Agency and Partnerships Flashcards
What do you need to create an Agency Relationship
ABC!
ASSENT! (that agent will work on principal’s behalf)
BENEFIT! (to the principal)
CONTROL! (agent agrees to work subject to principal’s control)
(no consideration or evidence in writing necessary)
Factors indicating employer/employee relationship:
i) giving the employees tools to work at the workplace,
ii) paying employees on a structured pay period, and
iii) directing the ways in which employees should finish and perform the tasks.
What entity can’t be a principal
unincorporated association - they lack sufficient legal capacity
Who can be an agent?
anyone w/ minimal legal capacity (includes minors)
To have minimal capacity, an agent must be able to:
- Assent to the agency relationship;
- Perform the tasks on behalf of the principal; and
- Be subject to the principal’s control.
Who can be a principal?
anyone w/ legal capacity
Characteristics of an independent contractor:
- Maintain a high level of independence
- Free to work for other people
- Paid on a fixed fee
- Has his own tools
Who can terminate an agency relationship?
Either agent or principal can unilaterally
Types of legal authority for Agents
- actual express authority
- actual implied authority
- apparent authority
- ratification
How to Create Actual Express Authority
The principal creates actual express authority by using written or spoken words to convey authority to the agent.
- Subjective intent: The agent must believe that he is doing what the principal wants him to do.
- Objective intent: The belief must be reasonable.
Upon the death of the principal, actual express authority terminates when the agent has actual knowledge of the principal’s death. Actual express authority terminates immediately upon the death of the agent.
How to Create Actual Implied Authority
A principal creates actual implied authority by using words, written or spoken, or other conduct to convey authority to the agent to take whatever steps are necessary to achieve the principal’s objectives.
The agent has actual implied authority (absent express instructions to the contrary) to act within general business custom or general trade usage
How to Create Apparent Authority
The principal creates apparent authority by words, written or spoken, that cause the 3rd Party to reasonably believe that the principal consents to have acts done on the principal’s behalf by the agent.
How to Create Authority through Ratification
There’s no pre-act communication to consider.
Ratification requires that
(i) the principal has knowledge of all material facts of the K AND
(ii) the principal then accepts the K’s benefits
Types of Principals (w/r/t disclosure) and the resultant parties to the K
Disclosed: 3rd Party Knows (i) agent is acting for the principal, and (ii) the ID of the principal
–> Parties to K: 3rd party and Principal
Partially Disclosed: 3rd Party knows (i) agent is acting for a principal, but (ii) doesn’t know who the principal is
–> Parties to K: 3rd Party, Principal, and Agent
Undisclosed: 3rd Party knows neither (i) that the agent is working for a principal, nor (ii) the ID of the principal
–> Parties to K: 3rd Party and Agent
Reqs for Principal’s liability for Agent’s actions under Respondeat Superior
1) The principal has sufficient CONTROL such that the
agency relationship is employer-employee; and
2) The tort committed by the agent was committed while the agent was acting w/in the SCOPE of that relationship.
Control: A principal who controls, or has the right to control, the physical conduct (manner and means) of the agent’s performance of work is in the higher category of employer-employee status.
A principal does NOT have vicarious liability for torts committed by an independent contractor.
- EXCEPTIONS:
1. task in inherently dangerous
2. principal was negligent in hiring the independent contractor.
3. The principal retains control over certain tasks and the tort occurs within those tasks.
Factors determining scope of employment
- Did the agent intend to benefit the principal?
- Was the agent’s conduct of the kind that the agent was hired to perform?
- Did the tort occur “on the job?”
Exceptions in which a principal may be held vicariously liable for intentional torts:
o The conduct occurred within the general space and time limits of employment
o The agent was motivated in some part to benefit the principal
o The act is of a kind that the agent was hired to perform
duties that all agents owe to principals—even if the agent is unpaid:
1) Duty to exercise reasonable care
2) Duty to obey reasonable instructions
3) Duty of loyalty
a. cannot take in secret profits
b. cannot usurp business opportunities
c. cannot compete directly w/ the principal
Intent and formation of partnerships
No need to have specific intent to form a partnership, but must meet other requirements
Formation of Partnerships
association of 2 or more persons to carry on a for profit business as co-owners
- Co-Ownership: When two or more persons share profits, there is a presumption of a partnership relationship
- Sharing Control: Ask, has there been a sharing of control?
These are NOT agreements to share profits:
- Payment of a debt
- Interest payments
- Rent
- Wages
- Goodwill
Consequences of a Partnership
- Separate Legal Entity (separate and apart from each individual partner)
- Partnership Liability (all partners are personally liable for partnership obligations)
- No Entity-Level Taxation (unlike Corps.)
Partnership Agreements
o There need not always be a written partnership agreement.
o If there is no partnership agreement, then state law will govern the partnership with default
rules.
o However, when there is a written partnership agreement, the agreement controls
o Exception: When the state law is mandatory
What state laws are mandatory upon partnerships?
- liability to 3rd parties
- can’t deny partners access to books and records
- fiduciary duties can’t be limited
Partners’ duties to the partnership
- Duty of Loyalty: must not…
…compete w/ a partnership
…advance an interest that is adverse to the partnership
…usurp a partnership opportunity
CAN limit extent of duty, or use ratification as safe-harbor - Duty of Care: must not…
…Engage in grossly negligent or reckless conduct
…Engage in intentional misconduct
…Engage in a knowing violations of the law
Timing of partners’ duties to the partnership
Duties of loyalty and care apply only to partners, not to former or prospective partners
