Business Organizations at its core is an extension to the law of contracts.

Evolved because the

law of contracts became insufficient

50 Partnership Statues, Corporate Statutes, LLC statutes are not the same.

Closely Held Corporations Large/not public corporations

General Partnerships Limited Partnerships

Corporation- Business Organization set up as a corporation under the laws of one of the 50
states of the union. All states have their own act.

S-Corporation: Owner level taxation for most purposes (partnership like flow though) with a lot
of other pain in the ass restrictions.

Over 6 Million active corporations. Of those, over 4 million are S-Corps.

LPs had a big heyday in the 60s and 70s and are now dying/on the decline.

Deemed liquidation = legally a liquidation but havent liquidated anything

See HAMIL.

Do small buisnesses have contracts between the owners? They should! But in the world of bus
orgs there are some things (general duty of loyalty to partners)

Immutable- Law of contract cannot change the provision in bus orgs. Certain instances law of
bus orgs trumps law of contracts. Still a lot of freedom to contract. But what aspect of the deal
do you have total freedom to contract?

While small in number big business controls a large share of the capital in the economy. What
about the biggest businesses? The Fortune 500? Those are the 800 pound gorillas of the 10,000
Corps.

This unit is about general partnership/general partners.

RUPA: Before there was no law of partnership. Idea was although states are different, uniform
partnership act was needed across state lines. Uniform Law Commissioners deemed it wise to
revise the partnership act, which is RUPA. Alabama RUPA does reflect what the RUPA drafters
intended, though they are not the same.

When it comes to each partner being a general partner in a partnership, nothing has changed!
All authority dealing with agency is useful to understand the relationship among general
partners. Also helpful to see how agency set up spreads into other business organizations. Very
few business organization activity does not involve agents. Even Ben and Jerry probably had
independent contractors helping them. Classic situation is that of a real estate agent.

Agency creates duties and responsibilities that are not in the contract.

Difference Between Independent Contractor and Employee? That is employment law class.
Obviously a real estate agent is an independent contractor, but there is some point where the
relationship between the IC and the person engaging their services reaches a tipping point
where the IC trips over into employee status. Which bring about a whole different set of legal
principles. Employees are agents of the employer. Does not have to be an agreement to that
effect it is automatic (Riley and Hamburger Cases).

Riley: Did Riley in any way promise orally or otherwise that he would not talk to catholic priests
about fundraising off the clock? NO. He never did. Riley was supposed to give longer notice but
the employers said effective date of resignation is the 29 th. Did not do any work, just made
calls, not performance of the fundraising activity, not work that would have obligated catholic
priests to pay him was done before the 29th. Duty of Loyalty. Riley did the work but he had to
give the money back! Think hes kinda mad? Yeah! He doesnt know what the duty of loyalty is,
and he did not agree to it! This is one of those immutable provisions by nature of his
employment status. Agents owe a duty of loyalty within the scope of the agency! For
employees within the scope of employment. For partners within the scope for general
partnership. Merely lining up business, not even doing any of it was a breach of the duty of
loyalty! Initiated contact must be declined. If this was a general partnership, it would bring up
disassociation and dissolution issues also. When the duty of Loyalty exists (agency,
employment, general partnerships, and others) whole lot bigger than any one person.

Hamburger: No hard evidence. Permissible to use public knowledge, nothing to stop him using
previous information to start a new business. What did the court say about David, Joseph, and
Ted, and this business in general? These two brothers, with whatever rivalry they had were
destroying a perfectly good business and when David could save it Uncle Ted came in. Why
stick him with damages when he did the only reasonable thing he could have done at the time?

A-Hole factor: On behalf of Uncle Ted especially gave him a lot more leeway.

PAGE 28: Highlight two major lenses to interpret law of business organizations: Fiduciary duty:
Obliges to act in best interest of client, and to refrain from self-interested behavior not
allowable in the contract.

Known as the fairness interpretation. Will be especially concerned about those with less
power (economic or otherwise) in dispute.

Socially Optimal Fiduciary Duty: If they were able to dicker at no cost. Highlight that!! Law and
economics land. These are the main two theories looked at in cases where the result could go
either way. If opinions are read carefully you can identify which point of view the judge is
coming from (even if the judge themselves do not know).

Note 2: Deals with albeit in the employment situation, the power of the contract to change the
duty of loyalty. What ability can the contract change the duty of Loyalty? What about the ability
of partners to shrink duties? Difficult but not impossible.

Takes a LOT in contracts to declare a contract unconscionable. When non-competes are

overbroad people argue it is an improper expansion of the duty of loyalty. Duty of loyalty
cannot be contractually expanded in certain situations (Jimmy Johns) that the law of contract
would otherwise enforce. Because we are talking about the duty of loyalty, not some ordinary,
typical thing.

Foley: Talks about severing the agency relationship (see part D for general partnerships), as far
as IC relationships, it is a question of what the contract says, if nothing you have an at-will type
of employment. If you dont define time in which broker has to sell house can fire him
whenever you want. Sometimes it says only for cause. Foley didnt have an employment
contract! His underlings did, but he didnt. Foley successfully argued that he should present to
the jury that there was an implied agreement, orally and through course of conduct to only fire
him for cause, and the court bought it. What does law of contracts say about anything outside
of the four corners of the document? If its not there its not there! Cant you read?

Part C! Make sure you read through page 66! But we are not done with agency yet!

What argument could Lundy have made?

Lundy definitely had apparent authority to bind the partnership.

Were Foleys actions in ratting out his supervisors serve a public interest? Court said no! A more
fairness argument would have said when sticky fingers steal from financial institutions its bad
for the public.

Proxies:

Blackburn: Mr. Long appeared to the client to be a real sound guy with his act together

Regular Partnerships- All parties jointly and severally liable for the debts of the partnership.
General agents do not have authority to steal from clients (duh). Legal Question in these fraud
cases is did their conduct create some kind of a parent authority that when the theft occurred
they were acting within the agency?

In Raus v. Pollard (1941 case) Court Held that there was no apparent authority, the partner did
not bind the partnership because law firms do not ordinarily deal with investments at all, and
the plaintiff should have known that. Plaintiff was very similar to Mrs. Blackburn. Mrs.
Blackburn probably had a high school education, widowed, husband had been a dairy farmer.
She was a lil ol farm wife. Mrs Raus was a typical wife who didnt have an education etc. Yet
court said was not reliable for someone to rely on a law firm to look to investment firms! It
depends on what is reasonable for the person! And objectively not reasonable to assume law
firm was doing investment business.

Raus = Law and Economics (objective view of reasonable reliance)

Blackburn = Fairness (Subjective, more plaintiff tailored).

What is the legal standard for apparent authority? What must plaintiff (3P) show in relying on
the agent . If the 3P reasonably believed the agent was acting appropriately within the scope
of the agency.

Sennot Case: Arguably a distinction without a meaning. Guy was not an agent at all, he had
been an employee at one time, but had been fired for his sticky fingers. Had been in trouble
with a number of regulatory agencies. He was the black sheep of the family who just kept
getting shuffled around because no one could stand him for very long. Kept getting in trouble
with organizations that oversee securities trading. Was the son of a full partner at the
brokerage firm. Williams knowledge of Jordans dealings created the apparent authority for
Jordan to bind the firm (the court comes out and says this). This issue was that legitimate
transactions happened before the falsified options. William did not actually know what his son
was doing, if he did there would have been no case. Have to ask if it was reasonable for the
Sennots to know Jordan was on the up and up given he was using the company telephone,
given communications with William, given William was communicating with the Sennots.

Court held that R+R was not liable even though lower court held differently. The father enabled
the crap out of the son, Jordan clearly had character issues and other problems. William told
them not to meet with the Sennots. The elephant that is not in the case. William said dont
meet with Carrol! How is it the plaintiffs fault for not doing so?

Apparent authority comes up in situations outside of fraud (contract) but most typically is seen
within fraud.

If you only want real estate committee to know, record under property law and it will cut off
apparent authority, but real estate is special in many ways.

Hayman vs. Lundy (139): We are actually dealing in contract law here. What other argument
could have been made? Was this just a contract or was it something bigger in a general
partnership? Lundys partner might have been breaching their duty of loyalty despite what the
contract said. The law of contracts does not apply only in the contractual way when the
contract relates to or deals with the duty of loyalty.
Byker v. Mannes- Byker and Mannes were involved in lots of deals together. They had various
joint ventures, and other deals going on together. The dispute was over a marina deal because
Byker put a bunch of money into that deal and it went under. Mannes argued that he didnt
have to bear any of the loss because that deal was a separate deal that he had not agreed to
bear any of the loss. Byker was arguing that they did not have a bunch of separate deals, they in
fact had risen to the level of general partners to do deals with each other in general. Had no
name no nothing

Hyansky v. Vietri- Similar situation, except Hyunski fronted a bunch of money for a real estate
project and they never got the zoning etc. If there was a general partnership, both would have
to bear some cost of the loss.

Page 58- Right in the middle above the 2, it says partnership agreement. Footnote 12 for
purposes of the losses Hyansky treated the losses as 100% his as the income taxes. Thats
partnership tax. Treated the tax losses as completely his own, when he claimed a partnership
no summary judgement even though contract law would have deemed him partners. The test is
are you acting as the co owners of a business for profit, does your course of business make that
inference ok? Its not about what you call yourself. Still have to look at how people acted
despite written crap. These cases are mirror images of each other. Separating the role of the
contract from the role of the law of business organizations. In Byker course of conduct make
have deemed them partners as a whole, under the law of contract there was NOTHING. But the
law of contract is not the last word. Only the existence of partnership gives Vietri responsibility.

General Partners can agree on loss bearing ratios,

How will we share profits?

RUPA Section 401- What does it say about profits? Profits are shared equally regardless of the
ratio of what contributions were. Contribution of future services as a matter or book value has
no book value at all unless you agree to value it (which has all kinds of nasty tax implications).
Usually there was an oral agreement with differing accounts. If you have a course of conduct
that can shed light on the issue. We assume equality! Very different assumption that what
would occur with corporate stock.

Corporate stock is viewed as personal property that is viewed as intangible personal property
within the business.

Under the RUPA default, are partners if they havent agreed to anything is service provider
entitled to a separate compensation.

Guaranteed Payment: Can be in the agreement, to pay a partner for services. Otherwise
partner does not get paid for labor put into the business under RUPA unless it is in the winding
up of the business.
Two Things are relevant to determining profit and loss ratio: Losses follow the profit ratio. Total
freedom of contract as far as profits and losses, RUPA is just the default if contract is not there.

Kovacik v. Reed: Reed was going to do all the work to reap the profit. Agreed to split it 50/50,
but did not agree to share any losses. Since losses profits, they should have split the losses
except the California Supreme Court held otherwise. In between the lines they were making a
fairness argument.

Section 8.07 Contemplates the ponying up to pay creditors including other partners with a
positive capital account, RUPA is clear on this, and it follows the UPA on this to the letter!

Comments to Alabama RUPA 4.01 = The default rules apply where one or more of the partners
contribute no capital, although there is case law to the contrary and cites Kovacik. The Reeds of
the world in Alabama would not get rescued! This is an equitable exception/avoidance of the
clear terms of the statute. Interpretation of bus org law is a state function, and states are split
on this! The State of New Jersey (Note 2) had the case of Kessler vs. Antonora in 1995. Florida
follows Alabama. This case is an equitable exception to the clear terms of the statue which is
clearly a fairness-based interpretation.

Law and Econ Folks Clearly won this argument since the default provision is what it is.

State Profits are Shared equally, losses are 100% borne by the capital contributor. Have to know
the difference between profits and income restoring the capital.

Shamloo v. Ladd: They tried to incorporate but screwed up the paperwork. Ended up general
partners. Ladd put in all the money, $75,000 in capital contribution and a 75K loan. Shamloo did
all the work, ended up not making any money. Ladd got interest on his loan and whatever was
left over to restore his capital contribution, but he did not have to pay Ladd for the value of the
services. This is a law and economics approach. Default is that partners making loans get paid
interest unless the contract says they dont. Shamloo does not get paid for services if there is
no profit.

**** When we get to Unit 5 we will talk about LLCs and LLPs (LLPs are just general
partnerships with a corporate veil. LLCs are hybrid business organizations that have their own
statutes and they have partnership and corporate traits alike. For tax purposes they are both
treated as flow-through partnerships.

Meinhard v. Salmon: Salmon manages a property that Meinhard put the money up for. Were
they general partners for the purpose of acquiring, renovating and making profit from real
estate? What was the scope of their agreement? A 20 year agreement 1902-1922, stipulated if
there were losses they would share them equally. Meinhard and Salmon could have lost every
cent if this went south. This case was right on the line. New lease was offered that if new
construction was being done the term could continue. Salmon was approached alone with this
offer as he was the manager. Renewals could have conceivably gone for 80 years, until 2002!
Morals of the marketplace every man or woman for himself. Meinhard was claiming he
deserved an opportunity to participate in this new and improved broader lease that was
incorporated into this larger lease. Judge Andrews says this duty ended when the lease ended,
there is no fiduciary duty of loyalty that extends beyond the 20 years of the lease they agreed
to. Andrews says he was not even sure there was an implied agreement to include meinhard if
the old lease was renewed, but certainly the new lease, which was not merely a renewal of the
old lease that had already expired (it also included new property) said the duty of loyalty did
not possibly extend this far beyond the original deal which, by its included provisions had
contractually ended due to the passage of time. Pretty hard to write this argument off as having
no merits. Razor thin case.

9/6: Introduction to Corporations: General partnership is merging of time, talents, assets. You
have become one. Your economic interests in the business called the partnership is reflected
not by whatever stuff you did or things you contributed but rather by what your share of that
business is by what is (hopefully) defined by the profit percentage. It is a business marriage.

What happens to persons assets if they die?

Questions:
1. RUPA or UPA Statute
2. PS At will CR term or undertaking
3. Event
-Partner Withdraws
-Partner Dies
-Partner Suffers
-Partner is expelled
4. Non-wrongful or wrongful If answer is yes it greatly impacts the legal consequences of
the separation. If no wrongful conduct, it doesnt.

Consent can be withdrawn for any reason! Reasonable or not! Wrongful or not! Partners have
an absolute, immutable right to withdraw from the partnership! Totally Different for
corporations!

Need to know if you are in a state with UPA or RUPA statutory changes. It made some material
changes, but then left a lot that is the same as the UPA itself is.

Legal Ramifications of separation from a corporation is immensely different. The differnces go

back to the nature of the business organizations themselves and how they came about.

GP = Course of conduct that shows intent to get in the same boat. We gon rise together we gon
fall together

Common Law and Default Provisions of UPA view the A, B, C, D partnership as a unique
aggregate of A, B, C, and D consenting to be co-proprietors. Any change in that (withdrawal,
death, insanity, whatever). You have a dissolution trigger. Old business as it existed is no more,
and is available for sale to the highest bidder. Could be a group of the partners, one of the
partners.

8.07: If you had a dissolution, business was sold to the highest bidder everyone got paid out in
cash based on their capital contribution amounts.

Ability to withdraw was immutable, and it still is under RUPA.

Disassociation- Event of the partner separating from the partnership. I am dissing the
partnership by dying, leaving etc. What does the statute say when the agreement is non-
existent or inadequate.

Vs.

Disallusion:

Who is going to pay the most in the bidding war is a small evaluation technique. Even worse for
small businesses. What is the valuation of the good will? Potential future profits etc.

Not wrongful to go bankrupt is not wrongful or immoral. RUPA did not eliminate the dissolution
trigger when a partner withdraws from an at will partnership. You can put it in the contract, but
by default, thats how it is.

Some At will Partnership Examples from the Book:

McCormick (97)- Brother and sister running mom and dads ranch. No evidence of term or
undertaking so it was at will. Parties evidently had a falling out. They said Clark gets to buy Joan
out, both wanted the ranch neither wanted money. Head to head bidding war. Whoever values
more pays.

Nicholas v. Hunt (Note 1 Pg 103)- Hunt contributed most of assets. Hunt wanted the business.
Wanted to bid for it. But sole contributor of assets of the business was Hunt. Wants his
business back!

Dizotel (Note 1 Page 104): Stiltner brought in land and assets, Dizotel brought in money. Same
thing happened here as in Nicholas. Money Partner wanted to bid for the business. Person who
brought assets wanted them back.

These are equitable exception cases!! We wont apply the statute as it is written because we
dont think it is fair. A common fairness argument is we are sympathetic to the partner who
brought the business in, and then another partner was brought in for money like an investor.
When Partner withdraws is the one situation in which RUPA compels a dissolution. Business is
sold to the highest bidder.

Interpreting the UPA or the common law before the UPA has led to confusion.

Dissociation Events (were dissolution events under UPA)

1. Partner Withdraws
2. Partner Dies: Death triggered a dissolution. Death causing a dissolution put unplanned
partnerships in jeopardy. RUPA changed this situation, if a partner dies under RUPA
there is a buyout trigger not a dissolution. See section 701.
3. Partner Goes into Bankruptcy.: In an at will partnership, bankruptcy does not trigger a
dissolution. At will partnership nothing triggers a dissolution except at will withrawl of a
partner.
List of Questions
1. UPA or RUPA?
2. Term or Undertaking or At will?
3. Wrongful or not Wrongful.

Market Valuation- What is a willing buyer going to pay for it? Highest bidder situation can result
in unfairness. There can be an exception to this, but under the default, dissolution happens.

Montana Court is Brevik applied the statute as it read. Joan was not an unsympathetic figure,
she was doing a lot of the work, makes you wonder

Nicholas v. Hunt like cases still exist. Not much has changed since, except the RUPA is much
more dense than the UPA.

Circumstances where you can find a term or undertaking. Meinhard v. Salmon was clearly wa
co-venture during a term. Kovacik v. Reed was a partnership for an undertaking.

If a partner dies before the end of the term of undertaking, dissolution is only triggered if half
of the remaining partners want it (RUPA).

Terms and undertakings do not have a defined boundary. RUPA Specifically states that if there
is a term or undertaking and a partner goes bankrupt that partner is a wrongful disassociator.
What happens? If half the remaining partners want a dissolution you get a dissolution,
otherwise business continues on and the bankrupt partner gets brought out for their value
minus damages caused by wrongfulness.

Drashner and Sorenson: What did Drashner do that trial court deemed wrongful? Too much
time at the bar when he should have been working. Wrongful dissolvers do not get to bid for
the business, and usually end up with nothing, or very little. Very Draconian.
Page v. Page (UPA Case): Its like Cain and Abel. One brother was withdrawing from the
partnership (trying to dissolve it). They were in the linen/laundry business. Each brother put in
43,000. What is Abels argument against Cain? He says there was an implied
understanding/promise (an implied term or undertaking) and the appeals court said there was
not a term or undertaking because it was too general. It is the goal of any business to make a
profit. It did not say until these loans are repaid . Even reading as generously as possible was
outside of scope or undertaking.

But what he did may still have been wrongful as a violation of a fiduciary duty if he simply did
this to drive down the price.

Dissolution means whoever pays the most for the business gets it however low or high that is.
Page v. Page and Couch cases. Circumstances in those cases were such that the bidding war was
likely to fetch a small price.

Nothing about withdrawing partnership at will be wrongful. You cannot remove duty of
loyalty/good faith/fair dealing.

Has RUPA dont anything to solve this split? NO! It left it in place. All of the UPA cases and all of
the cases we have as UPA baggage they didnt clean out of the closet because neither side
would budge on the issue.

What if a partners are mad at another partner? What are the only two options? Judicial
expulsion in court, laziness does not meet the standards for judicial expulsion (that requires a
degree of wrongful conduct that is very high and persistent material breaches). The other
provision that allows for expulsion-

In Bohatch there is a long list of cases of expulsions that were held to be valid without
breaching the duty for loyalty. In those cases was there an expulsion agreement in the
partnership agreement?

Typical expulsion agreement is a contract that is part of the partnership agreement that is in
the law of contract. Has to address procedures for expulsion, what is the threshold for
expulsion? Why/for what reason? Does there need to be cause or can it be for any reason
whatsoever?

**Was Chapman breaching his fiduciary duty to the corporation Pennzoil?

It is a breach of the duty of loyalty (The law of contract will be overruled) if the expulsion
agreement is applied in a way that usurps the expelled partners fair share of the business.

Dissent said because practicing law is the main duty to the client, this should be in its own
category.
Meehan- About duty of loyalty for competing for clients in a separation.

Monday Unit 2 Part A to Part B

General Partnerships used to be the staple for small business.

General Electric was one of the first 12 companies to have their stock valued under the new
Dow Jones Industrial Average.

Board of Directors as a group makes all big business decisions. In corps shareholders dont have
management/agency authority.

9/18:

Read Through Page 241 through Wednesday

In 1914 There was no federal law worth discussing regulating business organizations. But every
state had an incorporation statute.

What article in a nutshell does is present the history of how we got to the corporation as it
exists, how we got to big business (a history of business) also answering the question why state
law became the foundation of corporate law. Why it remained the foundation of corporate law.
Why it is impossible to remove it from being the foundation of corporate law, which
necessitates the federal/state dance.

Big business made possible by use of Coal (Alfred Chandler) First major projects were turnpikes
and canals.

Reconstruction failed but might not have if the radical republicans had understood that unwise
business practices were as much as threat to their goals as those things they did understand.

Straight Voting- All seats are up, every year..

Staggered Terms- Most own more shares each year to get more umph out of your shares. In
Delaware a staggered director can only be removed for cause. Cause = bad boy but not so bad
they can be judicially removed

Cumulatively Elected- By definition they are elected by shareholders with less than a majority,
this is the purpose of cumulative voting. Under Alabama law which follows the model act the
votes sufficient to elect the director can. Otherwise the majority could kick out the minority.
Can always get a director removed by the court.

Page 164- Looking for the concept.

Original Securities regulations came in in 1933-1934.

Edwards- Investors were buying a payphone. Basically was a Ponzi scheme. Wasnt enough to
give investors 14% and cover costs.

Purina- A public offering has to be public, a CEO and CFO should know the number
soooo.Court doesnt define public. Does this group of people need protection?

Small, Personal, Under the limit.

Federal Anti-Fraud rules can still protect and jane and uncle joe. Prohibits material
misstatements or omissions in the purchase or sale or a security. Federal version of tort law?

Proxy- Legal agent who votes on your behalf. Broad Proxy = wider discretion to do stuff.

Access to the proxy:

Business Judgement Rule Applied (Page 328)

Identifies three reasons for the business judgement rule (which doctrinally says unless you can
establish a reason to rebut).

The decision to pay dividends is the very difficult to use the business judgement rule against,
not impossible, just very difficult.

Benefit Corporations: Invented by Maryland in 2010, there are 31 states that now allow these
types of corporations under their corporate statutes. These allow a business corporation to
dispense with the primary purpose being the profit of the shareholders. May be the balance we
need to balance some of the deficiencies critics point out in the law.

10/2:
Duty of Loyalty.

Northeast Golf Club v. Harris: Told the board after she bought.

Offering the opportunity to the board (parliamentary rules) you must put it before them
formally..

These two cases cannot be reconciled, they are both coming at the definition of usurping a
corporate opportunity finding when the duty of loyalty spanks the director for taking the
opportunity for him or herself.

In Delawares business line of inquiry you must put the decision in front of the board. Maine ALI
approach is more of a fairness/duty of loyalty thing rather than the law and economics view
that Delaware takes. Look at the notes, and you will find the states are all over the place on
this.

Independent Directors were not truly independent. Eisner was related to them essentially.

8.62(d)- NOT OFTEN SHE HONES ON A STATUTE THIS OFTEN IN CLASS HINT HINT HINT Because
this is the definition of a qualified director! These are the directors who can decide on Eisners
compensation on a deal when the director is selling land to the company or any director is a
party to the transaction must be approved by independent directors (Jane Eisner would not
have been qualified to decide on Michaels compensation).

A qualified Director can also not have a familial, financial, or employment relationship with the
director whose conflicted situation is being decided upon.

Page 213 of Disney war:

Unit 4 Typically Easier than 2+3.

Page 127 of Disney War-

366-367, Forray into the internet.

Closely Held Corporations:

What is the voting standards for RUPA- Unanimous for extraordinary, majority for ordinary.

Zion v. Kurtz: What did Delaware law require? It had to be in the articles of incorporation which
does not exist in general partnership law. Court enforced the contract even though it did not
comply with the literal requirements. This is a fairness reading of the law, thats why this case is
so cool this does not usually happen in Delaware! How did the majority justify ignoring what
was a plain requirement of the Delaware code? What was the gist of their reasoning? No 3Ps
had an intervening right, so they said the majority should rule. The court asked why such a
requirement was there, why did the articles or incorporation need to reflect the existence of
this agreement.

What else are formalities useful? Knowledge! This was completely a dispute between two
shareholders that had nothing to do with any party, creditors or otherwise that would have
done anything to benefit from this! There is no reason to strictly apply the statute in this case,
so we wont do it. Fairness reading!

Minority Shareholders do not have a fiduciary duty to the company like the board of directors
do! Dissent is Law and Econ View Damnit cant you read the code? This is kind of like Kovacik vs
Reed.
Alabama mostly follows model business corporation act. STATUTORY PROVISION THAT IS
REALLY IMPORTANT BCA Page 24: Who would get summary judgement?! What is required for
a valid shareholder agreement to be enforced in Alabama? A written agreement is required,
must be signed by all persons (unanimity). Zion would get summary judgement in Alabama.

What 7.32 has done is impose a statute of frauds like requirement on contracts.

Does UPA Apply to Joint Ventures?

Joint Venture- Classic Joint venture was Kovacik v. Reed, Meinhard v. Salmon was also a joint
venture to put the investment into the property subject to the long lease etc. Page v. Page was
not a joint venture, they were in the linen supply business together and really did not have a
term or a joint venture defined. Co-Proprietorship that has a limited and more defined scope.

They distinguish between partnerships and for terms or undertaking. Andrews felt like duty of
loyalty ceased, no disclosure required. Cardozo different.

Ask, what kind of folks are these business engaged in? Does it have a more open and
permanent flavor, or of a more limited type.

RUPA does not answer question concerning scope of agency authority, or fiduciary duties and
the courts have grappled with that, and post-RUPA will continue to grapple with that.

Alabama courts have said they REJECT Kovacik vs. Reed. In Alabama you cannot tell a client they
wont pony up money even if they dont have it (when they contributed services)

Dissociation/Dissolution

Under at will partnership theres non-wrongful.

RUPA has a lot of ucky detail when it comes to distinguishing wrongful from not wrongful.

Wrongful Dissociation: Withdrawing before the end of a term or undertaking is wrongful. Going
bankrupt before the end of a term of partnership.

Breaking that implicit promise is a wrongful act within the framework of a wrongful more
limited/defined scope.

Short of going to a judge what is wrongful conduct? Page Case. What about a situation where a
partner withdraws (which they have an immutable right to do), but the circumstances seem to
stink a little bit.
Law and Economics argument is that Page is no longer good law, fairness argues it is. So we end
up with Couch being good law and Page being good law.

Wrongful Dissociators- Get bought out under RUPA. Under the UPA wrongful partner did not
get to bid and got skewered of all value because of the good will penalty. RUPA provides for a
damage analysis.

Agency- In looking at apparent authority, if you have an incident where one partner is liable, is
the only way the other partners are not liable for entire amount.

Inherent/Apparent Authority- PA Properties. Inherent authority binds the principal

(partnership) without regard to if there was reasonable belief of third party. Often comes up
when creditor cannot figure out who the debtor is. Apparent authority is when a rogue partner
has acted in a way that exceeds his or her actual authority. In the two main cases Blackburn and
Sennot you had fraud going on. Rogue person actually stole from the plaintiff.

Rogue Partner went out and bought new computer when there was a committee to do it and
he was not on the committing (exceeding his actual authority). Probably reasonable to rely on,
partnership documents are private documents. Only way partnership can protect against a
rogue partner is either providing notification (very onerous)

Rauss v. Pollard: Plaintiff was unsophisticated lady who just got divorced and relied on lawyers
false statements they did investment work as well as investment work

Proxies: About voting.

How do you define when duty of loyalty is breached if there are three tests? Every state has a
different flavor.

Look at the Brose facts and Analyze them under the ALI.

Anaylyze Harris Case Under Delaware.

Boardmembers allowed to rely on chairmembers

Invention of Exculpation Clause Came After Van Gorkum. Grossly negligent conduct in making
decision does not breach the duty of care. It is like a waiver in advance. Bad faith and duty of
loyalty breaches cannot be exculpated. Which would also include conflicts of interests that have
not been ratified.

What is good faith vs. bad faith- Something that doesnt require intentional intent to do harm,
bad faith can be present even when intent to do harm isnt
Should the law allow for exculpation clauses? Policy issues, can make arguments either way.
Law and econ would say yes fairness would say no. The ability to allow for companies to have
an exculpation clause is a state thing. Could securities laws be amended to allow

Problem 5-4 on page 516 IMPORTANT! Wednesday cover buy/sell agreements\

Really hard to rebut the dividend issue and there is no self-dealing. Sinclair case had a great
example. This is not like the dodge brothers case, this is Donahue and Wilkes.

Under traditional corporate law, what must directors show when they set their own Salary?
Fairness to the corporation! Remember the Kooky Food Products case we talked about last
week?

In a partnership can have disassociation rights that do not exist in corps.

F Hodge ONeil Treateses. Made a lot of money off it, check it out.

Nixon vs. Blackwell: For our purposes its similar enough to Donahue.

14.34 and 14. Something. Statutory remedies. Can file in a court to involuntarily dissolve the
company. There is no right of dissociation. Only other way is by vote of board etc. Courts are
the others to order a dissolution. Everyone gets essentially bought out. This comes up in cases
of corporate deadlock. Oppression remedy was added by some state legislatures. In thoses
cases involuntary dissolution can be petitioned for. The book does not clearly state this but
Delaware does not offer an involuntary dissolution remedy on grounds of oppression.Delaware
says if you cant show deadlock, GTFO.

What is oppression?: Kind of hard to define first of all. Second, what if a share holder shows
oppression? Involuntary dissolution is a drastic remedy that kills the business, the court. How
do the two remedies work together? The statutory and the common law remedies.

Problem 5-4 raises the issue of a minority shareholder abusing their fiduciary duty/fiduciary
duty issues.