Agency

Front 1

Agency Relationship:

one person (the agent) consents to act on behalf of and subject to the control of another (the principal).

Back 1

defining the agency relationship

Front 2

agency relationship:

1. Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
2. The one for whom action is to be taken is the principal (P).
3. The one who is to act is the agent (A).

Back 2

agency relationship:

Restatement of Agency

Front 3

agency relationship:

1. Consent: both parties must consent to an agency relationship.
a. Implied consent: conduct can manifest assent even when no words are exchanged.
2. Control: Agent must respond to the directions of the principal.
a. R2d §1: element of subservience.
3. On Behalf Of: the acting party must be acting “on behalf of” the P in order to create the special powers and liabilities that accompany the agency relationship.
a. R2d §1: an actor “is an A of another only if it is agreed that he is to act primarily for the benefit of the other and not for himself.

Back 3

agency relationship:

elements of an agency reltionship

Front 4

agency relationship:


both parties must consent to an agency relationship.
a. Implied consent: conduct can manifest assent even when no words are exchanged.

Back 4

agency relationship:

elements of an agency relationship: Consent

Front 5

agency relationship:

Agent must respond to the directions of the principal.
a. R2d §1: element of subservience.

Back 5

agency relationship:

elements of an agency relationship: Control

Front 6

agency relationship:

the acting party must be acting “on behalf of” the P in order to create the special powers and liabilities that accompany the agency relationship.
a. R2d §1: an actor “is an A of another only if it is agreed that he is to act primarily for the benefit of the other and not for himself.

Back 6

agency relationship:

elements of an agency relationship: on behalf of

Front 7

agency relationship:

Unless prevented by public policy, a statute, or a K requiring personal performance, what a person can lawfully do himself, he can do through an agent.” Mays v. Brighton Bank.1. Electronic Agent: a computer program designed…to initiate or respond to electronic messages w/o review by an individual.
a. UCC statute that can give the word agent whatever meaning it wishes
2. Escrow Agent:

Back 7

agency relationship:

ambiguity of the word agency

Front 8

agency relationship:

is the one for whom the agent Acts.

Back 8

principal

Front 9

agency relationship:

A. P’s liability extends beyond commanded acts, however, to include liability under certain circumstances for acts that the P did not intend or desire and even for acts that the A was expressly forbidden to do.

Back 9

liabilities of a principal

Front 10

agency relationship:

applies when the privilege of having a person act both on one’s behalf and subject to one’s control.

Back 10

liabilities of a principal: strict liability

Front 11

agency relationship:

the costs to the P of obtaining faithful and effect performance by his As.

Back 11

liabilities of a principal: agency costs

Front 12

agency relationship:

is a person who acts on behalf of and subject to the control of another.
A. R2d § 14: it is an accepted principle of agency that the term ‘agent’ includes both natural persons and corps, a corp can be an agent for another corp.

Back 12

the agent

Front 13

agency relationship:

agent sells goods ‘on behalf’ of another, seller sells on its own behalf.

Back 13

distinguishing the agency relationship:

agent or seller

Front 14

agency relationship:

a bailee is not an agent and has no power to deal w/ the goods by virtue of bailment.

Back 14

distinguishing the agency relationship:

agent or bailee

Front 15

agency relationship:

one of the distinctive features of agency is the continuous subjection of the agent to the will of the P.

Back 15

distinguishing the agency relationship:

agent or trustee

Front 16

agency relationship:

the law of agency is invoked to characterize the creditor-debtor relationship, apparently on the reasoning that the creditor both benefits from the transaction and controls the debtor.

Back 16

distinguishing the agency relationship:

principal or creditor

Front 17

agency relationship:

1. Corporation: can act only through its employees. Board of directors acts only as a group. Stockholders are the owners of corps.
2. Agency status of directors of a corp: board of directors is elected by the sh, the board is entitles to use its own business judgment in managing the affairs of the corp, making the control by the sh too remote to constitute agency.
a. R2d: member of the bd resemble agents in that they act on behalf of others and are fiduciaries owing duties of loyalty and care.
3. Officers and other employees: officers are subject to the control of the bd, and thus are agents.

Back 17

distinguishing the agency relationship:

agency and the corp board of directors

Front 18

agency relationship:

an A cannot act on behalf of the adverse party to a transaction connected w/ the agency w/o the permission, express or implied, of the P.

Back 18

complex agency relationship:

the dual agency rule

Front 19

rights and duties:

) to pay compensation for services rendered when compensation is reasonably expected, 2) to reimburse for expenses reasonably incurred during the course of the agency, 3) to indemnify for losses and liabilities resulting from authorized, good faith performance of the agency, and 4) to exercise good faith and due care toward the agent.

Back 19

duties of principal to agent:duties of principal to Agent:

common law

Front 20

rights and duties:

in the absence of specific language in the K, he must be the “procuring cause” of the particular sale for which a commission is claimed.

Back 20

duties of principal to agent:duties of principal to Agent:

common law - duty to pay compensation

Front 21

rights and duties:

allow the P to make sales w/o commission liability to the agent. Roberts v. Blazer.

Back 21

duties of principal to agent:duty to pay compensation:

Exclusive agency

Front 22

rights and duties:

subject to agreement otherwise, an unpaid A rightfully in possession of property of the P has a lien upon the property for the amount due from the P.

Back 22

duties of principal to agent:duty to pay compensation:

the agent's lien

Front 23

rights and duties:

for any losses suffered during the course of the agency, but not for losses caused solely by his or her fault. R2d § 440.
a. A’s right to indemnity, unless expressly agreed to, depends on reasonable inferences drawn from the circumstances.
b. Customs of the business and the nature of the relationship play a role in drawing an inference w/ regard to the existence of an A’s right to indemnity.

Back 23

duty of reimbursement, duties of principal to agent:indemnity, exoneration:

Indemnity

Front 24

rights and duties:

equitable remedy available to As to avoid the expenditure of personal resources under circumstances in which the P should bear the loss, in equity only.

Back 24

duties of principal to agent:duty of reimbursement, indemnity, exoneration:

exoneration

Front 25

rights and duties:

employer is subject to duty of care toward its employees arising from its control overt he work environment. Duty is nondelegable.

Back 25

duties of principal to agent:

duty of care

Front 26

rights and duties:

An employee is entitled to compensation even if the injury was not caused by the fault of the employer and, more controversial, even though it was caused solely by the employee’s own negligence.
1. Statutes vary from state to state.

Back 26

duties of p to a: duty of care:

workers compensation

Front 27

rights and duties:

an implied duty is imposed by cts on the P to deal fairly and in good faith w/ the A.
A. P is required to maintain a standard of conduct that will not harm the A’s business reputation or reasonable self-respect.

Back 27

duties of p to a: duty of care;

duty to deal fairly and in good faith

Front 28

rights and duties:

an A must obey all reasonable directions of the P. This rule holds true even if the P had promised not to limit or terminate the A’s authority and commits a breach of K w/ the A by doing so.
A. A does not have to obey order that are illegal

Back 28

duties to A to P

duty of good conduct; duty to obey

Front 29

rights and duties:

A. A P has a right of indemnity against an A for A’s negligent or intentional damage to the P’s prop. or to the prop. or persons of others for which the P is held liable.
B. Includes losses caused by the A’s departure from instructions.
C. Unless otherwise specified in the K or agreement, restitution is a remedy or reasonable acts are implied in the K.

Back 29

duties to A to P:

duty to indemnify P for loss caused by misconduct

Front 30

rights and duties:

an A is a fiduciary to the P therefore A’s status as fiduciary includes a duty to account for money or property received.
A. Whenever a P has trusted an A to handle its money or prop the P is entitled to an explanation, in the form of an accounting, of the existence, location, and status of such assets upon demand by the P.

Back 30

duties to A to P:

duty to account

Front 31

rights and duties:

the duty of a paid A to act w/ the ordinary skill of persons performing similar work in the locality. R2d. A. Full disclosure: inform the P of all facts relevant to a transaction that the A reasonably believes the P would want to know.
B. Conflict of interest: when the A is acting entirely or substantially for the A’s own benefit (self-dealing) and situations in which the A is acting on behalf of a 3rd party whose interest is adverse to that of the P(Conflict).

Back 31

duties to A to P:

duty of care & full disclosure

Front 32

rights and duties:

inform the P of all facts relevant to a transaction that the A reasonably believes the P would want to know.

Back 32

duties to A to P:

duty of care and full disclosure

Front 33

rights and duties:

when the A is acting entirely or substantially for the A’s own benefit (self-dealing) and situations in which the A is acting on behalf of a 3rd party whose interest is adverse to that of the P(Conflict).

Back 33

duty of A to P:

duty of care & full disclosure: conflict of interest

Front 34

rights and duties:

it is A’s obligation as fiduciary to keep the P’s interest foremost in mind when acting on the matter entrusted to him. (all duties exist in the absence of specific agreement)

Back 34

duty of A to P:

duty of loyalty

Front 35

duty of A to P:

if A takes a bribe (clear breach) while acting for the P, the A forfeits not only the bribe but also any compensation he would receive growing out of the transaction.
1. A knowing 3rd party also is liable to the P for committing the tort of encouraging a fiduciary to breach his duty. R2d § 312.

Back 35

Duty of A to P:

duty of loyalty: remedies of the Principal

Front 36

rights and duties:

the more trust that is placed in an agent and the greater the discretion an A has, the more demanding a ct will be about loyalty.
a. Even employees w/ no management or admin authority has fiduciary duties. Graphic Directions v. Bush.

Back 36

Duty of A to P:

loyalty during the relationship: Scope of Fiduciary Duty

Front 37

rights and duties:

A may not use confidential info in competition w/ or to the injury of the P.
i. Does not have to be expressed as confidential, “but also to info which the A should know his P would not care to have revealed to others or used in competition w/ him.
ii. Common knowledge in the community or special skills the A has acquired b/c of his employment do not apply.

Back 37

duty of loyalty; loyalty during the relationship:

misusing information

Front 38

rights and duties:

under common law has historically encouraged competition, so long as it is fair.
1. Trade Secrets: it is unfair for an employee to use confidential info, including trade secrets (customer lists), against the employer after terminating the relationship.
2. Covenants Not to Compete: must rest upon a protectable interest and must be reasonable in time and geographic scope.
i. In general covenants not to compete are not favored in the law, the party seeking to enforce them must draft them in a careful, measured way, w/ an explanation of the need for restrictions and as much clarity as possible.

Back 38

duty of A to P:

duty of loyalty; post termination competition

Front 39

rights and duties:

a pre-emptive business opportunity is one that is so closely related to the business that it is fairly considered an incident of it.
1. An employee or other fiduciary can take personal advantage of a preemptive opportunity only if the employer knows and consents.

Back 39

duty of A to P:

duty of loyalty - pre-empting business opportunities

Front 40

vicarious liability:

vicarious liability is liability in addition to the liability of the person committing the tort, who remains personally liable for the tortuous conduct.

Back 40

respondent superior

Front 41

various tort liability:

1. Mater is a P who employs an A to perform service in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right of control by the master.
2. A servant is an A employed by a master to perform service in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right of control by the master.

Back 41

respondent superior:

master & servant R2d Section 2

Front 42

various tort liability:

1. The liability of RS is strict b/c masters (employers) are held liable no matter how careful they have been in selecting, training, and supervising their servants (employees).
2. Employers should be responsible for negligence of persons working on their behalf b/c they initiate activity, profit by it, and have the power to closely supervise the work of their employees and thus can take steps to minimize their exposure to liability.

Back 42

respondent superior:

policy behind respondent superior

Front 43

vicarious tort liability:

1. Liability under RS is limited to tortious behavior of servants.

Back 43

respondent superior:

limitation to losses caused by tortious behavior

Front 44

vicarious tort liability:

: master is barred from recovery against a 3rd person who negligently caused a loss to the master if the servant also was negligent in the accident giving rise to the loss.
1. Both ways test: if an employee’s negligence is imputed to an employer, so is his contributory negligence.

Back 44

respondent superior:

imputed contributory negligence

Front 45

vicarious tort liability:

an employer is chargeable for not checking

Back 45

respondent superior:

direct tort liability of an employer

Front 46

vicarious tort liability;

an A is personally liable for affirmative acts of wrongdoing committed while acting on behalf of another.
1. Failure to act: courts are divided on this.

Back 46

respondent superior:

liability of the servant

Front 47

vicarious tort liability:

a person who contracts w/ another to do something for him but who is not controlled by the other nor subject to the other’s right to control w/ respect to his physical conduct in the performance of the undertaking. He may or may not be an agent.

Back 47

respondent superior:

independant contractor exception

Front 48

vicarious tort liability:

a. Who supplies the tools of work
b. What level of skill is required by the actor
c. Whether payment is by the time or by the job,
d. Whether the actor is engaged in a distinct occupation or business,
e. Where the work is being done,
f. How long the actor is employed,
g. Whether the work is a part of the regular business of the employer

Back 48

respondent superior:

factors whether an actor is independant contractor or a servant

Front 49

vicarious tort liability:

real estate broker is an example of the nonservant agent.

Back 49

independant contractor exception:

nonservant A (independant contractor)

Front 50

vicarious tort liability:

building contractor is an example of the other kind of IC, one who is not an agent, taxi drivers, etc.
a. Contractor is conducting its own business and reaping its own profit, orders and pays for own materials.

Back 50

respondent superior: independant contract exception:

nonagent independant contractor

Front 51

vicarious tort liability:

a person who engages an IC to do inherently dangerous work is VL for the neg of the contractor.
a. Inherently Dangerous work: work which in its nature will create some peculiar risk of injury to other unless special precautions are taken – as, for example, excavations in or near a public highway.

Back 51

respondent superior

Limitations to the independant contractor exception: inherently dangerous activity exception

Front 52

vicarious tort liability:

is invoked when a duty originates in a K, statute or administrative regulation, or under circumstances where ∆ has extended an invitation to ∏, such as opening premises to the public.
a. If broadly read, it could swallow the IC exception by, for example, declaring all duties of care nondelegable.

Back 52

respondent superior:

limitations to the independatn contractor exception; nondelegable duty exception

Front 53

vicarious tort liability:

the party hiring an IC is under a duty to use care in choosing a C. The more dangerous the activity, the more care must be taken.
a. Liability stems directly form the lack of care, not vicariously from the relationship.
b. Indemnity: person held liable for the wrongdoing of an IC has a right of indemnity form the C.

Back 53

respondent superior:

limitations to the independant exception: negligence in selection of contractor

Front 54

vicarious tort liability:

if the employee is found to be a borrowed servant, the special employer (“borrowing employer”), not the general employer, is VL for the employee’s wrongdoing.

Back 54

the borrowed servant

Front 55

vicarious tort liabiilty:

whether it can reasonably be inferred that the servant’s allegiance has been transferred to the borrowing employer.
1. As long as the employee is furthering the business of his GE by the service rendered to another, there will be no inference of a new relation unless command has been surrendered.
2. Joint and severally liable (Minority): a man cannot serve two masters.

Back 55

test for borrowed servant

Front 56

vicarious tort liability:

if employees are on a “frolic”, the employer is not liable for harm they negligently cause; if they are on a mere detour, the scope of employment defense is not available to their employer.

Back 56

the scope of employment limitation: negligence

Front 57

vicarious tort liability:

a. Conduct of a servant is w/in the scope of employment if, but only if:
i. It is of the kind he is employed to perform
ii. It occurs substantially w/in the authorized time and space limits
iii. It is actuated, at least in part, by a purpose to serve the master
iv. If force is intentionally used by the servant against another, the use of force is not unexpectable by the master.
b. Conduct of a servant is not w/in the scope of employment if it is different in kind from that authorized, far beyond the authorized time or space limits or too little actuated by a purpose to serve the master.

Back 57

the scope of employment limitation: negligence

Test for Frolic v. Detour

Front 58

vicarious tort liability:

: after a servant has abandoned his employment and then whether he subsequently returned to his duties prior to the accident.

Back 58

the scope of employment limitation: negligence:

Re-Entry Test

Front 59

vicarious tort liability:

a. Must be proved that dominant purpose of the servant is performance of the master’s business.
b. R2d § 228: more lenient “at least in part” to serve the master.
c. Acts coincidentally serving both business and private ends can be w/in the scope of employment.
i. Is the detour so substantial that one can fairly conclude that the employee has temporarily abandoned the employment? If not, the act is w/in the scope of employment.
ii. Coming and going to work are usually not included unless employee asked to do something for employer on the way to work.

Back 59

the scope of employment limitation: negligence:

Re-entry test

Front 60

vicarious tort liability:

Majority of cts refuse to hold employer VL for intentional misconduct, especially when it also is criminal, unless the nature of the job is such that an employee’s misconduct could be characterized as including at least a partial intent to serve the employer’s interest.
a. Eg: bartenders, security guards, the tort falls w/in SOE unless the assault was too extreme.

Back 60

the scope of employment limitation: intentional torts

Intent to Serve

Front 61

vicarious tort liability:

only when it can fairly be inferred that both parties would have included the term in the K had they thought about it.

Back 61

the scope of employment limitation: intentional torts

implied contract argument

Front 62

vicarious tort liability:

A. Minority: allow punitive damages in any case in which the employer is liable for compensatory damages under RS.
B. Majority: Complicity rule which results in employer liability for P damages only when a superior officer in the course of employment order, participates in, or ratifies outrageous conduct.

Back 62

the scope of employment limitation: negligence:

punitive damgaes courts are divided

Front 63

vicarious tort liability:

even if conduct is w/in the scope of employment, a defense may be available to the employer if the ∏ was injured upon the employer’s premises or in the employer’s vehicle at the invitation of an employee who had no authority or apparent authority to extend the invitation.
A. Hitchhiker: employer is usually not liable b/c the intruder has identified himself w/ the servant that it is just that his claim against the master should be forfeited.

Back 63

the scope of employment limitation:

liability to invitee of servant

Front 64

vicarios tort liability:

not recognized as legal entities under the common law. (clubs, fraternal societies, race for charity, etc)
A. Sts have passed statutes making assns capable of suing and being sued.
B. Individual members must have participated in the wrongful act or have authorized or ratified it in order to incur personal liability.
C. UUNAA: the Act was formed and creates a limited liability entity upon formation of an assn, absolving a member of any liability for the acts of others unless the member is personally guilty.

Back 64

the unincorporated association relationship

Front 65

vicarious tort liabiilty:

liability is based on appearance, not reality.
A. Holiday Inn found liable when franchisee created the appearance that the inn was owned and operated by Holiday.
B. ∏ relied on H’s good rep for safety of its guests.

Back 65

vicarious liability by estoppel

Front 66

contractual powers of agent:

when a P manifests consent to it’s A to act on its behalf in a particular matter.

Back 66

express authority

Front 67

contractual powers of agents:

if an A is expressly authorized; a K is made when the 3rd party & the A exchange manifestations of assent

Back 67

express authority: bilaterak contacted created by a manifestation of mutual assent

Front 68

contractual powers of agents:

written instrument by which a P appoints another as A and sets forth the authority conferred upon the A.
1. Statutory short form POA: standard form of POA that is convenient and reliable. Lists 13 specific subdivisions describing particular kinds of transactions.
2. Durable POA: primarily to deal w/ incompetency and can be written to cover financial matters, hospitalization where recover of the maker of the power (P) is unlikely.
3. Springing POW: does not activate the A powers until a certain event has happened, which almost always is the incapacity of the maker.

Back 68

express authority:

POA power of aagents

Front 69

contractual powers of attorney:

A’s implied authority is defined by his or her reasonable interpretation, in light of the surrounding circumstances, of the express instructions given by the P.
A. Incidental Authority R2d § 35: authority to conduct a transaction includes authority to do acts which are incidental to it, or are reasonably necessary to accomplish it.
B. Delegation of Authority: an agent is not authorized to delegate his authority (absent express consent or emergency) but may hire someone which is exercising his authority.

Back 69

implied authority

Front 70

vicarious tort liability:

exists only to the extent that it is reasonable for the 3rd person dealing w/ the A to believe that the A is authorized.
A. A cannot create apparent authority by his own statements or there would be no limit to the liability imposed on the P by this doctrine.
B. Can be created by “appointing an A to a position” that carries generally recognized duties.
C. A P is responsible for authority that he knowingly or negligently permits the A to assume

Back 70

apparent authority

Front 71

contractual powers of agents:

operates only to compensate for loss to those relying upon the words and not to create rights in the speaker.”

Back 71

estoppel

Front 72

contractual powers of agents:

a general agent (authorized to conduct series of transactions) can bind his P to Ks where there is neither authority nor apparent authority so long as the acts done “usually accompany or are incidental to” transactions that the A is authorized to conduct.

Back 72

inherent agency power

Front 73

contractual power of agents:

An agent authorized to conduct a series of transactions involving a continuity of service, such as the manager of a business or the agent in charge of a construction project.

Back 73

inherent agency power: general agent

Front 74

contractual powers of agents:

an agent authorized to conduct a single transaction or a series of transactions not involving continuity of service, such as a real estate agent. A person employed only to deliver a promissory note on specified terms is clearly a special agent.

Back 74

inherent agency power: special agent

Front 75

Fraudulent acts of agents:

R2d § 261: A P who puts a servant or other A in position which enables the A, while apparently acting within his authority, to commit a fraud upon 3rd persons for the fraud.”
A. Scope of employment: where one of two innocent parties must suffer, the loss should be bourne by him who put the wrongdoer in a position of trust and confidence [inviting others to deal w/ the wrongdoer] and thus enabled him to perpetuate the wrong.
B. Limitations: the defrauded person cannot hold the P liable if he “should know or otherwise has notice that an agent is acting for his own purposes or is otherwise violating his authority.”

Back 75

unscrupulous agent

Front 76

fraudulent acts of agents:

where one of two innocent parties must suffer, the loss should be bourne by him who put the wrongdoer in a position of trust and confidence [inviting others to deal w/ the wrongdoer] and thus enabled him to perpetuate the wrong.

Back 76

unscrupulous agent; scope of employment

Front 77

fraudulent acts of agents:

the defrauded person cannot hold the P liable if he “should know or otherwise has notice that an agent is acting for his own purposes or is otherwise violating his authority.”

Back 77

unscrupulous agent: limitations

Front 78

fraudulent acts of agents:

a P can protect itself from liability for money damages for the fraud of its agents by including an exculpatory clause in its K w/ the 3rd party.

Back 78

exculpatory clause

Front 79

undisclossed principal:

A principal is undisclosed when the other party to a K (T) has no idea that the party she is contracting with (A) is in reality an agent.

Back 79

definition of undisclosed principle

Front 80

undisclosed principal:

P is a party to the K b/n T & A, if A intended to be acting on behalf of P when making the K and the K is w/in A’s power to bind P.

Back 80

rights of an undisclosed principal

Front 81

undisclosed principal:

does not prevent assertion og UP rights even when the K is an integrated, written agreement, perhaps on the functional reasoning that T’s rights against A remain fully intact and thus the evidence is not contradicting the obligations involved; instead, it is adding a party.

Back 81

rights of an undisclosed principal:

parole evidence rule

Front 82

undisclosed principal:

: designed to ensure that the expectations of parties contracting w/ the A are not materially disadvantaged by the assertion of the rights of the UP.
A. In most jx a misrep by A of her status as an agent will not in itself avoid the underlying transaction on the reasoning that the misrep is not material if it affects only the price of the prop.

Back 82

limitations on the rights of the undisclosed principal

Front 83

undisclosed principal:

P is the one who initiated the activities of the A and has a right to control them.”
1. Election Rule: in some sts T, if she discovers the existence of P prior to obtaining judgment from A, has to elect from whom she will recover. Does not apply if T obtains judgment against A prior to discovering the existence of P.
2. Sts have overturned the election rule based on the theory that T should have a right to 2 judgments (but only one satisfaction), one on the K and the other based on the A principle underlying the liability of P.

Back 83

liabilities of the undisclosed principal - authorized transactions

Front 84

undisclosed principal:

1. Case authority: divided w/ regard to the liability of an UP when the A is unauthorized to do what she did.
2. R2d: favors liability for certain unauthorized transactions by invoking the inherent agency power doctrine

Back 84

liabilities of the undisclosed principal:

unauthorized transactions

Front 85

undisclosed principal:

until the existence of the P is known, the A has the power to rescind, perform and receive performance of the K and to modify it [if the modification] is within his agency powers.”)

Back 85

payments and setoff issues:

payments by the 3rd party

Front 86

undisclosed principal:

1. Majority: A P who settles in good faith w/ his A will pay T, is protected from liability to T if A neglects to discharge her duty to pay T.
2. Minority: an UP is not discharged by payment to the A unless he does so in reasonable reliance upon the conduct of T that indicates that A has settled the account.

Back 86

payments and setoff issues:

payments to the 3rd party

Front 87

undisclosed principal:

if the A is authorized to conceal the existence of the P and T does not know or have reason to know of the P, T can setoff claims she had against the A at the time of making the K and until she becomes aware of the existence of the P.

Back 87

setoff

Front 88

liability of the Agent to 3rd party:

when the other party has notice of the P’s existence and identity at the time of a transaction. A acting in the transaction incurs no contractual liability unless expressly agreeing).

Back 88

contractual liability: Status of principal:

disclosed principal

Front 89

liability of the A to 3rd persons:

when the other party has notice that the A is acting on behalf of someone but does not know the identity of the P. The A is a party to the K on the reasoning that the other party would not K solely on the liability of the unknown party.

Back 89

contractual liability: status of principal

partially disclosed principal

Front 90

liability of the A to 3rd persons:

the other party is unaware that the A is acting for a P. The other party assumes that the A is a person contracting the on his own behalf.

Back 90

contractual liability: status of principal:

undisclosed principal

Front 91

liability of the A to 3rd persons:

1. Sometimes even when a P is disclosed the other party will insist on a guaranty by an A or an A will by custom be liable for its client’s account.
a. Advertising industry
b. Litigating attorneys – expert witness fees; unless expressly & clearly disclaims such liability.

Back 91

contractual liability:

liability when the Principal disclosed: special circumstances

Front 92

liability of the A to 3rd persons:

1. A for a PDP is a party to the K, based on the reasoning that ordinarily one would not expect to K solely w/ an unknown party.
2. Trade names are not a sufficient disclosure of the identity of the P so as to eliminate the liability of the A.

Back 92

contractual liability:

liability when the P is partially disclosed

Front 93

liability of the A to 3rd persons:

usually arises when a person incorporates and fails to notify persons w/ whom she has been dealing. She is an A for an UP and thus is fully liable on the K.
1. Question of fact whether notice was reasonably give through these means (corp checks or bill corp invoices).

Back 93

contractual liability:

liability when the P is unintentionally disclosed

Front 94

liability of the A to 3rd persons:

A. An A who purports to K on behalf of another makes an implied warranty of authority to the other party. The warranty is that he has the power to bind his P.
B. Warranty does not exist if the other party knows the A is unauthorized, although he can recover against the A even if he should have known or had reason to know the A was unauthorized.
C. Damages R2d 329: not only the harm caused to him [the other party] by the fact that the A was unauthorized, but also for the amount by which he would have benefited had the authority existed.
D. Disclaimed: If I am authorized to do this.

Back 94

the A's warranty of authority

Front 95

liability of the A to 3rd persons:

when an A fails to perform his duties to his P and a 3rd party is injured.
A. General rule: an A is not liable for pecuniary harm to a person other than his P that results from his failure to perform his duties to his P.

Back 95

harm to economic interests of others

Front 96

liability of the A to 3rd persons:

A is fully liable for personal tortious behavior.
A. Exceptions
1. Workers comp: absolve from liability a negligent worker who injures a fellow worker, assuming the injured worker is successful in claiming worker’s comp.

Back 96

liability of the A in a tort

Front 97

Doctrine of Ratification:

“ratification is the affirmance by a person of a prior act that did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.”A. An actor who may or may not have the power to bind the P to the purported K.
B. Consequences
1. Releases the person purporting to bind the P from warranty of authority liability to the other person.
2. Actor might be able to claim compensation from the P following ratification, subject to any conditions imposed by the P at the same time of ratification and agreed to by the actor, who may be willing to agree b/c he will be relived of warranty of authority liability.

Back 97

the concept of ratification

Front 98

doctrine of ratification:

a manifestation of an election by the one on whose account an unauthorized act has been performed to treat the act as authorized, or conduct, by him justifiable only if there is such an election.”
A. The manifestation need not be communicated to the other person nor the unauthorized actor to be effective.
B. Liability
1. Contract: actor must purport to act on behalf of the ratifying person. In most jx, this means that an UP cannot ratify.
2. Tort: actor must intend to act on behalf of the ratifying party.
a. Pre-existing employment relationship: it is possible for an employer to ratify a tort of an employee that was outside the SOE b/c the employee had not intent, even in part, to serve the employer and thus one cannot literally say the act “was done” on the employer’s account.
i. Punitive damages: can expose an employer to PD if the employer’s statement is characterized as ratification of the tort.
b. Forgery under UCC: can be ratified b/c acting as the victim is not so different from purporting to act on behalf of the victim.

Back 98

the affirmance

Front 99

doctrine of ratification:

A. Affirmance can be implied by: conduct, silence (which reasonably justify an inference, of consent”).
B. Employees
1. Sexual harassment cases: employer can be held liable when the employer failed to stop the misconduct after notice.
2. It is argued that retaining an employee in employment after the E committed a tort constitutes ratification of the tort. Nearly all cts have rejected this claim reasoning that one cannot fairly infer approval from retention and that to hold the contrary would be damaging to employees as a class.

Back 99

implied ratification

Front 100

doctrine of ratification:

A. P must have been able initially to authorize the act R2d § 84: an act which, when done, the purported or intended P could not have authorized, he cannot ratify.”
1. Formalities: when formalities are requisite for the authorization of an act, its affirmance must be by the same formalities in order to constitute ratification.

Back 100

limitations on ratification:

Front 101

doctrine of ratification:

the purported P must have knowledge of all the material facts before being held to an affirmance, unless he assumes the risk of lack of knowledge.
1. Assuming the risk of lack of knowledge: it may be inferred that the P is willing to assume the risks of facts of which he has no knowledge if learning that one who had no authority acted for him and does not know all the facts and doesn’t investigate.

Back 101

limitation on ratification

the knowledge requirement

Front 102

doctrine of ratification:

P cannot pick and choose the best parts of a K, refusing to ratify the rest.

Back 102

limitation on ratification

Front 103

doctrine of ratification:

D. Withdrawal by the Other Party: other party has the option to withdraw prior to ratification. Must be manifested to A or P. Implied or Express.
E. Changed Circumstances: cannot ratify after circumstances have changed in a way that would make it inequitable to the other party.
F. Time limitations: if an act to be effective must be performed before a certain time, an affirmance is not effective unless made before such time.

Back 103

limitation on ratification

Front 104

notice and notification:

: involves a deliberate effort to bring some fact to the attention of a person. Under what circumstances will notification to an A bind the P?

Back 104

notification

Front 105

notice and notification:

notification will be effective if the expectation of the party making it is reasonable in assuming that the A is authorized to receive it.
1. A must appear to be on duty at the time and the notice seems to fall w/in the scope of his duty, so that he could reasonably be expected to communicate the info to his P, the notification will be effective.
a. Even if the A has an adverse interest and has no intention whatsoever to communicate the info, so long as the other party is unaware of that.
b. Govt. Agencies: statutes or admin regs often specify in detail the steps required to make effective notification.

Back 105

notification:

reasonable expectations

Front 106

notice and notification:

1. At the moment it is given
2. When action is required on the part of the one being notified, reasonable time must be given for the transmission of the info to the one who is to act
3. If there is a K, often in the agreement.
4. Statute

Back 106

notification; when a notification is effective

Front 107

notie and notification:

is effective whether or not the person authorized or apparently authorized to receive the notification forgets it and does nothing w/ it.

Back 107

notifiacation: duration

Front 108

notice and notification:

involves holding a P to the wrongs (broadly defined) committed by his A.

Back 108

imputed knowledge

Front 109

notice and notification:

A. Fiction of imputing the A’s knowledge to the P
B. Expectation interest of the other party is irrelevant
C. Differ sharply from notification
D. Similar to respondeat superior
E. P is not liable unless the A was authorized and intended to act in part, at least, for the P’s benefit, or unless the P in some way benefited from the transaction. (R2d)

Back 109

imputed knowledge

Front 110

notice and notification:

a P is charged w/ the knowledge of an A acquired before the relationship only when the knowledge can reasonably be said to have been in the mind of the A while acting for the P or where he acquired it so recently as to raise the presumption that he still retained it in his mind.

Back 110

imputed knowledge: forgotten knowledge

Front 111

notice and notification:

a P is bound by his A’s knowledge when the A has a duty to convey it to him. R2d § 381
· unless otherwise agreed
· A is subject to a duty to use reasonable efforts to give his P info which is relevant to affairs entrusted to him
· As the A has notice, the P would desire to have an which can be communicated w/o violating a superior duty to a 3rd person

Back 111

imputed knowledge: the duty requirement

Front 112

notice and notification:

if an A is acting adversely to the P and entirely for his own or another’s purposes, his knowledge is not imputed.
A must totally abandon the P’s business, such as taking a bribe to keep quiet
Desire to earn a commission and thus keep silent about an outstanding equity will not rise to the level of an adverse interest

Back 112

imputed knowledge: adverse interest exception

Front 113

notice and notification:

exception to the adverse interest exception.
· When the A even though clearly acting as an adverse party to the P, is the only A acting in that capacity
· Law will charge the P w/ whatever the A knew, as the fair price of claiming the benefit through the A

Back 113

imputed knowledge: sole actor doctrine

Front 114

termination of agency relationship:

I. a P has the power to terminate the A relationship and thus the A’s authority at any time even if the P had contracted not to terminate the A and thus did not have the right to do so.
· P may be subject to pay damages for BOK
· A also has the power to quit the agency at any time, subject to applying damages for BOK when appropriate
· If P does not have the power to end a relationship it is not an agency relationship even though it may look like one.
· Unless termination results from the completion of the purpose of the agency or the expiration of an agreed term, it is necessary for the P to notify the A of termination of the relationship.
· Notice can be express or implied

Back 114

termination by will

Front 115

termination of the agency relationship:

· P must send individual notice to all persons who extended credit to or received credit for the P through the A.
· Reasonable public notice ordinarily suffices for all others

Back 115

notice of termination to 3rd parties

Front 116

termination of the agency relationship:

- Legislation has been enacted in nearly all states addressing incapacity, making the durable POA possible by declaring that incapacity does not revoke durable power

Back 116

termination by operation of law: incapacity

Front 117

termination of the agency relationship:

- Majority common law: death terminated not only authority but also apparent authority of an A, which means notice by operation of law of termination is automatic at common law
- Legislation in a number of states have adopted the Model probate Code that tempers the common law rule by stating that an A’s authority under a POA continues until he receives notice of the P’s death
- Power coupled w/ an interest problem
- Power is coupled w/ an interest when the interest is conveyed at the time the power is created, thus allowing sale w/o the necessity of selling in the name of the deceased

Back 117

termination by operation of law: death

Front 118

creation of a partnership:

· Two or more persons associate as co-owners of a business and take no steps to formalize their relationship, they have created a partnership
· No docs need be written or filed

Back 118

creating the partnership relationship

Front 119

creation of a partnership:

· Governing law in half the sts (other states have adopted RUPA)
· UPA def of partnership: an assn. of two or more persons to carry on as co-owners a business for profit.

Back 119

the UPA (1914)

Front 120

creation of a partnership:

· RUPA def of partnership: same as UPA

Back 120

the RUPA

Front 121

creation of a partnership:
Association – organized body of persons who have some purpose in common
Persons – includes not only individual but also corps and other partnerships
To carry on as co-owners of a business – the power of ultimate control
For Profit – the operation of the act should be confined to associations organized for profit

Back 121

elements of the partnership relationship

Front 122

creation of a partnership:

· Created when a partnership files a statement of qualification invoking limited liability for its partners under a statute making that option available to partners
· States differ in the degree of protection from liability for the obligations of the business that they grant to partners under their LLP statutes;
Full Shields
· Not shielded from the consequences of personal wrong doings

Back 122

limited liability partnerships

Front 123

creation of a partnership:

· Unlike corps, partnerships do not pay federal income tax on their business income, instead, each partner is taxed directly on his or her share of the partnership’s taxable income and also takes losses generated only on paper

Back 123

business role of the partnership

Front 124

creation of a partnership:

· common law theory
· Views partnership as an aggregate of persons acting w/ a common purpose, sharing profits and losses, and holding partnership assets in joint ownership
· Partnership in existence only as long as its exact aggregate of partners exists
· If a new partner joins, or a partner dies or resigns, the partnership is dissolved

Back 124

underlying theory of a parntership: aggregate theory

Front 125

creation of a partnership:

· RUPA is based on this theory reversing the approach of the UPA – a partnership is an entity distinct from its partners
· Dissolution does not in itself destroy executory Ks
· No new partnership just b/c of membership changes

Back 125

underlying theory of a partnership: entity theory

Front 126

creation of a partnership:

· Goal of those drafting UPA was to stay as consistent as possible w/ the aggregate theory
· Another goals was to resolve the confusion at common law concerning the rights of partners in partnership prop
· Partners at common law were treated as joint owners of partnership property – tenants in common of real property and joint tenants w/ right of survivorship of personal prop.
o Property rights were not clearly defined
· § 24 UPA – the prop rights of a partner are 1) his rights in specific partnership prop, 2) his interest in the partnership, and 3) his right to participate in the management.”
· § 25(2)(b) – a partner’s right in specific partnership prop is not assignable except in connectionw/ the assignment of rights of all the partners in the same property.”

Back 126

aggregate theory & the property rights of a partner:

UPA

Front 127

creation of a partnership:

· § 203: property acquired by a partnership is prop of the partnership and not of the partners individually.

Back 127

aggregate theory & the property rights of a partner

RUPA

Front 128

creation of a partnership:

unless the contrary intention appears, property acquired w/ partnership funds is partnership property.
o When the intentions of the partners to convert [individually owned property] in to firm prop is inferred from circumstances, the circumstances must be such as do not admit of any other equally reasonable and satisfactory explanation.

Back 128

when is property partnership property

UPA

Front 129

creation of a partnership:

o Fundamentally the same as UPA but establishes two presumptions:
1. Prop purchased w/ partnership funds is partnership prop, even if not acquired in the partnership name
2. Prop acquired in the name of one or more of the partners w/o an indication of the person’s status as partner and w/o use of partnership funds is presumed to be separate prop, even if used for partnership purposes

Back 129

when is property partnership property

RUPA

Front 130

creation of a partnership:

o Aggregate status of a partnership (PS) was not itself a legal person and thus could not hold title to real prop. Prop had to be in the name of a partner or partners.

Back 130

real property common law

Front 131

creatino of a parntership:

o PS could acquire title to real prop and prescribing detailed standards for conveyances from the PS, depending on how title was taken by the firm.
o UPA treats a PS as an entity.

Back 131

real property UPA

Front 132

creation of a partnership:

o Counterpart to UPA § 10
o Provides detailed rules for the transfer and recovery of prop, expanding upon the rules in UPA.
o § 303 – option for a PS of filing and recording a statement of authority limiting or specifying the authority of partners to transfer real prop held in the name of the firm.

Back 132

real property RUPA

Front 133

operation of a partnership:

- Partner is actually authorized to act w/ the express or implied consent of his fellow partners
- Test for determining the existence and scope of actual authority is similar to that in ordinary agency law: was the acting partner (PR) reasonable in assuming that he was authorized to act?

Back 133

contractual powers of a partners: Actual Authority

Front 134

operation of a partnership:

o reasonable interpretation of the language of the partnership (PS) agreement
o customary way the business is run
o prior authorizations
o ratification of similar acts

Back 134

contractual powers of partners: actual authority: much of the authority is implied

Front 135

operation of a partnership:

o None of the PR ever objected [past 7 years] to this manner of conducting the PS business; John became, by tacit agreement among all the PR, the managing PR w/ authority to conduct the ordinary business of the PS…decision was clearly part of the ongoing management [thus was actually authorized].

Back 135

contractual powers of partners: actual authority: implied actual authority (UPA)

Front 136

operation of a partnership:

· UPA § 18h: any difference arising as to ordinary matter connected w/ the PS business may be decided by a majority of the PRs; but no act in contravention of any agreement b/n the PRs may be done rightfully w/o the consent of all the PRs.
· RUPA § 401j: identical wording except that it substitutes ‘A difference’ for ‘Any difference’.
o Acts outside ordinary business: Fills the gap by adding the words “an act outside the ordinary course of business of the PS” to the clause requiring unanimity among PRs.

Back 136

contractual powers of partners:

when partners disagree

Front 137

operation of partnerships:

· PS contains even number of PRs and the split evenly on a matter
· Cts address this by inquiring whether the matter at issue involves a change in the business or a mere continuation of an already established way of doing business
If the partners are equally divided, those who forbid a change must have their way. Summers v. Dooley.
On the other hand the activities w/in the scope of the business should not be limited. Natl. Biscuit.
· Unless otherwise agreed all PRs including dormant or silent PRs, have equal rights in the management and conduct of the business under UPA § 18e & RUPA § 401f.

Back 137

contractual powers of partners:

deadlock

Front 138

operation of a partnership:

· § 9(1) of UPA: “every PR is an A of the PS for the purpose of its business, and the act of any PR…for apparently carrying on in the usual way the business of the PS of which he is a member binds the PS…unless [he is unauthorized and] the person w/ whom he is dealing has knowledge of the fact that he has no such authority.

Back 138

contractual powers of partners:

apparent authority

Front 139

operation of a partnership:

o Requirement of a manifestation form the PS to the other party
o Whether apparently carrying on refers just to the business of the particular PS or does it include the way other firms in the same business and locality carry on their trade.
o Cts are split but leading authority adopts broader view
o RUPA § 301 adopts the broader view
§ Adds requirement of a duty of inquiry by the other party under suspicious circumstances.
§ Replaces “knowledge” w/ “knew or received a notification”
§ Person whose expectation is not reasonable cannot base a claim on apparent authority
o RUPA § 301(1) rejects the duty of inquiry by confining “knew” to mean actual knowledge of a fact and “notification” to mean when one takes steps reasonably required to inform another of a fact.
§ Does not take the reasonableness of the other person’s expectation into account.

Back 139

contractual powers of partners:

apparent authority

Front 140

operation of a partnership:

: requires centralized filing by a PS of a statement of authority
o Filed grant of authority under RUPA § 303 is conclusive in favor of a person who gives value w/o knowledge to the contrary, unless it is limited by another filed statement
o Filed limitation of authority does not operate as notice to 3rd persons unless it relates to real prop and a certified copy of the filed statement is recorded in the office for recording transfers of that real prop.

Back 140

contratual powers of partners:

statements of authority (RUPA)

Front 141

operation of partnerships:

A. UPA 13: PS bound by “any wrongful act or omission of any PR acting in the ordinary course of the business of the PS”),
B. UPA 14: PS bound by PRs breach of trust, and
C. UPA 15: PRs are jointly and severally liable for everything charged to the PS under § 13 and § 14)
D. Commercial nature of a PS historically has substituted a broader standard for vicarious liability in this context.
E. “Ordinary course of the business” language in UPA § 13 is interpreted in a manner similar to the interpretation of “scope of employment”

Back 141

tort liabiilty of the wrongs of partnership

Front 142

operation of partnerships:

· UPA § 13: PS is liable for the wrongful acts of PRs to any person “not being a PR in the PS. Invokes the co-principal doctrine.
· No organizational VL under UPA when the injured party is a PR.
· Separate transaction doctrine: under some circumstances an injured PR can establish a case for liability against his firm
· RUPA deletes the language “not being a PR in the PS” in its § 305(a)
o RUPA adopts entity theory where the PS is the P and the PRs are mere As of the firm which would make the co-principal doctrine inapplicable to injury done to PRs.

Back 142

co-principal doctrine

Front 143

operation of partnerships:

· UPA 14(a): a PS is bound to make good the loss where “one PR acting w/in the scope of his apparent authority receives money or prop of a 3rd person and misapplies it.
· RUPA § 305(a): same as UPA, “PS is liable for a PR’s wrongful act done “w/ authority of the PS”; “Is intended to include a PR’s apparent as well as actual authority.”

Back 143

fraud

Front 144

operation of partnerships:

Two Views When Law Firm PRs Mislead Clients into thinking they are investing for them
1. ∏ view: unusual application of apparent authority b/c it requires giving notice to clients that personal acts for individual profit are outside of a PR’s authority.
2. Trappings of office do not w/o other evidence provide a basis for finding apparent authority.

Back 144

fraud

Front 145

operation of partnerships:

Joint as Opposed to Joint and Several Liability
A. UPA § 15 distinguishes b/n K and tort liability when describing the nature of a PR’s liability for PR obligations.
1. Joint Liability = Contractual Obligations
- Obligors are entitled to have all obligors joined in the suit by the creditor unless jx cannot be obtained
2. J&S Liability = Torts
- No such privilege to demand joinder exists
B. RUPA § 306(a)
o All obligations of PR as J&S

Back 145

the nature of a partnerships liability

Front 146

operation of a partnership:

1. UPA § 21: PR is accountable to the PS for “any profits derived by him w/o the consent of the other PRs from any transaction connected w/ the formation, conduct, or liquidation of the PS or from any use by him of its prop.”
2. RUPA § 404(a): the only fiduciary duties a PR owes to the PS and the other PRs are the duty of loyalty and the duty of care.
i. Limits the scope of fiduciary duties in an effort to increase the reliability of PS agreements and to limit judicial tinkering at the margins of fiduciary concepts.

Back 146

rights and duties among partnerships: Fiduciary Duties

Front 147

operation of partnerships:

1. A fiduciary is required to be loyal to and act in the best interest of the P, this duty applies to partners.
2. Breach of loyalty to use for personal advantage info that belongs to the PS.
i. Pre-empting a business opportunity by not calling a lease renewal to the attention of a fellow PR

Back 147

rights and duties among partnerships: duty of loyalty

Front 148

operation of partnerships:

1. What steps can the PR take prior to severing the relationship in order to prepare ahead of time for setting up his business?
i. Common law: cannot while still a PR solicit customers of the firm for his business. Nor can he conspire w/ other PRs or employees to depart en masse in a way that will materially damage the PR business.

Back 148

rights and duties among partnerships: leaving the business

Front 149

operation of a partnership:

1. The regular standard of care and skill accepted in the locality for the kind of work involved does not apply in many jx.
i. Business judgment rule applies and shields PRs from liability to other PRs for mere negligence in their operation of business.
2. UPA does not specifically address the duty of care
3. RUPA 404(c): A PR’s duty of care to the PS and the other PRs in the conduct and winding up of the PS business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
i. Gross neg. standard b/c most PRs would agree to share losses equally even if cause by neg. of fellow PR.

Back 149

rights and duties among partnerships: duty of care

Front 150

operation of partnership:

1. UPA § 20: mandates a duty of PRs to “render on demand true and full info of all things affecting the PS to any PR.
2. RUPA § 403: similar language except that it also expressly requires each PR and the PS to furnish info concerning the PS’s business reasonably required for the proper exercise of a PR’s rights and duties without demand, a result cts reached by judicial decision under UPA.
3. Full disclosure of all material facts is required under circumstances where a PR reasonably knows or should know that the other PRs would want the info. E.g.: PR deals w/ the PS as an adverse party – selling personal asset to the PS.
i. Buyouts: Although selling PR did not disclose value of PS interest, no breach of fiduciary duty where buying PR had “ample access to info about the value of his PS interest”

Back 150

rights and duties among partnerships: duty of full disclosure

Front 151

operation of partnerships:

1. UPA § 31(1)(d): expulsion of a PR pursuant to a provision in the agreement.
i. Good Faith: limitation on the interpretation as requiring only that the expulsion “ not cause a wrongful withholding of money or prop legally due the expelled PR at the time he is expelled.
2. RUPA § 404 (d): includes the duty of good faith and fair dealing in its lists of the obligations of a PR and declares it a mandatory duty under § 103.
i. RUPA expressly refuses to characterize it as fiduciary in nature on the reasoning that it is “a K concept, imposed on the PRs b/c of the consensual nature of a PS.

Back 151

rights and duties among partnerships: duty of good faith and fair dealing

Front 152

operation of a partnership:

1. PR who manages the business bears an even greater duty of full disclosure and denial of self-interest, doubtless b/c his fellow PRs are more dependent on him for info and place greater trust in him than in a PS in which control over the business is shared equally.

Back 152

rights and duties among partnershps: manaing partner

Front 153

operation of a partnership:

1. Shows detailed financial business transactions
2. UPA § 22: allow it whenever circumstances “render it just and reasonable” and upon dissolution.
3. RUPA § 405: same.

Back 153

right to an accounting

Front 154

operation of partnerships:

A. UPA § 18 (b): the PS must indemnify ever PR in respect of payments made and personal liabilities reasonably incurred by him…
1. If PS is insolvent and unable to indemnify a PR, UPA states that each PR shall contribute the amount necessary to satisfy the liabilities of the firm.
2. Wrongfully dissolving PR § 38(2): continuing PRs must indemnify him against all present or future PS liabilities.
B. RUPA
1. 401(c): deletes the words “reasonably” and “proper”; losses should by a PR’s neg. should be shared equally

Back 154

indemnity and contribtion rights of partnerships

Front 155

operation of a partnerships:

A. RUPA § 405: under RUPA an accounting is not a prerequisite to the availability of the other remedies a PR may have against the PS or the other PRs.

Back 155

suits among partnerships

Front 156

operation of a partnerships:

A. Common law aggregate theory: PS cannot sue or be sued b/c it is not a “person”.
1. PS had to brought in the names of all PRs and all PRs had to be joined as ∆s.
B. UPA: does not have a provision on this matter b/c it is procedural in nature. Sts have passed legislation allowing suits against PS in its own name w/ the judgment binding the joint prop of all PRs and the individual prop of PRs named and served w/ process
C. RUPA: a PS may sue or be sued in the name of the PS.

Back 156

suits by and against a partnerhship

Front 157

operation by a partnership:

A. UPA § 24 (2): “his interest [share of the profits and surplus]in the PS,”
1. § 27 provides this is the only on of three prop rights that a PR can transfer on his own initiative.
2.
B. RUPA § 502: the only transferable interest of a PR in the PS is the PR’s share of the profits and losses of the PS and the PR’s right to receive distributions.

Back 157

the interest of a partnership: transfer of the interest

Front 158

operation of a partnership:

1. UPA § 25(2)(c): PS prop could be attached for a PS debt
2. RUPA § 203: PS may be sued in the PS name, and it declares that “Prop acquired by a PS is prop of the PS and not of the PRs individually.

Back 158

claims by creditors of the partnership: rights against partnership assets

Front 159

operation of a partnerships:

1. UPA: creditor of a J&S obligation can obtain a judgment against any PR it chooses and execute against the personal assets of the PR until satisfaction of the underlying claim is achieved.
i. PR who pays a firm obligation is entitled to indemnity under UPA § 18(b).
ii. Some sts insist on exhaustion of PS assets prior to allowing creditors to resort to personal assets.
2. RUPA § 307(d): adopted the view above.
i. Provides exception allowing a ct in the exercise of its equitable powers to grant permission to a creditor to first levy against personal assets.
3. UPA § 40: PS creditors have priority in PS assets and individual creditors in the individual assets of PRs. “dual priorities rule”
i. Bankruptcy Reform Act of 1978: partially repealed DPR making it possible for PS creditors to share equally with individual creditors in claims against the personal assets of PRs.

Back 159

claims by creditors of the partnership: rights against the personal assets of individual partnerships

Front 160

operation of partnerships:

A. Charging order (UPA § 28): upon application by a judgment creditor, a ct order “charges” the interest of a PR w/ the amount of the judgment, redirecting any future payments of profits or surplus to the judgment creditor until the judgment is paid.

Back 160

claims by personal creditors of a parnterhsip agisnt the partners interst of the partnership

Front 161

operation of partnerships:

B. § 28(2): creditor may foreclose on the interest of a PR if it appears unlikely that distribution of income and surplus will satisfy the judgment of income and surplus will satisfy the judgment in a reasonable period of time.
1. Once PR foreclosed he is forever foreclosed of receiving profit but remains a PR.
2. Cts limit this to where the creditor would not otherwise obtain payment of the debt within a reasonable time through ordinary PS distributions.
C. RUPA § 504: adopts charging order.

Back 161

claims by personal creditors of a parntership against hte partners interst of the partnerships

Front 162

dissociation and dissolotuion:

A. § 29: the change in the relation of the PRs caused by any PR ceasing to be associated in the carrying on…of the business, such as the withdrawal, death, or bankruptcy of a PR.
1. Reflects aggregate theory
2. Termination of the business need not and usually does not automatically follow from dissolution of the PS
§ Avoided if there is planning ahead/agreement

Back 162

dissolution under UPA

Front 163

dissociation and dissolution:

1. § 38 (1): Dissolution unless otherwise agreed triggers a liquidation right in each PR of the firm, w/ the exception of the wrongfully dissolving PR of a term PS.
§ This gives each PR the right to force a sale of the business, the notion being that a sale is the best means of determining the fair market value of the assets and of generating the cash needed to pay the PRs the value of their interests.

Back 163

dissolution under UPA

liquidation right

Front 164

dissolution and dissociation:
§ 1) DL caused w/o violation of the PS agreement, such as arrival of the agreed termination date, or by the will of any PR if no term was agreed upon, or by expulsion of a PR in accordance w/ a power conferred by the PS agreement;
§ 2) DL in violation of the PS agreement by express will of any PR
§ 3) Four circumstances in which it does not seem to make any difference what the PS agreement provides w/ respect to timing and existence of an even of DL – death, bankruptcy, DL by decree of ct under § 32, and any event that makes it unlawful to carry on the business.
- Decree of court: ct may find incapacity or misconduct of another PR or DL by ct decree is also provided upon application by a purchaser of a PR’s interest by assignment or at foreclosure of a charging order.

Back 164

dissolution under UPA:

causes of dissolution under UPA

Front 165

dissolution and dissocation:

§ A PR rightfully can dissolve an at will PS at any time w/o incurring any liability even if the DL causes harm to his fellow PRs
§ § 34: PR has the right to terminate a relationship which must necessarily depend on mutual good will & confidence

Back 165

dissolution under UPA: causes of dissolution udner UPA:

dissolution at will

Front 166

dissolution and dissocation:

§ § 38(2): allows the remaining PRs to continue the business during the term by unanimous agreement, thus taking the liquidation right away from the departing PR under the circumstance.
§ Term for a PS can be implied or express
Cts require clear evidence before finding an implied term for a PS.
§ Cts are reluctant to decree DL based on misconduct w/o serious misbehavior

Back 166

dissolution under UPA: causes of dissolution under UPA:

wrongful dissolution

Front 167

dissolution and dissocation:

A. Substitutes “dissociation” for many (but not all) situations that would constitute DL under UPA
B. § 601: Unlike UPA if PR dies or becomes bankrupt (BK), the PS is not automatically dissolved, instead the PR is DA.
i. PR (or his estate) is entitled to be paid for his interest, but not by exercising a liquidation right.
C. DL PR’s buyout rights RUPA § 701

Back 167

dissocation and dissolution under RUPA

Front 168

dissolution and dissocation:

D. § 603: after a PR’s DS, “the PR’s interest in the PS must be purchased pursuant to the buyout rules in Article 7 unless there is a DL and winding up of the PS business under Article 8. Thus, a PR’s DS will always result in either a buyout or a DL and winding up.
E. Article 6: covers all DS, including voluntary withdrawal of a PR, death, expulsion, and BK
F. Article 7: sets the standards for the buyout of a PR, providing for indemnification, valuation standards, and time periods for settling w/ the PS

Back 168

dissociation and dissolcuation under RUPA

Front 169

dissociation and dissolution:

G. Article 8: covers DL and winding up of the business
H. DL = termination of business
I. § 801: defines when DL occurs
J. PR under RUPA does not have the power to dissolve a term partnership
i. §701(h): the wrongfully dissociating PR is not entitled to payment of his interest until the end of the term unless a ct finds that an earlier payment will not cause undue harm to the firm

Back 169

dissociation and dissolution under RUPA

Front 170

dissolution and dissociation:

ii. Exception - § 602: when a PR’s withdrawal from a term PS follows w/in 90 days after another PR’s DS by death or BK or wrongful DS.
1. Intended to protect a PR’s reactive withdrawal from a term PS after the premature departure of another PR
2. The PR who reactively withdraws will be bought out under § 701 as rightfully dissociating PR.

Back 170

dissociation and dissolution under RUPA

Front 171

dissolution and dissociation:

i. § 801: default rule that a PR can dissolve an at will PS at any time by giving notice to the PS.
ii. If PR dies or becomes BK in a PS at will, the PS continues automatically
iii. Distinction b/n UPA and RUPA: UPA requires unanimity for the PRs to continue a term PS whereas RUPA specifies that the PS automatically continues unless at least half of the PRs agree to wind up.

Back 171

dissociation and dissolution under RUPA:

AT will PS

Front 172

dissociation and dissolution:

i. UPA § 33: DL “terminates all authority of any PR to act for the PS” except “ so far as may be necessary to wind up PS affairs or to complete transactions begun but not then finished.”
1. § 34: If DL is cause by the act of a PR, an unknowing fellow PR who contracts for new business thereafter can call upon her fellow PRs for contribution
ii. RUPA § 804: same as UPA § 33
1. § 806: PR who, w/ knowledge of the DL, incurs a PS liability “by an act that is not appropriate for winding up the PS business is liable to the PS for any damage arising for the liability.”

Back 172

termination of authority: notice of DS and DL:

termination of authority

Front 173

dissolution and dissociation:

i. UPA § 35: addresses lingering apparent authority of a PR following DL to bind the PS to an act unrelated to winding up or completing unfinished business.
ii. RUPA § 702: 2 year limit on the PS’s exposure to liability unless a statement of DS is filed.
1. § 804 (UPA § 35): Filing a statement can reduce it to 90 days.

Back 173

termination of authoirty: notice of DS and DL:

notice of DL

Front 174

dissolution and dissocation:

· Remaining PRs can unanimously agree, expressly or by conduct to continue the business after DL even if there is no prior arrangement
· RUPA § 802(b): any time after DL all of the PRs (except a wrongfully DSing PR) may waive the right to have the business wound up.

Back 174

continueing the business

Front 175

dissolution and dissociation:

“on the date of the dissociation”
o 807(a): calls for liquidation of the business then distribution of surplus which would place the valuation of the interest at a later time.
A. Buy-Sell Agreement: anticipates and attempts to resolve conflicts likely to arise at the time of DS or DL.

Back 175

continueing the business: evaluation of the interest

Front 176

dissolution and dissociation:

some PS agreements attempt to avoid the difficulties posed by DL under UPA by including a continuation clause denying DL upon the retirement or death of a PR.
i. Enforceability doubtful under UPA
ii. Makes a PS vulnerable to the argument that DL took place under the statute even if it did not under the PS agreement
iii. Most practical to draft continuation clause and alternative clause.
iv. RUPA § 801: DL provisions are mere default rules in large part and thus there would be no question about the validity of a continuation clause.

Back 176

continueing the business: evalution of the interest: Continuation clauses

Front 177

dissociation and dissolution:

i. UPA § 17 & 41(7): specify that an incoming PR is liable for the existing debts of the firm but that such liability “ shall be satisfied only out of PS prop” unless there is agreement to assume all or part of the existing debts.
ii. RUPA § 306(b): similar.
iii. Cts split on whether the incoming PR should be responsible for long-term lease when he joins in the middle.
1. Bare majority sides w/ personal liability for benefits received under continuing obligations.

Back 177

continueing the business: evaluation of the interest: liability of an incoming partner

Front 178

dissociation and dissolution:

i. UPA § 36(1); RUPA § 703: Withdrawing PR remains liable to the creditors who extended credit at the time the PR was a member of the firm, assuming the firm was not a full shield LLP.
ii. UPA and RUPA utilize suretyship concepts: if the creditor and the remaining partners agree to a material alteration of the original debt w/o the consent of the withdrawing PR, she is released.

Back 178

continueing the business: evaluation of the interest:

liability of a withdrawing partner

Front 179

dissolution and dissociation:

i. UPA § 21: the fiduciary relationship among PRs covers the “formation, conduct, or liquidation” of the PS.
1. During winding up fiduciary duties continue and thus a PR taking ongoing business w/o consent is accountable to the PS for the profits lost during the period of winding up.
ii. RUPA § 404(b)(3): PR’s duty of loyalty is limited to refraining from competing w/ the PS “in the conduct of PS business before DL of the PS.”
1. PR is free to compete immediately upon DL.
2. Same standard for DS

Back 179

continueing the business: evaluation of the interest:
duties of withdrawing PR TO former PRS

Front 180

dissolution and dissociation:

i. New Creditors: only matter of significance is notice of DS or DL.
ii. Existing Creditors
1. UPA § 17 & 41: continuity of obligation to creditors when there is some continuity of PRs in the new PS.
a. Right against asset ends when the new PS has no PRs in common with the PS incurring the obligation. UPA § 41(4)
2. RUPA: issue of successor liability is not significant due to its adoption of the entity theory.

Back 180

continueing the business: valuation of the interest:

creditors claims

Front 181

dissociation and dissolutoin:

i. UPA: entitled to have the value of the deceased’s interest determined as of the date of DL and receive payment in cash plus either interest from the date of DL to the date of payment or profits attributable to the use of the deceased’s capital. UPA § 42.
1. Some cts read UPA § 41(3) & 42 literally to allow the choice of profits only if the estate consents to the continuance of the business, waiving its liquidation rights.
2. Also applies to retired PR.
ii. RUPA: death of a PR is a DS and does not in itself cause DL.
1. § 701: interest only
2. § 801: same rights apply to retired PR unless the PR was a member of an at will PS that had not altered the default rule.

Back 181

continueing the business: evaluation of the interest:

rights of the estate of a deceased partner when the business is continued

Front 182

dissolution and dissociation:

winding up the PS business entails selling its assets, paying its debts, and distributing the net balance, if any, to the PRs in cash according to their interests.

Back 182

winding up

Front 183

dissolution and dissociation:

RUPA 801
1. UPA § 29: liquidation of debts and then settlement of accounts among partners.
ii. Winding Up when PS business continues after DL: an agreement for continuing the business is “in effect a type of winding up w/o the necessity of discontinuing the day-to-day business
iii. UPA § 38(1) and RUPA § 801(1): DL requires the remaining PRs to wind up PS affairs unless the agreement states otherwise.
iv. UPA 37 & RUPA §807: defines the right to wind up.

Back 183

winding up and litigation

Front 184

dissolution and dissociation:

v. RUPA § 802(a): PRs continue to represent the PS when completing unfinished business; fiduciary duties among PRs continue w/ regard to unfinished business
vi. UPA § 18(f): a surviving PR is entitled to reasonable compensation for his services in winding up the PS affairs
1. RUPA § 401: same, but does not confine compensation for winding up to surviving PRs
2. Langhoff: We construe the L-B K to have effect an immediate winding up of the firm…facted w/ DL B agreed w/ L to eliminate a period of winding up and to cut directly to termination of the PS. The L-B K substituted for the fiduciary duty.

Back 184

winding up

Front 185

dissociation and dissolution:

1. UPA § 40 (b): Creditors outside the PS pad first, then debts owed to PRs other than for capital contributions or profits are paid, then capital is returned, and finally the remaining balance, if any, is distributed as profits.
a. UPA § 18(a), 40(d): If PS prop is not enough to repay obligations, loss is shared by the solvent PRs in the proportions in which they share profits.
2. RUPA § 807: same but does not subordinate inside debt to outside debt (PRs as creditors to firm).
a. Abolishes “dual priority rule” that mandates priority for PS creditors in PS assets and personal creditors in personal assets.

Back 185

termination: Settlement of Accounts

Front 186

dissolution and dissocation:

1. UPA § 18(a): each PR must contribute toward the losses whether of capital or otherwise, sustained by the PS according to his share in the profits.
a. Problem when PRs have unequal capital accounts or when one PR is purely capital and the other labor
2. RUPA § 401(b): Richter rule – “no PR is entitled to remuneration for acting in the PS business” is construed by some cts to destroy the inference that services constitute capital.

Back 186

termination: claims among partners - the losing business

Front 187

limited partnership:

a. LP: At least one general and one limited partner.
b. LLLP: Extends limited liability to general partners, as well as the limited partners.
c. LLC: One kind of partners, but all with limited liability, with partners called members, in a similar position to shareholders of a corporation. May have manager-managed LLC, or member-managed LLC.
d. LLP: General partnership in all respects except with limited liability for all partners.

Back 187

different forms of limited liability unincorporated entities

Front 188

limited partnership:

1. A limited partner interest is regarded as a “security” under applicable federal and state law under many circumstances unless an exemption applies and requires registration as a security with SEC.
2. Congress passed the Tax Reform Act in 1986 limiting passive activity loss restrictions.
3. Rollups.

Back 188

complex tax and security issues of limited partnership

Front 189

limited partnership:

a. Defective registration would invalidate the creation of a limited partner and expose the partners to liability as general partners. Direct Mail Special, Inc. v. Brown, (1987).
a. A person is not a general partner if he had a good faith belief that he was a limited partner and acts to correct the mistake appropriately upon discovery. Briargate Condominium Ass’n v. Carpenter, (1992).

Back 189

limited partnership: organization defects

Front 190

limited partnership:

a. A party may not retain his status as a limited partner while participating (directing) in a partnership business. Holzman v. De Escamilla, (1948).
b. A limited partner is liable as a general partner if he takes part in the control of the business (exerting day to day control of the seeds business). Gateway Potato Sales v. G.B. Investment Co., (1991). (A creditor of the partnership is not required to have direct contact with the limited partners to discover control or operation by the limited partner.)
c. A limited partner who secured credit for the partnership is considered to have exercised control and is liable for the partnership’s debt. Pittman v. Flanagan Lumber Company, Inc., (1990).

Back 190

limtited partnership:

the control question

Front 191

limited partnership:

1. The personal liability that attaches to a limited partner when he takes control and manages the business cannot be evaded merely by his acting through a corporate general partner. Delaney v. Fidelity Lease Limited, (1975). (This decision was overruled by the Texas Limited Partnership Act of 1979.)
2. A limited partner does not become liable as general partner even if he is a official, director, or shareholder of the corporate general partner, if the corporate general partner is not formed solely for the benefit of the partnership. Frigidaire Sales Corp. v. Union Props., Inc., (1977).

Back 191

limited partnership:

control of the corporate general partner

Front 192

limited partnership:

3. Limited partners who exercise control of the partnership are not insulated from liability by benefit of their status as an officer of the corporate general partner. Gonzalez v. Chalpin, (1990). (But RULPA may have changed the rules.)
4. There was no evidence to support a finding either that Thornton was a limited partner in control of KTDP based on Sloan’s belief that Thornton controlled KTDP or that Sloan relied in any way on Thornton’s actions in contracting with KTDP, or that Thornton could be personally held liable for the debts by piercing the corporate veil of that corporation because he is not the corporation’s alter ego, or that he committed a fraud. Sloan v. Thornton, (1995).

Back 192

limited partnership:

control of the corporate general partner

Front 193

limited partnership:

1. Limited partnership agreements may provide for the removal of a general partner upon a vote of the limited partners without dissolving the partnership if the partnership agreement was filed prior to RULPA, which required unanimous agreement among the partners and appointed another general partner. Obert v. Environmental Research and Development Corporation, (1989).

Back 193

removal of the general partner

Front 194

limited partnership:

1. Claims belongs to a partnership may be asserted by its limited partners when its general or managing partners have wrongfully refused to do so or have disqualified themselves from taking any act on behalf of the partnership. Klebanow v. N.Y. Produce Exchange, (1965).
2. The ability of limited partners to bring a derivative suit is expressly recognized in RULPA.

Back 194

suits by limited partnershp

Front 195

limited partnership:

1. Partners shares profits and losses on the basis of the value of the contributions made by each partners.
2. An assignment of a partnership interest is assignable in whole or in part, but it does not dissolve a limited partnership or entitle the assignee to become or to exercise any rights of a partner.

Back 195

limitations on distributions and transfers of interests

Front 196

limited partnership:

1. A limited partner is justified in the removal of the general partner when the agent of the managing general partner committed a fraud. KE Property Management, Inc. v. 275 Madison.
2. A general partner has a broad obligation to disclose material facts to limited partners because a general partner’s fiduciary duty held him to a high standard of integrity in his dealings with limited partners, and silence as to a material fact may constitute fraud. Appletree Square I Limited Partnership v. Investmark, Inc., (1993). (reveal asbestos in the building without a direct demand for information).

Back 196

duties of a lmited partner

Front 197

LLC:

1. Owners are not vicariously liable for the contract or tort obligations of the business.
2. Owners remain liable for personal wrongdoing.
3. Liability is similar to shareholders of a corporation.

Back 197

LLC

Front 198

LLC:

1. IRS’s Kintner regulation for determination of corporation status.
a. Continuity of life.
b. Centralized management.
c. Free transferability of interests.
d. Limited liability.
2. Before January 1, 1997, if an entity has more than two of above, it is taxed as a corporation.
3. Now, LLC is permitted to enjoy all four characteristics and still qualify for partnership taxation.

Back 198

LLC

Tax matter

Front 199

LLC:

1. If member-managed, member interests are not regarded as securities.
2. If manager-managed, more risk for a need to register as securities.
3. The test is whether the members rely solely on the efforts on others for investment profits.

Back 199

LLC

security law issus

Front 200

LLC:

a. Filing requirements.
1. Must give notice to others that the entity is an LLC.
2. Annual reports.
3. All owners are members.
4. Name and ID, address of entity.
5. Name and address of a registered agent for service of process.
b. The operating agreement.
1. Arbitration agreements.
2. Profit divisions.
3. Subject to mandatory provisions of the statu

Back 200

the creation of an LLC: Requirements

Front 201

LLC:

2. Subjective intent not to form a LLC is irrelevant when all the circumstantial evidences point toward an objective intent to form a LLC, and when no contribution is made toward capitalization of LLC and no evidence in record that non-cash contribution is substituted, the disassociated party cannot expect any reimbursement. Advanced Orthopedics, L.L.C. v. Moon, (1995).

Back 201

creation of an LLC

Front 202

LLC:

a. Operating agreement is desirable but not absolutely necessary.
b. Some states prohibits certain kinds of businesses from forming a LLC. Meyer v. Oklahoma Alcoholic Beverage Laws Enforcement Commission, (1995). Oklahoma refused to allow a retail store from selling liquors. The state Constitution will trump a state statute allowing the creating of LLC when they are in conflict.

Back 202

creation of an LLC notes

Front 203

LLC:

1. State of Illinois does not have personal jurisdiction over the two members (for deficit balance due to bad series of trades in the future contracts) because personal jurisdiction are exercised over nonresident D only when the contacts with Illinois are more than solely on behalf of his employer or other principal, which the individual members here do not qualify because they are only agents for the LLC. ING (U.S.) Securities, Futures & Options, Inc. v. Bingham Investment Fund, L.L.C.

Back 203

entity theory and the LLC

Front 204

LLC:

2. Since the LLC formed agreed to assume all liabilities existing on the property, it became liable to P for any amount P would have had to pay holder of the first deed of trust note (the bank who holds the mortgage) , executed a second deed of trust on the property to secure a note payable to P, and, thus constituted valid consideration for the transfer, and since the transfer is not to a partnership, which is only a change in form of ownership, the transfer of the property from a member to a LLC is a transfer from one entity to another and a sale. Hagan v. Adam Property Associaties, Inc., (1997). (Hagan has to pay Adams commission fee on the sale.)

Back 204

the entity theory and the LLC

Front 205

LLC:

3. After transferring his property to the LLC, P is no longer an aggrieved person having the standing to sue since he is not the sole owner of the property or the sole beneficiary and the LLC was not the party before the Commission and not a party to this action. Reid v. Town of Hebron, (1996).
A. THE OPERATION OF AN LLC.

Back 205

the entity theory and the LLC

Front 206

LLC:

1. If the LLC is manager-managed, the members do not have apparent authority to bind the LLC, being not an agent of the company for the purpose of its business.
2. If member-managed, then the authority of a member is similar to that of an partner.

Back 206

the operation of an LLC: the management of an LLC: authority and apparent authoirty of members

Front 207

LLC:

1. If member-managed, the fiduciary duties are those of loyalty and care.
2. If manager-managed, if not the manager, a member owes no duties to the company or other members.

Back 207

the operation of an LLC: the mangement of an LLC:

Fiduciary duties of members

Front 208

LLC:

a. When P’s interests in an LLC (which is a personal property interest in the company, which is not based on ownership and is not transferable, but is based on distributional interest) appeared to be in danger of being dissipated or lost, whether by insolvency claim, if not by fraud claim, P is entitled to a motion for the appointment of a receivership. Diaz v. Fernandez, (1995).
b. A member of an LLC does not have any real property interest in the real property of the LLC, but only personal property interest and, thus, does not have standing to sue or file a lis pendens based on any real property interest against the LLC. Gattoni v. Zaccaro and North Stonington Development Associates, L.L.C., (1997).

Back 208

the operation of an LLC:

the interest of a member in an LLC

Front 209

LLC:

a. To sue on a derivative basis, a member of an LLC must, similar to the corporation analogy, allege either an injury which is separate and distinct from that suffered by other shareholders , or a wrong involving a contractual right of a shareholder which exists independently of any right of the corporation. Taurus Advisory Group, Inc. v. Sector Management, Inc., (1996). (cannot sue if other shareholders are also suffering same losses, unless on a class action basis?)

Back 209

the operation of an LLC:

claims among members

Front 210

LLC:

b. D conducted numerous and substantial commercial transactions which would empowered Connecticutt to exercise personal jurisdiction over them, and a member may sue other members of a LLC on individual and personal basis based on contracts breached and torts that they committed personally. Worms v. WGB Partners, L.L.C., (1996).

Back 210

the operation of an LLC:

claims among members

Front 211

LLC:

a. If insolvent, cannot distribute any funds.
b. If distributed, funds must be returned for payments to creditors.

Back 211

the operation of an LLC:

limitations on distributions

Front 212

LLC:

a. Not important today as to risk of corporation status.
b. Members may make agreements on their own.

Back 212

the operation of an LLC:

transferablity of interes

Front 213

LLC:

a. Govern by operating agreements.
b. Default provision is that a member is free to disassociate at any time, rightfully or wrongfully.

Back 213

the operation of an LLC:

exit privileges

Front 214

LLC:

1. Dissolution is by agreement of the members, default being a majority.
2. Transferability of interests and continuity of life continue to play a role in terms of valuation of discounts available under the federal estate and gift tax.

Back 214

dissolution of an LLC

Front 215

LLC:

3. Avalon has the standing to sue Nischan (only two members in the LLC) because a member whose interest is adverse to the suit cannot vote and also because when Nischan resigned, Gaspero is the only member left to wind the business and affairs of the LLC. JM Avalon Investments, LLC v. Nischan, (1997).

Back 215

dissolution of an LLC

Front 216

LP

1. One or more general partners AND
2. One or more limited partners

Back 216

limited partnership: difined ULPA (exist by virtue of statute)

Front 217

LP:

1. Register a certificate with the state department
2. Include "LP" in the name (PA does not require as such)

Back 217

limited partnershiP: formation

Front 218

LP:

1. General partners and limited partners

Back 218

limited partnership:

members

Front 219

LP:

1. General partners engage in governance
2. Limited partners are investors and can get rid of general partners

Back 219

Limited partnership:

governance

Front 220

LP:

1. General partners engage in governance
2. Limited partners are investors and can get rid of general partners

Back 220

Limited partnership:

governance

Front 221

LP:

1. General partners engage in governance
2. Limited partners are investors and can get rid of general partners

Back 221

Limited partnership:

governance

Front 222

LP:

1. General partners conduct day-to-day operations and owe fiduciary duties

Back 222

limited partnership:

management

Front 223

LP:

1. General partners engage in governance
2. Limited partners are investors and can get rid of general partners

Back 223

Limited partnership:

governance

Front 224

LP:

1. General partners conduct day-to-day operations and owe fiduciary duties

Back 224

limited partnership:

management

Front 225

LP:

1. General partners conduct day-to-day operations and owe fiduciary duties

Back 225

limited partnership:

management

Front 226

LP:

1. General partners engage in governance
2. Limited partners are investors and can get rid of general partners

Back 226

Limited partnership:

governance

Front 227

LP:

1. ULPA and RULPA is governing statute and provides default rules for governance and management

Back 227

limited partnership:

default rules

Front 228

LP:

1. ULPA and RULPA is governing statute and provides default rules for governance and management

Back 228

limited partnership:

default rules

Front 229

LP:

1. General partners conduct day-to-day operations and owe fiduciary duties

Back 229

limited partnership:

management

Front 230

LP:

1. ULPA and RULPA is governing statute and provides default rules for governance and management

Back 230

limited partnership:

default rules

Front 231

LP:

1. General partners alone can participate in management

Back 231

LP:

flexibility

Front 232

LP:

1. General partners conduct day-to-day operations and owe fiduciary duties

Back 232

limited partnership:

management

Front 233

LP:

1. ULPA and RULPA is governing statute and provides default rules for governance and management

Back 233

limited partnership:

default rules

Front 234

LP:

1. ULPA and RULPA is governing statute and provides default rules for governance and management

Back 234

limited partnership:

default rules

Front 235

LP:

1. Costs include formation costs
a. Filing with appropriate agencies (state department, etc.)

Back 235

LP:

Costs

Front 236

LP:

1. General partners alone can participate in management

Back 236

LP:

flexibility

Front 237

LP:

1. General Partners are personally liable
2. Limited partners can be personally liable if 3rd parties reasonably rely on the limited partner and 3rd parties reasonably believe that the limited partner is a general partner

Back 237

LP:

liability

Front 238

LP:

1. General partners alone can participate in management

Back 238

LP:

flexibility

Front 239

LP:

i. Limited partner will not be considered general partners solely by doing any of the following
1. Acting as agent
2. Consulting with general partner
3. Acting as a surety or guarantor for the limited partnership
4. Borrowing, lending, providing collateral
5. Requesting or attending meetings of partners
6. Serving on committees

Back 239

LP: liabiilty:

safe harbors

Front 240

LLC:

All organizations have factors (1) and (2). If business organization does NOT possess at least 2 of the remaining four, it will be taxed as a partnership
1. Associates
2. An objective to carry on a business and divide the gains there from
3. Continuity of life
4. Centralization of management
5. Limited liability
6. Free transferability of ownership interests

Back 240

Kitner Factors - Determining tax liability:

Front 241

LP:

1. Costs include formation costs
a. Filing with appropriate agencies (state department, etc.)

Back 241

LP:

Costs

Front 242

LP:

1. General partners alone can participate in management

Back 242

LP:

flexibility

Front 243

LLC:

1. Certification
a. Operation agreement AND
b. Buy/Sell agreement

Back 243

formation

Front 244

LP:

1. Costs include formation costs
a. Filing with appropriate agencies (state department, etc.)

Back 244

LP:

Costs

Front 245

LLC:

1. Need only one member

Back 245

membership

Front 246

LP:

1. General Partners are personally liable
2. Limited partners can be personally liable if 3rd parties reasonably rely on the limited partner and 3rd parties reasonably believe that the limited partner is a general partner

Back 246

LP:

liability

Front 247

LP:

1. General partners alone can participate in management

Back 247

LP:

flexibility

Front 248

LP:

1. Costs include formation costs
a. Filing with appropriate agencies (state department, etc.)

Back 248

LP:

Costs

Front 249

LLC:

1. Members control
2. Can be limited by agreement

Back 249

control

Front 250

LP:

1. General Partners are personally liable
2. Limited partners can be personally liable if 3rd parties reasonably rely on the limited partner and 3rd parties reasonably believe that the limited partner is a general partner

Back 250

LP:

liability

Front 251

LLC:

1. Kitner Factors (See above)
a. All members could be involved in day-to-day business
i. Hire management
ii. Have one Member conduct management OR
iii. Create management committees

Back 251

management

Front 252

LP:

i. Limited partner will not be considered general partners solely by doing any of the following
1. Acting as agent
2. Consulting with general partner
3. Acting as a surety or guarantor for the limited partnership
4. Borrowing, lending, providing collateral
5. Requesting or attending meetings of partners
6. Serving on committees

Back 252

LP: liabiilty:

safe harbors

Front 253

LLC:

1. Dependent upon the structure of the LLC

Back 253

flexibility

Front 254

LLC:

All organizations have factors (1) and (2). If business organization does NOT possess at least 2 of the remaining four, it will be taxed as a partnership
1. Associates
2. An objective to carry on a business and divide the gains there from
3. Continuity of life
4. Centralization of management
5. Limited liability
6. Free transferability of ownership interests

Back 254

Kitner Factors - Determining tax liability:

Front 255

LLC:

1. Certification
a. Operation agreement AND
b. Buy/Sell agreement

Back 255

formation

Front 256

LLC:

1. Filing Fees
2. Oprating agreements
3. Buy/Sell Agreements

Back 256

costs of formation

Front 257

LP:

1. Costs include formation costs
a. Filing with appropriate agencies (state department, etc.)

Back 257

LP:

Costs

Front 258

LP:

i. Limited partner will not be considered general partners solely by doing any of the following
1. Acting as agent
2. Consulting with general partner
3. Acting as a surety or guarantor for the limited partnership
4. Borrowing, lending, providing collateral
5. Requesting or attending meetings of partners
6. Serving on committees

Back 258

LP: liabiilty:

safe harbors

Front 259

LLC:

1. Limited Liability

Back 259

liability

Front 260

LP:

1. General Partners are personally liable
2. Limited partners can be personally liable if 3rd parties reasonably rely on the limited partner and 3rd parties reasonably believe that the limited partner is a general partner

Back 260

LP:

liability

Front 261

LLC:

1. Need only one member

Back 261

membership

Front 262

LP:

1. General Partners are personally liable
2. Limited partners can be personally liable if 3rd parties reasonably rely on the limited partner and 3rd parties reasonably believe that the limited partner is a general partner

Back 262

LP:

liability

Front 263

LLC:

All organizations have factors (1) and (2). If business organization does NOT possess at least 2 of the remaining four, it will be taxed as a partnership
1. Associates
2. An objective to carry on a business and divide the gains there from
3. Continuity of life
4. Centralization of management
5. Limited liability
6. Free transferability of ownership interests

Back 263

Kitner Factors - Determining tax liability:

Front 264

LP:

i. Limited partner will not be considered general partners solely by doing any of the following
1. Acting as agent
2. Consulting with general partner
3. Acting as a surety or guarantor for the limited partnership
4. Borrowing, lending, providing collateral
5. Requesting or attending meetings of partners
6. Serving on committees

Back 264

LP: liabiilty:

safe harbors

Front 265

LLC:

All organizations have factors (1) and (2). If business organization does NOT possess at least 2 of the remaining four, it will be taxed as a partnership
1. Associates
2. An objective to carry on a business and divide the gains there from
3. Continuity of life
4. Centralization of management
5. Limited liability
6. Free transferability of ownership interests

Back 265

Kitner Factors - Determining tax liability:

Front 266

LLC:

1. Members control
2. Can be limited by agreement

Back 266

control

Front 267

LLC:

1. Kitner Factors (See above)
a. All members could be involved in day-to-day business
i. Hire management
ii. Have one Member conduct management OR
iii. Create management committees

Back 267

management

Front 268

LP:

i. Limited partner will not be considered general partners solely by doing any of the following
1. Acting as agent
2. Consulting with general partner
3. Acting as a surety or guarantor for the limited partnership
4. Borrowing, lending, providing collateral
5. Requesting or attending meetings of partners
6. Serving on committees

Back 268

LP: liabiilty:

safe harbors

Front 269

LLC:

1. Certification
a. Operation agreement AND
b. Buy/Sell agreement

Back 269

formation

Front 270

LLC:

1. Certification
a. Operation agreement AND
b. Buy/Sell agreement

Back 270

formation

Front 271

LLC:

All organizations have factors (1) and (2). If business organization does NOT possess at least 2 of the remaining four, it will be taxed as a partnership
1. Associates
2. An objective to carry on a business and divide the gains there from
3. Continuity of life
4. Centralization of management
5. Limited liability
6. Free transferability of ownership interests

Back 271

Kitner Factors - Determining tax liability:

Front 272

LLC:

1. Dependent upon the structure of the LLC

Back 272

flexibility

Front 273

LLC:

1. Need only one member

Back 273

membership

Front 274

LLC:

1. Certification
a. Operation agreement AND
b. Buy/Sell agreement

Back 274

formation

Front 275

LLC:

1. Members control
2. Can be limited by agreement

Back 275

control

Front 276

LLC:

1. Filing Fees
2. Oprating agreements
3. Buy/Sell Agreements

Back 276

costs of formation

Front 277

LLC:

1. Kitner Factors (See above)
a. All members could be involved in day-to-day business
i. Hire management
ii. Have one Member conduct management OR
iii. Create management committees

Back 277

management

Front 278

LLC:

1. Need only one member

Back 278

membership

Front 279

LLC:

1. Dependent upon the structure of the LLC

Back 279

flexibility

Front 280

LLC:

1. Limited Liability

Back 280

liability

Front 281

LLC:

1. Members control
2. Can be limited by agreement

Back 281

control

Front 282

LLC:

1. Need only one member

Back 282

membership

Front 283

LLC:

1. Members control
2. Can be limited by agreement

Back 283

control

Front 284

LLC:

1. Filing Fees
2. Oprating agreements
3. Buy/Sell Agreements

Back 284

costs of formation

Front 285

LLC:

1. Kitner Factors (See above)
a. All members could be involved in day-to-day business
i. Hire management
ii. Have one Member conduct management OR
iii. Create management committees

Back 285

management

Front 286

LLC:

1. Limited Liability

Back 286

liability

Front 287

LLC:

1. Kitner Factors (See above)
a. All members could be involved in day-to-day business
i. Hire management
ii. Have one Member conduct management OR
iii. Create management committees

Back 287

management

Front 288

LLC:

1. Dependent upon the structure of the LLC

Back 288

flexibility

Front 289

LLC:

1. Dependent upon the structure of the LLC

Back 289

flexibility

Front 290

LLC:

1. Filing Fees
2. Oprating agreements
3. Buy/Sell Agreements

Back 290

costs of formation

Front 291

LLC:

1. Filing Fees
2. Oprating agreements
3. Buy/Sell Agreements

Back 291

costs of formation

Front 292

LLC:

1. Limited Liability

Back 292

liability

Front 293

LLC:

1. Limited Liability

Back 293

liability

Front 294

LLC:

1. Prohibited unless all members agree
a. Statute determines scope of transferability

Back 294

transferability of interest

Front 295

LLC:

1. Same as partnerships
a. Certificate of dissolutions

Back 295

continuity

Front 296

LLP:

1. Narrow Shield
a. Partners are shielded from personal liability for torts committed by the partners UNLESS
i. Partners directly supervise BUT
b. Partners are still liable for the CONTRACTS of other partners
2. Full Shield
a. Full shield from personal liability
i. Contracts AND
ii. Torts

Back 296

two types of statutes

Front 297

LLP:

1. Register with state department
2. Include LLP in name

Back 297

formation

Front 298

LLP:

iii. Members/Default Rules
1. Statutorily defined
iv. Flexibility
1. Same as limited partnerships

Back 298

LLC

Front 299

LLC:

1. Must pay insurance
2. Annual registration fees

Back 299

costs

Front 300

LLC:

1. Fail to have insurance or registration
a. Default into a genera partnership
i. Partner will be liable for torts of other partners

Back 300

continuity