Agency Flashcards
when does the principal become liable t the third party b/c of the actions of the agent? (2)
- the agent and the principal both consent
2. the agent is subject to the principal’s control
In an agent/principal relationship, who has to have capacity to contract?
the principal must have contractual capacity b/c the contract is really between him and the third party
agent does not have to have capacity to contract b/c he is just an intermediary
Does agency law req a contract to be in writing?
no, agency law doesn’t req one in particular
but SoF may apply (can’t be completed in a year, for real estate)
Is consideration required for an agency contract?
nope. not req
What kid of authority does the agent have to have at the time of the contract to be able to bind the principal to the contract?
(2 kinds)
Agent must have actual authority. either:
Express Actual Authority: principal tells agent to act on his behalf
Implied Actual Authority: endorsing agent’s behavior or prior acts so it leads a reasonable 3rd party to think it’s ok
Ways Actual Authority can terminate
- after a specified time/event
- change in circumstances (ex: sold the house)
- if agent acquires adverse interest
- when agent says so
- when principal says so (unless the agency has become coupled with an interest so it’s irrevocable)
- by death, incapacity, bankruptcy (unless coupled with interest to make it irrevocable
Agency Coupled with Interest
makes the agency irrevocable
not just saying that it’s irrevocable in the contract between agency and principle but the agency is created for the agents benefit
BUT a fee or commission is not considered an interest in agency
Is it ok if the agent delegates?
yes if the principal consents (express or implied
apparent authority
substitute for actual authority
when the principal leads a third party to mistakenly believe the agent has authority.
equitable doctrine to protect the innocent third party who has relied on P holding A out as agent
Key: reasonable belief must have been created by the P and not the A alone
how do you destroy apparent authority?
it can linger after actual authority ends so you have to go tell every third party who might believe he’s an agent
Ratification (3 ways)
3 req
even if agent had no authority to bind the P the P can bind the contract by
- expressly affirming
- accepting benefits
- suing the third party on it
requirements
- knowledge: P must have knowledge of all material facts
- all or nothing: must ratify it all
- capacity: P still must have had capacity at the time of ratification
Intervening Rights and Ratification
since ratification would be retroactive, protect the intervening rights of a BFP
Adoption of Contract
the P ca adopt the contract. it’s only forward looking, not retroactive like ratification
ex: a corp can’t ratify contracts made before it was formed, but it can adopt them
Since Agency if fiduciary relationship, what duties does A owe P?
what does the P owe the A?
- -duty of loyalty (put P’s interest above her own)
- -duty of care: sliding scale depending on any special skills A may have
- -Obedience
P to A:
- -pay him (unless it a gratuitous agency)
- -reimburse
- -indemnify
What is the Principal/Third Party Relationship?
assuming that the agent had actual authority or substitute
the principal is liable to the third party
the third party is nearly always liable to P
–not if agent has special skill and the P is undisclosed
(celebrity chef acting as agent for unknown chef ex)
what is the third party/agent relationship?
generally no liability since Agent is just a go between
unless the agent has an interest in the agency (typically no)
Tort Liability while in Agency
was the tort committed by a servant acting within the scope of his employment?
–if yes, the master and servant are jointly and severally liable (master can be indemnified)
Servant v. Independent Contract
the P is liable for the acts of the servant but not in the independent contractor
Scope of Employment and Tort Liability
detour v. frolic
Master is not automatically liable for all of the servant’s tort actions–only while acting in scope of employment
Detour: minor deviation is usually w/in the scope
Frolic: substantial deviation is usually outside the scope
Intentional Torts and Tort Liability with Agency
servant’s intentional torts are outside the scope unless:
–force is used to further the master’s business (bouncer)
–master ratifies the force
–master authorized servant to commit the tort
Releases of Liability
in texas, min rule, if third party releases master from liability servant is not automatically released
borrowed servant doctrine
Ex: F borrows B’s full time gardener and while working in F’s yard he negligently injures a person.
F is liable as the borrow-master if he had a legal right to control the gardener when accident happened
direct liability of Master
master is liable for he own negligence if he fails to properly train/supervise employees or check an employee’s criminal record or job history?
Partnership (in gen)
association of 2 or more ppl to carry on as co-owners as a business for profit, whether they intend to form a partnership or not
Factors for Determining if Someone is a Partner (3)
Capital: contribution not req
Control: right to control may be enough, even if control is never exercised
Sharing Profits: just a factor
NOT: wages, rent, repayment of debt or percentage of gross receipts
Does partnership law req a writing?
partnership law does not req a writing but the statute of frauds might
joint venture
treated like a partnership but it req an express agreement on how losses will be shared
Estoppel
if no partnership was formed, parties may still be liable as if they are partners to protect reasonable reliance by third parties
-must look to se if each creditor relied on the acts/statements
Partnership Interests in Property
when is it presumed partnership property?
when is presumed partners property?
partnership property:
- partnership property if:
1. it is acquired in the partnerships name or
2. if it’s acquired in one partner’s name and it’s apparent from the doc that the partner is acting for partnership
presumed to be partnership’s if partnership funds are used
presumed to be partners if in partners name by partners money and no sign he was acting for partnership
Rights of the Partnership in the Partnership Property
Rights of the Partners in the Partnership Property
rights of partnership totally unrestricted since the property belongs to it
right of the partner is limited to using the property for partnership purposes
- -no personal matters unless partnership consents
- -can’t use it as collateral for personal loans
- -can’t devise the property
- -personal creditors can’t attach to it
Partner’s economic rights in partnership (share of the profits)
transferable?
community property?
it is transferable as any other type of financial asset
the transferee gets the partner’s share of the profits but doesn’t get the partner’s right to be a partner
the partner’s economic rights are community property is acquired during life of community
Default Sharing of Profits and Losses among partners
unless otherwise provided
profits shared equally (not in proportion to contribution)
losses shared in same proportion as profits
Liability to third parties
partners can’t limit the rights of third parties w/o that third party’s consent
so if the partners agree that one partner won’t be liable to third parties, the third party can still hold him liable
–but if he has to pay, he can use the agreement to get indemnity
Does a partner have a right to compensation for running the partnership day to day?
no, unless otherwise agreed, no compensation for running the day to day aspects of the partnership
Right to Indemnification between partners
if one partner has to pay personal money on a partnership debt, the other party is entitled to indemnity with interest
Duties partners owe each other
duty of care
duty of loyalty
duty of good faith
partner’s can’t eliminate these duties, but they can define them in the agreement
Admission of New Partners to the Partnership
new partner liability
unless otherwise agreed
new partner requires unanimous consent
new partner’s liability:
–debts before partner: only lose economic interest in partnership
–debts after partner: fully liable
relationship between partners and third parties
actual authority
apparent authority
it’s agency law: principal/agent
actual authority of partner:
- -partnership agreement or
- -majority vote of partners
- -stat: makes every partner an agent for carrying on business in the usual way
apparent authority:
- -partners’s title
- -prior conduct
ratification and adoption
what is a partner conveys partnership property w/o authority?
partnership can get property back from initial transferee b/c he should have checked on authority
but the partnership can’t get it back from a subsequent BFP b/c he had no reason to check
partner’s liability for partnership’s obligations?
how are the partners liable
partner liable for all of them
joint and severally liable, between partner and partnership and between partners
BUT Plaintiff must first exhaust the partnership resources before going after partner’s personal assets
withdrawal of Partner
event of withdrawal (how)
effect
event of withdrawal
- -notice of express intent to leave
- -occurrence of an agreed upon event
- -partner’s expulsion, death, bankruptcy, incapacity
- -appointment of trustee, receiver, liquidator for partner
- -redemption of a transferee’s interest
effect:
–not a big deal. usually the other partners just buy him out and partnership continues
Liability of Withdrawing Partner
to existing creditors: keep liability unless released by creditors, expressly or implied
to subsequent creditors: liability will exist if they were unaware of withdrawal (so he needs to tell creditors of withdraw)
to other partners: liability if withdrawal was wrongful
- -breach of contract
- -partnership for a particular undertaking and withdrawals before it’s finished
apparent authority of withdrawn partner
partner’s authority to bind the partnership to an innocent third party who didn’t know he had withdrawn
lasts up to 1 year
partner can protect itself by notifying creditor he is gone
when winding up the partnership is required
- -business becomes illegal
- -all assets sold outside the usual course of business
- -judicial decree
- -term is up or undertaking accomplished
- -unanimous consent (or in a partnership at will, majority in interest agree)
partners who have not wrongfully withdrawn may wind up
Distributions of Partners Assets on Winding Up
first: to creditors (includes any partners that are creditors)
second: to partners for their capital accounts
(contributions + profits - losses)
Apparent Authority when Winding Up
bind the partnership to innocent third parties on new business even after req winding up
partnership protects itself by notifying potential creditors
if partnership assets are insufficient to cover liabilities
- -creditors split the assets on a pro rata basis
- -debts/capital contributions are partnership losses, partners bear in same proportion as profit
creditor’s rights:
partnership creditors have priority over partner’s creditors on partnership property, and equal claims on partnerships separate property
LLP
limited liability partnership
no vicarious liability for the partners
–so only the partnership and the tortfeasing partner are liable
same as a general partnership in other ways
LP
Limited partnership
partnership with 1 general partner and 1 limited partners (limited to investment)
benefit:
limited partners can only lose their capital contributions
–except where a limited partner takes part in control
Safe Harbor
when a limited partner can take some actions in the partnership that isn’t considered control
- -employed by partnership
- -advising the general partners
- -guaranteed a note for the LP
- -office or director of the corporate general partner
so control in the partnership (to ruin the limited partner status would be a safe harbor thing plus more)
Reliance Test for Limited Partner
If limited partner’s conduct leads 3rd party to mistakenly but reasonably believe that he is a general partner then he will be treated like one for that 3rd party
Do you have to file an LP?
Yes. if you don’t it will be a general partnership and everyone will be completely liable
limited partner can avoid future liability by filing certificate or withdrawing w/in reasonable time after discovery of not filing
rights/obligations of the limited partner
- -promise to contribute must be singed/in writing to be enforceable
- -may withdraw only if agreement permits
- -liable only for amount contributed
rights/obligations of general partner
just like partnership.
joint/severally liable
LLLP
limited liability limited partnership
shields the limited partners (LP) and the general partners (LLP)
a way for someone to remain a general partner and shield exposure to personal liability
LLC
limited liability companies
no liability for members (other than a tortfeasor)
profits/losses split in proportion to capital contribution (unless otherwise in agreement)
form:
filing certificate of formation with SoS, pay fee
name must have LLC in it
managed like a corp or a partnership
–managers run the LLC unless otherwise provided in certificate
PLLC
professional limited liability company
members and managers must be licensed to render professional services in texas or elsewhere
what are the two best partnership like entities to pick?
LLP and LLC
