AGENCY AND PARTNERSHIP AGENCY (Consensual fiduciary relationship by which P consents to have A act on Ps behalf and subject to Ps control) I. PRINCIPAL LIABLIITY BASED ON CONTRACT A. Rule: P liable for contracts entered into by A if P authorized A to enter contract. Both P and A must consent to relationship B. Actual Express Authority i. Rule: Principal used words to express authority to A (oral, private, narrowly construed to actual words OK) ii. Exception: Equal Dignities Doctrine. If K itself must be in writing, then so too equally must express authority iii. Revocation: Express authority revoked by 1) unilateral act of either party; or 2) death or incapacity of principal 1. Exception: Cannot be revoked if P gives A a ‘durable power of authority’ = written expression of authority to enter into transaction; conspicuous survival language C. Actual Implied Authority i. Rule: Authority which A reasonably believes P has given because of 1) necessity; 2) custom; 3) prior dealings D. Apparent Authority i. Rule: Created when 1) P cloaked agent with appearance of authority; and 2) third-party reasonably relies on appearance of authority ii. Special Cases: 1. Secret Limiting Instruction: A has actual authority, but P has secretly limited authority. A acts beyond scope. 2. Lingering Authority: Actual authority has been terminated. Afterward, A continues to act on behalf of P (Note: those who have relied upon lingering authority may do so until they receive notice of termination) E. Ratification i. Rule: Authority can be granted after K has been entered if: 1) P has knowledge of all material facts regarding contract; 2) P accepts its benefits F. Rules Of Liability On The Contract (A’s liability) i. If no authority, P is not liable on the contract. If no authority, A is liable on the contract ii. If authority, P is liable on the contract. If authority, A is not liable on the contract iii. Exception (Undisclosed Principal): 1. Disclosed P is always liable on the contract 2. If P is partially disclosed or undisclosed, authorized A may nonetheless be liable at election of 3 rd party iv. Liabilities: 1. P owes A a duty to indemnify him for any legal liability reasonably incurred by the A in acting for the P, unless liability was due to As own fault 2. A P also owes the A a duty to compensate the A reasonably for his services unless A has agreed to act gratuitously II. PRINCIPAL LIABILITY FOR TORTS COMMITTED BY AGENT (VICARIOUS LIAIBLITY) A. Principal-Agent Relationship (Employer/Employee) i. Principal’s Liability: P liable for torts committed by A if… 1. A principal-agent relationship exists; and a. Assent = informal agreement between P who has capacity and A b. Benefit = A’s conduct must be for Ps benefit c. Control = P must have right to control A by having power to supervise manner of As performance 2. In the scope of employment a. Tort was committed by A during scope of relationship b. Scope: conduct of the kind agent was hired to perform; frolic (new independent journey is outside scope) vs. detour (mere departure from assigned task is within scope); whether A intended to benefit P (partial benefit to P is enough to be within scope) c. Intentional torts = outside scope of agency unless… i. Specifically authorized by P; natural from nature of employment; motivated by desire to serve P ii. Sub-Agents: No VC for sub-agent torts unless: assent, benefit, right to control sub-agent tortfeasor iii. Borrowed Agents: No VC unless: assent, benefit, right to control borrowed agent tortfeasor B. Independent Contractor i. Rule: No right to control IC because no power to supervise manner of its performance ii. Exceptions: ultra-hazardous activities; principal knowingly selects incompetent IC; estoppel (holding IC out with appearance of agency) WHAT DUTIES DOES AGENT OWE TO PRINCIPAL? A. Duty of Care: Duty to exercise reasonable care B. Duty to Obey: Duty to obey reasonable instructions C. Duty of Loyalty: i. Self-Dealing: A cannot receive benefit to detriment of P ii. Usurping P’s Opportunity iii. Secret Profits
GENERAL PARTNERSHIP (An association of two or more persons to carry on as co-owners a business for profit) IV. PARTNERSHIP FORMAT ION A. Formation: No formalities; no filing; no writing B. Rule: GP is an association of 2 or more persons who are carrying on as co-owners of a business for profit. Majority vote of partners required to authorize ordinary business; unanimous vote of partners required to authorize extraordinary acts C. Sharing of Profits: Contribution of money/services in return for share of profits creates presumption that GP exists V. LIABILITY OF PARTNERSHIP TO THIRD PARTIES A. Agency Principles Apply i. Partners are agents of partnership for carrying on usual partnership business ii. Partnership bound by torts committed by partners in scope of partnership business iii. Partnership bound by contracts entered by partners with authority LIABILITY OF PARTNERS
A. B. C. D. VII.
AGENCY AND PARTNERSHIP Rule: GP personally liable for debts of partnership Pre-existing Debts: Incoming partners NOT liable for prior debts; but money paid into partnership by incoming partner may be used for partnership to satisfy prior debts Dissociating Partner Liability for Subsequent Debts: Retains liability even on future debts until notice of dissociation given to creditors; or until 90 days after filing notice of dissociation with state General Partnership Liability By Estoppel: One who represents to third-party that GP exists will be liable as if GP exists
RIGHTS AND DUTIES OF PARTNERS A. Fiduciaries i. Duty of Loyalty: Partners may never 1) engage in self-dealing; 2) usurp partnership opportunities; 3) make secret profits ii. Action for Accounting: Partnership may recover losses caused by breach and also may disgorge profits made by breaching evil partner as well B. Partners’ Rights in Partnership Property i. Specific Partnership Assets (land, leases, equipment owned by partnership): No individual partner may transfer w/o partnership authority ii. Share of Profits and Surplus (if any): personal property owned as such by individual partners; may transfer their share iii. Share in Management: if share in mgmt is an asset owned only by partnership itself; no individual partner may transfer iv. Conflict Between Specific Partnership Assets and Personal Property: only 1/3 is illiquid (personal property) hard to transfer; if partnership money used to buy property = partnership property; if personal property used = personal property. MANAGEMENT A. Rule: Absent agreement, each partner entitled to EQUAL control (one partner; one vote) SALARY A. Rule: Absent agreement, partners get NO SALARY B. Exception: Partners do receive compensation for helping to wind up partnership business SHARE IN PROFITS AND LOSSES A. Rule: Absent agreement, profits shared equally; Absent agreement, losses shared like profits DISSOCIATION/DISSOLUTION A. Dissociation: Upon dissociation, partner’s right to participate in management ceases. Partnership must purchase (buy out) his interest at either liquidation or going-concern value i. Violation: Partner who dissociates in violation of partnership agreement or before expiration of partnership term or completion of partnership undertaking = liable for damages caused by wrongful dissociation and not entitled to payment of buy-out price until term expires or undertaking completed B. Dissolution: i. Partnership at will: dissolution occurs automatically upon notice of express will of any one partner to dissociate ii. Partnership not at will: dissolution occurs only upon happening event specified in agreement; or upon majority vote of partners to dissolve within 90 days of dissociation of partner iii. Termination: Real end of partnership iv. Winding Up: liquidate partnership assets to satisfy partnership’s creditors (note: any time before winding up partnership business is complete, partners may decide to waive dissolution and continue partnership by unanimous vote of partners who have wrongfully dissolved) v. Compensation and Liability for Winding Up: 1. Compensation: Partners do receive compensation to wind up partnership business 2. Partnership Liability: a. Old business = GP and its individual partners retain liability on all transactions entered into to wind up old business with existing creditors b. New business = entering into new contract is beyond scope of partners’ authority once dissolution has occurred. Partnership and its individual GPs still retain liability even on brand new transactions until: notice of dissolution given to creditors; or until 90 days after filing statement of dissolution with state vi. Priority of Distribution: 1) Creditors must be paid first (outside & inside creditors); 2) Capital contributions by partners must be paid (partnership still owes individual partners full repayment of their capital contributions); 3) Profits and Surplus, if any (shared equally without any agreement)
LIMITED PARTNERSHIP (Partnership with at least one general partner and at least one so-called limited partner) XII. Limited Partnership A. Formation: Must file limited partnership certificate that includes: name of all general partners B. Liability and Control: GPs still have personal liability but also right to manage and control business; Limited Partners have limited liability, but NOT liable for partnership obligations (no right to control/manage business) LIMITED LIABILITY PARTNERSHIP XIII. Limited Liability Partnership A. Formation: File articles of organization and operating agreement B. Liabilities: Owners not liable for debts and obligations of business form; profits and losses shared according to value of co ntributions i. Limited partner can lose limited liability by running day to day business ii. One who erroneously believes to be limited partner can avoid GP liability if upon discovery, files with secretary of state appropriate certificate of limited partnership or certificate of amendment or withdraws from future eq uity participation C. Partnership Characteristics: (2 of 3 must be true): 1) members control, but Articles delegate control to managers; 2) limited liquidity (member interests not freely transferable; 3) limited life (events of dissolution) REGISTERED LIMITED LIABILITY PARTNERSHIPS (RLLP) XIV. Registered Limited Liability Partnerships A. Formation: Group of attorneys/accounts/architects file certificate of registration B. Liabilities: No partner, not generals or limited will be liable for obligations of business form (only for own wrongdoing)