Business Associations Flashcards
Agency formation by act of parties
An agency relationship results from assent by one entity (principal, P) to another (agent,
A) that the agent shall represent and act on the principal’s behalf in dealing with third parties and subject to the principal’s control, and assent by the agent so to act. The principal is responsible for the acts of his agent
i. P must have contractual capacity (e.g., an appointment of an agent by a minor is voidable), but no consideration is required
Formation by estoppel
An agency may be created through estoppel, which requires third-party reliance on P’s communication
Duties owed by agent and remedy for breach
fiduciary duty of loyalty,
duty of obedience to reasonable directions,
duty of care under the circumstances (e.g., disclose all relevant information), express contractual duties
Remedies to P: K remedies if A compensated, tort remedies, action for secret profits, withholding of comp
Duties owed by principal
duty to reasonably compensate or reimburse expenses, duty to cooperate (not unreasonably interfere with A’s performance), express contractual duties
Remedies to A: K remedies, lien on for any money due from P
Agency Partnership Principal Bound by Contract Standard
To determine if P is bound by the contract, A must have had authority to enter into the contract and bind P
Actual Express Authority
Authority through express manifestations to A contained within four corners of agreement
Actual Implied Authority
Authority that A reasonably believes that A has as a result of P’s actions, e.g., incidental to express authority, customary, prior acquiescence by P, emergency measures, buy or sell goods, manage investments
Termination by Actual Authority
Termination occurs by –
breach of duty by A
lapse of a specified or reasonable time, occurrence of a specified event, change in circumstances,
unilateral termination by either A or P (subject to breach of K),
operation of law (death or incapacity unless irrevocable, or by filing a statement of authority with secretary of state to terminate P’s authority)
Apparent Authority
rises from manifestations of A’s authority due to P holding out as such via P’s words, actions, or failure to act, thereby inducing 3P to reasonably but mistakenly rely on that authority
i.
Impostors: If P negligently lets impostor appear to have agency, P is liable for impostor’s actions
ii.
Lingering apparent authority: If A’s actual authority has terminated (unless by death or incapacity), he has apparent authority to act on P’s behalf as to 3P with whom P knows he dealt with, unless 3P received notice of the termination
Ratification
If an “agent” acts for P w/o any authority but P subsequently validates the act (expr/impl), P is bound
P must 1) know or have reason to know all material facts, 2) accept the transaction, and 3) have capacity
Contract Liability for Principals
3P v. P: Any type of P is liable to 3P on the K entered into by A as long as A had valid authority to act
3P v. A: When considering A’s liability, depends on P’s identity and existence known to 3P
Disclosed P: A is generally not liable (and P is liable on the K), unless K intended A to be liable
Unidentified (partially disclosed) P: A and/or P may be liable at 3P’s election. A may avoid liability by disclosing P’s identity
Undisclosed P: A and/or P may be liable at 3P’s election
3P liability: Disclosed P may enforce K but not A. Unidentified/undisclosed P and A may enforce K (P still benefits)
Tort Liability for Principals
P is liable only for torts committed by A who is an employee, not independent contractor. If A not liable, P not liable
P may be still be liable for negligent hiring, supervision, or entrustment of employee
P may be still be liable for an independent contractor (IC) if the activity involved was inherently dangerous, duty was nondelegable, or P was negligent in hiring IC
Employee/ IC Factors
P’s control over manner and method of A’s performance, characterization by parties, customs of locality regarding supervision of work, degree of skill required on the job, whose tools or facilities are used, length of employment (short more likely to be IC, indefinite more likely to be employee), basis of compensation (project basis vs. time basis), understanding of parties, whether hired to further P’s business (nonbusiness purpose, e.g., mowing lawn, more likely IC)
Relationship by estoppel
If P creates the appearance of employer-employee relationship that 3P relies on, P is estopped from denying the relationship and will be liable under respondeat superior
Scope of employment
If employer-employee relationship exists, employer will be liable for employee’s torts if they were committed within the scope of employee’s employment
Factors: same general nature as job, proximity to time and place of authorized employment, motivation to serve employer
Intentional torts are not within the scope of employment, unless it’s a natural part of duties or a misrepresentation
Partnerships by RUPA
A general partnership (GP) is an association of 2+ entities to carry on a business for profit as co-owners
To determine whether GP exists, key test is parties’ intent. No formal agreement is required to form GP
Intent may be implied through conduct, e.g., profit sharing (raises a presumption rebuttable by evidence showing GP was not intended), joint title to property, parties’ designation as partnership
General partners have unlimited personal liability no matter what limited liability they declare
Bringing in new partners requires unanimous approval
Partnership Property
Property acquired by GP is owned by GP and not the individual partners—not freely transferrable
A partner has no right to use partnership property other than for the benefit of the partnership
Titled property is partnership property if titled in name of partnership or partner (and noted in title)
If purchased with partnership funds, rebuttably presumed to be partnership property
Otherwise, rebuttably presumed to be separate, even if used for partnership purposes
Untitled property: Look to common law criteria tending to indicate partnership property
Partnership Rights
Management
Distribution
Interest
Indemnification
Inspection
Lawsuit
Settlement of account upon dissolution
General Partnership Management Rights
All partners have an equal right to participate in the management and control of the partnership, unless there is an agreement providing otherwise
Decisions involving “ordinary course of business” are controlled by a majority of partners
Ge
Matters outside “ordinary course of business” require (unanimous) consent of all partners
GP Distribution Rights
Each GP is entitled to share equally in profits and must contribute toward losses in proportion to profit share. May agree to share profits other than equally and share the losses in the same ratio
Interest
Economic right to interest in GP is personal and transferable w/o dissolving GP (transferee is only entitled to receive distributions; transferor retains other rights and duties)
Indemnification
for payments and obligations reasonably incurred in carrying on the partnership business
Contribution from other partner for paying more than his share of partnership liability
No right to remuneration for services to GP except reasonable comp for winding up business
Inspection
A partner may inspect and copy the partnership books
Lawsuit
A partner may sue another partner (e.g., for breach of agreement or duty, or to enforce a right)
General Partner Duties
Duty of care not to engage in negligent, reckless, or unlawful conduct or intentional misconduct
Duty of loyalty
Duty of good faith and fair dealing
Duty to keep books complete and accurate and present to interested partners
