Agency & Partnership Flashcards
Agency Relationship
Agency is the fiduciary relationship that arises when one person (the principal) manifests assent to another person (the agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.
Agency a fiduciary relationship that arises when one person (the principal) appoints another (the agent) to act on the principal’s behalf and subject to the principal’s control, and the agent consents to act.
Equal Dignities Rule
Agency agreements must be in writing when the agent is to enter into certain contracts within the statute of frauds OR if the agency agreement itself would fall within the statute of frauds
Liability of Principal for Agent’s Contracts
An agent has the power to bind a principal to a contract the agent enters on the principal’s behalf only if the agent acted with authority
Actual Authority
Actual authority is authority that the agent reasonably believes they possess based on the principal’s dealings with them - may be express or implied
Express:
- express authority is that which is actually contained within the four corners of the agency agreement - authority that’s conveyed by the principal in words (oral or written)
Implied:
- implied authority is authority the agent reasonably believes they have as a result of the principal’s words or actions
- NOTE: the notion that title or position conveys authority can also be used to establish actual authority to the extent that the agent reasonably believes that they have authority to act based on the title or position given to them by the principal
Apparent Authority
Apparent authority exists if the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent has authority to act on the principal’s behalf
*Apparent authority may be established through an agent’s title or position
Difference between Employee and Independent Contractor
The difference between an employee and an independent contractor is that the principal/employer retains the right to control the manner in which an employee performs their work
- a principal does not reserve/have a right to control the manner in which work is performed by an independent contractor
*If the principal has the right to tell the agent how to achieve the results the principal desires, the agent is an employee; if the principal does not have the right to tell the agent how to achieve the results sought, the agent probably is an independent contractor.
If it is not clear whether the principal has the right to control the method and manner of the work, consider:
(1) the degree of skill required on the job (where great skill is required, more likely to be independent contractor)
(2) whose tools and facilities are used (if the principal supplies the tools and facilities used to perform the job, more likely to be employee)
(3) the period of employment (definite and/or short, more likely to be independent contractor; indefinite and/or long, more likely to be employee)
(4) the basis of compensation (if on time basis, more likely employee; if on job basis, more likely independent contractor)
(5) the business purpose (if person hired to perform an act in furtherance of principal’s business, more likely employee; if nonbusiness purpose, such as mowing a lawn, more likely independent contractor)
(6) whether the person has a distinct business (person who has their own business or occupation is more likely to be an independent contractor)
(7) the characterization and understanding of the parties
(8) the customs of the locality regarding supervision of work
Scope of Employment
An employer is not automatically liable for an employee’s torts. The employer is liable for the employee’s torts only if they were committed within the scope of the employee’s employment - there are 3 factors helpful in making this assessment:
(1) was the conduct “of the kind” that the agent was hired to perform?
(2) did the tort occur “on the job” (that is, within the time and space limits of the employment)?
(3) was the conduct actuated at least in part to benefit the principal?
Partnership
A partnership is an association of two or more persons carrying on as co-owners a business for profit
- subjective intent is irrelevant
- the only intent required is the intent to carry on a business for profit as co-owners
*Sharing of profits raises a presumption of partnership
- unless the share was received as payment of a debt, as wages or compensation for services rendered, as rent payment, as an annuity or other retirement benefit, as interest on a loan, or for the sale of goodwill of a business
Another important factor is the right to participate in control
- to state that partners are co-owners of a business is to state that they each have the power to control the business
Management and Operation of a General Partnership
Voting
- unless otherwise agreed, all partners have equal rights in the management of the business and equal votes (one partner, one vote)
- Decisions regarding matters within the ordinary course of the partnership business require a majority vote of the partners
- Matters outside the ordinary course of business require the unanimous consent of all partners
No Right to Salary or Other Compensation
- unless otherwise agreed, a partner has no right to compensation for services rendered to the partnership (with the exception of a right to reasonable compensation for services rendered in winding up the partnership business)
- on the other hand, if a partner has impliedly or expressly promised to devote time to the partnership business and fails to do so, they may be charged in an accounting for damages caused to the partnership
Sharing Profits and Losses
Unless otherwise agreed, profits are shared equally among the partners, and losses are shared in the same manner as profits
*Losses follow profits, but profits do not follow losses
Partnership Liability to Third Parties
Each partner is an agent of the partnership for the purpose of its business - the authority of a partner to bind the partnership when dealing with third parties roughly follows agency law
Partnership = Principal
Liability of the Partnership in Tort
With respect to the partnership’s liability in tort, a partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner (or an employee) acting in the ordinary course of business of the partnership or with authority of the partnership
Liability of the Partnership in Contract
With respect to partnership liability in contract, a partnership is liable for all contracts entered into by a partner in the scope of partnership business or with actual or apparent authority of the partnership
Actual Authority
- actual authority is the authority a partner reasonable believes they have based on the communications between the partnership and the partner
- it can come from the partnership agreement or a vote of the partners
*Statement of Partnership Authority:
Apparent Authority - Statutory apparent authority
- the RUPA provides that a partner is an agent of the partnership, and that a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership’s business or business of the kind carried out by the partnership (unless the third party is aware that the partner lacks actual authority to act)
Statement of Partnership Authority
Actual authority can also be created by the partnership’s filing of a statement of partnership authority with the secretary of state
- a statement of authority grants or limits a partner’s authority to enter into transactions on behalf of the partnership - the effect differs depending on whether the transaction involves a transfer of real property
Transactions involving Real Property
- grants of and restrictions on partner authority to transfer partnership real property in the statement are binding on third parties if the statement is also recorded in the county where the property is located
- third parties are deemed to have constructive knowledge of the statement if secretary of state and county filings are made
Transactions Not involving real property
- with respect to all other transactions of the partnership other than real property transfers, grants of partner authority in the statement are binding on the partnership
- HOWEVER, restrictions on partner authority in the statement are NOT binding on third parties
Liability of the Partners
A defining characteristic of the general partnership is that each partner is jointly and severally liable for all obligations of the partnership, whether arising in tort or contract
- BUT, the plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets (so the partners are essentially guarantors)
- this means that a plaintiff must first try to recover from the partnership’s assets before seeking to recover from a partner’s personal assets
Extent of Liability
- each partner is personally and individually liable for the entire amount of partnership obligations
- so where one partner pays the whole obligation of a partnership, they’re entitled to indemnification from the partnership - they may also require the other partners to contribute their pro rata shares of the payment if the partnership is unable to indemnify
***Even if all the partners agree that a partner will not be responsible for any partnership losses, that partner is NOT shielded from liability to a third party
- the agreement is still effective among the partners themselves, so the partner could turn around and recover from the other partners
