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27 Cards in this Set

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AGENCY

1. Three Agency Problems
a. Liability of Principal to Third-Parties for Torts of an Agent

b. Liability of Principal to Third-Parties for Contracts entered by an Agent

c. Duties which Agents owe to Principals
2. Liability of Principal for Torts of Agent -- Respondeat Superior or Vicarious Liability
a. Issue – Whether the principal will be vicariously liable for torts committed by agent
2. Liability of Principal for Torts of Agent -- Respondeat Superior or Vicarious Liability

b. Two part test (1) Principal agent relationship (2) Within Scope
(1) Principal agent relationship (2) Within Scope
2. Liability of Principal for Torts of Agent -- Respondeat Superior or Vicarious Liability

i. Principal-Agent Relationship (A,B,C)
1. Assent – There must be an informal agreement between a principal with contractual capacity, and the agent
a. Voluntary, informal agreement

2. Benefit – The agents conduct must be for the principals benefit

3. Control – The principal must have the right to control the agent by having the power to supervise the manner of the agents performance
2. Liability of Principal for Torts of Agent -- Respondeat Superior or Vicarious Liability

i. Principal-Agent Relationship (A,B,C)

3. Control – The principal must have the right to control the agent by having the power to supervise the manner of the agents performance
a. Sub-Agents – (When the agent gets help from a third party)
i. There can be NO vicarious liability for a sub-agent's tort UNLESS there is assent, benefit, and right to control the sub-agent tortfeasor

b. Borrowed agents – (Employer #1 borrows Employer #2’s agent)
i. There can be NO vicarious liability for a borrowed agent's tort unless there is assent, benefit, and right to control the borrowed agent

c. Contrast w/ Independent Contractor
i. Factors for liability – There is NO right to control an independent contractor, because there is NO power to supervise the manner of its performance.
ii. Rule – NO vicarious liability for an independent contractors torts
2. Liability of Principal for Torts of Agent -- Respondeat Superior or Vicarious Liability

i. Principal-Agent Relationship (A,B,C)

3. Control – The principal must have the right to control the agent by having the power to supervise the manner of the agents performance

iii. Exceptions
1. Ultra Hazardous Activities – Not liable for tort’s committed while engaged in an ultra hazardous activity. (i.e. failure to perform duty may result in death)

2. Non-Delegable Duties – i.e. building a fence around a construction site.

3. Estoppel – If you hold out your independent contractor as your employee and a third party relies, you will be estopped from denying vicarious liability, even for his torts.
2. Liability of Principal for Torts of Agent -- Respondeat Superior or Vicarious Liability

ii. COPE of Agency Relationship – The principal will be liable for its agents torts in the scope of agency. (4 factors to determine scope)
1. Similar to Authorized Conduct – look to whether the conduct is of the kind the agent was hired to perform. (i.e. in the job description)

2. Within the Course and Scope of Employment – was it on the job?
a. Frolic – NOT liable for Substantial Deviations in time or geographic area
b. Detour – LIABLE for Minor Deviations from an assigned task

3. Intent to Benefit the Principal – If the agent, even in part, intended to benefit the principal, it is enough. (i.e. pick up dry cleaning for employer)

4. Intentional Torts – Intentional torts are generally outside the scope of agency
a. Exceptions: Intentional torts are within the scope if the conduct was:
i. Specifically authorized by the principal,
ii. Natural from the nature of employment, OR
iii. Motivated by a desire to serve the principal
1. i.e. Bouncer in the bar – all 3 exceptions apply
3. Liability of Principal for Contracts entered into by Agents
a. General Rule – Principal is ONLY liable for authorized contracts entered into by its agents.
3. Liability of Principal for Contracts entered into by Agents

b. AUTHORITY (4 types)

i. Actual Express Authority
i. Actual Express Authority

1. Rule – May expressly grant oral or written authority.
a. Oral – can be oral, unless it falls under equal dignities doctrine
b. Private – can be whispered in private
c. Narrow – will be construed narrowly to the words used

2. Exception
a. Equal Dignities Doctrine: If the contract itself must be in writing to satisfy the SOF, the express authority must also be in writing
i. i.e. contract to sell land must have been in writing,

3. Revocable by:
a. Unilateral Act of Either party, OR
i. i.e. either party may freely revoke
b. Death or Incapacity of the Principal
i. Automatic revocation
c. Durable Power of Attorney Exception – Express authority cannot be revoked if the principal gives the agent a durable power of attorney.
i. Power of Attorney – A written expression of authority to enter a contract.

ii. Durable – Conspicuous language intending survival. (i.e. bold, big)
3. Liability of Principal for Contracts entered into by Agents

b. AUTHORITY (4 types)

ii. Actual Implied Authority
ii. Actual Implied Authority – Authority which the agent reasonably believes the principal has given, because of:

1. Necessity – To do all tasks which are necessary to accomplish an expressly authorized task

2. Custom – To do all tasks customarily performed by the person with the agents same title or position.

3. Prior Acceptance – To do all tasks which the agent reasonably believes to have been authorized based on the prior acceptance of the principal.
3. Liability of Principal for Contracts entered into by Agents

b. AUTHORITY (4 types)

iii. Apparent Authority
iii. Apparent Authority

1. 2 Part Test
a. Principal Cloaked the agent with the Appearance of Authority
b. Third party Reasonably Relies on appearance of authority
i. i.e. Secretly Limiting Authority – Agent appears to have actual authority, but principal has secretly limited that authority. Then the agent acts beyond the scope of the limitation.
1. Ex. Employee at antique store told not to sell a clock.

ii. i.e. Lingering Authority – Actual authority has been terminated. Afterwards, the agent continues to act on the principal's behalf. Liable for all acts until notice is given to third parties.
1. Ex. Sales agent fired and continues to sell.
3. Liability of Principal for Contracts entered into by Agents

b. AUTHORITY (4 types)
iv. Ratification
1. Rule – Authority can be granted after the contract has been entered into if:

a. Principal has Knowledge of ALL material facts regarding the contract, and
b. Principal Accepts its Benefits

2. Cannot Alter Terms – Must accept ALL terms of the contract. Ratification is NOT valid if the principal attempts to alter the terms of the contract.
a. i.e. – Principal gives agent power of attorney to buy 20 steel drums. A enters contract to purchase 20 wooden barrels. Principal tells A great job, I love wooden barrels
3. Liability of Principal for Contracts entered into by Agents

c. Rules of Liability on the Contract

i. General Rule
1. If NO authority
a. Principal is NOT liable on the K.
b. Agent is liable on the K.

2. If authority
a. Principal is liable on the K.
b. Agent is NOT liable on the K.
3. Liability of Principal for Contracts entered into by Agents

c. Rules of Liability on the Contract

ii. Undisclosed / Partially Disclosed Principal Exception
1. If Principal is only partially disclosed or undisclosed, the authorized agent may nonetheless be liable at the election of the third-party.

a. Partially disclosed – only the identity of the principal is concealed

b. Undisclosed – fact of principal concealed
4. Duties Agent Owes to Principal
a. Duty to Exercise Reasonable Care

b. Duty to Obey Reasonable Instructions (i.e. not lie or break the law)

c. Duty of Loyalty
i. Self-dealing – Agent cannot receive a benefit to the detriment of the principal
ii. Usurping a principal's opportunity, OR
iii. Secret profits
1. Hypo: P authorizes A to buy diamonds. A secretly buys choice diamonds for herself for $1M. A then resells for $2M. A breached the duty of loyalty by self-dealing, usurping the principal's opportunity, and secret profits.
4. Duties Agent Owes to Principal

d. Remedies – Principal may:
i. Recover losses caused by the breach, AND also

ii. May Disgorge Profits made by the breaching agent.
5. Duties of Principal to Agent
a. Compensation – If the agreement is silent the agent is entitled to reasonable compensation.

b. Cooperation – The principal should not interfere with the agents performance.

c. Reimbursement – Must reimburse the agent for expenses.
PARTNERSHIPS

1. Applicable Law
1. Revised Uniform Partnership Act (RUPA)
PARTNERSHIPS

2. General Partnership

a. Formation
a. Formation

i. Formalities – NO formalities to form a partnership (May be formed by conduct)

ii. Definition – A general partnership is:
1. An Association of two or more persons (or entites)
a. Must have capacity
2. Who are carrying on as Co-owners
3. Of a Business for Profit.

iii. Sharing of the profits – The contribution of money or services in return for a share of profits creates a PRESUMPTION that a general partnership exists.
1. Note – Lending arrangements do NOT create a presumption of a general partnership. (i.e. I will lend you $1000 to start a business)
PARTNERSHIPS

2. General Partnership

b. Liabilities of Partners to Third-Parties
i. Agency Principles Apply

1. Partners are Agents of the partnership for carrying on usual partnership business

2. Partnership is bound by Torts committed by partners in scope of partnership business

3. Partnership is bound by Contracts entered by partners with authority

ii. General Partners are Personally Liable for Debts of the Partnership

1. Each individual general partner is liable personally for ALL debts, obligations, and torts of the partnership.

2. Incoming Partner's liability for Pre-existing Debts – Generally an incoming partner is NOT personally liable for prior debts.
a. However, any money paid in by the incoming partner to the partnership can be used to satisfy those prior debts.

3. Disassociating (withdrawing) Partner's Liability for Subsequent Debts
a. Generally an outgoing (dissociating) partner REMAINS liable for ALL future debt incurred until:
i. Actual Notice of dissociation is given to creditors, OR
ii. Until 90 days after filing notice of dissociation with the state.
iii. General Partnership Liability by Estoppel – One who represents to a third-party that a general partnership exists will be liable as if a general partnership exists.
1. i.e. Paula says, My partner Peter and I are starting a sailing school and we need a boat. Peter is not a partner and later destroys the boat. Paula is liable.
PARTNERSHIPS

3. Rights and Liabilities Between General Partners

a. Fiduciary Duties
a. Fiduciary Duties – General Partners are Fiduciaries of each other and the partnership

i. Duty of Loyalty – Partners, just like agents, may never breach by:
1. Self-dealing
2. Usurping partnership opportunities
3. Secret, Undisclosed profits at the partnership expense

ii. Remedy – Action for Accounting for profits – Partnership may recover:
1. Losses caused by the breach, and also
2. May disgorge profits
PARTNERSHIPS

3. Rights and Liabilities Between General Partners

b. Partners Rights in Partnership Property
i. Specific Partnership Assets – Individual partner may NOT transfer these assets without partnership authority
1. i.e. – Land, leases, or equipment owned only by the partnership

ii. Share Profits and Surplus – Individual partner may freely transfer their share of profits and surplus to a third party.
1. Policy – This is personal property owned by the individual partners

iii. Share in Management – Individual partner may NOT transfer their share to a third party.
1. Policy – This is an asset owned only by the partnership
2. i.e. Cannot sell or inherit the right to vote

iv. Conflict between Specific Partnership Assets and Personal Property
1. Presumption – Presumption that the property belongs to the person whose money was used to purchase the property.
2. Title – The property belongs to the partnership if title was taken in the partnership.
3. Ex. – John buys car in his name with his own money. He uses it in his partnership business. The car is John’s personal property.
PARTNERSHIPS

4. MANAGEMENT in General Partnerships
a. Control – Absent an agreement, each partner entitled to EQUAL CONTROL (voting)
i. Ex. – A, B, and C agree to contribute money and share profits 60-30-10. How do they vote? Equally.

b. Salary – Absent an agreement, partners get NO SALARY.
i. Exception – Partners are entitled to compensation for helping to wind up the partnership business.
ii. Ex. – A and B are partners. A works 96 hours a week. B sleeps all day. Does A get any salary? NO.

c. Share of Profits and Losses
i. Absent an agreement, PROFITS SHARED EQUALLY
ii. Absent an agreement, LOSSES SHARED LIKE PROFITS

d. Indemnity – A partner has a right to be indemnified by the other partners for expenses incurred on behalf of the partnership.

e. Contribution – A partner has a right to contribution when the partner has paid more than his share

f. Inspect – A partner has the right to inspect and copy partnership books.

g. Lawsuits – A partner may sue the partnership and the partnership may sue the partner.
PARTNERSHIPS

5. DISSOLUTION of a General Partnership
a. Dissolution
i. No Agreement – where this is NO agreement, dissolution occurs automatically upon notice of express will of ANY one general partner to dissociate.
ii. Agreement – where there IS an agreement, dissolution occurs only upon the happening of an event specified in the agreement OR upon majority vote of the partners to dissolve within 90 days of the dissociation of any single partner

b. Termination – Real end of the partnership

c. Winding Up – Period between dissolution and termination in which the remaining partners liquidate the partnerships assets to satisfy the partnerships creditors
i. Compensation and Liability for Winding Up
1. Compensation – Partners receive a salary for winding up
2. Liability
a. Old business – Partnership and therefore its individual general partners remain liable on ALL transactions entered into prior to dissolution AND during wind up
b. New business – Partnership and therefore its individual general partners remain liable on ANY new transactions entered into until:
i. Actual notice of dissolution is given to creditors, OR
ii. Until 90 days after filing Statement of Dissolution with the state

d. Priority of Distribution (In this order)
i. Priority – Each level of priority must be fully satisfied before moving to the next level:
1. First, Creditors must be paid
a. Outside, non-partner, third-party trade creditors must be paid
b. Inside, partners who have loaned money must be paid
2. Second, Capital Contributions by partners must be paid
a. Liable to repay the partners for full capital contributions
3. Finally, Share ANY Profits and Losses
ii. Rule – Pay outside and inside creditors first; then pay capital contributions; finally partners share profits or losses.
PARTNERSHIPS

6. Limited Partnership (Name must contain – L.P.)
Definition – Partnership where there is at least One General Partner and One Limited Partner

Formation – Must file a Limited Partnership Certificate with the State.
Must include the names of all general partners and an agent for service of process.
Profits and Losses – Shared according to the value of contributions.
Liability and Control
General Partners
Liability – Personally liable for ALL limited partnership obligations
Control – Right to manage (control) the partnership
Limited Partners
Liability – Only liable to the extent of their investment and are NOT liable for the obligations of the limited partnership itself.
Control – Limited control and therefore may NOT manage the partnership without giving up their right to limited liability.
PARTNERSHIPS

Limited Liability Partnerships (Name must contain – LLP)
Formation – Must file a Statement of Qualification plus Annual Reports
Liabilities – Partner is NOT liable for the obligations of the partnership itself.
Can always sue individual partners for their individual torts
PARTNERSHIPS

8. Limited Liability Company (Name must contain – LLC)
a. Original Purpose – To give owners (members) the same limited liability of shareholders in a corporation and also the benefits of partnership tax treatment

b. Formation – File (1) Articles of Organization and (2) Operating Agreement

c. Liabilities – The members are NOT liable for the debts and obligations of the company itself

d. Members Control – but Articles may delegate control to managers

e. Liquidity – member interests are not freely transferable

f. LLC Characteristics
i. Members control – but articles may delegate control to managers
ii. Limited Liability
iii. Limited Liquidity – member interests are not freely transferable
iv. Limited Life – events of dissolution
v. Limited Tax
1. LLC = limited liability + limited liquidity + limited life + limited tax