Agency and Partnership Flashcards
What is the two part test for whether a principal will be liable for torts committed by his agent?
If (1) there is a principal/agent relationship (ABC) and (2) the tort was committed by the agent within the scope of that relationship.
What does the principal/agent relationship require?
The principal/agent relationship requires:
1) Assent – an informal agreement between the principal (who has capacity) and the agent
2) Benefit – the agent’s conduct must be for the principal’s benefit
3) Control – the principal must have the right to control the agent by having the power to supervise the manner of the agent’s performance
What is the key distinction between an agent and an independent contractor?
There is no right to control an independent contractor because there is no power to supervise the manner of its performance. There can be no vicarious liability for independent contractor’s torts because no control (3d element of relationship fails).
What are the exceptions to the rule that says no vicarious liability for torts of independent contractors?
Inherently Dangerous Activity Exception – if your independent contractor commits a tort while engaged in an IDA, there will be vicarious liability.
Estoppel – if you hold out your independent contractor with the appearance of agency, you will be estopped from denying liability on that ground as well.
Scope of principal/agent relationship factors
(a) Was conduct “of the kind” agent was hired to perform? If within job description, likely inside the scope.
(b) Did the tort occur on the job? Frolic vs. Detour
(c) Did the agent intend to benefit the principal? If the agent even in part intended to benefit the principal by its conduct, this is enough to be inside the scope.
What is the difference between a frolic and a detour?
A frolic is a new, independent journey, therefore outside the scope of the agent/principal relationship. A detour is a mere departure form assigned task, and therefore within the scope of the agency.
When is a principal liable for the intentional torts of the agent (i.e. what are the exceptions to the general rule of no liability)?
Intentional torts are within the scope if the conduct was:
(1) Authorized by the principal;
(2) Natural from the nature of the employment; or
(3) Motivated by a desire to serve the principal
When is a principal liable for the contracts entered by its agent?
ONLY if the principal authorized the agent to enter the contract
Four types of authority
Actual express authority, actual implied authority, apparent authority, and ratification
Actual Express Authority
Principal used words to express authority to agent. Can be oral, even private.
Exception: If the contract itself must be in writing, then the express authority must be in writing as well. Look out for Statute of Frauds issues, especially contracts for sale of land.
What will revoke actual express authority?
Unilateral act of either the principal or the agent, or the death or incapacity of the principal.
Exception: The principal may give the agent a durable power of attorney. Power of attorney is a written expression of authority to enter a transaction. Durable means clear survival language.
Actual Implied Authority
Authority which the principal gives the agent through conduct or circumstance:
(1) Necessity – there is implied authority to do all tasks necessary to accomplish an expressly authorized task
(2) Custom – there is implied authority to do all tasks which, by custom, are performed by persons with the agent’s title or position
(3) Prior acquiescence by the principal – there is implied authority to do all tasks which the agent believes to be authorized from prior acquiescence by the principal
Apparent Authority
Two part test: (1) Principal CLOAKED agent with the appearance of authority, and (2) third party reasonably relies on the appearance of authority.
Ratification
Authority can be granted after the contract has been entered, if:
(1) Principal has knowledge of all material facts regarding the contract, and
(2) Principal accepts its benefits.
Exception: ratification cannot alter the terms of the contract
The Rules of Liability on the Contract for Agents and Principles
General Rule: The principal is liable on its authorized contracts, and therefore as a rule authorized agents are generally not liable on their authorized contracts. Exception: the undisclosed principal – if principal is partially disclosed (only the identity of the principal concealed) or undisclosed (fact of principal concealed), authorized agents may nonetheless be liable at the election of the third party.
What are the duties owed by an agent to a principal in tern for reasonable compensation and reimbursement of expenses?
Duty of care
Duty to obey instructions that are reasonable
Duty of loyalty
What does the duty of loyalty entail in the agent/principal relationship?
The agent may never do any of the following:
- Self dealing (agent cannot receive a benefit to the detriment of the principal
- Usurping the principal’s opportunity, or
- Secret profits: making a profit at the principal’s expense without disclosure
What remedies does a principal have when an agent breaches a duty?
Principal may recover losses that are caused by the breach, and also may disgorge profits made by the breaching agent as well.
What is the definition of a general partnership?
A general partnership is an association of two or more persons who are carrying on as co-owners of a business for profit.
Sharing of profits is key – contribution of money or services in return for a share of profits creates a presumption that a general partnership exists.
What is the consequence of agency principles applying to the partnership?
Partners are agents of the partnership for apparently carrying on usual partnership business. Therefore the general partnership is liable for each partner’s torts in the scope of the partnership business and for each partner’s authorized contracts.
General partner liability to third parties
Each general partner is personally liable for all debts of the partnership and for each co-partner’s torts.
When are incoming partners liable for pre-existing debts of the partnership?
Incoming partners are generally not liable for prior debts. But, any money paid in to the partnership by that incoming partner can be used by the partnership to satisfy the partnership’s prior debts.
When is a dissociating partner liable for the partnership’s subsequent debts?
Dissociating partners retain liability on future debts until notice of their dissociation is given to creditors or until 90 days after filing notice of dissociation with the state.
General partnership liability by estoppel
One who represents to a third party that a general partnership exists will be liable as if a general partnership exists.
What duty does a general partner owe to partnership?
General partners are fiduciaries of each other and the partnership. Therefore, general partners owe to each other and the partnership the duty of loyalty (no self-dealing, usurping partnership opportunities, or take a secret profit at partnership’s expense).
Action for accounting – partnership may recover losses that are caused by the breach and also may disgorge profits made by the breaching partner as well.
Partners’ Rights in Partnership Property and Liquidity
- Specific partnership assets
- Share of profits – personal property owned by individual partners, transferrable to third parties
- Share in management – asset owned by partnership, may not be transferred by individual partners to third parties
Test for determining whether property is partnership property or personal property
The test is whose money was used to buy the property – if partnership $ was used, then partnership property. If individual partner’s $, then personal property.
Absent an agreement, how is a general partnership managed?
Absent an agreement, each partner is entitled to equal control (vote).
Absent an agreement, what are the salaries of general partners?
Absent an agreement, general partners get no salary. Exception: Partners do receive compensation for helping to wind up the business.
Partner’s share of profits and losses
Absent an agreement, profits are shared equally. Absent an agreement, losses are share like profits.
Definition of dissolution of general partnership
In the absence of an agreement that sets forth events of dissolution, a general partnership dissolves upon notice of the express will of any one general partner to dissociate. The real end of the partnership is called termination.
What is “winding up?”
The period between dissolution and termination in which the remaining partners liquidate the partnership’s assets to satisfy the partnership’s creditors.
Priority of distribution
Each level must be fully satisfied before beginning the next level. Order of priority:
First, the partnership must pay all creditors. Creditors include all outside non-partner trade creditors plus all partners who have loaned money to the partnership and have become creditors thereby. Second, the partnership must repay all contributions paid into the partnership by partners. This is money paid in for share of profits. The partnership is now liable to its own partners for the full repayment of their capital contributions. Third, profits, if any are shared equally among partners without an agreement.
