Agency and Partnership MEET Rule Statements

Intentional torts will be viewed as within the scope of employment if the conduct is:

(1) a natural incident of the employee's duties (as where force is authorized or the nature of the work gives rise to hostilities); (2) where the employee is promoting the employer's business or is motivated to serve the employer; or (3) specifically authorized or ratified by the employer. Also, a principal is liable for an agent's misrepresentations (including intentional misrepresentation) if the agent had actual, apparent, or inherent authority to make statements concerning the subject matter involved.

A principal will incur liability for the acts of an independent contractor where:

(1) inherently dangerous activities (suchas blasting) are involved, (2) nondelegable duties havebeen delegated, or (3) the principal knowingly selected an incompetent independent contractor (if the principal was merely negligent in selecting the independent contractor, the principal is liable only for their own negligence in selection, not for the contractor's negligence).

A principal may be vicariously liable for the torts of their agent under two theories:

(1) respondeat superior and (2) apparent authority. -Vicarious liability means that joint and several liability for the agent's tort will be imputed to the principal. The derivative nature of this liability means that if the agent isn't liable, the principal generally can't be held liable; however, an agent's immunity from a lawsuit does not necessarily bar recovery from the principal. Note thatin addition to vicarious liability, a principal may be directly liable for their own negligence in hiring, retaining, or super- vising the agent. A principal may also be directly liable for an agent's tort if they gave the agent actual authority to commit the tort or ratified the tort, or in other circumstances involving independent contractors (

Governing Law and Formation of Limited Liability Companies (LLC)

1. Most states follow the Revised Uniform Limited Liability Company Act of 2006 ("R.U.L.L.C.A."), except where noted in your state's outline 2. Limited Liability Companies ("LLCs") are taxed like partnerships, but members enjoy limited liability, like shareholders in a corporation, and the LLC is treated as an entity distinct from its members 3. An LLC is formed by filing a certificate of organization with the secretary of state

Requirements for Formation of Partnership

1. No formal agreement or writing is required to form a partnership; the parties' intent can be implied from their conduct 2. Anyone who is capable of entering a binding contract is capable of being a partner 3. The partnership may not have an illegal purpose 4. No one may become a partner without the consent of all the partners

A partner is Dissociated from a partnership upon:

1. Notice of the partner's express will to withdraw 2. The happening of an agreed upon event 3. The valid expulsion of a partner 4. The partner becoming bankrupt 5. The death of an individual partner, or the termination of a partner that is a business entity, or 6. A court decision that a partner is incapable of performing her duties

Partner's Contributions in a Limited Partnership

1. Partner has no rights to distributions absent a contribution 2. Contributions may be in the form of any benefit to the partnership (e.g., money, property, services, and promises to make such contributions)

Partner's Rights in Partnership Property

1. Partners are not co-owners of partnership property and have no transferable interest in partnership property 2. Partners have no right to use partnership property other than for the benefit of the partnership

Factors to Determine Whether Property Belongs to the Partnership: For real and personal titled property, apply R.U.P.A.:

1. Property belongs to partnership if it is titled in: -The partnership name, or -The name of the partnership and the instrument transferring title notes the titleholder's capacity as partner or the existence of a partnership 2. Property is presumed partnership property if purchased with partnership funds 3. Property is presumed separate property of partner if: 1) The property is held in name of partner(s) 2) The instrument transferring title does not indicate the person's capacity as a partner or mention the existence of a partnership 3) Partnership funds were not used

Agency Principles Apply in Determining Liability of Partners

1. R.U.P.A. generally provides that each partner is an agent of the partnership 2.The act of any partner binds the partnership, unless the partner had no authority and the third party knew or had notice that the partner lacked authority. Contract liability—partners are liable on contracts made by a partner in the scope of the partnership business and on any other contracts expressly authorized by the partners Tort liability—partners are liable for any torts committed by a partner or an employee of the partnership in the ordinary course of partnership business

Principal's Duties to the Agent

A principal's duties to an agent are not fiduciary in nature,as fiduciary responsibilities run only from the agent to the principal. Nevertheless, a principal has several obligationsto an agent. The principal owes the agent all of the duties imposed by their contract, reasonable compensation, and reimbursement for expenses. So, for example, if an agent incurs expenses or suffers other losses in carrying out the principal's instructions, the principal has a duty to indemnify the agent. The principal also generally should cooperate with the agent and not unreasonably interfere with the agent's performance.

Principal's Liability for Torts of Agents under Respondeat Superior

A principal's liability for torts committed by their agent isnot determined in the same manner as determining the principal's liability for a contract. A principal can be liablefor the torts of an agent under the doctrine of respondeat superior ("let the master answer"). Under the doctrine, an employer (formerly called a master) is liable for the torts of an employee (formerly called a servant) committed within the scope of the employment.

Subagents

A subagent is a person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent's principal. note: Remember that not every person appointed by an agent is a subagent. An agent may also appoint a coagent (that is, another agent of the principal). In doing so, the agent does not delegate their own power to that person. Employees of a single organization are pre- sumed to be coagents, not subagents (for example, manag- er and store clerk are coagents).

Actual vs. Apparent Authority

Actual authority is based on the principal's manifes- tations (words or conduct) and how they affect the reasonable agent. Apparent authority is based on the principal's manifestations (words or conduct) and how they affect the reasonable third party. Remember, apparent authority can exist even when actual authority does not! In an apparent authority situation, you need to discuss what transpired between the principal and the third party. This differs from an actual authority situation, where you would be discussing what transpired between the principal and the agent. In discuss- ing apparent authority, ask yourself what the principal did to indicate to the third party that the agent had authority.

Disclosed Principal

Although if the principal's existence and identity are disclosed to the third party (a "disclosed principal" situa- tion) the general rule is that the principal will be liable on an authorized contract and the agent will not be, the agent will be liable if the parties to the contract intended the agent to be liable. Agent Breaches Warranty of Authority: Even if the principal's existence and identity are fully disclosed, if the agent did not have authority to enter into the contract (so the principal will not be liable) the agent can be held liable to the third party for damages for breaching an implied warranty that a principal with contractual capacity exists and that they, the agent, had authority to contract for the principal.

Did the tort occur "on the job" (that is, within the time and space limits of the employment)? (Scope of Employment Test)

Consider whether the employee's conduct was within the time and place of the authorized employment. A detouror small deviation from the employer's direction is withinthe scope of employment, while a frolic or major deviation requiring a substantial departure from employment is beyond the scope. Once it is shown that the employee has left the scope of employment, there must be proof of return before the employer will be held liable for the employee's tort. The employer's ownership of the vehicle driven by the employee at the time the employee commits a tort does not automatically impose liability upon the employer for the tort.

Direct Liability

Every person is liable for their own torts. Thus, an employer is liable for their own negligence if they fail to properly train or supervise employees or independent contractors, or fail to check an employee's or independent contractor's criminal record or job history.

Express Actual Authority

Express authority is that which is actually contained within the four corners of the agency agreement. So it's authority that's conveyed by the principal in words (oral or written). It's effective even if it was granted mistakenly or because of misrepresentation. note: When determining whether an agent acted with authority in entering a contract for a principal, note that this is an all or nothing issue-they had authority or not.

Was the conduct actuated at least in part to benefit the principal? (Scope of Employment Test)

Finally, consider whether the employee's conduct was actuated, at least in part, by a purpose to serve the employer. The employee's invitation to passengers, unless expressly authorized by the employer, is generally held to be outside the scope of the employment relationship, and the employer would not be held liable for injuries sustained by such passengers. Unauthorized Instrumentalities: The employer is not liable for torts caused by the use of substantially different instrumentalities from those autho- rized (that is, those creating a greater risk of harm). Trips with two purposes: If the employee makes a trip with two purposes, it will be within the scope of employment if any substantial purpose of the employer is being served.

Apparent Authority Liability

If respondeat superior does not apply, the principal may still be vicariously liable in certain circumstances if the agent acted with apparent authority. This theory of liability is not commonly tested on the bar exam; most vicarious tort liability questions will focus on whether a principal is liable under respondeat superior. Still, it is wise to consider apparent authority as an alternate theory if respondeat superior does not apply.

Duties of the subagent

If the principal authorized the agent to appoint the subagent, the subagent owes the principal the same duties as the agent owes the principal. If the agent was not authorized to appoint a subagent, the subagent does not owe duties to the principal but does owe duties to the agent. note: Note that if the agency agreement is silent regard- ing compensation, the agent is entitled to reason- able compensation. Also remember that a principal generally owes no duty to compensate a subagent even if the agent had authority to hire the subagent

Unidentified and Undisclosed Principals

If the principal is unidentified (that is, the third party knows the agent was dealing on behalf of a principal but does not know exactly who the principal is) or if the principal is undis- closed (the agent does not reveal that they are contracting on behalf of a principal), either the principal or the agentcan be held liable on the contract if the agent had authority to enter the contract. The majority of courts permit a third party to file suit against both the principal and agent but, upon objection of either defendant, the third party must elect prior to judgment which party they wish to hold liable. On the other hand, if the third party obtains a judgment against the agent without knowledge of the principal's identity, they can later sue the principal when their identity is discovered if the judgment has not been satisfied.

Termination of Actual Authority

If you have determined that a principal granted an agent express or implied authority to enter a contract for the principal, before finalizing your conclusion that the principal will be bound, you need to ensure that the authority was not terminated before the contract was made.

Implied Actual Authority

Implied authority is authority the agent reasonably believes they have as a result of the principal's words or actions. It includes authority: -incidental to express authority -Arising out of custom known to the agent -Resulting from prior acquiescence by the principal; -To take emergency measures -To delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where delegation is customary -To pay for and accept delivery of goods where there is authority to purchase -To manage investments in accordance with the "prudent investor" standard

Real Estate Broker's Contract

In a typical real estate broker's contract, the broker is entitled to compensation when there is a buyer ready, willing, and able to purchase the property. If the seller/ principal refuses a buyer's offer that was within the terms agreed by the broker/agent and the seller/principal, the seller/principal will be found to be breaching the duty not to interfere with the agent's duties and will owe the agent their agreed compensation.

Contract Liability Overview

Issue: Is a principal liable to a third party on a contract entered into by an agent? 1. Did the agent have actual or apparent authority at the time of the contract, or 2. did the principal ratify the contract later? If so, the principal is liable on the contract (but usually, the agent is not).

Tort Liability Overview

Issue: Is an employer liable for a tort committed by an employee? 1. Was the tort committed by an employee in the scope of employment? 2. If so, the employer (master) and employee (servant) are jointly and severally liable to the third party.

Irrevocable Agencies

Neither an agency coupled with an interest nor a power given as security may be unilaterally terminated by the principal if the agency was given to protect the agent's (or a third party's) rights and it is supported by consideration. Neither will such agencies be terminated by operation of law. note: The bar examiners sometimes try to play on your emotions by making it seem unfair to terminate the agent's authority at the principal's death. Answer with your head and not with your heart—death terminates an agency unless the agency is irrevocable

capacity

Principal Must Have Contractual Capacity A principal must have contractual capacity. Thus, a minor's appointment of an agent is voidable, and incompetents and most unincorporated organizations cannot be principals. Agent needs only minimal capacity: While a principal needs contractual capacity, an agent doesn't. So a person may be an agent even though they have no contractual capacity. (Exception: If the agent has literally no mental capacity, they cannot act for the principal.)

Methods of Ratifying

Ratification may be express or implied through the conduct of the "principal." The most common form of express ratification is oral or written affirmation of a contract (for example, a company resolution). The most common form of implied ratification is when the "principal" accepts the benefits of the contract. Other ratifying conduct would include silence if there is a duty to disaffirm or suing on the transaction.

Proof of Partnership Existence

Since no formalities are required to form a partnership, it's sometimes difficult to determine whether the relationship between parties is a partnership or something else. To deter- mine whether a partnership exists, courts generally look to the intent of the parties. If they intended to carry on a business as co-owners, there is a partnership even if they did not subjectively intend to be partners.

Agent's Duty of Loyalty

The agent owes a duty of undivided loyalty to the principal. This includes the following obligations: -An agent may not use their position as agent to profit for themselves. If they do, they must account to the principal for any profits made while carrying out the principal's instructions. -an agent must act solely for the benefit of the principal and not to benefit themselves or a third party. -An agent must refrain from dealing with their principal as an adverse party or from acting on behalf of an adverse party. -An agent may not compete with their principal concerning the subject matter of the agency. -An agent may not use the principal's property (including confidential information) for the agent's own purposes or a third party's purposes.

Tort liability for Acts of Sub-servants.

The doctrine of respondeat superior also applies to duly authorized subservants. Authorization to hire subservants can be express or implied. Implied authorization can arise from: past practices, emergency situations, or a reasonable necessity to achieve an authorized result. However, the employer is generally not liable for the torts of a subservant engaged without authority.

Employer's liability for agent's intentional torts

The general rule is that the employer is not liable for the intentional torts of an employee (for example, battery or assault). Intentional torts are not normally within the scope of employment, with some exceptions.

An employer may lend the services of an employee to another. If the employee commits a tort in the loaned role, who is liable—that is, who is the employer?

The key issue is WHO HAD THE PRIMARY RIGHT OF CONTROL over the employee? the loaning principal or the borrowing principal? that employer is liable.

Improper Disposition of Goods

The principal will be held liable for the disposition of their goods by an agent possessing them if the agent was given some indicia of ownership, or if the goods disposed of were sold by an agent who is a dealer in the particular goods.

Liability of agent for subagent

an agent has absolutely liability to the principal for breaches by a subagent

actual authority is

authority that a person reasonably believes he has based on his communications with the partnership

actual authority is

authority that the agent reasonably thinks he possesses based on the principal's dealings with him

the act of any partner apparently carrying on in its ordinary course of the partnership business or business of the kind carried out by the partnership will

bind the partnership unless the partner had no authority to act for the partnership and the third party with whom the partner dealt knew the partner lacked authority

Agent's remedies for principal's breach of duties

contractual remedies possessory lien

a partnership can be bound on a contract

entered into by a partner with actual or apparent authority

actual authority can be __ or ____ from the actions of the principal

express or implied

actual authority can be ____ or ____ through _____

express or implied; through custom, necessity, or acquiescence

The large topics to think about in partnership law include:

how a partnership is formed; the duties and rights of partners and partnerships; liability between partners and third parties; how partners dissociate from a partnership; and how partnerships are dissolved. There are also limited partnerships and limited liability companies that are gov- erned by different statutes than general partnerships

each partner is ___ and _____ _____ for partnership obligations

jointly and severally liable; which means that each partner is personally liable for the full amount

Inherent Authority

nherent authority is derived solely from the agency relationship and results in the principal being bound even though the agent had no actual or apparent authority to perform the particular act. This occurs because courts wish to protect innocent third parties rather than a principal who gave some actual authority to the agent. Examples of inherent authority include: — Respondeat Superior Under the doctrine of their employee committed within the scope of employment. — Conduct Similar to that Authorized Where an agent exceeds their actual authority (that is, violates orders), but the conduct is similar to acts autho- rized, the principal will be held liable.

The difference between an employee and an independent contractor is

that the principal/employer retains the right to control the MANNER IN WHICH THE EMPLOYEE PERFORMS THEIR WORKk. A principal does not reserve/have a right to control the manner in which work is performed by an independent contractor. In other words, if the principal has the right to tell the agent how to achieve the results the principal desires, the agent is an employee; if the principal does not have the right to tell the agent how to achieve the results sought, the agent probably is an independent contractor.

when a partner enters a contract he had no authority to enter on behalf of the partnership,

the partnership is not bound by the contract

Apparent authority exists when

the principal "holds out" another as possessing authority and based on this holding out, a third party is reasonably led to believe that authority exists (even though as between the agent and the principal, no such authority has been granted). Put differently, if the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent has authority to act on the principal's behalf, the agenthas apparent authority to bind the principal. So remember, apparent authority arises from reasonable beliefs of third parties. The policy of apparent authority is that it protects innocent third parties who rely on the principal's holding out of a person as their agent.

Generally, if an agent did not have any actual authority when they entered a contract for a principal

the principal will not be bound by the agent's acts. Unilateral Agent Representations A principal generally will not be bound when the principal does nothing to hold the agent out as having authority and the only statement of authority comes from the purported agent's claim they have authority. Apparent authority is based on the principal's manifes- tations to a third party. Thus, apparent authority cannot be created by the mere representations of an agent or other actor. When they may be bound: -impostors: Where the principal negligently permits an impostor to be in a position to appear to have agency authority, the principal will be held liable for the impostor's actions undertaken with such authority. In other words, we'll have an agency by estoppel-the principal will be estopped from denying the imposter was their agent. — Lingering Apparent Authority Remember, apparent authority can exist even when actual authority does not. Similarly, apparent authority can linger after actual authority ends. -Notice May Be Necessary: where an agent's actual authority has terminated, he will have apparent authority to act on the principal's behalf as to all third parties with whom the principal knows he dealt unless and until the third parties receive either actual or constructive notice of the termination. -Writing Manifesting Authority: Where an agent's actual authority has been terminated but third parties rely on a written authority of the agent, the agent's apparent authority is not considered to be terminated—unless the principal recovers the written authority. -Death or Incompetency: The majority view is that death or incompetency of the principal does not automatically terminate the agent's apparent authority.

The agent has actual authority ton bind the principal if

the principal's words or conduct would lead a reasonable person in the agent's position to believe that the agent has authority to act on the principal's behalf.

apparent authority exists when

the principal; "holds out" the agent as having certain authority, causing third parties to reasonably believe the agent has such authority

a partnership is formed when

two or more people associate to carry on as co-owners of a business for profit

actual authority to enter into matters outside the ordinary course of business requires

unanimous consent of all parties

Remember that the type of principal (disclosed, unidentified, or undisclosed) is relevant only when you are considering

whether the agent is liable. Do not discuss the type of principal when analyzing the principal's liability. Any type of principal will be bound as long as the agent had authority.

Remember, an employer is not automatically liable for an employee's torts. The employer is liable for the employee's torts only if they were committed

within the scope of the employee's employment. here are three factors helpful in making this assessment: 1. Was the conduct "of the kind" that the agent was hired to perform? 2. Did the tort occur "on the job" (that is, within the time and space limits of the employment)? 3. Was the conduct actuated at least in part to benefit the principal?

Management of Limited Liability Companies (LLC)

1. All members participate in management except as otherwise specified in the operating agreement 2. Each member of a member-managed LLC has authority to bind the company to contracts, unless the member lacks actual authority to do so and the other party has notice of same

Types of Apparent Authority

- When Agent Exceeds Actual AuthorityThere are situations where the agent exceeds their authority, yet the principal is still bound. -Prior Act: Where the principal previously permitted the agent to exceed their express or implied authority and knows that the third party is aware of this, the principal is bound through apparent authority. -Power of Position: Apparent authority may be established through an agent's title or position. Indeed, it is somewhat common for a third party to argue that an agent's title or position, which was given to them by the principal, created a reasonable belief in the third party that the agent was authorized to act for the principal in ways that are typical of someone who holds that title or position. So, when the agent is in a position that customarily carries with it certain responsibilities, the principal is liable for the agent's acts that come within these customary responsibilities.

Governing Law of Partnerships

-The Revised Uniform Partnership Act ("R.U.P.A.") provides a default set of rules for general partnerships -Contract and agency rules also apply

Termination or revocation of actual authority occurs by:

-The happening of an event specified in the agent's and principal's -Lapse of a reasonable time if a time for termination is not specified in the agreement -A change in circumstances, including destruction of the subject matter of the authority, insolvency of the agent or principal, and a change in the law or business conditions -Agent's breach of fiduciary duty -Either party's unilateral termination (both parties have the power to terminate an agency unilaterally, although such termination may constitute a breach of contract; or -Operation of law (for example, death or loss of capacity of either party except where a durable power of attorney-written authority that says it will not terminate on the principal's disability- is present. Termination in the case of a principal's death is effective only when the agent has notice of it.

Generally, a "principal" may ratify anything unless:

1) performance was illegal at the time of ratification, (2) the third party has withdrawn, or (3) there has been a material change in circumstances. Under the Second Restatement, which is followed by most states, an undisclosed "principal" (one whose existence and identity is withheld from the third party) may not ratify. Only disclosed (existence and identity of the principal are known to the third party) or unidenti- fied (existence of the principal is known, but the principal's identity is withheld) "principals" may do so. This is because the Second Restatement requires that the "agent" purport to be acting on behalf of a "principal". However, the modern view of the Third Restatement does not require the agent to purport to be acting on behalf of a "principal"; therefore, under the Third Restatement any "principal" may ratify. Note: A purported "agent" may not treat the contract as their own.

Liability of Partners in a Limited Liability Partnership

1. A partner is not personally liable for the obligations of the partnership 2. However, a partner remains personally liable for her own wrongful acts

Rights of Partners

1. All partners have an equal right to participate in the management and control of the partnership absent a partnership agreement providing otherwise 2. All partners have an equal right to share in the profits and losses and receive distributions 3. Partners are not entitled to remuneration except for reasonable compensation for services rendered in winding up the partnership's business 4. The partnership must indemnify partners for payments reasonably made and obligations reasonably incurred by a partner in carrying on the business of the partnership 5. If a partner must pay more than his fair share of the partnership's debt, he is entitled to contribution from the other partners 6. All partners have the right to inspect the partnership books and records 7. The partnership may sue or be sued in the partnership name or in the names of the individual partners

Rights of Both General and Limited Partners in Limited Partnership

1. Both general and limited partners have the right to distributions, which can be transferred, in whole or in part 2. A partner may transact business with the limited partnership 3. Any partner may maintain a derivative action on behalf of the partnership if the partner first makes demand on the general partners or the demand would be futile 4. Any partner may apply for a decree of dissolution whenever it is not reasonably practicable to carry on the business in conformity with the partnership agreement

Duties of Partners

1. Duty of Loyalty -Partners must account for all profits or other benefits derived by the partner in connection with partnership business -Partners may not deal with partnership as one with an adverse interest -Partners may not compete with the partnership 2. Duty of Care -Partners must refrain from engaging in negligent, reckless, or unlawful conduct -Partners must refrain from engaging in intentional misconduct 3. Duty of obedience -Partners must obey all reasonable directions of the partnership -Partners must refrain from acting outside the scope of the partner's actual authority 4. Duty to provide complete and accurate information -Partners must provide complete and accurate information concerning the partnership

Rights Given Solely to General Partners in Limited Partnership

1. Each general partner has equal rights in management 2. A general partner has a right to the partnership's business information 3. A general partner is not entitled to remuneration for services performed for the partnership 4. A general partner is entitled to indemnification for liabilities incurred in the ordinary course of the partnership's activities

Dissociation and Dissolution of Limited Partnership

1. Events that cause dissociation of a partner in a general partnership will also cause dissociation in a limited partnership 2. A limited partner has no right to dissociate before termination of the limited partnership 3. A limited partnership may be judicially and administratively dissolved; otherwise, a limited partnership may be dissolved only by the occurrence of one of the following: -the happening of an agreed upon event -The consent of all the partners holding a majority of the right to receive distribution ("majority in interest") -After dissociation of a general partner and the consent of the majority in interest, if no general partner remains, after 90 days unless a new partner is admitted, or -90 days after dissociation of the last limited partner, unless a new limited partner is admitted 4. Assets are distributed first to creditors (including partners who are creditors) and then to the partners as a distribution

Rights and Obligations of Partners in a Limited Liability Partnership

1. Financial rights and obligations of partners, including profit/loss-sharing and indemnity, are identical to those of general partners in a general partnership 2. If partnership assets are insufficient to indemnify a partner for an L.L.P.obligation, each partner forfeits a right to receive contributions in exchange for being relieved of the obligation to contribute to the personal liability of other partners

Formation of Limited Liability Partnership (LLP)

1. Formation of an L.L.P. must be approved by whatever vote is necessary to amend the partnership agreement 2. Requires statement of qualification (registration) filed with the secretary of state, containing: -Name and address of partnership -Statement of election to be an L.L.P.

Duties of Partners in a Limited Partnership

1. General partners owe the limited partnership fiduciary duties of care and loyalty 2. Limited partners owe no fiduciary duty to the partnership and are free to compete with the partnership, except as otherwise provided in the partnership agreement

For ratification to occur, the "principal" must:

1. Have knowledge of (or have reason to know) all material facts regarding the contract 2. Accept the entire transaction (meaning the "principal" cannot merely ratify a portion of the transaction) AND 3. Have capacity (be competent and of legal age) Ratification is a unilateral act of the "principal" and requires no consideration. Note also that ratification cannot be used to alter the rights of intervening parties.

Factors to Imply a Partnership

1. Intent of the parties 2. Sharing of profits raises a presumption of partnership (exception—payments for: a debt, services rendered, rent, annuity or retirement benefits, interest on a loan, or sale of goodwill of a business) 3. Other factors do not raise a presumption but are evidence that a partnership has formed: - Title to property is held in joint tenancy or tenancy in common -Parties designate their relationship as a partnership -The venture requires extensive activity. -Sharing of gross returns

Liability of Limited and General Partners in a Limited Partnership

1. Limited partners have no personal liability for obligations of the partnership 2.General partners are jointly and severally liable for all partnership obligations General partners may also be limited partners but they still have all of the liabilities and duties of a general partner

Rights Given Solely to Limited Partners in Limited Partnerships

1. Limited partners have no right to participate in management, except as provided by the partnership agreement 2. Limited partners have the right to inspect and copy certain partnership records that are required to be kept in the records office

Governing Law and Formation of Limited Partnership

1. Limited partnerships are governed by the Uniform Limited Partnership Act ("U.L.P.A.") 2. Need one or more general partners plus at least one limited partner 3. Need to file a certificate of limited partnership with the secretary of state

Agency is

a fiduciary relationship that arises when one person (the "principal" appoints another (the "agent") to act on the principal's behalf and the agent consents to act. The agent must also act subject to the principal's control

If it is not clear whether the principal has the right to control the method and manner of the work, consider:

1. The degree of skill required on the job (where great skill is required, more likely to be independent contractor) 2. Whose tools and facilities are used (if the principal supplies the tools and facilities used to perform the job, more likely to be employee) 3. The period of employment (definite and/or short, more likely to be independent contractor; indefinite and/or long, more likely to be employee) 4. The basis of compensation (if on time basis, more likely employee; if on job basis, more likely independent contractor) 5. The business purpose (if person hired to perform an act in furtherance of principal's business, more likely employee; if nonbusiness purpose, such as mowing a lawn, more likely independent contractor) 6. Whether the person has a distinct business (person who has their own business or occupation is more likely to be an independent contractor) 7. The characterization and understanding of the parties 8. The customs of the locality regarding supervision of work

Factors to Determine Whether Property Belongs to the Partnership: For untitled property, apply common law factors:

1. Used partnership funds 2. use of property by partnership 3. Listed in partnership books as an asset 4. Close relationship between property and the business 5. Improvement with partnership funds 6. Maintenance with partnership funds

A principal is vicariously liable where an agent appearsto deal or communicate on behalf of the principal and the agent's apparent authority enables the agent to

1. commit a tort; or 2. conceal its commission This means that for the principal to be liable, there must be a close link between the agent's tortious conduct and the agent's apparent authority.

A partnership is

A partnership is an association of two or more persons to carry on as co-owners a business for profit. It's formed as soon as that happens, regardless of whether the parties subjectively intend to form a partnership.

Independent Contractors (Respondeat Superior)

A principal generally is not liable for torts committed by an independent contractor. So the first step in determining a principal's tort liability is to determine whether there an employer-employee relationship between the tortfeasor and the principal.

Third Party vs. Principal

A principal will be liable to the third party on a contract entered into by their agent if the agent had valid authority (actual, apparent, or through ratification) to act. If the agent did not have authority to enter the contract and the principal has not ratified the contract, the principal cannot be held liable on the contract.

a person who receives a share of the profits from a business is presumed to be

a partner

Generally, a partnership is dissolved and its business must be wound up:

A. In a partnership at will, when a partner gives notice of her express will to withdraw B. In a partnership for a definite term or particular undertaking, when: 1) Within 90 days after a partner's death, bankruptcy, or wrongful dissociation, at least half the remaining partners express a will to wind up the business 2) All the partners express a will to wind up the business, or 3) The term expires or the undertaking is complete C. upon the happening of an agreed upon event D. Upon the happening of an event that makes it unlawful for the partnership to continue, or E. Upon a judicial decree

an agency relationship is created when

a person (the principal) manifests an intent that another person (the agent) act on his behalf and both parties consent to the agreement

Effect of Ratification

An agency relationship is created by ratification when an "agent" purports to act on behalf of a "principal" without any authority at all, but the "principal" subse- quently validates the act and becomes bound. In other words, even if the "agent" had no authority at the time of entering into the contract, the "principal" will still be bound by the "agent's" actions if the "principal" ratifies the contract. Ratification effectively serves as a substitute for before-the-transaction authority. It gives the transaction retroactive effect unless the "principal" lacked contractual capacity at the time the "agent" entered into the unautho- rized transaction or unless retroactivity would interfere with intervening third-party rights. Upon ratifica- tion, the "agent" is relieved of liability for breach of duty and their implied warranty of authority

Agent's Duties to the Principal

An agent (even an unpaid one) is a fiduciary of their principal. So, in addition to any express contractual duties that the agent owes the principal, fiduciary duties of: -loyalty, -obedience to lawful instructions, and -reasonable care under the circumstances (including duty to disclose all relevant information) are owed.

Liability of Principal for Agent's Contracts

An agent has the power to bind a principal to a contract the agent enters on the principal's behalf only if the agent acted with authority. There are three types of authority: actual, apparent, and ratified. When deciding whether a principal will be bound on an agent's contract, it should first be deter- mined whether the agent had actual authority. If they did not, look to see whether apparent authority was present. Ratified authority comes into play only if the principal grants authority after the contract is made. note: The most important of all agency concepts for bar exam purposes are those involving actual and apparent authority. A very high percentage of questions will require you to display your understanding of this area.

Agent's Duty of Obedience

An agent must obey all reasonable directions of their principal. If the agent disobeys a reasonable direction, the agent will be liable to the principal for any loss that the principal suffers

Agent's Duty of Care

An agent owes a duty to their principal to carry out their agency with reasonable care. The degree of care is a "sliding scale" depending on any special skills that the agent may have. While a gratuitous and a compensated agent may owe the same duty of care, the measure of "reasonableness"may vary because compensation is a proper circumstanceto consider (that is, courts will probably expect a gratuitous agent to put less effort into being careful than they would expect a paid agent to exercise).

Ratification (Scope of Employment Test)

An employer may ratify an employee's torts if the normal requisites of ratification are met. In tort ratification situations, pay particular attention to the requirement that the employer must have knowledge of all material facts.

Third Party v. Agent

As a general rule, if the agent had actual authority or apparent authority to enter a contract for the principal, orif the principal ratified a previously unauthorized contract,the agent cannot be held personally liable on the contract. However, an exception applies (that is, the agent may be held personally liable) if the existence and identity of the principal are not disclosed.

Actual Authority

Authority that the agent reasonably believes they possess based on the principal''s dealings with them. Put differently, if the principal's words or conduct would lead a reasonable person in the agent's position to believe that the agent has authority to act on the principal's behalf, the agent has actual authority to bind the principal. Actual authority may be express or implied.

each partner is an ______ of the partnership for ________

agent; purpose of its business

Principal's Remedies for Agent's Breach of Duties

The principal's remedies against the agent include: -contract actions (against compensated agents), - tort actions, - actions for secret profits, -equitable actions for an accounting, -imposition of a constructive trust (an equitable remedy whereby a "trust" is imposed to transfer property gained through unjust enrichment back to the intended party, meaning, from the wrong- doing agent to the principal), and -withholding of compensation for intentional torts or intentional breaches of fiduciary duty. The principal may recover the actual profits or properties held by the agent whether or not the agent's profit has caused the principal any loss. The principal may also terminate the agency prior to any termination date in a contract. When it comes to breach of fiduciary duty, note that a wide range of equitable remedies are available to a court. In general, a court can do whatever it wants to "do justice" in the situation.

Was the conduct "of the kind" that the agent was hired to perform? (Scope of Employment Test)

To be within the scope of employment, the employee's conduct need not be actually authorized. Nor does prohibi- tion by the principal necessarily remove the conduct from the scope of employment. If the nature of the employee's conduct is similar or incidental to that which was authorized, the conduct is probably within the scope of employment. However, serious criminal acts are normally considered to be outside the scope of employment.

Third-Party Liability to Principal and Agent: Disclosed Principal Situations

When the principal is disclosed, only the principal, not the agent, may enforce the contract and hold the third party liable.

Third-Party Liability to Principal and Agent: Unidentified and Undisclosed Principal Situations

When the principal is unidentified or undisclosed, either the principal or agent may enforce the contract and hold the third party liable. Note that if the agent enforces the contract against the third party, the principal is entitled to all of the rights and benefits thereunder. When Principal May Not Enforce Contract: The principal may not enforce the contract if there has been an affirmative fraudulent misrepresentation of the principal's identity or if there is an unforeseen increased burden to the third party due to the fact that perfor- mance is due to the principal and not the agent.

Employer-Employee by Estoppel

Where a principal creates the appearance of an employ- er-employee relationship upon which a third party relies, that principal will be estopped from denying the relationship and will be liable under the doctrine of respondeat superior.