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Agency Partnership - Outline

Outline
Academic year: 2017/2018
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University of Tulsa

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Steps: 1. Is this agency LIABILITY in CONTRACT OR TORT? 2. K – Authority (actual or substitute?) a. Liability between parties? 3. Tort – IC or servant? Servant – scope of employment? a. J&S? I. Liability in Contract: Principal (P) becomes liable to third party (T) through the actions of his agent (A) as long as A and P both consent and A is subject to P’s control. a. Capacity: P must have contractual capacity (e., not minors – therefore cannot appoint agents), but A does not (b/c A is just an intermediary) b. Writing: agency law doesn’t require a writing, but SoF may! c. Consideration — Not required! II. Actual Authority a. Creation of Actual Authority: i. Express– P and A agree expressly – with words or implied with conduct 1. Note: express authority exists even if A accidentally sells the right thing to the wrong person or sells the wrong thing to the right person ii. Implied – P’s conduct leads A to believe A had the authority b. Termination of Actual Authority: Actual authority must exist when A enters a K, wince actual authority can terminate in a number of ways: i. After specified time/event or reasonable time ii. By change of circumstances (e., subject matter destroyed) iii. If agent acquires adverse interest (e., joins competitor) iv. When agent says so (agency is always consensual) v. When principal says so (unless irrevocable — power of Agency coupled with interest) vi. By Death/Incapacity/Bankruptcy unless power is irrevocable c. Delegation: OK if P consents (maybe express/implied from circumstances) III. Substitutes for Actual Authority a. Apparent Authority: P leads T to mistakenly believe A has authority i. Policy: protects innocent T who relies on P’s holding out A as agent ii. Key Fact: Reasonable belief must be created by P, not by A alone iii. Problem: Apparent authority can linger after actual authority ends iv. To Destroy Actual Authority: P must tell A not to do it again v. To Destroy Apparent Authority: P must tell T that agent has no authority b. Ratification: Even if A had no authority, P can ratify by expressly affirming the contract, accepting the benefit of it, or suing T on it i. Requirements: 1. Knowledge: P must have knowledge of all material facts 2. All or Nothing: P must accept ENTIRE transaction 3. Capacity: P must have capacity both at time of ratification and at time of original K because ratification is RETROACTIVE ii. Intervening Rights: b/c ratification is retroactive, we must protect intervening rights of a bona fide purchaser (BFP) c. Adoption: Unlike ratification, adoption is not retroactive, and agent is not relieved of liability

IV. Relationship of the Parties a. Principal – Agent i. Agent: owed P strict fiduciary duties, even if agency is gratuitous 1. Loyalty: must disclose and get permission before competing 2. Care: depends on any special skills A has (“sliding scale”) 3. Obedience: must follow P’s reasonable instructions ii. Principal: must compensate, reimburse, indemnify A iii. Remedies: Wide range available (tort, K) b. Principal – Third Party (assuming actual authority or a substitute) i. Principal ALWAYS liable to third party ii. Third Party ALMOST ALWAYS liable to principal: only exception is where there’s an undisclosed P and A has special skills c. Third Party – Agent (remember, A is just an intermediary) i. Third Party: NOT liable to A unless power of agency was irrevocable ii. Agent: not liable to T unless T doesn’t know who P is or A misrepresented her authority

V. TORT LIABILITY (master v. servant instead of principal v. agent) POLICY – PROTECT INNOCENT THIRD PARTIES a. ***Test: Was tort committed by a servant acting within the scope of employment? If so, the master and servant are jointly and severally liable to the injured party. b. Servant or Independent Contractor? Probably Servant if: i. EMPLOYER HAS RIGHT TO CONTROL, even if not exercised ii. Employer supplies the tools and the workplace; iii. Employment is long-term iv. Little skill is required v. The work is part of employer’s regular business; and vi. Payment is made in regular intervals (not by the job) c. Scope of Employment: M is not automatically for S’s tort. M will be liable for S’s tort ONLY if S was acting within the scope of employment. i. Usual Task: If S was doing a usual task, tort was within the scope ii. Deviation: the issue will be “How substantial was the deviation?”

  1. Detour: a minor deviation is usually within the scope
  2. Frolic: a substantial deviation is usually outside the scope iii. Intentional Torts: Outside the scope unless force is used to further M’s business (bouncer); M ratifies the use of force; OR M authorizes S to commit the tort (misrepresentation) d. Liability: M and S are jointly and severally liable to T (i., can sue S alone or M alone or join them as Ds, but is entitled to only one total satisfaction). e. Direct Liability: M is directly liable for its own negligence if M fails to train or superviseemployees or check an employee’s criminal record or job history. Agency Mini-Review
  3. Contract: Is P liable on a contract entered into by A? a. Look for these things in this order: i. Actual Authority at the time of the K; OR ii. Apparent Authority at the time of the K; OR iii. Ratification after the fact (retroactive); OR iv. Adoption after the fact (not retroactive)
  4. Tort: Is an employer liable for a tort committed by an employee? a. Look for tort by a servant in scope of employmentb. Liability: M and S are jointly and severally liable to T

V. RELATIONS OF PARTNERS TO THIRD PARTIES

a. Agency Principles – agency law applies when dealing with authority of partner to bind partnership. (Note: Partnership is the PRINCIPAL; Partner is the AGENT) i. Actual Authority – can be created by the P’ship Agreement, majority vote of partners, or by statute: which makes every partner a partnership agent for carrying on its business (but can be negated by the partners via agreement)! ii. Apparent Authority: may be created by a partner’s title or the p’ship prior conduct iii. No Authority: check for ratification/adoption iv. Torts: partners are owners, so all that matters is whether tort was committed within ordinary course of p’ship business b. Statement of Authority: may be filed with Sec of State. Effect depends on if real prop i. Real Property: grant of, or restriction on, authority to transfer real property held in p’ship name is effective ONLY IF the statement is also recorded at county’s recording office where property is located ii. Other Contracts: grant of authority is conclusive in favor of a BFP unless another filed statement limits authority. A restriction if effective only against a person with ACTUAL knowledge of it. c. Statement of Denial: partner listed in a statement of authority may limit her authority by filing a statement of denial with Sec. of State. d. Partners’ Liability for P’ship Obligations i. Joint and Several Liability: but P must first EXHAUST p’ship resources (so partners are essentially guarantors) (P’ship must later indemnify Ps) ii. Exception for Limited Liability P’ship: partners are not liable for firm obligations except their own torts. e. Partner’s Conveyance of Real Property: i. Names: if names match, title passes to grantee ii. Authority: if partner lacked authority, p’ship MAY get the property back from the initial transferee, but not from a subsequent BFP VI. Dissociation (when partner “makes a break” from the partnership) a. Causes of Dissociation: i. Notice of Partner’s express will to withdraw ii. Occurrence of an agreed-upon event iii. Partner’s expulsion, death, bankruptcy, or incapacity iv. Receiver, liquidator, guardian appointed for partner b. Wrongful Dissociation: before end of term or completion of undertaking c. Effect: usually no big deal, p’ship simply buys out dissociating partner and continues in business without him d. Apparent Authority: dissociated partner can bind p’ship for two years after dissociation to a third party who was unaware of the dissociation i. Notice: p’ship can protect itself by notifying creditors (effective immediately) or filing a statement of dissociation (becomes effective after 90 days) ii. Indemnification: p’ship can seek indemnification from the withdrawn partner since he had no ACTUAL authority to bind it e. Liability to Dissociating Partner: i. To EXISTING creditors unless released by a particular creditor, either expressly or impliedly (creditor-by-creditor basis) ii. To SUBSEQUENT Creditors who REASONABLY believed he was then a partner and did not have notice or knowledge of the dissociation — lasts TWO YEARS/90 DAYS

VII. DISSOLUTION AND WINDING UP

a. Causes of Dissolution: i. Event in p’ship agreement requiring winding up ii. Notice of express will in a p’ship at will (partners can agree to continue) iii. Entry of a judicial decree iv. Even that makes it unlawful to continue v. By a court on the request of a transferee; OR vi. If there is a definite term or particular undertaking:

  1. The term ends or undertaking is completed
  2. The partners unanimously agree (like rescission); OR
  3. At least half the partners agree to wind up within 90 days after dissociation caused by death, incapacity or bankruptcy, or appointment of receiver, for a partner b. Winding Up: Partners who wrongfully dissociate have no right to wind up c. Apparent Authority to Bind P’ship: continues after dissolution even if not winding up UNLESS partnership notifies creditors or files a statement of dissolution (effective 90 days after) d. DISTRIBUTION OF ASSETS – FINAL ACCOUNTING i. Order of Distribution: 1. Outside Creditors – not partners 2. Partners – who made advances (more than capital required by agreement, unpaid salaries, loans, etc) 3. Partners - capital contributions 4. Partners - surplus and profits ii. Specific Situations
  4. Assets insufficient to pay liabilities – LOSS IS DIVIDED EQUALLY (UOA)
  5. Partner pays more than his share of debt – CONTRIBUTION right
  6. Insolvency – conflict between partnership creditors and partner’s individual creditors (partnership and partner BOTH insolvent) a. UPA = dual priority – partnership creditors enjoy priority in partnership assets and individual creditors have priority in individual assets. b. Bankruptcy Code = rejects – partnership creditors have PARITY withindividual assets and PRIORITY in partnership assets.

VIII. LIMITED LIABILITY PARTNERSHIPS a. General partnership basically – but partners are not PERSONALLY liable for some debts. b. Formation i. LLP must register with state and include LLP or something comparable in the name, can have professional LLP (PLLP), most states require insurance then. ii. Must file biennial report with state – if it does not, then it is treated as a general partnership from then on c. Liability i. Tort – partners are not personally liable for torts of co-partners UNLESS they were directly supervising them. 1. STILL LIABLE FOR PERSONAL TORTS 2. Partnership itself is liable for torts. ii. Still jointly liable on K debts – “narrow shield” shields tort, not K vicarious liability

  1. LLP itself is liable fro Ks.

=============================================================================

Business Form Vicarious Liability of P/Members Comment

GP Joint & Several Worst aspect of GP

LLP None Like a corporation

LP Joint and several for GP (unless LLLP) None for limited partners (unless control)

LLC None Like a corporation

BOTTOM LINE: LLPs AND LLCs offer the same protection against vicarious liability

BUT REMEMBER:

  1. A partner or member is always liable for his or her own torts or malpractice.

  2. The firm itself is liable if the act was within the scope of its business.

  3. A partnership can convert or merge into another business entity if ALL the partners (or less, if permitted by p’ship agreement) consent and proper documents are filed with Sec. of State. NOTE: conversion and merger do not have retroactive effect, so partners remain liable for any obligations that arose while the firm was a general partner .

  4. Members of a legal profession association are individually liable on firm obligations, but are protected if the LPA has adequate insurance.

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Agency Partnership - Outline

Course: Agency,Partnrshp (LAW 691)

University: Cleveland State University

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Steps:
1. Is this agency LIABILITY in CONTRACT OR TORT?
2. K – Authority (actual or substitute?)
a. Liability between parties?
3. Tort – IC or servant? Servant – scope of employment?
a. J&S?
I. Liability in Contract: Principal (P) becomes liable to third party (T) through the actions of his agent
(A) as long as A and P both consent and A is subject to P’s control.
a. Capacity: P must have contractual capacity (e.g., not minors – therefore cannot appoint agents),
but A does not (b/c A is just an intermediary)
b. Writing: agency law doesn’t require a writing, but SoF may!
c. Consideration — Not required!
II. Actual Authority
a. Creation of Actual Authority:
i. Express– P and A agree expressly – with words or implied with conduct
1. Note: express authority exists even if A accidentally sells the right thing to the wrong
person or sells the wrong thing to the right person
ii. Implied – P’s conduct leads A to believe A had the authority
b. Termination of Actual Authority: Actual authority must exist when A enters a K, wince actual
authority can terminate in a number of ways:
i. After specified time/event or reasonable time
ii. By change of circumstances (e.g., subject matter destroyed)
iii. If agent acquires adverse interest (e.g., joins competitor)
iv. When agent says so (agency is always consensual)
v. When principal says so (unless irrevocable — power of Agency coupled with interest)
vi. By Death/Incapacity/Bankruptcy unless power is irrevocable
c. Delegation: OK if P consents (maybe express/implied from circumstances)
III. Substitutes for Actual Authority
a. ***Apparent Authority: P leads T to mistakenly believe A has authority
i. Policy: protects innocent T who relies on P’s holding out A as agent
ii. Key Fact: Reasonable belief must be created by P, not by A alone
iii. Problem: Apparent authority can linger after actual authority ends***
iv. To Destroy Actual Authority: P must tell A not to do it again
v. To Destroy Apparent Authority: P must tell T that agent has no authority
b. Ratification: Even if A had no authority, P can ratify by expressly affirming the contract, accepting
the benefit of it, or suing T on it
i. Requirements:
1. Knowledge: P must have knowledge of all material facts
2. All or Nothing: P must accept ENTIRE transaction
3. Capacity: P must have capacity both at time of ratification and at time of original K
because ratification is RETROACTIVE
ii. Intervening Rights: b/c ratification is retroactive, we must protect intervening rights of a
bona fide purchaser (BFP)
c. Adoption: Unlike ratification, adoption is not retroactive, and agent is not relieved of liability
1

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