Agency and Partnership Flashcards
(25 cards)
Agent’s duties
duty of care (reasonable care
duty of loyalty (treat principal fairly)
duty of obedience
Principal’s remedies against breaches
court can do whatever it wants to do justice
- Contract actions
- Tort actions
- Actions for secret profits
- Equitable actions
- Withholding compensation
- Terminate agency
impact of disclosed and undisclosed principals in liability to third parties
general rule: if unidentified or undisclosed, EITHER principal or agent can be held liable if agent had authority to enter contract
majority: third party can file suit against principal and agent, but upon objection from either defendant, third party must elect prior to judgment which party they opt to hold liable
actual authority
authority agent reasonably believes they possess based on the principal’s dealings with them
express and implied
apparent authority
occurs if principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent has authority to act on the principal’s behalf (what happens between principal and 3rd party)
agent exceeds authority
agent may still have apparent authority based on 3rd party’s reasonable belief; if not, agent is personally liable
ratification
agent acts on behalf of principal w/o any authority, but principal subsequently validates the act
- Oral or written affirmation of a contract
- Principal accepts benefits of contract
- Silence if there is a duty to disaffirm or suing on the transaction
employee vs. independent contractor
Employee if principal retains right to control the manner in which work is performed by an independent contractor
Independent contractor if principal does not have a right to tell the agent how to achieve the result’s sought
factors:
- Skill required
- Whose tools and facilities are used
- The period of employment
- The basis of compensation
- The business purpose
- Whether the person has a distinct business
- The characterization and understanding of the parties
- The customs of the locality regarding supervision of work
scope of employment
What conduct of the kind that agent was hired to perform?
- Same general nature of job (need not be authorized)
- Serious crimes outside scope
frolic and detour
Frolic: major deviation from employment, beyond scope of employer liability
Detour: minor deviation from employment, within scope of employer liability
partnership formation
association of two or persons to carry on as co-owner a business for profit (subj intent doesn’t matter)
partnership management and operation
One partner- one vote (equal rights)
No right to salary or other compensation
- Unless partner has impliedly or expressly promised to devote time and failed to do so, may be charged accounting for damages caused to partnership
partnership liability to third parties
Partnership is liable for loss/injury caused as a result of the tortious conduct of a partner acting in ordinary course of business of partnership or w/authority of partnership
Partnership is liable for all contracts entered into by a partner in the scope of partnership business
partnership liability of partners
each partner is jointly and severally liable for ALL obligations of the partnership
Plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets
Extent of liability: Each partner is personally and individually liable for the entire amount of the partnership obligations
Partner who pays for whole obligation is entitled to:
- Indemnification from partnership
- May request other partners to contribute their pro rata share
rules for determining partnership property
Property deemed to be partnership property:
- Titled property; apparent from document that they are acting in partnership
Property presumed to be partnership property (rebuttable)
- Purchased with partnership funds
Property presumed to be partner’s separate property (rebuttable)
- Property is held in name of one or more partners
- The instrument assigning title gives no sign of action in partnership
- Partnership funds not used
Untitled property: common law criteria; presumed partnership property if:
- Acquisition by partnership funds
- Property used by partnership in conducting partnership business
- Entry of the property in the partnership books as a partnership asset
-Close relationship between partnership’s business and property
- Improvement of property w/ partnership funds
- Maintenance of property w/partnership funds
event of partnership dissociation
Oral or written notice of partner’s express will to withdrawal (automatically triggers dissolution)
Occurrence of an agreed-upon event
Valid expulsion of partner
Partner’s bankruptcy
Partner’s death or incapacity to perform partnership duties
Court decisions that partner is incapable of performing partnership duties
Termination of business entity if entity is a partner
wrongful dissociation: breach, expulsion, bankruptcy
priority of distribution of partnership assets
- Creditors
- Repayment of capital contributions made by partners
3. Profits or losses
Limited partnership
Partnership w/one general partner and one limited partner
General partner: personally liable for partnership obligations
Limited partner: no liability beyond the liability to make agreed-upon contributions
Creation of a limited partnership: filing a certificate of formation with the state (signed, name, names and addresses of agent, general partners, specific LP)
limited liability partnership
all partners have limited liability
Generally apply general partnership rules to LLPs
exceptions:
Formation: LLPS must file statement of qualification w/secretary of state (Statement must be executed w/2 partners
must include Name and address of partnership, Statement that the partnership elects to be an LLP)
Partnership becomes LLP at date of filing or date specified in agreement, whichever is later
limited liability corporation
Limited liability company (LLC): hybrid business organization
- Taxed like a partnership
- Offers its owner (members) the limited liability of shareholders of a corporation
- Can be run like a partnership or corporation
-Treated as a separate legal entity distinct from owners (members)
formation: name, of LLC, address of registered office and name/address of registered agent
piercing the corporate veil
○ Generally, shareholders cannot be held liable for corporate debt
Exception: if shareholder might be personally liable for CLOSE corporation; court can pierce the corporate veil
- the shareholders must have abused the privilege of incorporating AND
- Fairness requires holding them liable (avoid fraud or unfairness by close corporations (poor administration insufficient))
alter ego
commingling corp assets and shareholder assets
If shareholders ignore the corporate formalities so to merely make the corporation an “alter ego” or “mere instrumentality” of shareholders
under capitalization
corporation does not have enough funds when formed
- Corporate veil is pierced when the corporation is inadequately capitalized so that at the time of formation there is not enough capital to reasonably cover prospective liabilities
Ex. initial capitalization of $1000 for a nuclear waste disposal company
fraud, avoidance of existing obligations, or evasion of statutory provisions
Piercing the corporate veil is necessary to prevent fraud to to prevent an individual shareholder from using the corporation to avoid her existing personal obligations
