Partnership and Agency Flashcards
When is Partnership formed?
A partnership is formed when two or more people associate to carry on as co-owners of a business for profit. A person who receives a share of the profits from a business is presumed to be a partner.
What does a partner do to become a partner?
Contribution of $ or services in return for share of profits creates a presumption that partnership exists. No partnership is formed when someone gives someone a loan, expecting to be paid back with profits.
Partnership meets Agency
as a partner, one is an agent of the partnership for the purpose of the business and can bind partnership to contracts.
When is a Partnershop bound by contracts entered into by partners?
Where partner (agent) had actual or apparent authority?
When does a partner act with apparent authority?
The act of any partner apparently carrying on in the ordinary course of the partnership business or business of the kind carried out by the partnership will bind the partnership unless the partner had no authority to act for the partnership and the third party knew that.
When does a partner act with actual authority?
Actual authority to enter into transactions regarding matters within the ordinary course of business requires a majority vote–for matters OUTSIDE the ordinary course of business it requires unanimous consent of all partners.
When are partners personally liable for contracts entered into by the P’ship?
Partners are jointly and severally liable for all obligations of the partnership. But when a partner enters into a contract with no authority (express or actual or apparent) the partner is not bund and only that partner is liable)
When are principles liable to third parties for TORTS of agents?
principals will be vicariously liable for the torts committed by its agent if (a) there is a principal agent relationship and b) tort was committed by the agent in the scope of that relationship.
When do you have a principal agent relationship?
ABC
Assent–informal agreement between principal, who has capacity, and agent
Benefit–agent’s conduct must be for principal’s benefit
Control–P must have the right to control the agent, by having the power to supervise the manner of his performance.
Will principal be vicariously liable for torts of subagents?
Only where there is A, B, and C between sub-agent and principal.
Normally—P does not assent and there is not right to controls, so there can be no liability
Is a principal who borrows an agent of another P vicariously liable for the borrowed agent’s torts?
against, only where P and borrowed A have A, B,and C
typically, there is A and B but no control, so there is not normally liability
Agents v. Independent Contractors
Employer has no right to control an independent contractor because no power to supervise the manner of his performance. Therefore there is typically not vicarious liability for his torts.
Exceptions:
There is liability where IC commits torts while he is engaged in inherently dangerous activities
Estoppel–if you hold your IC out with the appearance of agency you will be estopped from denying liability on that ground
How do we know if Agent is acting in Scope of relationship?
- was it the kind of conduct agent was authorized to perform? (in job description)
- Did it occur on the job?
- -a frolic is an independent journey outside scope
- -a detour is a mere departure fro assigned task–inside scope - Did the agent intend to benefit the principal?-
- -if agent even in part intended to benefit the P by its conduct that is enough to be inside the scope - Intentional Torts: are gnerally outside the scope unless
a. conduct was authorized by P
b. natural from nature of employment
c. motivated by desire to serve principa
(bouncer)
When is a principal liable for CONTRACTS entered into by agents?
Issue is whether the principal is liable for contracts entered into by its agent. Principal is liable only for contracts entered into by its agent where the principal has authorized the agent to enter the contract. actual express authority actual implied authority apparent authority ratification
What are the 4 types of Authority?
actual express authority—P has used words to express
actual implied authority–P gives A authority through conduct or circumstances
apparent authority–principal cloaked, third party relied.
ratification: authority granted after contract has been entered into by knowledge and acceptance of benefits
Actual Express Authority
actual express authority—P has used words to express authority, may be oral, even private***But if contract itself must be in writing–express authority must also be in writing
revokation:
- unilateral act of either principal or agent
- death or incapacity of the principal
unless–P gives A a durable power of attorney–written expression of authority to enter a transaction with clear surivival language
Actual Implied Authority
P gives A authority through conduct or circumstance
- necessity–implied authority to do all tasks necessary to accomplish otherwise expressly authorized task
- custom–implied to do all tasks which by custom are performed by person’s with agents title or position
- prior acquiescence: implied power to do all tasks which agent believed he was authorized to do from prior acquiescence with the principal
Apparent Authority
Two part test
1. Principal cloaked agent with appearance of authority and third party reasonably relied on that appearance of authority
Ratification
After contract has been entered into, principal has knowledge of all material facts re the contract and accepts its benefits.
Ratification cannot alter the terms of the contract.
When there is a Principal Agent Relationship, who is liable on contracts?
In general P is liable for all contracts he authorized A to enter into, and A is not liable for those authorized contracts.
However—undisclosed p–if principal is partially disclosed (his identity concealed but fact that he is a principal revealed) or undisclosed (fact that there is a principal is concealed) the authorized agent may be liable at the election of third party (can only recover once)
Duties Agent Owes to Principal
Duty of Care
Duty to Obey reasonable Instructions
Duty of Loyalty—self-dealing, usuruping opportunity , secret profits (making profit at p’s expense w/o disclosure)
Remedy for Breach of Duties owed to P
P seek indemnity from agent.
P may disgorge profits made by the breach
5 Issues of Partnership
Formation liabilities of General P to third party rights and liabilities within partners dissolution alt unincorporated organizations (15)
Liability of Partners to Third parits
General Partners are personally liable for all debts of partnership and each co-partner’s torts
Incoming P’s liability for pre-existing debt
incoming P generally not liable for prior debts=but any capital paid in by new P may be used by P to satisfy prior debts
Dissociating partner’s liability for subsequent debts:
retain liability of future debts until actual notice of their dissociation is given to creditors or until 90 days after filing notice of dissociation with the state.
General Partnership Liability by Estoppel
If you rep to third parties that a GP exists, you will be liable as if a GP exists.
GP–Duties owed to each other
General Ps are FIDUCIARIES of each other and the partnership
GPS owe each other and the paternship a duty of loyalty (avoid self dealing ,usurp, secret profits)
Remedy–action for accounting: P may recover losses caused by breach and also may disgorge profits
GPs–Rights in Partnership Property and Liquidity
Specific Partnership Assets: Land, leases, equipment is owned only by partnership itself, and therefore may not transfered to P w/o authorization of p-ship
Shares of Profits–personal property is owned by individual partners and may be transferred by P to 3rd party
Share in management–right to vote, owned by Pship, may not be transfered.
Ask: whose money was used to buy property
GP–Management of P-ship
absent agreement, each P gets equal right to control (vote)
How to GPs generally vote?
majority for ordinary stuff
unanimous consent for fundamental parternship matters
How are GPSs paid?
Absent agreement, no salary
absent agreement–profits shared equally
absent agreement-losses shared like profits
Dissolution of Parternships
GP dissolves upon notice of express will of any GP to dissassociate (absent agreement to contrary)
Termination is when it really ends.
Winding up is between Dissolutoin and Termination
–remaining Ps liquidate assets to satisfy Pship’s creditors
Who is liable at dissolutoin of Pship?
Pship/GPS are liable on all transactions entered into to wind up old bus by satisfying creditors who existed before winding up
Pship and GPs retain liability on brand new transactions during wind up until actual notice of dissolution is given to creditors or 90 days after filing of statement of dissolutoin with sec of state
Priority of Paternship Stuff Distritbuion
First–pay all creditors (outside and patners)
Then, pay all capital contributions paid by partners
Finally-divide profits if any
**each partner is paid her laons and contributions plus her share of profits minus her share of losses
Limited Partnership
at least one GP and one LP-
must file with state a limited P cert with names of all GPs
GP still liable
LP have limited liablity and are not liable for obgliations of Pship itself –generally they cannot control but under new act they may
Registered Limited LP
formed: register with state fie statement of qualifcation and annual reports
RLLps–no partner is liable for obligations of the partnership
LLC
LLC is hybrid of corp and partnership
members have same rights as limited liability shareholders, and tax benefits of partnership
form file articles of org, maybe an operating agreement
owners choose to either manage or delegate
limited liquidity: cant transfer full membership interest without consent or as provided in agreement
dissolve upon unanimous consent of members/agreement
Limited Liability Limited Liquidity Limited Life Limited Tax
