Agency and Partnership

What is necessary to form a principal-agent relationship?

(1) Assent;
(2) Benefit; AND
(3) Control

What is needed to hold the P liable for the tortious conduct of the A?

(1) Valid P-A relationship;
AND
(2) Committed w/in the scope

When will P be liable for the torts of an independent contractor?

(1) Ultra-hazardous activities
-non-delegable

(2) Estoppel
-held out as agency relationship

NOTE:
Typically there is no liability because you must establish ABC (partnership), and there is no C of an IC.

Factors to determine whether an agent's activities w/in the scope of the relationship?

(1) W/in job description
(2) Frolic v. Detour
(3) Intent to benefit P

Frolic v. Detour

Frolic = P NOT liable
-independent journey

Detour = P liable
-mere departure

What does "employer instructs employee" mean in a fact pattern?

This gives rise to automatic agency relationship because the "ABC's" have been established.

Assent
Benefit
Control

3 situations when P will be held liable for the intentional torts of A?

(1) Authorized;
(2) Nature of employment; OR
(3) Desire to serve P

Types of authorization?

(1) actual express authority;
(2) actual implied authority;
(3) apparent authority; or
(4) ratification

What revokes express authority?

(1) unilateral act of either party; or
(2) death or incapacity of the principal.

NOTE:
Death will not terminate authority if there is a DURABLE power of attorney.

What happens if P gives A express authority to enter into a K with B, and right before formation of the K, unbeknownst to A, P dies?

P's estate is NOT liable for to B for the contract because death of P revoked A's authority.

Additionally, A is liable to B for the contract.

However, if P gave A a durable power of attorney, P's estate is liable because authority will survive death of P.

What is a "durable power of attorney?"

Written expression of authority to entered a transaction with conspicuous language of survival.

E.g., "this authority survives death"

When will actual implied authority be created?

(1) necessity;
(2) custom; or
(3) prior dealings between P-A

When will apparent authority exist?

(1) principal "cloaks" the agent with the appearance of authority; and
(2) third-party reasonably relies

-Watch for notice of termination.

What is required for ratification?

(1) P has knowledge of all material facts regarding the contract;
(2) the principal accepts its benefits; AND
(3) P accepts the K exactly as A entered into it

When will A be liable for contracts entered into on behalf of P?

(1) No authority or ratification

OR

(2) Authority but no disclosure
-3rd may go after either P or A

What duties does A owe P?

"LOR"

(1) Loyalty ("USS")
-Usurping
-Self-dealing
-Secret Profits

(2) Obedience

(3) Care

P's remedy for A's breach of duty?

(1) Losses caused by breach

AND

(2) Disgorge profits made by breach

Formation of a general partnership?

(1) 2+ persons associate
(2) carry on as co-owners of a business
(3) for profit
(4) no formalities

Liability of General Partners

(1) torts committed by partners in the scope of the partnership business
(2) contracts entered into by partners with authority

(*) personally liable for the debts of the partnership.

Liability of General Partner that is:

(1) Existing
(2) Incoming
(3) Dissociating

(1) Existing
-personally liable for the debts of the partnership

(2) Incoming
-not liable for prior debts, but...
-any money paid in may be used to satisfy the prior debts

(3) Dissociating
-remain liable on future debts, until...
-actual notice of dissociation is given or 90 days after filing notice of dissociation with the state.

Partnership Liability by Estoppel

(1) Representation to a third-party that a general partnership exists
(2) 3rd party reasonable reliance
(3) 3rd party detriment

Limited Partnership Formation?

(1) 1 LP ad 1 GP
(2) File LP cert, which names all GPs

Liability of GP and LP in a Limited Partnership?

(1) GP
-liable for all limited partnership obligations
-have the right to manage to business

(2) LP
-not liable for the obligations of the partnership
-may not manage the business without forfeiting their limited liability status

What happens if a limited partner in a limited partnership begins to manage the business affairs?

He will forfeit his limited liability status and basically become a general partner.

Registered Limited Liability Partnership. Formation and Liability?

Formation:
-File statement of qualification
-Annual reporting

Liability
-Partners not liable for partnership obligations

Creation of an LLC

(1) adoption of operating agreement
(2) articles of organization are filed

Characteristics of an LLC

(1) Member managed
-Unless Articles delegate to managers

(2) Limited Liquidity

(3) Limited Life

(4) Limited taxes

Partner's duties to other partners and remedies for breach

Duty of loyalty:
(1) self-dealing
(2) usurpation of opportunity
(3) secret profits at partner's expense

Remedy of Accounting:
(1) recover any losses caused by breach; and
(2) disgorge any profits the partner made from the breach

3 property interests in a partnership and partners' ability to liquidate:

(1) specific partnership assets;
-no unilateral ability to liquidate

(2) ability to share in profits and surplus; and
-unilateral ability to liquidate

(3) ability to share in the management of the partnership
-no unilateral ability to liquidate

How to determine if an asset is a specific partnership asset or the personal property of a partner?

Whose money was used to buy the asset.

Default Rules of a Partnership

(no contrary agreement)

(1) Management
-Equal management

(2) Salary
-No salary
-Unless to wind-up

(3) Profits
-Equal profits

(4) Losses
-Losses shared like profits
-If no profit agreement, equal losses

(5) Dissolution
-will occur upon notice of the express will of 1 GP's desire to dissociate

Liability incurred during wind-up:

(1) Old Business

(2) New Business

(1) Old Business
-Remain liable

(2) New Business
-Remain liable UNLESS:
-actual notice of dissolution is given to creditors; OR
-90 days has elapsed from filing a statement of dissolution

What are the levels of distribution during wind-up of a partnership?

(1) creditors;
(2) capital contributions; and
(3) profits and surplus

-Each level of priority must be fully satisfied before the next level.

NOTE:
Creditors include Partner who loaned $ to the partnership

How are capital contributions repaid?

The partnership is liable to all partners for their FULL capital contributions.

Therefore, if no funds remain after creditors are repaid (level 1), and a $200k capital contribution remains, ALL partners (including the partner who made the capital contribution) must pay his proportional share to the partnership, and the partnership will give whatever funds it has to satisfy the contribution.

(1) P's duty to compensate A?

(2) P's duty to indemnify A?

(1) Compensate
P owes A a duty to compensate A reasonably for his services unless A agreed to act gratuitously.

(2) Indemnify
P owes A a duty to indemnify A reasonably for any legal liability reasonably incurred by A acting for P, UNLESS liability was due to A's own fault.