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Things to remember for the Bar > Agency & Partnership > Flashcards

Agency & Partnership Flashcards

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1
Q

LOW

Define Agency

A

Agency is the fiduciary relationship that exists between an agent and principal where
the agent acts on the principal’s behalf and is subject to the principal’s control.

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2
Q

LOW

An agency relationship is created when:

A

(1) The parties voluntarily consent (express or implied) to enter into an agency
relationship;

AND

(2) The agent is subject to the principal’s control (e.g., supervision is sufficient – the
amount of control may be limited).

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3
Q

LOW

The agency relationship may be terminated by the parties if:

A

(a) The agent or principal manifests to the other the desire to cease the agency relationship (termination is effective when the other party receives notice of the termination);
(b) The express terms of the agency expire (e.g., principal expressly hires agent for 6 months); OR
(c) The purpose of the agency relationship is fulfilled.

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4
Q

LOW

The agency relationship may be terminated by operation of law if:

A

The agency relationship may be terminated by operation of law if:

  1. The agent or principal dies (some jurisdictions require that the party receive notice of the other’s death);
  2. The agent or principal loses capacity (some jurisdictions requirethat the party receive notice of the other’s incapacity); OR
  3. The agent materially breaches a fiduciary duty owed to the principal.
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5
Q

HIGH

AUTHORITY OF AGENT TO BIND PRINCIPAL

A

An agent may bind a principal to a contract if the agent is acting within his actual or apparent authority, or inherent agencypower. Once a principal is validly bound to a contract by his agent, the principal is liable under the terms of the contract.

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6
Q

MED

ACTUAL AUTHORITY

Express vs. Implied

A

An agent acts with actual express authority when the principal directs him to engage in a specific task.

An agent acts with actual implied authority when the agent believes, based on a reasonable interpretation of the principal’s words or conduct, that the principal wishes him to act on the principal’s behalf.

(Incidental authority. The agent’s authority to conduct a transaction includes the authority to engage in actions that are incidental to it, usually accompany it, or are reasonably necessary to accomplish it.)

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7
Q

HIGH

APPARENT AUTHORITY

A

An agent acts with apparent authority when:

  1. The principal holds the agent out as having authority to act on the principal’s behalf; AND
  2. The principal’s conduct, when reasonably interpreted, causes a third party to rely on the agent’s appearance of authority when dealing with the agent.
  • Apparent authority does NOT exist if the third party has knowledge that the agent does not have actual authority.
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8
Q

LOW

INHERENT AGENCY POWER

A

Pursuant to equitable considerations, the inherent agency power allows courts to hold a principal liable for damages to third parties even when the principal’s agent acted without actual or apparent authority. Courts apply the inherent agency power when:

  1. An agency relationship exists; AND
  2. The totality of the circumstances weighs against forcing the third party to absorb all of the damage.
  3. Undisclosed Principals. Courts commonly apply the inherent agency power to hold a principal liable for his agent’s unauthorized actions when the principal is undisclosed to the third party so long as the totality of the circumstances weighs against forcing the third party to absorb the damages.
  4. NOTE. An agent for an undisclosed principal CANNOT have apparent authority because the principal cannot hold the agent out as having authority to a third party if the third party is unaware of the principal.
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9
Q

HIGH

RESPONDEAT SUPERIOR

A

An employer (principal) may be liable for torts committed by an employee (agent) if:

  1. An employer-employee relationship exists; AND
  2. The employee’s commission of the tort occurs within the scope of employment.
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10
Q

HIGH

RESPONDEAT SUPERIOR

Scope of Employment

A

(a) Activity is within the scope of employment when the employee’s conduct is of the same general nature as that authorized, or incidental to the conduct authorized by the employer. In making this determination, courts examine whether the employee’s conduct was:

(i) A function for which the employee was hired to perform;
(ii) Within the employer’s authorized time and space limits;
(iii) Conducted to serve the employer; AND
(iv) Foreseeable to the employer.

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11
Q

HIGH

RESPONDEAT SUPERIOR

Detour

A

The employer remains liable during an employee’s detour (i.e., a minor deviation from the scope of employment), even if the detour is mainly for the employee’s own personal reasons. However, the employer does NOT remain liable during an employee’s frolic (i.e., a major deviation from the scope of employment).

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12
Q

HIGH

RESPONDEAT SUPERIOR

Intentional Torts

A

Generally, employers are NOT liable for the intentional torts of employees UNLESS:

(1) The intentional tort was authorized by the employer; OR
(2) Force is within the scope of employment in the employee’s work (e.g., security guards).

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13
Q

MED

INDEPENDENT CONTRACTOR

A

An independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking.

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14
Q

MED

INDEPENDENT CONTRACTORS AND PRINCIPAL LIABILITY

A

Generally, a principal is not liable in tort for the unauthorized conduct of an independent contractor.
The principal’s amount of control over the agent is the key factor in determining whether an agent is an independent contractor.

Other relevant factors include:

  1. The nature of the work
  2. The skill required in the particular occupation;
  3. Who supplies the equipment or tools to perform the work;
  4. The method of payment (hourly, salary, etc.);
  5. The length of the employment; AND
  6. How the parties characterize the transaction.
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15
Q

MED

INDEPENDENT CONTRACTORS AND PRINCIPAL LIABILITY

Unauthorized Conduct

A

Generally, a principal is NOT liable in tort for the unauthorized conduct of an independent contractor. However, the principal may be liable when an independent contractor:

(1) Makes misrepresentations for the benefit of the principal;
(2) Is engaged in abnormally dangerous activities; OR
(3) Acts with apparent authority.

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16
Q

lowest

CONTRACTUAL LIABILITY OF PRINICPAL

Ratification

A

A principal can ratify his agent’s unauthorized conduct, thereby making the principal liable to third parties for contracts entered into by the agent, if:

(1) The principal had knowledge of the material facts (i.e., the contract terms);
(2) The agent purported to act on the principal’s behalf; AND
(3) The principal affirmed the agent’s conduct by manifesting an intent to treat the agent’s conduct as authorized (e.g., accepting the benefits of the agent’s originally unauthorized action).

17
Q

lowest

FIDUCIARY DUTIES OF THE AGENT

A

An agent owes the following fiduciary duties to the principal:

  1. The duty to act with reasonable care and skill;
  2. The duty to act loyally for the principal’s sole benefit; AND
  3. The duty to act obediently within the principal’s control.
18
Q

HIGH

GENERAL PARTNERSHIP [GP] FORMATION

A

A GP is a type of partnership that has NO limited personal liability (i.e., general partners remain personally, jointly and severally liable for ALL debts of the partnership). A GP is formed when:

  1. Two or more persons;
  2. Associate as co-owners;
  3. To carry on a business for profit.
19
Q

HIGH

GENERAL PARTNERSHIP [GP] EXISITANCE

A

In determining whether a general partnership exists, it is irrelevant whether the parties intended to form a partnership. However, courts may consider the following:

(1) Sharing of Profits. A person who receives a share of the profits of a business is presumed to be a partner in the business unless the partner receives the profits as payment of debt, rent, wages, or for services rendered.
(2) Joint Ownership. Joint ownership of property tends to show that the parties associated as co-owners; however, it does not necessarily establish a partnership in and of itself.
(3) Sharing of Control. Sharing of control, capital investment, and labor tends to show that the parties associated as co-owners; however, it does not necessarily establish a partnership in and of itself.

20
Q

LOW

LIMITED PARTNERSHIP [LP] FORMATION

A

An LP consists of one or more general partners and one or more limited partners. An LP is formed when a written certificate of limited partnership is executed in substantial compliance with state law and filed with the secretary of state.

21
Q

LOW

PARTNERS

General Partner vs. Limited Partner

A

General partners manage and control the day-to-day operations of the business, while limited partners generally have no say in such matters. Limited partners are generally passive investors, and only have voting rights in extraordinary situations (e.g., sale of the partnership, amending the partnership, etc.).

22
Q

lowest

LIMITED LIABILITY PARTNERSHIP [LLP] FORMATION

A

An LLP limits a partner’s potential liability for professional malpractice that is committed by another partner.

Any partnership may become an LLP upon the:

  1. Approval of the partners by vote; AND
  2. Filing a statement of qualification with the secretary of state.
23
Q

lowest

TORT LIABILITY OF THE PARTNERSHIP

A

A general partnership, limited partnership, or limited liability partnership is liable for the wrongful acts or omissions of any partner acting:

  1. Within the ordinary course of the partnership’s business; OR
  2. With the authority of all other partners.
24
Q

MED

TORT LIABILITY OF GENERAL PARTNERS

A

General partners are jointly and severally liable for all obligations of the partnership arising from any wrongful act or omission of any partner acting:

  1. Within the ordinary course of the partnership’s business; OR
  2. With the authority of ALL other partners.
25
Q

MED

TORT LIABILITY OF LIMITED PARTNERS

A

Limited partners are not personally liable for obligations of the limited partnership arising from the wrongful acts or omissions of other partners.

However, limited partners are always liable for their OWN misconduct.

26
Q

HIGH

CONTRACT LIABILITY OF THE PARTNERSHIP

A

The actions of every partner that are made within the ordinary course of business to carry on the partnership’s business bind the partnership, unless the partner taking the action:

  1. Has no authority to act on behalf of the partnership; AND
  2. The other side has knowledge or notice that the partner lacks authority.

Actions taken by a partner that are OUTSIDE the ordinary course of the partnership’s business do NOT bind the partnership UNLESS the other partners unanimously authorize the action with actual or apparent authority.

27
Q

LOW

TRANSFER OF A PARTNER’S INTEREST

A

Absent an agreement to the contrary, a partner may transfer his interest in the profits and losses of the partnership (including the right to receive distributions) to a third party. Upon transfer of such interests, the transferee does NOT automatically become a partner nor does the partnership terminate or dissolve.

A transferee does NOT become liable for the obligations of the partnership incurred before or after the transfer, because he is not a partner. However, a transferee may become a partner if the other partners unanimously consent. If the transferee becomes a partner, he will be liable for the obligations of the partnership incurred AFTER his admittance pursuant to the normal rules of agency and partnership.

28
Q

LOW

PARTNERS’ RIGHTS TO MANAGE AND CONTROL

A

Absent an agreement to the contrary, general partners have equal rights to manage and control the partnership’s business, while limited partners generally have no say in such matters. Disagreements relating to ordinary matters connected with the business of the partnership are decided by a majority of the partners.

29
Q

lowest

USE OF PARTNERSHIP PROPERTY

A

Absent an agreement to the contrary, a partner may only use partnership property:

  1. On behalf of the partnership; OR
  2. To carry on the business of the partnership.

Any personal use of partnership property requires the consent of the other partners.

30
Q

lowest

PARTNER ACCESS TO BOOKS AND RECORDS

A

Absent an agreement to the contrary, every partner must have access to the partnership’s books and records during normal business hours; and upon reasonable demand, the partnership must render true and full information of all things regarding the affairs of the partnership that is just and reasonable under the circumstances.

31
Q

lowest

PARTNER SHARING OF PROFITS AND LOSSES

A

Absent an agreement to the contrary, each partner is generally:

  1. Entitled to an equal share of the partnership profits; AND
  2. Responsible for a share of the partnership losses in proportion to the partner’s share of the profits.
32
Q

LOW

THE PARTNERS’ DUTY OF CARE

A

Each partner owes a limited fiduciary duty of care to the partnership and other partners, which requires that each partner REFRAIN from engaging in:

  1. Grossly negligent or reckless conduct;
  2. Intentional misconduct; OR
  3. A knowing violation of the law.

If a partner breaches the duty of care, he may be held personally liable for damages.

33
Q

HIGH

THE PARTNERS’ DUTY OF LOYALTY

A

Each partner owes a fiduciary duty of loyalty to the partnership and other partners, which requires that each partner:

  1. Act in good faith and fairly toward the other partners;
  2. Account for any property, profit, or benefit derived by the partner from the partnership business or property; AND
  3. REFRAIN from competing with the partnership or usurping a business opportunity that properly belongs to the partnership.

If a partner breaches the duty of loyalty, he may be held personally liable for damages.

34
Q

HIGH

PARTNER LIABILITY DURING DISSOLUTION

(DISSOLUTION VS. “WINDING UP”)

A

Dissolution of a partnership does NOT immediately terminate the partnership. Rather, the partnership enters a “winding up” phase, which continues until the winding up of the partnership’s affairs is completed.

During the winding up phase, a partner’s actual authority to bind the partnership is limited to actions that are necessary to wind up the partnership’s affairs. However, a partner may still have apparent authority to bind the partnership so long as the other side does not have notice of the partnership’s dissolution.

35
Q

HIGH

PARTNERSHIP DISSOLUTION CAUSES

A

There are three main causes of dissolution:

  1. Actions taken by the partners (e.g., disassociation, partners agree to certain causes for dissolution, etc.);
  2. Operation of law (e.g., it becomes illegal to continue the business of the partnership); OR
  3. Court order (e.g., a court may grant a judicial dissolution if it is no longer reasonably practicable to continue operation of the partnership business).
36
Q

HIGH

DISASSOCIATION OF A PARTNER
Under The Uniform Partnership Act [UPA]

A

Under the UPA, any change in partner membership automatically triggers dissolution of the partnership unless there is an agreement to the contrary.

37
Q

HIGH

DISASSOCIATION OF A PARTNER
Under The Revised Uniform Partnership Act [RUPA]

A

Under RUPA, absent an agreement to the contrary, the “disassociation” (occurs when a partner ceases his association with carrying on the partnership business) of a partner does NOT automatically trigger dissolution unless:

  1. The partnership is an at-will partnership; OR
  2. There is an occurrence of an event that the partners specified in the partnership agreement that would cause dissolution (e.g., term partnerships).
38
Q

HIGH

TERM PARTNERSHIP DISSOLUTION

A

Under RUPA, a term partnership may be dissolved before its term expires if:

  1. At least half of the partner’s express their will to wind up the business within 90 days after a partner’s disassociation by death, bankruptcy, becoming incapacitated, or wrongful disassociation; OR
  2. All of the partners agree to amend the partnership agreement by expressly agreeing for dissolution.

Things to remember for the Bar (21 decks)

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