Agency and Partnership Agency I. Liability of principal for torts of agent (respondeat superior or vicarious liability) A. Test: Principal will be liable for torts committed by agent if: 1. Principal-Agent relationship exists (assent, benefit, control) 2. Tort was committed by agent within scope of relationship (or detour) B. No liability for independent contractor’s torts C. Intentional torts outside scope II. Liability of principal for contracts entered by agents A. Test: Principal is liable for contracts entered into by its agent if: 1.. Principal-Agent relationship exists 2. Principal authorize the agent to enter contract a. actual authority – oral, private, narrow (equal dignities) (revocable unless durable) b. actual implied authority – necessity, custom, prior dealings c. apparent authority i. Test: (1) Principal “cloaked” agent with the appearance of authority and, (2) third party reasonably relies on appearance of authority d. ratification – authority granted by principal knowing terms of contract and accepting benefit B. Authorized agent not liable unless undisclosed principal III. Duties agent owes to principal A. Duty to exercise reasonable care B. Duty to obey reasonable instructions C. Duty of Loyalty 1. self-dealing 2. usurping 3. secret profits Partnership I. General partnership formation A. Formalities: There are no formalities to becoming general partnership. B. Definition: A general partnership is an association of two or more persons who carrying on as co-owners of a business for profit. C. Profits: The contribution of money or services in return for a share of profits, if any creates a presumption that a general partnership exists. II. Liabilities of general partners to third-parties A. Same rules as agency (Ia&IIa) B. General partners are generally liable for debts of the partnership 1. Generally incoming partners are not liable personally for prior debts. 2. Disassociating partners retain liability in subsequent debts until notice C. General partnership liability by estoppel (representing partnership)
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D. Other forms 1. Limited Partnership a. Definition: A limited partnership is a partnership in which there is at least one general partner and at least one limited partner. b. Formation: Must file a limited partnership certificate which includes the names of all general partners. c. Liability and Control i. General Partners have enormous personal liability and substantial managerial control. ii. Limited partners have limited liability to amount paid for entrance. 2. Registered Limited Liability Partnerships (RLLP) a. Formation: Must register with the state by filing a statement of qualification and annual reports. b. Liabilities for RLLP no partner will be liable for partnership obligations. III. Rights and Liabilities Between Partners A. General partners are fiduciaries of each other and the partnership. 1. Duty of loyalty 2. Action for accounting. As a rule the only action that can be brought by partnership against the partner is action for accounting. Partnership may recover losses caused by breach and also may disgorge profits made by breaching partner. B. Partners’ rights in partnership property 1. No individual partner may transfer assets without partnership authority 2. Individual partners may transfer their share of profits to a third person 3. No partner may transfer share in management to a third party 4. When partnership money is used to buy property it is partnership property C. Absent an agreement, each partner entitled to equal control (vote). D. Absent an agreement, partners get no salary (except: those helping) E. Partner’s share of profits and losses 1. Absent am agreement, profits shared equally 2. Absent an agreement, losses shared like profits IV. Dissolution A. Definitions 1. Dissolution: First in a partnership at will, which there is no agreement the partnership dissolves upon the express will of any single partner. However, in a partnership in which there is an agreement dissolution occurs upon the happening of an event agreed to. 2. Termination 3. Winding up: In the winding up phase the remaining partners liquidate the partnership assets to satisfy the partnership creditors B. Compensation for winding up
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C. Liability for winding up 1. Old business: Partnerships and individual parties on all transactions entered into to wind up old business with existing creditors 2. New business: The partnership and its individual general partners retain liability even for brand new business transactions until notice of dissolution is given until 90 days after filing a statement of dissolution with state. D. Priority of distribution (each level must be satisfied before continuing) 1. First, outside trade creditors must be paid 2. Second, all capital contributions by partners must be paid 3. Absent agreement, partners get equal shares of any profit or surplus a. Each partner must be repaid his or her loans and capital contributions, plus that partner’s share of the profits or minus that partner’s share of the losses.
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