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Bar Outline
Agency refers to the legal relationship whereby an agent is authorized to
represent a principal in business dealing with 3 rd parties.
Rule principal liable to 3rd parties for contracts entered into by agent if principle
authorized agent to enter into contract and agent is subject to principals control.
Capacity: principal must have contractual capacity but agent does not b/c hes just
an intermediary. Writing: no writing required by agency law or SoF. Consideration: is
not required.
Actual Express principal used words (including oral or private) to express
authority to agent.
Actual Implied authority which agent reasonably believes principal has given b/c
of necessity in order to accomplish task; custom; or prior dealing.
Termination of Actual Authority: (i) after specific time/event or a reasonable time; (ii)
by change of circumstances; (iii) if agent acquires adverse interest; (iv) when agent
say so; (v) when principal says so (unless power of agency coupled w/ interest
which makes the power irrevocable); (vi) death or incapacity or bankruptcy (unless
coupled w/ interest, i.e. agent has own interest).
Delegation: is okay if principal consents (may be express or implied from
Apparent Authority principal cloaked agent w/ appearance of authority & 3 rd
party reasonably relies on appearance of authority. Look at it from 3 rd party point of
Secret limiting instructions: agent has actual authority, but principal secretly limited
authority, and agent goes beyond scope. Principal still liable.
Lingering authority: actual authority terminated, but agent continues to act on
principals behalf. Principal still liable until customer receives notice of termination.
Ratification authority granted after contract entered if: principal has knowledge
of all material facts regarding contract & principal has accepted benefits.
Ratification must be complete as is, no alterations to terms & principal must have
capacity at the time of ratification & at time of original contract b/c ratifications
retroactive. How to ratify: expressly affirming contract; accepting benefits of it; or
suing 3rd party on it.
Extent of Liability no authority no principal liability, agent liable. Authority
principal liable, agent not. BUT, if principal is partially disclosed OR undisclosed
agent & principal liable. Conversely, principal disclosed agent not liable.

Adoption when promoter enters into lease on behalf of corporation that has not
yet been formed; the corporation/principal can adopt the lease; BUT, cannot ratify
the lease because corporation/principal lacked capacity because it wasnt created
Duties of reasonable care; obey reasonable instructions; loyalty. Loyalty: no selfdealing (benefit to detriment of principal); no usurpation of principal opportunity; no
secret profits. Remedy: losses caused by breach & disgorge profits.
Duties must compensate, reimburse and indemnify agent.
Duties principal always liable to 3rd party and 3rd party almost always liable to
principal; unless there is an undisclosed principal & agent has special skills.
Duties generally no liability since agent is just an intermediary.
Rule principal will be liable for torts committed by agent if (i) principal-agent
relationship exist & (ii) tort was committed by agent w/n scope of relationship. P & A
will be jointly & severally liable to injured party.
Principal/Agent Relationship (ABC)
Assentvoluntary, informal agreement, principal must have capacity.
Benefitagents conduct must be for benefit of principal.
Controlprincipal has right to control agent by having supervisory power.
Subagent: no vicarious liability unless ABC. Borrowed Agent: no vicarious liability
unless ABC. Independent Contractor: no vicarious liability because no power to
supervise performance, except great ultra-hazardous activity and estoppelhold
out independent contractor as agent.
Scope was conduct of the kind agent was hired to perform? Did tort occur on the
job? Did agent intend to benefit principal?
Frolic v. Detour: whether tort occurred on job. Frolic: new and independent
journey outside scope. Detour: mere departure from assigned task within
Intentional Tort generally outside scope of vicarious liability except: (i)
specifically authorized by principal; (ii) natural from type of employment; (iii)
motivated by desire to serve principal. Liability: agent and principal jointly &
severally liable to 3rd party, but only entitled to one satisfaction. Direct liability:

principal may be directly liable for its own negligence if agent principal failed to
supervise employee or check an employee criminal record/job history.
Formation no formalities, can arise from conduct. Definition: an association of 2
or more persons carrying on as co-owners a business for profitregardless of intent.
Sharing profit: creates a presumption of GP. But not lending agreements, wages,
Partnership by Estoppel (PBE) if no partnership is formed, parties may still be
liable as if they are partners to protect reasonable reliance by 3 rd parties. Note: this
only applies to contracts NOT torts.
Fiduciaries duty of loyalty (no self-dealing, usurping opportunity, secret profits);
duty of care; and duty to render full information about partnership on demand.
Inspection: partners can inspect books; can get accounting when its just and
Remedy action for accountingrecover losses caused by breach AND disgorge
Partnership Property whether property is owned by partnership or someone
else is determined by intent. No transfer of specific partnership assets w/o
partnership authority, e.g. land, leases or equipment. Personal property: can
transfer profits/surplus owned by individual partners to 3 rd party. Share in Mgmt.:
GPs have right to share mgmt. but may not transfer.
Mgmt. Unless otherwise agreed (UOA), each partner entitled to equal control and
Salary UOA, partners dont get salary unless winding up.
Indemnification partners have right to be paid back with interest monies the
partner paid on behalf of the partnership.
Profits/losses UOA, profits shared equally; losses shared like profits.
Partners economic interest in partnership is transferable like any other
financial asset.
Outgoing Partner remains liable for existing debts unless released by particular
General Partnership agency: principles apply with regard to torts and contracts.
Partnership is the principal, partner is the agent. Actual authority: created by the
partnership agreement, majority vote of partners, or statute, which makes every
partner an agent for carrying on business in the usual way. Can be negated by

partners. Apparent authority: look at partners title and prior conduct. Ratification by
adoption: if no authority existed at time of contract.
Personal liability for debts of partnership: incoming partner not liable for preexisting debt. But, funds from incoming payments can be used to satisfy prior debt.
Dissociating partner does retain liability for future debts until actual notice given to
creditors OR 90 days after filing notice of disassociation to state.
Other Forms
Limited Liability Partnership (LLP) required to file application with Secretary
of State and pay fee and name must include the words limited liability partnership
or the abbreviation. No liability for underlying obligations of partners, but liability for
own wrongdoing. Distribution of Assets: (i) 3rd party creditors; (ii) partners who
loaned money to partnership; (iii) partners for capital; (iv) partners for profit.
Limited Partnership one or more GP and one or more ltd. Partner.
Requirements: limited partner certificate w/ Secretary of State and pay fee and
must have names of all general partners. Liability: generally, the liability of limited
partner is limited to capital contribution, even if participate in control of LP.
However, the general partner (GP) is personally liable for the LP obligations,
including torts and contracts. GP has right to manage LP. Absent filing: then joint &
several liability for partners, but can avoid future liability by filing certificate or by
withdrawing from LP. Withdrawal: a LP may withdraw only at the time or on the
happening of an event in the LP agreement; otherwise, a limited partner may not
withdraw prior to the time for dissolution and winding up of the LP. Distribution of
Assets: (i) 3rd parties & LP who are creditors; (ii) GP who are creditors; (iii) partners
owed distribution; (iv) capital contributions; (v) profits (if theres anything left).
Limited Liability Companies must file articles of organization (AO) w/ Secretary
of State and pay fee. Must file annual report and pay annual fee as well. The name
must contain the phrase limited liability company or an abbreviation. Members
are owners w/ limited liability for debts and obligations of business + benefits of
personal taxation. Members control, but Article of Organization can delegate to
managers. Limited liquidity (means members cant transfer interest). Limited life
span. No fiduciary duties for members at all unless UOA. Liability for Members: none
except for their own torts. Distributions of Assets: is allocated on the basis of
capital contributions.
Dissolution begins the end of partnership. At willdissolution automatic upon
notice of express will of any 1 GP to dissociate. Not at will: dissolution occurs upon
happening of event specified in agreement OR majority vote of partners to dissolve
w/n 90 days of dissociation of a single partner. Termination: actual end. Winding up:
time between dissolution and termination.
Compensation partners get compensation during winding up. GP retain liability
on expenses entered into to wind up old business w/ creditors. GPs still retain

liability on new expenses until actual notice of dissolution given to creditors or 90

days after filing statement of dissolution.
Creditor Rights After Dissolution partnership creditors have priority over
partnership assets. Separate creditors have priority on separate property.
Continuing Partnership After Dissolution by consent of remaining partners
who have not wrongfully dissolved; creditors become creditors of continuing
partnership; UOA, withdrawing partner gets his interest in the partnership. But a
partner who wrongfully dissolves is not compensated for goodwill and is liable for
Bar Outline
Promoters person acting on behalf of unformed corp. Corp. liability: for
promoters contract: when corp. adopts by express adoption by BOD resolution or
implied adoption (knowledge & accepts benefits).
Promoter Liability: until novation, solely liable if corp. never formed.
Duty: promoter is fiduciary, no secret profits. If property acquired before formation &
sold to corp. profit recoverable if sold for more than fair market value. If property
acquired after & soled to corp. any profit recoverable.
Subscribers written agreement to buy stock from unformed corp.
Limitations: pre-incorp. Subscription agreement irrevocable for 3 months. Postincorp. subscription revocable until Board accepts.
Subscriber Default: if paid < 50% of purchase price, and fails to pay the rest w/n 30
days of written demand, corp. can keep money and cancel shares. If paid 50% or
more, corp. must try to sell stock to someone else/promise to pay cash.

Authorized Shares (number, classes, and series)

Purpose general purpose w/ perpetual duration valid and presumed, unless
specific statement of purpose or limited duration expressed. If specific purpose,
activities beyond scope are Ultra Vires activities. Ultra vires contracts are valid.
Shareholders can seek injunction. Corp. can sue responsible D & O for losses b/c of
Ultra Vires acts.
Agent & address of registered office.

Incorporators must be one or more natural person. Execute & deliver Articles of
incorporation to Sec. of State.
Name of corp. with some indica of corp. status, e.g. inc. or corp.
Articles of Incorporation contract between State, corp., & shareholders. Must
include name and address of corp., names & address of incorporators, duration,
purpose, structure, number of shares, and name & address of registered agent.
Required Acts incorporators must sign & acknowledge articles, deliver to NC
Sec. of State. Must pay filing fee. After filing certificate, corp. is formed, and
incorporators have organizational management to adopt bylaws, and elect directors.
Bylaws not filed with state, and not legally required. If conflict w/ articles of
incorporation, articles control. D or SH can amend, but SH by-law may be amended
only by SH unless the articles or a SH by-law authorizes D to amend it.
De Facto Corp. business that doesnt fulfill filing formalities may nonetheless be
treated as a corporation if organizers have made good faith, colorable attempt to
comply with the corporate formalities and have no knowledge of the lack of corp.
Legal Significance separate legal person; shareholders not liable for debts of
corp. b/c of limited liability. SH is liable only for price of their stock.
Piercing the Corp Veil avoid fraud or unfairness and to render shareholders
liable to 3rd party victim.
Requires: SH treat corp. as their alter ego by failing to observe sufficient corp.
formalities OR corp. is undercapitalized (fail to maintain sufficient funds for
foreseeable liabilities).
Who Liable?: SH active in operation of corp. or D & O. Courts more willing to pierce
for tort victim that contract claimant.
Foreign Corps. corp. incorporated outside state engaging in regular intrastate
business must file certificate of authority w/ Sec. of State. Penalties: civil fines;
cannot bring suit in NC court w/o getting a cert. of authority prior to trial.
Consideration: (what the corp. must receive when it issues stock)
Type/Form: any tangible or intangible property, promissory note, services
performed, obligation to perform future services w/ an agreed value.
Par Value: minimum issuance price. No par value means any valid consideration
BOD (Board of Directors) deems is adequate.
Acquiring Par Value Stock w/ Property: ok if BOD values property in good faith as at
least par value.
Consequences: if < par value, Ds (directors) liability for signing off on below par
issuance and Purchaser b/c SHs must pay full consideration for shares.

Preemptive Rights right to maintain % of ownership each time new issuance is

released by allowing SH to buy same % of newly issued stock WHEN SOLD FOR
CASH. Must be expressly granted in articles.
Statutory Requirements BOD must have 1 member 18+, SHS elect Ds
(directors); SHS can remove D for any reason, unless articles provide for removal
only with cause. However, D elected by a class of shares may be removed only by
that class.
Valid Meeting Required for BOD Actions unless unanimous, D consent in
writing to act w/o meting. Notice can be set in bylaws; generally only required for
special meeting. No Proxies or voting agreements.
Quorum majority of all Ds on board, unless greater number is required in articles
or a lesser number is permitted by articles (minimum is 1/3 of all Ds on board).
Voting: majority of votes present. Each D presumed to concur w/ BOD action unless
dissent/abstention in writing. Note: always make sure there is a quorum present
each & every time a director vote is taken b/c Ds can break quorum by leaving mtg.
Ds have duty to manage the corp. but are protected from liability by the Business
Judgment Rule. But they are fiduciaries who owe duty of care & loyalty.
Business Judgment Rule (BJR) presumption that Ds manage corp. in good
faith and in best interest of corp.
Duty of Care D must act with care of an ordinarily prudent person would use
with respect to her own business, unless articles have limited liability for breach.
Misfeasance: D does something that causes the corp. a loss. Exception: articles
may shield D from personal liability for breach of the duty of care if they acted in
corp. best interest and received no benefit.
Duty of Loyalty D must act in good faith & w/ reasonable belief that what hes
doing is in corp. best interest. D may not receive an unfair benefit to detriment of
corp. or SHS, unless there has been material disclosure and independent
Self-Dealing: D receives unfair benefit in transaction with corp.
Usurping Corp. Opportunities: D receives unfair benefit by usurping an opportunity
corp. would have pursued. Cannot do w/o making full disclosure & getting BOD
Ratification defend claim by (a) majority vote of independent Ds; (b) majority
vote of committee of at least 2 independent Ds; (c) majority vote of shares held by
independent SHS. Interested Director Doctrine: CL: transaction w/ interest D
voidable at corp.s option. Modern: contact invalid unless, BOD approves transaction
after disclosure and D doesnt vote; SH approve contract after disclosure; or
contract is fair.

Officers duty of care and loyalty. Os are agents of the corp. and bind corp. by
authorizing acts. Requirements: Pres., Sec. and Treas. Selected and removed by Ds.
Indemnification for cost, attorney fees, fines, judgments or settlement in the
course of corp. business.
Never: indemnify when D&O loses suit.
Always: indemnify if D&O wins suit.
May: indemnify if: liability to 3rd parties or settlement w/ corp.; D&O shows action in
good faith and conduct in corp.s best interest.; OR court orders indemnification.
Who decides?: majority independent Ds; majority of committee of independent Ds;
majority shares of independent SHS; Board pursuant to Independent Legal Counsels
Direct Action Ds breached fiduciary duty owed to individual as SH.
Shareholder Derivative Suit SH suing to enforce the corp.s own cause of
action. Requirements: contemporaneous stock ownership when claim arose and
throughout litigation and demand on BOD that they cause corp. to bring suit.
Demand must be rejected or lapse 90 days. Recovery: to corp. but plaintiff gets
attorney fees and expenses.
Any owners on record date as determined by BOD, up to 70 days before meeting
Proxy Voting (i) writing; (ii) signed by record SH; (iii) directed to corp. secretary;
(iv) authorize another to vote their shares; (v) valid for 11 months. Revocable unless
proxy says irrevocable and SH passed some interest.
SH Meeting annual meeting, 1 D slot must be elected OR specially noticed
special meeting called by BOD, President, or 10% of voting shares regarding
fundamental corp. change or proposal. Special meeting limited to stated purpose.
Written notice between 10 and 60 days before meeting date and must contain when
and where. Improper notice of meeting: meeting void unless the defect is waived in
a signed writing at any time or by attending the meeting w/o objecting to its being
Quorum majority of outstanding shares at meetings start. Vote: votes in favor >
votes against. Once quorum established for SH meeting, it cannot be broken.
Voting Agreement written agreement to vote shares as required in agreement.
Binding and enforceable; 10 year limit, but can be extended; likely remedy if
breached, specific performance.

Cumulative Voting SH gets to add up his votes (# of share owned x # of Ds to

be elected); must be expressly granted in Articles. Only available when voting for
Record Books demand upon written notice; must give corp. 5 days; absolute
right for qualified SH.
Dividends declared solely at BOD discretion, limited only if corp. is insolvent.
Distribution okay if corp. can meet both test: (1) solvency test (after making
distribution, corp. able to pay debts as they come due in ordinary course of
business) and (2) balance sheet test (after making distribution, corp. assets exceed
liability. BOD personally liable for unlawful distributions, unless good faith reliance
on financial officers reports regarding solvency.
Priority: Preferred share ($ dividend preference payable at $ amount stated;
participating preferred paid as preferred and common share; cumulative preferred
paid at rate of preferred each year). Common paid last and equally.
Paid out: of earned surplus, not stated capital.
Repurchased & Redemptions decision lies solely with BOD. SH cant force corp.
to repurchase. CL: only from earned surplus/retained earnings. Modern: not allowed
if corp. is insolvent.
Duty to other SH generally none. Controlling SHs: duty not to unfairly prejudice
minority. If selling to looter, corp. will be liable for damages unless reasonable
measures taken to investigate buyer. Liability also for selling shares at premium in
exchange for corp. office.
Types merger; consolidation; dissolution. Fundamental Amendment to Articles;
sale of substantially all corp. assets.
Steps BOD resolution; notice of special meeting of SHs; approval by majority of
all shares entitled to vote and by a majority of any voting group adversely effected;
file notice with State, e.g. Art. Of Merger. EXCEPT: no SH approval for short form
merger (parent corp. owns 90% of subsidiary).
Appraisal Rights dissenting SH can force corp. to buy shares at fair value.
Requirements: before vote, file written notice of objection, not vote for change, and
after vote demand to be bought out. Ctappoint expert appraiser to value.
Sale of Assets may be considered de facto merger and trigger rescission and
appraisal rights. Procedural steps must be followed.
Dissolution/Liquidation approval by majority of Ds and shares entitled to vote.
Must file articles of dissolution w/ Sec. of State. Dissolution may be revoked w/n 120

Winding up: (1) creditor paid first, (2) dissolution preferences; (3) balance
distributed pro rata among common shares.
Anti-Fraud (Rule 10(b)(5)) Elements: interstate commerce/Use of national
exchange; Scienterintent to deceive; deceptionmaterial misrep. OR
misappropriation of material non-public information; in connection w/ actual
purchase or sale of securities.
Insider Trading Tipper: improper purpose + benefit. Tippee: tipper breach and
tippe knew. Misappropriation: govt prosecution for trading on market info in breach
of duty of trust/confidence owed to source of information.