Agency & Partnership Flashcards
AGENCY
Agent
Generally, an “agent” is a person who consents to act on behalf of and subject to the control of another person (the “principal”).
AGENCY
Respondeat Superior
Under the doctrine of respondeat superior, employers are liable for the actions of an employee when the employee is acting within the scope of his employment.
Under the Restatement (Third) of Agency, an employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control. An employee’s act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer.
Whether an employee was acting within the scope of his employment is generally a question of fact. An employee’s conduct is within the scope of his employment if
1. it is of the kind that the employee is employed to perform;
2. it occurs substantially within the authorized time and space limits; and,
3. it is motivated, at least in part, by a purpose to serve the employer. The fact that the act was not authorized is not determinative.
AGENCY
Employer-Employee Liability
Under the Restatement (Third) of Agency, generally, an employer is subject to vicarious liability for torts committed by an employee acting within the scope of employment.
The test of whether a person is an employee is whether the person’s physical conduct in the performance of the services is subject to the employer’s control or right to control. This is generally a question of fact. A number of factors are relevant, including the level of skill required to perform the work, who supplies the instrumentalities used, the duration of the relationship, and whether the work is part of the principal’s regular business. No single factor is determinative.
AGENCY
Agent Authority in Contracts
A principal is not liable on a contract entered into by an agent unless the agent had actual or apparent authority.
AGENCY
Apparent Authority Theory
A principal is liable for a tort committed by an agent when the agent appears to deal or communicate on behalf of the principal and the agent’s appearance of authority enables the agent to commit the tort.
Apparent authority is created with respect to a third person when by written or spoken words or any other conduct, the principal causes the third person “to believe that the principal consents to have the act done on his behalf by the person purporting to act for him.” Restatement (Second) of Agency § 27. The Third Restatement is similar: “[a]pparent authority . . . is created by a person’s manifestation that another has authority to act with legal consequences for the person who makes the manifestation, when a third person reasonably believes the actor to be authorized and the belief is traceable to the manifestation.”
Apparent authority exists when a principal’s communications to a third party cause the third party to reasonably believe that an agent is authorized to act, even if the principal and the purported agent never so agreed.
AGENCY
Principal Liability when Respondeat Superior does not Apply
A principal will sometimes be liable for torts committed by its agents even if the conditions of respondeat superior liability (i.e., an employer/employee relationship and conduct within the scope of employment) are not satisfied. For example, a principal can be liable if the principal was negligent or reckless in the selection of the agent.
AGENCY
Principal Liability: Special Relationship with Injured Person
A principal can also be liable for an agent’s torts if the principal has a special relationship with the injured person that imposed a special duty on the principal to take care to protect against the risk that the agent would harm the injured person.
AGENCY
Actual Authority
Actual authority exists when the principal by written or spoken words or other conduct “causes the agent to believe that the principal desires the agent to act on the principal’s account.
“An undisclosed principal is bound by contracts . . . made on his account by an agent acting within his authority.” Restatement (Second) of Agency § 186; accord, Restatement (Third) of Agency § 6.03.
Under the Second and Third Restatements of Agency, an agent who purports to act on his own account, but in fact is making a contract on behalf of an undisclosed principal, is also a party to the contract. The rationale for this rule is that the third party has every reason in the case of an undisclosed principal and agency to assume that the person with whom it contracts expects to be liable on the contract. Additionally, to the extent the third party was relying on the financial solvency of the person on the other side of the contract, the third party would have no basis to rely on anyone but the agent who signed the contract.
Actual authority may be express or implied.
* Actual express authority—arises where a principal expressly causes an agent to believe that she has been empowered to act on the principal’s behalf.
* Actual implied authority—authority that an agent has to take actions that are reasonably necessary to carry out the principal’s express instructions.
AGENCY
Partially Disclosed Principal
Under the Restatement (Second) of Agency, when a third party contracts with a person that the third party knows is acting in an agency capacity for another but the third party is unaware of the identity of the principal, the principal for whom the agent acts is called a “partially disclosed principal.”
PARTNERSHIP
Partnership
A partnership is defined as an association of two or more persons to carry on as co-owners a business for profit whether or not the persons intend to form a partnership.
In addition, “[a] person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment . . . for services as an independent contractor or of wages or other compensation of an employee.”
PARTNERSHIP
Partnership Authority to Act
Even if a partner lacks actual authority, a limited liability partnership can be bound by the acts of a partner, “including the execution of an instrument in the partnership name,” if the partner was “apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership . . . .”
PARTNERSHIP
Partnership Liability for Wrongful Acts of Another Partner
Generally, a partnership is liable for loss or injury caused to a third party because of the wrongful act of a partner acting in the ordinary course of partnership business.
Partners are personally liable for the obligations of a general partnership.
PARTNERSHIP
Partnership Liability for Own Wrongful Acts
Partners can become liable, however, for partnership obligations based on their own personal misconduct.
PARTNERSHIP
Reimbursement of a Partner
A partnership must reimburse a partner for any payment made by the partner in the course of the partner’s activities on behalf of the partnership, provided the partner complied with his fiduciary duties in making the payment. Partnership must indemnify partner for payments in the ordinary and proper conduct of its business.
Generally, a partner is not entitled to separate remuneration for services on the theory that a partner’s compensation for his or her services is his or her share of profits.
PARTNERSHIP
Rights to Management in a Partnership
Under the Revised Uniform Partnership Act, each partner has equal rights in the management and conduct of the partnership’s business.
This grant of authority to each partner is tempered by subsection 401(k), which provides: “A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the affirmative vote or consent of all the partners.”
As the comments to Section 401(h) note, the scope of a partner’s authority is governed by agency law principles. If the partnership agreement is silent on the scope of the agent-partner’s authority, a partner has actual authority to commit the partnership “to usual and customary matters, unless the partner has reason to know that (i) other partners might disagree, or (ii) for some other reason consultation with fellow partners is appropriate.”
PARTNERSHIP
Matters Outside of the General Course of the Partnership Business
As a general rule, matters outside the ordinary course of a partnership’s business must be unanimously approved by the partners. RUPA § 401(k).
PARTNERSHIP
Formation of an LLP
A limited liability company is formed by the filing of a signed certificate of organization with the Secretary of State. Rev. Unif. Limited Liability Company Act § 201 (2006, as amended).
PARTNERSHIP
Dissociation from the Partnership
A partner is dissociated from a partnership when the partnership has notice of the partner’s will to withdraw as a partner. A partner can dissociate from the partnership at any time. The notice of the partner’s will to withdraw does not need to be in writing.
The dissociation is rightful—that is, the dissociating partner has no obligations to the other partners—when the partnership is at will and the dissociation breaches no express provision in the partnership agreement.
Normally, a partner’s dissociation in an at-will partnership results in its dissolution, and the business must be wound up. But such dissolution can be rescinded by the affirmative vote or consent of all remaining partners. Under RUPA, as amended, the dissociating partner is no longer considered a partner and does not participate in this decision to continue the partnership.
When a partnership is continued and not dissolved, the dissociating partner is entitled to have her interest purchased for a buyout price equal to that partner’s interest in the value of the partnership, based on the greater of its liquidation or going-concern value (plus interest from the date of dissociation). Further, if the withdrawing partner makes a written demand for payment and no agreement is reached within 120 days after the demand, the partnership must pay in cash the amount it estimates to be the buyout price, including accrued interest.
During the winding-up process, partners who participate in the winding up of partnership business continue to have a fiduciary relationship to the partnership and the other partners. In addition, the partner must perform his duties during the winding up of the partnership business “consistently with the contractual obligation of good faith and fair dealing.”
PARTNERSHIP
Duties in a Partnership
Under RUPA, a partner owes to the partnership and the other partners the duties of loyalty and care.
Partners are liable for damages to the partnership and co-partners for breach of these duties. Claims for breach of duties by partners in a limited liability partnership are not subject to the rule of limited liability applicable to claims by outside parties.
The fiduciary duty of loyalty includes the obligation to refrain from appropriating partnership assets for personal use.
The duty of care, which is remediable in damages, includes a duty not to engage in intentional misconduct and knowing violations of law.
The duties of loyalty and care run to both “the partnership and the other partners.”
AGENCY
Agency
Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assetnt to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent consent so to act.
AGENCY
Authority
If an agency relationship exists, an agent who makes a contract with a third party on behalf of a disclosed principal binds the principal to the contract if the agent acted wtih actual or apparent authority.
AGENCY
Ratification of Authority
Even when an agent lacks actual or apparent authority to bind the principal, ratification can cure this lack of authority. Ratification is the affirmance of a prior, nonbinding act done by another, whereby the act is given effect as if done by an agent acting with actual authority. A person ratifies an act by accepting the results of the act with an intent to ratify, and with full knowledge of all the material circumstances surrounding the act.
PARTNERSHIP
General Partnership
If a partnership was formed without the formalities required of other types of partnership, it is likely a general partnership. If each person receives a share of the net profits of the partnership, each is presumed to be a partner in the partnership. If a person receives profits in payment of a debt, the person is not presumed to be a partner in the partnership.
PARTNERSHIP
General Partnership: Transferrable Interest
A partner has a transferable interest in the profits and losses of the partnership and in the right to receive distributions. However, that interest is limited—a transfer of the partnership interest does not make the transferee a partner unless the other partner or partners consent to making the transferee a partner.
PARTNERSHIP
General Partnership: Liability
Partners in a general partnership are jointly and severally liable for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.
Wrongful death: General partners are jointly and severally liable for a wrongful death claim that arose after the Certificate of Limited Partnership was filed.
PARTNERSHIP
Partnership Property
Property is partnership property if it is acquired in the name of the partnership. Partnership property is property of the partnership and not of the partners individually.
PARTNERSHIP
Partnership Dissociation
Under the Uniform Partnership Act, a partner can dissociate from the partnership at any time by giving notice to the partnership. On dissociation, the dissociating partner must be paid their capital account and share of profits.
Wrongful Dissociation: The right to dissociate can be exercised by the dissociating partner at any time even if the exercise of the power to dissociate was wrongful. Dissociation is wrongful if it is done in contravention of the terms of the partnership agreement. A partner who wrongfully dissociates is liable to the partnership for any damages caused by the dissociation.
**Modified terms: **: Generally, the provisions of the UPA are default law that can be modified by the terms of a partnership agreement. However, a partnership agreement cannot modify the right to dissociate except to require tha a dissociation notice be in writing.
PARTNERSHIP
Partnership Dissolution
A dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. Dissolution of a partnership is caused by the express will of any partner when there is no definite term or undertaking specified in the partnership agreement. (I.e., if a partner notifies the partnership that he no longer wishes to be associated with the partnership, the partnership will be dissolved.)
PARTNERSHIP
Dissociating Partner
If a partner dissociates and it is not wrongful, the partnership must be dissolved, and the business must be “wound up.” The dissociating partner would be entitled to participate in the winding up of the partnership (ie, force the cessation of operations and sale of assets).
Under the UPA, the partnership is bound by a partner’s act after dissolution of the act was appropriate to the winding up of the partnership. If the partnership is bound, then each partner is liable for his proportionate share of the liability. Thus, a dissociating partner, whether the dissociation was rightful or wrongful, cannot avoid liability for partnership debts incurred during the winding up process.
PARTNERSHIP
Wrongful Dissociation
Under the UPA, a partner’s wrongful dissociation from the partnership does not cause the partnership to be dissolved if the remaining partners waive the right to have the partnership terminated and its business wound up. The remaining partners may choose to continue operating the business for a reasonable time. If the remaining partners choose to continue operating the business, the partner who caused the wrongful dissociation would be entitled to receive the value of his interest less the damages he caused by wrongfully causing the partnership’s dissolution.
PARTNERSHIP
Limited Partnership
To create a valid limited partnership, statutory requirements must be met. A limited partnership must include a general partner who has signed the initial Certificate of Limited Partnership filed with the Secretary of State. Further, a certificate of limited partnership must be filed with the state.
PARTNERSHIP
Limited Liability Partnership
Under the Uniform Partnership Act (UPA), a limited liability partnership continues to be the same entity that existed prior to the filing of a statement of qualification as an LLP. The filing of a statement does not create a new partnership.
Under the UPA, partners in a partnership are jointly and severally liable for all obligations of the partnership unless otherwise agreed by the claimant or provided by law. When a partnership has qualified as an LLP, any obligation incurred while the partnership is a limited liability partnership, whether arising in contract, torts, or otherwise, is solely the obligation of the LLP. Partnership obligations incurred before a partnership becomes a limited liability partnership are treated as obligations of an ordinary partnership.
A person who is admitted as a partner is not personally liable for any partnership obligation incurred prior to the admission of the person to the partnership.
AGENCY
Liability of Principal in Contracts
Generally, the principal is usually always liable on a contract made by an agent, unless they are an undisclosed principal.
AGENCY
Liability of Principal and Independent Contractor
Where the independent contract commits negligent, the distinction between employee and independent contractor is relevant.
A principal is vicariously liable for the negligence of their independent contract where the independent contract is engaged in an inherently dangerous activity, or the duty is non-delegable.
