Agency, Authority & Liability
What are the two requirements for creating an agency relationship?
An agency relationship requires:
consent by both the principal and agent that the agent will act for the principal’s benefit; and
control, meaning the agent is subject to the principal’s control.
What is the basic rule for formation of a general partnership?
A partnership is an association of two or more persons carrying on as co-owners of a business for profit, whether or not they intended to form a partnership. Profit sharing creates a presumption of partnership unless the profits are received as payment of a debt, rent, wages, or similar exceptions.
What is the rule statement for specific personal jurisdiction in federal court?
A federal district court may exercise personal jurisdiction to the same extent as the state courts in the state where the federal court sits. Specific jurisdiction must be authorized by the state long-arm statute and must satisfy due process, meaning the defendant has minimum contacts with the forum such that jurisdiction does not offend traditional notions of fair play and substantial justice.
What rule should you state when Article 2 of the UCC applies?
Article 2 of the UCC applies to transactions in goods. Goods are movable things at the time of identification to the contract. A contract under Article 2 may be formed in any manner sufficient to show agreement, including conduct by both parties recognizing the existence of a contract.
What are the three main duty-of-loyalty problem areas for directors?
Duty of loyalty issues commonly arise when a director:
is on both sides of a transaction;
competes with the corporation; or
usurps a corporate opportunity.
What are the requirements for apparent authority?
Apparent authority exists when:
the third party reasonably believes the agent has authority; and
that reasonable belief is traceable to some act or neglect by the principal.
What is the difference between ordinary partnership decisions and extraordinary partnership decisions?
Partners have equal rights to manage ordinary partnership affairs, and a majority vote controls ordinary decisions. Extraordinary matters, such as admitting a new partner or selling partnership land, require unanimous consent
What are the requirements for summary judgment under Rule 56?
Summary judgment is proper when there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. The court views the evidence in the light most favorable to the nonmoving party.
What are the elements of promissory estoppel?
Promissory estoppel requires:
a promise;
foreseeable and justifiable reliance on the promise; and
enforcement necessary to avoid injustice.
What are the three safe harbors that may protect a director in a conflict-of-interest transaction?
A conflicted transaction may be protected if:
it is approved by disinterested directors after full disclosure;
it is approved by disinterested shareholders after full disclosure; or
the transaction was fair to the corporation when entered.
Owner tells Manager she may order supplies for Owner’s restaurant. For years, Manager has also ordered kitchen equipment when necessary. Owner says nothing. Manager then orders a replacement oven from Seller. Is Owner bound?
Likely yes. Manager may have implied actual authority because Owner’s conduct and past course of dealing reasonably led Manager to believe she had authority to buy necessary equipment. Owner is bound if the oven purchase was within that implied authority.
A and B operate a landscaping business and split profits 50/50. They never filed paperwork and never called themselves partners. A signs a routine equipment lease for the business. Is the partnership bound?
Likely yes. A general partnership can be formed without filing paperwork or intending to create one. Profit sharing creates a presumption of partnership. Partners are agents of the partnership and generally have authority to bind the partnership in ordinary business matters, such as leasing equipment for the business.
Plaintiff sues Defendant in federal court. Defendant moves for summary judgment and submits affidavits showing no disputed facts. Plaintiff responds only by relying on allegations in the complaint. Should summary judgment be granted?
Likely yes. Once the moving party shows there is no genuine issue of material fact, the burden shifts to the nonmoving party to produce evidence showing a genuine dispute for trial. Mere allegations in the pleadings are not enough.
Buyer accepts goods from Seller. Later, Buyer discovers a hidden defect that substantially impairs the value of the goods. Buyer notifies Seller within a reasonable time and the goods have not substantially changed. Can Buyer revoke acceptance?
Likely yes. A buyer who has accepted goods may revoke acceptance if the nonconformity substantially impairs the value to the buyer, the buyer accepted because the defect was hard to discover or because of seller’s assurances, revocation occurs within a reasonable time, and revocation occurs before a substantial change in the goods not caused by the defect.
A director owns a company that contracts with the corporation. The director discloses the conflict, does not vote, and the disinterested directors approve the contract. Is the transaction automatically void?
No. A conflict-of-interest transaction is not automatically void if a safe harbor applies. Approval by disinterested directors after full disclosure may protect the transaction.
A delivery driver employed by a company negligently hits a pedestrian while making deliveries. The company argues it is not liable because it did not personally cause the accident. Is the company liable?
A delivery driver employed by a company negligently hits a pedestrian while making deliveries. The company argues it is not liable because it did not personally cause the accident. Is the company liable?
Likely yes. Under respondeat superior, an employer is vicariously liable for torts committed by an employee acting within the scope of employment. Making deliveries is within the driver’s employment duties, so the company is liable. The driver is also personally liable for his own tort.
Partner secretly takes a business opportunity that belonged to the partnership and makes a profit. What duties are implicated, and what remedy may the partnership seek?
Partner breached the duty of loyalty and duty to account. Partners may not usurp partnership opportunities for personal advantage. The partnership may recover the profits Partner made from the breach.
Plaintiff seeks a temporary restraining order without giving Defendant notice. What must Plaintiff show?
Plaintiff must show immediate and irreparable injury. A TRO without notice is limited and temporary. It generally lasts only long enough for the court to consider the request, and no longer than 14 days unless extended for good cause or with the adverse party’s consent.
Seller tells Buyer, “I’m not sure I’ll be able to deliver the goods next month.” Buyer immediately treats the contract as breached and sues. Is this anticipatory repudiation?
Probably no. Anticipatory repudiation requires an unequivocal manifestation that a party cannot or will not perform before performance is due. A mere expression of doubt is generally prospective inability, not repudiation. Under the UCC, Buyer may demand adequate assurances and suspend performance until assurances are received.
A shareholder sues because directors wasted corporate assets, causing the corporation’s stock value to drop. Is this a direct suit or derivative suit?
This is a derivative suit because the injury is to the corporation, and the shareholder is seeking to enforce the corporation’s rights. Any recovery generally goes to the corporation, not directly to the shareholder.
Agent enters a contract with Third Party on behalf of Principal, but Agent had no actual authority. Principal later learns all material facts and accepts the benefit of the contract. Is Principal bound, and is Agent liable?
Principal is likely bound by ratification because Principal knew the material facts and accepted the benefit of Agent’s unauthorized act. Agent may still be liable to Principal for acting beyond authority, but Principal’s ratification makes the contract binding between Principal and Third Party.
Partner C joins an existing general partnership after it already owes $100,000 to Creditor. Later, the partnership incurs a new $50,000 debt while C is a partner. What is C personally liable for?
C is not personally liable for the $100,000 preexisting debt, although C’s capital contribution can be used to satisfy that debt. C is personally liable for the $50,000 debt incurred while C was a partner because partners in a general partnership are jointly and severally liable for partnership obligations.
A federal diversity case is filed in a proper venue. Defendant moves to transfer to another federal district for convenience. The transferee district would be more convenient, but Defendant could not have been sued there originally. Should the court transfer? What law would apply if transfer were proper?
The court should deny transfer because transfer to a more appropriate forum under § 1404 requires that the case could have been filed in the transferee forum originally. If transfer were proper, the transferee court would apply the law of the transferor forum.
Buyer has reasonable grounds to believe Seller may not perform a UCC sales contract. Buyer sends a written demand for adequate assurances. Seller does not respond for more than 30 days. What can Buyer do, and why?
Buyer may treat Seller’s failure to provide adequate assurances within a reasonable time, not exceeding 30 days, as a repudiation. Before that point, Buyer may suspend performance while awaiting assurances. This is a two-step issue: first prospective inability, then repudiation if adequate assurances are not timely provided.
A shareholder wants to bring a derivative suit against directors for breach of fiduciary duty. What procedural requirements should you discuss, and what must the shareholder show?
Discuss SAD: standing, adequacy, and demand. The shareholder must have standing, including contemporaneous ownership at the time of the alleged wrong. The shareholder must adequately represent the corporation’s interests. The shareholder generally must make written demand on the corporation and wait 90 days unless irreparable injury would result or demand would be futile.