Agency and Partnership

Question 1

An agency is a

Answer 1

fiduciary relationship that arises when one person (the “principal”) appoints another (the “agent”) to act on the principal’s behalf and the agent consents to act.

Question 2

Formation of an agency relationship

Answer 2

1) consent of both principal and agent
2) Principal has contractual capacity

Question 3

Agent’s duties to principal

Answer 3

• Duty of care - agent owes a duty to their principal to carry out their agency with reasonable care
• Duty of loyalty - no self dealing
• Duty of obedience- An agent must obey all reasonable directions of their principal.

Question 4

Duties of Principal to Agent

Answer 4

The principal is NOT a fiduciary of the agent
all of the duties imposed by their contract, reasonable compensation, cooperation and reimbursement for expenses/ indemnification.

Question 5

actual authority

Answer 5

Principal’s words or conduct (manifestations) lead the agent to reasonably believe that they have authority to bind the principal

Actual authority may be express (e.g., oral or written statements, including provisions in the company’s organizational documents) or implied (e.g., inferred from words used, from custom or from the relations between the parties)

Question 6

common types of implied actual authority

Answer 6

• incidental authority- agent can do things that are necessarily implied from expressly authorized authority
• title or postiion
• arising out of custom
• prior ac1uiesance by principal
• delegate authority for ministerial acts

Question 7

Termination of actual authority

Answer 7

• condition in agreement
• Lapse of a reasonable time
• Agent breaches fiduciary duty
• Either party’s unilateral termination
• Operation of law (death of principal + agent had received notice, death of agent, loss of capacity)

Question 8

are agencies revocable?

Answer 8

YES

unless Irrevocable agencies- agency coupled with an interest or given as a security cannot be unilaterally terminated if agency was given to protect the agent’s rights and it is supported by consideration

Question 9

agent by estoppel

Answer 9

Where the principal negligently permits an impostor to be in a position to appear to have agency authority, the principal will be held liable for the impostor’s actions undertaken with such authority

Question 10

Apparent authority may be established through

Answer 10

• agent’s title or position
• Imposters (estoppel)
• Principal makes a knowing omission despite agent’s holding out as their agent
• Lingering apparent authority- Where an agent’s actual authority has terminated, he will have apparent authority to act on the principal’s behalf as to all third parties with whom the principal knows he dealt unless and until the third parties receive notice of the termination.
• Death or Incompetency - The majority view is that death or incompetency of the principal does not automatically terminate the agent’s apparent authority.

Question 11

Ratification

Answer 11

Ratification- if agent purports to act on behalf of a principal without any authority to do so, but the principal subsequently ratifies the contract, the principal is bound

Ratification may be express (oral or written) or implied (ex: “principal” accepts the benefits of the contract, silence if there is a duty to disaffirm, or suing on the transaction)

requirements
* 1) P must have knowledge (or reason to know) of material facts of contract
* 2) P must accept the entire transaction
* 3) P must have contractual capacity
* 4) Principal must have been either a known principal (identity of P was disclosed to the other party to the contract) or unidentified principal (existence of the principal is known, but the principal’s identity is withheld)

Question 12

Who is bound by Contract entered into by Agent?

Answer 12

Principal is liable to third parties if agent had actual or apparent authority or ratified

agent is liable if lacked authority to enter into contract
* There is an implied warranty of authority when agent makes contract, so if agent lacked authority to enter the contract, implied warranty of authority is breached → agent is liable to third party

Agent is NOT liable if had apparent, actual or ratified authority
* Exception: the agent may be held personally liable if the existence and identity of the principal were not disclosed.

Liability of the third party
* If disclosed principal, only the principal may enforce the contract
* If undisclosed or unidentified then either the agent or the principal can enforce

Question 13

Respondeat superior

Answer 13

An employer is vicariously liable for the unintentional torts of an employee committed within the scope of employment

Question 14

Is the agent an employee or independent contractor?

Answer 14

Test: does the principal have a right to control the manner in which the employee preforms the service?

• degree of skill required on the job (where great skill is required, more likely to be independent contractor)
• Whose tools and facilities
• period of employment
• basis of compensation
• Whether the person has a distinct business
• The characterization and understanding of the parties

The customs of the locality regarding supervision of work

Question 15

Employer is not liable for intentional torts of employees unless

Answer 15

• Authorized
• motivated to serve the employer; or
• nature of the work gives rise to hostilities/ friction

Also, a principal is liable for an agent’s misrepresentations (including intentional misrepresentation) if the agent had actual, apparent, or inherent authority to make statements concerning the subject matter involved.

Question 16

is principal vicariously liable for Indpendant contractor’s torts?

Answer 16

NO, unless
* (1) inherently dangerous activities (such as blasting) are involved, or
* (2) non-delegable duties have been delegated (buisness premisis exception)

would be liable for own torts of negligent hiring or nrgligent entrustment

Question 17

Agency contract and tort liability summary

Answer 17

Contract - Did the agent have actual or apparent authority at the time of the contract, or did the principal ratify the contract later?
* If so, the principal is liable on the contract (the agent is not unless principal was unidentified or undisclosed)

Tort - Was the tort committed by an employee in the scope of employment?
* If so, the employer (master) and employee (servant) are jointly and severally liable to the third party
* no Vicarious liability for independant contractors unless exception applies (abnormally dangerous or non-delagable duty), but still liable for own torts (negligent hiring or entrustement)

Question 18

General Partnership

Answer 18

association of two or more persons to carry on as co-owners of a business for profit, have not filed with the state to alter the business organization

only need intent to run a buisness as co-owners, dont need intent to form partnership

Person can be an individual, trust, corporation, partnership, or other entity.

Question 19

presumption of general partnership
and other evi

Answer 19

Profit sharing raises a rebuttable presumption of partnership

other evi of general partnership
* Sharing of the losses
* Both had right to participate in control
* Gross revenue sharing is evidence,

Question 20

Partnership by estoppel

Answer 20

When a person by words or conduct represents himself (holds out) as a partner or consents to being represented by another as a partner, he will be liable to third parties who extend credit to the partnership in reliance on the representation and hereby makes that person his agent to bind him to third parties.
* but Someone else unilaterally holding you out of their partner doesn’t make you a partner, no duty to deny

Question 21

management of general partnership

Answer 21

all partners have equal rights in the management of the business

voting
* one partner, one vote- partners have equal votes
* Decisions within the ordinary course of business→ only need majority vote
* NOT within the ordinary course of business → unanimous vote required

No right to salary or compensation (unless otherwise agreed)

Right to indemnification for payments made while carrying on partnership’s buisness

right to contribution

right to inspect books

Question 22

sharing of profits and losses

Answer 22

Unless otherwise agreed, profits are shared equally among the partners (by number).

Unless otherwise agreed, losses are shared in the same manner as profits.

Question 23

liability of the partnership

Answer 23

each partner is an agent of the partnership for the purpose of its business
–> Partnership is liable for torts of partners committed in the ordinary course of business or with authority of the partnership
–> a partnership is liable for all contracts entered into by a partner in the scope of partnership business or with actual or apparent authority of the partnership.

Question 24

partner’s actual authority vs apparent authority

Answer 24

Actual authority can come from the partnership agreement or a vote of the partners

partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business or business of the kind carried out by the partnership

Question 25

liability of indv. partners

Answer 25

each partner is jointly and severally liable for all obligations of the partnership (get infrmnifcation if i pay more than my fair share)
But the plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets.

An outgoing or dissociated partner remains liable for obligations arising while they were a partner unless there has been payment, release, or novation

new partner isnt liable for old debts

Question 26

fiduciary duties of partners

Answer 26

• Duty of Loyalty - no self dealing, duty to put partnership ahead of own interests and up-most fairness (generally same rules as corporations)
• Duty of care- The duty of care requires each partner to refrain from engaging in grossly negligent, reckless, intentional, knowing misconduct or violation of law. NO breach for ordinary negligence
• Duty of Obedience -requires the partner to obey all reasonable directions of the partnership and not act outside the scope of his or her authority.
• Duty of Disclosure (statutory)
  RUPA requires each partner to provide without demand info concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties

Question 27

who owns partnership property?

Answer 27

property is rebuttably presumed to be partnership property if it was purchased with partnership funds, regardless of in whose name title is held.

Untitled property - factors considered: purchased with partnership funds, on the partnership’s books, used for partnership purpose, close relationship between business and the property, etc

Partner is NOT a co-owner of partnership’s property, a partner has no right to use partnership property other than for the benefit of the partnership.

Question 28

partnership interest

Answer 28

A partnership interest is comprised of
* (1) management rights (that is, a partner’s right to participate in the management of the business) and
* (2) financial rights (that is, the partner’s right to receive his share of any profit distributions made by the partnership).

Unless otherwise agreed, a partner cannot unilaterally transfer his management rights

Unless otherwise agreed, a partner can unilaterally transfer his financial rights.

Question 29

disassociation

Answer 29

Dissociation- partner ceasing to be associated in the carrying on of the business.

Question 30

“at-will partnership”

Answer 30

“at-will partnership” = partners have NOT agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking

When a partner in an at will partnership dissociates by express will → dissolution

Question 31

for term partnership

Answer 31

“term partnership” = partners have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of a particular undertaking.
* if wrongful dissassociation before term then partner is liable for breach

When a partner in a term partnership disassociates wrongfully, dies, or becomes bankrupt → dissolved if w/in 90 days at least half of the remaining partners wish to dissolve

Question 32

Liability of the dissociated partner

Answer 32

A dissociated partner remains liable for partnership obligations from before dissociation

A dissociated partner can be liable for partnership liabilities AFTER dissassociation if
* 1) incurred within two years after the dissociation
* (2) when entering the transaction the other party reasonably believed the dissociated partner was still a partner, and
* (3) did not have notice of the partner’s dissociation.

Disassociating partner can avoid by notifying creditors (effective immediately) or by filing a public notice of dissociation (becomes effective 90 days after filing)

Question 33

Dissociated Partner’s Power to Bind Partnership

(Apparent Authority of Dissociated Partner)

Answer 33

A partnership can be bound by an act of a dissociated partner when
* 1) undertaken within two years after dissociation
* 2) the act would have bound the partnership before dissociation, and
* 3) the other party to the transaction (a) reasonably believed the dissociated partner was still a partner and (b) did not have notice of the dissociation

Can cut off by notifying creditors or public statement of dissociation (effective 90 days after)

Question 34

Limited Partnership (LP)

Answer 34

a partnership with two classes of partners, at least one general partner and at least one limited partner
* MUST file with the STATE to form

Management
* LP is managed by the general partner(s).
* BUT the vote of all partners (general and limited) is necessary for certain extraordinary activities:
* A general partner owes the LP and the other partners the same fiduciary duties

Fiduciary duties:
* Generally, a limited partner owes no fiduciary duty to the partnership
* distributions from an LP are made on the basis of the partners’ contributions (not equal like is presumed in GP)

Liability- General partners are jointly and severally liable for all obligations of the LP, just as they are in a general partnership BUT A limited partner is NOT personally liable for an obligation of the LP

Question 35

Limited Liability Partnership (LLP)

Answer 35

all partners are not personally liable for the LLP’s obligations
* MUST file with the STATE to form

Question 36

Limited Liability Companies

Answer 36

pass through taxation + all members (owners of LLC) get limited liability

MUST file with the STATE to form

profits and losses and distributions are allocated on the basis of contributions.
* unlike GP

Management
* can be run like either a corporation or a partnership
* Member managed LLC is presumed
* BUT other management arrangements can be made in the operating agreement
* Majority vote for ordinary bus decisions, unanimous for extraordinary

Members owe fid duties of care and loyalty

Disclosure - if member managed Partnership rule (info required without demand), if manager-managed LLC then apply rule for corp. Shareholders

generally the best vehicles for closely held businesses.

Question 37

pick your partner rule

Answer 37

a partner can only be added by unanimous vote of partners

(this is why management rights are not unilaterally transferable)

Question 38

Apparent Authority

in partnership

Answer 38

Apparent authority is the authority that a third party would reasonable believe the agent had based on the principal’s communications with the third party

Under the RUPA, a partner has the apparent authority if the act appeared to be within the ordinary course of buisness of the partnership.
* unless the partner had no actual authority and the 3rd party knew or had notice

Question 39

A partner is ____ of the partnership

Answer 39

agent

Question 40

When partnership is dissolved how are debts/ assets paid

How should the partnership’s debt be allocated?

Answer 40

1) creditors (including partners who are creditors)
2) then partners in settment of their seperate accounts and capital contributions

lossess are shared same as profits, and profits are presumed to be shared equally absent agreement.