Agency & Partnerships Flashcards
What are the first questions we ask when dealing with an issue of Agency?
Does the agency issue arise in contract or in tort?
Is there actual authority?
If no actual authority, is there apparent authority?
Did the principal ratify or adopt the contract/action?
Liability in Contract?
Principal becomes liable to Third Party through the actions of his Agent if A and P BOTH consent and A is subject to P’s control.
- Capacity: P must also have contractual capacity (age, mental capacity), but A does not
- Writing: Agency law requires no writing, but SOF may require it
- Consideration: Not required
What is Actual Authority and how is it created?
How do you terminate Actual Authority?
Actual authority is clear authority over an agent’s actions.
- Express: P expressly tells A to act on P’s behalf
- Implied: P’s conduct leads A to believe A has authority (ex: Office manager pays for supplies Employee buys without permission–Employee continues buying)
Termination of Actual Authority–How can authority be terminated?
- After a specified time/event OR a reasonable time
- Change of circumstances (ex: destruction of subject matter)
- If agent acquires an adverse interest (ex: joins a competitor)
- When agent decides (Agency is consensual)
- When principal says so, UNLESS the power is “coupled with an interest” (which makes it irrevocable) (commission not an interest in the agency)
- By death/incapacity/bankruptcy, UNLESS coupled with an interest
What are the substitutes for actual authority?
Apparent Authority: Principal leads a Third Party to mistakenly believe that Agent has authority
- Reasonable belief must be created by P
- Apparent authority can linger after actual authority ends
- But can destroy apparent authority by P telling T that A has no authority
Ratification (retroactive): Expressly affirming a contract, accepting the benefit of it, or suing T on it. Requires:
- Knowledge of all material facts
- Accepting entire transaction
- Capacity at the time of the ratification and at the time of the original contract (ratification is retroactive)
-Must also consider Intervening Rights of a Bona Fide Purchaser
Adoption (not retroactive): Adopting a contract or action on behalf of a principal even it it does yet fit requirements of ratification
What is the relationship between parties in agency?
Principal-Agent
- Agent is a fiduciary–owes P a Duty of Loyalty, a Duty of Care (sliding scale based on any special skills), and a Duty of Obedience
- Principal: Must compensate, reimburse and indemnify A
- Remedies: Wide range of remedies available (ex: a constructive trust)
Principal-Third Party
- Principal is ALWAYS liable to Third Party
- Third Party ALMOST ALWAYS liable to Principal: Only exception is where there’s an undisclosed P AND A has special skills (ex: Pam, third party, hiring Rachel Ray to cater a wedding, but Rachel is an agent for Peg Bundy–Peg, P, has no rights against Pam)
Third Party-Agent: Generally no liability between these two
Liability in Tort?
Liability in Tort: Vicarious liability to protect an “innocent” Third Party
- Test: Was tort committed by a servant acting within the scope of employment? If so, the master and servant are jointly and severally liable to the injured party
- ->Servant or Independent Contractor? Depends on if employer had a right to control how employee did the job (even if never exercised)
Scope of Employment: Master is not automatically liable for Servant’s tort–only liable IF S was acting within the scope of employment
- Usual task–if S was doing a usual task, tort within scope
- Deviation–a minor deviation (detour) is usually within the scope, but a substantial deviation (a frolic) is not
Intentional Torts: Outside of scope UNLESS force is used to further Master’s business, Master ratifies the use of force, or Master authorized S to commit the tort
Liability: M and S are jointly and severally liable to Third Party–can sue S and M alone or join them as defendants, BUT is entitle to only one total satisfaction
-Borrowed Servant doctrine: Borrower-master is liable for actions of a borrowed servant, IF she had the right to control the chef when the accident occurred
Direct Liability: M is directly liable for its own negligence if M fails to train or supervise employees OR check an employee’s criminal record or job history
What is a General Partnership? How is it formed?
General Partnership: An association with two or more persons to carry on as co-owners of a business for profit, WHETHER they intend to form a partnership or not. Several factors:
- Capital: A capital contribution is not required
- Control: The right to control may be enough EVEN IF control is never exercised
- Profit: A person receiving a share of profits is presumed to be a partner (a rebuttable presumption)
What are the formal requirements of a General Partnership?
Writing: Not required UNLESS contract falls within the statute of frauds
Statement of Partnership: May file a “statement of partnership” with the superior court clerk of any county disclosing what it wants to make a matter of public record–public filing establishes existence of a partnership
Partnership by estoppel: If no partnership is formed, parties may still be liable AS IF they are partners to protection reasonable reliance by third parties (usually when people hold themselves out as partners
What are the property interests in a partnership?
Partnership Property: Who owns property?
- Partnership: Property is presumed to belong to the partnership if it is characterized as such in the partnership agreement; acquired in the partnership’s name; or acquired with partnership funds
- Partner: Property is presumed to belong to a partner if it’s acquired in his or her name without partnership funds, even though partnership uses it
Title: If real property is held other than in the partnership’s name, it will NOT be deemed partnership property to the prejudice of an innocent person
Rights in Partnership property
- Partnership: Totally unrestricted
- Partner: Very limited–she can use the partnership property ONLY for partnership purposes. Non-transferrable right
Partner’s Economic Interest in the Partnership: A partner’s share of the profits (ex: a 25% stake), not rights
- Is transferrable, like any other financial asset
- Can have a judgment creditor attach her interest in the partnership
What are the relations among partners/their rights/liabilities?
Profits/Losses: There is a default rule, Partnership Agreement governs
- Profits and Losses are split equally UNLESS OTHERWISE AGREED
- Losses follow profits, unless otherwise agreed
- Even if not liable for a loss under an agreement, STILL liable to a third party
Equal Management Rights: Even if capital contributions were different, partners in a general partnership have equal management rights
Right to Compensation: No right to compensation
Indemnification with Interest: All partners have a right to indemnification with interest
Duties: Duty of Care, Duty of Loyalty, and a Duty to Render Full Information, whether or not a demand is made
Inspection: Partner has right to inspect books, and get a formal accounting if it’s just
Admission of a New Partner: UOA, a new partner requires unanimous consent–Not admitted without it
-New partner is also liable for partnership debts prior to his admission, but he can only lose his economic interest in the partnership and no personal liability beyond that amount
Outgoing Partner: An outgoing partner will continue to be liable for the Partnership’s debts, unless she is released by a particular creditor
Relations between Partners and Third Parties?
Use Agency Law to Determine Relations
-Contracts: Partnership is Principal, Partner is the Agent
Actual Authority: May be created by the partnership agreement, majority vote, or the statute (which makes every partner an agent for carry on business in the usual way-but isn’t absolute)
Apparent Authority: Look at partner’s title and prior conduct (ex: Monica is Company’s Managing Partner, and has signed prior contracts for the company)
Ratification or Adoption if no authority
Liability for Tort or Other Obligation:
- Real Property: If a partner sells real property without authority, the partnership can get it back from the initial transferee, but not from a subsequent BFP
- Partner’s Tort: Was it committed within ordinary course of business? (Use regular tort analysis for a tort by a partnership employee)
- Partners’ Liability for Partnership Obligations: Partnership is liable, but partners are too–joint and several
- ->Exception for Limited Liability Partnership (LLP)–no vicarious liability
How do you form an LLP/PLLP?
File an election with the superior court clerk of an county where the LLP has an office, and pay the fee
Name must include words “limited liability partnership”, or initials “LLP”
What are the different parts of a Dissolution of a Partnership?
What are the causes of dissolution?
Dissolution, Winding Up Period, Termination
Causes of dissolution:
- End of a Definite Term
- Accomplishing a particular undertaking that was core of partnership
- At a Partner’s express will or withdrawal
- ->If partnership is for definite term and Partner dissolves early, still liable for breach of contract (wrongful dissolution)
Expulsion of a Partner (pursuant to a partnership agreement)
By operation of law (death of a partner, unlawful practices)
Entry of a Judicial Decree
What apparent authority is there after dissolution?
What liability exists after dissolution?
Apparent authority may continue after dissolution even if not winding up, but the partnership can avoid liability by giving notice to potential creditors.
- Creditors entitled to personal notice
- Others who knew of partnership before dissolution entitled to newspaper notice
- Those without knowledge of partnership aren’t entitled to any notice at all
Partnership and partners still have joint and several liability on post-dissolution debts (nature of liability the same)
Right to Contribution/Indemnification: No right to contribution, except where the dissolution is by a partner’s express will, death or bankruptcy
How are Partnership Assets distributed after dissolution? What business is continued after dissolution?
Priority no matter what assets are:
- 1) To third-party creditors
- 2) To partners other than for capital and profits
- 3) To partners for capital
- 4) To partners for profits
Creditors’ Rights: Partnership creditors have priority on partnership assets–a partner’s separate creditors have priority on separate assets
Continuing Partnership’s Business after Dissolution–Need:
- Consent: All partners who have not wrongfully dissolved must consent
- Creditors: Automatically become creditors of the continuing partnership
- Buyout: UOA, a withdrawing partner gets his interest in the partnership plus interest as of dissolution or a pro rata share of profits. HOWEVER, a partner who wrongfully dissolved is liable for breach
