Agency & Partnership Flashcards
Define
Agency
Fiduciary relation
- Which results from the manifestation of consent
- By one person to another
- That the other shall act on his behalf and subject to his control
- And consent by the other so to act
Control
- Degree need not be significant
- Sufficient if principal specifies tasks agent should perform
Equal Dignities Rule
Agency agreements must be in writing when agent is to enter into certain contracts within statute of frauds OR agency agreement itself would fall within statute of frauds
Agent’s Fiduciary Duties to Principal
Duty of care
* Carry out agency with reasonable care
Duty of loyalty
* Owe undivided loyalty to principal
Duty of Obedience
Agent must obey all reasonable directions of principal
Principal’s Duties to Agent
- Not fiduciary in nature
- Indemnify agent’s losses in carrying out principal’s instructions
- Compensate agent for services
Types of Authority
Actual Authority: Based on agent’s reasonable belief
* Express: Conveyed by the principal in words (oral or written
* Implied: Agent reasonably believes exists
Apparent Authority: Based on third party’s reasonable belief
* Power of position: Based on agent’s title or position
Ratification: After-the-fact authority
* Express: Oral or written affirmation
* Implied: Principal accepts benefits
Termination of Actual Authority
- Specified time
- Specified event
- Reasonable time
- Change of circumstances
- Breach of fiduciary duty
- Unilateral act
- Death
What is insufficient to create actual or apparent authority?
Unilateral agent representations
Who is bound on contract?
- Actual authority, apparent authority, or ratification = Principal bound
- Undisclosed or partially disclosed principal = Agent also bound
Define
Master
Principal who employes an agent with right to control agent
Now called employer
Define
Servant
Agent so employed by master
Now called employee
Define
Independent Contractor
Person contractually obligated to do work, but not controlled in how the work is done
Define
Vicarious Liability
Master liable for torts in scope of servant’s employment
Factors for Right to Control
- Skill required
- Tools and facilities
- Period of employment
- Basis of compensation
- Business purpose
- Distinct business
Detour v. Frolic
Detour: Minor deviation from employer’s directions
Frolic: Substantial deviation from employer’s directions
Intention Tort Employer Liability
Employer generally not liable for employee’s intentional torts
Exceptions (“BAN”):
* For principal’s benefit
* Principal authorized it, or
* Conduct arose naturally due to nature of employment
Define
Borrowed Servant
Employee of one employer doing services for another
Define
Partnership
Two or more persons associate to carry on as co-owners in a business for profit
Partnership Formation Factors
- Profit sharing
- Right to participate in control of business
- Loss sharing
Define
Gross Returns
Revenues (everything a business makes) of a business.
Sharing in gross returns does not, by itself, establish or raise a presumption of partnership.
Partnership by Estoppel
Partner liability imposed when a party is not a partner in fact. Holding out that you are a partner and third party relies on that holding out.
Partnership Voting Default Rules
- One partner, one vote
- Ordinary business decision = Majority vote
- Extraordinary business decision = Unanimous vote
Profit/Loss Sharing Default Rules
- Profits shared equally
- Lossess shared in same manner as profits
Partnership = [blank] under agency law
Partnership = Principal under agency law
Define
Statement of Partnership Authority
Document filed publicly limiting partners’ authority to transfer real property
Partner = [blank] under agency law
Partner = Agent under agency law
Liability of Partners
Each partner is jointly and severally liable for partnership obligations
* But only as guarantors - Plaintiff needs to go after partnership before going after partners personally
Admitting New Partners
Default rule: Unanimous vote required
Fiduciary Duties
Duty of care and duty of loyalty to the partnership and to the other partners
Loyalty
* Account to partnership for any benefit
* No taking adverse positions to partnership
* No competing with partnership
Care
* No grossly negligent or reckless conduct
Can a partnership agreement eliminated partners’ fiduciary duties?
No, a partnership agreement may not eliminate duties of loyalty and care
Define
Partnership Interest
Partner’s ownership stake in the partnership
- Financial rights (only partnership interest that is unilaterally transferable)
- Management rights
Define
Dissociation
Partner’s withdrawal from partnership
Dissociation by Express Will
Partner voluntarily leaves
Dissociating partner can force partnership to dissolve
At-Will Partnership
vs
Term Partnership
At-Will Partnership: No agreement to remain partners
Term Partnership: Agreement to remain partners for amount of time or until completion of project
Dissolution
Partnership ends, business is wound up, assets are sold off
Buyout
Dissociating partner’s right to be paid value of partnership interest by continuing partners
Distribution of Partnership Assets
- First, to creditors
- Second, to reimburse partners for capital contributions
- Third, to partners based on profit sharing
Key principle #1:
When determining whether an agency relationship exists, see if consent and control are
present. However, remember that even if an agency relationship exists, it can terminate.
Key principle #2:
The principal is bound on a contract entered into by an agent if the agent had authority to enter into the contract. Note that actual and apparent authority are heavily tested in Agency and Partnership questions. Remember that partners in a general partnership generally have actual and apparent authority to bind the partnership in contracts entered into in the ordinary course of business. The same applies to members in an LLC.
Actual authority:
Actual authority can be express, where the agent is expressly given authority to act for the principal. It can also be implied. Implied authority is present when the principal’s conduct leads the agent to believe it has authority. This authority can be implied by custom, past course of conduct by the principal, necessity, or an emergency circumstance. This authority terminates after a reasonable time or following a change in circumstances, death, or incapacity of the principal, etc. (J2022, F2022, O2020, S2020, F2020, F2017, F2009, J2007, F2005, J2004, J2003, J2002, J2001, F1997, F1996)
Apparent authority:
The elements of apparent authority are as follows: (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. (J2022, F2022, O2020, S2020, F2020, F2017, F2016, J2013, F2013, F2009, J2007, J2006, F2005, J2004, F2004, J2003, J2002, J2001, J1997, F1997, J1996)
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. (J2022, F2022, F2017, F2013)
Key principle #3:
The agent is bound to a third party on a contract he enters into with the third party if the agent had no actual or apparent authority to enter into the contract. The agent is also liable if the principal is undisclosed (i.e., the third party does not know the agent is acting on another’s behalf) or if the principal is “partially disclosed” (i.e., the 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. (F2022, F2017, F2013, J2002, J2001, F1997, F1996)
Key principle #4:
A principal can be vicariously or directly liable for the torts committed by his agent. The agent is always liable for his own torts.
Vicarious liability of employer (respondeat superior):
The employer is liable in tort for the acts of an agent or employee if the agent or employee (mnemonic=SMI)
▪ was acting in the scope of employment;
▪ made a minor deviation (a detour) from employment (rather than a frolic); or
▪ committed an intentional tort only if it was (mnemonic=BAN) for the principal’s benefit, because the principal authorized it, or one that arose naturally due to the nature of employment. The agent is liable too under a theory of joint and several liability. (F2021, F2020, F2015, J2013, F2006, F2003)
Indemnification:
The principal can recover against the agent for indemnification if the agent acts beyond his authority. (F2015, F2006, F2003)
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. (F2020)
Key principle #5
The agent owes a duty of care and a duty of loyalty (not to engage in self-dealing, not to profit without disclosure, and a duty to follow instructions). The principal may recover losses from and profits made by the breaching agent. (F2006, J2003)
