Agency and Partnerships

Question 1

When is the principal liable for his agent’s torts/general partner liable for general partner’s torts?

Answer 1

1) Principal/Agent Relationship (Assent + Benefit + Control); and
2) Within the scope of his duties.

Question 2

When is there Assent + Benefit + Control?

Answer 2

1) Assent - informal agreement
2) Benefit - of principal
3) Control - power to supervise the manner of performance.

Question 3

Are principals liable for sub agents and borrowed agents?

Answer 3

Typically, no because there’s no right to control.

Question 4

When there’s no control, what is the term for the actor?

Answer 4

An independent contractor.

Question 5

What is the general rule for vicarious liability with independent contractors?

Answer 5

There is no vicarious liability for independent contractor’s torts unless the activity is inherently dangerous or due to estoppel (holding out ind. con. as agent).

Question 6

How do we know if the agent’s actions were within the scope of his duties?

Answer 6

1) Conduct “of the kind” hired to do.
2) Tort was done “on the job” or on a “detour” but not when it was on a “frolic”
3) Did agent intend to act for benefit the principal?

Question 7

Is a principal liable for the intentional torts of his agents?

Answer 7

Generally no; however, intentional torts are within the scope of employment if they are (i) authorized by the principal; (ii) natural from the nature of the employment; or (iii) motivated by a desire to serve the principal.

Question 8

When is a principal liable for contracts entered by his agents/or a general partner for a contract entered into by other general partners?

Answer 8

Generally, a principal is liable for only its authorized contracts. Authority may be granted in the following ways:
1) Actual Express Auth. - can be oral except for land, revocable unless durable (requires clear survival language) and narrow.

2) Implied Express Auth. - Implied by necessity, custom, or prior acquiescence.
3) Apparent Authority - Cloaked in appearance of auth + third party reasonably relies.
4) Ratification - Knowledge of material facts + accept benefits + complete ratification

Question 9

When is an agent liable for the contracts he entered into on behalf of the principal?

Answer 9

Generally, an agent is not liable for authorized contracts on behalf of the principal unless the principal is undisclosed. However, the third party can only recover once from either the principal or the agent.

Question 10

What duties does an agent owe the principal?

Answer 10

1) Duty of Care
2) Duty to Obey (unless asking you to lie or do something illegal)
3) Duty of Loyalty, which includes (i) no self dealing; (ii) no usurping the principal’s opportunity; (iii) no secret profits at principal’s expense.

Question 11

What is a general partnership, how is it formed?

Answer 11

A general partnership is an association between 2+ persons who are carrying on as co-partners of a business for profit.

Sharing of profits is prima facie evidence of a general partnership.

No formalities are necessary to form a general partnership.

Question 12

What is the cardinal rule for partnerships?

Answer 12

Each partners is personally liable for all debts of the partnership and for each co-partner’s torts.

Notes:
1) Incoming partners are generally not liable for previous debts of the partnership but the money he pays to buy in can be used to by the partnership to satisfy prior debts.

2) Dissociating partner’s retain liability on future debts unless and until actual notice of their dissociation is given to known creditors and until publication is given to all potential creditors.
3) One who represents that she is a general partner to a third party shall be estopped from denying that a general partnership exists.

Question 13

In a partnership question involving estoppel, how should I answer?

Answer 13

Start w/ General Rules about
1) Formation
2) Liability 
AND
3) Estoppel

Then apply the facts to the rules.

Question 14

What duties do general partners owe one another? What are the remedies?

Answer 14

Fiduciary duty of loyalty so no

1) self dealing;
2) usurping the partnership’s opportunities; or
3) making a secret profit at the expense of the partnership.

Partnership may recover the damages caused by the breach and may disgorge the secret profits.

Question 15

What rights do general partners have in partnership property?

Answer 15

Assets and shares in management are partnership property and cannot be transferred by individual partners without the partnership’s authority.

Share of profits are individual property and may be transferred by individual partners to third parties.

If it’s unclear, ask, whose money was used to buy the property. If partnership $, then partnership property. If individual’s $, then individual property.

Question 16

In the absence of agreement, how do general partners share management duties?

Answer 16

Note that general partners are free to contract for these provisions, but state laws provide the following gap fillers in the absence of agreement.

1) Control is equal - 1 partner 1 vote, majority rules for ordinary decisions, unanimous vote needed for fundamental decisions.
2) No salary except that partners can receive compensation for helping to wind up the business.
3) Profits are shared equally, losses are shared just like profits.

Question 17

How do partnerships end?

Answer 17

Step 1: Dissolution: occurs automatically upon any material change in the partnership caused by the death or withdrawal of any single general partner. This triggers step 2.

Step 2: Winding Up: The remaining partners liquidate the partnership assets to satisfy credits, pay back capital contributions, and share in profits, if any.

Step 3: Termination: The real end.

Question 18

What liabilities do general partners maintain during winding up?

Answer 18

1) Old business - the partnership and its individual partners must satisfy creditors who existed when winding up began.
2) New business - the partnership and its individual partners are liable on transactions during the winding up until actual notice of dissolution is given to known creditors and until publication notice is given to all potential creditors.

Question 19

What is the priority for distribution prior to termination?

Answer 19

1) Outside creditors
2) Inside partner creditors
3) Capital contributions by partners
4) Profits, if any, are shared equally.

Partners share in any losses in the same manner as profits.

Question 20

What do I need to know about Limited Partnerships?

Answer 20

1) Must have at least 1 general partner, 1 limited partner
2) Must file a “Limited Partner Certificate” with the state including the names of the general partners.
3) General partners only are liable for all partnership obligations and have the right to manage.
4) Limited partners not liable for debts and obligations of the limited partnership itself, but have no right to manage w/o giving up their limited status.

Question 21

What do I need to know about LLCs?

Answer 21

1) Taxed like partnerships; limited liability for members like shareholders in a corporation.
2) Formed by filing “Articles of Organization” with the state and may adopt an operating agreement if they want.
3) May be member managed or manager managed.
4) Full membership interests may not be transferred without unanimous consent of members or as provided in the operating agreement.
5) The company will dissolve upon unanimous consent of the members or as provided in the operating agreement.

BLUF: limited liability + limited liquidity + limited life + limited tax.

Question 22

Where can I find all this on 2 pages?

Answer 22

Page 19 and 20 of the lecture handout