Agency & Partnerships
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Agency : Torts : Principal's Liability for Agent's Torts
Principal will be liable for torts committed by an agent if (1) there is a principal-agent relationship, and (2) the tort occurs within the scope of the relationship
Agency: When does a Principal-Agent relationship exist?
- ASSENT: Between a principal with capacity and an agent
- BENEFIT: Agent's conduct benefits Principal, and
- CONTROL: Principal has the RIGHT to supervise the manner of the Agent's performance
Agency : Torts : Committed by Independent Contractors?
AS A GENERAL RULE, a Principal is not liable for the torts committed by an Independent Contractor (no right to control)
EXCEPTIONS—(1) Ultra-hazardous activities (including brake repair), and (2) Estoppel
Agency : Torts : Intentional torts of an Agent
GENERALLY, a Principal is not liable for the intentional torts of its agents, EXCEPT when—
1) AUTHORIZED—The tort is authorized by the principal
2) NATURE OF WORK—The nature of the agent's task makes it natural that the tort could occur, e.g., a bouncer or repo man
3) BENFIT—The tortfeasor-agent acts with the desire to serve the principal
Agency : Ks : When is a Principal liable for Ks entered into by his agent?
GENERAL RULE: A principal is only liable for Ks entered into by its agent IF the principal AUTHORIZED the agent to enter into the K.
Agency : Ks : When does an agent have authority to enter into a contract? (just list them)
- Express authority
- Implied authority
- Apparent authority
- Ratification of unauthorized K by the principal
Agency : Ks : When does an agent have Express Authority to contract?
- When: Principal uses words to express authority
- Can be express even if: Oral, privately express, or narrow (except that interests in land exceeding 1 year must be in writing)
- Revocation of authority: Authority can be revoked by (i) the UNILATERAL ACT of either party, or (ii) the death or incapacity of the principal. Note durable power of attorney survives incapacity, but not death.
Agency : Ks : When does an agent have Implied Authority to contract?
- NECESSITY—K is necessary to complete an authorized task,
- CUSTOM—There is implied authority to do all tasks which are customarily performed with the agent's title or position, and
- PRIOR DEALINGS—Implied authority exists to do all those tasks which the agent believes she is authorized to do from prior acquiescence of the principal
Agency : Ks : When does an agent have Apparent Authority to contract? (2-part test)
1) Principal "cloaked" the agent with the appearance of authority, AND
2) a third-party reasonably relied on the agent's appearance of authority (e.g., no known limiting instructions, no prior dealings, or lingering appearance)
Agency : Ks : When does a principal Ratify an unauthorized contract? (all needed)
- Knows of the K,
- Accepts the benefits of K, and
- Does not alter terms of K made by agent
Agency : Ks : Who is liable?
Agent lacks authority--Agent is liable
Agent has authority--Principal is liable
Agent has authority BUT identity of principal is ambiguous or undisclosed--Agent is liable at election of third-party
Agency : Duties Agent owes to Principal
- DUTY OF CARE: Reasonable care
- OBEDIENCE: Duty to obey reasonable instructions
- LOYALTY: Agent may not self-deal, usurp opportunities, secure profits at the expense of the principal. REMEDY: Disgorge profits
Partnerships : Formation
- FORMALITIES: None for a GP
- P'SHIP DEFINED: Association, persons ≥ 2, carrying on as co-owners of a business FOR PROFIT
- PRIMA FACIE: In NY, contribution of money or services for a share of profits is prima facie evidence of a GP
Partnerships : Liability to 3rd-Parties
- GPs liable for all partnership debts and obligations
- GPs liable for torts by partners in scope of partnership business, Ks by partners with authority
- Estoppel (Liable as GPs if held-out as partners)
- Limited liability for LPs, RLLPs, LLCs
Partnership by Estoppel
- Liability of a person held out as partner: When a person represents himself or permits another to represent him as a partner, he (i.e., the person who permits the representation) will be liable to 3Ps who extend credit to the partnership in reliance on the representation.
- Liability of person who holds another out as partner: When a person holds another out as partner, he makes that person his agent to bind him to third parties. (If there is a partnership, only those partners who know of or consent to this holding out will be bound).
Partner's Rights in Partnership Property
- Right of possession for partnership purposes
- NOT assignable, mortgageable, subject to dower rights or homestead laws, attachable, or subject to any individual claims on a partner; and
- Right of ownership vests in surviving partners after death of partner
- Right to participate in the management of the partnership
- NB: A partner has no right to use partnership property other than for the benefit of the partnership
Partner's Rights in Partner's Interest in the Partnership
- Treated as personal property
- Assignable without dissolving the partnership; and
- NB: An assignment does not give the assignee any rights to participate in the management of the partnership (this right is treated like partnership property, and is not assignable).
Partnerships : Rights & Liabilities between Partners
- FIDUCIARIES: DUTY OF LOYALTY (self-dealing, usurped opportunities, secret profits) and ACTION FOR ACCOUNTING (disgorge profits)
- INDIV. PARTNER PROPERTY: Share of profits, property purchased with partner's own money
- PARTNERSHIP PROPERTY: Includes land, leases, equipment, and power to manage business—can't be transferred without authority of the partnership
Partnerships : Legal Actions between Partners
GENERAL RULE—A partner cannot sue or be sued by his partnership in an action at law; nor may one partner sue another partner on matters related to the partnership business. The general remedy is instead an action for an accounting (e.g., disgorgement of profits).
EXCEPTION—A partner may sue or be sued by his partnership where no complex accounting is required OR there is a separate basis for an action at law.
When might a SEPARATE ACTION AT LAW exist?
- SEGREGATED TRANSACTIONS arise outside of the context of the partner-partnership context
- TORT ACTIONS against a negligent partner (e.g., personal injury outside the context of partnership business)
- Tort actions where any employee of the partnership is a tortfeasor.
Partnerships : Default rules vs. Agreements
In the absence of an AGREEMENT, GPs are equal in terms of management power, share of profits, losses (treated same as profits (absent agreement)), and are not given a salary.
Notice and Knowledge
When Knowledge Imputed:
Notice of Dissolution
- Participant: If a partner is a participant to a transaction, knowledge will be imputed to the partnership if the information was "present to his mind" at the time he was acting for the partnership
- Nonparticipant: If the partner who has the information is not a participant to the transaction, knowledge will be imputed to the partnership if, under the circumstances, the partner reasonably could and should have communicated it to the participating partner.
: Where dissolution is caused by the act, death, or bankruptcy of a partner, the acts of other partners will bind the partnership as if it were not dissolved until the the other partners have notice or knowledge of the act, death, or bankruptcy.
Partnerships : When does a partnership Dissolve?
- OCCURS WHEN: Any material change in partnership caused by the death or withdrawal of any GP
- AUTOMATIC: Dissolution is automatic in the absence of an agreement to the contrary
Partnerships : What authority do partners have following the dissolution of the partnership?
GENERAL RULE: Absent an agreement to the contrary, dissolution terminates the authority of any partner to act as agent for either the partnership or any other partner.
WINDING DOWN: Partners have authority to wind-up the partnership's "old business," but have no authority to transaction "new business"
NB NOTICE REQUIRED: The authority of any partner to bind the partnership and any other partner continues until he/she receives notice or otherwise has knowledge that the partnership has dissolved (e.g., that another GP has died, withdrawn, or gone bankrupt)
Partnerships: What is needed to terminate the APPARENT AUTHORITY of partners following dissolution?
PROPER NOTICE: Personal notice is required to those who are creditors at the time of dissolution and to those who have extended credit to the partnership in the past.
FAILURE OF NOTICE: Failure to give notice binds partners personally to 3rd-parties (i.e., the individual is bound, not the partnership) who, while unaware of the dissolution, extended credit to the partnership.
Partnerships: Can remaining partners continue the partnership?
May continue the partnership
business after dissolution if—
- A partner dissolves the partnership in contravention of the partnership agreement; OR
- A partner is expelled according to the terms of the partnership agreement, OR
- The partners agree to continue the partnership.
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