
Costello v. Fazio - Equitable subordination and DEEP ROCK DOCTRINE
Stops short of disregarding C entity b/c facts don't support such a harsh remedy - CLAIMS OF A CONTROLLING S IN A BANKRUPT C MAY BE SUBORDINATED TO CLAIMS OF OTHERS, INCLUDING PREFERRED S, ON VARIOUS EQUITABLE GROUNDS.