Agency and Partnerships Flashcards

Agency

• Agency Relationship: A principal-agent relationship exists when an agent is authorized to act on behalf of a principal.

  1. Principal Liability for Agent Acts

     • A principal is not liable for acts outside the scope of the agency.

     • A principal is liable for an agent’s acts within the scope of their agency (actual authority).

     • Scope of Agency determined by totality of circumstances not just the agency agreement; examine “who, what, where, when, and why” of events.

       • Conoco Case (racist gas station cashier): Was the act part of the job?

       • Louisiana Cop Case: Was the agent there because of the job? (questionable result).

       • Pitcher Case: Was the act preventing interference with the job?

  2. Intentional Torts:

     • Generally, a principal is not liable for the intentional torts of its agents.

     • Exception: If the agent commits the tort while performing a fundamental function of the job, the principal is liable.

       • Conoco Case: Establish an agency relationship between the defendant and the principal. Conoco was found liable even though it had no control over daily operations and the agency agreement denied an agency relationship with individual stores.

       • Louisiana Cop Case: Employer liable for tortious conduct connected to the employee’s duties.

       • Pitcher Case: Employer liable for an employee’s battery if the battery was in response to conduct that interfered with the employee's ability to perform the job.

  3. Agent vs. Independent Contractor (IC):

     • Test: Right to control – the more control the principal has, the more likely the third party is to be an agent.

     • Generally, a principal is not liable for IC torts.

     • Examine the scope and right to control the work.

     • Agent IC vs. Non-Agent IC: When someone is an agent for a limited part of the job and an IC for the remainder. Example: Home Depot paint

       • Is the IC acting as an agent for part of the job? This is a scope question.

     • Exceptions to the Principal Liability Bar for IC Work:

       • Ultrahazardous/Inherently Dangerous: Public policy dictates that principals should not be let off the hook for really dangerous work.

         • Unmanageable vs. Manageable Risk matters.

       • Incompetent IC: Raises the risk of danger/harm.

         • Financially incompetent.

         • Professionally incompetent.

       • Non-delegable Duty: Statutory or professional code restrictions.

         • Statutory limits of professional services (medical, legal, accounting practices).

Authority

• Determining authority to bind the principal is separate from agency/employee/IC status but considers similar factors.

Liability Analysis Agent vs Independent Contractor

• Liability Analysis Agent: if within scope, principals are generally liable for the actions of their agents. OR inquire unless they did something outside of the scope of agency.

• Authority Analysis Independent Contractor: if you find authority it does not matter if that person in reality was an agent or IC

• Is the second step of the analysis “is the principle of the hook?” Was there some kind of authority there that otherwise put the principal on the hook?

  • Totality of circumstances.

1. Actual Authority: Never based JUST on the conduct of the agent.

   • Express Authority:

     • Principal’s perspective - what did the principal do?

     • The principal's perspective is determinative.

     • Examine the actions of the principal to find the authority of the agent.

   • Implied Authority:

     • Agent’s perspective – did the agent reasonably believe, based on what the principal had done, that the agent was authorized?

     • The agent's perspective is determinative.

     • Did the agent REASONABLY BELIEVE she was authorized to bind the principal, based on the principal’s conduct.

2. Apparent Authority:

   • Third-Party Perspective.

   • Critical – steps away from a direct principal/agent relationship.

   • The perspective of the third party is determinative.

   • Did the third party REASONABLY BELIEVE, based on the principal’s conduct, that the alleged agent was authorized or acting for the principal?

   • Mill Street Church / Hogan Brother Case

     • Implied authority (agent’s perspective based on the conduct of the principal):

       • Bill’s perspective – he reasonably believed he was authorized to hire his brother.

     • Apparent authority (3rd party’s perspective based on the conduct of the principal):

       • Sam’s Perspective – he reasonably believed his brother was authorized to hire him.

3. Inherent Authority:

   • Last-ditch effort at binding the principal.

   • McDonald’s example: where everybody already expects it.

   • SO HARD TO PROVE, is not specific to individual facts.

   • It’s specific to a LONG ESTABLISHED BROADLY KNOWN COMMUNITY WIDE EXPECTATION.

   • The toughest to prove – farthest from the principal.

   • The perspective of society is determinative.

   • Is expected authority so commonly known and assumed in the community that it should be upheld.

4. Ratification of Authority: Where none exists (unlikely to come up on the exam).

   • When there is no actual authority, apparent authority, or inherent authority.

     1. Authority can be ratified by affirmative acceptance of the transaction.

     2. Where someone simply accepts the benefit of the transaction, knowing there is no authority but does not repudiate it.

   • Botticello v. Stefanovicz Case

     • Mary and Walter Stefanovicz owned a farm as tenants in common. Walter alone negotiated and signed a lease with an option to sell the farm to Botticello. When Mary and Walter later refused to honor the agreement, Botticello sued for specific performance. The trial court initially ruled for Botticello, ordering enforcement of the agreement. The appellate court reversed, holding that mere acceptance of benefits (by Mary) was not enough to establish ratification of the contract without intent and full knowledge of the material facts. Walter had not acted as Mary’s agent, and there was no presumption of agency just because they were married or co-owned the property.

     • Affirmative acceptance of the transaction.

     • Acceptance of transaction benefits with and failure to repudiate.

5. Estoppel:

   • Unlikely to come up on the exam, only use it if you have answered all other questions on the exam.

   • Very rare, only if you Requirements:

     1. Reasonable reliance +

     2. Injustice.

   • Requires reasonable reliance on authority and injustice if not upheld.

   • Musicians Union Case – If an agent makes a contract beyond his authority on behalf of a principal, the principles of equitable estoppel and apparent authority may bind the principal to the contract.

   • Some third party again, has to have reasonably relied on or reasonably believed this transaction was going to be authorized, and if the transaction was not affirmed, it would somehow promote injustice.

   • Reasonable Belief or Reliance

     • Always look at the totality of the factual circumstances.

     • Examine “who, what, where, when, & why” of events.

• ACTUAL EXPRESS (principal)

• ACTUAL IMPLIED (agent)

• APPARENT AUTHORITY (3rd party perspective of the principal’s acts)

• INHERENT AUTHORITY (society, of typical agent)

Partnerships

1. The Revised Uniform Partnership Act (RUPA) is a gap filler statute for partnerships (pships).

   • If the agreement addressed the issue, unless it violates public policy by permitting fraud, deceit, or deception, the agreement is going to be enforced.

   • If it’s something that neither the agreement nor RUPA addresses, then it’s really going to be up to the court and depending on what the facts are à courts don’t like this.

   • The only exception there is if it is something that could not have been anticipated, we might invoke the duty of good faith and fair dealing to imply something that is an incredibly hard, low threshold to do.

   • If the agreement is silent, the statute will fill in the missing terms.

   • If the agreement addresses, it will be enforced unless permitting illegality, fraud, or public policy violation.

   • Study it for an outline of general policies and specific rules.

2. General Partnership (GP)

   • Default entity for any group who goes into business together (if there is a fact pattern where they did not write a partnership agreement of LLC agreement then it is a GP).

   • Default entity for any group of TWO OR MORE who go into business together.

     • You cannot have a partnership with just one person. That is called a SOLE PROPRIETORSHIP. [Exception: If the agreement had a provision to give reasonable time to find a replacement partner before dissolution begins]

   • Jointly and severally liable for all the pship debts

     • Unless the agreement says otherwise, all partners are JOINTLY AND SEVERALLY LIABLE: this means the full amount can be collected from any one of them even if they were not fully at fault.

     • (Jointly: each party is jointly responsible [all are liable for the full amount] and Severally Liable [can be sued individually] this means the creditor can collect the full amount from any of the parties regardless of their individual level of responsibility) for all the Pship debts. Unless the agreement says otherwise à then the agreement controls.

   • Each has a right to manage Pship.

   • Each has a right to bind Pship.

   • Each owes fiduciary duties to Pship and other partners.

     • Loyalty – honesty disclosure, non-compete.

     • Care – competence.

3. Partnership Indemnity

   • Partnership indemnifies partners from loss

     • The partnership promises to cover or reimburse a partner for costs, losses, or liabilities.

     • NOT REVERSE – the partnership owes the partners indemnity; partners do not owe the partnership indemnity.

   • Exception: when the individual partner committed the wrong. They still just remain personally liable as if there was no partnership involved or not.

4. Partnership AT WILL Exam Trap

   • Continues until one leaves

     • “Disassociates”.

   • RIGHTFUL à must dissolve (must go to dissolution – Articles 6, 7 and 8).

   • WRONGFUL à remaining partners can vote to continue (if the partnership is more than two people)

     • This is a public policy matter: we do not want to encourage fraud, deceit or corporate waste.

5. Partnership FOR A TERM Exam Trap à does not mean a time limit it could be a project.

   • (A partnership for a term can continue until the project or time limit is complete, whether the partner leaves the partnership rightfully or wrongfully).

   • Set by agreed time period or specific project completion.

   • Continues until completion (whether the partner leaves the partnership RIGHTFULLY OR WRONGFULLY – however, this could change if it was a two-person partnership [exception: if the agreement had a provision to give reasonable time to find a replacement partner before dissolution begins]) and (there does not have to be a vote since there is a time limit project to complete).

     • Or disassociation and vote of remainder to dissolve.

6. Disassociation

   • Happens when a partner withdraws or is removed from the partnership — but it does not necessarily mean the partnership itself ends.

   • RIGHTFUL (regardless of it being Pship AT WILL or Pship FOR A TERM à you are entitled to a buy-out) à you are entitled to have the partnership buy out your ownership interest.

     • At the greater of FMW or liquidation value (assuming the partnership agreement does not speak to it – if the agreement includes a buy-out formula [example: farming partnership] it will be enforced unless you can show fraud or deceitful). HOWEVER, just because the agreement seems to be resulting in an unfair result it does not mean we are going to change ità The courts assumption is generally that people who enter into partnership agreements are competent to understand what they are getting into.

     • Entitled to immediate buy-out.

     • Participate in wind-up management upon dissolution.

       • Wind-up: Ending operations of a business by settling debts and liquidation assets – occurs before dissolution.

   • WRONGFUL (you still get a buy-out but is going to be reduced by any DAMAGES you caused by wrongfully disassociating).

     • Partnership is OF TERM you do not get the buy-out until the end of the term. EXCEPTION: if you could demonstrate that the partnership is not going to be put in any kind of a hardship by paying you out now and that it would put the burden on you.

       • You will have to go to court and request an early buy-out (generally courts are not going to be too sympathetic to somebody who wrongfully disassociated).

     • Partnership AT WILL you are entitled to a relatively immediate buy-out, so as long as it does not damage the partnership and disrupt things.

   • IN BOTH TYPES OF PARTNERSHIP:

     • You are still liable for debts incurred in the partnership wind-up if it is dissolving and for any obligation that are incurred in the ordinary course of the partnership’s business during that wind-up. Those fiduciary duties and those obligations to pay continue through wind-up.

     • Liable to Pship for damages for harm caused by disassociation.

     • Can’t force dissolution.

     • Not entitled to participate in wind-up management.

     • No immediate buy-out of JVs and Pships for term.

       • Unless you prove early payout “not unduly burdensome” to pship.

   • STILL LIABLE FOR DEBTS INCURRED IN WIND-UP IF

     • Disassociation triggered dissolution (mandatory of by vote)

     • Obligation incurred in ordinary wind-up.

   • Dissociation is when a partner leaves or is removed from the partnership, causing a change in the partner’s relationship with the partnership, but the partnership itself may continue.

   • Dissolution is the point when the partnership begins winding up its affairs — meaning the partnership is ending.

7. Dissolution

   • When a partnership dissolves, it does not cease to exist immediately, it continues to exist until it is fully wound-up and terminated.

   • MANDATORY in a partnership at will if a partner leaves RIGHTFULLY. If a partner leaves WRONGFULLY, the remaining partners can vote to continue the partnership.

   • NOT MANDATORY for:

     • Partnerships for term.

     • Continuity provision in partnership agreement.

8. Limited Partnerships

   • (General partners and limited partners)

   • General Partners are just like GPs in any other general partnership.

     • They owe fiduciary duties.

     • They are fully personally liable jointly and severally for all partnership debts.

   • Limited Partners are not:

     • They do not owe fiduciary duties.

     • They are not liable for the debts.

     • The most they can lose is what they invested.

     • They have no right to manage the partnership.

     • They are primarily simply investors.

     • Like shareholders in a corporation, they have very limited say in how it is run day to day.

     • Exception: (state by state) is that if a limited partner starts to actually control and manage the partnership, then they could end up having a court find that they are effectively general partners because of their control.

   • Limited Partners are not personally liable for partnership debts.

     • Unless they become managers.

     • General Partners owe fiduciary duties to the limited partnership and the limited partners.

     • Limited Partners owe no fiduciary duties.

9. Limited Liability Partnerships

   • (This is a general partnership they are all general partners).

   • Gives the partners a liability shield for third-party claims.

     • None personally liable for LP debts.

     • Partners owe fiduciary duties to the limited liability partnership and other partners.

10. Limited Liability Limited Partnership

    • General partners and limited partners (this will not come up in the exam)

    • This is a limited partnership that now has an additional third-party liability shield for the general partners in that limited partnership.

      • It otherwise operates as a limited partnership where the general partners owe fiduciary duties to the partnership and the partners, and the limited partners DO NOT.

      • Limited partners do not control, manage, owe fiduciary duties and do not take on any liability.

    • None personally liable for partnership debts.

    • General partners owe Limited partners fiduciary duties to LLP.