Agency & Partnership Flashcards
Agency
fiduciary relation
Results from the manifestation of consent
-By one person to another
-That the other shall act on his behalf and subject to his control
Acting primarily for benefit of the principal
-And consent by the other so to act
Consent can be written or oral statement
or by implication from parties conduct
- Control
Degree of control need not be significant
Sufficient if principal specifies tasks agent should perform
creation of agency relationship
Capacity
Principal must have contractual capacity
Agent doesn’t need contractual capacity
Exception: if agent has literally no mental capacity, they cannot act for principal
Equal dignities rule
Agency agreements must be in writing when agent is to enter into certain contracts w/i statute of frauds or agency agreement itself would fall w/i SoF
MY LEGS
Consideration is not necessary for creation of an agency relationships
can be created by an act of the parties or by operation of law
agent’s duties to principal
fiduciary duty to principal
Duty of care
Carry out agency w/ reasonable care
Duty of loyalty
Owe undivided loyalty to principal
Treat principal fairly
Cant use principal prop
Can’t compete
Can’t use position as agent to profit
Duty of obedience
Obey all reasonable directions of principal
If agent disobeys , agent will be liable to the principal for any loss that the principal suffers
Principal’s remedies for agent breach of duties
Contract action
Tort actions for secret profits
Equitable actions for accounting
Imposition of a constructive trust
Terminate agency
w/e to do justice
principals duties to agent
Not fiduciary in nature
Indemnify (reimburse) agent’s losses in carrying out principal’s instructions
Compensate agent for services
actual authority
An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal the agent reasonably believes, in accordance w/ the principal’s manifestations to agent the principal so wishes the agent to act…this standard requires both
- An agent actually holds the belief (part 1), which is a subjective standard; and
-Agent’s belief be reasonable (part 2) which is an objective standard
Express = by principals words oral or written
implied= authority agent reasonably believes they have as result of principals words or action
implied actual authority examples
Incidental to express
Arising out of custom known to agent
Result from prior acquiescence
Take emergency measures
Delegate authority ministerial acts
Circumstances requires
Performance is impossible w/o delegation
Delegation is customary
Pay and accept delivery of goods
Give general warranties , collect payment and deliver
Manage investments in accordance w/ prudent investor standard
termination of actual authority
Specified time
Specified event
Reasonable time
Change of circumstances
Breach of fiduciary duty
Unilateral act
Death
apparent authority
Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations w/ third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations
3 Key Factors Apparent Authority
Manifestations traceable to the principal
Communicated to a third party
Third party reasonably believes Agent is Principal’s agent
termination
tell 3rd party no longer agent/authorized
types of apparent authority
Power of position: based on agent’s title or position
Do things typically associated with title
Prior act
Principal previously permitted agent to exceed express or implied authority and knows 3rd party is aware of rhis , principal bound through apparent authority
Unilateral agent representation are insufficient to create actual or apparent authority
Only statement of authority comes from purported agent’s claim
Imposter
Principal negligently permits an imposter to be in position to appear to have agency authority
Principal will be held liable for action
Agency by estoppel
Lingering apparent authority
Apparent authority can exist even when not actual authority
ratification
the affirmance of a prior act done by another whereby the act is given effect as if done by an agent acting with actual authority
After the fact authority
Ratifes by :
Manifesting assent that the act shall affect the person’s legal relations, or
Conduct that justifies a reasonable assumption that the person so consents
Ratification requires
1) knowledge of all material facts
2) accept entire transaction
3) have capacity
methods of ratifying
Express ratification: the principal agrees to assume liability for the contract, notwithstanding the agent’s lack of authority
Implied ratification: accepting the benefit of what company had done for principal
A person is not bound by a ratification made without knowledge of material facts involved in the original act when the person was unaware of such lack of knowledge
whose bound for contracts involving ( disclosed vs. undisclosed/ partially disclosed principals)
Actual authority, apparent authority or ratification = principal bound
Principal of undisclosed or partially disclosed principal= agent also bound
Agent for disclosed principal
A principal is disclosed if, at the time of making the contract in question, the other party to it has notice that the agent is acting for a principal
This communicated knowledge automatically shifts liability on the contract to the principal
Agent for unidentified Principal
A principal is unidentified if when an agent and a third party interact the third party has notice that the agent is acting for a principal but doesnt know who principal is
Agent for undisclosed Principal= agent liable too
Unless excluded by the contract, the principal is a party to the contract
The agent and the 3rd party are parties to the contract and the principal and 3rd party have the same rights, liabilities, and defenses against each other as if the principal made the contract personally
vicarious liability
master liable for torts in scope of servant’s employment
Respondeat superior
Apparent authority
Principal
Directly liable for own negligence in hiring, retaining, supervising agent
Directly liable for agent’s tort if gave actual authority or ratified
Other circumstances involving independent contactors
respondeat superior (distinguish independent contractor)
master= principal who employs an agent with right to control agent
servant= agent so employed by master
Control how accomplish task
independent contractor = person contractually obligated to do work, but not controlled in how the work is done
Factors for right to control
Skill required = IC
Tools and facility = Emp
Period of employment = EMP
Basis of compensation= time = Emp, job = IC
Business purpose = Emp
Distinct business= IC
scope of employment for agent
Factors
Conduct of kind agent hired to perform
Did tort occur on job
Detour = minor deviation from employers directions
frolic= substantial deviation from employer’s directions
Was conduct actuated at least in part to benefit principal
Intentional torts
Employer generally not liable for employee’s intentional torts
Exception: conduct natural from employment duties
Where employee is promoting employer’s business or motivated to serve employer
Specifically authorized or ratified by employer
Liability for act of borrowed employees
Borrowed servant: employee of one employer doing services for another ( look at who has the primary right of control)
liability for acts of INdependent contractors
Principal incur liability for acts where
inherently dangerous activities
nondelegable duties have been delegated
principal knowingly selected incompetent IC
General Partnership Creation
A general partnership is an association of two or more persons to carry-on as a co-owner a business for profit.
Formation
- Profit sharing
Receive share of profits = presumed partner
UNLESSS share received as payment of debt, as wages or compensation for services rendered, as rent payment, retirement benefit, interest on loan, salee of goodwill of business
Gross returns= revenues
Not partner just splitting revenues
- Right to participate in control of business
-Loss sharing
Factors that don’t raise presumption of partnership
Title to prop is held in Joint tenancy or in common
Parties designate their relationship as a partnership
Extensive activity
Sharing of gross returns
No writing required to form
SoF apply to have enforceable agreement to remain partners for more than 1 year
Partnership by Estoppel
Partner liability imposed when a party is not a partner in fact
Person by words or conduct rep himself as partner or consents to being rep by another as a partner= will be liable to 3rd parties who extend credit to actual or apparent partnership
Liability of person who holds another out as partner
Makes person his agent to bind him to 3rd parties
mere failure to deny a representation of partnership does not give rise to liability as a purported partner, BUT actually consenting to be held out as partner does
partnership agreement
is a written oral or implied contract between or among the partners which may alter the default statutory rules in governing the internal affairs of the partnership and the relations among partners.
may not unreasonably restrict access to books or records, eliminate the duty of loyalty, unreasonably reduce duty of care, eliminate good faith and fair dealing, vary the power to withdraw as a partner, vary the courts right to expel a partner, vary requirements to wind up, and restrict the rights of TPS.
Entity status
Partnership is a legal entity distinct from partners
Title in land may be liable in partnership name
Partnership may sue or be sued in partnership game
Revised Uniform Partnership Act ( RUPA) is default rules when partnership agreement doesn’t provide a particular provision
management and operation of general partnership
Voting default rules
1 partner= 1 vote
Ordinary business decision= majority rule
Extraordinary business decision = unanimous vote
Adding new member
No right to salary or other compensation = default rule
Change with partnership agreement
Exception = reasonable compensation for services rendered in widing up the partnership business
liability under general partnership
Partnership = principal under agency law
Partner = agent under agency law
Tort
Partnership is liable for loss or injury caused to person as reult of tortious conduct of partner acting in ordinary course of business of partnership or w/ authority of the partnership
Contract
Partnenrship liable for all K entered into by partner in scope of partnership business with actual or apparent authority
Statement of authority = doc filed publicly limiting partners’ authority to transfer real property
Transactions involving real prop
Grants of and restrictions on partner authority to transfer in statement are binding on 3rd party is statement also recorded in county where prop is located
3rd parties have constructive notice if secretary of state and county fillings made
3rd party benefited by filed grants of authority and burdened by filed restrictions on authority
Transactions not involving real prop
Grants in statement are binding on partnership
Restrictions not binding on 3rd party
3rd party benefited by filed grants of authority and not burdened by filed restrictions on authority
Each partner is jointly and severally liable for partnership obligations
But only as guarantors
Any creditor has to exhaust partnership resources first
Entitled to contribution from other partners
Could agree one partner not responsible for liabilities
Only binding among partners not 3rd party
Newly admitted partner not liable for debts incurred before admission
fiduciary duties owed to partners and partnership
Duty of care
Refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law
Duty of loyalty
Account to partnership for any benefit
No taking adverse positions to partnership
No competing w/ partnership
Statutory duty of disclosure
Provide complete and accurate info concerning partnership
Furnish to partner
w/o demand any info concerning partnership’s business and affairs reasonably required for proper exercise of partner’s rights and duties
On deman any other info concerning partnership’s business and affairs
duty of obedience
partnership agreement may not elminate duties of loyalty or duty of care
partnership property
Property acquired by a partnership is property of the partnership and not of the partners individually.
Prop is partnership prop if acquired in the name of any of the following
The partnership
Prop is presumed to be partnership prop if purchased with partnership assets
Prop acquired in the name of one or more of the partners w/o an indication in the instrument transferring title to the prop of the persons capacity as a partner and no partnership funds were used= is presumed to be separate prop, even if used for partnership purposes
rights in partnership Property
Totally unrestricted
Partner not a co-owner of partnership prop and has no interest in partnership prop which can be transferred
Partner has no interest in partnership prop
Partnership interest
Personal prop of partner
Restrictions on what can do with it
Comprised of
- Management rights = right in management of biz and obtain info
Cannot be unilaterally transferred
- Financial right = partners right to receive his share of any profit distributions made by partnership
Can unilaterally transfer
Transferor is still partner
Dissociation
partner’s withdrawal from partnership
Events that dissociation
By express will = partner voluntarily withdrawal
Happening of an agreed event
Valid expulsion of partner
Partner’s bankruptcy
Partner’s death/ incapacity
Decision of ct t
Termination of business entity
Wrongful dissociation
Wrongful dissociated if dissociation in breach of an express term in partnership agreement = breach and can be held liable
At will partnership = no agreement to remain partners
Partnership for a term
created through a contractual agreement that the partnership will end after a specific time period.
Buyout: dissociating partner’s right to be paid value of partnership interest by continuing partners
Generally dissociated partner remains liable for pre-dissociation partnership
Dissociated partner can be liable for post dissociation partnership liabilities incurred w/i 2 years
When entering transactions other party reasonably believed dissociated partner was still a partner
Did not have notice of partner’s dissociation
dissolution
partnership ends, business is wound up, assets are sold off
Voluntary dissociation could lead to dissolution
the persons duties and obligations end with regard to matters arising and events occurring after the person’s dissociation
In a partnership at will the partnership knows or has notice of a person’s express will to withdraw as a partner the business must be wound up
In a partnership for a definite term or a particular undertaking
i. w/n 90 days after a person’s dissociation by death or wrongful dissociation at least half the remaining partners want to wind up
the affirmative vote or consent of all partners
the expiration of the term or the completion of the undertaking
issuance of judicial decree
- economic purpose frustrated
- not reasonably practicable
- business cannot practicably be carried on in conformity with the partnership agreemeont
passsage of 90 consecutive days during which partnership does not have at least two partners
termination and liquidation of General Partnership
Proceed with reasonable promptness to liquidate business of partnership
Assets of the partnership shall be sold and the proceeds of sale shall be applied or distributed in the following order of priority
- pay all creditors ( outside and inside)
- repay all capital contributions
- profits or losses
partners power to bind partnership after dissolition
Partners retain apparent authority to bind partnership to 3rd party on new business even after an event requiring winding up
limited partnerships formation
Partnership w/ at least one limited member and one general member
Formed
Certificate of limited partnership: filing that must be made to form limited partnership
Must be signed by all general partners
Includes: name of partnership, names and addresses of agent for service of process and names and address of each general partner
Fail to file = just general partnership
Registered agent: person designated to receive official mail from the state or to receive service of process
Name must contain phrase limited partnership or L.P.
management and operation of LP
General partners= manage company
Limited partners= no management right
Extraordinary activities include votes of all partners
Amend partnership agreement
Convert partnership to LLLP
Dispose of all or substantially all limited partnership prop
Admit new partner
Comprise partner’s obligation to make contribution or to return improper distribution
financial rights of LP
Distributions from an LP are made on the basis of the partners’ contributions
Contribution may be any benefit to partnership
Partner’s contribution obligation not excused by death or other disability and may be compromised only on consent of all partners
liability of LP
General partners are jointly and severally liable for all obligation of LP
Limited partnership has limited liability
Not personally liable for an obligation of the LP solel by reason of being a limited partner
The limited liability shield of any business organization does not protect a person from liability for her own torts
fiduciary duties
Limited partners don’t have any
General partners owes LP and other partners same duties of loyalty and care
General partner doesn’t automatically violate the duty of loyalty merely bc the general partner’s conduct furthers his own interests
additional rights of LP
right to transact business with the partnership
right to disolve
direct action against limited partnership by partner
right to information
indemnifiaction of general partners
derivative action
- partner first makes demend on general partners to bring action to enforce right and general partners dont bring in reasonable time or the demand would be futile
- derivative action maintained onlt by person who partner at time , partner when conduct giving rise to action occured, or status as partber devollved upon him by operation of law pursuant to partnership agreement from person who was partner at time of the conduct
limited liability Partnership
Apply general partnership rules except
Limited liability limited partnership:limited partnership rules, but everyone has limited liability
Form by
Filing statement of qualification w/ secretary state
Statement executed by at least two partners
Min info: name and address of partnership, statement that the partnership elects to be an LLP , deferred effective date
Become LLP at time of filing
Liability
Limited liability only limits vicarious liability, not liability for a partner’s own wrongful acts
Limited Liability Companies
Hybrid of corporation and partnership where owners have limited liability and partnership tax treatment
Form
Filing certificate of org w/ secretary of state
Contents
Name of LLC
Address if LLC registered office and
Name and address of registered agent
Managment operation of LLC and Financial Rights
Operating agreement
May alter duties owed
Management presumed by all members
Member managed LLC: LLC where members handle management of LLC themselves
Manager managed LLC : LC where managers, who may or may not be members, handle management
Financial rights
Profits and losses and distributions are allocated on the basis of contribution
Fiduciary Duties and Liability of LLC
Liability
Members and managers generally are not personally liable for the LLC ‘s obligations
Can only lose amount of investments
Liable for own personal torts
Fiduciary duties
Look for who has management control
Duty of care
Reasonal Prudent person in same of similar circumstances
Business judgment rule
Members cannot be held liable for negligent decisions
Can be held liable for decisions tainted by gross negligence or worse
Duty of loyalty
Think about your interest not mine
Upmost fairness
After disclosure of all material facts all of the members may authorize or ratify a specific act by a member that would otherwise violate duty of loyalty
only the managers are subject to the duties of loyalty and care
Transferability of ownership interest in LLC
Need unanimity to become partner
Can transfer financial rights
dissociation of LLC
Events causing
Event operating agreement states
Consent of all members
Passage of 90 consecutive days during which LLC has no members
Judicial dissolution
Ct may grant if
Conduct of all or substantially all of LLC activities is unlawful
Not reasonably practicable to carry on company’s activities
Controlling members have acted will act or are acting in illeagal or frauulent manner
Controlling members have acted or are acting in manner that is oppressiv and was , is, or will be directly harmful
administrative dissolution = LLC fails to submit a required fee or annual report
taxation of LLC
Taxed on a pass through basis
No entity level tax
Business income is passed through to owners and reported on owner’s individual tax return
dividend= distribution of corporate profit
