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(1) Formedby principal manifesting desire for agent to do bidding under its control;
(2) agent manifests assent to that relationship;
(3) both parties have to subjectively agree.
-- Principalcan’t be a minor, must be mentally competent.
-- But, agent can bea minor, and must just be minimallycompetent. (Why lower standard? Bc there’s a competent principal behindthem!).
*Doesn’t need: written down, formalized,or consideration (your heir can be your agent, power of atty style, with nopayment).
Note:limited to the scope of the request.
May be established by circumstantial evidence.
Relevant: situation of parties, actions, words, surrounding facts
Burdenof proof: one who is trying to prove that relationship existed.
Statutory Presumptions For Drivers: Some states create presumption if someoneelse is driving your car: driver is agent of owner. (Can be rebutted.)
Disclosed: people know who principal is.
*No personal liability for agent.
Undisclosed:people think agent is only actor.
**Personal liability rests withthe agent.
Partially Disclosed: you say you’re working for a principal, but you haven’t disclosed specific identity
* Liability: personal liability rests withthe agent.
NOTE: Ifthird party finds out who identityis, elect to go after one or the other: agent or principal(not both.)
§ Specialagent: agent for a particular purpose (i.e. one assignment)
§ Generalagent: more authority, broader scope of relationships.
§ Subagent: like a subcontractor to the agent; so you areagent to the first agent.
Sometimes the sub agent is also the agent of the principal.
· If principal specifies to get more subagents or knows that subagents will be necessary, then the agent is also an agent of the subagent.
· But, if the principal doesn’t know, then the subagent is only the agent of the first agent.
Gist: Mostly about compensation/economics:
§ (1)Compensate for services
§ (2)Reimburse agent for reasonable expenses
§ (3)Indemnify for any liability they incur along the way.
§ (4)Cooperate with agent in performance of duties
§ (5)Exercise due care toward agent (if provide place to work, has to be safe, etc.)
o Length: Duties begin with agencyrelationship is created and end when agency relationship is terminated.
- Can sue for breach to get compensated.
- Can set off any money owed to him against monies collected on behalf of principal
Duty of care, and duty of loyalty
§ (1)Can’t self deal. (i.e. steal funds from principal).
§ (2)Usurping of Biz Opp
§ (3)Duty of confidentiality: must keep quiet about your principal’s bizconfidential info. (But duty disappears once your agency relationship stops.)
§ (4)Dual agency rule: Can’t work for two principals that compete; and can’t have your own biz competing
§ (5) Duty to account: count money, no comingling.
§ (6)Duty of candor: must be honest about all relevant facts for the principal.
Can be held liable or damages;
BUT, generally, an uncompensated agent can’t be held liable!
*Any transaction result from breach of agent's fiduciary duty is VOIDABLE by principal.
* If agent breaches duty to principal, appropriate remedy is disgorgement of profits; AND agent is also liable for any *third party* profits made on disloyalty.
§ If third party knows of principal’s identity, agent will not be personally liable(unless takes extra steps to incur liability)
§ IfP is partially or not disclosed, agent is presumed to be a party to K. In orderto avoid personal liability, must make clear to the third party that he isrepresenting a principal and not a party to the K.
§ Note:disclosure of P after the K does not relieve liability; third party has choiceof whom to sue.
§ Express: principal says, I want you to do XYZ. (Oral or written direction.)
§ Implied: I want you to do X, and it’s implied that you can do Y and Z because you can’tdo X otherwise.
§ Equal dignity rule: If a K must be in writing, then the grant of authority allowing agent to enter into the K must also be in writing.
§ No actual authority, but it seems so to third parties.
§ E.g.manager of company says, you can have this on sale. (That customer is entitled to the sale bc of apparent authority.)
§ E.g. 1: Can’t just come from the agent! (Sign of authority must come from principal in some way. Must be reasonable to believe authority is apparent.)
§ E.g. 2: Agent has some authority, but exceeds its authority, and third party has no reason to know.
Allowsthird party to get some relief when principal being fast and lose with agencyauthorities. Basically, someone acting and holding themselves out as agent, but principal doesn't do anything to stop.
E.g.high rise apt building. Little boy pretending to be doorman, principal knowsand doesn’t stop. Little boy breaks something; principal will be liable.
(1) is this an employee oran independent contractor;
(2) was this in the scope of employment (frolic, orjust a detour);
(3) was this intentional, or just negligent behavior?
General rule: Employer is liable for employee's negligent actions performed during the scope of employment.
(Stricter than normalagency relationship: no need to examine actual/apparent authority).
Frolic: something beyond the scope of employment; employer is not liable.
BUT, detour IS within the scope.
Principal (employer) is not liablefor intentional torts by employees. EXCEPT (1) when an employer hires agent with the idea that an intentional tort is foreseeable, (bouncers, security guards), and (2) when employer is a common carrier (cab company)
Frolic = Pulling off work trip to take a personal shopping trip.
Detour: Pulling off work trip to get something to eat quickly; or taking less direct route.
Note: Travel to and from work is NOT in scope of employment.
Considerations: advancement of employers interests? deviation before or after employer's objective served? scope of deviation in terms of time/distance?in keeping with the type of employment?
General rule: employer is not liable for tortious behavior of independent contractor. BUT, whether or not someone is IC depends on extent of control:
§ (1) own tools?
§ (2) set own hours?
§ (3) paid by project or hours?
§ (4) control over when and where they perform their work?
Can’tshield yourself from liability by telling principal, “I don’t want to know.” Itwill be imputed to you.
- Ifrelationship is at will, then either party can terminate at will.
- Forcertain duration, can be liable for damages if you terminate early.
· When relationship ends, all duties cease!
o (1) unlimited liability for acts ofpartnership (biggest drawback)
o (2) partners have right to co manage partnership
o (3) Partners all have fiduciary duties totone another and to partnership
o (4) All have the right to share in theprofits.
o General partnership can be created w/o aformal writing or filing of any kind. (Note: this is very unique, the only kindthat works this way.)
o *Cancreate defacto partnership without intending to!
o Partnerships v. Joint Venture: don’t worry about this à courts willuse general partnership law for something that parties claim is a JV.
Key: intent of parties to enter into a partnership relationship
(1) Partnershipagreement? Yes.
(2) Otherform of express agreement? Yes.
(3) Comanage, split profits, both work for enterprise?
Prima Facia case of partnership if yousplit the profits. (General rule: Non partners split revenue;partners split profits.)
RULE: Everypartner is agent of the partnership for purposes of its biz. Actof a partner binds entire partnershipunless:
(1) partner has no authority to act onthis matter; AND
(2) person with whom he is dealing hasknowledge that he lacks authority.
*Important**in order for third party to be protected by apparent authority argument (i.e.to claim that a K should be binding), the act must have been in the normalcourse of biz.
(1) File statement of limited authority withsecretary of state; but this is notconstructive notice! [But, does apply to land.]
(2) Send letters to vendors explaininglimited authority.
*Take away: not a lot you can do aboutthis apparent authority problem, so really just have to pick your partnerscarefully.
Scope: Unlimited personal liability. *Huge limitation to general partnership* If creditors aren’t satisfied, then can go after personal funds of the partners individually.
Partners are jointly and severally liable for acts of partnership: can sue all partners, or just one.
Acts of partners on their own? Partnership is liable, and so other partners are also still liable!
But, many timesother partners will agree that you cut that person off from liability, orindemnify them.
- if no partnership agreement (partnership by default), RUPA governs relations
- Somethings are unwaivable, by RUPA:
(1) Get a portion of the partnership for your initial contribution.
(2) If you share profits a certain way, and you don't say how you share losses, RUPA assumes it's the same as profits proportions.
(1) Indemnify: partnership must indemnify every parter with regard to payments made and liabilities incurred inordinary course of biz.
(2) Right to interest on money: get intereston loans you make to partnership.
*Not entitled to compensation on services(duty to partnership); although you can contract around this.
(3) Right to accounting: this is equitable in nature, and determines eachpartner’s investment, and profits and losses.
(4) Management: Usually,have equal rights to management and control.
*Doesn’thave to be equal: in partnership agreement, can say that Edward only should bethe manager.
§ Once you give prop to partnership, not yours any longer.
§ If partnership buys prop, also not yours as the partner. Belongs to partnership.
Can only sell transferrable interest: strictly the financial interest. (Right to distributions, or liquidation; but no right to manage, vote, etc.)
Partners are agents of partnership, and of one another.
- Duty of care: but, this doesn’t cover mere negligence (only gross negligence, reckl. intent.)
- Duty of loyalty: same stuff. Duty not to compete; duty not to usurp biz opportunities.
- Duty to disclose: give true and complete information
- Duty to keep his books and give right of inspection to others.
*Partners can sue each other; Not violation of loyalty.
Yes, add new partners: any time under RUPA, with consent of all partners
This is called "dissociation."
Newer version of RUPA: Very few situations where a partner’s exit calls complete abandonment of partnership.
*Note: dissociation is DIFF from dissolution!
(1) Partner wants to leave
·(2) Violated partnership agreement, or other triggers which warrant explusion.
(3) Partnership is dissolving (going insolvent.)
Gist: Partner always has power of dissociation, but not always the right.
- Meaning: can’t make you continue to be a partner; but may be consequences if not rightful departure.
Partnership at will: always rightful for partner to leave.
Partnership for term/undertaking: partner’s leaving is wrongful if they leave too soon.
If not wrongful, they get to take their money back: have the right to be bough out!
But maybe not if wrongful.
When dissociate: duty of loyalty is gone, duty of care exists only through winding up.
** Partner has lingering apparent authority. (For two years, partner can enter in K’s that bind the partnership, IF:
(1) 3rd party reasonably believed that the departed partner was still a current partner
(2) does not have notice of the dissociation.
(*Remaining partners can send out letters to vendors and clients: this person is no longer associated with our firm, but not be enough if doesn't provide notice.
(1) Responsible for obligations incurred before you left (cant leave sinking ship)
(2) Obligations after you left?
o Apparent authority works both ways!
o Can go after exiting partner liable for two years! (So partner also has an incentive to send letters saying he’s no longer affiliated.)
* RUPA: favors continuity & survival of partnership, so only a few ways when it's automatic.
(1) Partnership at will has partner that desires to leave. (Vulnerable to being dissolved always)
** At any time during winding up, partners (including dissociating) can vote to stop winding up.
(2) Partnership for Term/Undertaking: (a) when definite term or particular undertaking is terminated
OR, (b) partner death, bankruptcy, insolvency, incapacity, distribution of all of trust or estate = all automatic unless 50% of partners vote w/in 90 days
o (3) Event makes it unlawful to carry on.
o At any time with unanimous consent (regardless of what's in the partnership agreement.)
o Or through judicial determination (by creditor, or by a partner) – so that creditor can get at the money in the partnership.
** All partners except those that wrongfully disassociated, can all help wind things up.
· Selling off assets, inventory, land, finishing up projects, etc.
Distributing Assets After Wind Up:
· Pot of money to pay creditors.
· (1) Creditors first.
· (2) Partners (according to their distribution rights.)
Testing these more! Hyprid entities (between partnership and cooperation).
** Gist: These are general partnership (governed by RUPA)
o Made filing to be registered as LLP: insulates all the partners from personal liability
o But, still has flow through taxation!
(1) Has to have LLP (so that people know that it’s limited liability)
If so, majority of state: full shield statutes = no claimant (tort or K) can get at partners personal assets.
o *Important: all the other rules still apply! (DON’T confuse this with limited partnerships.)
Notably diff from General Partnerships AND Limited Liability Partnerships!
** Governed by a different statute! (ULPA).
(1) Need two persons (individual, corp, etc.); and at least one has to be general partner and other limited partner. (Can have as many of either as you want).
** General Partners: right to mange, profits, fiduciary duties, and unlimited personal liability (like GPs)
o Limited Partner: passive: no right to manage, don’t have fiduciary duty, don’t have personal liability! (Mostly real estate, and also private equity funds.)
(1) Must make a filing w/ secretary of state or won’t come into existence (unlike general partnership!)
(2) Requirements for filing: Name, address for service of process, and name of general partners (not limited partners)
§ Note: if not formed, then you aren’t anything! (But defacto result is that you end up as a general partnership; people who co-own a biz for profit are a general partnership, then apply RUPA rather than ULPA).
(1) Partners all make contribution and get an interest. (Default = not that everyone is equal; your contribution reflects your interest.)
** Note: if limited partners do get more active, they remain limited partners (don’t become GPs)
(2) Shortfall? General partner has to make up the shortfall! NOT the limited partners.
(3) Limited partners get distributions: portion of capital accounts; but they don’t have the right to get their money back if they dissociate! **Important**
o General partners manage!
o ULPA: General partners can’t amend agreement, or certificate, or sell the biz without the agreement of the limited partners!
o LP’s CANNOT freely sell their partnership interests (but they can sell their financial interests; just without their vote.)
o Can be creditors and buyers, just the same as with the general partnership.
o Again, always have power to do so, but not always the right.
o Mirror the same factors as in RUPA. (See above.)
o But, **dissolution** doesn’t happen unless it’s the last LP! (Rememeber, need at least one LP and GP).
o *Don’t have to worry about apparent authority or lingering obligations.
o Has power, but not right. Wrongful if leave before term/undertaking.
o If it’s the last one = dissolving!
o Going to go through wind up process again.
o (1) pay creditors; (2) distribute rest of assets among partners.
o General partner is the one who participates in winding up; BUT if you don’t have one any more, or if the only one you have wrongfully dissociated, then you can have an LP step in and deal with winding up issues.
(2) partners that were creditors;
(3) to partners in proportion in partnership interests
**but if not enough money, then: general partner makes up the shortfall!
Same, except that general partner doesn’t have unlimited liability.
(I.e. same transition as what happens between a GP and a Limited Liability Partnership.)
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