Corporations

Brief

Meinhard v. Salmon

Procedural History:

• Meinhard initiated the litigation, suing for an interest in the new, expanded development

Facts:

• Walter Salmon was a real estate developer and wanted to rent a 7 story building for a 20 year term.
• Salmon could not afford the improvements needed.
• Salmon ended up leasing the building from Gerry and also entered a separate agreement with Morton Meinhard, a wool merchant.
• The agreement
  • Meinhard provided the money for the renovations in exchange for the profits from the building over the court of the 20 year lease.
  • The two were to share any loses equally but that Salmon had the sole power to manage the building.
  • Right before the 20 year lease was going to end, Gerry approached Salmon with a proposition.
  • Gerry, who also owned 5 other buildings in the area wanted someone to lease all the buildings, eventually destroy the existing properties to have a single building built.
  • Salmon knew this was valuable real estate.
  • Salmon agreed and entered into an agreement with Gerry without Meinhards knowledge.
  • The lease went through Midpoint Realty, which is owned by Salmon.
  • It was signed and delivered on January 25, 1922.
  • When Meinhard found out about it he made a demand on the defendants that the lease be held in trust as an asset of the venture, making offer upon the trial to share the personal obligations incidental to the guaranty.
    • This was refused.

Issue:

• Is Meinhard entitled to partnership in the new venture?

Holding:

• Yes.

Reasoning:

• Coadventures owe to one another the finest loyalty.
• The trouble with his conduct is that he excluded his coadventurist.
• He was under a duty to concede.
• The fact that Salmon was in fact in control of business operations made it more apparent that he needed to disclose the terms of the leasing agreement.
• One partner may not appropriate to his own use a renewal of a lease, though its term is to begin at the expiration of the partnership.
• If the new deal had been for a building far removed then this might not be an issue but because it was an extension and expansion of the current building, he owed loyalty.

Dissenting:

• No general partnership, only a joint venture.
• If this were a partnership, he would agree with the result.
• There was no fraud, no deceit, no calculated secrecy found.

Corporations

Brief

In Re Estate of Fenimore

Procedural History:

• The court concludes that a partnership did exist between Audrey Serge and Donald Fenimore as of November 6, 1989.

Facts:

• Donald Fenimore is insolvent and creditors are seeking to recover money owed.
• Mrs. Serge is also seeking to recover $20,000 from Fenimore contending that she is also a creditor.
• The story of Mrs. Serge
  • Donald Fenimore asked for money from her to get him out of some problems.
  • She therefore mortgaged the home she owed nothing on and lent him the money and most of her income now goes towards her mortgage.
  • She paid him mostly in cash except on one occasion wrote him a check for $10,000.
  • Mrs. Serge had Mr. Fenimore sign an agreement dated November 6, 1989 memorializing their agreement.
  • Villabona, the name given to the other creditors as a whole, argues that if the 1989 agreement is indicative of anything, it is a partnership between Mrs. Serge and Mr. Fenimore.
    • The agreement states that she advanced the money to Mr. Fenimore.
    • She is not described as lending him money, but in fact advancing it.

Issue:

• Was the relationship between Mrs. Serge and Mr. Fenimore in fact a partnership?

Holding:

• Yes.

Reasoning:

• “In determining whether a partnership exists, the following rules apply:
  • Refer to page 59.
  • In November 1989, the document clearly provides for a division of profits and a division of responsibility for debts.
  • Therefore, the language of the document compared to the statute would show that a partnership actually existed.
  • The court has taken the view that it is not essential to the existence of a partnership that all partners have the right to make decisions and a duty to share liabilities on dissolution, but at least one of the above factors must be present and there must also be an intent to share profits.
  • The existence of a partnership must be shown by a preponderance of the evidence.
  • There is a written declaration of the intent of the parties and specifically calls for the sharing of profits.
  • The money therefore referred to in the 1989 agreement amounts to an investment in the partnership.
    • Not a loan.

Corporations

Brief

Miller v. McDonald’s Corporation

Procedural History:

• Trial court granted summary judgment to defendant on the ground that it did not own or operate the restaurant.
• Appealed.
• Reversed.

Facts:

• 3K owned and operated a restaurant under a License Agreement with defendant that required it to operate in a manner consistent with the “McDonalds System”.
• Manuals supplied to the franchisee detailed information relating to operation of the restaurant.
• 3K had to follow the defendants specifications and blueprints for the equipment and layout of the restaurant.
• 3K was not allowed to make any changes to the basic design of the building without first getting the consent of the defendant.
• Defendant periodically sent field consultants to the restaurant to inspect the operations and make sure there was conformity.
• Failure to comply could result in a loss of the franchise.
• However, the agree provided that 3K was not an agent.
• Plaintiff went to the restaurant and bit into a Big Mac which contained a gem and thus caused injury.

Issue:

• Whether there is evidence that would permit a jury to find the defendant vicariously liable for those injuries because of its relationship with 3K?

Holding:

• Yes. Vicariously liable.

Reasoning:

• Plaintiff asserts two theories: Actual or apparent agency.
• Actual Authority analysis:
  • Court uses the right to control test.
  • Wood v. Shell Oil Co.
    • The court held not actual agency because it did not control how the dealer complied with the requirements.
• Billops v. Magness Const.
  • Court held that this was an example of actual agency because the franchisor retained a certain amount of control over the details of the franchisees performance.
• This court analogized this case to that of Billops.
• The court felt that a jury would find sufficient control over 3K’s daily operations that an actual agency relationship existed.
• The key reason being that the defendant would regularly send inspectors and by its retained power to cancel the agreement.
• Apparent Agency Analysis:
  • One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such. 2^nd Restatement 267.
  • Everything about the appearance and operation of the Tigard McDonalds identified it with defendant.
  • The possible existence of a sign identifying 3K as the operator does not alter the conclusion that there is an issue of apparent agency for the jury.
  • Plaintiff relied on the general reputation of McDonalds in patronizing the Tigard restaurant and in her expectation of the quality of the food and service that she would receive.

Corporations

Brief

Hayes v. National Service Industries

Procedural History:

• District Court overruled Hayes’ objections, and adopted the report and recommendation of the Judge, agreeing that Rogers had apparent, if not actual authority to settle Hayes’ claim.
• Appealed.
• Affirmed.

Facts:

• Hayes sued National Service Industries alleging wrongful discharge as a sales representative.
• The attorneys for the two sides settled the case.
• Plaintiff then contends that she did not consent to her attorney Rogers settling the case.
• Hayes filed the objections claiming that she did not give Rogers the authority to settle the case on her behalf.

Issue:

• Did the attorney have actual or apparent authority to settle the case on behalf of his client?

Holding:

• Yes.

Reasoning:

• An attorney of record is the clients agent in pursuing a cause of action and under Georgia law, “an act of an agent within the scope of his apparent authority binds the principle.”
• Hayes’ attorney spoke with counsel for Nation and expressly told Morgan that he had authority from Hayes to settle the case for %15,000.
• According to Georgia law, an attorney has the apparent authority to enter into a binding agreement on behalf of a client and such agreement is enforceable against the client.

Corporations

Brief

Hunting v. Elders

Procedural History:

• Trial court ruled against Gordon and Elmyer Enterprises ($1.5 million) in first phase.
• Second phase resulted in holding that Elders was the alter ego of Elmyer Enterprises and thereby holding him personally liable for $1.5 million.
• Appealed.
• Affirmed.

Facts:

• Gordon was intoxicated at a bar which was operated by Elmyer Enterprises.
• Gordon was served alcohol by the bar even though he was obviously intoxicated.
• Upon leaving the bar he caused an accident that left Hitchcock permanently brain damaged.
• A subsequent non-jury trial was held on whether to pierce the corporate veil of Elmyer Enterprises and hold Elders liable for the judgment as the alter ego.
• Facts relating to Elders:
  • 1990-opened two bars on his property.
  • Liquor licenses originally held in his own name.
  • 1993-Reinstates Elmyer Enterprises for the purpose of operating the bars.
  • Each bar capitalized with $1000.
  • Even the equipment used at the bars was leased to Elmyer Enterprises by other companies owned by Elders.
  • 1993- Elders transferred several shares of stock to his wife and neice.
    • Niece testifies she was unaware of this.
    • Waring-Woods, a forensic accountant, testified at trial that funds were siphoned by Elders.
      • $400-$800k.
      • John Freeman also testified that the company was run as façade (Frontage).

Issue:

• Whether the corporate veil can be pierced to hold Elders liable for the judgment rendered?

Holding:

• Yes.

Reasoning:

• The South Carolina Supreme Court has ruled that the corporate entity may be disregarded in certain situations.
• It is the party which is trying to pierce the corporate veil that has the burden of proof.
• Sturkie 2 Part Test in determining whether the corporate veil can be pierced:
  • Part 1: Eight Factor Test looking at the corporate formalities by the dominate share holder.
    • Corporation lacked normal business records.
    • False records indicating that his niece attended meetings.
    • Non-payment of dividends (However, this requirement holds less weight).
    • The corporation was grossly undercapitalized.
    • Minimally capitalized to begin with and never properly capitalized as the corporation made money.
    • Court found this prong to be satisfied.
• Part 2: There must be an alement of injustice or fundamental unfairness if the acts of the corporation be not regarded as the acts of the individuals.
  • 1. Defendant must be aware of the plaintiffs claims against the corporation.
  • AND
  • 2. Thereafter, the defendant acted in a self serving manner with regard to the property of the corporation and in disregard of the plaintiffs claim in the property.
  • Court found that Elders knew of the claim and continued to act in self-interest.
  • Court also found elders to be liable for the interest accrued on the judgment. e