Term
| Three types of Agency Problems |
|
Definition
| Three Agency Problems: (1) liability of principal to 3rd parties for torts of agent; (2) liability of principal to 3rd parties for contracts entered by an agent; and (3) duties which agents owe to principals. |
|
|
Term
|
Definition
| Tort Liability: the issue is whether the principal will be vicariously liable (Respondeat Superior) for torts committed by the agent. The principal will be liable if: (1) a principal-agent relationship exists, and (2) the tort was within the scope of that relationship. (Note: a principal is not liable for torts committed by an agent acting as an independent contractor) |
|
|
Term
| Principal-Agent Relationship |
|
Definition
| Principal-Agent Relationship: to establish the relationship requires— a. Assent: an agreement between the agent and principal; b. Benefit: the agent’s conduct will be for the principal’s benefit; and c. Control: the principal has the right to control the manner of the agent’s performance (“As a rule, there is no vicarious liability for independent contractors torts. Except (1) where K has engaged in ultra-hazardous activity, or (2) in cases of estoppel where the independent K was “held out” as an employee”) |
|
|
Term
|
Definition
| Scope: three possibilities to show the tort was within the scope a. the conduct was “of the kind” the agent was to perform b. the tort occurred “on the job” (a frolic is an independent journey outside the scope; “a detour,” is “a mere departure from an assigned task”, but still within the scope) c. the tort occurred while the agent intended to benefit the principal (note: intentional torts—not within the scope unless specifically authorized by principal (bouncer); natural from nature of employment; motivated by desire to serve principle) |
|
|
Term
| Contract Liability for Agents |
|
Definition
| Contract Liability: Principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the contract. There are four types of authority: (1) actual express; (2) actual implied; (3) apparent; or (4) ratification. |
|
|
Term
|
Definition
| 1. actual express authority: created when the principal used words to express authority to agent. Can be oral, private, narrow a. Equal Dignities Rule: If contract itself must be in writing, then so too must the express authority to enter into the contract be in writing (e.g. a contract requiring the transfer of land) b. termination: actual express authority can be revoked or terminated by the unilateral act of either the principal or the agent. Death or incapacitation of a principal terminates actual express authority unless the principal gave the agent a durable power of attorney (“durable” means conspicuous survival language) |
|
|
Term
|
Definition
| actual implied authority: created when the agent reasonably believes the principal has given authority because of: (1) necessity: all tasks which are required to do an express task; (2) custom: tasks customarily performed by persons with the agent’s title or position; or (3) prior dealings between the principal and agent |
|
|
Term
|
Definition
| apparent authority: created when (1) a principal “cloaks” an agent with appearance of authority; and (2) a 3rd party reasonably relies on appearance of authority (e.g. Bob employs Melissa in a wine store. Bob tells Melissa not to sell a certain bottle of highly prized wine. Nathan comes to the store and Melissa sells the wine to Nathan.) |
|
|
Term
|
Definition
| ratification: validates an unauthorized contract. Requires principal to have (1) knowledge of the contract; and (2) accept the benefits of the contract without altering the terms (e.g. Bob tells Melissa to order 10 cases of Cabernet. Melissa orders 11 cases of Merlot. Shipment comes, Bob says, “Great! I love Merlot, but only 10 cases of it.” Result: no ratification because Bob altered the terms of the contract from 11 to 10 cases.) |
|
|
Term
| Rules of Liability on the Contract |
|
Definition
Rules of Liability on the contract:
a. If no authority, principal is not liable on the contract and agent is liable.
b. If authority, principal is liable on the contract and agent is not liable.
c. 3rd Party v. Agent: agent’s liability depends on whether the principal was disclosed:
a. disclosed principal: a disclosed principal (existence and identity known to the 3rd party) is always liable on the K and the agent is generally not liable.
b. partially disclosed and undisclosed principals: if principal is partially disclosed or undisclosed, liability results for both the principal and the agent at the election of the 3rd party.
|
|
|
Term
| Duties Agent Owes to Principal |
|
Definition
Duties Agent Owes to Principal: 1. Duty to exercise reasonable care 2. Duty to obey reasonable instructions (i.e., not lie or break the law) 3. Duty of Loyalty (most important): a. Self-dealing – Agent cannot receive a benefit to the detriment of the principal b. Usurping the principal’s opportunity, or c. Secret profits 4. Remedies: Principal may recover . . . a. losses caused by the breach; and also principal may disgorge profits made by the breaching agent |
|
|
Term
|
Definition
Partnership Formation: a partnership is formed as soon as two or more people associate to carry on as co-owners of a business for profit 1. Formalities: no formal agreement is required to form a general partnership; intent may be implied by the parties conduct 2. Definition: a partnership is an association of two or more persons to carry on as co-owners of a business for profit. Presumption: where a person makes a contribution of money or services in return for a share of the profits, a strong presumption is created that a partnership exists |
|
|
Term
| Partner's Liabilities to 3rd Parties |
|
Definition
1. Agency Principles 2. General Partners are Personally Liable for Debts of the Partnership 3. General Partnership Liability by Estoppel 4. |
|
|
Term
| Partner's Liabilty by Agency |
|
Definition
1. Agency Principles Apply: (RUPA provides that generally, agency principles apply.) a. Partners are agents of the partnership for carrying on the usual partnership business. b. The partnership is bound by torts committed by partners in the scope of partnership business. c. The partnership is bound by contracts entered into by partners with authority. |
|
|
Term
| Partner Liability for Debts |
|
Definition
2. General Partners are Personally Liable for Debts of the Partnership:
a. Incoming partner is not personally liable for pre-existing debts: however, any capital contributed to the partnership can be used by the partnership for satisfying prior debts.
b. Dissociating partner is liable for subsequent debts: a dissociating partner retains liability and future debt until actual notice of dissociation is given to creditors or until 90 days after filing notice of dissociation with the state
|
|
|
Term
| Partner Liability by Estoppel |
|
Definition
3. General Partnership Liability by Estoppel:
a. One who represents to a 3rd party that a general partnership exists will be liable as if a general partnership exists. (e.g. if casually refers to a friend as “my partner,” and then the listener relies on that representation and a tort is committed, then liability attaches as if a real partnership exists)
|
|
|
Term
|
Definition
a. Limited Partnership: a partnership where there is at least 1 general partner and 1 limited partner. Must file a “limited partnership certificate” that includes the names of all general partners, thus giving notice of who may be liable.
i. general partner: personally liable for debts of the limited partnership; each partner may manage and control the business but only general partners are personally liable
ii. limited partner: have limited liability and therefore are not personally liable for debts of business
|
|
|
Term
| Registered Limited Liability Partnership |
|
Definition
| Registered Limited Liability Partnership (RLLP): formed by registering with the state. Must file a “statement of qualification” and annual reports. No partner or a RLLP is personally liable for the partnership debts. |
|
|
Term
| Fiduciary Duty between Partners |
|
Definition
1. Fiduciaries: general partners are fiduciaries of each other and the partnership. This entails a:
a. Duty of Loyalty: (1) no self-dealing; (2) may not usurp partnership opportunities; and (3) no secret profits at the partnership’s expense
b. Action for Accounting: the partnership may bring an action to recover for losses caused by a breach of loyalty. This would disgorge profits made by the breaching partner.
|
|
|
Term
| Rights in Partnership Property |
|
Definition
2. Partner’s rights in partnership property: a general partnership interest is relatively illiquid, because only a share of the profits or surplus can be transferred.
a. Specific Partnership Assets: Things like land, leases, or equipment owned by the partnership as partnership assets. No partner may transfer specific partnership assets without partnership authority.
b. Share of profits and surpluses: personal property of each partner, and may be transferred to a 3rd party
c. Share of management: this is considered an asset which belongs only to the partnership. Thus, individuals may not share or transfer their management power to a 3rd party. Ex: can’t transfer right to vote.
d. Conflict between specific partnership assets and personal property: if the property is purchased with partnership funds, it is presumed to be the partnerships; if not, it is presumed to be the separate property of the named partner
|
|
|
Term
|
Definition
3. Default Rules: “in the absence of an agreement . . .”, the following rules apply:
a. management: each partner is entitled to equal control (despite their relative investment in the partnership)
b. salary: partners receive no salary (however, they will be compensated for winding up the partnership)
c. profits: shared equally (regardless of the investment or interest)
d. losses: shared just like the profits (either follow the agreed upon profits, or the default profit rule)
|
|
|
Term
|
Definition
| Dissolution: in a partnership at will (no agreement between partners) the partnership dissolves automatically upon the expressed will of any one partner to leave the partnership. In a partnership agreement (an agreement exists) the partnership is not dissolved upon the dissociation of one partner unless a majority of all remaining partners vote to dissolve within 90 days. |
|
|
Term
|
Definition
1. Winding up: this is the phase between dissolution and termination (the actual end of the partnership). In this phase, the remaining partners liquidate the partnership’s assets to satisfy the partnership’s creditors. Liability in Winding Up:
a. old business (obligations before dissolution): partnership and individual partners retain liability to creditors
b. new business (obligations after dissolution): partnership and individual partners retain liability even on new business until actual notice of dissolution is given to creditors, or until 90 days after filing statement of dissolution with State.
|
|
|
Term
|
Definition
2. Priority of Distribution: payment should be made in this order—satisfy each level before going to the next . . .
a. creditors must be paid first: this includes all outside or inside (partners who have loaned money to the partnership) creditors
b. capital contributions by partners: these contributions must be fully repaid. So if there is not enough left over after satisfying the creditors, each individual partner will be liable individually to repay the partner who contributed
c. surpluses or losses: in the absence of an agreement, surpluses or losses will be shared equally between partners
|
|
|
