AGENCY

P manifests assent to A that A shall act

on Ps behalf and subject to Ps
Control and A manifests assent or
consents
PRINCIPAL/AGENT LIABILITY IN TORT
Liability: If A is an employee, P is
liable for torts A commits w/in scope of
her employment1 (intentionalw/in
scope).
Employee: A is an employee if P
controls the means and manner of her
work performance.
Control: who runs the business; does
P dominate; is A engaged in distinct
business; what is the level of
supervision; is A paid by job or hour; is
As work part of Ps business
PRINCIPAL/AGENT LIABILITY IN
CONTRACT
Liability: P is bound by K where A
makes K with 3 and A has actual or
apparent authority to do so.
Actual Authority: (1) express
authority where principal explicitly
gives it; (2) implied authority where
necessary to accomplish explicit
instruction2
Apparent Authority: 3 reasonably
believes that P has authorized A to act
in manner (because of Ps acts or the
position P has placed A in3)
AGENTS FIDUCIARY DUTIES
1 Humble Oil (finding gas station owner
whose hours were set by H, only sold
Hs goods, H held title to goods, H could
terminate lease, H required periodic
reports was employer-employee
relationship); SUNOCO (finding gas
station owner who set own hours, sold
goods he chose, held title in the goods,
had a yearly lease, and did not have to
file reports was an indep. Kor).
2 White (finding that selling land is not
an inherent authority to buying land
and A cannot create her own authority)

Duty of Obedience: Act in

accordance w/ express and implied
terms of agency
Duty of Care: Act with care,
competence, and diligence of someone
in similar circumstance
Duty of Loyalty: Act loyally for Ps
benefit in all matters concerned with
agency(1) cant acquire material
benefit from 3 in connection4 unless:
(a) P consents and A deals fairly & in
GF5 or; (b) Ps consent concerns act
reasonably expected to occur in course
(trustee can never deal in trust6)
PARTNERSHIP
Association of two or more persons as
co-owners of a for-profit business7
PARTNERSHIPS GENERALLY
- Receipt of profits is prima facie
evidence8
- All partners are agents of a
partnership
- Absent agreement all partners
share control

3 Gallant Ins. Co. (finding that apparent

authority exists where P places A in a
position to perform acts which appear
reasonable to 3there neednt be
direct representation)
4 Tarnowski (finding P can recover As
secret commission obtained in course
of As agency even if overcomps. P)
5 Page (finding that dissolution like
other powers held by fiduciaries must
be exercised in good faith)
6 In re Gleeson (finding trustee renting
land from a trust to be a breach of the
duty of loyalty)
7 Vohland (finding that intent to form a
partnership is not an important
consideration in whether one exists)
8 Unless received in payment of debt,
wages, rent, or interest on a loan

Liability: Each partner is jointly and

severally liable for partnerships debts9
Duties: (1) loyalty (punctilio of an
honor the most sensitive)10; (2) care
(above mere negligence to viol.)
Termination: each partner gets
surplus after debts paid in cash the net
amount owed to each partner
Pros: (1) operational expertise; (2)
financial support; (3) partitioning of
assets & liabilities
Cons: (1) agency costs w/ employees
and between partners; (2) transaction
costs with 3d parties; (3) ownership
costs of collective decisionmaking
TYPES OF PARTNERSHIPS
General Partnership: partners share
in decision-making authority and in
unlimited liability
Limited Partnership: At leas one
general partner with decision-making
authority and unlimited liability and
other limited partners with limited
liability and no decision-making
authority
Limited Liability Partnership:
limited liability for partners regarding
bad acts by other partners and
partnership debts but general liability
for their own mistakes
Limited Liability Company: member
or manager managed with limited
liability for all members11

9 Partnership creditors get priority over

partnership and individual debts and
individual creditors may not claim
partnership debts (old rule respective
priority then cross)
10 Meinhard
11 Pappas (holding that (unlike for
limited partnerships) LLC members may
waive fiduciary duties

CORPORATION
An entity owned by shareholders who
elect a board of directors that appoints
officers.
LIABILITY
Shareholders have an equity stake in
the company
and can typically only lose what they
have invested
BUT shareholders may be held liable
for a corporations debt by piercing the
corporate veil; a corporation may be
held liable for a shareholders debts by
reverse veil piercing and; a sister
corporation may be held liable for
another corporations debts under
enterprise liability
Piercing the Corporate Veil:
shareholder/parent company may be
held liable for corporations debts
where (1) there is unity of interest12
and (2) adherence to the separate
corporate existence would sanction a
fraud or promote injustice13 also
(permissively) (3) dont pierce where
creditor has assumed risk14

12 Van Dorn (unity of interest may be

demonstrated by (1) a failure to follow
corporate formalities such as
bookkeeping, meetings, issuing stock,
etc., (2) a failure to maintain separate
accounts, (3) a failure to adequately
capitalize the corporation, or (4) one
corporation treats anothers assets as
its own).
13 Fact that will not be paid not
enough. Unfair business practices,
intentional misrepresentations, actions
that might incur criminal/civil penalties,
lack of legitimate business purpose,
fraud, unjust enrichment may all satisfy
the second prong
14 Kinney Shoe (permissively no pierce
where party is charged with knowledge

Reverse Piercing: same test but

instead creditor to indiv. becomes
creditor to corp15
Enterprise Liability: same test but
sister company may be held liable for
debts where it fails to respect the
corporation-corporation boundary16
SHAREHOLDER VOTING
Shareholders vote to elect directors,
for fundamental changes17, and to
amend the certificate
Proxy Voting: a voting shareholder
may assign her vote to another to act
for her by proxymust file proxy
materials to solicit18 proxies19
Proxy Reimbursement: incumbent
board is reimbursed for proxy
solicitation costs & insurgents are only
reimbursed if they win20 (must be rsbl
cost)
Vote Buying: illegal per se if object is
to defraud or disenfranchise; if not
illegal voidable but can be cured by
shareholder approval/intrinsic
fairness21
Proxy Fraud:

14a-9: (1) misstatement22 or

omission23; (2) of a material fact24; (3)
culpability; (4) reliance (5) harm25
Moving Shareholder Vote: can not
move shareholder vote for inequitable
reasons even if it is legally
permissible26
DUTY OF CARE
Corporate directors and officers must
act (1) in good faith; (2) in a manner
that she reasonably believes to be in
the best interest of the corporation;
and (3) with care of ordinarily prudent
personreach this analysis if not
protected by BJR
Indemnification: most corporations
reimburse agents, directors,
employees, and officers for losses from
judicial proceedings based on actions
undertaken on behalf of the
corporation so long as they are in good
faith27 and not criminal
Business Judgment Rule: decision
constitutes valid business judgment
where it is made by (1) financially
disinterested directors/officers (2) who

that reasonable credit investigation

would disclose problem)
15 Sea-Land Services ( not paying debt
does not amount to an injustice)
16; Walkovsky (holding that taxi corps
were not separate but only having
minimum legal insurance on cab does
not constitute inadequate capitalization
or fraud)
17 Including sale of substantially all
assets or merger
18 14a-1 (solicitation is any
communication reasonably calculated
to result in procurement of a proxy)
19 Reg 14A governs proxy solicitation
procedures
20 Rosenfeld (this rule protects
incumbents from hostile takeovers and
discourages stupid proxy contests)
21 Schreiber

22 Omnicare; Virginia Bankshares

(statements of opinion are
misstatements where they are not
actually believed to be true, not simply
where they are not true)
23 Omnicare (statements of opinion
misleading by omission where they lead
shareholders to believe certain
underlying facts are true where they
are not).
24 Virginia Bankshares (conclusory
statements material where reasonable
shareholder would consider when
voting).
25 Virginia Bankshares (misleading
statement cannot cause harm where a
majority shareholders vote is not
affected by it)
26 Schnell
27 Waltuch (cant indemnify for actions
taken in bad faith)

have become duly informed and (3)

exercise judgment in gf effort to
advance corporate interests28
No DecisionDuty to Monitor:
failure to make decision never
protected by BJR. Directors are under
a continuing obligation to keep
informed about the activities of the
corporation.29
Not Financially Disinterested:
Not Duly Informed:
No Good Faith Effort:

28 Kamin (as long as meet BJR

requirements even directors who make
a clearly poor financial decision get its
protection)
29 Francis (failure to do so will
constitute breach of duty of care where
monitoring would have prevented the
harm)