Final Flashcards
Agency Rule
The fiduciary relationship where the P manifests CONSENT that the A shall act on the P’s BEHALF, subject to the P’s CONTROL, and the A manifests assent or otherwise consents so to act.
On Behalf Of Element
- Acting PRIMARILY for P’s benefit
- Does not require success in accomplishing the task
- Not simply offering help or making a suggestion
Control Element
Can be physical control or simply control over the goals of the relationship (dissent in US v Bonds)
Agency v. Buyer-Seller
Hunter Mining Lab v. MAI Key = level of control -title passage -price v. proceeds -when P gets paid (on delivery or sale to consumer)
Agency v. Creditor-Debtor
Gay Jenson Farms v. Cargill
Look at totality of the circumstances - did creditor do way more than a normal creditor does?
Agency v. Trustee
- Trustee is not subject to control of beneficiary
- Trust may be created w/o consent of beneficiary/trustee
- Trust cannot usually be terminated at will
Agency v. Escrow
ESCROW REQUIRES THREE PARTY AGREEMENT
But an A acting on behalf of one person may be held liable to a 3rd party for failure to perform a K intended to benefit that 3rd person
Dual Agency Rule
A cannot act adversely to P w/o P’s consent
Thayer v. Pacific Railway
Employee of ∆ can become TEMPORARILY and INSTANTANEOUSLY the A of π for the limited purpose of a task
Ambiguous P - ON BEHALF OF TEST
Kilbourn v. Henderson
Consultant is acting on behalf of party with whom her interests were aligned at the time of the act in question
Ambiguous P - CONTROL APPROACH
Norby v. Bankers Life
P is whichever entity dictates the terms of the relationship
Ambiguous P - GENERAL EMPLOYMENT APPROACH
- Continuity of employment
- Length of time
- Number of transactions
Ambiguous P - EQUITY APPROACH
Between two innocents, put burden on the party who put the A in the position to do the harm
Duties P owes to A
- Indemnification
- Compensation
- Care
Duty to Indemnify (P to A)
Admiral Oriental Line v. U.S.
Venture is P, profits will be his, so should be the expenses
Duty to Compensate (P to A)
Objective test: is there a reasonable expectation of P to pay and of A to be paid?
If yes, quantum meruit
Duty of Care (P to A)
Provide safe working conditions for A to complete his duties without undue harm
Duties A owes to P
- good conduct & to obey
- indemnify for loss caused by misconduct
- account
- care
- disclosure
- loyalty
Duty of Good Conduct and to Obey (A to P)
- Don’t purposefully bring P into disrepute
- Obey reasonable instructions to perform goal
Duty to Indemnify for Loss Caused by Misconduct (A to P)
Where A negligently damages property, exceeds auth’y, negligently or fraudulently causes P to be liable to 3rd person, or violates duty of loyalty
Duty to Account (A to P)
If A is somehow in charge of funds or property, A has a duty to keep track and show P
Duty of Care (A to P)
- Duty to conduct the affairs of P w/ a certain level of diligence, skill, and competence
- If you claim to have a higher level of skill/expertise, you will be held to that heightened level
Duty to Disclose (A to P)
Provide full, frank, fair disclosure of all material info
–reasonable person would attach importance to its existence or non-existence in making his decision in the transaction in question
Duty of Loyalty (A to P)
- Scope varies w/ position and nature of violation*
- Profit
- Confidential info
- Competition
- Self-dealing
Post-Termination Competition
A is allowed to compete fairly, but can’t use or disclose trade secrets to compete w/ or injure P
Covenants Not to Compete
- geographical extent
- duration
- nature of duties (training, skill)
- nature of employer interest sough to be protected (trade secrets, goodwill)
Servant v. Independent Contractor
- Extent of control over details**
- Distinct occupation or business
- Kind of occupation (usually supervised or independent)
- Skill required
- Who supplies tools or instrumentalities?
- Length of time
- Method of payment
- Part of employer’s regular business
- Parties’ intent to create relationship
- Whether P is or is not in businss
Exceptions to Independent Contractor Defense
1) Inherently dangerous activity – work which, in its nature, will create some peculiar risk of injury to others unless special precautions are taken
2) Negligent failure to select a competent contractor
3) Non-delegable duty
Borrowed Servant - ON BEHALF OF TEST
General employer remains liable as long as the employee is furthering his business unless control has been completely surrendered
Borrowed Servant - GENERAL CONTROL TEST
- General employer can substitute another servant
- Length of new employment is short
- Servant has specialized skill
- GE rents out machine and servant to operate it
Borrowed Servant - ON THE SPOT CONTROL TEST
Employer w/ control over the specific act giving rise to the cause of action was P
Frolic v. Detour
- General kind of conduct he’s employed to perform
- W/in auth’d time and space limits
- Motivated at least in part by the purpose of serving employer’s interest
- If intentional force is used by A, that use of force is not unexpected by P
“Since You’re Going Anyway” Cases
Trip is not w/in the scope of employment if the employee would have continued the trip even if the business purpose was cancelled
Re-Entry After Frolic
- Fiocco = when the dominant purpose is the performance of the master’s business
- R(2)§237 = servant does not re-enter until reasonably near auth’d time and space limits AND is acting w/ the intention of serving master’s business
Intentional Torts - Motive Test
Employer can be held liable if the intentional tort is during the course of employment AND in furtherance of a purpose to serve the employer
Intentional Torts - Foreseeability Test
Employer can be held liable if RISK is foreseeable and characteristic of this employment
Intentional Tort - Implied K Theory
Employer can be held liable under an implied K between himself and passenger for her safe passage based on her inability to leave in a common carrier situation
A’s Express Actual Auth’y
P’s written/spoken words or other conduct which causes A to reasonably believe P desires him to act on his behalf
A’s Implied/Incidental Auth’y
The auth’y to conduct a transaction includes the auth’y to do acts which: (1) are incidental to it; (2) usually accompany it; or (3) are reasonably necessary to accomplish it
A’s Apparent Auth’y
1) P’s manifestations to 3rd person
2) 3P’s subjective belief P had auth’d A
3) Belief was reasonable and objectively supported by the facts
A’s Apparent Auth’y by Position
Mere position/title is P’s manifestation that A has the power to do things customarily associated with the position
Sauber v. Northland
Inviting the public to do business over the phone and allowing an employee to answer it gives rise to the rebuttable presumption that she had auth’y to bind
Auth’y by Estoppel
∆ is estopped from avoiding responsibility under the K if:
- 3P changed his position to his detriment b/c of a reasonable belief
- ∆ intentionally or carelessly caused such belief or knew of it and did not take any reasonable steps to notify
Undisclosed P’s Rights
Same rights on K as if he were disclosed UNLESS:
(1) 3P would have objected and refused to deal w/ this particular P and P knew this
(2) 3P has a substantial interest in receiving the performance of A
Senor v. Bangor Mills
Where a special agent requires authorization for each transaction and no general positional power exists on which to base an inherent agency claim
Form of Signature
To avoid becoming personally liable, signature must put 3P on notice of existence and identity of P, including whether P is a corporate entity
A’s Liability to 3rd Parties
- When 3P knows or has reason to know of the agency relationship at the time of the transaction, A is not liable
- When P is undisclosed or partially disclosed, A is personally liable
A’s Warranty of Auth’y
- Where A purports to make a K for a P, A is personally liable on the K, even if he acts in good faith belief that he was auth’d
- Does not apply where 3P has actual knowledge of A’s lack of auth’y
Ratification Rule
If X assumes to act for Y w/o precedent auth’y and Y subsequently affirms X’s act, it is a ratification which relates back and supplies original auth’y for the act
Implied Ratification
When P, w/ full knowledge of, or deliberate indifference to, material facts:
- retains a benefit
- remains silent and acquiesces where one would expect a reasonable person to speak if he did not consent
- fails to repudiate/disavow
No Partial Ratification Rule
Ratification is not effective unless it encompasses the entirety of the act, K, or other single transaction
Ratification - Changed Circumstances Rule
Ratification is not effective when the situation has so materially changed that it would be inequitable to bind the other party
Ratification - Formalities Requirement
Where formalities are required for the authorization of an act, its affirmance must be by the same formalities in order to constitute a ratification
Imputed Knowledge
If A has actual knowledge or reason to know something at the time of a transaction, that knowledge is imputed to P, UNLESS A was secretly acting adversely to P and entirely for his own or another’s interest
Termination of Agency Auth’y
Either party has the power to terminate at any time by manifesting, in any manner, dissent to the relationship’s continuance
Lingering Auth’y
Must give notice to protect those who relied on A’s auth’y in the past or may rely on an appearance of continuing auth’y
P’ship Basics
- Equal management rights
- Personal liability
- Pass through taxation
- Free exit
- Each p’r is a general agent of the p’ship
P’ship Rule
Association of two or more persons to carry on as co-owners a business for profit
Profit Sharing
UPA - prima facie evidence of p’ship
RUPA - rebuttable presumption of p’ship
Aggregate Theory
UPA
- P’ship is just the sum of individual p’rs
- P’ship existence depends on the presence and identity of each p’r
Entity Theory
RUPA
-P’ship is its own stand-alone being
Contribution of Property to P’ship
UPA - prop brought into p’ship stock is p’ship prop
RUPA
- prop acquired by p’ship is presumed to belong to p’ship
- prop acquired by p’r in p’ship capacity is presumed to be p’ship prop
P’rs Interest in Specific P’ship Prop
- ONLY use or possess for p’ship purposes
- CANNOT be individually assigned
P’rs Actual Auth’y
UPA
- equal rights to mgt and conduct of the business
- ordinary matters must be decided by a majority of p’rs
P’rs Apparent Auth’y
- P’ship is bound through apparent auth’y for acts in the usual business of the p’ship
- Look to other p’ships in the locale or this p’ship in other transactions
LLPs
- CA - only available where all p’rs are licensed pros (atty, acct, architect)
- Full shield = no vicarious liability for K or tort liabilities of p’ship
- Partial shield = protected from VL for torts only
P’ship by Estoppel
Elements:
- Holding out
- Consent
- Reasonable reliance
P’Ship Tort Liability
- P’ship is liable for wrongs of p’r acting in the ordinary course of business
- P’ship is liable for fraud w/in the scope of apparent auth’y
Duty of Loyalty (P’ship)
- Deny all self-interest; put p’ship first
- Render on demand full and true info
- Cannot give away confidential info gained by virtue of position of trust
Duty of Care (P’ship)
Only way a p’r can be liable in DoC is if there is an actual physical injury to person or prop (not just regular business negligence)
K’ing Out of P’ship Duties
Cannot contractually eliminated a duty, but may carve out certain activities if not manifestly unreasonable
Charging Order
Permits a creditor to enforce a judgment against a p’rs interest in the p’ship
Dissolution Rule
Change in relation of p’rs caused by any p’r ceasing to be associated in the carrying on of the business
Winding Up
When rightful dissolution occurs, each p’r may have p’ship wound up and receive the surplus in cash (unless otherwise agreed)
Distribution in Kind
ONLY allowed when:
- no creditors
- p’rs all agree
- sale would be futile b/c there are no other buyers
- fair to all parties
Rightful Causes of Dissolution
- End of term
- Express will of any p’r (if no definite term)
- Express will of all p’rs
- Expulsion
Wrongful Cause of Dissolution
Express will of any p’r at any time in any other way
Termination of P’ship Auth’y
Dissolution terminates all auth’y to act for the p’ship except as necessary to wind up p’ship affairs, to complete transactions begun but not then finished
Hunter v. Straube
- UPA right to dissolution can be K’d around
- Can’t divest one p’r of his right to continue the business or escape from liability assumed under the p’ship K simply by calling your withdrawal a dissolution
Liability of Incoming P’r
General rule: new p’r is not personally liable for pre-existing debt
Liability of Withdrawing P’r
P’s obligations are not terminated until after winding up (until outstanding Ks are either performed or other K’ing party gives consent that withdrawing p’r need to perform)
Faulty Limited P’ship Filings
- Noncompliance w/ filing requirements results in a general p’ship
- -ULPA = person who erroneously believes he is in an LP can preserve protection by promptly renouncing interest upon discovering mistake
- -RULPA = removed prompt, now before 3P reliance on person being a GP is formed
LP Control Issue (RULPA ‘76)
LP will not become liable as GP unless he takes part in control of the business. If LP’s participation is not substantially the same as that of a GP, he is liable only to persons who transact business w/ the LP w/ actual knowledge of his participation in control
LP Control Issue (RULPA ‘85)
- Mere participation is not enough, need 3P reliance
- Safe harbors
LP Control Issue (Re-RULPA)
- FULL SHIELD for limited p’r
- Cannot be transformed into GP no matter how much control he exerts
Duties of Limited P’rs
GP owes heightened fiduciary duties b/c once LP joins, he no longer has an effective voice in the decision-making process
LP - Removing GP
RULPA = to prevent dissolution, ALL p’rs need to agree in writing to a successor w/in 90 days
Re-RULPA = only req’s a majority, not unanimity
Demand Futility
- When you’re dealing w/ a “bad” GP
- Majority has material financial or familial interest
- Reason to believe GP in not truly independent
- Underlying transaction is so egregious it can’t possibly be a valid exercise of business judgment
LP - K’ing out of Fiduciary Duties
GP can’t K out of the fiduciary character of the relationship altogether, but can K out of specific duties as long as your intent to do so is plain in the LP agreement
LLC Formation
- Have to file articles of organization w/ secretary of state
- Need operating agreement (heart of LLC)
Member-Managed LLC Fiduciary Duties
Member owes care, loyalty, and good faith and fair dealing to company and other members
Manager-Managed LLC Fiduciary Duties
Managers owe care, loyalty, and good faith and fair dealing to company and other members
Members owe good faith and fair dealing only
