Agency & Partnership Flashcards
When determining whether an agency relationship exists, look for
Consent and control.
Remember that even if an agency relationship exists, it can terminate.
Requirements for an agency relationship include:
(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 tot he principal’s control.
How can the agent’s authority to act for the principal terminate?
Several ways, including the principal manifesting a desire to the agent to discontinue the relationship.
When will the principal be bound on a contract entered into by an agent?
If the agent had authority to enter into the contract.
Actual or apparent
Partners in a general partnership generally have
Actual an apparent authority to bind the partnership in contracts entered into in the ordinary course of business.
Also applies to members in an LLC.
Actual authority
Can be express where the agent is expressly given authority to act for the principal.
Can be implied when the principal’s conduct leads the agent to believe it has authority. Custom, past course of conduct by the principal, necessity, or emergency circumstance.
Apparent authority
Elements: (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 liability in contracts
Agent is bound to a third party on a contract he enters into with the third party even if the agent had no actual or apparent authority to enter into the contract.
The agent is also liable if the principal is undisclosed (third party does not know the agent is acting on another’s behalf) or if the principal is “partially disclosed” (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.
Principal liability for agents’ torts
A principal can be vicariously liable for the torts committed by his agent. The agent is always liable for his own torts.
Vicarious liability of employer (respondent superior)
The employer is liable in tort for the acts of an agent or employee if the agent or employee (SMI): (1) was acting in the Scope of employment; (2) made a Minor deviation (detour) from employment (not frolic); or (3) committed an Intentional tort only if it was (BAN) (a) for the principal’s Benefit, because (b) the principal Authorized it, or (c) one that arose Naturally due to the nature of employment.
The agent is liable too under a theory of joint and several liability.
Indemnification
Principal can recover against the agent for indemnification if the agent acts beyond his authority.
Direct liability of principal
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.
What duties does the agent owe?
Care and loyalty (not to engage in self-dealing, not to profit without disclosure, and a duty to follow instructions).
Principal may recover losses from and profits made by the breaching agent.
What is a partnership?
The association of two or more persons to carry on as CO-OWNERS, a BUSINESS FOR PROFIT, irrespective of whether the persons intended to form the partnership.
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. neither a writing nor a certificate needs to be filed for a general partnership to be formed.
General partnership is the default form; sometimes formed because a limited partnership was improperly formed.
Is a partner entitled to separate payment for services?
No because a partner is compensated by the profits.
Exceptions: if agreed upon or a partner may be reimbursed reasonable compensation if he assists in winding up the business of the partnership.
Partners are ___ and ___ of the partnership.
Agents; comanagers.
Partners have equal rights to comanage ordinary affairs (e.g., signing a lease) (even if profits are not shared equally). A majority vote wins if they’re in disagreement.
Extraordinary matters require a unanimous vote.
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 have ___ duties.
Fiduciary—in a fiduciary relationship with one another and must act in good faith.
Charged with the duty of loyalty (may not usurp corporate opportunities for 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).
Does dissolution end a partnership?
No, not until winding up is complete.
Steps of ending a partnership:
(1) dissociation: change in the relation of the partners. Prior creditors are entitled to personal notice of the dissolution. Others who knew of the partnership are entitled to newspaper notice. A partner can withdraw from a partnership by giving notice at any time. This will trigger dissolution in an at will partnership.
(2) Winding up: partnership assets are liquidated and creditors are paid. Partners are still liable for any liabilities that occur during the winding up phase.
(3) Termination: true end of the partnership.
What can a creditor obtain if it has a claim against a partner?
An interest in the partnership. This includes profits but NOT management or voting rights.
What can a creditor obtain if it has a claim against the partnership?
It can try to collect from the individual partners.
Partners are jointly and severally liable for the obligations of the partnership. Even if a partner enters into a contract without actual authority to do so, the partnership and the partners are bound (so long as the partner had apparent authority). The creditor must obtain a judgment against the partners personally to go after each partner’s personal assets. The creditor should attempt to collect from the partnership before seeking the partners’ personal assets.
Partnerships other than general partnerships must ____ to be properly formed.
File a certificate with the state.
Liability is limited.
Limited Liability Partnership
No partner is personally liable for the obligations of the partnership (but partners are liable for their personal torts).
Limited Partnership
At least one general partner must be listed on the certificate filed with the state. Limited partners have limited liability (limited to their capital contributions). General partners are liable for all partnership obligations and manage control of the business. If a general partnership converts into an LLP, then partners remain jointly and severally liable for actions that took place before the conversion.
Do the principal and the agent need to have contractual capacity?
The principal does (because the contract is between the principal and a third party) but the agent does not (because the agent is just an intermediary).
Does agency law require a writing?
No, but the SOF may. This is called the “equal dignities” rule—agency agreements must be in writing when the agent is to enter into certain contracts within the SOF (or when the agency agreement itself would fall within the SOF).
Ex: agent for five years; agent to convey land.
Principal’s duties to the agent
Not fiduciary in nature as fiduciary duties run only from the agent to the principal.
Principal has obligations: if agent incurs expenses/suffers other losses in carrying out principal’s instructions, principal has duty to indemnify the agent. Unless the circumstances dictate otherwise, it will be inferred that the principal agreed to compensate the agent for his services.
Lingering apparent authority
Apparent authority can exist even when actual authority does not. Similarly, apparent authority can linger after actual authority ends.
General rule for liability on a contract—Agent/Principal
If actual authority, apparent authority, or ratification is present, the principal is liable on the contract and the agent is not.
Exception: if the principal is undisclosed or partially disclosed, the agent is also liable on the contract (principal is still liable).
Servant (employee) or independent contractor?
In general, if a person is subject to the control of another as to the means used to achieve a particular result, he is a servant. By contrast, if a person is subject to the control of another as to his results only (but not over how to achieve those results), he is an independent contractor.
Single overriding factor is whether the principal has the right to control the manner and method by which the person performs his task. Consider: skills required, tools and facilities, period of employment, basis of compensation, business purpose, distinct business.
