Agency /partnership Lecture

Front 1

AGENCY BIG PICTURE

Back 1

1) Liability of Principal for Torts of Agent - to 3d parties
2) Liability of Principal for Ks entered by Agent - to 3 parties
3) Duties Agent owes to Principal

Front 2

LIABILITY OF PRINCIPAL FOR TORTS OF AGENT

- Issue

Back 2

• Whether principal will be vicariously liable for torts committed by agent

Front 3

Liability of Principal for Torts of Agent

- Two Part Test

Back 3

- (1) A principal-agent relationship exists; AND
- (2) Tort was committed by the agent within the scope of that relationship

Front 4

STEP 1) Principal - Agent Relationship

3 requirements?

Back 4

- 1) Assent: A between parties to enter into p-a relationship; informal suffices
- 2) Benefit: benefit of the principal
- 3) Control: principal has right to control agent by having power to supervise manner of agent’s performance

Front 5

Control
-Subagents
-Borrowed Agents

Back 5

• (a) Sub-Agents: Where the principal instructs agent to perform a task and the agent delegates task to 3d party
o Here, likely no assent or control of sub-agent, therefore, no V/L
• (b) Borrowed-Agents: Where one goes out and borrows another employer’s agent who commits a tort
o Here, likely no right to control borrowed agent, therefore no V/L

Front 6

Independent Contractor
[As compared w/ Agent]
- General rule
- Exceptions

Back 6

Generally, there is no vicarious liability for the independent contractor's torts.

Exceptions:
1) Where the independent contractor is engaged in - ultrahazardous activities

2) If principal holds independent contractor with the appearance of agency, he will be estopped from denying vicarious liability.

Front 7

STEP 2) Factors used in Determining the Scope of Principal-Agent Relationship:

Back 7

• (1) Was the conduct within the job description?
• (2) Did the tort occur “on the job”?
- Frolic: A new and independent journey outside the scope
- Detour: A mere departure from an assigned task within the scope
• (3) Did the agent intent to benefit the principal?
- For whose benefit was the action intended
• Partial benefit suffices.

Front 8

Intentional Torts (by an Agent)

Back 8

• Generally, intentional torts are outside the scope of agency
• Exceptions: any three
- (1) Specifically authorized by the principal
- (2) Natural from the nature of the employment
- (3) Motivated by a desire to serve the principal

Front 9

LIABILITY OF PRINCIPAL FOR CONTRACTS ENTERED BY AGENTS:
- Issue: Whether principal is liable for contracts entered into by its agent

Back 9

Principal is only liable only on its authorized contracts.

4 Types of Authority:
-Actual Express
-Implied
-Apparent
-Ratification

Front 10

Actual Express Authority

(2 part test)

Back 10

- Two-part test
• (1) Principal “cloaked” agent with appearance of authority; AND
• (2) Third-party reasonably relies on the appearance of authority

Two situations:
-secret limiting instructions
-lingering authorization

Front 11

Agent w/ Apparent Authority
- Secret Limiting Instruction

Back 11

Agent has actual authority, but principal has secretly limited that authority. Then the agent acts beyond the scope of the secret limitation. (limitation unknown to third-party)

Front 12

Agent w/ Apparent Authority
- Lingering Authorization

Back 12

Actual authority is terminated but, afterwards, the agent continues to act on the principal’s behalf.

Front 13

Ratification

Back 13

- Authority can be granted after the contract has been entered into if:
• (a) Principal has knowledge of all material facts regarding K; &
• (b) Principal has accepted its benefits
• Exception: Ratification cannot alter the terms of the K.

Front 14

The Rules of Liability on the Contract:
• General Rules:

Back 14

• If there is NO authority, principal is not liable on the contract
--> THUS, the agent is liable on the contract

• If there IS authority principal is liable on the contract
--> THUS, the agent is not liable on the contract

Exception (see next slide)

Front 15

The Rules of Liability on the Contract:

EXCEPTION to general rule

Back 15

Exception: If principal is partially disclosed (only the identity of the principal is concealed) or undisclosed (principal’s existence concealed), THEN Authorized agent may nonetheless be liable at the election of the third-party with whom the contract is entered into

KEY** Authorized agents NOT liable UNLESS principal is undisclosed

Front 16

Duties Agent Owes to Principal

(4 duties)

Back 16

- Duty to perform responsibilities under K
- Duty to Exercise Reasonable care
- Duty to Obey reasonable instructions
- Duty of loyalty

Note: sub-agent may be liable to principal unless appointed w/o authority of principal

Front 17

Principal's REMEDIES for breach of agent's duty

Back 17

Principal, may recover losses caused by the breach and
They may disgorge (take away) profits made by the breaching agent as well

Front 18

Duties of Principal to Agent

Back 18

- Duty to honor terms of the K
- Duty to compensate agent and reimburse for expenses incurred in carrying out authorized duties

Front 19

Agent's REMEDIES for principal's breach

Back 19

- Agent may sue for damages for breach of K; but owes duty to mitigate

- Agent may make a claim or lien against principal's property unless K provides otherwise.

Front 20

Enforcement of Ks Entered into with Third-Parties

Back 20

A principal is liable for K entered into with a 3d party if agent acts w/ principal's authority

Agent liable to 3d party if:
1) Agent makes implied warranty that she has authority to enter into K when she does not
2) all parties intend that agent be treated as party to the K
3) principal's identity is undisclosed or unknown

Front 21

Termination of the Agency Relationship

Back 21

Ended with agent is no longer authorized to act as principal's agent:
- either party may terminate at will
-destruction of the subject matter
- major change in business cond./ laws
-bankruptcy, incapacity, death of either P or A
- dissolution of corp/partnership
-breach of agent's fiduciary duty

Front 22

PARTNERSHIP

Big Picture

Back 22

• (1) Partnership formation
• (2) Liabilities of partners to third-parties
• (3) Rights and liabilities between partners
• (4) Partnership dissolution

Front 23

General Partnership, Formation

-formalities
-definition
-sharing of the profits

Back 23

- Formalities:
There are no formalities to forming a GP; Conduct alone can create one even if you don’t want it

-Definition: A General Partnership is an association of two or more persons, who are carrying on as co-owners of a business for profit
-Sharing of the Profits:
• The contribution of money or services in return for a share of profits creates a presumption that a General Partnership exists

Front 24

Agency Principles Apply

Back 24

• Partners are agents of partnership in carrying on usual partnership business – THUS the partnership (like any principal) is bound by torts committed by its partners (agents) in the scope of the partnership’s business; AND
• Partnership is bound by authorized contracts entered into by partners

Front 25

GPs are generally liable for the debts of the partnership

Back 25

• Each partner is personally liable (out-of-pocket) for other partner’s debts/obligations
- Specific Issues That Arise: income partner’s liability for pre-existing debts: Income partners generally not liable for prior debts, but money paid in by incoming partner can be used to satisfy those prior debts
• Dissociating/Withdrawing partner’s liability for subseq. debts:
Dissociating partners retain liability on future debts until:
• Actual notice of dissociation is given to creditors; or
• 90 days after the filing of a notice of disassociation w/ the state

Front 26

General Partnership Liability by Estoppel:

Back 26

• One who represents to a third-party that a GP exists will be liable as if a GP exists

Front 27

Limited Partnerships

Back 27

- Defined: A partnership with at least one GP and at least one LP.
- Formation: You must file a “LP Certificate” which includes: names of all GPs
- Liability and Control:
• GP – Liable for all partnership obligations. They also have the right to manage the business in its entirety
• LP – NOT liable for the obligations of the LP. Moreover, they also have no right to manage the business without giving up limited liability status.

Front 28

Registered Limited Liability Partnership

Back 28

- Formation: You must file a statement of qualification & annual reports once a year.
- Liabilities: NO partner (GP or LP) will be liable for obligations of RLLP. BUT, they are liable for their own personal wrongdoings

Front 29

Limited Liability Corporations

Back 29

Purpose: gives owners of LLC (members) the limited liability given to shareholders of a Corporation; PLUS benefits of partnership tax status

- Formation: Must file “Articles of Organization” & adopt an “Operating Agreement”
- Liabilities: Owners, called Members are NOT liable for the obligations of LLC

Front 30

Limited Liability Corporations (Characteristics)

Back 30

• (i) LLC members control (like partners in a partnership)
o However, Articles may delegate control to managers also
• (ii) Limited liquidity
o Members interests are NOT freely transferable
• Don’t want it treated like stock
• (iii) Limited Life
o It must describe an event leading to dissolution
• It cannot be perpetual
- Therefore: LLC → Limited liability, limited liquidity, limited life, limited tax

Front 31

Rights and Liabilities between Partners

[List]

Back 31

1) Partners as Fiduciaries/ Duty of Loyalty
2) Partner's rights in partnership property
3) Partner's Management Rights
4) Partner's Salary
5) Partner's share of profits/ losses

Front 32

Partners as fiduciaries

Back 32

GPs are fiduciaries of each other and partnership.

Owe a duty of loyalty:
- No self dealing
- No usurping partnership oppurtunities
- No secret/ undisclosed profiting at partnership's expense.

See next card: REMEDY

Front 33

Remedy for breach of loyalty/ fiduciary

Back 33

Action for accounting

Partnership may recover losses caused by the breach and also -- may disgorge profits made by breaching partner in action four accounting

Front 34

Partnership rights in partnership property
-assets
- profits/ surplus
- partnership management

Back 34

1) Partnership Assets: land, leases, and equipment which are owned by the partnership as partnership assets --> therefore, partners -cannot- transfer these assets w/o authority of the partnership

2) Profits+Surplus: are personal property owned by individ. partners --> partners may freely transfer their share

3) Share in Management: is an asset owned only by the partnership--> therefore, partners may not transfer these shares

Front 35

Partner's Management Rights

Back 35

Absent agreement, each partner entitled to equal control.


Decisions about ordinary business matters can be controlled by majority vote of the partners, but matters outside ordinary course of business need unanimous consent.

Front 36

Partner's salary

Back 36

• Absent an agreement, partners get no salary.
• Exception:
- Partners do receive compensation for helping wind-up the business

Front 37

Partner's Share of Profits/ Losses

Back 37

• Absent an agreement, profits are shared equally
• Absent an agreement, losses are shared just like profits

Front 38

Dissolution - Partnership at Will

Back 38

• In the absence of an agreement that specifies events that will dissolve the partnership – dissolution occurs automatically upon notice of express will of one general partner to disassociate. [Very limited life/ fragile]

Front 39

Winding up

Back 39

- The period between dissolution and termination in which the remaining partners liquidate the partnership’s assets to satisfy its creditors

Front 40

Termination

Back 40

- The real ending of the partnership

Front 41

Windup - Compensation

Back 41

- Partners get compensation for winding-up the partnership’s business

Front 42

Partnership’s Liability During Winding Up Period

Back 42

- On Old Business?
• Partnership (and therefore its individual GPs) still retain liability on all transactions entered into to wind-up old business
- On New Business?
• Partnership (and therefore its individual GPs) still retain liability on brand new business transactions until (i) actual notice of dissolution is given to creditors; OR (ii) 90 days after filing a statement of dissolution with the state

Front 43

Priority of Distribution (on Dissolution)

Back 43

- 1st: Creditors must be paid
• Outside “trade” creditors
• Partners who have loaned money to the partnership
- 2nd: Capital contributions paid-in by partners must be paid
• This is money paid in NOT in return for a rate of interest
- 3rd: Profits and surplus distributed – assuming any remains
• Profiles shared equally without an agreement.

Hint 43

• Key Rule: Each partner must be repay two things: loans & capital contributions, plus that partner’s share of the profits (or minus their share of the losses)
- Again, step 1 and 2 payees MUST be paid off at expense of step 3 payees