Business Association

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BUSINESS ASSOCIATIONS OUTLINE

I. Overview
A. Major Course Themes
i. Authority – what is corporation legally empowered to do and at what point is a corporation overstepping its bounds? ii. Responsibility – once authority has been established, what are the limitations of that authority – what is the duty of care? iii. Liability – what actions should directors take to insulate themselves and when can they be held liable for breaching duty of care? II. Agency Law - Definitions

A. Agency Generally - Restatement (3d) of Agency § 1.01 – Fiduciary relationship that arises when one person (a “principal”) manifests asset to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to the act. i. Can have agency by default arise once the consent has been manifested. Agency relationship is there even if parties don’t know what agency is. Principal must manifest its consent to the agency, and agent must consent as well. ii. Does not need to be made public that one is another’s agent. No filing is necessary. iii. Compensation is not required.

iv. Agency is not a reciprocal relationship. Duty only flows one way. v. Agents could be principals of other agents themselves. B. Master, Servant, Independent Contractor - Restatement (2d) § 2 i. Master - principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service. ii. Servant – agent employed by a master to perform service in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right to control by the master. iii. Independent Contractor – person who contracts w/ another to do something for him but who is not controlled by the other nor subject to the other’s right to control w/ respect to his physical conduct in the performance of the undertaking. 1. May or may not be an agent.

C. General Agent v. Special Agent – Restatement (2d) § 3 i. General Agent – agent authorized to conduct a series of transactions involving a continuity of service. Has general decision-making authority. ii. Special Agent – agent authorized to conduct a single transaction or a series of transactions not involving continuity of service. Lacks decision-making authority – must keep returning to principal to ask for permission. D. Disclosure of Principal – Restatement (2d) § 4 i. Disclosed Principal – at the time of transaction, 3d party has notice that agent is acting for a principal and knows of principal’s identity. ii. Partially Disclosed Principal – if 3d party has notice that agent is acting for a principal but doesn’t know principal’s identity. iii. Undisclosed Principal – if 3d party has no notice that agent is acting for a principal. E. Authority

i. Actual Authority – Restatement (2d) § 7 – power of the agent to affect the legal relations of the principal by acts done in accordance w/ the principal’s manifestations of consent to him. 1. Creation of Authority – Restatement (2d) § 26 – can be created by written or spoken words or any other conduct by the principal which, reasonably interpreted, causes the agent to believe that the principal desires him to act on his account. 2. Creation of Liability by Authorized Acts – Restatement (2d) § 144 –If principal says to do something and the agent does it, the principal is bound. 3. Incidental Authority – authority which flows from agent’s actual authority, e.g., any expenses that normally result from carrying out an agent’s...
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