Agency & Partnership

Scope of principal-agent relationship is determined by this test:

Was tortious conduct "of the kind" agent was hired to perform; did the tort occur "on the job" (a frolic - new and independent journey - is outside scope; a detour - mere departure from assigned task - is within scope); did agent intend to benefit principal (even partly suffices).

Intentional torts - general rule re agency

outside scope of employment

Intentional torts are within the scope of employment if the conduct was…

specifically authorized by principal; natural from the nature of employment; motivated by desire to serve the principal

Principal will be liable for contracts entered into by its agent if the principal ____________ the agent to enter into the contract

authorized

There are ________ types of authority by principal for an agent to enter into a contract:

four; actual express, actual implied, apparent or ratification

Actual expressed authority to enter into a contract means that __________.

principal used words (oral, private - e.g. whisper, narrowly tailored) to express authority to an agent - but if the contract itself must be in writing, then the expressed authority also must be in writing

Express authority will be revoked by ___________; it will not be revoked if ___________.

unilateral act of either party or death or incapacity of the principal; durable power of attorney.

A durable power of attorney is…

a written expression of authority to enter into a transaction, with conspicuous survival language.

Actual implied authority is _______.

authority which agent reasonably believes the principal has given because of necessity (all tasks that are required to accomplish an expressly authorized task); custom (by custom performed by persons with the title/position of the agent); prior dealings between principal and agent (agent believes to be authorized to do from prior acquiescence by the principal)

What is the test for apparent authority?

P must "cloak" A with the appearance of authority; 3d party must reasonably rely on the appearance of authority

Secret Limiting Instruction hypo

Agent has actual authority, but principal has secretly limited that authority . Agent acts beyond the scope of the limitation. -- Usually, P liable.

Lingering Authority hypo

Actual authority has been terminated. Afterwards, agent continues to act on principal's behalf. - Usually, P still liable - until/unless 3d party customers receive notice of termination of agent.

Ratification

Authority can be granted after the contract has been entered if P has knowledge of all material facts regarding the contract and P accepts its benefits, except that P may not alter the terms of the contract - if she tries, there is no ratification

General rules of principal/agent liability on a contract

Generally, if no authority, principal is not liable on contract, and agent is; if authority, principal is liable on the contract, and agent is not - unless undisclosed/partially disclosed principal

Exception to general rules of principal/agent liability on a contract

If principal is partially disclosed (only ID concealed) or undisclosed (fact of principal concealed), authorized agent may nonetheless be liable at the election of the third party.

Duties agents owe to principal:

duty to exercise reasonable care, duty to obey reasonable instructions, duty of loyalty - no self-dealing (agent cannot receive benefit to the detriment of the principal); usurping the principal's opportunities; or secret profits

What are the remedies for a breach of the duty of loyalty?

P may recovery losses caused by the breach and also P may disgorge profits made by the breaching agent.

Partnership - formalities required

None - there are no formalities to becoming a general partnership

What is a general partnership?

An association of two or more persons who are carrying on as co-owners of a business for profit - contribution of capital or services in return for a share of profits creates a presumption that a general partnership exists

How is liability of general partners to third parties determined?

Agency principals apply. Ps are agents of the p/s for carrying on usual partnership businesses - bound by torts committed by partners in scope of p/s business or contracts entered by ps with authority.

General partners are ___________ liable for _____________.

personally … liable for all debts and obligations of the partnership

Incoming partners' liability for prior debts

Generally not liable for prior debts, but money paid in by incoming partner can be used by the partnership to satisfy the prior debts.

Dissociating partners' liability for subsequent debts:

Dissociating partners retain liability on 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.

One who represents to a third-party that a general partnership exists will be liable as if a general partnership exists.

A limited partnership is _________.

a partnership with at least one general partner and one limited partner.

A limited partnership is formed by __________.

filing a limited partnership certificate with the state that includes the names of all general partners

A general partner of an LP ______.

is liable for all LP obligations, but has the right to manage the business.

A limited partner of an LP ___________.

has no liability for LP obligations, but may not manage the business without giving up LP status

A registered limited liability partnership is formed by …

registering, by filing a statement of qu… plus annual reports

In a registered LLP, what is the liability of partners?

no partner is liable for the obligations of the partnership, not even GP

What was the original purpose of a limited liability company?

to give to owners, who are called members, the same limited liability as shareholders of a corporations, plus the benefits of partnership tax status

How is a limited liability company formed?

file articles of organization and adopt an operating agreement

What does the c in LLC stand for?

Company

What are owners' liabilities in an LLC?

Owners (called members) are not liable for liabilities of the entity

LLCs must take on two of these three characteristics of partnerships:

Members control, but articles may delegate control to managers, limited liquidity, limited life

LLCS =

limited liability, liquidity, limited life, limited tax

GPs are _____________ of each other and ____________.

fiduciaries … partnership

Duty of loyalty for GP means:

No self-dealing, no usurping of partnership opportunities, no making of secret profits at p/s expenses

What remedy does a P have against a GP who breaches duty of loyalty?

Action for accounting - partnership may recover losses caused by the breach and also may disgorge profits made by breaching partners.

Partners' rights in partnership property

Specific partnership assets (land, leases, equipment) owned only by partnership as partnership assets - therefore, no individual partner may transfer these assets without partnership authority; share of profits/surplus is personal property owned as such by individual partner - therefore transferable by individual to 3d party; share in management - asset owned only by the p/s itself; therefore, individual p may not transfer share in management (e.g., right to vote) to 3d party

In a conflict between specific partnership assets and personal property, the test is _________.

whose money is used to by the property? If p/s, then p/s property; if personal funds, personal property.

____________, each partner is entitled to _____________ control.

Absent an agreement… equal.

____________, partners get ________ salary - exception: ____________.

Absent an agreement … no salary … Ps get compensation for helping to wind up the business.

____________, profits are shared __________.

Absent an agreement … equally.

____________, losses are shared __________.

Absent an agreement … just like profits

Partnership dissolution - default rule:

in the absence of an agreement that specifies events that will dissolve the partnership, dissolution occurs automatically upon notice of express will of one general partner to dissociate.

___________ is the real end of a partnership

Termination

What is winding up of a partnership?

The period between dissolution and termination in which the remaining partners liquidate the partnership's assets to satisfy the partnership's creditors.

What is a Partnership's liability for winding up old business?

P/s and therefore its individual general partners retain liability on all transactions entered into to wind up all business with existing creditors

What is a partnership's liability for winding up new business?

Partnership and therefore its individual general partners retain liability on new business until actual notice of dissolution is given to creditors, or until 90 days after filing statement of dissolution with state.

What is the priority of distribution on partnership dissolution?

Creditors, capital contributions, profits/surplus (If any)

Which creditors must be paid?

Outside, non-partner trade creditors and inside partners who have loaned money to the partnership

what is a partnership's obligation to repay capital contributions?

A partnership owes its partners the full repayment of its capital contributions

How should a partnership distribute profits/surplus, if any, on dissolution.

Absent agreement, profits/surplus shared equally

What is the basic rule for partnership's obligations to partners on dissolution?

Each partner must be repaid his or her loans and capital contributions, plus that partner's share of the profits or minus that partner's share of the losses.

Three agency problems:

liability of principal to third-parties for torts of an agent; liability of principal to third parties for contracts entered by an agent; duties agents owe to principals

Principal is liable to third parties for agent's torts under the theory of…

respondeat superior.

Principal will be liable for torts committed by agent if…

the principal-agent relationship exists and the tort was committed by the agent within the scope of that relationship

The principal-agent relationship requires _______

assent - informed agreement between principal and agent; benefit - agent's conduct must be for principal's benefit; and control - power to supervise and monitor agent's performance.

Principal usually doesn't have enough control over ______ and ________ to be liable.

sub-agents and borrowed agents

Principals usually aren't liable for torts of independent contractors because…

no right to control Independent contractor because no power to supervise manner of performance.

Principals are liable for torts of independent contractors in cases of ___________ and _________.

Ultra-hazardous activities (not delegable) and estoppel - if P holds out IC with appearance of agency, P is estopped from denying vicarious liability.