Agency & Partnership

Front 1

What is an Agency relationship?

Back 1

It is the legal relationship whereby an agent is authorized to represent a principal in business dealings with third parties.

Front 2

How is an Agency relationship created?

Back 2

For a valid agency relationship to exist there must be:
1. Capacity: P must have full contractual capacity and A must have at least minimal mental capacity;
2. Consent of both parties;
3. Writing if required by SOF.
4. No consideration required.

Front 3

What are the modes for creating an Agency relationship?

Back 3

May be created by:
1. Acts of the parties - by agreement (actual authority), holding out by the P (apparent authority); or
2. Operation of law - Estoppel, statute.

Front 4

What duties does an Agent owe to the Principal?

Back 4

In addition to express contractual duties, A owes P strict fiduciary duties, even if agency is gratuitous:
a. Duty of loyalty (must disclose all material facts & get permission)
b. Duty of reasonable care (depends of any special skills A may have)
c. Duty of Obedience (must follow P's reasonable instructions)

Front 5

What duties does a Principal owe to the Agent?

Back 5

All duties imposed by their contract, reasonable compensation, reimbursement for expenses and indemnify.

If the agency agreement is silent regarding compensation, the A is entitled to reasonable compensation.

Front 6

What are the Agent's remedies for Principals Breach of Duties?

Back 6

1. Contractual remedies
2. Possessory lien

Front 7

What are the Principals remedies for Agents Breach of Duties?

Back 7

1. Contract remedies (if compensated)

Front 8

What is the relationship of Principal and Third Party (TP) assuming Agent had actual authority or a substitute for it?

Back 8

1. P is always liable to TP;
2. TP is always liable to disclosed P (TP knows P's identity) or to a partially disclosed P (TP knows P exists, but doesn't know P's name).
3. TP is liable to undisclosed P (TP doesn't know a P exists) UNLESS:
a. holding TP liable would unduly burden TP; or
b. P fraudulently concealed her identity; or
c. TP was bargaining for A's personal skills/reputation.

Front 9

Hypo: Katie and Tom are getting married and she hired Emeril to cater the wedding. In fact, Emeril was acting on behalf of Peg Bundy. Katie had no clue! Does Peg have any rights against Katie? Would Emeril be liable to Katie?

Back 9

Answer: NO
Parties:
TP - Katie
A - Emeril
P - Peg Bundy

GR: TP is liable to an undisclosed P unless TP was bargaining for A's person skills or reputation.

Here, Katie would be liable to Peg because he is an undisclosed P. However, Katie is not liable to Peg because she bargained for Emerils personal skill as a world famous chef.

GR: A is not liable to TP unless P is undisclosed.

Here, Emeril would be liable to Katie b/c Peg was an undisclosed P.

Front 10

What is the relationship of Agent is Third Party?

Hint: A is just an intermediary

Back 10

1. TP is not liable to A UNLESS A's power is coupled with an interest; or
2. A is not liable to TP UNLESS:
a. P is undisclosed or partially disclosed; or
b. A breached her warranty of authority (said she had authority when she didn't)

Front 11

State the GR for liability in Contract.

Back 11

Principal becomes liable to Third Party through the actions of his Agent if:
1. A and P both consent; AND
2. A is subject to P's control

Front 12

What is the analysis to determine whether an Agent's acts will bind the Principal in a contract liability setting?

Back 12

1. was there express or implied actual authority (authority the A reasonably believes she possesses based on her dealings with the P)?
If yes --> P is bound
If not, then:

2. was there apparent authority (authority the TP reasonably believes the A has based on the TP's dealings with the P)?
If yes --? P is bound
If not, then:

3. did the P ratify the contract after the A entered into it on the P's behalf and before the TP withdrew?

If yes --> P is bound
If no --> P is not bound

Front 13

What is actual authority?

Back 13

Actual authority is authority that the agent reasonably believes she possesses based on the principals dealings with her. It may be express or implied.

Express: orally said or which is contained in the agency agreement. It's effective even if it was granted mistakenly or b/c of misrepresentation.

Implied: implied authority is that which the A reasonably believes she has as a result of the P's actions.

Front 14

If you have determined that actual authority was created, you must then consider whether that authority has been terminated. How may termination occur?

Back 14

1. lapse of a specified or reasonable time;
2. happening of a specified event;
3. change in circumstances (subject matter is destroyed);
4. A's breach of fiduciary duty;
5. either party's unilateral termination;
6. death, incapacity or bankruptcy, unless the power is irrevocable;
7. when A acquires an interest adverse to P's (joining P's competitor);
8. When P says so unless the power's irrevocable (coupled with an interest)
note: revocation is effective upon receipt.

Front 15

What is Apparent Authority? How does it arise?

Back 15

Apparent authority arises from reasonable beliefs of third parties. P leads TP to mistakenly believe A has authority. Apparent authority can linger in even after actual authority terminates.

If a principal directly or indirectly holds out another as possessing certain authority, thereby inducing reasonable reliance by others on that authority, the person so held out has apparent authority, even though as between A and P no such authority has been granted.

Front 16

What is the key difference in apparent v. actual authority?

Back 16

Apparent: discuss what transpired between the P and TP

Actual: discuss what transpired between P and A

Front 17

How do you terminate apparent authority?

Back 17

P must send the TP either actual or constructive notice of the termination.

Also death or incompetency of the P terminates all authority of the agent w/o notice to either the A or TP.

Front 18

Define Ratification and the requirements for it.

Back 18

Defined: An agency relationship is created by ratification when an A purports to act on the behalf of the P w/o any authority at all, but the P subsequently validates the act by expressly affirming the contract, accepting the benefit of the contract; or suing TP on the contract, and becomes bound.

Requirements:
1. P must have knowledge of material facts;
2. P must accept entire transaction;
3. P must have contractual capacity both at time of ratification and time of original contract because ratification is retroactive.

note: since ratification is retroactive, we must be concerned about the intervening rights of a BFP who would be hurt by ratification.

Front 19

What is the difference between ratification and adoption?

Back 19

Adoption is not retroactive.

Front 20

Summary Card: Liability in Contract

Back 20

Principal: bound if valid authority existed (actual, apparent, by ratification)

Agent: bound unless P's existence and identity are disclosed.

Third Party: bound to P if valid authority existed; bound ti A if P partially disclosed or undisclosed and A enforces contract, but P entitled to contract benefits.

Front 21

What is the general rule for tort liability - respondeat superior.

Back 21

The doctrine of respondeat superior imputes joint and several liability to the employer-principal for torts committed by the employee-agent within the scope of the employee's employment. An employer may be liable for her own negligence in hiring or retaining and employee or in supervising or entrusting an employee with specific responsibilities.

Front 22

What is the analysis to determine if the Principal is liable for the Agents torts?

Back 22

1. Is the servant an employee or an IC (look chiefly to the extent of the P's control over the manner and method of the S's performance);

2. If there is a lot of control and we determine that S is an employee then we discuss whether the act was within the scope of employment (was the employee where she was supposed to be (frolic or detour), doing what she was supposed to be doing, with the purpose of the employer in mind)?
If Yes --> P is liable
If No --> P is not liable

3. If we determine that there was no control over S, then we discuss whether S was an IC. (was either the activity involved inherently dangerous, the duty non-delegable, or the P negligent in selecting the IC?
If Yes --> P is liable
If No --> P is not liable

Front 23

Is the Master liable for the servant's intentional torts?

Back 23

Servant's intentional torts are outside the scope of employment unless:
1. force is used to further M's business (ex. bouncer);
2. M ratifies the use of force; or
3. M authorized S to commit the tort (ex. misrepresentation)

Front 24

If servant commits a tort within the scope of employment, from whom can the third party seek recovery?

Back 24

Both the employee and employer. Master and Servant are jointly and severally liable to Third Party (TP can sue S alone or M alone or join them both as D's, but is entitled to only one total satisfaction).
note: If TP releases S from liability then M is also released from liability.

Front 25

Hypo: Domino's hired Dennis the Menace w/o checking his driving record. He had 2 DUIs. Drunk on a frolic, Dennis injures Mr. Wilson. Is Domino's liable? If so, on what theory?

Back 25

GR: M is directly liable for its own negligence if M fails to train or supervise employees or fails to check an employee's criminal record or job history.

Here, Domino's is not vicariously liable for Dennis' negligence b/c he was on a frolic. BUT, Domino's is liable for its own negligence b/c he failed to check Dennis' driving record.

Front 26

Agency Mini Review Card

Is P liable on a contract entered into by A?

Back 26

Look for one of the following fact patterns:
1. Actual/apparent authority at time of contract, if not then,
2. Look to see if P ratified or adopted the contract.

Liability: P is liable to TP and TP is almost always liable to P. Generally, A is not liable at all.

Front 27

Agency Mini Review Card

Is an employer liable for a tort committed by an employee?

Back 27

Look for: tort committed by servant in scope of employment.

Liability: M and S are jointly and severally liable to TP.

Front 28

General Partnership Defined

Back 28

An association of two or more persons carrying on as co-owners a business for profit

Front 29

To determine who is a partner, what factors should you consider?

Back 29

1. Intent: but a court may find involuntary partnership to protect the interest of an innocent TP.
2. Control: the right of control may be enough even if control is never exercised (b/c owners usually have the right to control operations)
3. Capital: a capital contribution is not required to be a partner.
4. Profit: a person receiving a share of profits is presumed to be a partner (prima facie evidence)

Front 30

Formation of a general partnership

Back 30

1. Capacity
2. Partnership agreement can be express or implied
3. Writing is only required if the partnership agreement cannot be performed within a year
4. Formed for a legal purpose
5. Must have express or implied consent of all partners

Front 31

If no partnership if formed, parties may still be liable as if they are partners under the partnership by estoppel (POE) doctrine. Explain.

Back 31

When a person by words or conduct represents himself or permits another to represent him as a partner, he will be liable to third parties who extend credit to the actual or apparent partnership in reliance on the representation.

When a person hold another out as a partner, he thereby makes that person his agent to bind him to third parties.

note: POE applies only to contract claims NOT to TORTS!

Front 32

What is partnership property?

Back 32

Everything the partnership owns, including both capital and property subsequently acquired in partnership transactions. In determining what comprises partnership property, the controlling factor is the partners' intent to devote the property to partnership purposes. Some factors to consider are:
-who furnished the funds used to buy the property;
-how the property was used;
-who paid for repairs, maintenance, insurance;
-title to the property (not dispositive, since title to partnership property can be held in anyone's name-a partner's name or even a third party's);
-the relation of the property to the business

Front 33

Rights in Partnership Property

Back 33

GR 1: The partnership's rights in partnership property are unrestricted.
Ex. Partnership can pledge its interest in the property as collateral for a loan; a creditor of the partnership can attach the partnership's interest in the property.

GR 2: A partner's only right in partnership property is to use it for partnership purposes, unless the other partners consent.

GR 3: A partner has no rights in partnership property she can transfer b/c we don't want outsiders to be able to interfere in partnership affairs.

Front 34

How is a partners interest in the partnership treated?

Back 34

Definition: the right to receive a share of the profits and surplus.

GR: A partner's interest in the partnership may be attached by her judgment creditor, assigned, devised, or transferred, but that just redirects profits; it does not confer management rights or other attributes of ownership.

Partners interest is treated like personal property.

Front 35

Sharing of profits and losses

Back 35

Unless otherwise agreed, each partner shares equally in the profits and surplus remaining after all liabilities, including those to partners, as satisfied. Each partner must contribute to the partnership losses according to her share of the profits. Even if a partner does not bear a partnership loss, they are still liable to third parties.

Front 36

Remuneration

Back 36

GR: There is no right to remuneration for services rendered to the partnership absent an express or implied agreement to the contrary. However, a surviving partner is entitled to remuneration for services performed in winding up the partnership business.

Front 37

Management

Back 37

All partners have an equal right to participation in the management of the partnership unless the partnership agreement provides otherwise. Majority number rules in voting.

Front 38

Indemnification and Interest

Back 38

A partner has a right to be indemnified by fellow partners for expenses incurred on behalf of the partnership.

Front 39

Fiduciary Duties

Back 39

Every partner is a fiduciary who owes the partnership a duty of care, a duty of loyalty, and a duty to render full information about the partnership on demand.

Front 40

Admission of New Partners

Back 40

Unless otherwise agreed, the admission of a new partner requires unanimous consent.

The new partner is liable for partnership debts incurred before his admission only to the extent of his capital contribution; he will not be personally liable. He will be equally liable for future debts.

Front 41

Retiring Partner

Back 41

A retiring partner remains liable for obligations arising while he was a partner unless there has been payment, release or novation. A retiring partner is also liable for acts done after retirement until he has given notice of his withdrawal.

Front 42

Application of Agency Law to Partnerships

Back 42

Every partner is an agent of the partnership for the purpose of its business. The act of every partner will bind the partnership and thereby bind the other persons.

Front 43

How can actual authority be conferred on a partner?

Back 43

A partner may have actual authority to bind the partnership. Actual authority may be conferred by:
1. the partnership agreement
2. majority vote of the partners in most matters; or
3. statute, which makes every partner a partnership agent for carrying on its business in the usual way (but can be negated by partners)

Front 44

Even without actual authority a partner can bind the partnership because of her apparent authority. How is apparent authority created?

Back 44

1. partners title;
2. the way the partnership has conducted business in the past; or
3. the way similar firms in the area conduct business

Front 45

If there is no authority what should we look for?

Back 45

Ratification or adoption

Front 46

Exam Tip:
Actual and apparent authority for partnerships

Back 46

As agents of the partnerships, partners have apparent authority to bind the partnership to any contract within the scope of the partnership business. If a contract is outside the scope of partnership business, the partnership generally will not be bound unless the partner has actual authority.

Front 47

What type of liability do partners have on contract claims?

Back 47

Joint liability. The third party must try to recover from from the partnership first (exhaust partnership resources) before resorting to partners.

Front 48

What type of liability do partners have on tort claims?

Back 48

Joint and several liability. Third party need not exhaust partnership resources first. If third party recovers from a partner then that partner has the right to be indemnified by the partnership and to get contribution from the other partners for their share of the loss.

Front 49

Defined: Dissolution

Back 49

Dissolution is a change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.

Front 50

What are the causes of dissolution?

Back 50

Act of the partners:
-per partnership agreement
-mutual assent of partners
-expulsion of partner
-by will of partner (partnership at will can be dissolved at any time w/no penalty-most partnerships are at will so it's easy for a partner to walk away with no liability to the other partners for breach)
-accomplishment of a particular undertaking

Operation of Law:
-illegality
-death of partner
-bankruptcy of partner

Decree of court:
-breach of partnership agreement by partner
-unprofitability of partnership
-misconduct of partner
-incompetency of partner
-incapability of partner
-circumstances rendering dissolution equitable

Front 51

Winding up after dissolution

Back 51

After dissolution, a partner has authority to wind up the partnership affairs. This includes only transactions designed to terminate business (old business - assigning claims; selling partnership assets; collecting debts due; paying off creditors; etc.)

A partner is individually liable for any new business after dissolution - entering into new contracts; extending time on a debt; etc.

Front 52

New Business: Is the partnership liable on the obligation?

Back 52

1. a partnership may continue to have apparent authority to bind the partnership after dissolution even if he's not winding up partnership affairs.

2. But the partnership can avoid liability by providing notice of dissolution to potential creditors who were unaware of the dissolution.

Front 53

What type of notice is required for dissolution?

Back 53

Prior creditors and those who have extended credit to the partnership in the past: personal notice

Others who knew of the partnership before dissolution: newspaper notice

Those who did not know of the partnership before dissolution: any notice at all

Front 54

What happens if the partnership fails to give notice of dissolution?

Back 54

Failure to give notice binds partners personally to third parties who, while unaware of the dissolution, extended credit to the partnership.

Front 55

Are partners liable on post-dissolution obligations?

Back 55

Yes. Partners have the same post-dissolution obligations as pre-dissolution.

Front 56

Can a partner get contribution on post-dissolution obligations?

Back 56

GR: No right to contribution
Exception: where it may be hard to learn of the dissolution.

Front 57

Hypo: Phoebe bought supplies for RPM after RPM's five-year term was up. Can Phoebe get contribution from the other partners if she pays the debt?

Back 57

No. Phoebe is presumed to know when the term was up.

Front 58

Dissolution of partnership assets after distribution.

Back 58

1. to third-party creditors
2. to partners for their advances
3. to partners for contributions to capital
4. to partners for profits

Front 59

What happens when partnership assets are insufficient to cover liabilities post dissolution?

Back 59

They are deemed partnership losses borne by the parters unless otherwise agreed.

Front 60

Who has priority over partnership assets: the partnership creditors or the partners personal creditors?

Back 60

The partnership creditors have priority on partnership assets.

Ohio Law: separate creditors have priority on separate property

Fed. Law: both sets of creditors have equal claims on separate property.

Front 61

How can a partners business continue after dissolution?

Back 61

1. all partners who have not wrongfully dissolved must consent.

2. creditors of dissolved partnership automatically become creditors of the new partnership.

3. continuing partners must compensate the withdrawing partner
a. if the partners agree, the withdrawing partner gets the agreed amount
b. if they can't agree, he gets his interest in the partnership on the date of dissolution plus either a market rate of the interest or a pro rata share of profits.

4. A partner who wrongfully dissolves is not entitled to compensation for partnerships good will and is liable to the other parties for breach of contract.

Front 62

Tort liability in LLP

Back 62

1. a partner in an LLP is not liable for torts of other partners or LLP employees unless she was directly supervising the tortfeasor.

2. A partner in an LLP is still liable for his own torts, malpractice, etc.

3. The LLP itself if liable for torts committed in the course of its business.

Front 63

Contract liability in LLP

Back 63

1. Partners in an LLP are jointly liable on contracts

2. The LLP itself is liable for contracts (assuming authority or substitute)

Front 64

Formation and Maintenance of LLP

Back 64

1. must register with SOS and pay specified fee.
2. must include at end of its name LLP notice.
3. must file biennial report with SOS, or risk having its registration cancelled (which means it will be treated as general partnership.

Front 65

LP Defined

Back 65

A partnership with one or more general partner (generally liable for firm debts) and one or more limited partners (liability limited to their investment)

Front 66

Nature and Formation of LP

Back 66

1. must file with SOS and pay fee
2. name must contain LP notice
3. general partnership law governs, except where the LP statute is inconsistent.

Front 67

What is the GR and exception for liability of LP's?

Back 67

GR: Limited partners have limited liability

Exception: where a limited partner takes part in "control." The LP statute does not say what "control" is, but does provide certain "safe harbors."

Front 68

What is the scope of liability for LP's?

Back 68

A limited partner is liable only to persons who transact business with the LP with actual knowledge of her participation in control (reliance test)

Front 69

What are some ways in which a limited partner can become liable for LP debts?

Back 69

1. If a limited partner knowingly lets her name be included in the LP's, she's liable to creditors who did not know she was just a limited partner.

2. If no certificate is filed, limited partners are liable like general partners. But can avoid future liability by filing a certificate or withdrawing from the LP and notifying the SOS within a reasonable time after discovery.

Front 70

Distribution of assets after dissolution of LP.

Back 70

1. all creditors, including partners who are creditors, are paid off first.
2. limited partners are then repaid their capital contributions.
3. Whatever is left (profits) is split according to the terms of the LP agreement.

Front 71

Formation of an LLC

Back 71

1. must file articles of organization, have registered agent.
2. name must contain phrase LLC
3. professionals can form PLLC, but all members must be licensed in Ohio
4. profits/losses split per OA; if not specified, in proportion to capital contributions
5. pass through taxation, like a partnership, unless it opts to be taxed as corporation.

Front 72

Liability of LLCs

Back 72

1. members get limited liability for all LLC obligations, except their own torts.
2. the LLC itself may be vicariously liable under agency principles.