Agency & Partnership Flashcards
1
Q
Agency - Creation Requirements
A
- both parties assent to relationship
- agent is acting on principal’s behalf
- principal has the right to control the agent’s actions
2
Q
Determining Assent
A
- courts look at persons’ words and actions (objective standard)
- principal must be of age of majority, mentally competent, and not incapacitated; agent needs on minimal capacity (can be a minor)
- no formalities required UNLESS agency relationship is within statute of frauds (more than a year) in which case need a signed writing
3
Q
Multiple Principals
A
two or more persons may serve as co-principals by appointing agent to act for them in the same manner
4
Q
Dual Agency
A
agent may represent more than one principal if the agent has provided full disclosure to both parties, and both parties consent to dual representation
5
Q
Types of Principals
A
- disclosed principal: principal’s existence and identity are known to 3P
- partially disclosed principal: principal whose existence, but not identity, is known to 3P
- undisclosed principal: principal whose existence and identity are not known to 3P
6
Q
Types of Agents
A
- general: authorized to conduct series of transactions that involve continuity of service
- special: authorized to conduct specific transaction or series of transactions that do not involve continuity of service
- cogent: agent appointed by principal
- subagent: person appointed by agent to perform acts that agent has consented to perform on behalf of agent’s principal
7
Q
Termination
A
- accomplishment of agency’s purpose
- expiration of specific term, and if not specified, within a reasonable time
- termination of relationship by either party
- illegality of agency relationship
- change in circumstances that leads agent to reasonably conclude principal would no longer consent to agent acting on principal’s behalf
- serious neglect, dishonesty, or breach of duty by the agent
- death or mental incapacity of either principal or agent (some states require actual knowledge)
8
Q
Termination - Exceptions
A
will not terminate upon principal’s death, insanity, or insolvency IF:
- agency is irrevocable (coupled with interest) OR
- principal specified that agent has authority to bind the principal, even upon principal’s disability/incapacity
9
Q
Authority to bind
A
- actual authority
- apparent authority
- inherent agency power
- ratification by principal
10
Q
Actual authority
A
- communication by principal to agent and
- agent’s reasonable understanding that communication grants authority
11
Q
Actual Authority - Express
A
agent reasonably understood principal’s oral or written words conferred power to act on their behalf
12
Q
Actual Authority - Implied
A
perform actions that are reasonably necessary, usual, and proper for accomplishing the task the principal requested to be done. Can arise from:
- prior dealings between principal and agent
- general custom or usage in industry or community
- position occupied by agent
- situations in which principal knowingly acquiesces to agent’s acts that affirm exercise of authority
13
Q
Actual Authority - Scope
A
based on agent’s reasonable belief or understanding of principal’s manifestations to agent
14
Q
Actual Authority - Delegation
A
cannot delegate authority to others unless:
- express authorization from principal
- purely mechanical acts
- something agent cannot perform but subagent can lawfully perform
- commonly delegated in industry or business
15
Q
Actual Authority - Termination
A
- upon termination of agency relationship
- revocation by principal
- principal changes actual authority
16
Q
Apparent Authority
A
- principal holds out or represents to a 3P that agent possesses authority and
- 3P reasonably believes such authority exists
17
Q
Apparent Authority - Reasonable Belief
A
Considerations:
- whether principal’s communications authorized agent to act in relation to proposed transaction or contract
- whether agent’s actions appear related to principal’s established business
- agent’s title or position within principal’s business and whether agent’s actions appear customarily related to agent’s title or position with principal
- whether purported agent appears to be acting in accordance with specific industry’s customs or practices AND
- whether principal disclosed, partially disclosed, or undisclosed (e.g., if believe dealing directly with principal, undisclosed principal only liable for authorized acts unless liability found inherent agency power)
18
Q
Apparent Authority - Termination
A
ends when 3P receives notice of circumstances that make it unreasonable for 3P to continue to believe agent has authority
19
Q
Inherent Agency Power
A
when agent did not possess actual or apparent authority, court balances interests of all parties to determine whether principal liable to 3P.
Courts tend to protect innocent 3Ps.
20
Q
Ratification
A
- act was one principal could have legally performed or authorized at time it was executed;
- act performed for principal’s benefit;
- principal existed at time act was performed;
- at time of ratification, principal possessed same capacity required to establish agency relationship; AND
- ratification encompassed entire act (cannot ratify just a portion of act)
21
Q
Ratification - Exception
A
not ratified if 3P manifested intent to withdraw from transaction or otherwise not be bound by contract before ratification
22
Q
Ratification - Revocation
A
once ratified, principal cannot unilaterally revoke transaction or contract
23
Q
Ratification - Methods
A
- principal expressly approves unauthorized action through oral or written words
- principal’s conduct is consistent with approving unauthorized action (implied)
24
Q
Contractual Liability - Principal
A
liable to 3P if:
- agent possessed authority to enter into contract on agent’s behalf
- principal ratified OR
- court estops principal from denying agency
25
Contractual Liability - Agency
If principal partially disclosed or undisclosed, both agent and principal liable.
If principal disclosed, agent not liable UNLESS:
- contracting parties intended for agent to be a party to contract as per its terms OR
- agent acted without authority (damages generally limited to actual harm incurred by 3P)
26
Tort Liability - Principal
directly liable for principal's own acts under theories like negligence / intentional torts (negligent hiring/supervision)
vicariously liable for acts of agent IF:
- agency relationship characterized by employer-employee agency (control over agent's work) AND
- tort committed within scope of employment
vicariously liable for acts of independent contractor if activity they were hired to perform is inherently dangerous
27
Tort Liability - Employee v. Independent Contractor Factors
- whether work requires greater skill level or specialized training
- whether agent has multiple clients or independent business or distinct occupation separate from principal's business
- whether agent bring agent's own specialized tools to perform work
- whether agent paid by job rather than salary or ongoing hourly rate
- how the parties characterize the relationship in agreement with respect to extent of control principal exercises over details of work AND
- actions of parties to determine whether principal controls details of agent's work or has control over only the final result
28
Tort Liability - Intentional Torts
liable if employee's conduct
- is of the kind the employee was employed to perform
- occurred within time and space limits of employment
- was motivated by desire to serve employer
29
Tort Liability - Criminal Conduct
serious crimes are outside the scope of employment
30
Tort Liability - Unassigned Task
travel to and from work and frolics are outside the scope BUT detours that serve principal are within scope (de minimum deviations from assigned tasks)
31
Tort Liability - Agents
directly liable under tort theories like negligence or intentional tort
32
Agent's Fiduciary Duties
- duty of loyalty
- duty of care
- duty of obedience
- duty to act within authority
- duty to disclose information
- duty of good conduct
- duty to account
33
Agent - Duty of Loyalty
agent may not:
- compete with principal
- receive material benefit that might interfere with principal's interest
- act on behalf of party with interests adverse to principal
- UNLESS obtains principal's consent in advance
34
Agent - Duty of Loyalty - Consent
requires agent to
- act in good faith
- disclose all material information to principal and
- deal fairly with principal
35
Agent - Duty of Care
duty to act with reasonable care, competence, and diligence of similarly situated agent
36
Agent - Duty of Obedience
must follow principal's lawful instructions and cannot exceed authority given by principal, even if agent does not think principal's instruction are best way to proceed
37
Agent - Duty to Act Within Authority
agent must act within authority given by principal
38
Agent - Duty to Disclose Information
agent must disclose to principal information that agent knows or has reason to know the principal would want to know
39
Agent - Duty of Good Conduct
agent must refrain from damaging the principal's reputation or business
40
Agent - Duty to Account
agent must account for all matters within scope of agency
41
Principal's Fiduciary Duties
- duty to indemnify agent for any payments made or losses incurred by agent consistent with terms of agency relationship
- duty to act in accordance with terms of any contract the principal has with an agent
42
General Partnership - Creation
- two or more persons
- voluntarily carry on a business for profit as co-owners and
- all persons have capacity to contract
43
General Partnership - Creation Factors
- sharing of profits and losses (key factor that creates presumption of partnership)
- right to manage and control the business
- control and use of the property used for conducting the business
- capital contributions
- intent (if voluntary, intent not determinative factor)
- rights upon dissolution of business
- representations as partnership to 3Ps
44
General Partnership - Creation - Statute of Frauds
if business contemplated by partnership agreement cannot be performed within one year, agreement may be enforceable if not in writing
45
General Partnership - Duration
by default, at-will BUT can be established for specific term or particular undertaking
46
General Partnership - Creation Exceptions
these do not create partnership:
- cotentants' receipt of rental income
- sharing of gross returns
- payment of rent
- payment of debt
- payment to employee or independent contractor
- payment of annuity or retirement benefit
- payment of interest on loan
- sale of business's goodwill or other property
47
General Partnership - Profits and Losses
unless designated otherwise, all partners share profits and losses equally regardless of amount or kinds of contributions partners have made to partnership
Profit = revenue - expenses
Partnership generally determines timing / amount of distributions. Cannot force partner to accept and a partner does not have the right to demand.
48
General Partnership - Management and Control
each partner has equal right to participate in management and conduct of partnership business UNLESS partnership agreement states otherwise.
Decisions in ordinary course of business are decided by MAJORITY.
Decisions NOT in ordinary course of business require UNANIMOUS CONSENT.
49
General Partnership - Transfer of Ownership Interest
unless provided for otherwise, can transfer only economic rights to non partner (profits, losses, distribution), not governance rights.
50
General Partnership - Partnership Property
partners may use or possess partnership property for the partnership. Court looks at name on title and assets used to purchase property to determine if partnership property.
If titled in partnership's name or partner's name in partnership capacity, presumed partnership property.
Presumed partnership property if purchased with partnership assets - can outweigh fact that title is in name of individual partner.
51
General Partnership - Right to Information
partners entitled to be informed about partnership business, even if agreement states that consent of that partner not required for business decisions
52
General Partnership - Right to Remuneration
not entitled to compensation for services rendered for partnership except for reasonable compensation for services rendered during winding up of business
53
General Partnership - Right to Reimbursement and Indemnification
reimbursement for payments made
indemnification for liabilities incurred in ordinary course of partnership business
54
General Partnership - Ownership of Inventions
If invented by partner pre-partnership, partnership only owner if transferred to it.
If granted to partner during partnership, look at intent using following factors:
- amount of time devoted to developing patent
- amount of time devoted to partnership
- whether partnership funds used to develop patent and
- how related patent is to partnership business
55
General Partnership - Duties
- duty of loyalty
- duty of care
- duty to account
- duty to render information
56
General Partnership - Discharge of Duties
can discharge duties in partnership agreement as long as consistent with contractual obligation of good faith and fair dealing and not manifestly unreasonable
57
General Partnership - Duty of Loyalty
One or more disinterested, independent persons can authorize or ratify action that might violate duty after full disclosure of material facts BUT generally partner must not:
- appropriate partnership opportunities or otherwise improperly benefit from partnership business or property
- use or possess partnership property improperly
- engage in self-dealing or deals in which partner has COI
- compete with partnership
58
General Partnership - Partnership Opportunity
- closely related to partnership's existing or potential line of business
- would competitively benefit partnership AND
- one the partnership has the financial ability and experience to pursue
59
General Partnership - COI
partner dealing directly or on behalf of another person with interest adverse to partnership
60
General Partnership - COI Defense
not liable if obtained informed consent from other partners or proves transaction was fair to partnership
61
General Partnership - Duty of Care
must refrain from engaging in:
- grossly negligent conduct
- reckless conduct
- willful misconduct
- intentional misconduct
Must also avoid:
- knowingly violating law while conducting partnership business
62
General Partnership - Duty to Account
partnership must keep adequate books and records of its business at its principal office UNLESS otherwise provided for in agreement.
With reasonable notice, each partner can inspect / copy maintained records.
63
General Partnership - Duty to Render Information
partnership has duty to furnish to partners, without demand, information pertaining to business, finances, and other facts material to partners' proper exercise of rights and duties.
Does not apply where partner can establish reasonable belief that other partners already knew information.
64
General Partnership - Partnership's Liability
Each partner = agent and can bind partnership to 3Ps in carrying on ordinary course of business UNLESS 3P knows lacks authority. If outside ordinary course, don't bind unless appropriate authority.
65
General Partnership - Transfers of Partnership Property
subject to any statement of authority, partnership property held in name of partnership can be transferred by any partner.
Real estate: recorded grant of authority to transfer real estate conclusive in favor of transferee for value if no knowledge of limitation on authority.
Improper transfers may be recovered from original transferee but not if subsequently transferred to a holder without notice of the issue.
66
General Partnership - Partner's Liability for Types of Partners
General Partner: jointly and severally liable for all obligations
Newly Admitted Partner: absent express waiver, not personally liable for obligations incurred prior to admission BUT contribution to partnership is at risk for satisfaction of existing debts
Disassociated Partner: liable for all obligations incurred before disassociation UNLESS obligation materially changed without their consent. (Disassociation does not affect duties of loyalty and care with respect to pre-disassociation matters)
Purported Partner - same as general if (1) 3P reasonably relied on purported partner's representation when transaction and (2) purported partner committed affirmative act represented that purported partner was a partner.
67
General Partnership - Partner Liability for Judgment
judgment against partnership is not judgment against individual partner so cannot be enforced against partner individually
68
General Partnership - Partner's Liability - Charging Order
creditor who has judgment against partner can enforce judgment against partnership interest only by obtaining lien against that interest
69
General Partnership / Limited Partnership - Events Causing Dissociation of a Partner
- express will to withdraw
- occurrence of particular specified event
- expulsion per partnership agreement by unanimous vote or judicial decree
- partner is debtor in bankruptcy; signed assignment for benefit of creditors; or had trustee or receiver appointed
- death or incapacity
- if partner is trust/estate, distribution of trust or estate's economic interest in partnership
- if partner is partnership, corporation, trust, or estate, termination of that entity
- participation in merger in which partnership is not surviving entity
- partnership's dissolution and competition of winding up
70
General Partnership - Dissociation and Partnership Agreements
Can vary rights and consequences of dissociation but cannot wholly eliminate power to dissociate
71
General Partnership - Transfer of Partner's Interest
not dissociated from partnership merely because transferred interest to 3P in whole or in part.
72
General Partnership - Wrongful Dissociation
If unlimited term partnership, dislocation only wrongful if breach express provision of partnership agreement.
If definite term / particular undertaking, wrongful if:
- withdraws by express will unless 90 days after another partner's disassociation by death, bankruptcy, or judicial determination of inability to perform partner duties
- partner expelled by judicial determination
- partner dissociated by becoming debtor in bankruptcy OR
- if partner not an individual, trust, or estate, partner expelled or otherwise dissociated because wrongfully dissolved or terminated
*Partnership agreement can modify and allow for recovery of liquidated damages for partnership
73
General Partnership - Wrongful Dissociation Liability
if wrongfully dissociates, may be liable for damages for unauthorized withdrawal
74
General Partnership - Effects of Dissociation
Upon dissociation, will either have dissolution of partnership or continuing partnership with mandatory buyout of disassociating party
Dissolution triggered if:
- partnership at-will OR
- express vote of at least half of remaining partners in term partnership within 80 days after dissociation
Mandatory buyout - amount distributable to partner if, on date of dissociation, partnership assets sold at price equal to greater of liquidation value or value based on sale of entire partnership business [owed interest from date of dissociation to payment]. If wrongful, buyout reduced by any damages caused. If cannot agree for buyout price within 120 after written demand, must pay partner amount the partnership estimates to be buyout price and interest. Dissociated partner can sue to determine buyout within one year after written demand or 120 days of tendered payment or offer to tender payment.
75
General Partnership - Management and Control After Dissociation
Generally right to participate in management and control is eliminated unless dissociation rightfully and resolved in dissolution (in which can participate in winding up).
76
General Partnership - Authority of Disassociated Partner to Bind
within two years of dissociation, retains authority to bind with 3P who (1) has no notice of dissociation and (2) reasonably believes partner still associated with partnership
77
General Partnership - Dissociation and Indemnification
dissociated partner whose interest is being purchased is entitled to indemnification from partnership for all partnership liabilities, whether incurred before or after dissociation, except those incurred by act of disassociated partner.
78
General Partnership - Dissolution
- partnership at will and partner withdraws by express will
- partnership for definite term / undertaking and: (a) term expires or undertaking completed, (b) all partners vote or consent to wind up, or (c) within 90 days after wrongful dissociation, minimum of one half of remaining partners agree to wind up
- occurrence of dissolution-triggering event that is specified in partnership agreement
- judicial decree that conduct of all or substantially all of partnership business unlawful, economic purpose likely to be unreasonably frustrated, another party engaged in conduct relating to partnership business that makes it not reasonably practicable to carry on partnership business with that partner, not otherwise reasonably practicable to carry on partnership business in accordance with agreement, or successful application of transferee of partner's transferable interest
- if 90 consecutive days pass which partnership does not have at least two partners
*agreement can modify / eliminate grounds BUT may not alter stated grounds for judicial decree or vary rights of transferee to seek judicial dissolution
79
General Partnership - Recession of Dissolution
can rescind by affirmative vote or consent of all partners. *can modify in partnership agreement
80
General Partnership - Winding Up
after dissolution, partnership continues solely to wind up (complete remaining partnership business, collect on debts, pay creditors, distribute remaining assets)
81
General Partnership - Winding Up - Partner's Role
can preserve business for reasonable period of time and have authority to perform acts necessary or appropriate to winding up
Dissolved partnership bound by winding-up acts of partner.
82
General Partnership - Winding Up - Judicial Supervision
Court may order judicial supervision of winding up upon application by any partner and a showing of good cause
83
General Partnership - Insufficient Funds
if insufficient funds to settle debts, partners may be assessed deficiency. If pay more than share, right to contribution.
84
General Partnership - Winding Up - Authority to Bind
Partnership bound by acts of partner if:
- act would have bound partnership pre-dissolution
- 3P involved in transaction did not know or have notice of dissolution
85
General Partnership - Termination
terminates when all business wound up.
May, but not required to, file statement of termination
86
Limited Partnerships - Creation
must have one general partner and one limited partner.
Must file certificate of limited partnership with state and pay fee. Certificate must include:
- LP's basic information (name, registered agent, mailing address)
- each general partner's name and mailing address
- signatures of all general partners
87
Limited Partnerships - Profits and Losses
distributions made on basis of contributions to LP. If no contribution, no distribution.
88
Limited Partnerships - Contributions
services, transferring property, conferring benefit.
If fails to fulfill non monetary contribution, LP may require partner to pay money equal to value of contribution.
Neither incapacity nor impracticability of performance excuse partner's obligation. Consent of all partners required to compromise obligation.
89
Limited Partnerships - Distributions
LP determines whether to make and may offset any amounts owed by individual partner to the LP.
Withdrawing limited partners: entitled to fair value of interest in LP as of date of withdrawal (but not entitled to distribution)
Cannot make distribution if:
- unable to pay debts as become due in ordinary course of LP's business activities OR
- LP insolvent at time of proposed distribution
If general partner consents to distribution that violates those prohibitions, personally liable to LP for amount of distribution that exceeds what would have been allowable.
90
Limited Partnerships - Unanimous Consent Required
- amend LP agreement
- amend certificate of limited partnership to add or delete statement that LP is limited liability limited partnership
- sell, lease, exchange, or otherwise dispose of all or substantially all of the LP's property except in the usual and regular course of LP's activities
- alter partner's obligation to make a contribution to LP OR
- admit a new limited or general partner
91
Limited Partnerships - Management and Control by General Partners
equal rights in management and conduct of LP's activities. If more than one general partner, majority must agree.
92
Limited Partnerships - Management and Control by Limited Partners
no rights to participate in management or control of LP
93
Limited Partnerships - Transfer of Ownership Interest
partner in LP may transfer economic rights but not governance rights.
Transfer of interest does not by itself dissociate partner nor does it cause dissolution or winding up.
94
Limited Partnerships - Right to Information
LP can impose reasonable restrictions and conditions on access to and use of information furnished by LP to limited partner.
GP - same rights to information as partner in general partnership
Limited partner - broad rights to insect and copy any LP info required to be maintained and may, upon reasonable demand, attain any info related to LP's interest as well as LP's business and overall financial condition
95
Limited Partnerships - General Partner Liabilities and Duties
liability - jointly and severally liable for LP's obligations
duties - duties of loyalty and care (same as general partnership)
96
Limited Partnerships - Limited Partner Liabilities and Duties
liability - liable only for LP's debts to extent of capital contribution.
- minority view: may be liable for debts if become involved in day-to-day management
- UPLA: not personally liable even if participates in management and control unless dealing with 3P who believes limited partner is a general partner
Duties - no fiduciary duties to limited partnership or any other partner
97
Limited Partnerships - Duties and Liabilities When Mistake
Person who invests in business in the erroneous but good faith belief that the person became a limited partner does not become liable for obligations if, on learning of mistake, files appropriate certificate of limited partnership, amendment, or statement of correction.
Prior to that filing, liable to a 3P who does business in good-faith belief that person is general partner.
98
Limited Partnerships - Derivate Actions
general or limited partner may file suit to enforce right of limited partnership.
Demand must be first made on general partners to bring action in name of partnership (unless futile)
99
Limited Partnerships - Dissociation of General Partner
- express will by providing notice to limited partnership
*cannot eliminate ability to dissociate
wrongful dissociation if:
- breach LP agreement OR
- occurs prior to winding up.
If wrongful dissociation, liable to LP and to limited partners for any incurred damages
100
Limited Partnerships - Dissociation by Limited Partners
no right to voluntarily withdraw prior to winding up.
LP agreement can modify default rule to allow or eliminate dissociation.
101
Limited Partnerships - Liability of Dissociated Partner
Dissociation of general or limited partners does not discharge debt, obligation, or other liability to limited partnership or other partners incurred prior to dissociation
102
Limited Partnerships - Dissolution
Similar to general partnership (and similar rules for recession).
If general partner dissociates, dissolution and winding up required if either:
- LP has at least one remaining general partner, and within 90 days of dissociation, partners owning majority of rights to receive distribution give consent for dissolution OR
- LP has no remaining general partner after passage of 90 days after dissociation, unless, before end of that period, limited partners owning majority of rights to receive distributions consent to continue LP's activities and admit at least one general partner
103
Limited Liability Partnerships - Creation
filing registration statement with state and paying fee.
Name must end with R.L.L.P., L.L.P., RLLP, or LLP
104
Limited Liability Partnerships - Partner's Liability
not liable for debt, obligation, or other liability of LLP but can still be held directly liable
105
Limited Liability Partnership - Similarities to General Partnerships
same rules of dissociation, dissolution, winding up, and termination
