Corps/Agency & Partnerships Flashcards
Agency Relationship
the relationship that arises when one person, the principal, manifests an intention that another person, the agent, act on the principals behalf.
Requires: 1) capacity; 2) consent; & 3) control
agency
Capacity
principal needs contractual capacity but the agent only needs minimal mental capacity (can be minor/incompetent)
Consent
each party must voluntarily consent either by oral or written agreement
Control
the extent of the right of control is an issue in determining whether the agent is an employee or independant contractor.
The more control the P has over how A performs their work, the more likely they are employee
Vicarious Liability for EE’s Negligence
If EE : ER is liable for negligence of EE where the EE is acting w/in the scope of their employment. A frolic (substantial deviation) is out of scope whereas a detour (minor deviation) w/in scope
Scope of Employment Factors:
- was conduct of the kind A was hired to perform,
- did tort occur on the job – w/in time & space limits,
- was conduct actuated at least in part to benefit P
- borrowed servant (ER lends EE who commits tort) – look to who has right of control
Liability for IC Negligence
Principal liable for negligence of IC if:
- IC is engaged in inherently dangerous activities; or
- the duty is non-delegable (i.e. duty to keep premises safe, duty to maintain car in working order, etc.)
IF NEITHER APPLIES, look to right to control factors
- skill required; tools & facilities; period of employment; basis of compensation; buisness purpose; distinct buisness
Liability for Agent’s Intentional Tort
ER/P generally not liable for intentional tort of an agent, regardless if A is EE/IC, bc intentional torts are not w/in the scope of agency UNLESS:
- force is authorized
- friction is generated OR
- agent is furthering the buisness of the employer
AND all of these require a finding of some type of authority (actual, apparent, ratification)
Actual Authority
Actual authority includes both express & implied authority
actual express = A has express authority from the P to act
actual implied = means that the nature of the agent’s position implies authority to act in a particular manner– either from:
- custom & usage,
- acquiesence + failure to inquire, OR
- emergency/necessity
Apparent Authority
requires that principal has communicated, by some statement or act to a third party, the apparent authority of the agent to act on behalf of that principal w/ respect to that third party
Ratification
the principal has agreed to be bound y the unauthorized acts of the agent (after the fact), which requires actual knowledge of those unauthorized acts
Contractual Liability of Principal & Agent to 3rd
Parties
(disclosed principal)
There is a disclosed principal when the third party knows the identity of the principal.
- authorized agent is not liable & ) P is liable even even if A acted w/ improper purpose or for third parties purpose UNLESS 3rd party has notice that A is not acting for principal’s benefit
Contractual Liability of Principal & Agent to 3rd
Parties
(partially disclosed principal)
a partially disclosed principal is one where the fact, but not the identity, of the P is known to the 3rd party
Both the agent and principal are liable on a K entered into by an authorized A on behalf of a partially disclosed P
Contractual Liability of Principle & Agent to 3rd Parties
(undisclosed principle)
There is an undisclosed principal where the third party believes the agent is the contracting party & has no knowledge of the existence of a principal.
- A is always liable to third party & P is still liable UNLESS A acts for an improper purpose or for 3rd parties purpose
Secret Limiting Instructions
If P gives secret limiting instructions & agent acts beyond the scope of the limitation when dealing w/ a third party, then P will still be bound by agent’s actions & liable on the K
P can then sue A for breach of duty of obedience
Agent’s Duties to Principal
- undivided loyalty – A can’t represent both parties to the agreement unless both are fully advised as to facts & agree
- strict obedience – any variance is a breach unless P has knowledge of it & ratifies
- reasonable care – in light of local community standards & taking into account special skill of the agent
REMEDIES FOR BREACH:
- damages, accounting for agent’s secret profits, & w/holding compensation
Principal’s Duties to Agent
- duty to reasonably compensate A & reimburse him for all expenses/losses reasonably incurred in discharging any authorized duties
- duties imposed by the K
- duty to cooperate in carrying out purpose of the agency
REMEDIES FOR BREACH
- damages for breach of K (subject to A’s duty to mitigate) OR
- an agent’s lien in any property agent holds (e.g. brokers commission)
Termination of Agency Relationship
Agency relationship can be terminated by:
- lapse of time
- happening of an event– actual authority terminates when A knows or should’ve known of termination. if P gives A a writing manifesting authority, apparent authority won’t be terminated w/ respect to 3rd parties who see & rely on it
- change of circumstances
- breach of fiduciary duty
- unilateral act
- operation of law– death or incompetency of P
Partnership – Formation
an agreement among 2 or more persons to carry on as co-owners of a buisness for profit
- no intent to form a partnership needed just need carrying on buisness as co-owners (sharing control) & sharing profits
Factors: common ownership of property, designation of entity as pship, & higher activity (purchase & managent of prop)
Partnership Liability for Acts of a Partner
a partnership is liable for the acts & ommissions of a partner, acting w/in the scope of the partnership buisness or w/ authority of other partners, to the same extent that the acting partner is liable
if 3rd party reasonably partner is acting for the partnership, then partner will have apparent authority to bind pship
Types of Partnerships
General Partnership
Limited Partnership
Limited Liability Partnership
General Partnership
general pship does not require formalities. Thus, where an LP or LLP is not properly formed, the result is a GP
all partners jointly & severally liable for all obligations of the pship (in K or tort) AND personally & individually liable for entire amount of all pship obligations BUT creditor must exhaust pship assets b4 levying partners individual assets.
profits/ losses divided equally & any partner can bind the pship
incoming prtnrs can’t be liable for obligation incurred b4 admission as prtnr except to extent of their contributed prop
Limited Partnership
Partnership where there is at least 1 general & 1 limited partner.
Requires formalities, such as formal written & filing of docs w/ state Improper formation results in a general partnership.
limited partners’ liability is l_imited to their contribution_/capital accounts in the pship, so n_ot personally liable_ UNLESS they exercise control (but can vote on major issues, i.e., dissolution or sale of majority assets)
gen partners personally liable for pship obligations & can bind pship
Limited Liability Partnership
partnership where all partners are general partners, so can exercise control/management of pship, BUT they cannot be held personally liable for pships obligations
requires formalities such as written formal agreement & filing of docs w/ State
Transferring Partners Interest in the Partnership
management interest– right to participate in the management of the business, to obtain info, & to be recognized as a partner cannot be unilterally transferred
financial interest– right to receive their share of profit distributions can be unilaterally transferred
Partners Duty of Loyalty
Partners owe each other & the partnership a fiduciary duty of loyalty which requires partner to:
- refrain from dealing w/ partnership as or on behalf of a party adverse to the pship
- refrain from competing w/ the pship &
- account for any profits, property, opportunities, or other benefits derived by the partner in conjunction w/ the pship buisness
competing & usurping opp = breach & prtnr must account to the pship for any profits earned
Dissasociation
the change in relationship among partners caused by a partner ceasing to be associated in the carrying on of the business.
Can be voluntary such as when all partners decide to dissolve the pship or a prnter voluntary w/draws & gives notice OR involuntary such as when the a partner, dies, is adjudged incompetent, or is expelled from the partnership
dissociating partner is paid their capital account & share of profits
Wrongful Disassociation
occurs when prtnr dissociates in breach of an express term of the prtnrship agreement
partner who wrongfully dissociates is liable for any damages caused
Acts that Result in Dissolution
1) notice by a partner of their express will to w/draw from an at will partnership (no definite term/ end date)
2) express will of at least 1/2 remaining prtnrs w/in 90 days of a partners death, brankruptcy, or wrongful dissolution
3) expiration of partnership term
Liability for Obligations of a Dissosociated Partner
partnership is bound K/tortious act of a partner committed after dissociation if the party w/ whom the partner deals does not have notice of dissassociation
Distribution Priority @ Dissolution
prtnrship must pay all creditors, then all capital contributions, then profits or losses if any
Corporation Formation
(ultra vires)
Corp is formed by filing articles of incorporation w/ state.
It’s presumed to be formed for a lawful buisness purpose & any business outside of the corp’s expressly stated purpose in the the Articles of incorp. is ultra vires
At common law would void any K beyond corps stated purpose BUT its still valid as to 3rd parties
Remedies for Ultra Vires Act
1) shareholders can sue to enjoin ultra vires act
2) state may seek dissolution of corp (only given when corp violates regulatory law)
Generally, court can’t remove directors for causing corp to perform ultra vires act but might trigger duty of care violation subjecting them to suit for damages
Ways to Form a Corp
1) De Jure = in accordance w/ formation statute (filing articles w/ state)
2) De Facto = where members do not know that the incorporation was defective & requires:
- an available statute for valid incorporation,
- colorable compliance & good faith belief, and
- corp must act like one
3) corporation by estoppel = person’s who treat an entity like a corp are estopped from later claiming it wasn’t (applies in K cases)
Issuance of Stock
common stock can be issued in consideration of any tangible or intangible property, money, or benefit to the corp (services already performed) BUT many states still prohibit issuance for promissory notes/ future services
Promoter Liability on Pre-incorportion K’s
a promoter is one who acts on behalf of a corp in formation
