Agency & Partnerships

Question 1

Agency Definition, Creation & Termination

Answer 1

• Agency Definition: The fiduciary relationship between an agent and principal
• Created when
  
  • 1) principal and agent assent/consent that the agent will act for the principal’s benefit and
  • 2) the agent is subject to the principal’s control (any amount is fine)
  • easy as ABC
• Terminated by
  
  • 1) the parties via an act or agreement
    
    • party desire, agreement expiration, fulfilled purpose
  • 2) operation of law
    
    • A/P dies, A/P loses capacity, agent breaches fiduciary duty owed to P

Question 2

Authority of Agent to Bind Principal

Answer 2

• An agent may bind a principal to a K if:
  
  • if the agent is acting within his actual or apparent authority, or inherent agency power.
• Once a principal is validly bound to a K by his agent, the principal is liable under the terms of the contract
• Note: Partners in a general partnership (and members in an LLC) have actual and apparent authority to bind the partnership in Ks entered into in the ordinary course of business.

Question 3

Actual Authority

Answer 3

• An agent acts with actual express authority when the principal directs the agent to engage in the precise task.
• An agent acts with actual implied authority when the agent believes, based on a reasonable interpretation of the principal’s words/conduct, that the principal wishes the agent to act on the principal’s behalf.
  
  • The agent’s authority to conduct a transaction includes the authority to engage in actions incidental to it (to accompany it) to accomplish the underlying transaction
  • ex. “sell my car” = actual express, placing ads to sell car = actual implied.

Question 4

Apparent Authority

Answer 4

An agent has apparent authority and thereby binds the principal to the K when

• 1) the principal holds the agent out as having authority to act on the principal’s behalf; AND
• 2) a third party reasonably relies on the agent’s appearance of authority in dealing with the agent.

Note: Apparent authority does not exist is the third party has knowledge that the agent does not have actual authority.

Question 5

Ratification

Answer 5

• 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.

Question 6

Liabilities of Agents and Principals to 3rd Parties

Answer 6

• Third Party v. Principal
  
  • If agent had authority, principal is liable.
• Third Party v. Agent:
  
  • Disclosed Principal: where the 3rd party knows of principal’s exstence and identity,
    
    • Principal is liable and agent is not
      
      • Only the principal, not the agent, can enforce the K
  • Undisclosed and/or unidentified principal - when third party does not know of principals existence or identity:
    
    • both agent and principal are liable to the third party and either can enforce the K
      
      • If agent enforces, principal is entitled to all rights and benefits

Question 7

Vicarious Liability (respondeat superior)

Answer 7

• The employer is liable in tort for the acts of an agent or employee if the agent or employee (SMI) was:
  
  • 1. acting in the Scope of employment,
  • 2. made a Minor deviation from employment (a detour rather than a frolic); OR
  • 3. committed an Intentional tort: BAN
       * that was for the principal’s Benefit,
       * because the principal Authorized it, or
       * it arose due to the Nature of employment.
  • The agent is liable too under a theory of joint and several liability.
• Direct Liability: the principal/employer can be directly liable for his own negligence if, for example he fails to supervise employee/agent or otherwise acts negligently in hiring, firing, or entrustment.
• Indemnification:
  
  • Principal/employer can seek full reimbursement of damages from the Agent/employee

Question 8

Formation of a General Partnership

Answer 8

• A Partnership is the association of 2 or more persons to carrying on as co-owners, a business for profit...whether or not the persons intended to form the partnership.
• Profit sharing creates a presumption that a person is a partner unless the partner recieve the profits as payment of debt, rent, wages or for services render.
• Note: No writing/certificate needs to be filed for formation
  
  • often formed due to improper formation of limited partnership (paperwork not filed correctly)

Question 9

Rights of Partners & Voting

Answer 9

• Equal rights to comanage ordinary affirs (even if profits are not shared equally)
• A majority vote wins if there is a disagreement
• Extraordinary matters require a unanimous vote

Question 10

Liability of the Partners & Partnership

Answer 10

Partners are bound under actual and apparent authority principles.

• All partners are liable on Ks they expressly authorize and Ks makde in the scope of the partnership
• Partners are liable for torts commited by a partner or employee if the tort is committed in the ordinary course of the partnership of with authority of the partnership
• All partners are jointly and severally liable

Question 11

Fiduciary Duties of Partners

Answer 11

• Partners owe the partnership and fellow partners:
  
  • 1. Duty of Loyalty (No Conflict of interest - cannot usurp corp opportunity, engage in self dealing)
  • 2. Duty of Care - refrain from engaging in misconduct
  • (Obedience & Duty to Account)

Question 12

Partnership Dissociation & Dissolution

Answer 12

1. Dissociation:Occurs when a partner ceases to be associated in carrying on the partnership business for any reason.
   
   1. Uniform Partnership Act: Automatic dissolution if change in partner membership unless agreement to the contrary
   2. Revised UPA: Dissociation is not automatically trigger dissolution unless it is at at-will partnership or agreement to the contrary
      
      1. For partnership to continue, it must buy out the disassociated partner’s interes
2. Dissolution - terminates the partnership in any numerous ways; need to provide notice to creditors/others
   
   1. Partnerhip must wind up business activities and distribute assets
   2. Partnership officially terminates when winding up is complete.

Question 13

Limited Liability Partnership

Answer 13

• Requires approval by vote of partners and filing a certificate with the state to be properly formed
• Liability: No partner is personally liable for the obligations of the partnership (but they are liable for personal torts)
• Same rights/obligation as standard general partnership

Question 14

Limited Partnership (LP)

Answer 14

• Requires filing with the state and contains at least 1 general partner and 1 limited partner
• Limited partner: have limited liability (usually limited to their capital contributions)
• General partner: liable for all partnership obligations and manages control of the business
• If LP converts to LLP, partners remain jointly and severally liable for actions that took place before the conversion.