Va Bar - Agency And Partnership

Front 1

Three types of agency problems

Back 1

1. Liability of principal to third party for torts of an agent

2. Liability of principal to third party for contracts entered into by an agent

3. Duties agents owe to principals

Front 2

Respondeat superior (2 part test)

Back 2

Determines principal's liability for an agent's tort.

Two-part test: Principal will be liable for torts committed by its agent if
(i) There is a principal-agent relationship, and
(ii) The tort was committed by the agent within the scope of that relationship.

Front 3

Principal-agent relationship (3 parts, ABC)

Back 3

Need 3 things for a P-A relationship:

1. Assent - an informal agreement between P (who has capacity) and the A voluntarily assenting.

2. Benefit - A's conduct must be for P's benefit.

3. Control - P must have right to control the A by having the power to supervise the manner of A's performance (cf. subagents and borrowed agents)

Front 4

Sub-agents

Back 4

P will be liable for the torts of a sub-agent (someone P's agent gets to help him out) only if there is Assent, Benefit, and right to Control between P and the sub-agent.

Typically, the P does not assent to the sub-agent's help and does not have the right to control the sub-agent, so therefore in general there is no vicarious liability for sub-agent's torts.

Front 5

Borrowed agents

Back 5

Will a principal who borrows another principal's agent be vicariously liable for the borrowed agent's torts? Only if there's Assent, Benefit, and right to Control between the borrowing P and the borrowed A.

Typically, the right to control is lacking, though, so in general there is no vicarious liability.

Front 6

Independent contractors

Back 6

Key difference from agents is that there is no right to control an IC because no power to supervise the manner of its performance. Thus, since control is lacking, no vicarious liability.

Exceptions!
* Ultra-hazardous activities - if your IC commits a tort while engaged in an UHA there WILL be vicarious liability for it.
* Estoppel - if you hold out an IC as your agent then you will be vicariously liable for their torts.

Front 7

Scope of Principal-agent relationship factors (3)

Back 7

1. Was conduct of the kind agent was hired to perform? AKA was it in the job description?

2. Did the tort occur "on the job"? Frolic vs. detour: a frolic is a new and independent journey and is outside the scope of the relationship; a detour is a mere departure from an assigned task and is within the scope. [This is the most important factor]

3. Did the agent intend to benefit the P? In VA, that alone is enough to make the action w/in the scope of the relationship.

Front 8

Vicarious liability for intentional torts

Back 8

Rule: intentional torts are generally outside the scope of the P-A relationship.

Exceptions: Intentional torts are within the scope if the conduct was
* Authorized by the P;
* Natural from nature of employment; or
* Motivated by a desire to serve the P.

Front 9

Principal liability for contracts entered into by agent

Back 9

Rule: Principal is liable for contracts agent enters into only if the P authorized the A to enter the contract.

Front 10

Types of authority for principal liability for contracts entered into by agent (4 types)

Back 10

1. Actual express authority
2. Actual implied authority
3. Apparent authority
4. Ratification

Front 11

Actual express authority

Back 11

Principal used words to express authority to agent. Can be oral, and even private.

Exception: If however the contract the A signs must be in writing (e.g., land contracts) then the express authorization must be in writing too.

Actual express authority is narrowly construed.

Front 12

Revocation of express authority (2 ways)

Back 12

1. Unilateral act of either the P or the A; or

2. Death or incapacity of the P

(If express authority is revoked, A will be personally liable on the contract.)

Exception: If the P gives the A a durable power of attorney (a written expression of authority to enter a transaction), that will survive incapacity of the P (and death too?).

Front 13

Actual implied authority (3 types)

Back 13

Authority the P gives the A through conduct or circumstance.

1. Necessity: there is implied authority to do all tasks which are necessary to accomplish an expressly authorized task.

2. Custom: there is implied authority to do all tasks which are customarily performed by person with A's title or position.

3. Prior acquiescence by the P: there is implied authority to do all tasks which A believes to have been authorized to do from prior acquiescence by the P

Front 14

Apparent authority (2-part test)

Back 14

1. Principal "cloaked" agent with the appearance of authority; and

2. Third party reasonably relied on that appearance of authority.

Front 15

Ratification (2 requirements)

Back 15

Authority for a contract that is granted _after_ the contract has been entered. This can happen when:
(i) P has knowledge of all material facts regarding the contract; and
(ii) P accepts its benefits.

Exception: ratification *cannot alter* the terms of the contract.

Also, in VA, ratification must be complete, i.e., if you try to modify the terms in your ratification there is no ratification at all and the P is not liable on the contract at all.

Front 16

Who is liable on a contract?

Back 16

General rule: The P is liable on its authorized contracts, and therefore as a rule an authorized A is NOT liable on those contracts--they're the P's.

Exception for undisclosed principal situation.

Front 17

Undisclosed principal

Back 17

An exception to the general rule that the A is not liable on P's authorized contracts.

If P is partially disclosed (only the identity of the P is concealed) or undisclosed (fact of principal concealed), an authorized agent may nonetheless be liable at the election of the third party.

Front 18

Duties A owes to P (3)

Back 18

In return for reasonable compensation and reimbursement of expenses, agents owe principals:

1. Duty of care

2. Duty to obey reasonable instructions

3. Duty of loyalty

Front 19

Duty of loyalty (3 sub-parts)

Back 19

A may never do any of the following:

1. Self-dealing: A cannot receive a benefit to the detriment of the P.

2. Usurping P's opportunity.

3. Secret profits: making a profit at the P's expense and without disclosure.

Front 20

Five issue areas of Partnership law

Back 20

1. General partnership formation

2. Liabilities of general partners to third parties

3. Rights and liabilities between general partners

4. General partnership dissolution

5. Alternative unincorporated business organizations

Front 21

General partnership formation

Back 21

A general partnership (GP) is an association of 2 or more persons carrying on as co-owners of a business for profit.

No formalities required to form one. Sharing the profits is the key factor, thus the contribution of money or services in return for a share of _profits_ creates a presumption that a GP exists (not in return for a wage/commissions/gross revenues/etc.).

Front 22

Liabilities of general partners to third parties

Back 22

Agency principals apply: partners are agents of the partnership carrying on usual partnership business. Therefore, the partnership is liable for each partner's torts in the scope of the partnership and for each partner's authorized contracts.

Also, each general partner is personally liable for all debts of the partnership and for each co-owner's torts.

Front 23

Partner liability for partnership debts accrued before or after she joined

Back 23

An incoming partner is not liable for prior debts, but any money paid in to the partnership by that brand new partner may be used by the partnership to repay those debts.

A dissociating partner retains liability even on future debts of the partnership until actual notice of their dissociation is given to creditors OR until 90 days after filing what is called notice of dissociation w/the state of VA.

Front 24

GP liability by estoppel

Back 24

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

Front 25

Rights and liabilities between general partners (5)

Back 25

Five areas:

1. Fiduciaries

2. Partnership property and liquidity.

3. Management.

4. Salary.

5. Profits and Losses

Front 26

General partners' rights: fiduciaries

Back 26

General partners are fiduciaries of each other and of the partnership. Thus, they owe each other and the partnership the duty of loyalty.

If a partner breaches that duty, the partnership may recover losses that are caused by the breach AND may disgorge the profits made by the breaching partner.

Front 27

General partners' rights: partnership property and liquidity (3 parts)

Back 27

1. Specific partnership assets: things like land, leases, or equipment are owned only by the partnership and thus may not be transferred by any individual partner without partnership authority.

2. Share of profits: this is personal property owned as such by the individual partners, and therefore may be transferred by individual partners to 3rd parties--it is liquid.

3. Share in management: an asset owned only by the partnership itself and therefore may not be transferred to 3rd parties (it is illiquid). AKA you can't give your right to vote to others.

In general, follow the money: if it was partnership money that bought the property, it's partnership property; if it was personal money that bought the property, it is personal property.

Front 28

General partners' rights: Management

Back 28

Absent an agreement, each partner is entitled to EQUAL control (vote). Doesn't matter how they split profits!

Majority vote controls ordinary matters, but unanimous consent required for fundamental matters.

Front 29

General partners' rights: Salary

Back 29

Absent an agreement, partners get NO salary.

Exception: partners do receive compensation for helping wind up the business. That is the only time they get salary (absent an agreement)!

Front 30

General partners' rights and liabilities: share of profits and losses

Back 30

Separate default rules:

1. Profits are shared equally by default.
2. Losses are shared like profits by default.

These can be changed by agreement. If it says profits shared 60/40 but silent re: losses, then losses are shared 60/40. But if it says losses are shared 60/40 and is silent re: profits, profits are shared 50/50!

Front 31

Dissolution of a general partnership

Back 31

Without an agreement setting forth events of dissolution, default rule is GP dissolves upon notice of the express will of any general partner to dissociate.

The real ending of the partnership is called the "termination".

Winding up: the period between dissolution and termination in which remaining partners liquidate the partnership's assets to satisfy its creditors.

Front 32

Partnership's liability during winding up period (2 types)

Back 32

1. Old business. The partnership and therefore its individual general partners retain liability on all transactions entered into to wind up old business by satisfying creditors who existed pre-winding up.

2. New business. The partnership and therefore its individual general partners retain liability on brand new transactions during winding up until actual notice of dissolution given to creditors OR until 90 days after filing statement of dissolution w/state of VA.

Front 33

Priority of distribution (3 levels)

Back 33

Each level of priority must be fully satisfied before beginning the next level, in this order:

1. Partnership must pay ALL creditors. This includes both outside creditors and ALSO all partners who have loaned money to the partnership and thereby become its creditors. Same priority for all at this level.

2. **Partnership must repay all capital contributions paid into the partnership by partners.** This is money paid in that is not in return for a fixed rate of interest (aka not a loan).

3. Profits, if any, are shared equally among partners (unless there's an agreement to the contrary).

Front 34

Alternative unincorporated business organizations (2 types)

Back 34

1. Limited partnerships

2. Registered limited liability partnerships

Front 35

Limited partnerships (3 things to know)

Back 35

1. Definition: A partnership with at least 1 general partner and at least 1 limited partner. Limited partner will get--wait for it--some limits on her liability.

2. Formation: requirement of filing w/state a limited partnership certificate that includes names of all general partners.

3. Liability and control:
(a) General partners are liable for all limited partnership obligations--but they also have power to manage the business.
(b) Limited partners are not liable for limited partnership's obligations. In VA, limited partners who control the business will be liable to persons who believe that in controlling the business they are general partners (similar to estoppel).

Front 36

Registered limited liability partnerships (RLLP) (2 things to know)

Back 36

1. Formation: must register w/state by filing statement of qualification and annual reports.

2. Liabilities: no partner is liable for partnership's debts/obligations, even general partners.