Agency and Partnerships Flashcards
Requirements for an agency relationship
(1) consent by both the principal and the agent that the agent will act for the principal’s benefit and (2) that the agent is subject to the principal’s control.
Note: authority to act for the principal can terminate in several ways, including the principal manifesting a desire to the agent to discontinue the relationship
Actual Authority types and its termination
Actual authority: Actual authority can be express, where the agent is expressly given authority to act for the principal. It can also be implied.
Implied authority is present when the principal’s conduct leads the agent to believe it has authority. This authority can be implied by custom, past course of conduct by the principal, necessity, or an emergency circumstance.
This authority terminates after a reasonable time or following a change in circumstances, death, or incapacity of the principal, etc.
Apparent authority
Apparent authority: the elements of apparent authority are as follows: (1) the person dealing with the agent must do so with a reasonable belief in the agent’s authority and (2) the belief must be generated by some act or neglect on the part of the principal
Ratification
even if the agent did not have authority to enter into a transaction, the principal can ratify the acts (and thus become liable) by expressly or impliedly affirming or accepting the benefit of the acts, so long as the principal knew the material facts and had capacity.
Agent’s liability to 3rd party when no actual or apparent authority:
Agent’s liability if principal undisclosed or partially disclosed to 3rd party:
The agent is bound to a third party on a contract he enters into with the third party if the agent had no actual or apparent authority to enter into the contract.
The agent is also liable if the principal is undisclosed (i.e., the third party does not know the agent is acting on another’s behalf) or if the principal is “partially disclosed” (i.e., the third party knows the agent is acting on behalf of another but does not know the identity of the principal). The agent is bound to the principal for breach of contract if the agent acts beyond his authority.
Vicarious liability of employer (respondeat superior):
The employer is liable in tort for the acts of an agent or employee if the agent or employee (mnemonic=SMI)
was acting in the scope of employment;
§ made a minor deviation (a detour)from employment(rather than a frolic);or
§ committed an intentional tort only if it was (mnemonic=BAN) for the principal’s BENEFIT,
because the principal AUTHORIZED it, or one that arose NATURALLY due to the nature of employment. The agent is liable too under a theory of joint and several liability.
indemnification
Indemnification: the principal can recover against the agent for indemnification if the agent acts beyond his authority.
Direct liability of principal: (control of employee)
the principal is directly liable for his own negligence if he negligently hired the agent, failed to fire the agent, or failed to properly supervise the agent
Agent’s Duties to Principal
The agent owes a duty of care and a duty of loyalty (not to engage in self-dealing, not to profit without disclosure, and a duty to follow instructions).
The principal may recover losses from and profits made by the breaching agent
Define Partnership and explain Formation
“A partnership is ‘the association of two or more persons to carry on as co-owners, a business for profit . . . whether or not the persons intended to form the partnership.’
Profit sharing = presumption: Profit sharing creates a presumption that a person is a partner unless the profits were received in payment of a debt, rent to a landlord, wages, etc.
Other indicia of a partnership include capital contributions and mutual agency. Neither a writing nor a certificate needs to be filed for a general partnership to be formed. Note that a general partnership is the default form; sometimes a general partnership is formed because a limited partnership was improperly formed (e.g., the paperwork was not filed correctly).
Note: A partner is not entitled to separate payment for services because a partner is compensted by the profits. (There are some exceptions—e.g., if agreed-upon, or a partner may be reimbursed reasonable compensation if it assists in winding up the business of the partnership
Partners as agents of the partnership
partners are agents and co-managers of the partnership.
• Partners have equal rights to co-manage ordinary affairs (e.g., signing a lease) (even if profits are not
shared equally). A majority vote wins if there’s disagreement.
• Extraordinary matters requires a unanimous vote (e.g., admitting a new partner or selling land).
Partners Personal Liability
in a general partnership, partners are jointly and severally liable for partnership debts.
• An incoming partner is not personally liable for prior debts of the partnership (although his capital contributions can be used to satisfy such debts). Outgoing partners are personally liable for debts
incurred during their time at the partnership
Partners Duties
Partners are in a fiduciary relationship with one another and must act in good faith. They are charged with the duty of loyalty (i.e., they may not usurp corporate opportunities for a personal advantage, engage in self-dealing, or compete with the partnership), the duty of care, and the duty to account (they must account for any profits).
Partnership Dissolution and steps
dissolution does not end a partnership—it ends once winding up is complete.
Step one—dissociation: The dissolution of a partnership is the change in the relation of the partners.
Prior creditors are entitled to personal notice of the dissolution of the partnership. Others who knew of
the partnership are entitled to newspaper notice. Note that a partner can withdraw from a partnership
by giving notice at any time. This will trigger dissolution in an at will partnership.
Step two—winding up: This is where partnership assets are liquidated and creditors are paid. Note that
partners are still liable for any liabilities that occur during the winding up phase.
Step three—termination: this is the true end of the partnership
Creditor’s claim against a partner
If a creditor has a claim against a partner, the creditor can obtain an interest in the partnership.
This includes profits but not management or voting rights. If a creditor has a claim against the partnership, the creditor can try to collect from the individual partners.
