Agency and Partnership

Who is bound to a contract when there is an undisclosed or partially disclosed principal?

Both the agent and the principal. Where the third party knows of the principal's existence but does not know his identity (i.e., the principal is partially disclosed), both the authorized agent and the principal are liable on the contract. In an undisclosed principal situation, the third party does not know of the principal's existence or his identity. Both the agent and the principal are liable on a contract entered into by an authorized agent on behalf of an undisclosed principal.

What is the default rule for partner remuneration?

Absent an agreement to the contrary, a partner is not entitled to remuneration except for reasonable compensation for services rendered in winding up the partnership's business.

What is required for the principal to ratify an agent's conduct?

Ratification occurs when the principal agrees to be bound by the previously unauthorized acts of another. Ratification is a unilateral act of the principal and requires no consideration.

What duties does a principal owe an agent?

The principal owes the agent a duty to compensate her reasonably for her services. The principal also owes the agent a duty to indemnify her for all expenses or losses reasonably incurred in discharging any authorized duties, a duty to cooperate, and whatever duties may be imposed by a contract with an agent.

T/F: Decisions regarding matters within the ordinary course of partnership business may be controlled by a majority vote of all the partners, but matters outside the ordinary course of partnership business require the consent of all partners.

True.

T/F: A principal will be bound by the agent's acts where the principal sets limits on an agent's authority, and a third party knows of the limits, but the agent exceeds the limits when dealing with the third party.

False. A principal will NOT be bound by the agent's acts where the principal sets limits on an agent's authority, and a third party knows of the limits, but the agent exceeds the limits when dealing with the third party.' A principal who has previously allowed an agent to act beyond her authority will be bound if the principal knows that a third party is aware of this fact. A principal will also be bound where an agent performs customary responsibilities in complying with the principal's wishes without the actual authority to perform those tasks. Negligently allowing an imposter to act as an agent will bind a principal.

When is a possessor of goods able to transfer good title without authority?

For the possessor of goods to be able to transfer good title without authority, she must either have: (i) some indicia of ownership (e.g., title), or (ii) be a dealer in the goods.

What duties does an agent owe to the principal?

In the absence of anything contrary in an agreement, the agent has three major duties implied by law: loyalty, obedience, and reasonable care.

Is an agent or principal required to have capacity to enter into an agency relationship?

Only the principal must have contractual capacity to enter into an agency relationship. To create an agency relationship, the respective parties must have capacity, but the degree of capacity required for a principal differs from that required for an agent. Generally, any person (including entities) having capacity to contract may appoint an agent. Any person may be an agent, even if she has no contractual capacity herself.

What does a partner's duty of loyalty require?

Partners owe the partnership and other partners the duty of loyalty. This duty is threefold: (i) to account for profits, property, opportunities, or other benefits derived by the partner in conjunction with the partnership business; (ii) to refrain from dealing with the partnership as, or on behalf of, a party having an interest adverse to the partnership; and (iii) to refrain from competing with the partnership.

What factor is a presumption that a partnership has been formed?

Sharing of profits. A person who receives a share of the profits of a business is presumed to be a partner.

The Uniform Limited Partnership Act ("ULPA") grants certain rights to general and limited partners. What rights is exclusive to general partners?

The ULPA's grant of management rights is exclusive to general partners. However, as a matter of contract, the partnership agreement may allocate the right to manage or control the partnership to limited partners. Both general and limited partners are granted the right to information, although the right is not identical. Furthermore, both general and limited partners are granted the right to distributions and to assign the partner's interest in the partnership.

Who can be bound to a contract when the principal's identity is disclosed to the third party and the agent had authority to enter the contract?

The principal and, if the parties intended the agent to be a party to the contract, the agent. A disclosed principal is one whose existence and identity are known to the third party. A disclosed principal is always liable on a contract entered into by an authorized agent. The agent generally is not bound unless the parties intended that the agent would be a party.

What are the two types of agency relationships that may not be unilaterally terminated by the principal?

There are two types of agency relationships that may not be unilaterally terminated by the principal (and that generally are not terminated by operation of law): where (i) the agent has an interest in the subject matter of the agency, or (ii) a power is given for security.

What elements are required to establish a principal's liability under the doctrine of respondeat superior?

To establish a principal's liability under the doctrine of respondeat superior, two basic elements must be established: (i) an employer-employee relationship, and (ii) conduct within the scope of employment. The employer generally is not liable for torts caused by the employee in the use of an instrumentality substantially different from that authorized, or for an intentional tort committed by an employee unless it occurred as a natural incident to the carrying out of the employer's business. A small or minor deviation from an employer's directions, also known as a detour, generally falls within the scope of employment. A major deviation from an employer's directions, also known as a frolic, falls outside the scope of employment. A principal may be vicariously liable in certain instances where her agent acted with apparent authority where respondeat superior does not apply. A principal is not liable for torts committed by an agent functioning as an independent contractor.

What does a person's interest in the partnership consist of?

(i) Management and other rights (ii) A right to share in the profits and losses and receive distributions

What interest may a partner transfer?

A partner may transfer his interest in profits, losses, and distributions. (That interest is treated as personal property.) A partner may not transfer his interest in management and other rights.

What is required to create a principal-agent relationship?

ABC (i) Assent. Assent means an informal agreement between the principal, who has capacity, and the agent. (ii) Benefit. The agent's conduct must be for the principal's benefit. (iii) Control. The principal must have the right to control the agent by having the power to supervise the manner of its performance. Consideration is not necessary for the creation of an agency relationship and, absent an express statutory provision to the contrary, neither is a writing. Any person may be an agent, even a minor or a person with minimal mental competency. A person is not required to have contractual capacity to act as an agent.

When is apparent authority created?

Apparent authority is created where a principal holds another out as his agent to a third party. Apparent authority makes the principal a party to the contract—with contractual rights and liabilities. Apparent authority results from a situation where a principal gives a secret limiting instruction, and the agent, when dealing with a third party, acts beyond the scope of the limitation. In such situations, the principal is bound by the agreement made.

When is actual authority created?

Actual authority is created when the agent and principal agree that the agency shall exist. Actual authority arises out of the reasonable belief of agents whereas apparent authority arises out of the reasonable belief of third parties. Express authority is the type of actual authority contained within the four corners of an agency agreement. Implied actual authority is the authority that the agent reasonably believes she has as a result of the actions of the principal.

What is partner dissociation?

Dissociation is a change in relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business. The dissociated partner generally remains liable for obligations incurred by the partnership before the partner's dissociation, and also after the dissociation if the other party to the transaction: (i) reasonably believed when entering the transaction that the dissociated partner was still a partner, and (ii) did not have notice of the partner's dissociation. When a partner dissociates, the partner's right to participate in management ceases. If the partnership business continues after a partner dissociates, the partnership must buy out the dissociated partner's interest.

With respect to limited partnerships, what is the scope of liability for a general partner?

General partners are jointly and severally liable for all obligations of the limited partnership, unless the limited partnership is also a limited liability partnership. In that case, any liability incurred belongs to the partnership alone, and the general partners are not personally liable on the obligation. Incoming general partners are not personally liable for any partnership obligations incurred before they became general partners. General partners may be personally liable for obligations of the partnership beyond their agreed-upon contributions. General partners may be personally liable for obligations of the partnership beyond their agreed-upon contributions.

Essay language: Overview of actual and apparent authority

Generally, an agency relationship is created when one person (the principal) manifests an intent that another person (the agent) act on his behalf and both parties consent to the agreement. A principal is contractually bound to the acts of the agent if the agent acted with actual or apparent authority. Actual authority is authority that the agent reasonably thinks he possesses based on the principal's dealings with him. Actual authority can be express (i.e., contained within the agreement between the parties) or implied from the actions of the principal. Apparent authority arises when the principal "holds out" the agent as having certain authority, causing third parties to reasonably believe the agent has such authority.

What is inherent authority?

Inherent authority results in a principal being bound by his agent's acts in certain situations even though the agent has no actual or apparent authority. A few courts recognize the concept of inherent authority, which is derived solely from the agency relationship.

Will a principal be liable for a sub-agent's torts?

Only if there is assent, benefit, and control between the principal and the sub-agent tortfeasor. A subagent is a person appointed by the agent to perform functions assigned to the agent by the principal. The agent will be held liable to the principal for breaches of the subagent. This is so even though the agent exercised diligence and good faith in appointing the subagent. Where the subagent has been appointed without authority, the subagent owes no duties to the principal. The agent alone will be responsible to the principal for performance of the agency duties and for any loss sustained because of the subagent's conduct, with the agent's only recourse being against the subagent. A subagent is not to be confused with a co-agent, who is another agent of the principal.

What is the primary overriding factor in determining whether a person is an employee?

The single overriding factor in determining whether a person is an employee is whether the principal (i.e., the employer) has the right to control the manner and method by which the person performs his tasks.

Under the RUPA, how long does a partnership continue to exist after dissolution?

Under RUPA, after an event of dissolution occurs, a partnership continues until the winding up of business is completed, at which time the partnership is terminated.

How is a partnership formed?

Under the Revised Uniform Partnership Act ("RUPA"), a partnership is an association of two or more persons to carry on as co-owners a business for profit. Although the partners need not intend to form a partnership, they must intend to carry on as co-owners of a business for profit. A writing is not required; a partnership can be formed by conduct (i.e., associating to form a business for profit). Partner contributions to partnership capital are not required to form a partnership.

What is the doctrine of partnership by estoppel? When is it likely to arise?

Under the doctrine of partnership by estoppel, even though there is no partnership agreement and the parties as between themselves are not partners, they may be held liable to third parties as if they were partners. Partnership by estoppel arises when a person, by words or conduct: (i) represents herself as a partner or consents to being represented by another as a partner, and a third party extends credit to the actual or apparent partnership in reliance on the representation; or (ii) holds another person out to be her partner, making the alleged partner her agent with the power to bind her to third parties as if the other were, in fact, a partner.