• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/40

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

40 Cards in this Set

  • Front
  • Back
Agency Formation
Agency created when one person (principal) appoints another (agent) to act on his behalf
Agency - K Liability
P becomes liable to third party (T) through actions of his A if:
-A and P both consent and
-A is subject to P's control

Capacity: P must have contractual capacity (because K that results is between P and T), but A does not (because A is just an intermediary)

Writing: agency law requires no writing, but Statute of Frauds may

Consideration: not required
Actual Authority
Creation of Actual Authority:
1. Express - P expressly tells A to act on P's behalf; exists even if P accidentally tells wrong person to act or tells right person to do wrong act
2. Implied - P's conduct leads A to believe A has authority

Termination of Actual Authority: actual authority must exist when A enters a K, but can terminate in a number of ways:
1. after specified time/event or a reasonable time
2. by change of circumstances (ex. subject matter destroyed)
3. if agent acquires adverse interest (ex. joins a competitor)
4. when agent says so (remember: agency is consensual)
5. when P says so (unless power is irrevocable = "coupled with an interest")
6. by death/incapacity/bankruptcy (unless power's irrevocable)

Delegation: okay if P consents (may be express or implied from circumstances)
Substitutes for Actual Authority
1. Apparent authority
2. Ratification
3. Adoption
Apparent Authority
P leads T to mistakenly believe A has authority

Policy: protects innocent T who relies on P's holding out A as agent

Key Fact: reasonable belief must be created by P, not by A alone

Problem: apparent authority can linger after actual authority ends (binding P to Ks made by A)

To destroy actual authority: all P has to do is tell A not to do it again

To destroy apparent authority: P has to tell T that A has no authority to bind P
Ratification
How to Ratify: even if A had not authority, P can ratify by expressly affirming the K, accepting the benefit of it, or suing T on it

Requirements:
1. Knowledge: P must have knowledge of all material facts
2. All or Nothing: P must accept entire transaction (ex. P can't ratify K and disavow misrepresentation A made)
3. Capacity: P must have capacity both at time of ratification and at time of original K because ratification's retroactive

Intervening Rights: since ratification is retroactive, we must protect the intervening rights of a BFP
Adoption
Promoter enters a lease on behalf of corporation that has not yet been formed; corporation cannot ratify the lease because it wasn't in being when the original K was formed, but it can adopt the K

Adoption is not retroactive; adopting party is only liable on K from adoption forward

Original party is not relieved of liability; adopting party is just liable too
Principal-Agent Relationship
Agent: owes P strict fiduciary duties, even if agency is gratuitous
a. Loyalty: must disclose and get permission before competing
b. Care: depends on any special skills A has ("sliding scale")
c. Obedience: must follow P's reasonable instructions

Principal: must pay (unless gratuitous), reimburse and indemnify A

Remedies: wide range available (K, tort, constructive trust)
Principal-Third Party Relationship
[assuming actual authority or substitute]

P is always liable to 3rd party

3rd party is almost always liable to P: only exception is where there's an undisclosed P and A has special skills
Third Party-Agent Relationship
[A is just an intermediary]

3rd party is not liable to A unless the power of agency was irrevocable (if A has her own interest in K)

Agent is not liable to T unless T doesn't know who P is (so T has no one to sue but A) or A misrepresented her authority
Liability in Tort
Policy: vicarious liability to protect an "innocent" third party

Test: was tort committed by a servant acting within scope of employment? if so, the master and servant are jointly and severally liable

Liability: M and S are jointly and severally liable to T (so T can sue S alone or M alone or join them as defendants; but is entitled to only one total satisfaction)
Servant or Independent Contractor?
Probably servant if:
1. Employer has right to control (even if not exercised)
2. Employer supplies tools/workplace
3. Employment is long-term
4. Little skill required
5. Work is part of employer's regular business
6. Payment is made in regular intervals (not by the job)
Scope of Employment
Master is not automatically liable for Servant's torts - only if Servant was acting within the scope of employment will Master be liable for Servant's tort

1. Usual task: if S was doing usual task, tort was within the scope
2. Deviation: "how substantial was the deviation?"
a. Detour: minor deviation is usually within scope
b. Frolic: substantial deviation is usually outside the scope
Liability for Intentional Tort
servant's intentional torts are outside the scope unless force is used to further master's business (ex. bouncer); master ratifies the use of force; or master authorized servant to commit the tort (ex. misrepresentation)
Direct Liability
M is directly liable for its own negligence if M fails to train or supervise employees or check an employee's criminal record or job history
Partnerships
Definition: association of two or more persons to carry on as co-owners a business for profit, regardless of whether they intend to or not

Factors - who is a partner:
1. Capital: not required to be partner
2. Control: right to control (even if control never exercised)
3. Sharing Profits: just one factor; does not create a presumption of partnership

Writing: may be required by S of F
Joint Venture
Joint venture treated like a partnership, but requires express agreement on how losses will be shared
Partnership by Estoppel
If no partnership was formed, parties may still be liable as if they are partners to protect reasonable reliance by 3rd parties
Rules for Determining Partnership Property
1. Property acquired in partnership's name is partnership property
2. Property acquired in partnership's name is partnership property if instrument transferring title indicates it's being acquired for a partnership
3. Property is presumed to be partnership property if acquired with partnership funds
4. Property acquired in partner's name without partnership funds is presumed to belong to the partner if instrument transferring title doesn't indicate the property is being acquired for partnership
Rights in Partnership Property
1. Partnership's rights - totally unrestricted (it owns the property)
2. Partner's rights - extremely limited - can use partnership property only for partnership purposes unless other partners consent; right is not transferable
Partner's Economic Interest in Partnership
Definition: partner's share of the profits

Is Transferable: like any other financial interest

Community Property: partner's partnership interest is subject to community property law if acquired during life of the community
Relations Among Partners
Statute supplies default rules, but partners may K around them (partnership agreement governs this)

Sharing Profits/Losses: UOA equally (not in proportion to capital contributions)

No Right to Compensation: UOA

Management Rights: statute says UOA partners have equal management rights; but also says UOA matters of ordinary business are decided by majority in interest -- conflict in rules

Indemnification and Interest: gets paid back for indemnification with interest

Admission of New Partner: UOA new partner requires unanimous consent
Duties Owed by Partners
Partners owe fiduciary duties to partnership; partners cannot eliminate them, but may set applicable standards if not manifestly unreasonable
1. Care: ordinary prudent person standard
2. Loyalty: can't take advantage of partnership opportunity or compete
3. Good Faith
4. Disclosure: partner must render full information about partnership *on request* to the extent reasonable
Relations between Partners and Third Parties - Agency Principles [partnership is principal; partner is agent]
Actual Authority: may be created by partnership agreement, a majority vote or partners, or statute, which makes every partner an agent for carrying on business in the usual way [can be negated by partners]

Apparent Authority: may be created by partner's title or partnership's prior conduct

No Authority: look for ratification or adoption

Conveying Real Property Without Authority: initial transferee (who should have checked) must give the property back, but a subsequent BFP (who had no reason to check) gets to keep it

Torts: partners are owners, so all that matters is whether tort was committed within the ordinary course of the partnership's business (if partnership employee instead of partner, apply servant or independent contractor analysis)
Partner's Liability for Partnership Obligations
Joint and several liability, but plaintiff must first exhaust partnership resources (so partners are essentially guarantors)

If client recovers from partner, partnership must indemnify the partner and the other partners must make contribution to that partner for their proportionate share of the loss (UOA equally; otherwise by agreement terms; if other partners have no money, that partner left holding the bag)
Limited Liability Partnership (LLP)
No vicarious liability for Ks or torts of others unless you were directly involved in the tort, were supervising the tortfeasor, or were aware of the tort and did nothing to prevent it; still liable for your own negligence

Formation:
1. Register with Sect of State and pay $200/partner fee (must renew and pay fee annually)
2. Name must include LLP (or words) to put public on notice
3. Purchase at least $100K in liability insurance or segregate $100K of funds
Withdrawal of a Partner
Event of Withdrawal:
1. Notice of partner's express will to withdraw
2. Occurrence of agreed-upon event (ex. partner turns 65)
3. Partner's expulsion, death, bankruptcy, or incapacity
4. Termination of a partner this is a business entity
5. Appointing trustee, receiver or liquidator for a partner
6. Redemption by partnership of a transferee's interest

Effect: withdrawal is usually no big deal - partnership just buys out withdrawing partner for fair value of her interest and continues without her
Liability of Withdrawn Partner
1. To existing creditors unless released by particular creditor, either expressly or impliedly (creditor-by-creditor basis)
2. To subsequent creditors who believed he was then a partner and unaware of withdrawal (but partner can protect himself against this liability by notifying potential creditors of his withdrawal)

Partner may withdraw at anytime from partnership at will without penalty

If partnership has a term (period of duration), partner may withdraw but will be liable for wrongful withdrawal (breach)
Apparent Authority of Withdrawn Partner
Exists from 1 year after withdrawal to a third party who was unaware of withdrawal; partnership can protect itself by notifying potential creditors of the withdrawal
Winding Up Partnership
-Events requiring winding up:
1. event that makes business illegal
2. sale of all assets outside usual course of business
3. entry of judicial decree
4. built-in ending occurs (ex. term is up) or all partners consent (like rescission of the partnership agreement)
5. in a partnership at will
a. agreement of a majority-in-interest of partners who have not assigned their partnership interests
b. request to wind up from any partner, unless a majority-of-interest of the partners agree to continue
-Partners who have not wrongfully withdrawn may wind up
-Partner with apparent authority to bind partnership after event requiring winding up, even if he's not winding up - but partnership can protect itself by notifying potential creditors
-Distribution of partnership assets on winding up:
1st = creditors (including partners who are creditors)
2nd = partners for what is in their capital accounts (contributions + profits - losses)
Partnership Assets Insufficient to Cover Liabilities
Creditors split the partnership assets pro rata (proportionate to what partnership owes each creditor) and the rest are partnership losses that are split by the partners in the same proportion as profits unless otherwise agreed
Creditors' Rights (left to other law like bankruptcy law)
Partnership property: partnership creditors have priority on partnership property

Partner's separate property: partnership creditors and partner's separate creditors have equal claims against separate property
(rationale: partnership creditors relied on partner's assets as well as partnership's in deciding to loan money to partnership; thus, they are entitled to be treated on par with partner's separate creditors)
Limited Partnerships (LPs)
Definition: partnership with one or more general partners (generally liable) and one or more limited partners (liability limited to their investment)

Formalities: must file a certificate of formation with the Sect of State and pay fee; must have a written limited partnership agreement

Name: must included "LP" or words

Law: general partnership law governs except where LP statute is inconsistent
Liability of Limited Partners
Limited partners can only lose their capital contributions - except where limited partner takes part in control; statute doesn't say what control is, but does provide certain "safe harbors" (including advising general partner; guaranteeing note for LP; acting as employee or agent of limited partnership; approving debt; participating in partners meeting)

Liability for Participating in Control: Reliance Test - if creditor reasonably believed limited partner was a general partner and relied on it, then partnership is bound
Limited Partnership - Fails to File
If LP fails to file, it is a general partnership - all partners are jointly and severally liable; but a limited partner can avoid future liability by filing a certificate or withdrawing from the LP within a reasonable time after discovering failure to file
Rights and Obligations of Limited Partners
Promise to Contribute: enforceable only if it is in a signed writing; if so, it may be enforced by the LP or by a creditor who relied on the promise

Right to Withdraw: only if the LP agreement permits (but remember "wrongful withdrawal")
General Partners
General Rule: jointly & severally liable

Exception: LLLP (shields general partners from liability in exactly the same way an LLP does)

My formula: LP (shields limited partners) + LLP (shields general partners) = LLLP
Priority for Distributing Assets on Winding Up for Limited Partners
1. Creditors
2. Return of capital to limited partners
3. Profits: distributed per the written LP agreement
Limited Liability Companies (LLCs) - Formation
Filing: must file certificate of formation with Secretary of State and pay fee

Name: must include LLC or words

Professionals (PLLC): members and managers must be licensed to render professional services, in Texas or elsewhere

Profits/Losses: split in proportion to capital contributions, unless otherwise provided in the company agreement
Limited Liability Companies (LLCs) - Benefits
Flexible Management: can be structured like a corporation or a partnership, but managers run LLC unless otherwise provided in certificate (corporation-style)

Series LLC: can partition its assets/liabilities among separate (independent) series

Pass-Through Taxation: like a partnership, unless it chooses otherwise

No Vicarious Liability for Members (LLC itself may be liable)