BUSINESS LAW OUTLINE (LECTURE NOTES) What is Law?

Series of rules promulgated by law-maker, for governing society, with state imposing sanctions for noncompliance. Where do laws come (who is law-maker)? Legislators, agencies, judges- from case precedent. Where do they get it from? perhaps morality, good vs. bad, religion, parents. System of Laws. 1. Civil Law system- based on code. Certainty. From Roman Jurisprudence 2. Common Law system Fairness/equity/justice. A. American system i. dual sovereignity- operate in different realms. (a) federal system (b) state system Lawyers roleInterpret/advocate for those who cant advocate. Business Law 1. Underpinnings- Property, Contracts, Torts. Property Contracts- enforceable agreement. Non-enforceable- illegal How much freedom to we give parties to contract terms? When do courts step in? 1. statue prevents it. Ex. Murder contracts. 2. unconscionable contract. a. lack of meaningful choice b. commercially unreasonable terms favoring one party. What do you do for system of property? Who is this system for? 9/10 of the law quick, easy maxim that can be easily applied. Purpose of legal ruledepends on what trying to do: Certainty/efficiency like civil system v.s Principles of fairness equity- reward sunk costs. Williams v. Walker-Furniture Facts:

Williams bought furniture on installment plan, and had practically paid it off. Bought a stereo on installment plan, missed a couple of payments, and as per contract clause which provided store with security interest in all items (had they not been totally paid off) if new items not paid off. Appellees Argument: At 8% profit, we provide a public service to this class of people, and this type of clause is common to stores in this area. Holding: Remand to lower trial court to examine to consider if unconscionable contract as defined by above two elements as given by Corbin. Dissent: Williams knew where she stood. TORTS- society imposes duties on strangers on each other. Involuntary obligations. State enforces social contract. Product liability standard: Even if ordinary care taken, if product leaves factory in dangerous condition, still liable to end user. Ordinary care standard: Negligence if dont exercise sue care as reasonably prudent person in that situation. How to strike balance between liability and making products expensive from extra safety. Lovelace v. Astra Facts+: 13 needs blow-dryer to look and feel great to cope with awkward age. Family goes to church on Sunday to hear Baptist minister fire and brimstone sermon. Hairdryer plugged in, from defect, results in fire burning house down, and when father sees it he has a coronary, disabling him even from working. He sues for damages. Issue: Can father recover from manufacturer as a bystander? Held: Yes, it can Analysis: If consequences are foreseeable, yes.

AGENCY- when agent agrees to act on behalf of principal, under direction of principal. (1) When agency present- fastening responsibility of one person [Agent] to another [Principal]? (2) What are the consequences? Partnership: (1) when does it exist? (2)If yes, what duties, responsibilities, rights LLC: Startup formation of choice, why? Quick progress 0 in mid-nineties to millions now. Result: Principal LIABLE for acts of the agent on 3rd parties. Types of Authoriy: (1) actual authority-express, implied (2) apparent authority (power of position) (3) Inherent (4) Agency by Estoppel ( esptoppel- one party has {believability/right?} by representations made. So if party induced reliance, pay for it. (5) Ratification, didnt authorize act of agent, but Principal will ratify it. Croisant: Facts: Accountant Watrund works for partnership of accountants, does accounting work, then provides more services for her. Then embezzles that money, pays estranged husband. Then he gets killed in hunting accident. She finds out and sues partnership. Issue: Is the firm responsible for illegal payments? Holding: Agent (accountant Watrund) have inherent authority for firm (Principal) [claims firm didnt know of extracurricullars]. Analysis: Reasonable for client/her to believe that firm knew about accountants actions. If benefit from acts, should deal with the consequences. ---CLASS 3---

The idea of Corporation. -> as person for constitutional protections, 1st amendment. in the present time, corporation the only form to go public. Review: 1st class: basic legal doctrine: property, contracts, torts. 2nd class: agency , partnership, llc -why do we allow corporations? -whats so special about Delaware? Property Max the fox. Certainty/predicatability= ease of administering the rule Vs Fairness/equity & encouraging investment- had it come out for Post. Contracts Williams v. Walker Contracts can be seen as agreements to transfer property-> means of exchange. So this way, goods rise to highest value, but state puts some restraint . Presser finds this wishy-washy. For example, unconscionabililty- but goes back to concepts of equity/justice. So a little on the one hand, and on the other hand going on. Elements of unconscionability: (1) lack of meaningful choice for one party (2) commercially unreasonable terms favoring other party. Torts Presser finds it elusive. When are you liable to someone else if you cause them an injury? When can you recover from involuntary damage? what about battery, or other on purpose torts, yo? Negligence- if person someone injured, but person was performing ude care, not liable. Stricts product liability-> if product leaves in unreasonably safe state, even if no negligence, manufacturer liable. --- yo yo what does that all mean? Unreasonably safe is a different objective-i.e. rightminded member of society talk- rather than subjective, what the mutha think- would think that industry standard of six sigma inspection would qualify as erasonably safe. Or are we talking about the actual product itself. Now here is some goddamn intersection, holla.

Concept of foreseeability- extend to bystanders? -notion of enterprise liability. Absorb cost that their product inflicts on society. Other system is to spread costs- ex. Workers compensation board. Agency & Partnerships Agency- how to get others to work for you. Consequences- (1) if control & benefit, principal liable of acts of agent, even if not desired if 3rd party reasonably believed . Presser likens to tort system, unclear how? -Agent not met in interest of agent, but interest of principal-> fiduciary duty. Partnership-> association of two or more persons jointly engaging in a business for profit. Consequences: (1) each partner is an agent of every other partner (2) each partner is jointly & severally liable for Partnerships liablity j&s= each can be sued for all liability (3) every partner is a fiduciary for every other Meinhard When do you have a partnership? Martin Partnership Noms, National Biscuit Solution for limited liability: corporations, llc Good things about corp.: centralized management of big entity, limited liability, reduce costs of investment. Martin Facts: NNC needs a bailout. Gets one from some blue-blood family friends. (agreement, indafute, option of company to buy-out??) issue: are they partners? Held: no Analysis: Presser says that their lawyers were great, I think, cuz marched em right up to the ledge of partnership, but just stopped short, court felt that even though could veto plans, by not being able to initiate them meant not really partners. Also, even though enjoy an upside, would be expected to be liable for the downside [major concept of the class], not really fully fledged partners because even though were enumerated all these powers, are missing one power. National Biscuit

-What do you do when the partnership is divided? Especially with equal # of partners? Facts: 1 partner says deal, other partner says no deal. 3rd party knows this. Issue: is partnership liable? Held: Yes Presser points out that other cases say that if 3rd party knows it is divided, should know that it requires a majority to go through. HYPOTHETICALS(1)Partners A,B,C: 90%, 5%, 5% damn it, I cant recall if this is agreement of profits and losses or initial capital. I think its agreement of profits, If A votes one way, and B &C vote another way, who prevails? Norm: equity of votes- unless contracted around, so B&C prevails. (2) Partners A,B,C: 90%, 5%, 5%-> nothing said about distribution of profits, so this must be the one on initial capital invested. How are profits and losses divided? Norm: again if not explicit, equal share. Meinhard Facts: Bristol Hotel during the 20s located on 5th Ave. So something about other bluebloods find this dude Solomon to be the manager. And then there is this grasping garments guy, who I think Meinhard. So the bluebloods have this 20 year lease , I think with Solomon, who in turn is partners with Meinhard. So dont know if the contract is with the partnership of these two or what- i.e. if they just have it with Solomon , who brought along this guy, so what implications would that have for liability? Anyways, the lease is up. The bluebloods tell Solomon that they will renew with him and add up the whole block. Meinhard sues (who?)once he finds out. Issue: so not if partners, but duty owed? or maybe what constitutes fiduciary duty? Held: a punctilio of an honor the most sensitive. Dissent: joint venture, only went as far as original lease. LLC: Advantages: same limited liability for investor, pass-through tax, which is I think like an S corp, but more flexible in that more than 75 investors, and can have foreign investors. Presser: Finds LLC uncertain. So some states take different paths with regard to how the investors/members fiduciary responsibility they owe each other. Some are punctilio, some not.

Elf Joint venture case. But vehicle for joint venture is llc, which must have members agreement- whatever that means. There is an arbitration clause, at one point courts didnt like having their jurisdiction taken away. Derivative claim: the fuck is this? Issue: Is arbitration agreement binding when LLC never signed? **So must understand derivative lawsuit; entity claim asserting claim, rejecting it.** so with the chips and fast friends, who living la vida coca. Dont want partnership cuz they can bind you to liability. Really? How? For activities unrelated to business. D.S.C Evolution from owner managed to separation of owner & managers to adhere to best interest of corporation. -separation of investment decision from individuals. Endowed university pension funds, portfolio. Adv. -Artificial Legal Personality -> entitled to constitutional rights. [2nd amendment rights] -> centralized management -Perpetual Life -free transferability of ownershipas opposed to partnership where cant sell is without consent of other partners, as well as if someone leaves or resigns, partnership ends there. Limited liability, corp has some, partnership has none. Smith v Barlow Purpose of corporation: obligation to shareholders over customers and employees. Avris of Delaware it is the case, with some exceptions. In NY state, top 10% of shareholders liable for payroll to employees.goes back to not a good idea to incorp in NY, but missed payroll is internal dealing of firm- i.e. state of llc and incorporation?- is what you are beholden to. Really what about civ procontacts and shit. Something about directors, shareholders, and officers. So I guess that is internal, but what about employment law. W.Cary, of Yale maybe, says that Delaware has watered down shareholder rights to a thin gruel:

(1) Easier to pay dividends in other states unless have capital surplus like in Cali; or by statute Assest : Liability ratio. Whereas in Delaware, even if have losses in prior years, even if no surplus, if had profit that year, can pay dividends. (2)easy for a major change (a) amending change (b) (c) merging in Delaware, vote of shareholder mere majority. => Minority dont have any power. (3) Not cumulative voting. Can get someone on the board for sure; in Delaware, no require cumulative voting, so majority shareholders get all seats on board. (4)Staggered boards [entire boar up for election each year. ] (5) no pre-emptive rights [Pennsylvania yes; Delaware, no] what is that? (6)Excellent Indemnity- holds harmless officers & directors for their actions. Shareholders cant sue them, can even put