Agency & Partnerships Flashcards
What is agency (definition)
Fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other person so to act
What degree of control is needed for agency?
Degree need not be significant
Sufficient if principal specifies tasks agent should perform
What is the equal dignities rule?
Agency agreements must be in writing when agent is to enter into certain contracts within SOF or agency agreement itself would fall within SOF
For valid agency relationship to exist, check for the following:
Capacity
Consent
Writing if required
What fiduciary duties does an agent owe to the principal?
Duty of care = carry out agency w rsble care
Duty of loyalty = owe undivided loyalty to principal
Duty of obedience = must obey all rsble directions of their principal
What duties does a principal owe to an agent (these are not fiduciary duties)?
Compensation
Cooperation
Indemnity/reimbursement
Express contractual duties
What remedies does an agent have for principal’s breach of duties?
Contractual remedies
Possessory lien
What remedies does a principal have against an agent for breach of duty?
Contract remedies
Tort remedies
Constructive trust
Action for secret profits
Withhold compensation
Terminate agency
What is actual authority?
Actual authority = based on principal’s dealings with the agent
Express = conveyed by principal in words, based on the agency agreement
Implied = agent rsbly believes exists as a result of principal’s words or actions
What are some things implied authority can be based on?
Incidental to express authority
arising out of custom known to the agent
resulting from prior acquiescence by the principal
to take emergency measures
to delegate authority where it’s necessary or customary
to pay for and accept delivery of goods
to give general warranties
to manage investments
After determining that there was actual (express or implied) authority, need to first determine whether it was actually terminated before saying they had the go ahead. What are some grounds for termination?
the happening of an event specified in a contract that terminates authority
lapse of a rsble time if termination isn’t specified in contract
a change in circumstances, including destruction of subject matter, insolvency, change in business conditions, etc
agent’s breach of fiduciary duty
either party’s unilateral termination
operation of law (for ex, by changes of law, by person’s death if the agent knows about it, by change in mental capacity)
When is agency irrevocable?
When it’s an agency coupled with an interest or a power given as security - can’t be revoked if agency was given to protect the agent’s rights and it is supported by consideration
What is apparent authority?
Based on third party’s rsble belief
When principal holds out another as possessing authority and based on this holding out, a third party is rsbly led to believe that authority exists
If the principal’s words or conduct would lead a rsble person in the third party’s position to believe that the agent has authority to act on the principal’s behalf, the agent has apparent authority to bind the principal
What is ratification?
After-the-fact authority
Express: oral or written affirmation
Implied: principal accepts benefits
For ratification to occur, the principal must:
(1) have knowledge of, or reason to know, all material facts regarding the contract
(2) accept the entire transaction and
(3) have capacity
Be aware of some third party thing intervening and cutting off ratification ability
who is bound on a contract between agents, principals, and third parties?
Generally, if agent had actual or apparent authority to enter a contract for the principal, or if the principal ratified a previously unauthorized contract, the agent can’t be held personally responsible
If parties to the contract intended for the agent to be liable, the agent can be found liable even though he normally wouldn’t be
And if agent didn’t actually have authority to enter into contract, agent can be held liable for damages for breaching an implied warranty that a principal w contractual capacity exists and they they, the agent, had authority to contract for the principal
BUT if the principal is UNIDENTIFIED or UNDISCLOSED, either the principal or the agent can be held liable
but remember: whether the principal was disclosed, unidentified, or undisclosed only matters when considering agent liability - any type of principal will be bound as long as the agent had authority so you don’t need to discuss then
when may third parties be liable to the principal and agent?
Principal = disclosed = only the principal, not the agent, may enforce the contract and hold third party liable
Principal = unidentified or undisclosed = either principal or agent may enforce contract and hold party liable
Principal can’t enforce contract if there’s been an affirmative fraudulent misrepresentation of the principal’s identity or if there is an unforeseen increased burden to the third party due to the fact that performance is due to the other principal and not the agent
What is vicarious liability?
employer liable for torts in scope of employee’s employment
Not liable for independent contractor’s actions generally
Except if the activity involved was inherently dangerous, the duty was nondelegable, or the principal knowingly selected an incompetent IC - then employer can be held vicariously liable for IC’s actions
How do you determine if someone is an employee or an independent contractor?
Principal/employer retains the right to control the manner in which an employee performs their works
Principal does not reserve/have a right to control the manner in which work is performed by an IC
If principal has right to tell agent how to achieve the results he desires, the agent is an employee
What are some factors to consider when determining if principal has high two control the method and manner of work:
Degree of skill required (greater the skill, greater the likelihood of IC)
Tools and facilities used
Period of employment
Basis of compensation
Business purpose
Distinct business
characterization and understanding of parties
customs of the locality regarding work supervision
What three factors are helpful to assess if the employer’s tort was committed within the scope of employment?
Was the conduct “of the kind” that the agent was hired to do?
Did the tort occur “on the job”? (detour = minor deviation from employer’s directions, liable; frolic = substantial deviation from employer’s directions, not liable)
Was the conduct actuated/motivated at least in part to benefit the principal?
Generally, employers is not liable for the intentional torts of an employee. But intentional torts will be viewed as within the scope of employment if the conduct is:
(1) a natural incident of the employee’s duties (as where force is authorized or the nature of the work gives rise to hostilities);
(2) where the employee is promoting the employer’s business or is motivated to serve the employer; or
(3) specifically authorized or ratified by the employer
Who is liable for a borrowed employee?
Key issue is who has the primary right of control over the employee - the loaning principal or the borrowing principal? That employer is liable
Need to discuss both direct and vicarious liability on the exam. Every person is liable for their own torts. Thus, an employer is liable for their own negligence if they…
Fail to properly train or supervise employees or ICs
Fail to check an employee’s or IC’s criminal record or job history
Even if respondeat superior doesn’t apply, principal may still be vicariously liable in circumstances if the agent acted with apparent authority. A principal is vicariously liable where an agent appears to deal or communicate on behalf of the principal and the agent’s apparent authority enables the agent to:
(1) commit a tort or
(2) conceal its commission
What is a partnership?
Two or more persons associate to carry on as co-owners a business for profit, whether they intended to form a partnership or not
What are factors for deciding whether a partnership exists?
Profit sharing = raises presumption of partnership
Right to participate in control = also raises presumption
Below are just evidence but don’t raise presumption:
Property held in joint tenancy or in common
Parties designate their relationship as a partnership
Venture requires extensive activity
Sharing of gross returns
what is partnership by estoppel?
Partner liability imposed when a party is not a partner in fact
to protect rsble reliance by third parties
- when a person holds themselves out as a partner or consents to being represented by another as a partner, he’ll be liable to third parties
- when a person holds another out as a partner, he makes that person his agent to bind him to third parties
What are the default voting rules for a partnership?
All partners have equal rights in management and equal votes
One partner, one vote
Ordinary business decision = majority of votes
extraordinary business decision = unanimous
What is the management rights of partners?
All partners have an equal right to participate in management of partnership unless partnership agreement states otherwise
What are the distributions rights of partners?
Partners have whatever rights are granted in the partnership agreement as to distribution of profits
If silent, partners share profits equally
Losses are shared in the same manner as profits
What are the remuneration rights of partners?
Partners have no right to renumeration for their services to the partnership except for winding up the partnership business
When does a partner in a partnership have apparent authority to bind the partnership to transactions?
When they are within the ordinary course of the partnership’s business or business of the kind carried out by the partnership
Partners have apparent authority to bind the partnership to any contract within the scope of the partnership business
If contract is outside scope, partnership generally will not be bound unless the partner has actual authority
But a partnership will not be bound by a partner’s act if the partner lacked actual authority and the person with whom the partner dealt either knew or rec’d notification of such fact (delivered at his place of business even if he didn’t read it)
What is the liability of partners?
Each partner is jointly and severally liable for partnership obligations
But must first exhaust partnership resources before going to personal resources
Each partner is personally and individually liable for the entire amount of partnership obligations
so where one partner pays the whole obligation of a partnership, they’re entitled to indemnification from the partnership
Can partners limit liability to third parties?
No, partners cannot limit a third party’s rights to hold each partner liable without the third party’s consent
What is the liability of an incoming partner and an outgoing partner?
Incoming = partner isn to personally liable for partnership obligations that arose before their admission
Outgoing = remains liable for obligations arising while stye were a partner unless there has been payment, release, or novation
Under RUPA, when does a partner have notice of a fact?
When the partner:
(1) has actual knowledge of the fact
(2) is notified of the fact, or
(3) has reason to know of the fact based on the surrounding circumstances
What duties are owed in a partnership?
Duty of care and loyalty to partnership
And statutory duty of disclosure and obedience
What is the partner’s duty of loyalty?
Account to partnership for any benefit
no taking adverse positions to partnership
no competing w partnership
What is the partner’s duty of care?
No grossly neg or reckless conduct
What is the partner’s duty of disclosure?
Provide complete and accurate information regarding partnership
What is the partner’s duty of obedience?
obey all rsble directions of partnership and not outside scope of authority
What is partnership capital?
the property or money contributed by each partner for purpose of carrying on the partnership’s business
What is partnership property?
everything the partnership owns, including both capital and property subsequently acquired
When is property deemed to be partnership property?
Titled property is partnership property if it is acquired in the partnership’s name or in a partner’s name where it is apparent from the doc that they are acting for a partnership
When is property presumed to be partnership property?
property is rebuttably presumed to be partnership property if it was purchased with partnership funds, regardless of whose name is on title
When is property presumed to be a partner’s separate property?
Property is rebuttable presumed to be a partner’s property if:
(1) it’s held in the name of one or more partners,
(2) the instrument transferring title gave no sign that they’re acting for a partnership, and
(3) partnership funds were not used to acquire the property
What other factors will courts look at to presume property was intended to be partnership property?
using partnership funds
use of property by the partnership
property in the partnership books as a partnership asset
relationship bt the property and the business operations
improvement of the property w partnership funds
maintenance of the property with partnership funds
What rights does a partner have in partnership property?
partner is not a co-owner of the partnership property and has no interest in partnership property which can be transferred
Partner can simply use partnership property for partnership uses
No rights in property
what is a partner’s ownership interest in a partnership?
partnership interest = like stock
personal property of the partner
comprised of management rights and financial rights
partner can’t unilaterally transfer his management rights and thereby make the transferee a “partner” - default rule for admission of a new partner is it has to be unanimous vote
but partner can unilaterally transfer his financial rights
What is dissociation?
when a partner withdraws from a partnership
A partner becomes dissociated from the partnership by:
(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) partner’s death or incapacity
(6) decision of court that partner is incapable of performing a partner’s duties
(7) termination of a business entity that is a partner
what is an at will partnership and what is a term partnership?
At-will partnership = no agreement to remain partners
term partnership = agreement to remain partners for amount of time or until completion of project
When is a partner deemed to have wrongfully dissociated?
If the dissociation is in breach of an express term in partnership agreement
Wrongful in term partnership if the partner withdraws, is expelled, or becomes bankrupt before the end of the term
