Agency and Partnership Flashcards
requirements for an agency relationship- ie how to determine if an agency relationship exists
1) CONSENT by both the principal and the agent that the agent will act for the principal’s behalf
2) that the agent is subject to the principal’s CONTROL
An agency relationship is created when:
i) A principal manifests assent to an agent;
ii) The agent acts on the principal’s behalf;
iii) The agent’s actions are subject to the principal’s control; and
iv) The agent manifests assent or otherwise consents
When is the principal bound on a contract entered into by an agent
A principal is bound on a contract entered into by an agent if the agent had AUTHORITY to enter the contract.
Actual Authority can be express or implied. Authority can also be apparent
What is express actual authority
Agent is expressly given authority to act for the principal
What is implied actual authority
Implied actual authority is present when the principal’s CONDUCT leads the AGENT to believe it has authority. This can be implied by custom, past course of conduct, necessity, or emergency circumstance
- what the agent reasonably believes they can do.
What is apparent authority
1) the person dealing with the agent must do so with a reasonable belief int he agent’s authority
2) the belief must be generated by some act or neglect on the part of the principal
based on PRINCIPAL’S CONDUCT OR COMMENTS WITH A THIRD PARTY
=if the third party reasonably believes the agent has authority to act based on P’s conduct then the agent will have power to bind the principal.
What is ratification
Even if the agent did not have authority to enter a transaction, the principal can ratify the acts by expressly or impliedly affirming or accepting the benefit of the acts so long as the principal knew the material facts and had capacity.
Do partners in a general partnership or member in an LLC have actual and apparent authority to bind the other partners in contracts
YES
if the principal is undisclosed (unknown to third party) can there be apparent authority
NO. b/c apparent authority requires communication between principal and third party
When is the AGENT liable to a third party on a contract?
if the agent had no apparent or actual authority to enter the contract OR if the principal is undisclosed or if the agent acts beyond his authority
Can a principal be vicariously or directly liable for the torts committed by his agent
Yes- under vicarious liability of employer- employer is liable for torts of agent or employee if
- acting in scope of employment
-made a minor deviation (detour) from employment not a frolic
-committed an intentional tort only for P’s benefit or b/c P authorized it.
Is agent liable for own torts committed in course of employment
Yes
what is indemnification
The principal can recover against the Agent if the the agent acts beyond his authority
How can a principal terminate the agency relationship
-for actual authority- can just tell agent authority is revoked
-for apparent authority- use tell 3rd p that authority is revoked
Key duties an agent owes to principal or partners owe to the partnership
- duty of care- act as reasonable partner, no negligent conduct, no intentional misconduct
- duty of loyalty- no self-dealing, usurping, no competing with principal or partnership
How do you form a partnership
A partnership is the association of two or more persons to carry on as CO-OWNERS in a FOR PROFIT business WHETHER OR NOT THE PERSONS INTENDED TO FORM THE PARTNERSHIP.
- no writing or certificate necessary. General partnership is default form. No need for Intent to form a partnership
Profit sharing–> presumption of partnership
If two people are sharing profit from a business they own together what is it
A partnership
In a partnership, what is the liability of the partners
Each partner is jointly and severally liable for the partnership debts.
What duties do partners have
Partners have fiduciary duties-
duty of care
duty of loyalty- usurping partnership opportunity
and duty to account for any profits
How to end a partnership
step 1) dissolution. changes relationship of partners, gives notice to creditors
Step 2) winding up- assets liquidated, creditors paid. Partners still liable for any liabilities incurred during this phase
Step 3) termination
If a creditor has a claim against a partner, can they obtain an interest in partnership
Yes- including profits but not management or voting rights
If a creditor has a claim against PARTNERSHP, how can they collect
Against individual partners0 b/c of joint and several liability. Creditors should try to collect from partnership before seeking partners’ personal assets
How do you for an LLP or LP
must file certificate with the state. Those have limited liability.
LLP- no partner is liable for obligations of partnership
LP- have general partners- with liability for all partnership obligations and have limited partners- with limited liability
what are the three types of authority
Express actual
implied actual
apparent
what is the principal of estoppel in regards to agents?
Principal can’t deny existence of agency relationship or agent’s authority when third party believed the transaction entered was for the principal and the principal either intentionally or carelessly caused the belief or having notice of the belief, failed to take reasonable steps to notify 3rd p of facts.
Can a partner transfer distributions to third party
Yes, and then that third party does NOT become a partner.
a partner is a ____ of the partnership
agent
if paperwork is not filed properly for LLP, what happens
It becomes a general partnership
Can a partner use partnership property for their own use
Property is partnership property if it is acquired in the name of the partnership. It is property of the partnership and not of the partners individually. A partner may use or possess partnership property ONLY for the BENEFIT OF THE PARTNERSHIP
Can a partner transfer their right to receive profits from the partnership to a third party
Yes, someone else can get their profits. It does NOT make the third party a partner
If someone loans you money, does that create a partnership
NO- a partnership does not exist between persons when one person receives profits for the payment of a debt or loan
if agent is acting for his own benefit in course of employment by principal was it that a violation of?
Duty of loyalty. Money made while working for self when should be working for principal–> all money goes to principal
frolic vs detour
Frolic is long departure from scope of employment, for employee’s own benefit… Detour is minor departure for scope of employment.
Note, if frolic is over and back on the job, you are still liable.
typical AGENTS on MEE
partners in a partnership, employees, corporate officers of a corporation
Note- independent contractors are NOT agents- so look at facts to determine if person is an independent contractor
Apparent authority rests on …
REASONABLE BELIEF of the third party-
look at past dealings b/ principal and 3rd p
trade customs, industry standards,
If the agent makes a contract without disclosing the principal/owner…
A principal is an undisclosed principal if the third party has no notice of the principal’s existence. An agent who enters into a contract on behalf of an undisclosed principal becomes a party to the contract and LIABLE to the contract
if the agent partially discloses the principal when making a contract…
A principal is a partially disclosed principal if the third party has notice of the principal’s existence but not the principal’s identity. an agent who enters into a contract on behalf of a partially disclosed principal becomes a party to the contract- and thus liable on the contract!!
employee vs independent contractor determination
- is the person’s conduct subject to the employer’s control. Look at skills required to perform the work, who is supplying the car/van/supplies, duration of relationship, pay- regular pay vs just per job
what is indemnification and how would it come up
If the driver in course of his employment is negligent and his negligence subjects employer to liability, person sues the employer- employer can go after driver and get money from him for damages (= full reimbursement for damages)
eWhen is an employer responsible for employee’s tortious conduct
If the employee was acting in scope of employment
(1) it is of the kind of work that the employee is employed to perform;
(2) during work time
(3) for employers benefit at least in part
doing work subject to employer’s control
when can a partner withdraw from a partnership
A partner has the power to dissociate from the partnership at any time, even if the dissociation is wrongful. a partner’s dissociation is wrongful only when it is in breach of an express provision of the partnership agreement.
can one partner make a decision/ purchase that binds other partnership without their approval
if the purchase is for something outside the scope of their business (i.e a garbage truck service suddenly selling land they own) then consent/ approval of all partners are needed.
For all other purchases, run through how the partner has actual, implied or apparent authority and yes, a partner is joint and severally liable for any purchases.
Can a partner make a loan without consent of other partners, and then get reimbursed for a down payment?
YES partner may make a loan in furtherance of the ordinary business of the partnership or to preserve the partnership’s business or property. The partnership is required to repay the loan or reimburse the partner for the downpayment, including interest from the date of the loan or advance.
If agent acts properly with express authority but DOES NOT disclose the identity of their principal…
Then the agent is still liable (along with the principal_ but the other party can only recover from one of them
acting individually, a partner has actual authority to commit the partnership to purchases made in the ordinary course of business unless the partner…
has reason to know the other partners may not want the purchase
Can a leaving partner get a buyout of their share of the partnership
when a partner leaves but the partnership between other partners remains, the leaving partner has to file an action against the partnership to determine buyout price and compel buyout. action must be filed within 120 days of the partnership tendering payment or an offer to pay
if an agent enters a contract on behalf of a KNOWN principal and the agent has apparent authority, can the agent be held liable
NO
if a partner WRONGFULLY dissociates from a partnership
They are liable to the partnership and partners for any damages caused by the wrongful dissociation. They also can not participate in management decisions or the winding up process.
Buyout of wrongfully dissociated partners would wait till the end of the term or completion of undertaking unless leaving partner could prove early buyout was not unnecessarily burdensome to the partnership.
if partner dissociates from a partnership (not wrongfully)
- the partnership could continue if all members (including the dissociating one) vote to carry on.- i.e remaining members could outvote the leaving member to carry on the partnership
-dissociating partner can continue to act in management
- all partners would be responsible/liable for acts of any other partners during the winding up process-
if a partner joins a partnership are they responsible for claims that happened before they became a partner
No- A person admitted as a partner into an existing partnership is not personally liable for any prior partnership obligations. BUT their capital contribution when joining the partnership could be used to satisfy the prior claims. BUT their personal assets are NOT ACCESSIBLE to meet prior claims
