Agency, Partnership, & LLCs Flashcards
What is an agency?
It refers to the legal relationship whereby one person (the principal) manifests assent that another person (the agent) shallact on her behalf and under her control, and the agent consents to so act
Who must have contractual capacity for an agency relationship to be valid?
The principal
What capacity must an agent have?
Minimal capacity; but if an agent has literally no mental capacity, he cannot act for principle
Can a minor be an agent? A principal?
Agent= yes Principle= no
When may an agent be disqualified?
(1) when he agent is representing both parties;
(2) when the agent fails to have a. Required license
When will a principal be liable for torts committed by its agent?
Two part test?
(1) principal agent relationship
(2) the tort was committed by the agent within the scope of that relationship
What three elements does principle agent relationship require?
(1) Assent
(2) Benefit
(3) Control
What is required to show asssent in a principal agent relationship?
Informal agreement between principal w/ capacity and the agent
What is required to show benefit in a principal agent relationship?
Agent’s conduct must be for the benefit of the principal
What is required to show control in a principal agent relationship?
Principal must have the right to control the agent by having the power to supervise the manner of the agent’s actions
Will the principal be vicariously iable if its agent gets the help of a sub-agent and the sub-agent commits the tort?
The principal will be liable for a sub-agent’s tort only if there is assent, benefit, and control between the principal and the sub-agent
Will a principal who borrows another principal’sa Gent be viscous iable for the borrowed agent’s torts?
The borrowing principal will be liable if there is assent, benefit, and control between her and the agent
Will there typically be liability imposed on a borrowing principal for actions of a borrowed agent?
No, because though there is likely assent and benefit to the principal, there is usually no right to control the borrowed agent
NOTE: this is a typical independent contractor scenario
What is the key distinction between an agent and an independent contractor?
There is no right to control an independent contractor because there is no power to supervise the manner of its performance
What is the general rule for vicarious liability of independent contractors?
Generally, there is no vicarious liability imposed on a principal for the torts committed by an independent contractors
What are the exceptions to the general rule that there is no vicarious liability imposed on a principal for the torts committed by an independent contractors
(1) inherently dangerous activities;
(2) estoppel: if the principal hold out independ contractor with the appearance of agency, the principal will be estopped from denying liability
How do we determine whether a tort was committed “within the scope” of the agency relationship?
(1) Was the conduct of the kind the agent was hired to perform? If yes, then the act was within the scope of the agency
(2) did the tort occur on the job: Minor detour? Yes; Major Frolic? No.
(3) did the agent intend to benefit the principal? If yes, then inside the scope
What is a frolic?
A new and independent journey —> outside the scope of the agency
What is a detour?
A mere departure form the the task —> inside the scope
True or false: if the agent, even in part, intended to benefit the principal, that’s enough for an act to be considered inside the scope of an agency.
True
Is a principal liable for the intentional torts of its agent?
Generally, no intentional torts are outside the scope of the agency
What are the exceptions to the general rule that principals are not liable for the intentional torts of its agents?
Intentional torts are inside the scope of the agency if:
(1) authorized by the principal
(2) the tort was natural from the nature of your employment (bouncers, security guards)
(3) the intentional tort was motivated by a desire to serve the principal
What is the test to determine whether the principal is liable on a contract entered into by an agent?
Principal is liable for contract entered into by its agent only if the principal authorized the agent to enter the contract
What are the four types of authority that an agent may have?
(1) Actual Express Authority
(2) Actual Implied Authority
(3) Apparent Authority
(4) Ratification
What is actual express authority?
Principal used words to express authority to agent
Must actual express authority be in writing? Made public?
No, it may be an oral private agreement between the agent and the principal
NOTE: if the contract itself is subject to the statute of frauds, the authority must also be in writing
How can express authority be revoked?
(1) unilateral act of either the principal or the agent; OR
(2) Death or incapacity of the principal
NOTE: if principal gives a durable power of attorney, express authority can survive death of the principal
What is a durable power of attorney?
Power of Attorney= written expression of authority
Durable= Conspicous survival language
True or false: actual express authority is narrowly limited to actual words within it
True
What is actual implied authority?
Authority which the principal gives the agent through conduct or circumstance
What are the types of actual implied authority?
(1) necessity
(2) custom
(3) prior acquiescence by the principal
In a case of actual implied authority, under the theory of necessity, the agent has implied authority to…
do all tasks which are necessary to accomplish an expressly authorized task
In a case of actual implied authority, under the theory of custom, the agent has implied authority to…
Do all tasks by custom are performed by someone with the agent’s title or position
In a case of actual implied authority, under the theory of prior acquiescence by the principal, the agent has implied authority to…
Do all tasks the agent believes to be authorized to do by prior acquiescence of the principal
What is the test for apparent authority?
(1) the principal cloaked agent with the appearance of authority; and
(2) third party reasonably relied on the appearance of authority
What is ratification?
Authority that is granted after the contract has been entered
What are the elements of valid ratification?
(1) principal has knowledge of all material facts regarding the contract; AND
(2) the principal accepts its benefits
NOTE: ratification cannot alter the terms of the contract, ie partial ratification is invalid
Are agents liable on contracts it has authority to enter on behalf of the principal?
Generally, no
What is the exception to the rule that agents are not personally liable on contracts entered into on behalf of the principal?
The agent will be personally liable if a principal is partially disclosed (third party knows there is a principal, but does not know their identity); or undisclosed (third party does not know of the principal’s existence)
What duties does a principal owe and agent?
Reasonable compensation and reimbursement of expenses
What duties do agents owe a principal?
(1) duty of care
(2) duty to obey reasonable instructions
(3) duty of loyalty
What things may an agent NEVER do (i.e. will violate the duty of loyalty)
(1) self-dealing: agent cannot recieve a benefit to the detriment of the principal
(2) Usurping the principal’s opportunity; OR
(3) Secret profits: making a profit at the principal’s expense without disclosure
What remedy does a principal have against an agent that has breached her duty of loyalty?
(1) losses caused by breach including indemnity
(2) principal may disgorge profits from the breaching agent
What formailities are required to form a partnership?
None
NOTE: this means that people may be characterized as partners when the did not affirmatively intend to create a partnership
What is the definition of a partnership?
Association of two or more persons who are carrying on as co-owners of a business for profit
What is the key factor tending to show a partnership?
Sharing of profits
True or false: contribution of money or services for a share of profits creates a strong presumption of a general partnership
True
Are partners agents of the partnership?
Yes, for apparently carrying on usual partnership business
Is a general partnership liable for each partner’s torts in the scope of partner business?
Yes
Is a general partnership liable for each partner’s authorized contracts?
Yes
Is each general partner personally liable for all debts of the partnership? For each co-partner’s torts?
Yes, Yes
Is an incoming partner liable for pre-existing debts of the partnership?
Generally, no. An incoming partner is not liable for prior debts, buy any capital paid into the partnership can be used to satisfy prior debts
Is a dissociating (withdrawing) partner liable for subsequent debts?
The dissociating partner retains liability of future debts until actual notice of dissociation is giant to creditors, OR 90 days after filing notice of dissociation with state.
How is a general partnership by estoppel created?
When a person represents to a third party that a general partnership exists, they will be liable as if a general partnership exists
Are general partners fiduciaries of each other and the partnership?
Yes
What duties are owed to the partnership and other partners?
Duty of loyalty
What may a general partner never engage in under her duty of loyalty?
(1) self dealing
(2) usurping partnership opportunity
(3) make a secret profit
What remedy may a partnership seek if a partner has breached their duty of loyalty?
(1) losses caused by breach including indemnity
(2) disgorge profits from breaching partner
What are examples of specific partnership assets
Land, leases, or equipment
Who owns specific partnership assets?
The partnership itself.
May an individual partner transfer specific partnership assets?
Yes, but only when acting with authority
Who owns shares of profits?
It is personal property owned by individual partners.
May shares of profits be transferred by individual partners without authority from the partnership?
Yes, they are liquid and transferable
Who owns a share in management?
Owned by the partnership itself.
May shares of managment be transferred by individual partners without authority from the partnership?
No
What test is used to determine whether property belongs to the partnership or an individual partner?
Look to whose money was used to buy the property:
If partnership money is used: its partnership property
If personal money of a partner is used: it is personal property
In the absence of agreement, how are voting rights distributed in a partnership?
Each partner is entitled to equal control (one vote per partner)
How many votes are required for partnership to take an action in ordinary affairs?
Majority
How many votes are required for partnership to take an action in fundamental matters?
It must be unanimous
What salary do partners get in the absense of an agreement?
No salary
NOTE: partners do get paid a salary for helping wind up a business
In the absense of an agreement on profit sharing, how are profits shared?
Profits are shared equally
In the absense of an agreement on losses, how are losses shared?
Losses are shared like profits
If an agreement is silent on both profits and losses, how are profits shared? Losses?
Equally, equally
If an agreement states that profits are shared 60/40 but is silent on losses, how are losses shared?
60/40
If an agreement states that losses are shared 60/40 but is silent on profits, how are profits shared?
Equally
What is a dissociation?
Change in relationship between partners caused by any partner ceasing to be associate in the carrying on of the business
How does a parter become dissociated?
(1) oral or written notice of the partner’s express will to withdraw;
(2) happening of an agreed event
(3) valid expulsion of the partner
(4) the partner’s bankruptcy
(5) the partner’s death or incapacity to perform
Does a partner’s right to manage the partnership terminate at dissociation?
Yes
Can a dissociated partner bind the partnership?
Yes, within two years of dissociation:
(1) the act would have bound the partnership before dissociation; and
(2) the other party to the transaction (a) reasonably believed the dissociated partner was still a partner and (b) did not have notice of the dissociation
What event typically triggers dissolution?
notification by any partner of an express will to withdraw as a partner
What is the real end of the partnership?
Termination
What is winding up?
Period between dissolution and termination in which remaining partners liquidate partnership assets to satisfy partnership creditors
True or false: The partnership and therefore its individual general partners remain liable on transactions to wind up old business by satisfying creditors who exist when wind up began
True
The partnership and therefore its individual general partners remain liable on brand new transactions during winding up until…
actual notice of dissociation is giant to creditors, OR 90 days after filing notice of dissociation with state.
What is the order of priority for distribution of partnership property
(1) all creditors must be paid
(2) all capital constrictions paid into the partnership must be repaid
(3) profits if any, share equally without an agreement
Who is a partnership creditor?
Non-partner trade creditors and all partners who loaned money to the partnership
Must each level of priority be satisfied before moving to the next?
Yes
True or false: each partner must be repaid his or her loans and capital contributions, plus that partner’s share of any profits, or minus that partner’s hare of any losses
True
What is a limited partnership?
A partnership with at least one general partner and at least one limited partner
How is a limited partnership created?
By filing limited partnership certificate that includes name of partnership and names of general partners
What are general partners liable for in a limited partnership?
They are personally liable for limited partnership obligations
Who has the right to manage a limited partnership?
The general partners
What are limited partners liable for in a limited partnership?
They are not personally liable for obligation of the limited partnership itself
May a limited partner control (manage) the limited partnership?
Most states: no, without forfeiting limited liability status
ULPA: limited partners may manage without giving up status
How is a limited liability partnership formed?
By filing a statement of qualification with the state
Are any partners individually liable for obligations of the LLP?
No, but they may be sued for their individual torts
What is a limited liability company?
It is a hybrid between a corporation and partnership which owners (members) have same rights and limited liabilities of shareholders and benefit partnship tax treatment
What is required to form an LLC?
File articles of organization and may adopt operation agreement
Who may manage an LLC?
There is a choice:
Members may manage or they may delegate management duties to managers (similar to a board of directors of a corporation)
How may a member’s interest be transferred in an LLC?
It is limited liquidity. Full member interes may not be transferred without unanimous consent of the members or by operation agreement
When will an LLC dissolve?
Upon unanimous consent of the members or as laid out in the operating agreement
What is the formula for an LLC?
LLC= Limited liability + limited liquidity + limited life + limited tax
