essay rules Flashcards
Principal’s contractual liability
Depends on if the agent acted with authority.
You should discuss all theories of authority in your exam answer
to earn full credit. Spend more time on the theory(s) of authority that are
relevant, based on the exam facts
Identify if there is an agency relationship
Principal: Typically an employer
Agent: Usually an employee
Express actual authority
Principal directly tells the agent that he has the authority to take certain actions.
Implied actual authority
Based on agent’s reasonable understanding of the principal’s instructions. Agent can do what is necessary to complete P’s objectives.
Apparent authority
Based on the manifestation to the third party by the principal.
If a third party reasonably believes the agent has authority to act (based on the P’s conduct), the agent will have power to bind P.
There can not be apparent authority when P is not disclosed.
Agency by estoppel
A principal is prevented from denying liability if he failed to take reasonable steps and use ordinary care to inform a 3rd part of the lack of authority when he knew they believed there was authority or if he caused them to believe there was authority.
Example 1: P has two co-agents, A and B. P learns that B, acting without
actual or apparent authority, is informing P’s neighbors that A has the authority to sell P’s ring, which P has specifically forbidden A from doing. P’s next-door
neighbor purchases P’s ring from A, in justifiable reliance on B’s representation
as to A’s authority. P, in her suit to rescind the sale, may be estopped
(prevented) from denying B’s authority to make the representation as to A’s
authority.
Termination of authority
Principal has the power to terminate the agency at any time.
Actual authority: Simply tell the agent no more authority
Apparent Authority: Must tell the 3rd party that authority is revoked
Ratification
A principal can ratify (affirm) an act performed by an agent, even if the agent did not have authority to act.
Requires:
1) The principal to ratify the entire contract;
2) The principal and 3rd party have legal capacity to contract;
3) The ratification occurs before the third party withdraws from the contract;
4) The principal knows the material facts of the transaction
Partnership Formation
Requires an association of two or more persons to carry on a for-profit as co-owners
Requires sharing profits but no intent requirement and no formal writing required.
What is the key test to determine if a partnership exists?
The key test applied to ascertain whether a business arrangement is a partnership is whether there is a sharing of the profits from the business; if so, such an arrangement generally is presumed to be a partnership, and persons who share in the profits are partners. However, a partnership does not exist between persons when one person receives profits in payment of a debt.
Fiduciary duties of partners
Duty of Loyalty
Don’t compete with partnership; don’t usurp opportunities; don’t advance an adverse interest.
Duty of care
Required to act as a reasonable partner and can’t engage in gross negligence or reckless conduct, intentional misconduct, or a knowing violation of the law
Obligation of good faith and fair dealing.
A partner must act fairly and in good-faith
Profits and losses of partnerships
absent a PA, each partner will share losses and profits equally
Losses follow profit if profits are in PA but losses are not (meaning they will be the same amount as each other)
Transfer of financial interest
o Partner can transfer the right to receive distributions from the partnership to a third party
o Partner is still a partner with remaining rights and obligations
o Third party does not become a partner, but can seek judicial dissolution of the partnership
oA creditor of a partner can enforce a judgment against the partner’s financial interest.
Property ownership
Property acquired by the partnership must be used for the benefit of the partnership.
Property is partnership property if it is acquired in the name of the partnership. It is property of the partnership and not of the partners individually. A partner may use or possess partnership property only on behalf of the partnership. Here, the delivery truck was purchased in the partnership’s name and therefore, is partnership property and not Fran’s individual property.
Management rights
Each partner has equal rights in the management and conduct of the partnership
A majority of the partners can make a decision as to ordinary business decisions.
Access to records
Must provide partners with access during business hours.
Partner’s contractual liability
Partner’s are agents of the partnership and can bind it by having express or implied actual authority or apparent authority.
Partnership’s Tort Liability
Liable for partner’s tortious acts, including fraud, committed in the ordinary course of partnership business or with apparent authority
Partner’s liability
A judgment creditor of an individual partner may not attach and execute upon partnership real
estate.
Partnership’s liability to 3rd parties
As a separate entity, a partnership is subject to a lawsuit for its obligations.
Partners are also jointly and severally liable for all partnership obligations
Partnership creditor must exhaust the partnership’s assets before taking the partner’s
individual assets.
Partnership dissolution
Any partner can choose to dissociate from the partnership by giving notice.
Partnership may dissolve when a partner dissociates, but dissociation does not necessarily
cause dissolution
Winding up
A partnership that is dissolved only continues to exist to “wind up” its business
Assets: Creditors have priority over partners to the partnerships’ assets.
Obligations: Partnership assets are first applied to pay off obligations to creditors (creditors
may include partners who made loans to the partnership) before being distributed to the
partners.
LLP
—Limited Liability Partnerships
Partners’ personal liability for partnership obligations is eliminated
Individual partners are liable for their own torts
Requires filing a statement of qualification with the state
Failure to form an LLP will typically result in a general partnership.
Limited partners in LLp
Partners are agents of the llp but not personally liable for LLP obligations
Transition from GP to LLP
If a general partnership incurs liability and then becomes an LLP, the LLP is liable for those
obligations.
If an individual partner in a general partnership is liable, and then an LLP is formed, the partner
is still liable for that obligation.
A new partner admitted to the LLP is not liable for pre-transition obligations.
Limited Partnerships
Formed by 2 or more people—at least one general partner and one limited partner
Limited partner’s liability is limited to amount contributed to LP
Formation—must file a certificate with the state
Access to Records—limited partners have a right to inspect and copy records upon reasonable
demand
Liability in LP
—limited partner not liable for partnership obligations
o Can be liable if the limited partner participates in control of the partnership
o Removing a general partner does not amount to “control” of the partnership
o Only liable to third parties who reasonably believe the limited partner is a general partner
