Texas Agency & Partnership

Front 1

Agency - Liability in Contracts

Requirements:

Back 1

principal becomes liable to 3rd party through the actions of the agent if both
1) consent
2) A subject to P's Control
3) P has contractual capacity (NOTE: A does not need capacity)
NOTE: Consideration not required to establish agency relationship and writing not required (unless SOL applies)

Front 2

2 kinds of actual authority in agency relationship

Back 2

1. express (can do whatever is needed to complete the express task)
2. implied (conduct of P leads A to believe A has authority, i.e. sees him buy supplies and never complains)

Front 3

What terminates actual authority?

Back 3

1. after a specified time/event
2. by change of circumstances (subject matter destroyed)
3. agent acquires adverse interest (joins a competitor)
4. when agent says so (consent)
5. when principal says so (unless it is COUPLED WITH AN INTEREST, which makes it IRREVOCABLE)
6. death or bankruptcy
NOTE: can delegate if P consents and actual authority must exist when A enters contract

Front 4

Substitutes for Actual Authority

Back 4

1. Apparent Authority
2. Ratification
3. Adoption

Front 5

Apparent Authority**

(likely on exam)

Back 5

P leads 3rd party to mistakenly believe A has authority (ON NEARLY ALL EXAMS!)

-reasonable belief must be created by P and not A alone
-PROBLEM: apparent authority can linger after actual authority ends ***

Front 6

Ratification

Back 6

If A had no authority, P can ratify by expressly affirming the contract, accepting the benefit of it, or suiting 3rd party on it.

3 requirements:
1. knowledge of all material facts (P has knowledge)
2. All or nothing (P must accept entire transaction)
3. Capacity (p must has capacity at time of ratification and time of original contract because ratification is RETROACTIVE

Front 7

Intervening Rights (related to ratification)

Back 7

Since ratification is retroactive, we must protect the intervening rights of a BFP.

e.g. Lucy as agent sells car for 6K, and then Desi as P sells for 5K. Desi would like to ratify first sale to get extra 1K, but can't if 5K buyer was a BFP

Front 8

Adoption

Back 8

Unlike ratification, NOT retroactive.

e.g. if promoter enters lease on behalf of corporation before corp formed, corporation can later adopt (couldn't do this with ratification)

Front 9

Duty of an agent

Back 9

-duty of loyalty (interests above own)
-duty of care
-obedience
NOTE: this is even if agent is not getting paid!

Remedy: constructive trust ("as if")

Front 10

Principal is Liable to 3rd party (assuming authority), UNLESS

Back 10

- A has special skills (e.g. Rachel Ray), AND
- P is undisclosed

Front 11

Agent Liability in Tort

(remember policy behind agent liability is protection of 3rd parties)

Back 11

TEST: was tort committed while servant activing with the scope of employment. If so, master and servant are jointly and severely liable.

Servant status based on who has the right to control how S did job (even if control never exercised).

Front 12

Scope of Employment

Back 12

If servant was doing a usual task, the tort was within the scope.

If there was a deviation, how substantial was it?
1. Detour - minor deviation, usually within scope
2. Frolic - substantial deviation, usually outside scope

Intentional torts are usually outside scope unless force is used to further M's business.

If 3rd party releases S, M is NOT automatically released.

Borrowed servant doctrine - whoever exercised control is liable

Front 13

Overview:
Is principal liable to 3rd party for contract entered into by agent?

Back 13

1. Did the agent have actual or apparent authority at the time of the contract, or did the principal ratify or adopt the contract later?
2. If yes, principal liable, and agent not.

Front 14

Overview:
Is principal/employer liable for tort committed by employee?

Back 14

1. Was tort committed by a servant?
2. was servant acting in scope of employment
3. If yes, master and servant are jointly and severely liable.

Front 15

Definition of Partnership

Back 15

An association of 2 or more persons to carry on as co-owners a business for profit, whether they intend to form a partnership or not.

If no partnership forms, parties may still be liable "as if" partners if estoppel applies, to protect 3rd parties

Front 16

Factors to consider for partnership formation

Back 16

-capital (not required)
-control (most important)
-sharing profits (not a presumption)

NOTE: wages, rent, payment of gross receipts, interest on a loan are NOT factors

Front 17

Joint Venture

Back 17

-treated like a partnership (same rules apply), BUT requires an express agreement on how the losses will be shared

NOTE: partnership does not require a writing unless SOL applies

Front 18

Rules for determing Partnership Property

Back 18

1. Property belongs to partnership if acquired in the partnership's name or in partner's name where apparent from the document he's acting for the partnership
2. Presumed to be belong to partnership if purchased with partnership funds
3. Presumed to be a Partner's property if acquired in his name without partnership funds

Front 19

Who has rights in partnership property (popular exam topic!)

Back 19

The partnership has unrestricted rights in its own property and can pledge its interest (just as a person can); and, creditor of partnership can attach partnership's interest.

A partner has extremely limited rights and can use partnership property only for partnership purposes (not transferable)

Front 20

A partner's economic interest in the partnership is...

(bar exam!)

Back 20

-partner's share of the profits
-interest is transferable (but transferee doesn't become a partner)

BUT Partnership agreement ALWAYS governs!

Front 21

Sharing profits and losses in a partnership

Back 21

-equally share in profits regardless of contributions
- UOA, share in losses in same proportion as they share profits
-partners can't agree that one partner will not bear ANY loss (that would limit the rights of 3rd parties), although can agree that partner can be reimbursed later from other partners

-no right to receive compensation/salary if one partner does day-to-day ops

Front 22

Management rights in a partnership

Back 22

Regardless of profits, each partner has equal management rights

UOA, matters of ordinary business are decided by majority

Each partner must render full information, BUT ONLY upon request!

Front 23

Admittance of New Partners

Back 23

- must have unanimous vote for new partner, UOA

-new partner is liable for debts incurred before his admission, but NOT personally liable

Front 24

Relations between partners and 3rd parties - Apply Agency Principles (partnership is principal and partner is agent)

Back 24

1. Actual authority - created by Partnership agreement, a majority vote, or statute
2. Apparent authority - look at partner's title and prior conduct

Front 25

A partner who conveys real property without authority

Back 25

-the partnership can get the property back from the initial transferee (who should have checked on authority), but not from a subsequent BFP who had no reason to check

Front 26

Tort liability for partners

Back 26

-if done in scope of the partnership's business, liable.
-no need to determine if employee or IC because partner is an owner

Front 27

How are partner's liable for partnership's obligations?

(bar exam)

Back 27

-joint and several liability, but plaintiff must first exhaust partnership resources (NB-nice balance)
-partner must be served if personally liable

Front 28

What's the liability exception for LLPs?

(bar exam)

Back 28

- no liability for contracts
- no liability for torts, UNLESS directly involved, supervising the tortfeasor, or aware of the tort and did nothing to stop.

LLP is otherwise the same as a GP

Front 29

PLLP

Back 29

-who's liable for partner's negligence?
tortfeasor, PLLP (if in ordinary course of business)

Front 30

How do you form a LLP/PLLP

Back 30

1. file a certificate of formation with SOS and pay fee
2. Name must include the phrase, limited liability partnership or an abbreviation
3. Buy at least $100K in liability insurance or segregate that much in funds

Front 31

Events where partner withdraws

Back 31

-notice of express will to withdraw
-occurence of an agreed-upon event (leaving earlier would be a breach of contract)
-partner's expulsion
-death, bankruptcy, incapacity
-appointment of a trustee, receiver or liquidator for a partner
-redemption of a transferee's interest
**EFFECT: usually partnership (are at-will partnership) it just buys out the withdrawing partner and business continues

Front 32

Liability of withdrawn partner

Back 32

-Liable to existing creditor (unless expressly or impliedly released by creditor
-Liable to subsequent creditors who were unaware of the withdrawal (should notify potential creditors of withdrawal)
-Liable to other partners if withdrawal was wrongful (breach of contract)
****-May have apparent authority to bind partnership to an innocent 3rd party for one year (partnership can protect itself by notifying creditors)

Front 33

Winding up a partnership

Back 33

-rarely happens
-can be done by partner who legally withdraws
-assets distributed first to creditors (including partner creditors) then to partners (contributions+profits-losses)
-if assets insufficient, split pro-rata among creditors
-partnership creditors have priority over partner creditors, but both have equal claims to partner's separate property

Front 34

Limited partnerships

Back 34

-one or more general partners (generally liable) and one or more limited partners (liability limited to their investment)
-must file certificate of formation with SOS and have a written limited partnership agreement
-must include "limited partnership" or "limited" or an abbreviation in name
-general partnership law governs except where LP statute is inconsistent

Front 35

What do limited partners lose in a partnership?

Back 35

-only their capital contributions ****
-EXCEPTION: where limited partner takes part in CONTROL (safe harbors in statute) Safe harbors includes advising GP, guaranteeing a note, being employed (safe harbors, but if do all these and more, cross line to control)

Front 36

What happens if limited partner exercises to much control?
What is the test?

Back 36

Reliance Test
-creditor who reasonably believes, based on lp's conduct, can recover from lp

Front 37

Rights of the limited partners and the general partners

Back 37

-limited partners not liable to contribute UNLESS promise is in a signed writing
-May withdraw only is agreement permits
-General partners are jointly and severely liable
EXCEPTION: LIMITED LIABILITY LIMITED PARTNERSHIP (LLLP) shields general partners from personal liability

Front 38

LLLP

Back 38

Limited Liability Limited Partnership
LP (shields limited partners) + LLP (shields general partners) = LLLP

Front 39

Limited Liability Companies (LLCs)

Back 39

-file COF with SOS and pay fee
-Name include LLC or abrev
-PLLC (members and managers must be licensed to render profession services
-Profits/losses split in proportion to capital contributions, unless agree otherwise
-managers run LLC (UAO), and can be structured like a corp or ptshp.
-No vicarious liability (except for tortfeasor)

Front 40

Which is organization is the best??

Back 40

LLC or LLP

-flexible management (all owners may exercise control, determined by agreement)
-Less tax to pay (income is passed through to owners--unlike corp which is double taxed)
-Conversion/merger - if you choose the wrong form, you can covert to another form or merge on into another begetting the owners' approval and filing appropriate docs