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2. Someone else: Another person can be liable for active tortfeasor’s actions under two possible theories
1) Negligent hiring/supervision: If someone is negligent in hiring or supervising someone else, that person is also liable for his own negligence in hiring or supervising.
2) Vicarious Liability: AGENCY law: Principal & agent
a. No fault liability based on status as a principal: The principal is held liable not because he was negligent, but because he is the principal
b. Two types of agents: Independent Contractor v. Servant
1. Law is different depending on whether the agent is an IC or Servant
a. If employer has the right to control, employee is a servant
b. If the employer has no right to control, the employee is an independent contractor
c. Factors to discuss in deciding right to control
1. Salary = ServantPaid by job = IC
2. Low skill = Servant High skill = IC
3. Not in own business = Servant Has own business = IC
4. Long term worker = Servant Short term worker = IC
5. Has no tools = ServantOwns tools = IC
6. Business location same as P = Servant Different business location = IC
1.Inherently dangerous activity or
a. Always blowing something up on the bar exam
2. Non-delegable duty
a. Two MD Cases on Non-delegable duties
1. Rule: A landlord’s duty to make repairs IS a non-delegable duty
2.Rule: Service of process by a law firm is NOT a non-delegable duty
a. Scope of Employment: 4 Ws
1.What was the agent doing? Was he doing what he was supposed to do as a part of his job?
2. When was he doing it? Was he doing it when he was supposed to?
3. Where was he doing it?
4. Why was he doing the activity? If for his own personal reason, not within scope
1. General Rule: Commuting from home to office is NOT within the scope of employment
2.Exception: If the employer requires the employee to use her car during the day, on the job, then as soon as employee leaves her house, she is within the scope of employment.
a.Test: Who controlled the servant at the time of the tort
b. In Maryland, an employee can be the servant of two employers at the same time, so that both employers can be vicariously liable.
a. Fact pattern: Negligent repair at local gasoline station. Injured person sues national oil company. Although the tortfeasor is NOT a servant of the national oil company, national oil company may be held vicariously liable if victim reasonably relied upon ads that local gas station repair persons are servants of national oil company. Reasonable reliance required.
1. Texaco: National ad campaign: "Trust your car to the man that wears the star." In no case was reasonable reliance found.
a. A did not do exactly what she was told to do, but she did something which was reasonably based on what she was told. Based on agent’s reasonable belief that he was authorized.
b.Reasonable: Look at
1. Common sense
2. Past dealings between principal and agent
3. Custom of the trade
a. Third person’s reasonable belief MUST be based on some past manifestation from the PRINCIPAL to the third person
b. Usually based on words, but could also be past dealings or customs of the trade.
a. A made a contract with no authority. P finds out after the fact and authorizes
b. Important date: Is the date of the contract, not the date of ratification
1. Significant if K specifies time for performance --> date of contract controls
c. Timing of ratification: Must be before T withdraws
1. If third party, after making the contract, learns that A is going to have to get the contract ratified by P, T can call off the deal by withdrawing before P ratifies.
d. P must ratify ENTIRE deal.
e. Undisclosed principal CAN NOT ratify
1. Disclosed Principal: T knows A is working for P, and T knows P’s name
2.Partially Disclosed Principal: T knows A is working for a P, but does not know P’s name
a.Disclosure of corporation’s name or partnership’s name is considered full disclosure: no need to name shareholders, directors, officers, or partners by name
b. Disclosure of trade name is only partial disclosure: i.e. Restaurant group owns a lot of different restaurants with different names; using restaurant group name is only partial disclosure
3. Undisclosed Principal: T thinks A is making a contract for A.
a.Exception: If A is acting fraudulently against P.
b. Use same 4 Ws analysis.
b. A can prepare to compete while working for P (look for office space, etc.)
c. A can compete after quitting, but cannot use confidential information learned from P.
a.Restrictive covenants are valid if reasonable as to:
1. Time: MD cases set a 3 year time limit --> under is usually reasonable, over is not
3. Subject matter: The same business --> cannot stop you from working somewhere different
4.Consider public interest: Equitable remedy. Courts will be less likely to enforce when a uniquely needed service is involved.
a. At will employees: Can be fired without any reason and without any liability
1. At will: No set period/term of employment
2. Exception: Abusive discharge --> A can collect damages if discharge violates “clear mandate of public policy”
a.Examples of Abusive Discharge
1. Being fired for refusing to take a lie detector test
2. Being fired for refusing to have sex with clients or customers
b. NOT abusive discharge
1. Not abusive discharge when employee fired for suing employer in a matter unrelated to the job
2. Not AD when an employee was fired for wanting to talk to a lawyer before responding to a negative job recommendation.
c. Statutory remedy: No abusive discharge case allowed if policy arises from a statute, and the statute provides a remedy.
2. Death, bankruptcy, or insanity of Principal automatically terminates the agency relationship, even if no notice to Agent.
1. A partnership requires at least two persons
a. Cannot have just one person
b. Husband and wife CAN be partners
c. Minors: can be a partner. Participation is voidable
2.No filing with the state is required
3. No written agreement is required
4. Test = INTENT to be partner. Intent can be implied.
5. Presumption of Partnership Intent: If two or more persons share profits from a business, it is presumed they are partners.
a. Exceptions: These people are not partners, even if they share profits
- Debtor/Creditor: Debt repaid from profits
- Employer/Employee: Wage paid from profits
- Landlord/Tenant: Rent paid from profits
- Receiver of goodwill of sold business paid from profits: When you buy a business that is ongoing, often part of the purchase price is the goodwill associated with the business
6. Agreement to share losses: Some evidence of partnership intent, but not required.
7. Agreement to share gross returns or gross receipts is NOT evidence of partnership intent: Gross returns and gross receipts ARE NOT profits
a. Two Requirements
1. Purported partner represented himself as a partner or consented to be held out as a partner, and
2. T extends credit to the business reasonably relying on belief that purported partner is actual partner
b. Private or public representation: If the representation is made in a private conversation, only the person to whom it was made can rely. If made publicly, anyone can rely.
a. Partnership: A partnership is an entity, therefore a partnership can sue and be sued in its own name
b.Partners: If partnership assets are insufficient, partners are personally jointly and severally liable for partnership debts.
a. Ordinary Business Matters: Majority vote of the partners prevails
b. Unanimous Consent is required to:
1. Sell partnership’s goodwill
2. Do something outside ordinary business
3. Admit new partner
a.Rule; An incoming partner’s capital contribution can be used to pay a pre-existing partnership debt, but incoming partner’s liability does not include any personal assets
a.Liability: A dissociated partner can be held liable for two years to partnership creditor if creditor reasonably relied that dissociated partner was still a partner.
1.Avoiding liability: Dissociated partner can file Statement of Dissociation with SDAT which provides notice of dissociation.
b.Dissociated partner is bought out by partnership: gets the value of her ownership interest
c. Dissociated partner has no management rights & owes no fiduciary duties
d. Partnership continues: Dissociation does not equal dissolution
e. Ability of dissociated partner to bind partnership to contracts: Can bind the partnership to contracts for two year if third person reasonably believes dissociated partner is still a partner
1. File Statement of Dissociation with SDAT to avoid such a claim: puts third parties on notice
a.Exception: Partner is entitled to be compensated for winding up the business.
a. Duty of care: Partners owe the partnership a duty of care which is a gross negligence standard
b. Duty of good faith and fair dealing: Partners owe duties of good faith and fair dealing
c. Duty of loyalty: Partners owe a duty of loyalty, which means no conflict of interest between individual interest and that of the partnership
d.Breach: Partnership can sue partner for breach of fiduciary duty
1. Owned by the partnership as an entity, not by the individual partners
2. What is partnership property?
a. If property is acquired with partnership funds, it is presumed to be partnership property
b. If property is titled in individual names, it is presumed not to be partnership property
c. Other factors: Whether the property is used in the partnership’s ordinary business, who pays the property tax, and who pays for improvements
3. Why classification matters
a. Partnership purposes only: Partnership property can only be used for partnership purposes, not any personal purpose of a partner, unless the other partners unanimously consent.
b. Creditors: ONLY partnership creditors can execute on partnership property. Partnership property is NOT subject to attachment by a personal creditor.
1. Equal: Partners share profits equally, even if capital contributions are unequal, unless agreement provides otherwise
2.Personal creditors: A personal creditor of a partner can execute on a partner’s right to profits
a. Charging Order: Circuit court has the power to issue a charging order to force a partner to use profits to pay her personal creditor
1. Partnership at will: If there is no set term, any partner can quit without any liability, unless quitting constitutes breach of fiduciary duty, e.g. partner steals clients or uses confidential information
2.Partnership for Term: If there is a set term, partner’s quitting before term has expired is breach of agreement, and partner could be liable for damages.
a. The economic purpose of the partnership is likely to be unreasonably frustrated (Losing MONEY)
b.Partner misbehaving: Another partner has engaged in conduct which makes it not reasonably practicable to carry on the business with that partner
c. It is not reasonably practicable to carry on the partnership business in conformity with the partnership agreement --> agreement has become irrelevant.
a. Must honor preexisting contracts. NO NEW BUSINESS
b. Compensation is due to the partner who engages in the winding up process.
c. Partnership is terminated after winding up is complete
d. Merger: Partnerships can merge
1. Each partner is an AGENT of the partnership: Apply agency law to any tort or contract question involving the liability of the partnership based on the acts of a partner
2.Contracts Issue: Is the partnership liable for this K?
a. Did the contracting partner have authority to make the contract, or did the partnership ratify? (same analysis)
3.Torts: Partner commits a tort, will the partnership be vicariously liable?
a. Was the partner who committed the tort acting within the scope of the partnership relationship? 4 Ws analysis
1. A joint venture is a partnership for a limited time and limited purpose. Same law applies to joint ventures as partnerships
1. Any Maryland partnership can file a certificate of limited liability partnership with SDAT and become a LLP.
2. In a LLP, no partner can be held personally liable for the business’s debts, either tort or contract
1. A limited partnership involves at least one general partner and at least one limited partner. General partners have unlimited personal liability for the business’s debts. Limited partners are not personally liable for the business’s debts.
2. Exceptions: A limited partner can be held personally liable for the LP’s debts if:
a. Limited partner's name is in the partnership's name: The limited partner has her name in the partnership name and the creditor believes that the limited partner is a general partner.
b. Control of the business: The limited partner (1) takes part in the control of the business, and (2) the creditor reasonably believes, based on the limited partner's conduct, that the limited partner is the general partner
1. Limited partner is allowed to be an employee or consultant to the LP
2. Limited partner is allowed to vote on limited partnership matters
3. Limited partner is allowed to be a director, officer, or shareholder of a corporation that is a general partner
a. Must pay: Limited partner must pay the contribution which she agreed to pay. Contribution can be cash, property, past services, promissory note, or promise to perform services in the future. Limited partner liable for amount not paid.
b. LP Insolvent: Capital contribution cannot be returned to limited partner if limited partnership is insolvent. Limited partner must repay capital contribution paid if LP is insolvent
b. Requirements: Certificate must include name including “limited partnership” or “LP,” name and address of resident agent and general partners, and latest date of dissolution.
c.Failure to file: Will lead to personal liability of limited partner
1.Exception: Supposed limited partner had good faith belief that filing had been completed, and within 30 days of knowing or should have known of failure to file, person files the certificate or withdraws.
a. Profit sharing: Share of profits based on percentage of capital contribution
b. 5% rule for right to inspect books: Must own at least 5% of limited partnership to inspect tax records and names of all partners
c.Bring derivative action: Same law as corporation SH derivative actions
d.Petition court for dissolution: On same grounds as judicial dissolution of general partnership
b. Withdrawal or death of general partner WILL cause dissolution UNLESS agreement provides otherwise.
1. Must file with SDAT: If a limited partnership formed in another state wants to do business in MD, it must file w/ SDAT
2.Effect of failure to file
a. Doing business in MD without filing can lead to a fine and inability to sue as a plaintiff in MD state court
b. DOES NOT invalidated foreign limited partnership’s contracts, does not prohibit it from defending in MD state court, and does not create any liability for limited partners.
1. Only one person required: can have many more
2. Investors = members
3. Members NOT liable for LLC’s debts
a. Can manage the LLC
b. Share profits based on capital contribution
4. MUST file with SDAT to be a valid LLC
5. Failure to file personal property report for the tax year results in LLC forfeiting its right to do business and to bring court action (including a derivative action), but LLC still exists as an entity.
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