Agency and Partnership

Partnership

an association of two or more persons to carry on as co-owners a business for profit

If they intended to carry on a business as co-owners,

there is a partnership even if they did not subjectively intend to be partners

Intent inquiry for Partnership existence

did the parties intend to carry on as co-owners a business for profit

Sharing of profits raises

a presumption of partnership unless the share was received as payment of a debt, as wages or compensation for services rendered, as rent payment, as an annuity or other retirement benefit, as interest on a loan, or for the sale of goodwill of a business

Writing for Partnership

No writing required unless the partners wish to have an enforceable agreement to remain partners for more than one year (because of statute of frauds)

Partnership by Estoppel

if no partnership was formed in fact, parties may be liable as if they were partners to protect reasonable reliance by third parties

Voting rights

All partners have equal rights in the management of the business and equal votes

Vote required for matters within the ordinary course of business

Majority vote of partners

Vote required for matters outside the ordinary course of business

unanimous consent of all partners

Compensation/Salary for Partner

Unless otherwise agreed, a partner has no right to compensation for services rendered to the partnership (with the exception of a right to reasonable compensation for services rendered in winding up the business)

A partnership may sue a partner for

breach of the partnership agreement or of a duty owed to the partnership

A partner may sue the partnership or other partners to

enforce a right created by partnership act or agreement, or a right otherwise belonging to the partner

A partnership may sue or be sued…

in its own name, but to reach a partner’s personal assets, there must be a judgment against the individual partner

Sharing Profits and Losses

Unless otherwise agreed, profits and losses are shared equally among the partners (by number)

Liability to third parties

each partner is an agent of the partnership, authority to bind the partnership when dealing with third parties follows agency law.

Liability of the Partnership in Tort

A partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner or employee acting in the ordinary course of business of the partnership or with authority of the partnership

Liability of the Partnership in Contract

A partnership is liable for ALL contracts entered into by a partner in the scope of partnership business or with actual or apparent authority of the partnership

Liability of the Partners

Each partner is jointly and severally liable for all obligations of the partnership, whether arising in tort or contract. But plaintiff MUST first exhaust the partnership resources before seeking to collect from an individual partner’s assets

A judgment is not personally binding on a partner unless

they have been served and the creditor has exhausted partnership assets, or exhaustion is excused by agreement or court order or because the partnership is bankrupt

Extent of Liability

Each partner is personally and individually liable for the entire amount of partnership obligations. Where one partner pays the whole obligation of a partnership, they’re entitled to indemnification from the partnership or may also require other partners to contribute their pro rata shares of the payment if partnership is unable to indemnify

A newly admitted partner is not liable for

partnership obligations that arose before their admission; can only lose the amount of their investment in the partnership

duties owed by partners to the partnership

Duty of loyalty, duty of care, duty of disclosure, duty of obedience

Duty of Loyalty

Requires each partner:

1) to account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnership’s property, or appropriating a partnership opportunity,

2) to refrain from dealing with the partnership in the conduct of its business as (or on behalf of) a party having an interest adverse to the partnership, and

3) to refrain from competing with the partnership in the conduct of its business

Duty of care

Requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law

Duty of disclosure

A partner has the duty to provide complete and accurate information concerning the partnership

Duty of disclosure - RUPA provides that each partner and the partnership shall furnish to a partner:

1) without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties, and

2) on demand, any other information concerning the partnership’s business and affairs (except to the extent the demand or the information demanded is unreasonable or improper)

Duty of obedience

Requires partner to obey all reasonable directions of the partnership and not act outside the scope of their authority

Elimination of duties

A partnership agreement may not eliminate duties of loyalty or care. Duty of disclosure may be eliminated

Property Deemed to be Partnership Property

titled property is partnership property if it is acquired in the partnership’s name or in a partner’s name where it is apparent from the document that they are acting for a partnership

Property Presumed to be Partnership Property

Property purchased with partnership funds, regardless of in whose name title is held

Property Presumed to be Partner’s Separate Property

Property that 1) is held in the name of one or more partners, 2) the instrument transferring title gives no sign that they’re acting for a partnership, and 3) partnership funds were not used to acquire the property

Partnership capital

property or money contributed by each partner for the purpose of carrying on the partnership’s business

partnership property

everything the partnership owns, including both capital and property subsequently acquired in partnership transactions

A Partner’s Rights in Partnership Property

A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred; can only use for partnership purposes

The partnership’s rights in partnership property are

totally unrestricted

A partnership interest is comprised of

management rights and financial rights

Management Rights

A partner’s right to participate in the management of the business, to obtain information about the partnership, and to be recognized as a partner. Not transferable unilaterally

Default rule for the admission of a new partner

requires a unanimous vote of the existing partners

Financial Rights

The partner’s right to receive his share of any profit distributions made by the partnership. Can be unilaterally transferred.

Dissociation

A change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business

Events of Dissociation

1) oral or written notice of the partner’s express will to withdraw;

2) happening of an agreed event;

3) valid expulsion of the partner;

4) the partner’s bankruptcy or the appointment of a receiver for a partner;

5) the partner’s death or incapacity to perform partnership duties;

6) the decision of a court that the partner is incapable of performing a partner’s duties; or

7) termination of a business entity that is a partner

A partner will be deemed to have wrongfully dissociated if

1) the dissociation is in breach of an express term in the partnership agreement or 2) if the partner withdraws, is expelled, or becomes bankrupt before the end of the term in a term partnership

A partner who wrongfully dissociates is

liable to the partnership for any damages caused by the dissociation

Consequences of Dissociation for Partnership

Dissolve; or continue partnership and buy out the partner

Agency

A fiduciary relationship that arises when one person (the principal) appoints another (the agent) to act on the principal’s behalf and the agent consents to act. The agent must also act subject to the principal’s control

Consent may be established

expressly (by written or oral statements) or by implication from the parties’ conduct

On Behalf Of

The agent must be acting primarily for the benefit of the principal, rather than for the benefit of the agent o some other party

The agent must act subject to the principal’s control, but

the degree of control exercised by the principal doesn’t have to be significant

Capacity for Agent

Can act even without contractual capacity, but cannot act if they have literally no mental capacity

Capacity for Principal

Must have contractual capacity

Agent may be disqualified for

representing both parties or failing to have a required license

Consent is required from

both parties

Actual authority

Principal and agent agree to the agency relationship

Apparent authority

Principal holds another out as their agent

Ratification

Principal may agree to be bound by previously unauthorized acts

Estoppel

Principal may be estopped from denying the existence of an agency relationship if third party relies

Agent’s duties to principal

Duty of Loyalty, Duty of Obedience, Duty of care, Duties under contract

Duty of loyalty

Agent must disclose interests adverse to the principal

Duty of obedience

Agent must obey all reasonable instructions of principal

Duty of care

agent must act with reasonable care

Principal’s duties to agent

Duty to compensate and reimburse, Duty to cooperate, Duties under contract

Duty to cooperate

Principal must cooperate with agent and help them carry out their agency functions

Duty to compensate and reimburse

Unless agent agrees to act gratuitously, principal must compensate agent, as well as reimburse them for expenses and losses

Agent’s remedies against principal for breach of duty

Breach of contract (but has a duty to mitigate damages)

If the principal authorized the agent to appoint a subagent, the subagent owes

the principal the same duties as the agent owes the principal

If the agent was not authorized to appoint a subagent, the subagent

does not owe duties to the principal but does owe duties to the agent

subagent

a person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent’s principal

Principal’s Remedies for Agent’s breach of duties

Contract actions, tort actions, actions for secret profits, Equitable actions for an accounting, Imposition of a constructive trust, Withholding of compensation for intentional torts or intentional breach of fiduciary duties, and termination

Apparent Authority - even if agent lacked actual authority at the time of contract, principal will be bound on contract if

1) principal held out agent as having authority, and 2) based on the holding out, third party reasonably believed that agent had authority to act

For ratification to occur, the principal must:

1) have knowledge of (or have reason to know) all material facts regarding the contract, b) Accept the entire transaction, and c) have capacity

Steps for Contract Liability - Is a principal liable to a third party on a contract entered into by an agent?

a) Did the agent have actual or apparent authority at the time of the contract, or did the principal ratify the contract later?

b) If so, the principal is liable on the contract (but usually, agent is not)

Steps for Tort Liability - is an employer liable for a tort committed by an employee?

a) Was the tort committed by an employee in the scope of employment?

b) If so, the employer (master) and employee (servant) are jointly and severally liable to the third party

Doctrine of respondeat superior

An employer (master) is liable for the torts of an employee (servant) committed within the scope of employment

A principal is generally not liable for torts committed by

independent contractors

Independent contractor v. Employee

If the principal has the right to tell an agent how to achieve the results the principal desires, that agent is an employee. If the principal does not have the right to tell the agent how to achieve the results sought, the agent is probably an independent contractor

The employee is liable for the employee’s torts only if:

they were committed within the scope of the employee’s employment

Principal Liability to Third Party

Generally if the agent had authority, the principal is liable to third party

Agent liability to third party

If the principal was disclosed, the agent is generally not liable. If the principal was unidentified or undisclosed, either principal or agent can be held liable (third party chooses)

A principal isn’t liable for tortious acts of independent contractors unless:

1) Inherently dangerous activities are involved, 2) nondelegable duties have been delegated, or 3) Principal knowingly selected incompetent independent contractor