AP Flashcards
An agent is a person or entity that acts on behalf of the principal.
Agency is a fiduciary relationship, and
exists if there is:
(1) assent
(2) benefit
AND (3) control
(HIGH)
Whether an agency relationship exists depends upon the
existence of the required elements above (the characterization
of the relationship by the parties is irrelevant). The parties
realizing that a principal-agent relationship is formed or the
agent receiving compensation is NOT REQUIRED to create
an agency relationship. A writing is NOT required to form
an
agency relationship (even if the transaction the agent enters
into requires a writing under the Statute of Frauds).
(HIGH)
An agency relationship terminates and the agent no longer has
authority to act if:
(a) the P or the A MANIFEST to
the other relationship is terminated;
(b) TERM of agent’s authority EXPIRED;
(c) (OP OF LAW) DEATH of the principal or agent;OR
(d) INCAPACITY of the principal or agent (OP OF LAW)
(except where a durable power of attorney exists).
(MEDIUM)
There are three types of agency relationships.
1) universal agent - broad authority to act on behalf of P + authorized to perform ALL acts the P is
allowed to perform.
2) general agent - authority
to conduct:
-series of transactions
-over a period of time
-for a particular purpose, business, or operation
(i.e. a manager of a restaurant).
3)special agent - limited authority to
conduct:
(a) a specific act/transaction;OR
(b) certain actions over a specified period of time
(MEDIUM)
Under the common law, an agent’s authority is
revoked upon death, regardless of whether the third
party has notice of the death. In some states,
the
authority is not revoked until the third party is notified
of the principal’s death.
(MEDIUM)
Apparent authority continues until the principal communicates
the termination to third parties (even if the agency relationship
was actually terminated). A principal may communicate
termination by
1) notifying third parties directly,
2) public announcement, or
3) recovering from agent any items
indicating authority.
(MED)
Termination of an Agency Contract: When an agency
relationship is governed by an agency contract
(i.e. employment agreement), the principal can
1) still terminate agent at any time.
***principal may be liable
for damages if the agency is terminated prior to the expiration
of the K
(unless the agent materially breached the contract).
(MED)
P is bound to K’s entered into by A if
the A has actual or apparent authority.
Actual authority may be express or implied.
Express authority occurs when
the P has explicitly told the agent (either orally or in writing) that he is entitled to act.
Implied authority occurs when either:
(a) the A believes entitled to
act bc the act is necessary to carry out express authorized duties;
(NECESSARY)
(b) the A has acted similarly in prior
dealings between P and A;
(PRIOR DEALINGS) OR
(c) customary for agents in that position to act in that way.
(CUSTOM)
(HIGH)
An agent has actual authority to act in accordance
with his reasonable understanding of his authority,
even if the principal later establishes that the agent was
mistaken. Silence or prior acquiescence by the principal may
give rise to the agent’s reasonable belief that he has authority
to perform similar acts in the future.
(HIGH)
If an agent acts within his scope of authority, the principal
will be liable to a third-party on the contract, even if
P is
1) undisclosed,
2) partially disclosed, or
3) unidentified.
(HIGH)
A P is bound to K’s entered into by A
if the agent has actual or apparent authority.
Apparent authority exists when:
(1) a third-party REASONABLY BELIEVES
that the person/entity has authority to act on behalf of the
principal; AND
(2) the belief is TRACEABLE to the principal’s manifestations
(the principal holds the agent out as having authority)
HIGH
A principal holds an agent out as having authority
when he:
(a) gives A position or title
indicating certain authority;
(POSITION/TITLE)
(b) previously held A out as having authority and has not published
a revocation of said authority;
(PRIOR ACT/NOT REVOKED)
OR
(c) cloaked the A with the appearance of such authority.
(ACTS AS IF)
HIGH
A P will be bound to a K even if A
1) acted on his own behalf or
2) in violation of specific instructions
UNLESS
(a) third party had notice A was
exceeding his authority,
(NOTICE) or
(b) the contract/transaction was
not within the ordinary usages of business (ordinary usage
includes purchase of goods at a reasonable price).
(ACT NOT WITHIN ORD BUSINESS)
AA NOT APPLICABLE if third-party
has actual knowledge that A did not have authority.
third-party has duty to make further inquiry when situation suggests that it may be unreasonable to believe A has authority
(UNREASONABLE= 3rd PARTY FURTHER INQUIRY)
HIGH
Unidentified/Partially Disclosed Principal: Apparent authority
MAY exist when the principal is
1) partially disclosed or
2) unidentified
(when the third-party knows the A is acting on behalf of a P but does not know identity).
HIGH
Undisclosed Principal: Apparent authority CANNOT exist
when there is an UNDISCLOSED PRINCIPAL (when
the third-party
does not know an agent is acting on behalf of a principal).
HIGH
Under the Restatement (Second) of Agency, the Inherent
Agency Power (also known as inherent authority) protects
third-parties in certain situations when dealing with agents
even if there is NO actual or apparent authority.\
MEDIUM
The Inherent Agency Power is derived solely from
the agency relation (it is not derived from actual
authority, apparent authority, or estoppel), and exists
for the protection of persons harmed by or dealing
with an agent.
MEDIUM
Inherent Agency Power falls into two groups:
The first group subjects an employer to liability when:
(1) A acts in furtherance of
employer’s business; AND
(2) A’s conduct harms a
third-party.
The second group subjects the principal to contractual
liability when:
(1) an agency relationship exists
between P & A; AND
(2) the A engages in acts that would normally be authorized,
but are not because he
(a) violated principal’s instructions or (b) acted in his own interests.
The concept of Inherent Agency Power was eliminated in the
Restatement (Third) of Agency.
MEDIUM
A principal’s ratification of an agent’s conduct will make the
principal liable for those contracts entered into by an agent
without authority. Ratification occurs when the principal:
(1) knowledge of material facts or K terms; AND
(2) manifests assent (approves)
through words or conduct.
MEDIUM
Despite ratification by the principal, an agent also
remains liable for any acts or contracts entered into if
the principal was
UNDISCLOSED TO THIRD PARTY.
MED
Under the Restatement (Second) of Agency, an undisclosed
principal generally CANNOT ratify an agent’s unauthorized
act because ratification requires that the agent
purported to act on the principal’s behalf.
However, under the Restatement
(Third) of Agency, an undisclosed principal MAY ratify an agent’s unauthorized act.
MEDIUM
Generally, an agent has NO contractual liability to a thirdparty for a contract entered into with that party if he:
(1) fully discloses the P AND
(2) the agent had
(a) actual authority or
(b) apparent authority (even
if no actual authority present).
an agent will be liable on the K if both elements above not met.
HIGH
An authorized A will be liable to the third-party on a K when P is undisclosed
An undisclosed principal’s ratification
DOES NOT eliminate the A’s liability to the third-party on the K
HIGH
Unless otherwise agreed, an authorized A will be liable to
the third-party on a K when the P is partially
disclosed or unidentified when the..
third-party knows the
agent is acting on behalf of a P but does not know the
identity
HIGH
Where an agent is
1) liable on a contract AND
2) his conduct was authorized, he may
seek IDEMNIFICATION from P on any payments he made to the third-party.
HIGH
An employer is vicariously liable for an employee’s negligent acts if the employee
1) was acting WITHIN the SCOPE
of employment.
However, a P/EMPLOYER is generally
NOT vicariously liable for the torts of an independent
contractor.
HIGH
An employee is an agent whom the employer ___ the manner and means of
the agent’s performance of work
controls
(or has the right to control)
HIGH
An independent contractor is a person who contracts
with another to do something for him, but ___ The contractor may
or may not be an agent.
who is not
controlled nor subject to the other’s right to control
with respect to his performance.
The determination of whether a person is an employee or an
independent contractor centers on whether the principal had
the right to control the manner and method in which the job
is performed.
HIGH
Generally, if the principal has substantial control
in dictating the manner and method in which the
job is performed, then the person is deemed to be
an employee of the principal. In contrast, a person
subject to less extensive control is considered an
independent contractor
HIGH
Whether an employer-employee relationship exists
is a
factual determination (the characterization of the
relationship by the parties is not determinative).
HIGH
The factors used to determine whether an agent is an
employee are:
(1) extent of control over details of the work;
(2) A’s occupation or business;
(3) type of work;
(4) payment (hourly or per project);
(5) equipment or tools;
(6) supervision;
(7) skill;
(8) job part of the principal’s regular business;
(9) time;
(10) belief; and
(11) hired for a business purpose.
HIGH
Under the doctrine of respondeat superior, an employer is
vicariously liable for an employee’s negligent acts if the
employee was acting
within the scope of employment.
HIGH
An employee acts within the scope of employment
when:
(a) performing work assigned by the employer;
(WORK ASSIGNED) OR
(b) engaging in a course of conduct subject to the employer’s
control.
(CONDUCT SUBJ TO CONTROL)
Factors to determine if conduct is within the
scope of employment include whether:
(i) kind employed to perform;
(KIND)
(ii) occurs within the authorized time and space limits;
(AUTH TIME AND SPACE) and
(iii) motivated (in whole or part) by a purpose to serve the
employer.
(MOTIVATION/PURP TO SERVE)
conduct is within the scope of
employment if it’s of the SAME GENERAL NATURE (or incidental) as the conduct authorized.
NOT outside scope just bc employee disregards the employer’s instructions.
(HIGH)
An employee’s act is NOT within the scope of employment
when:
(1) occurs within an independent course of conduct; AND
(2) not intended to serve any purpose of employer.
HIGH
An employee’s intentional torts are generally NOT
within the scope of employment UNLESS the act:
(a) was specifically authorized by employer; (SPECIFICALLY AUTHORIZED)
(b) driven by a desire to serve the employer;
(TO SERVE EMPLOYER) OR
(c)result of naturally occurring friction from the type of employment.
(RESULT FROM TYPE OF EMPLOYMENT)
HIGH
In certain situations, a principal (or employer) may still
be liable even if the doctrine of respondeat superior is
inapplicable. Such situations include when:
(a) principal intended conduct or consequences; (P INTENDED CONDUCT)
(b) principal was negligent or reckless in selecting, training, retaining,
supervising, or controlling the agent;
(P’s NEGLIGENCE)
(c) the conduct involved principal’s non-delegable duty to an injured
person that it had a special relationship with;
(P’s NONDELEGABLE DUTY) OR
(d) when
(i) A had APPARENT AUTH
(ii) the A’s actions+ apparent authority = the tort or enable
the A to conceal its commission, and
(iii) third party reliance on authority.
Apparent authority is created when
the E holds the A out as having authority and the third-party REASONABLY BELIEVES the A has authority to act.
MEDIUM
Generally, a principal is NOT vicariously liable for the torts
of an independent contractor.
However, several exceptions exist, and a principal will be
liable for torts committed by an independent contractor
if:
(a) engaged in an INHERENTLY HAZADROUS ACTIVITY;
(b) the duty owed by P is NONDEGLEBABLE (i.e. the duty of care owed to an invitee); OR
(c) ESTOPPEL when
(i) the principal HOLDS IC out as A to a third-party,
(ii) the third-party REASONABLY RELIES on the care and skill of
the agent, and
(iii) the third-party SUFFERED HARM as a result of A’s lack of care or skill.
HIGH
When determining a principal’s legal relations with a
third-party, a principal may be deemed to know or receive
information that is known or received by an agent.
An agent’s knowledge of a fact is IMPUTED to the principal
if
knowledge of the fact is material to the agent’s duties to
the principal.
LOW
A notification given to an agent is EFFECTIVE as notice to
the principal if the agent has
actual or apparent authority to
receive the notification.
An agent owes the principal the following fiduciary duties
concerning matters within the scope of agency:
(1) DUTY OF CARE – to use reasonable care when performing the agent’s
duties;
(2) DUTY OF LOYALTY – to act solely and loyally for the principal’s benefit; AND
(3)DUTY OF OBEDIENCE – to
obey all reasonable directions given by the principal and to
act in accordance with the express or implied terms of the
relationship
HIGH
The principal has a claim against the agent when an
agent breaches any fiduciary duty owed. For example, an
agent will be liable to the principal for any payments the
principal made to a third-party when the agent breached his
duty to follow directions or acted outside the scope of his
authority. Additionally, the agent will be liable and must
account for
any profit made in violation of the duty of loyalty.
HIGH
Conversely, an agent has NO liability to the principal when
the agent fulfills his fiduciary obligations and
he acts within
the scope of his authority
HIGH
A General Partnership is created when
(1) two or more
persons,
(2) as co-owners,
(3) carry on a business for
profit.
No written agreement or formalities are required.
A person’s intent to form a partnership or be partners is NOT
required
HIGH
Part ownership or common ownership of property alone is
NOT enough to create a partnership. Likewise, a joint venture
DOES NOT automatically create a partnership.
HIGH
A person who receives a share of the profits of the partnership
business is presumed to be a partner of the business
UNLESS the profits were received in payment:
(a) of DEBT;
(b) for WAGES as an employee or independent contractor;
(c) of RENT;
(d) of an ANNUITY or other retirement
benefit;
(e) of INTEREST/LOAN charges; OR
(f) for the sale of the GOODWILL of a BUSINESS.
HIGH
Individuals may inadvertently create a general partnership
despite their
expressed subjective intent not to do so
(i.e. when the required formalities to form a Limited
Partnership or Limited Liability Partnership are not followed).
HIGH
A Limited Partnership is a partnership composed of general
and limited partners, and MUST have
at least one general
partner.
MEDIUM
It is formed upon the filing of a Certificate of Limited
Partnership with the Secretary of State that includes:
(1) the NAME of the partnership;
(2) the ADDRESS of the
partnership’s principal office;
(3) REGISTERED AGENT NAME + ADDRESS – must be within the state;
(4) GENERAL PARTNERS NAME+ ADDRESS;
(5) whether the partnership is a LLLP (Limited Liability Limited
Partnership); AND
(6) it must be SIGNED BY ALL general
partners.
MEDIUM
Name Requirements: If an LP, the name must contain
“limited partnership” or the abbreviation “LP” or
“L.P.”. If an LLLP, the name must contain
the
phrase “limited liability limited partnership” or the
abbreviation “LLLP” or “L.L.L.P.”
If the Certificate of Limited Partnership fails to meet the
above requirements, then a General Partnership is created.
MEDIUM
A Limited Liability Partnership (LLP) is one in which all
partners have limited personal liability. Any partnership may
become an LLP upon:
(1) APPROVAL by the same vote that is
necessary to amend the partnership agreement; AND
(2) FILING a Statement of Qualification with the Secretary of
State.
Unless otherwise agreed, a unanimous vote is required to amend a partnership agreement.
MEDIUM
A Statement of Qualification must include:
(i) NAME AND ADDRESS of the partnership;
(ii) a STATEMENT
that the partnership ELECTS TO BECOME an LLP;
AND
(iii) a deferred effective date, if any.
The name of
a LLP must end with “Registered Limited Liability
Partnership”, “Limited Liability Partnership”,
“R.L.L.P.”, “L.L.P.”, “RLLP,” or “LLP”
MEDIUM
The filing of a Statement of Qualification DOES NOT
create a new partnership. Instead, the LLP
A) CONTINUES to be SAME PARTNERSHIP that existed prior to the
filing.
B) Thus, the LLP REMAINS LIABLE for any unfulfilled obligations before it became an LLP.
MEDIUM
Each partner is an A of the partnership, and generally
HAS AUTHORITY TO BIND the partnership for the purpose of its
business (including entering into contracts).
A partner has EXPRESS actual authority to bind the partnership upon receiving said authority from the
partners.
Differences among the partners as to acts within the ordinary course of the partnership business need only be approved by a majority of the partners.
Acts outside the ordinary course of business must be approved
UNANIMOUSLY.
If the partnership agreement is silent on the scope of the partner’s authority,
a partner has authority to bind
the partnership to usual and customary matters, UNLESS
the partner knows that:
(a) other partners MIGHT DISAGREE; OR
(b) CONSULATION with fellow partners IS APPROPRIATE.
Hiring is normally within the ordinary course of partnership business, unless the partnership agreement states otherwise.
HIGH
A partner has implied actual authority (also known as
incidental authority) to take actions that are reasonably
incidental or necessary to
achieve the partner’s authorized
duties.
HIGH
A partner has apparent authority to bind the partnership
for all acts apparently conducted within the ordinary course
of the partnership business OR the kind carried on by the
partnership. However, a partner’s act will NOT bind the
partnership if:
(1) the partner LACKED AUTHORITY; AND
(2)the third-party KNEW (actual knowledge) or HAD NOTICE that
the partner lacked authority.
For acts outside the scope of
business, there must be MANIFESTATION by the partnership
that partner had authority in order to bind the partnership
HIGH
An act or transaction is within the ordinary course of business
if it is normal and necessary for managing the business –
a person would REASONABLY conclude the act is DIRECTLY and NECESSARILY embraced within the partnership business.
HIGH
After dissolution, a partner’s actual authority to bind the
partnership is limited only to those acts appropriate for
winding up the partnership business. However, a partner
has apparent authority to bind the partnership even after
dissolution if:
(1) the partner’s acts would have NORMALLY BOUND the partnership; AND
(2) the third-party HAD NO NOTICE of the dissolution.
MEDIUM
If the partnership is bound, then ALL partners will be jointly
and severally liable for the partnership’s obligation. Any
partner that pays more than their proportionate share of their
obligation to a third-party may
seek contribution from the
other partners.
MEDIUM
Under the Revised Uniform Partnership Act (RUPA), a
person winding up a partnership’s business may:
(1) PRESERVE partnership business or property as a going concern
for a reasonable time;
(2) PROSECUTE and DEFEND actions
and proceedings;
(3) SETTLE and close the partnership’s
business;
(4) DISPOSE of and TRANSFER the partnership’s property;
(5) DISCHARGE the partnership’s LIABILITIES;
(6)DISTRIBUTE the ASSETS of the partnership;
(7) SETTLE DISPUTES by mediation or arbitration; and
(8) perform other NECESSARY ACTS
MEDIUM
Personal Liability: General Partners are personally liable
for ALL obligations of the partnership UNLESS
otherwise
agreed by the claimant or provided by law.
HIGH
Under the Uniform Partnership Act (1997), general
partners are jointly and severally liable for partnership
obligations, which means that a claimant can collect
the full amount of the debt from any one of the
partners. However, a partner may
seek CONTRIBUTION
from the other partners if he pays more than his
proportionate share of the partnership obligation.
HIGH
proportionate share of the partnership obligation.
o Under the Uniform Partnership Act (1914), general
partners are only jointly liable (not jointly and
severally liable), which means that a
plaintiff must
join all partners in an action.
HIGH
Incoming Partners: Incoming partners admitted into an
existing partnership are NOT liable for obligations incurred
prior to their admission, even if the incoming partner has
notice of a claim. Even though that partner is not personally
liable for the debts of the partnership, he is still at risk of
losing any capital contributions he made to the partnership
that are used to satisfy partnership obligations.
HIGH
Judgment Enforcement Against a Partner’s Personal
Assets: Generally, a judgment creditor CANNOT levy
execution of the judgment against a partner’s personal assets
for a partnership debt UNLESS:
(1) judgment rendered against the partner; AND
(2) partnership assets exhausted or insufficient.
HIGH
Under the Uniform Partnership Act, a judgment
against the partnership is NOT by itself a judgment
against the individual partners. However
judgment may be sought against the partnership and
the individual partners in the same action.
HIGH
Generally, limited partners are NOT personally liable for
obligations of the Limited Partnership (LP). However,
certain exceptions to this rule exist.
1) limited partners are ALWAYS liable for their OWN MISCONDUCT or when they SIGN PERSONAL GUARANTEE for an obligation.
2) even if a partner is not personally liable for the
debts of the partnership, he is AT RISK OF LOSING ANY CAPITAL CONTRIBUTIONS made to partnership
3) a limited partner MAY become personally liable if
that partner PARTICIPATES in the MANAGEMENT OR CONTROL of
the business.
If a limited partner’s control and management activities are so extensive as to be substantially the same as those of a general partner,
then some JXs have
held partner liable in the same manner as a general partner.
Whether the limited partner is liable (and the extent of the liability) depends on the applicable Act enacted in the JX
MEDIUM
Under the latest Uniform Limited Partnership Act
(2001)
, limited partners are NOT personally liable
for an obligation of the LP, and
liability is NOT
created when the limited partner participates in the
management or control of the business.
MEDIUM
Under earlier versions of the Uniform Limited
Partnership Act
, participation in the management or
control of the business subjected the limited partner
to personal liability for the LP’s obligations. In
jurisdictions that follow the earlier versions,
participating in the removal of
a director is
NOT
considered to be participating in management and
control
MEDIUM
Under RULPA
,
a limited partner will become liable
for the obligations of the LP if he participates in the
control of the business. However, that limited partner
is liable only to
persons who transact business with
the LP reasonably believing that the limited partner
is a general partner (based upon the limited partner’s
conduct).
MEDIUM
The RULPA Safe Harbor Provision sets forth certain
activities that DO NOT constitute the exercise of
control and management, which include:
(1) being a contractor for, or an agent, employee, general
partner of the LP; (2) being an officer, director, or
shareholder of
a corporation that is
a general partner
of the LP; (3) advising or consulting with
a general
partner concerning the business of the LP; (4)
acting as surety or guaranteeing an obligation of the
limited partnership; (5) bringing
a derivative action
in the right of the LP; (6) requesting or attending
a
meeting of partners; (7) proposing, approving, or
disapproving the following matters: (i) the dissolution
and winding up of the LP; (ii) the sale, exchange,
lease, mortgage, pledge, or other transfer of all (or
substantially all) of the assets of the LP; (iii) the incurrence of indebtedness by the LP other than in the
ordinary course of its business; (iv) a change in the
nature of the business; (v) the admission or removal
of a general partner; (vi) the admission or removal
of a limited partner; (vii) a transaction involving
an actual or potential conflict of interest between a
general partner and the LP or the limited partners; and
(viii) an amendment to the partnership agreement or
certificate of limited partnership.
An obligation incurred by a Limited Liability Partnership
(LLP) is solely the obligation of the LLP. Under RUPA,
a partner in an LLP is NOT liable for partnership
obligations.
However, certain exceptions to this rule exist
1) , partners
are ALWAYS liable for their own misconduct or when
they sign a personal guarantee for the obligation.
2)
even if a partner is not personally liable for the debts of the
partnership, he is at risk of losing any capital contributions
he made to it.
3) obligations incurred before a
partnership becomes an LLP are treated as obligations of the
prior partnership entity
(i.e. general partnership or limited
partnership)
MEDIUM
A partnership IS LIABLE for loss or injury caused to
a person (or for a penalty incurred) because of:
(1) the
wrongful act, omission, or actionable conduct of a partner,
(2) acting in the ordinary course of partnership business.
LOW
Unless otherwise agreed, profits are shared equally between
partners, and losses will be shared in the same ratio as
profits. If an agreement is only made to how losses are shared
(no matter the ratio), then profits will be shared equally. Any
partner who pays more than his fair share in partnership losses
is entitled to
receive a contribution from the other partner(s)
for their proportional share of the losses.
LOW
