I.

Agency

A. COMMON ISSUES: Is there a P + A + T? Does relationship exist? What happens to P when A&T Interact? 1. Does the relationship exist between P & A? Consent (wor s! speech! other con "ct# (both ways#$ a# by P to ha%e A act on his behal& (or in his place#? & b# by P to ha%e s"b'ect to his control? & c# by A to so act? 1.01 (i# W( these ele)ents present! there*s no nee to say +agent+ (ii# W(o these ele)ents present saying +Agent!+ ha%ing won*t wor, -. K LIABILITY: Is there a K between A & T? 1. hen !s " L!ab#e? hat K!n$ %& A'th%r!t( $!$ A ha)e &%r h!s a*t? a# A*t'a# A'th%r!t( +" A,? Di A reasonably believe P*s )ani&estations were intent &or A to act? (i# A*t'a# E-.ress? P liable i&$ P tells A to do X + A does X (ii# A*t'a# I/.#!e$? P liable i&$ P tells A to o . + A nee s extra step to o . +A oes extra step + (A ha reasonable belie& + it was c"sto)ary (base on (1# Past(present con "ct o& P + (/# nat"re o& A*s tas,# b# A..arent A'th%r!t( +" T,? Di PT )ani&estations ca"se T to reasonably believe A ha a"thority? (i# P liable i&$ T reasonably belie%e A ha a"thority + it was c"sto)ary. 0.01 (A# P*s )ani&estation oesn*t nee to be a irect state)ent0 (-# T can ass")e A has apparent a"thority &or acts in or inary co"rse his e)ploy)ent! "nless there*s ,nowle ge to the contrary. /. as " 'n$!s*#%se$? a# 10.02+1,: P liable i&$ T '"sti&iably )a e etri)ental change + A ha no a"thority + P ha notice + P i nothing. b# 10.02+0,: P can*t rely on instr"ctions to A i& they wo"l )a,e A o less than what reasonable T wo"l expect. Watteau v. Fenwick. 2. as There 3at!&!*at!%n A&ter the 4a*t? 56A3NE3: A (1#%ail a&&ir)ation by P! (/# to which law gi%es e&&ect3 a# 4A5675$ 8"estion to as,$ What types o& acts constit"te rati&ication? & What e&&ect sho"l we gi%e the rati&ication? 5ati&ication gi%es e&&ect o& act"al a"thority0 b# 3at!&!*at!%n !s: P a&&ir)ing act + gi%ing it e&&ect as i& A ha acte w( act"al a"thority. 7.01+1, *, 3at!&!*at!%n 8 E-.ress O3 I/.#!e$ A&&!r/at!%n 57.01+0,9 : 7 re;'!re/ents 57.01+1,9 (i# E-.ress a&&!r/at!%n< )ani&esting assent to be legally bo"n (ii# I/.#!e$ A&&!r/at!%n< accepte bene&its (co"l ha%e re'ecte #! 95 silence(inaction! 95 &iling laws"it to en&orce : (iii# 7 3e;'!re/ents: (1# A acte (p"rporte to act as agent ;Boticello3! (/# capacity! (2# ti)ely ;no a %erse e&&ect on T3! (<# entirety $, E-*e.t!%ns: 3at!&!*at!%n n%t e&&e*t!)e !& 57.009: (i# (1#in &a%or o& one who )isrepresente ! (/# in &a%or o& A against P when P rati&ies to a%oi loss! (2# to i)inish rights o& nonparties to the : (ii# 6ot bo"n i& ins"&&icient ,nowle ge o& )aterial &acts & "naware o& lac,ing the ,nowle ge 57.023 7. as there ne)er a /an!&estat!%n b( "= b't T w!## be s*rewe$? Est%..e# 5 0.0>9: a# P creates! thro"gh intentional or negligent wor s! acts or o)issions! appearance o& a"thority (i# P )"st act intentionally! carelessly! or ha notice o& iss"e an i n*t a ress it. b# T reasonably an in goo &aith relies on appearance o& a"thority c# T changes her position in reliance on appearance o& a"thority. Koos Bros. ;Dereliction

o& D"ty3 (i# N%te: 7stoppel is li,e Apparent A"thority b"t w(o P=A relationship. >. hen !s A #!ab#e? a# I& P is isclose ! b"t A expressly agree to be liable. 1>.?1 b# I& P is "ni enti&ie ! P&A are liable "nless A agrees otherwise w( T. 1>.?/ c# I& P is "n isclose ! A is a party! P is also "nless exc"se . 1>.?2 # I& P oesn*t exist or lac,s capacity & A ,nows(has reason to ,now! A is liable. 1>.?<. Atlantic Salmon. C. Is there A T%rt? hen !s " #!ab#e? 1. Is " $!re*t#( L!ab#e? ?!re*t#( L!ab#e !& 5@.01+1,9: A*s act is tortio"s (or wo"l be i& one by P# + P (ga%e act"al a"thority or rati&ie the act! 95 P was negligent in s"per%ising(controlling A! 95 P elegate an owe "ty o& care to A an he %iolate the "ty# /. Is " A!*ar!%'s#( L!ab#e? AsB ab%'t th!s !& &a*ts sa( CE/.#%(ee=C CIC=C %r 4ran*h!se !& 5@.01+0,9: A*s act is tortio"s + (A is e)ployee (or none)ployee IC# acting in scope o& e)ploy)ent! 95 A acts w( apparent a"thority a, IS A an E/.#%(ee %& N%ne/.#%(ee ADent? AsB ab%'t th!s !& &a*ts sa( IC %r 4ran*h!se (i# hether A !s a n%ne/.#%(ee ADent %r a n%ne/.#%(ee ser)!*e .r%)!$er: epen s on control an le%el o& ris,. Co)pare Humble Oil case & Sun Oil Case. (A# r!t!nD ?%esnEt Matter: A : saying that A is not a none)ployee agent will not wor, i& P exercises too )"ch control. Holiday Inns$ @ranchise= A"rphy was not an agent b(c 4I i not control ay=to= ay operations. b, I& A n%t an e/.#%(ee %& n%ne/.#%(ee aDent= !s he an A )!a A..arent A'th%r!t(? (i# P can*t eny agency i& P*s actions s"ggest he hol s A o"t as being his agent & T relie . Mc onalds. 2. ?!&&eren*e between ?!re*t & In$!re*t L!ab!#!t(: Bcope o& A*s a"thority. (i# P can be both Direclty an Cicario"sly liable I& s"ing P! go &or both an see what stic,s. ?. ?%es A 6a)e a 4!$'*!ar( ?'t(? 1. A has a Denera# &!$'*!ar( $'t( t% a*t #%(a##( !n a## /atters . F.01 0. ?!$ A A!%#ate a ?'t( %& L%(a#t(: a, ?!$ a Det a /ater!a# bene&!t &r%/ h!s .%s!t!%n? F.00 (i# A can*t pro&it &ro) T by acting on behal& o& P or otherwise %ia his position as A. (A# Any s"ch bene&it belongs to P (when A earns it solely &ro) his position#. !eadin" v. !e"em. b, ?!$ A a*t as %r %n beha#& %&= an a$)erse "art(? F.01 (i# A has "ty not to co)pete! an to noti&y P o& opport"nities. #eneral Automotive v. Sin"er. *, ?!$ A 'se "Es .r%.ert( %r *%n&!$ent!a# !n&%? F.07 (i# A has "ty to not "se P*s property! 95 P*s con&i ential in&o! to bene&it hi)sel& or a T. $own % Country. 1. ?!$ A )!%#ate $'t( %& *are= *%/.eten*e an$ $!#!Den*e? F.0F a# A is expecte to act w( the C!C & D expecte "n er the circ")stances (tr"e &or special s,ills(,nowle ge# 5EN? O4 AGENCY9 II. IS T6E3E A "A3TNE3S6I"? A. ?e&.: )%#'ntar( 5/'st aDree9 ass%*!at!%n : 0+%r /%re, .e%.#e : b's!ness &%r .r%&!t . B. h%Es a .artner? ?!$ the( re*e!)e share %& the H? 1. "artner: Person who recei%es a share o& the pro&its is pres")e a partner "nless pro&its were in pay)ent$ a# o& ebt b# &or ser%ices(wages o& IC(e)ployee. Fenwick ;4air salon! written +partnership+

agree)ent3 c# o& rent # recei%e as a bene&iciary o& a ea (retire partner e# as interest on a loan! e%en where the a)o"nt o& pay)ent %aries w( the pro&its. Martin v. &eyton ;lonaers o& D ha so)e control o%er P*s ecisions! b"t not ay=to= ay control o& a partner3E 95 &# Bale o& goo will o& a b"siness or other property 0. Is a r!tten ADree/ent ?eter/!nat!)e? N%. C%'rt w!## #%%B at: a# (1# intention o& the parties! (/# right to share in pro&its! (2# obligation to share in losses! (<# ownership & control o& the partnership property an b"siness! (F# co))"nity o& power in a )inistration (right to in%est! or )a,e other )anage)ent ecisions#! (># lang"age in the agree)ent (not '"st wor +partner;ship3+ b"t also what the rest says abo"t the rights( "ties o& each#! (G# con "ct o& the parties towar 2 persons! (H# rights o& the parties on issol"tion. In Sout'e(! co"rt also loo,e at (I# "ration (&ixe ! b"t renewable#. (i# EIAM TI": I& there*s a written agree)ent saying +partnership+ J"estion it0 b# 7xistence o& Partnership can be a &act intensi%e analysis==b"t intent to be a +partner+ is not necessary. 2. Is there a "artnersh!. b( Est%..e#: 2r Party relies on representations + pro%es < &actors ;&riceWater'ouse3$ a# (1# express or i)plie +hol ing o"t!+ (/# )a e by one so"ght to be charge as a partner! (2# reasonable goo &aith reliance! & (<# etri)ental reliance C. ?!$ A "artner A*t !th A'th%r!t(? 1. Is the $!s.'te between "+s, an$ 1r$ "art(? See 3U"A 101: a# 7ach P is an A o& the partnership b# P*s act bin s partnership i& it*s apparently &or carrying on in$ the or inary co"rse o& partnership biK 95 biK o& the ,in carrie on by the partnership! L6M7BB$ P ha no a"thority to act in that partic"lar )atter & 2r party ,new(ha recei%e noti&ication o& that lac, o& a"thority. )at*l Biscuit v. Stroud. (i# N%te: LPA 1I(1# '"st sai 2r party +ha ,nowle ge+ instea o& +,new or recei%e noti&ication.+ 0. C%n&#!*t!nD 3'#e 0: 3U"A 701 a# +&, 7ach P has eJ"al rights in )anage)ent & con "ct o& the partnership b"siness! A6D b# . . . +J, i&&erences as to )atters in or inary co"rse o& biK are eci e by )a'orityE -LT Act o"tsi e or inary co"rse o& biK or a)en )ent to P agree)ent nee s consent o& all partners. 2. Is there a #!/!t %n "Es a'th%r!t( !n the " aDree/ent? Certain a"thority(eJ"al rights can be li)ite in P agree)ent! incl" ing ecision nee ing all partners "n er 1<?1 i& agree)ent calls &or a co))ittee. Sidley Austin. ?. M'st " ?!s*#%se In&%? 1. OL?: U"A 00$ on e)an ! P )"st isclose all in&o o& things a&&ecting partnership to other P or his rep. /. 67W$ 3U"A 701+*,: P shall isclose$ (1# w(o e)an ! any in&o reasonably reJ"ire &or the proper exercise o& the P*s rights( "ties "n er the P Agree)ent o& 5LPAE + (/# on e)an ! any other in&o concerning the partnership biK! L6M7BB the e)an (in&o e)an e is "nreasonable(i)proper "n er the circ")stances. E. Is there a "artnersh!. Interest & Can !t Be Trans&erre$? 1. hen *an s%/e%ne be*%/e a "? When all P*s consent. 3U"A 701+!, /. Can "artnersh!. "r%.ert( Be Trans&erre$? 6o! %ol"ntarily or in%ol"ntarily. 3U"A >01 2. ?%es " ha)e an( trans&errab#e !nterest? Yes= h!s share %& .r%&!tsK#%sses & r!Dhts t% $!str!b't!%ns +.ers%na# .r%.ert(,. 9nce yo" assign yo"r interests! yo" can*t )a,e a clai) on pro&its(losses. &utnam. a# N%tes: 9ne who assigns interest is still a partner ("nless &ollowe by

issol"tion( isassociation#! an assignee can*t beco)e partner "nless all other Ps %ote hi) in. 4. hat !s "artnersh!. "r%.ert(? 6%w as "r%.ert( A*;'!re$? 1. as the .artnersh!. na/e$ !n trans&er?: Is .artnersh!. .r%.ert( !&: trans&erre irectly to the partnership in its own na)e 95 (trans&erre to 1 or )ore Ps acting in their capacity & the na)e o& the partnership is on the trans&er# /. as the "artnersh!. n%t na/e$? St!## "artnersh!. "r%.ert( I&: acJ"ire by 1 or )ore Ps & the trans&er oc")ent in icates he*s acting in his capacity. 2. Tr'stee N%te: P is tr"stee o& partnership property ;see $'t( %& #%(a#t(= 3U"A 707+b,+1,3 G. Is there a 4!nan*!nD the "artnersh!. Iss'e? 1. A$)!*e t% C#!ent: P"t a *l capital pro%isions in P Agree)ent! b(c li)ite ability to raise new capital in a partnership! an can*t &orce Ps to gi%e )ore than their initial in%est)ent i& not in agree)ent. /. Ca.!ta# A**%'nts: 7ach P has a capital acco"nt re&lecting pro&tis! losses! & raws ta,en. 3U"A 701+a,. 6. Is There a "artnersh!. "r%&!ts Iss'e? 1. Pro&its i%i e eJ"ally! losses &ollow pro&its. 3'.a 701+b,. This can be %arie by agree)ent! 101+a,. I. Is there a Brea*h %& 4!$'*!ar( ?'t(? 3U"A 707: 1. +a, P owes to partnership! an other Ps! "ties o& loyalty & care /. +b,?'t!es %& #%(a#t($ a# +1, Acco"nt &or & hol as tr"stee any property(pro&it(bene&it eri%e by P "ring biK(win "p! or w(partnership property! incl" ing appropriation o& a partnership opport"nity. b# +0, can*t be a %erse (or on behal& o& a %erse# "ring biK(win "pE A6D c# +1, can*t co)pete w(partnership be&ore issol"tion. Mein'ard v. Salmon. $, Can ?'t( %& L%(a#t( be ChanDe$? (i# 3U"A 101+b,: P agree)ent can*t eli)inate DoM! b"t (i# it )ay i enti&y certain acts that on*t %iolate the DoM! i& not )ani&estly "nreasonableE A6D (/# all ps (or n")ber speci&ie in agree)ent# )ay a"thoriKe(rati&y! a&ter &"ll isclos"re o& )aterial &acts! a speci&ic act(transaction that wo"l otherwise %iolate the DoM. (A# 69T7$ +mani+estly unreasonable+ not in part (ii#. &erretta v. &romet'eus. 2. 707+*, ?'t( %& Care: to partnership & other Ps "ring biK(win "p is li)ite to re&raining &ro) engaging in grossnegligence(rec,less con "ct! intentional )iscon "ct! or ,nowing %iolation o& law. <. 707 +$, G%%$ 4a!th: Partner sho"l ischarge his "ties consistent w( obligation o& goo &aith & &air ealing. a# can act in his own interest when lea%ing! b"t can*t lie abo"t it or "se the partnership*s reso"rces. Mee'an b# Ps act in goo &aith when expelling another P as long as they on*t wrong&"lly withhol D(property. ,awlis L. Is "artnersh!. L!ab#e? 1. "artnersh!. !s L!ab#e &%r: 10>+a,$in'"ry( a)age ca"se by a P*s wrong&"l act(o)ission! i& in or inary co"rse o& biK or w(a"thority o& partnershipE A6D(95 +b,: I& in co"rse o& biK 95 w( a"thority! a P ca"ses 2r party to gi%e D(property! an it gets )isapplie by a P. a# Is a " L!ab#e? Un$er 102: all Ps are N&B liable &or all obligations "nless P agree)ent or law says otherwise (b"t P is not liable &or ebt inc"rre be&ore he beca)e a P#. K. 6%w $% (%' Bn%w !& (%' ha)e an at w!## %r ter/ .artnersh!.? a# explicit ter) or i)plie ter) establishe by reliable e%i ence o& one or )ore speci&ic "n erta,ings to be acco)plishe prior to en o& b"siness relationship. U"A +1M17, 11N U"A +1MM@, 200. /. I& at will! a partner can lea%e at any ti)e. Ls"ally w(o a)ages "nless ba &aith con "ct. 2. I& at ter)! P "s"ally can*t lea%e w(o penalty! b"t can lea%e an accept penalty.

L. Is there ?!ss%#'t!%n? OL? 3ULES 1. hat !s ?!ss%#'t!%n? OL?: U"A 0M: Dissol"tion is the change in relation o& the Ps when 1 ceases to be associate . 0. hat Ca'ses ?!ss%#'t!%n? 11< a# 11+1,: wK% )!%#at!%n %& the aDree/ent !&: (a# occ"rrence o& ter)(e%ent speci&ie in agree)ent! (b# express will o& any P when no ter)(e%ent speci&ie ! (c# by express will o& all partners (who still ha%e D interest# be&ore ter)(e%ent occ"rs! 95 ( # by exp"lsion o& a P "n er agree)ent pro%isions. b# 11+0,: In contra%ention o& the agree)ent by the express will o& any P at any ti)e. c# 95 (2#$ i& e%ent )a,es contin"ation "nlaw&"lE (<# eath o& a PE (F# ban,r"ptcy! (># ecree o& co"rt (see 12/# # ?!ss%#'t!%n b( C%'rt: I& a partner reJ"est it an $ (c# a P*s con "ct ten s to har) the carrying on o& the b"siness! 95 ( # a P will&"lly(persistently co))its a breach o& P Agree)ent! or his con "ct is otherwise not reasonably practicable to carry on the biK . . .! 95 (&# other circ")stances )a,e issol"tion eJ"itable (i# Ps re&"sal to o his share o& wor, an ta,ing D beyon agree)ent is eno"gh. Owen v. Co'en (ii# Aere ba bloo is not eno"gh. Collins v. ,ewis. (iii# Power to Dissol%e s"b'ect to &i "ciary "ties. &a"e v. &a"e e, 1F: hen $!ss%#'t!%n *a'se$ b( *%ntra)ent!%n %& the aDree/ent= %ther "s *an *%nt!n'e: (i# b"t )"st pay other P his interest! )in"s liabilities! b"t on*t ha%e to incl" e %al"e o& biK*s goo will. &aysaver v. -asso. (note$ G?1 n 5LPA oesn*t ha%e this goo will exe)ption.3 &, NE 3ULES: (i# 3U"A 201: Aostly the sa)e as 9l 5"les except the P is &irst issociate "n er >?1! an Dissol"tion is not a"to)atic. P*s can carry on the -iK "n er Article G! 9r go into Disso"tionwin "p "n er Article H (A# 200$ A P who wrong&"lly issociates (%iolates agree)ent! lea%es be&ore ter) expires w(o )eeting exceptions# is liable &or a)ages ca"se by his wrong&"l issociation on top o& his obligations as P. (-# Art!*#e @: G?1$ 5e)aining Ps can b"y issociate P*s interest at %al"e that wo"l ha%e went to hi)! )in"s existing liabilities (can wiat til ter) expires i& it was at ter) an P wrong&"lly issociate #. )"st in e)ni&y issociate P against partnership liabilities inc"rre be&ore 9r a&ter issociation! except any he inc"rs "n er G?/ (&or two years! he*s liable &or transactions w(other parties i& they on*t ,now he*s issociate # (C# Art!*#e F: !n$!nD '.: F01: ?!ss%#'t!%n *a'se$ b(: +1, !& at w!##= .artnersh!. has n%t!*e & thereEs n% $!ss%*!at!%n. 1. hatEs the E&&e*t %& ?!ss%#'t!%n: a# A&ter issol"tion O a"to)atic win "p "nless P agree to carry on. b# Win "p O &ir)*s assets istrib"te to Ps c# P*s A"thority is Ter)inate except w( respect to win ing "p. (LPA 122! 5LPA 1H?<# # Ps can b"y b"siness a&ter it*s issol%e (in goo &aith#. &rentiss v. S'e++el. e# 9r er o& istrib"tion o& assets "pon issol"tion$ assets owe $ (1# to cre itors! (/# to Ps other than capital(pro&its! (2# to Ps &or capital! (<# to Ps &or pro&its. O#$ 70 (i# Miabilities$ 70+$, partners shall contrib"te a)o"nt necessary to satis&y liabilities . . . (A# -LT! P who only ga%e ser%ices oesn*t ha%e to co%er losses! L6M7BB he was co)pensate &or his wor,! 95 he )a e any capital contrib"tion. Kovacik !ule. (Doesn*t apply "n er 5LPA# 5EN? O4 "A3TNE3S6I"9

III. CO3"S & LIMITE? LIABILITY

A. Is There L!ab!#!t( &%r "re<In*%r.%rat!%n A*t!)!t(? 1. C%r. b( Est%..e#: treat &ir) as Corp i& 2r Party (1# tho"ght it was a corp! & (/# wo"l earn win &all. Camcra+t /. Is "r%/%ter L!ab#e? Pro)oter liable &or acts o& to=be corp "ntil release &ro) liability by corp & 2r party B. Is a *re$!t%r ha)!nD tr%'b#e bK* *%r. has n% H? Can the Ae!# Be "!er*e$? 1. MBCA 2.00+b,: B4 not liable &or acts( ebts o& corp "nless (1# in AoI! 95 (/# his own con "ct a, Is there Un!t( %& Interest & I##eDa#!t(KInJ'st!*e? (i# Un!t( %& !nterest: Co)ingle &"n s! "n ercapitaliKation! treating assets as p%t! isregar ing corp &or)alities (ii# I##eDa#!t(K!nJ'st!*e? I& no &ra" ! in'"stice reJ"ires )ore than cre itors going "npai ! e.g. "n'"st enrich)ent! all assts in 1 corp & all liability on another! Parent ab"ses s"b*s liability(assets. Sea ,and b# Is !t a .ers%n %r #arDer C%r. beh!n$ the )e!#? enterprise liability &or larger corp "sing s)aller corps. Walkovsky. ;Moo, to long 9"tline &or MMC3 IV. ?%es C%r. 6a)e 4!$'*!ar( ?'t(? h% ?%es !t &#%w t%? A. 4#%w Bol%ent O B4s! Insol%ent O Cre itors! one o& Insol%ency+ O epen s on state (A-CA %s. DPCM# -. Is there a ?'t( %& Care? Di Dirs eci e to sell so)ething! b"il so)ething! )a,e so)e other )anage)ent ecision! e.g. Di%i en s? 1. MBCA F.10 (goo &aith & best interests# + reasonable b"siness person in si)ilar circ")stances /. BL3< 5eb"ttable Pres")ption o& legit ecision== P can*t s"e "nless -N5 is reb"tte a# Can it be reb"tte ? (i# @ra" ==a"to)atic (see DoM# (ii# CoI a"to)atic (see DoM# (iii# Lnin&or)e (i%# 7gregio"s (%# @ail"re to Act ( eliberate ignorance# (%i# @ail"re to Aonitor (%ii# Illegal (%iii# Waste&"l 2. hat ha..ens !& reb'tte$? D has b"r en to pro%e entire &airness a# (Moo, at Transaction*s$ ti)ing! initiation! str"ct"re! isclos"re & appro%al by - or B4s# <. I& ? .r%)es E4no DoC clai). F. I4 ? *anEt .r%)e E4 DoC clai)Da)ages against Corp (P# b"t not against Dirs (As# ; 1?/(b#(G# & A-CA H.213 C. as there a ?'t( %& L%(a#t(? 1. as there se#&<$ea#!nD %r %therw!se &'rther!nD se#&<!nterest? a, as there a C%I? 3eb'ts BL3. b, as !t a $ea# between the C%r. an$ an !ntereste$ ?!r? (i# as there 3at!&!*at!%n +!n ?E,? (A# as there a ;'%r'/? $!s!ntereste$ ?!r %r S6 /aJ%r!t( wK /ater!a# &a*ts? Otherw!se &a!r? +1, 177+a, & +a,+1,<+1, *, ?!$ an !ntereste$ ?!r taBe a C%r. O..%rt'n!t(? (i# Br%O Test: (1# Corp &inancially able? (/# Corp*s line o& -iK? (2# Corp interest(expectancy? (<# Will Dir 7)bracing C9 ca"se CoI? ;Totality o& the

circ")stances test3 (A# ?!$ B$ 3eJe*t the O..? 0. as there a transa*t!%n b( *%ntr%##!nD S6 +"arent<S'b,? a, as S'b /aJ%r!t( %wne$= %r wh%##(<%wne$? I& /!n%r!t(<%wne$= !s there *%ntr%# %)er the B$ +$%/!nat!%n,? (i# ?%/!nat!%n Test: I& "arentEs transa*t!%n *%nta!ne$: (A# Se#&<?ea#!nD Ent!re 4a!rness (-# N% Se#&<?ea#!nD BL3 1. as there a ?'t( %& G%%$ 4a!th? +"art %& ?%L !n ?E= !tEs %wn $'t( !n %ther states, a# ?!$ &!$'*!ar(: (1# intentionally go against Corp*s best interests? (/# Intentionally %iolate the law! or (2# intentionally &ail to act in &ace o& ,nown "ty(conscio"sly isregar his "ties (e.g. conscio"sly &ail to chec, )onitoring(reporting syste)?# (i# Aore than gross negligence & @ail"re to @ollow -est Practices is not eno"gh . ?. as there a har/ t% the *%r.= b't the *%r. w%nEt s'e? ?er!)at!)e S'!ts 1. Is the "ers%n *%/.#a!n!nD a S6? a# as he an S6: (1# at ti)e o& wrong oing! (/# when s"it began! (2# thro"gh &inal '" g)ent (so)e states#? (<# is he a &air rep? A-CA 11 G.<1=</# b, Can $e/an$ be re&'se &%r 4't!#!t(? (i# ?E test: 5easonable o"bt abo"t (1# )a'ority o& Dirs* interests (/# )a'ority incapable o& in ep! 95 (2# "n erlying transaction not %ali exercise o& biK '" g (ii# NY Test: 6o reasonable o"bt stan ar ! Di P plea w( partic"larity (1# )a'ority o& Dirs intereste ! (/# Dirs &aile to in&or) the)sel%es! (2# transaction co"l not ha%e been %ali biK '" g (iii# S%/e states: Un!)ersa# ?e/an$ *, I& ?e/an$ E-*'se$= !s there an SLC? (i# NY Stan$ar$: show BMC )e)bers are (1# isintereste & In ep + (/# ha a process (ii# ?e Stan$ar$: +1, Bhow BMCs isinterest! in epen ence! & goo &aith + (/# Co"rt )ay apply it*s own biK '" g (allow s"it &or p"blic policy# (A# D7 In epen ence (9racle#$ whether Dir incapable o& so"n biK '" g &or any s"bstantial reason. E. ?!$ s%/e%ne /aBe an !n)est/ent? Se*'r!t!es Iss'es 1. as !t a se*'r!t(? a# Howey $est$ (1# :! transaction or sche)e where one in%ests D! (/# in a co))on enterprise ;horiKontal=in%estors pooling %. Certical= in%estor=pro)oter sche)e3! (2# A6D is le to expect pro&its! (<# soley or s"bstantially &ro) e&&orts o& pro)oter or 2r party ;i.e. is in%estor passi%e?3 (i# Is in%est)ent into an MMC (always acti%e# or PP (2r & Fth Cir split# 1. Are we $ea#!nD wK Fiduciary Duties, Voting Rights, Limited Liability, Dissolution? state law. 0. Are we dealing w/ Disclosure (Fraud/Insider rading!, "ro#y Fights or ender $%%ers? Fed Law a, Are we dealing w/ transaction o% a new security? &'' Act (1# (as there a reg statement e#em)tion %or "*t $%%ering? 4 Elements Disclosure! (+! (as there Fraud in the Reg ,tatement? (a! (as there a material misre)resentation? I% so, cor) liable automatically (-! Are Dirs liable? (-! .on/e#)ert, (+! 0#)ert who dra%ted, ('! 0#)ert who didn&t dra%t (2) 1eys are2 Materiality, Reasonable In esti!ation, Reasonable "elie# b, Are we dealing w/ transaction on a secondary mar3et? &'4 Act (1# Is there Fraud (5isre)/$mission! $%(b) & $%b'( (a) a material misstatement)omission, #raud, sc*eme to de#raud

($) Basic: Probability)ma!nitude (b) made +) scienter (intent or rec,less disre!ard) (c) in connection +) -urc*ase or sale o# security (d) on +*ic* P relied (is it -resumed.) (e) t*at caused P/s in0ury1 transaction causation A2D loss causation (&# 234E1 Must be mani-ulation)dece-tion"reac* o# 5iduciary Duty alonestate la+ (+! Is there Insider rading? -6b/7(+! (as in%o material? Did D Disclose/Abstain? (a) em)loyee o% the issuer whose share are being traded? Disclose 3R Abstain! (b) non/em)loyee ti))ee? Disclose)Abstain i#1 ($) 4i--er breac*ed (direct)indirect bene#it) & (2) 4i--ee ,ne+)*ad reason to ,no+ (c) 5isa))ro)riator? Liable i%2 ($) a!reed to con#idence, (2) s*ould *a e sus-ected con#idential #rom *istory)-attern)-ractice, (6)in#o #rom close #amily member (unless D can s*o+ *istory)-attern)-ractice o# noncon#idence) ($) .$ 0,2 2o insider needed, A2D Permission #rom source)tar!et is a de#ense ('! (as there a ender $%%er? -4e/' (a) Laibility i%2 ($) substantial ste-s & (2) anyone but t*e bidder, & (6) material)non-ublic in#o 8. Is there a )ro#y issue? -. Is it a contest? a! Dirs can ma3e reasonable and )ro)er e#)enditures? ($) Reimbursement2 Incumbents, +in or lose7 Insur!ents, only +in8 +. Is there a )ro)osal? -4a/9 a) Is it economic related? -4a/9(i!(7!2 (9 assests, (9 earnin!s)sales, or ot*er+ise si!ni#icantly related b) Is it election related? -4a/9(i!(9!2 Precluded (:;s can/t nominate Dirs) :. Is there a ,; *oting Issue? $8 (hat ty)e o% *oting? :trai!*t)<umulati e, Plurality (most otes))Ma0ority +. Is there Voting ,toc3 < 0cnomic stoc3 (can be same class! '. Is there a :losely/;eld :or)2 a! ,olutions to Deadloc32 (-! Voting rust (+! ,; agreement +a, 0lection agreements? Ringling (b! Limiting 8d o% Dirs Discretion? ($) I% minority ,;s2 oid #or -ublic -olicy (2) I% no minority ,;s2 3,ay (5reedom o# =)

-. A=0.:> ,?55AR> a) 5or P'A relations*i-, need1 ($) <onsent by P to *a e A act on *is be*al#8 (2) <onsent by P to *a e A act sub0ect to *is control8 (6) <onsent by A to so act8 b) P liable on contract, i#1 ($) Actual (e>-ress or im-lied) Aut*ority (2) A--arent Aut*ority (6) ?ndisclosed P

3R (4) Rati#ication (() Esto--el c) A liable on contract, i#1 ($) Disclosed P and e>-ressly stated in a!reement8 (2) Partially disclosed or undisclosed P8 d) P liable in tort, i#1 ($) Direct @iability8 (2) Em-loyer'Em-loyee (control) and +it*in sco-e o# em-loyment8 (6) 2onem-loyee A (or em-loyee outside sco-e o# em-loyment) and a--arent aut*ority8 e) A *as #iduciary duties to P8 ($) Primary duty is duty o# loyalty8 (2) "asically, A (li,e all #iduciaries) must act *onestly (includes disclosure), in !ood #ait* and +it*out con#lict (i8e8, loyalty)8 (6) AAs duty o# -er#ormance includes duty to act +it* care, com-etence and dili!ence8