Agency & Partnerships Law Flashcards
Actual Authority
Express / Implied
Termination: Actual authority must exist when A enters a K since actual authority can terminate 6 ways: (1) after a specified time/event or a reasonable time; (2) by change of circumstances; (3) if A acquires adverse interest; (4) when A or (5) P says so (agency is consensual): (6) Death/incap/bankruptcy unless A couple with interest (making it irrevocable)
Delegation: Okay if P consents (express or implied from circum)
Subs for Actual Authority
Apparent Authority: P leads 3rd to mistakenly believe A has authority
• Protects innocent 3rd party— reasonable belief must be created at least in part by P, not by A alone. Otherwise, no fair to P.
• Apparent authority can linger after actual authority ends.
Ratification: Even if A had no authority, P can ratify by expressly affirming the K, accepting the benefit of it, or suing 3rd on it
• Requirements: Knowledge / accept entire transaction / P must have capacity at time of ratification and at time of original K cuz ratification is retroactive
• Intervening Rights: Since ratification is retro, must protect intervening rights of BFP
Adoption: NOT retroactive, only liable from point of adoption forward
P—A Relationship
A is a fiduciary, even gratuitous A owes P duties of loyalty, care, and obedience
P must pay (unless gratuitous), reimburse and indemnify A
Wide range of remedies available (ex: constructive trust when A breaches duty of loyalty)
P—3rd Relationship
assuming actual authority or a substitute
P always liable to 3rd
3rd is liable to P unless A has special skills and 3rd does not know P exists (undisclosed P)—P can be an entity bound by its members/officers if disclosed
Liability in Tort
Test: Was a tort committed by a servant acting within the scope of employment? If yes, then master and servant are JSL.
Servant or Independent K-or? Right to control employee (even if never exercised)?
Scope of Employment: Master (M) not auto liable for S’s torts, M liable if acting w/in scope: (1) Usual Task then within scope; (2) Deviation (how substantial?—Detour: minor deviation vs. Frolic: substantial deviation)
Intentional Torts: Outside the scope unless used to further M’s business, M ratifies use of force, or M authorized S to commit tort.
Liability: M and S are JSL to T (T can sue either alone or join them, but entitled to only 1 satisfaction)
Direct Liability: M is liable for its own negligence if M fails to properly train or supervise employees or check an employee’s criminal record or job history
GP Formation (Formation / Determining Partners / JV / Estoppel)
An association of 2+ persons to carry on as co-owners a business for profit, whether they intend to form a Pr or not
Factors: To determine who is a partner, look at:
• Capital (contribution not required) / Control (even if never exercised) / Sharing profits (no presumption of Pr)
Writing not required but a writing may be require dby SoF
JV: Treated like a Pr but requires express agreement on how losses will be shared
Estoppel: If no Pr was formed, parties may still be liable as if they are Prs to protect reasonable reliance by 3rd party (like apparent authority)
Property Interests
Pr Property: If acquired in the Pr’s name or in a partner’s name where it’s apparent from doc he’s acting for a partnership
Presumed Pr Property: If Pr funds are used to buy it
Presumed a Partner’s Property: if acquired in his name without partnership funds and there’s no sign he’s acting for a Pr.
Rights in Partnership Property
Pr: Rights are totally unrestricted (it owns the property)
Partner: Extremely limited rights! Partner can use Pr property only for Pr purposes. Not transferable.
Partner’s Economic Interest in the Pr: Partner’s share of the profits. IS transferrable. CP if acquired during life of marriage.
Relations Amongst Partners
Statute supplies default rules but partners may K around them, so Pr Agreement usually governs in this area
Sharing Profits and Losses: Default is profits split equally (NOT in proportion to capital ownership—CONTRAST w/LLC where default it ownership %). Losses default to however profits split
No right to compensation—only exception is winding up
Management Rights: Default is = mgmt. rights. Ordinary business decided by majority in capital ownership interest (not number of partners)
Indemnification and Interest: If pay off debt then get indemnified and interest covered
Duties: Partners owe duties of care, loyalty, and good faith but may limit or even eliminate (besides loyalty) them in Pr Agreement
Agency Law
Actual Authority: Created by Pr Agreement, majority vote of partners, or the statute—which makes every partner an A for carrying on business in usual way (but can be negated by partners)
Apparent Authority: Look at partner’s title and prior conduct (especially withdrawn partner)
• Ratification and adoption if no authority at time of K
Partner’s Tort: Only issue is whether it was committed in the ordinary course of the Pr’s business. Regular analysis
Conveying Real Property w/out Authority: Pr can get the property back from the initial transferee (who should have checked on authority) BUT NOT from a subsequent BFP (no reason to check)
Partner’s Liability for Pr Obligations: JSL for Pr’s liabilities but P must first exhaust Pr’s resource (partners = guarantees)
—Exception for LLP/PLLPs: No liability on Ks or for torts of others—Formation: File cert of formation with Sec of State and pay $200/partner. Name must include “LLP” or abbreviation of it (notice).
Partner Withdrawal
Event of Withdrawal: Notice of express will to withdraw. N agreed-on event. A partner’s expulsion, death, bankruptcy, or incapacity. Appointment of a trustee, receiver, or liquidator for a partner. Or redemption of a transferee’s interest
Pr buys out withdrawing partner and continues without her
—May still have apparent authority to bind a Pr to innocent 3rd for 1 year (but Pr can protect itself by notifying creditors)
Liability of Withdrawn Partner:
• To Existing Creditors (unless released by a creditor, expressly or impliedly—determined on creditor-creditor basis)
• To Subsequent Creditors (who were unaware of withdrawal but can protect herself by notifying potential creditors of the withdraw)
• To Other Partners (if she withdraws before the term is up or before specific task completed—wrongful withdrawal)
Pr Wind Up
Triggering events: business becomes illegal/all assets sold outside usual course of business/entry of judicial decree/term is up or task is completed/all partners consent/or a majority n interest consent in a Pr at will—winding up almost never required (partners who did not wrongfully withdraw may wind up)
May be apparent authority to bind Pr to innocent 3rd on new business even after an event requiring winding up but Pr can protect itself by notifying potential creditors
Distributions of Pr Assets on Winding Up: (1) to creditors then (2) to partners for what is in their capital accounts [contributions + profit – loss]
Pr Assets Insufficient to Cover Liabilities: Creditors split pro rata. Rest of debts and capital contributions are Pr losses, which patners bear in same proportion as profits (unless otherwise agreed in Pr Agreement)
Creditors have priority over a partner’s creditors on Pr property and = claims on a partner’s SP
LPs
Formation: A Pr with 1+ GPs (generally liable) and 1+ LPs (liability limited to invest)
Formalities: Must file a cert of formation w/ Sec of State along with a fee, and must have a written LP agreement. Name must include “LP.”
—GP law governs except where LP status inconsistent
Liability: Exception where an LP takes part in control. “Control” is undefined but safe harbors given (ex: employed; advising; guaranteed a note; office or director of corp GP—but all and more then probably a GP)
Liability for Participating in Control—Reliance Test: If conduct directly makes that 3rd party mistakenly believe was a GP.
No filing: JSL (it’s a GP) but LP can avoid future liability by filing a cert or withdrawing from LP within a reasonable time after discovering failure to file
LLC Formation
File cert of formation with Sec of State and pay $300. Name must include LLC.
Profits/Losses: Split in proportion to capital contributions (distinction from GP) unless otherwise provided in company agreement.
PLLC
members and managers must be licensed to render professional services somewhere (NO MIXING OF PROFESSIONS)
