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THE FIRM & THE LAW OF AGENCY

ISSUE Agency

RULE (1) One person (the Principal) consents that another (the Agent) shall act on Ps behalf & is subject to Ps control, & (2) A consents to the act Agent has FD to Principal (duty of loyalty)

CASE

Agents Fiduciary Duty

CCS v. Reilly: Employee/agent of CCS cant solicit own business during employment. (A has FD of loyalty to P). Hamburger: Employees arrangement of financing/lease space for new business is OKlogistical. BA/Merrill Lynch: Ds lied to SHs (As breached FD to Ps).

Employment at Will

Foley v. Interactive Data Corp: F had at-will k, which was amended through time/type of relationship (bonuses, promotions) breach of implied-in-fact kl obligation to discharge for good cause only. Actual Authority: when P manifests consent directly to A (express or implied) Apparent Authority: When A is without actual authority, but P manifests consent directly to third party who is dealing with A (express, implied). E.g., Starbucks Inherent Authority: Judicially created gapfilling device that tends to arise when equities favor person who suffers loss from agents unauthorized actions. Note: Usually, must show benefit to the P. If not, look at economic rationale theory: who should have known better? Blackburn v. Witter (Farmers wife): Farmers wife acted in ordinary care; Witter/brokerage house (P) placed Long (A) in position to defraud their customers. B had done business with W before.

Manifestations of Consent

Sennott v. Rodman & Renshaw: Court did not recognize agency. Sennott had unclean hands, savvy investigator-should have known better. Lack of reliance on P because S wouldnt talk about check endorsement with P representative.

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PARTNERSHIPS ISSUE Generally STATUTE/RULE Partnership = association of >2 to carry on as coowners of a business for profit (101(6)), formed under 202. Default rules = equal management & control (401(f); equal profit sharing (401(b)), equal losses (401(b)). Can k around default rules with Partnership Agreement (202) Partner is agent of partnership (301) P-ship formed when Ps carry on business as coowners (202(a)) Intent to form partnership not needed (202(a)) Saying that you are partners is not enough, need intent to share profit/losses equally. CASE

Formation

Byker v. Mannes: Focus on whether parties intended & actually carry on business for profit & not on intent to form pship. Hynasky v. Vietri: Court looks at action after partnership agreement was signed & said that parties did not act as joint owners of business for profit. Just because you call goose a duck-it is not a duck.

Fiduciary Duties

FD = legal obligation to act for benefit of another. o Obligation of good faith & fairness in dealing with one another, & duty to act in furtherance of p-ship Breach of FD = failure of fiduciary to observe a standard of care exercised by professional of similar education & experience. (Rest. Of Agency 379). Each partner is an agent of the partnership (301(1)) Partner owes partnership DUTY OF LOYALTY (404(a) & (b)) o (1) To account to partnership, (2) to refrain from dealing w/p-ship in conduct or winding up as or on behalf of party having adverse to p-ship (3) refrain from competing with p-ship in conduct of pship business before dissolution. (Note: Broad & can k around parts of it under 103(b)(3)). Partner owes DUTY OF CARE (404(c)) o Refrain from grossly negligent or reckless conduct, intentional misconduct, or knowing violation of law. o Negligence alone is not enough. (Note: Courts dont ever recognize breach of duty of care because such a high standard).

Meinhard v. Salmon: Ps owe finest duty of loyalty to each other. (punctilio of an honor most sensitive) (Treat JV same as P). S had duty of disclosure (S was manager-M would have not known of offer). Self-Dealing: Vigneau v. Storch Engineers: Should not go around secretly entering relationships with p-ship. V gets salary for work that he did, capital contribution-but profits he made must be paid back to pship. Violation of FD of loyalty; no disclosure; may not engage in self-dealing.

Duty of Care/Negligence: Ferguson: Negligence in management of affairs of GP or JV does not create right of action against partner by p-ship.

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Operating/ Managing P-Ship

Each Partner has equal right to manage & control business (401(f)). Disagreement in ordinary course of business can be decided by majority of partners (401(j)) Extraordinary matters require unanimous vote (401(j)). Right to access to books & records (403)

Contracting for Absolute Discretion

Profit Sharing Partner Liability

Cant k for near-absolute discretion in Partnership Agreement. Limitations: o 103(b): PA may not (1) vary rights & duties under 105 except to eliminate duty to provide copies to all Ps (2) unreasonably restrict right of access to books & records under 403; or (3) eliminate duty of loyalty under 404(b) or 603(b)(3) but (I) can id specific types/categories that dont violate duty of loyalty(4) unreasonably reduce duty of care (5) eliminate duty of good faith & fair dealing (6) vary power to dissociate as partner & (7)-(10). Profit Sharing: 401(b) Partnership = agent of partnership (301) P-ship liable for loss or injury caused to person as a result of wrongful act or actionable conduct of partner acting in ordinary course of business (305(a)). Partners are jointly & severally liable for all obligations of p-ship unless otherwise agreed upon (306). P-ship may sue and be sued in name of p-ship (307). Liabilities of purported partner (if person relying on represent enters into txn with actual or purported pship) (308).

Covalt v. High: All partners have equal rights in management & conduct of business of p-ship. If it is an un-resolvable issue, p-ship should dissolve.High values his FD to CSI more than his FD to Real Estate Venture by refusing to raise rent. Ct said they knew about it before&should have ked for it ahead of time under 103(b)(3). Self Dealing/Contracting for Discretion: Starr v. Fordham: When partner has engaged in self-dealing, BoP on partner to prove fairness. Partners breach FD when they make unfair profit distribution (and determine their own) to departing partner. Cant k around basic requirements of good faith/fair dealings.

PA Properties Inc. v. B.S. Moss: Court recognized inherent authority when a GP JV, who is not named in an agreement b/w a co-venturer & a third party, benefited from theagreement. (Would have been actual authority if not for JV agreement provision.) Haymond v. Lundy: Absent evidence of contrary, plain language of PA will be relied on in determining whether partner violated agreement. Meehan v. Shaughnessy: by engaging in preemptive tactics like recruiting other attorneys secretly and sending clients secret letters that dont present all options, partners violated FD. Must dissociate BEFORE competing against partnership. Unclear b/w time of notice and leave, but still have duty of

Dissociation

Dissociation occurs: 601-events that cause o Partner leaves (at-will) (601(1)) o Some triggering event in PA occurs (601(2) o Expulsion pursuant to PA (601(3)) o Expulsion by unanimous vote of other partners (pursuant to 601(4)) o Judicial determination (601(5)) o Partner becomes debtor in bankruptcy, etc (601(6)) o Partners death (601(7))

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o (8)-(10) Effects of dissociation (603)1 o Remaining partners buy out interest: 701 (fair market value of accounts and any interest) o Dissolution & winding up process of business: 801 Dissociation partner no longer has right to participate in business except in wind-up 603(b)(1) Dissociated partners FD narrows has FD only w/r/t matters before dissociation 603 (unless partner participates in winding up of partnership business) Withdrawing partner breaches FD if he acts unfairly towards p-ship, causing p-ship harm. Liable for damages (Meehan). Partners dont violate FD for expelling partner in at will p-ship (Bohatch) under 601(3). Dissolution (beginning of winding up process) Events causing dissolution & winding up of partnership (listed in 801).2 o Disassociation of at-will p-ship notice from P of express will to withdraw (801(1)) (other than 601(2)-(10)).3 o Definite term ends 801(2) o Event triggering in PA 801(3) o Unlawful 801(4) o Judicial determination that impracticable to continue business 801(5) Partnership continues during dissolution 802. P-ship terminated when business is wound up 802(a). Settlement of accounts 807 o Liquidation, pay creditors (a)-like employees and banks,other liabilities paidlike partners get back capital accounts. Anything that is left is profit and split among partners (default rules = 50/50). Note: Under 401, human capital does not count as value. Partners dissociation is wrongful if: o Breach of express provision of PA 602(b)(1) o Before expiration of term if for definite term 602(b)(2) (if partner withdrew by express will, except w/in 90 days after another partners dissociation by death. Partner who wrongfully disassociates is liable to pship and other partners for damages caused by

loyalty in this window of winding up affairs; limited under 603 and 404(b)(3): non-compete term terminates when dissociate/give notice. Bohatch v. Butler & Binion: a law firm doesnt owe partner a FD not to expel her for reporting unethical conduct (if PA allows for expulsion).

Page v. Page: A p-ship may be dissolved by express will of any partner when no definite term or particular undertaking is specified. Kovakic: K wants R to share in half of loss after dissolution/settling capital accounts. Court: values Rs service capital. Shamloo: In settling capital accounts; no value for human capital (401). McCormick: Ju