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MEE - Agency & Partnership

Terms in this set (94)

Agency
Fiduciary relationship which results from:
1) Manifestation of assent by one person to another
2) That the other shall act on his behalf
3) Subject to his control and consent by the other so to act
Agency - Consent
Consent of both the principal and agent needed to form agency relationship; may be established expressly from oral/written statement or impliedly from conduct
Agency - On Behalf
Agent must be acting for the benefit of the principal rather than for the benefit of the agent or some other party
Agency - Control
Agent must act subject to the principal's control but the degree of control does not have to be significant (may be found simply by the fact that the principal specified task that agent should perform even if principal did not prescribe how the task should be accomplished)
Capacity
A principal must have contractual capacity but the agent need not
Equal Dignities Rule
Agency agreements must be in writing when the agent is to enter into certain contracts within the statute of frauds
Consideration
Consideration is NOT required for the creation of an agency relationship
Actual Authority
If the principal's words or conduct would lead a reasonable person in the agent's position to believe that the agent has authority to act on the principal's behalf, the agent has actual authority that binds the principal
Actual Authority - Express
Authority conveyed by the principal in words -- oral or written
Actual Authority - Implied
Authority the agent reasonably believes she has as a result of the principal's actions
Termination of Actual Authority
Actual authority must exists when the agent enters into a contract and will be terminated/revoked:
- After a specified time or event or after a reasonable time
- By a change of circumstances
- By a breach of agent's fiduciary duty
- By a unilateral act of either principal or agent
- By death or incapacity of either principal or agent
Apparent Authority
Principal holds out another a possessing authority and a third party is reasonably led to believe that authority exists
(NOTE: May be established through an agent's title or position)
Unilateral Agent Representations
Apparent authority is based on principal's manifestations to a third party; thus, apparent authority cannot be created by the mere representations of an agent or other actor
Lingering Apparent Authority
Apparent authority may exist even when actual authority never existed but also may exist by "lingering" after actual authority did exist but ended
Ratification
Even if the agent had no authority at the time of entering into a contract, the principal will be bound by the agent's actions if the principal ratifies the contract ("after-the-fact authority")
Methods of Ratification
- Express (words)
- Implied (conduct)
- Failure to make a timely disaffirmance
- Acceptance of the benefits of the contract
Requirements of Ratification
1) The principal must have knowledge of all material facts regarding the contract
2) The principal must accept the entire transaction and not merely portions of the transaction
3) Cannot be used to alter the rights of intervening parties
Liability of Principal for Contracts Entered by Agents
If actual authority, apparent authority, or ratification is present, then the PRINCIPAL is liable on the contract and the AGENT is not liable on the contract

EXCEPTION = If the principal is undisclosed or partially disclosed, the principal AND the agent are liable on the contract
Agent's Duties to the Principal
An agent is a fiduciary of its principal and owes corresponding fiduciary duties to its principal
1) Duty of care
2) Duty of loyalty
3) Duty of obedience
Agent's Duty of Care
An agent owes a duty to her principal to carry out her agency with reasonable care
Agent's Duty of Loyalty
An agent owes a duty of undivided loyalty to the principal:
- Account to the principal for any profits made while carrying out the principal's instructions
- Act solely for the benefit of the principal and not the benefit of the agent
- Refrain for dealing with the principal as an adverse party or from acting on behalf of an adverse party
- May not compete with principal regarding subject matter of the agency
- May not use principal's property for agent's or third party's own purposes
Agent's Duty of Obedience
An agent must obey all reasonable directions of his principal
Breach of Fiduciary Duties
When there is a breach of a fiduciary duty, a wide range of equitable remedies are available and courts has discretion to do what it wants to "do justice"
Principal's Duties to the Agent
A principal's duties to the agent are not fiduciary in nature but:
- If an agent incurs expenses or suffers other losses in carrying out the principal's instructions, the principal has a duty to indemnify the agent
- It is inferred that the principal agreed to compensate the agent for his services
Liability of Principal for Torts of Agents
A master is liable for torts committed by a servant within the scope of the servant's employment -- master and servant are both jointly and severally liable

A principal is generally not liable for torts committed by an independent contractor in connection with his work
Tort Liability - Master
A master is a principal who employs an agent to perform services in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service (even if does not actually exercise control)
Tort Liability - Servant
A servant is an agent so employed by a master
1) Master specifies the task
2) Master specifies how to complete the task
Tort Liability - Independent Contractor
An independent contractor is a person who contracts with another to do something for him but is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking
(Principal specifies the task only)
Servant vs. Independent Contractor
Key inquiry = Control

Factors:
1) Skill required
2) Supplier of tools and facilities
3) Period of employment
4) Basis of compensation
5) Business purpose
6) Distinct business
Scope of Employment
Factors:
1) Was conduct "of the kind" that the agent was hired to perform?
2) Did the tory occur "on the job" (within time and space limits of the employment?
3) Was the conduct actuated at least in part to benefit the principal?
Detour
A minor deviation from employer's directions -- usually WITHIN the scope of employment
Frolic
A substantial deviation from employer's directions -- usually OUTSIDE the scope of employment
Intentional Torts of Agents
The employer is generally not liable for the intentional torts of an employee

EXCEPTION = Intentional torts are viewed as within the scope of employment if the conduct is:
- Natural from the nature of the job
- Motivated to serve the employer
- Specifically authorized or ratified by employer
Borrowed Servant
If an employer lends the services of an employee to an another, the party with the primary right of control over the employee is liable
(Most of the time the loaning principal is liable)
Direct Liability
- Every person is liable for his own torts.
- An employer is liable for his own negligence if he fails to properly train or supervise employees, or fails to check an employee's criminal record of job history
Partnership - Formation
Formed as soon as two or more persons associate to carry on as co-owners of a business for profit regardless of whether the parties subjectively intend to form a partnership
(No filing or formalities required)
Partnership - Factors
1) Share of profits
2) Right to control
Partnership - Sharing of Profits
A person who receives a share of the profits is presumed to be a partner UNLESS the profits were received in payment:
- Of a debt
- As wages or other compensation
- As rent
- As interest on a loan
Partnership - Co-Ownership
To state that partners are co-owners of a business is to state that they each have the power to control the business
Partnership - Writing
Partnership law does not require one but the statute of frauds may
(i.e. partnership agreement for 1+ year)
Partnership by Estoppel
If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties
Partnership Agreement
No agreement is required to form a partnership

BUT partnership law allows the partners to contract around almost all of the statutory provisions
1) Is there an agreement?
2) Is there contracting around default rules?
Partnership Entity Status
Once formed, a partnership is considered to be a legal entity distinct from its partners -- separate and apart from its partners
Partnership Voting
Unless otherwise agreed, all partners have equal rights in the management of the business and equal votes (one partner= one vote).

Decisions regarding matters WITHIN the ordinary course of business require the MAJORITY vote of all the partners.

Decisions regarding matters OUTSIDE the ordinary course of business require a UNANIMOUS vote of all the partners
Partnership - Salary/Compensation
Unless otherwise agreed, partners get no compensation
Partnership - Sharing Profits/Losses
Unless otherwise agreed, profits and losses are shared equally among partners

If there is an agreement about profits only
- Terms apply the same way to losses
- Losses follow profits

If there is an agreement about losses only
- Default rule applies to profits
- Profits do not follow losses
Liability of Partnership to Third Parties - Tort
A partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner:
1) Acting in the ordinary course of business
2) With authority of the partnership
Liability of Partnership to Third Parties - Contract
A partnership is liable for contracts entered into on its behalf by partners with ACTUAL or APPARENT authority
Actual Authority of Partner
Actual authority can be created by:
- The partnership agreement
- The requisite vote of the partners
- Partnership's filing of a "statement of partnership authority" with the secretary of state
Statement of Partnership Authority
Partner authority to transfer partnership real property in the statement are binding on third parties if the statement is also record in the county where the property is located

Partner authority with respect to all other transactions...
- Grants are binding on the partnership
- Restrictions are not binding on third parties
Apparent Authority of Partner
A partner is an agent of the partnership and a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership's business
Liability of Partners
Each partner is jointly and severally liable for all the obligations of the partnership

BUT... The plaintiff must first exhaust partnership resources before seeking to collect from an individual partner's assets
Limiting Liability of Partners
Partners cannot agree to limit a third party's rights without the third party's consent but such an agreement is effective among the partners themselves
(i.e. "A forms a partnership with B and C and they all agree that C will not be responsible for any partnership losses")
Liability of Newly Admitted Partners
If a partnership admits a new partner, that newly admitted partner is not personally liable for partnership obligations that arose before his admission and may only lose the amount of his investment in the partnership
Partnership Fiduciary Duties
1) Duty of loyalty
2) Duty of care
3) Duty of disclosure (Statutory)
Partnership Duty of Loyalty
Requires each partner to:
1) Account to the partnership for any benefit derives by the partnership in conducting partnership business, using partnership property, or appropriating partnership opportunity
2) Refrain from dealing with the partnership in the conduct of its business as a party having an interest adverse to the partnership
3) Refrain from competing with the partnership in the conduct of its business
[May NOT be eliminated by partnership agreement]
Partnership Duty of Care
Requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law
[May NOT be eliminated by partnership agreement]
Partnership Duty of Disclosure
Each partners and the partnership shall furnish to a partner:
1) Without demand, any information concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties
2) Upon demand, any other information concerning the partnership's business and affairs (except to the extent the demand is unreasonable or improper)
[May be eliminated by partnership agreement]
Determining Partnership Property
It is partnership property if it is acquired in the partnership's name or in a partner's name where it is apparent from the document that she is acting for a partnership
- It is presumed to be PARTNERSHIP property if partnership funds are used
- It is presume to be PARTNER property if acquired in her name without partnership funds and there is no sign that she is acting for a partnership
Rights in Partnership Property
The partnership = Rights are totally unrestricted

A partner = Right to use for partnership purposes
- Not a co-owner of partnership property
- No interest in partnership property which can be transferred
Partner's Ownership Interest in Partnership
A partner's interest is comprised of:
1) Management rights
2) Financial rights

Unless otherwise agreed, a partner MAY NOT unilaterally transfer his MANAGEMENT rights and thereby make the transferee a partner
(Admission of new partner requires unanimous vote of existing partners)

Unless otherwise agreed, a partner MAY unilaterally transfer his FINANCIAL rights but the transferor is still a partner and retains all of the management rights of a partner
Dissociation from Partnership
When a partner dissociates from a partnership, the partner withdraws or bows out of the partnership
Events of Dissociation
- Partner giving notice to partnership of desire to withdraw ("dissociation by express will")
- Partner's expulsion, death, or bankruptcy
- Agreed-upon event
- Appointment of a receiver for a partner
Wrongful Dissociation
Wrongful dissociation if:
- The dissociation is in breach of an express term in the partnership agreement
- The partner withdraws, is expelled, or becomes bankrupt before the end of the term in a term partnership
Consequences of Dissociation
1) Partnership is dissolved and business must be wound up (liquidated/sold off)
2) Partnership continues in existence with the dissociated partner becoming entitled to a buyout of partnership interest
Required Winding Up
- Event in agreement required winding up
- Business became illegal
- Issuance of a judicial decree
- Unanimous consent of partners in a term partnership
- Expiration of a term partnership
At-Will Partnership Dissociation
In an at-will partnership, any partner who dissociates by express will may compel dissolution and winding up
Term Partnership Dissociation
In a term partnership, if one partner dissociates wrongfully or if a dissociation occurs because of a partner's death or bankruptcy, dissolution and winding up of the partnership are required only if within 90 DAYS after the dissociation HALF of the remaining partners agree to wind up the partnership
Liability of Dissociated Partners
- Liable for pre-dissociation partnership obligations
- May be liable for post-dissociation partnership liabilities incurred within two years after the dissociation
- May protect against liability for post-dissociation partnership liabilities by notifying creditors of his dissociation (effective immediately) or by filing a public statement of dissociation (effective 90 days after filing)
Apparent Authority of Dissociated Partner
A dissociated partner has apparent authority to bind the partnership for a period of time not exceeding two years after dissociation

BUT... Partnership may protect against liability by notifying creditors of dissociation (effective immediately) or by filing a public statement of dissociation (effective 90 days after filing)
Dissolution - Priority of Distribution
Each level of priority must be fully satisfied before beginning the next level
1) Creditors
2) Capital contributions
3) Profits
Dissolution - Right to Wind Up
Partners who have not wrongfully dissociated may participate in the winding up of the partnership's business
Dissolution - Apparent Authority
Partners retain apparent authority to bind the partnership to a third party on new business even after an event requiring winding up

BUT... Partnership may protect against liability by notifying creditors of dissolution (effective immediately) or by filing a public statement of dissolution (effective 90 days after filing)
Limited Partnership - Definition
A partnership with at least one general partner and at least one limited partner
Limited Partnership - Formation
File a certificate of limited partnership with secretary of state:
1) Name of LP
2) Name and address of agent for service of process
3) Name and address of each general partner
Limited Partnership - Agreement
Agreement may displace almost all of the statutory provisions
Limited Partnership - Management & Operation
Managed by the general partner(s)
- Each has equal rights in the management and conduct of LP activities
- Vote of a majority of general partners is necessary for ordinary business activities
Limited Partnership - Financial Rights
Unless otherwise agreed, distributions from an LP are made in proportion to the partner's contributions
Limited Partnership - Liability
General partners = Liable for obligations of the LP

Limited partners =
- No personal liability for an obligation of the LP solely by reason of being a limited partner
- May only lose the value of their investments
Limited Partnership - Fiduciary Duties
General partners = Duty of loyalty + duty of care

Limited partners = No fiduciary duties
Limited Liability Partnership - Definition
All of the partners have limited liability
Limited Liability Partnership - Formation
File a statement of qualification with secretary of state
1) Name and address of partnership
2) Statement that partnership elects to be an LLP
3) Deferred effective date if any

Existence upon time of filing of the statement or on the date specified in the statement
Limited Liability Partnership - Liability
A partner is not personally liable for the obligations of teh LLP
Limited Liability Company - Definition
Owners ("members") have limited liability as well as benefits of partnership tax treatment
Limited Liability Company - Formation
File articles of organization with the secretary of state
1) Name of LLC
2) Address of LLC registered office
3) Name and address of registered agent
Limited Liability Company - Operating Agreement
Operating agreement can displace almost all statutory provisions
Limited Liability Company - Management & Operation
Presumed to be managed and operated by all members
- Other arrangements may be made but must be specified in the operating agreement
- Majority vote of members is required to approve ordinary business decisions
- Unanimous vote of members is required to approve extraordinary business decisions (i.e. amending operating agreement)
Limited Liability Company - Financial Rights
Unless otherwise agreed, profits and losses are allocated in proportion with contributions
Limited Liability Company - Liability
Members are not personally liable for LLC obligations and may only lose amount of their investments
Limited Liability Company - Fiduciary Duties
Duty of care = Members must act with the care that a person in a like position would exercise under similar circumstances and in a manner reasonably believed to be in the best interest of the LLC
(BJR = No liability for negligent decisions)

Duty of loyalty = Member must:
1) Account to and hold for the LLC any benefit he derives from the LLC activities or from the appropriation of an LLC opportunity
2) Refrain from dealing with the LLC as or on behalf of a person who has an adverse interest to the LLC unless the transaction is fair to the LLC
3) Refrain from competing with the LLC business
[BUT... All of the members may authorize a ratify a specific act by a member that would otherwise violate the duty of loyalty if there is disclosure of all material facts]
Limited Liability Company - Transfer of Ownership Interest
- Management rights are not unilaterally transferrable
- Financial rights are unilaterally transferrable
- One can become a member only with the consent of all the members
Limited Liability Company - Dissociation
A person has the power to dissociate as a member of an LLC at any time, rightfully or wrongfully, by expressly withdrawing as a member
- Generally occurs under same circumstances as in partnerships
- Wrongful dissociation may yield liability for damages
Limited Liability Company - Dissolution
An LLC will be dissolved when any of the following events occur:
- An event or circumstance that the operating agreement states causes dissolution
- The consent of all of the members
- The passage of 90 consecutive days during which the LLC has no members

A member may also apply for a judicial dissolution and a court may grant it if:
- The conduct of all or substantially all of the LLC's activities are unlawful
- it is not reasonably practicable to carry on the company's activities in conformity with the certificate of organization and the operating agreement
- Members in control acting in a manner that is illegal or fraudulent
- Members in control acting in a manner that is oppressive or directly harmful to the member applying for dissolution
Limited Liability Company - Taxation
"Pass-through" basis
- No entity-level tax
- Reported on owner's individual tax returns regardless of whether that business income is actually distributed to the partners
Sets found in the same folder