Agency & Partnership Flashcards
Agency: Agency & Its Creation
Agency concerns the relationship that exists between an agent and principal whereby the agent acts on principal’s behalf and is subject to the principal’s control.
Creation - agency relationship is created when:
1) Consent - parties expressly or impliedly agree to enter an agency relationship; and
2) Control - agent is subject to the principal’s control
>E.g., agent is at least supervised by principal
3) Acting on Behalf - the agent must be acting on behalf of the principal, which is generally understood to mean that the agent must be acting primarily for the benefit of the principal
Methods of creation - agency can be created by:
>Agreement by parties - writing not required
>Apparent authority - principal holds another out as her agent to a third party
>Ratification - principal agrees retroactively to be bound by previously unauthorized acts of agent
Agency: Termination of an Agent’s Actual Authority
An agency relationship can end by act or agreement of the parties or by operation of law.
Termation by parties - agency can be terminated by parties where:
>Party desire - either party maifests to the other the desire to terminate the agency relationship (termination effective when notice is recieved)
>Expiration - express terms of the agency expire
>Purpose fulfilled - the purpose of the agency relationship has been fulfilled
Termination by operation of law - can occur where:
>Agent or principal dies
>Agent or principal loses capacity
>Agent materially breaches a fiduciary duty owed to principal
Agency: Rights & Duties of Principal & Agent
In the absence of anything contrary in their agreement, agent and principal owe the following duties to each other
Duties of agent to principal - loyalty, obedience, care
1) Loyalty - agent has a fiduciary duty of undivided loyalty to principal
>Agent breaches duty if he has adverse interests and fails to disclose such interests; agent cannot act on behalf of two different principals with adverse interests
2) Obedience - agent must obey principal’s lawful instructions
>Agent’s interpretation of principal’s instructions must be reasonable under the circumstances
3) Care - agent must carry out his agency with reasonable care
>Reasonable care judged in light of local community standards
>Duty to notify - included in duty of care; agent must notify principal of all agency-related matters that come to agent’s attention; all such matters are imputed to principal
Duties of principal to agent - compensation, reimbursement, cooperation
1) Compensation - unless agent agrees to act gratuitously, principal owes agent a duty to compensate him reasonably
2) Reimbursement - principal must indemnify agent for all expenses and losses reasonably incurred in carrying out agent’s duties
>Includes legal liability incurred by agent
3) Cooperation - principal must cooperate with agnet to help agent carry out agency functions
Agency: Agent Authority & Principal Liability Basics
One is generally not liable for the acts of another unless they have made the other person their representative and given the other person the power to bind them
>Such power to bind can arise through actual authority, apparent authority, or ratification authority
Approach - in determining if a principal will be bound by an agent’s act (usually arises in the context of whether a principal is bound by a K entered into by agent with a third party), use the following approach:
>Ask: Did agent have actual authority?
»Yes - principal will be bound regardless of whether third party knew of agent’s authority
»>Agent cannot be held liable to principal as long as agent acted within the scope of her actual authority
»No - look at whether agent had apparent authority or raitification authority
»>Apparent authority will bind principal to K, but agent may be held liable to principal for acting beyond scope of her actual authority
»>Ratification can bind principal for agent’s unauthorized conduct
Agency: Actual Authority
An agent acts with actual authority when, at the time of taking an act having legal consequences for the principal, the agent reasonably believes that the principal wishes the agent to act
>I.e., actual authority is the authority the agent reasonably believes he possesses based on his dealings with principal
Express v. implied authority:
>Express actual authority - authority expressly provided to agent by principal (i.e., provided in writing or orally from principal to agent)
»E.g., principal directs agent to engage in a precise task; in doing so, agent has express actual authority
>Implied actual authority - authority agent reasonably believed he has based on the principal’s actions (i.e., words or conduct)
»Includes incidental acts taken by agent that are reasonably necessary to complete a task or transaction on principal’s behalf
»E.g., if principal tells agent to “hire a receptionist,” agent has authority to take actions reasonably necessary to do so (e.g., place a job posting, interview candidates, etc.)
Termination - actual authority of any kind can terminate due to lapse of time (specified or unspecified), happening of an agreed-upon event, change of circumstances, etc.
Agency: Apparent Authority
Even when an agent lacks actual authority, principal can be held liable for agent’s acts if agent acted with apparent authority
>Agent’s acts will be binding on principal if a third party can show that agent acted with apparent authority
>Note - if a third party knows that the agent does not have actual authority, apparent authority does not exist
Requirements - agent acts with apparent authority if:
1) Principal holds agent out as having authority to act on principal’s behalf; and
2) Principal’s conduct causes third party to reasonably rely on the agent’s appearance of authority
“Holding out” - principal must affirmatively act or fail to act in a way that causes the third party’s reasonable belief (mere assertion of authority by agent is insufficient to bind principal)
>Affirmative act - can be words or conduct by principal that causes third party’s reasonable belief in agent’s authority
>Inaction - can be inaction by principal, where a duty to act exists, that causes third party’s reasonable belief in agent’s authority (e.g., where principal knows third party wrongly believes agent has authority to act, principal has a duty to correct)
Apparent authority - based on the principal’s words or conduct, the reasonable third party believes that the agent is authorized
Actual authority - based on principal’s words or conduct, the reasonble agent believes that he is authorized
Agency: Ratification
Where an agent purports to act on behalf of a principal but lacks authority to do so, principal may still be bound by the agent’s acts if she subsequently ratifies the acts
Requirements:
1) Agent purported to act on principal’s behalf
>E.g., entered into K with third party without authority to do so
2) Principal has knowledge of material facts of the act (e.g., K terms)
>Principal must know or reasonably should know of material facts when agent’s act is affirmed/ratified
3) Principal affirmed (i.e., ratified) agent’s conduct
>Affirmance can be express or implied (i.e., conduct by principal consistent with approval of the otherwise unauthorized act)
>If principal accepts benefits of the agent’s act when it is still possible to decline, principal will be deemed to have raified agent’s act
Effect of ratification - principal who ratified an agent’s unauthorized act becomes liable to third parties for those acts
>E.g., if principal ratifies a K agent unauthorizedly entered into with third party, principal is bound to the K and can be held liable to third party
Agency: Liabilities of Agents & Principals to Third Parties
Upon establishment of a valid K entered by agent with a third party on principal’s behalf, the liabilities of principal and agent to third party depend on whether principal was disclosed to the third party
Third party v. principal - if agent had authority, principal is liable to third party
Third party v. agent - depends on whether principal is disclosed
>Disclosed principal - where third party knows of principal’s existence and identity
»Principal is liable, agent is not liable
»Only principal, not the agent, can enforce the K
>Undisclosed and/or unidentified principal - both agent and principal are liable to third party and either can enforce the K
»Note - if agent enforces the K, principal is entitled to all rights and benefits under the K
»Undisclosed principal = third party does not know of a principal’s existence or identity
»Unidentified principal = third party knows that a principal exists, but does not know her identity
Agency: Principal’s Liability for Agent’s Torts (Respondeat Superior)
Principals may be held liable to third parties for torts committed by their agents acting as employees or servants
>Respondeat superior - doctrine under which principal liability arises for torts committed within the scope of agency/employment
>For torts committed outside that scope (i.e., respondeat superior does not apply) principal can be liable if agent acted with authority
Requirements - principal will be liable where:
1) Employer-employee relationship exists between prinicpal and party who caused the injury
>Principal generally not liable for independent contractors
2) Tortious conduct was committed within scope of employment
>Tort is within scope of employment if:
»a) Conduct was the same or similar in nature to that which the employee was hired to perform, and/or
»b) Tort was committed in service of employer and/or to further employer’s goals
Intentional torts - employer is usually not liable b/c intentional torts are usually outside the scope of employment
>Exception - employer can be held liable where intentional tort occurs as a natural incident to carrying out employer’s business
Agency: Principal’s Liability for Independent Contractor Torts
Principals are generally not liable for acts committed by independent contractors (“ICs”) b/c their work is outside the scope of an employment/servant-type agency relationship
Distinguishing ICs from employment/servant relationship:
>Distinction turns on principal/employer’s right to control the manner and method by which a person performs their job
»Employment relationship - employee is compensated on a time basis (e.g., per hour, per year, etc.); employer has a right to control the manner and method by which employee performs the job
»IC relationship - IC hired to do a particular job; paid a given amount for the particular job; principal has limited rights to control the manner and method in which IC performs
Principal’s liability for IC acts - public policy dictates that principals should be liable for certain torts committed by ICs
>Principals can be held liable for IC torts where:
»a) Inherently dangerous activities - acts performed by IC that are, by nature, inherently dangerous, or
»b) Principal knowingly hired an incompetent IC
Partnership: Types of Partnerships
There are three types of partnerships that may arise on essays:
1) General partnership - any association of two or more people as co-owners of a for-profit business
>Formation - no formal agreement required; parties’ intent to associate as co-owners in a business for profit can be inferred
>Liability - all partners are liable, personally and jointly, for all partnership debts
2) Limited liability partnership (“LLP”) - partnership in which partners’ potential for personal liability is limited
3) Limited partnership - partnership with different levels of partners
Note on partnership rules - the rules on these cards generally apply to all partnership types, unless otherwise noted
>also note that these cards assume default rules for partnerships, but partnership agreements can create different rights, duties, and obligations
Partnership: Partnership Formation
A partnership is formed when two or more people associate to carry on a for-profit business as co-owners
>No formalities required - no formal agreement is required; parties’ intent to associate as co-owners can be inferred from their conduct
Proving a partnership exists - questions may address whether a partnership has been formed given the parties’ relationship
>Parties’ intent - where parties inteded to carry on a business as co-owners, a partnership is formed regardless of whether they intended to be in a partnership
>Other factors - where parties’ intent is unlcear, courts look at:
»Profit-sharing - persons who receive a share of a business’s profits are presumed to be partners in the business
»>Exception - profits recieved as payment of a debt, rent, wages, services rendered, etc (i.e., payment is for a business expense, not a profit distribution)
»Lesser factors - the following factors may also be examined, but their existence does not create a presumption of partnership formation: a) sharing of control; b) contributions of capital; and c) joint ownership of property
Partnership by estoppel - where no partnership exists, parties may be held liable to third parties as a partnership if they actively held themselves or others out as partners or consented to being held out as partners
Partnership: Partners’ Rights in Property, Profits, & Management
Partnership property - consists of captial contributed by each partner and all property owned by the partnership; all else is individual property
>Determining partnership vs. separate property - guidelines:
»Property deemed the partnership’s - anything titled in the partnership name or in the name of one or more partners in their capacity as partnership members
»Property presumed to be the partnership’s - property purchased with partnership funds, regardless of who has title
»Other factors - in the absence of the above, courts may look at: use of property by partnership; entry of property in partnership books; improvement and maintenance of property with partnership funds
>Partners’ interests in partnership property - partners have no individual interest in partnership property
Share of profits - each partner has a transferable interest consisting of her share of profits and losses and her right to receive distributions
>Each partners’ share is equal absent an alternative agreement
>Each partner must contribute to partnership losses in proportion to their share in profits
Right to manage - absent an alternative agreement, partners have equal rights in management of the partnership business
Partnership: Fiduciary Duties
Partners owe the partnership and fellow parnters the following duties:
1) Loyalty - each partner must:
>i. Account for property, profits, or benefits derived in connection with the partnership business; and
>ii. Refrain from:
»a) Competing with the partnership; and
»b) Dealing with the partnership as, or on behalf of, a party with an adverse interest to the partnership
2) Care - each partner must refrain from engaging in misconduct, spcifically:
>a) Grossly negligent or reckless conduct,
>b) Intentional misconduct, or
>c) Knowing violations of the law
Obedience - partners are agent of the partnership and, as such, must obey all reasonable directions from the partnership
Complete and accurate information - partners must provide each other and the partnership complete and accurate information concerning the partnership
Partnership books and information - every partner has a right to inspect and copy partnership financial information
Note - be sure to discuss the relevant duty if you see any fact pattern containing an act of malfeasance, misconduct, or disloyalty by a partner
Partnership: Liabilty of Partners & the Partnership
Contract liability - all partners are liable for any K made in the scope of the partnership business and other Ks expressly authorized by the partners
>Power to bind - a partner can bind the partnership for any transaction in the ordinary course of the partnership buiness, unless:
»1) Partner has no authority to act on behalf of partnership; and
»2) Other side has knowledge or notice that partner lacks authority
>Acts outside ordinary partnership busniess - acts by individual partners outside partnership business do not bind the partnership unless all partners authorize the act
Tort liability - partners are liable for torts committed by a partner or employee if the tort is commited either:
>a) In the ordinary course of partnership business, or
>b) With authority of the partnership
Nature and extent of liability - all partners are jointly and severally liable
>All partners are jointly and severally liable for all partnership debts if the partnership cannot satisfy the debts itself
Note - LLPs and Limited Partnerships have limited liability
