Agency & Partnership (VA) (FINAL)
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- Define vicarious liability (for agency purposes).
- When a principal is held liable for the torts of its agent.
- What is the test for vicarious liability?
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The principal will be liable for torts committed by its agent IF two things are true:
1. A principal-agent relationship exists, AND
2. The tort was committed by the agent within the scope of that relationship - What is the test for whether an agency relationship exists?
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The Principal-Agent Relationship requires:
1. Assent – an informal agreement btw the principal (who has capacity) and the agent
2. Benefit: the agent’s conduct must be for the principal’s BENEFIT.
3. Control: The principal must have the right to control the agent by having the power to supervise the manner of the agent’s performance. - What is a sub-agent? Is there vicarious liability for a sub-agent's torts?
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An agent gets a sub-agent to help complete its responsibilities.
RULE: “There can be no vicarious liability for the sub-agent’s tort UNLESS there is assent, benefit, and the right to control the sub-agent tortfeasor.
Exam tip: There’s often benefit, but almost NEVER assent or right to control. Absent A&C, no vicarious liab. for sub-agent’s tort - What is a borrowed agent? Is there vicarious liability for a borrowed agent's torts?
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A principal borrows another principal’s agent.
RULE: There can be no vicarious liability for a borrowed agent’s torts UNLESS there is assent, benefit, and the right to control the borrowed agent tortfeasor.
Exam tip: May be a close call. Often have assent, may have benefit. But almost never have right to control the borrowed agent. - Is there liability for an independent contractor's torts?
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THERE CAN BE NO VICARIOUS LIABILITY FOR AN INDEPENDENT CONTRACTOR’S TORTS.
EXCEPTIONS (when there IS liability for an indep. contractor's torts):
(1) Ultra-Hazardous Activity
(2) Estoppel
Why: there is no right to control an independent contractor b/c there’s no power to supervise the manner of an independent contractor’s performance. - What is the estoppel exception for liability for an independent contractor's torts?
- If a principal “holds out†its indep. contractor w/ the APPEARANCE of agency, it is estopped from denying vicarious liability, even for the indep. contractor’s torts.
- What is the test for whether an activity was performed within the SCOPE of an agent's agency relationship?
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3-part test for the SCOPE of the principal-agent relationship:
1. Was the conduct of the kind/nature that this agent was hired to perform? (Was the conduct within the job description?)
- If yes, it’s likely to be inside the scope.
2. **Did the tort occur “on the job� (where & when question)
- Frolic: a new and independent journey. if agent is on a frolic, they are OUTSIDE scope of agency
- Detour: a mere departure from an assigned task. if agent is on a detour, agent is STILL W/IN scope of agency
3. Did the agent intend to benefit the principal? If the agent EVEN IN PART intended to benefit the principal by her conduct, that’s enough to call it within the scope of agency. - Is a principal liable for the intentional torts of its agents?
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Intentional torts, as a rule, are OUTSIDE THE SCOPE OF AGENCY.
- 3 EXCEPTIONS (each strong enough on its own to overcome the presumption, and to put the conduct within the scope of agency):
1. Intentional conduct is still within the scope if the conduct was specifically authorized by the principal
2. Intentional conduct is still within the scope if the conduct was a natural form of the type of employment (e.g., bouncers)
3. Intentional conduct is still within the scope if it was motivated by a desire to serve the principal. - Is a principal liable to 3rd parties for contracts entered into by its agent? (general rule)
- The principal will be liable on contracts entered into by its agent with AUTHORITY (eg, if the principal authorized the agent to enter the contract).
- What are the types of authority under which a principal can be held liable for contracts entered into by its agents?
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1. Actual express
2. Actual implied
3. Apparent
4. Ratification - What is Actual Express Authority?
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The principal used words to express authority for an agent to enter a contract.
As a rule, can be ORAL, PRIVATE, and NARROW (oral, private whisper counts)
Narrowly construed/tailored to the actual words used to express it. - What is Actual Implied Authority?
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Authority which the agent reasonably believes the principal has given, because of: (usually based on conduct or circumstance) –
1. Necessity – there is implied authority to do all tasks necessary to accomplish an expressly authorized task. (Eg, if there’s express authority to close a deal, there is implied authority to rent a conference room for that purpose.)
2. Custom – There is implied authority to do all tasks customarily performed by persons with the agent’s title or position.
3. Prior Dealings- there is implied authority to do all task which the agent believes to be authorized from prior acquiescence by the principal. - What is Apparant Authority?
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2-Part Test:
1. principal “cloaked†agent with the appearance of authority
AND
2. third party reasonably relied on the appearance of authority - What is ratification (re: authority)?
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Authority can be granted after the contract has been entered IF:
1. The principal has knowledge of all material facts regarding the contract,
AND
2. The principal accepts its benefits.
Virginia EXCEPTION: Ratification must be complete – it cannot alter the terms of the contract. - What is the exception to the actual express authority for an agent to enter a K?
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Equal Dignities Doctrine -
If the K itself must be in writing, then so too, equally, must the express authority to enter the K also be in writing.
E.g., any K governed by the statute of frauds. Usually on exam, involves a K for the conveyance of land. - Can actual express authority be revoked?
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Express authority will be REVOKED BY: (e.g., it terminates) -
1. a unilateral act of either party OR
2. The death or incapacity of the principal
EXCEPTION: express authority cannot be revoked at the death of the principal if there is a DURABLE POWER OF ATTORNEY
power of attorney = written expression of authority to enter a transaction/s.
Look for CONSPICUOUS SURVIVAL LANGUAGE – that’s what makes the power durable. If there is durable power of attorney, then Ks made after the principal’s death are valid. - What are the two scenarios most commonly used to test the existence of apparant authority?
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1. The “Secret Limiting Instruction†question
- a. Agent has actual authority, but principal has secretly limited that authority. Agent acts beyond the scope of the limitation. Principal is liable.
2. The “Lingering Authority†question.
- Actual authority has been terminated. Afterwards, the agent continues to act on the principal’s behalf. Principal is liable authority until customers receive notice of the termination. - What if there is ambiguity about the identity of the principal in a situation where an agent entered a K on behalf of the principal?
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If there is any ambiguity about the identity of the principal, the 3rd party may choose to sue either an authorized agent or the principal
If the principal is partially disclosed (only the identity of principal is concealed) or undisclosed (fact of principal concealed), an authorized agent may nonetheless be liable at the election of the 3rd party. - What are the DUTIES that agents owe to principals?
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1. Duty to exercise REASONABLE CARE
2. Duty to OBEY reasonable instructions (i.e., not lie or break the law)
3. Duty of LOYALTY ** - What may an agent NEVER do based on the duty of loyalty?
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1. Self-dealing (agents may never receive a benefit to the detriment of the principal)
2. Usurping the principal’s opportunity
3. Make secret profits at the principal’s expense
NB: all 3 of these often appear in the same hypo involving breach of loyalty - What remedies are available for breach of the duties that an agent owes to a principal?
- If an agent breaches any of its duties, the principal may recover losses caused by the breach, and also may disgorge profits made by the breaching agent.
- What are the formalities required for forming a general partnership?
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NONE.
RULE: “There are no formalities to becoming a general partnership.†- Definition of a general partnership:
- “A general partnership is an association of two or more persons who are carrying on as co-owners of a business for profit.â€
- If you're not sure whether 2 people are partners for general partnership purposes, what is the distinguishing factor?
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Sharing of the PROFITS.
“The contribution of money or services in return for a share of the profits, if any, creates a presumption that a general partnership exists.â€
NOT in return for a salary, or for gross receipts. PROFIT is the key word. - Is a partnership bound by torts committed by partners?
- Yes, if the torts are committed in the scope of the partnership business. (same as rule for agency)
- Is a partnership bound by contracts entered into by partners?
- Yes, if they were entered into with authority. (same as rule for agency)
- Are partners agents? If yes, of whom?
- General partners are agents of their partnership for carrying on usual partnership business.
- Are General Partners personally liable for debts of the partnership?
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Yes.
A general partnership is no more than the sum of its parts. Each individual general partner is potentially personally liable for all debts and obligations of the partnership. - What is an incoming partner's liablility for pre-existing debts?
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There is no direct personal liability for prior debts.
BUT: any capital ($) which is contributed to the partnership by the incoming partner can be used to satisfy prior debts. - What is a dissociating (withdrawing) partner’s liability for subsequent debts?
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Under RUPA, outgoing partners are “dissociating partnersâ€
Dissociating partners retain liability on future debts UNTIL either:
1. notice of dissociation is given to creditors OR
2. until 90 days after filing notice of dissociation with the State Corporation Commission. - Will one who represents to a 3rd party that a general partnership exists be liable as if a general partnership exists – even is if doesn’t?
- Yes -- under the theory of General Partnership Liability by Estoppel
- What is General Partnership Liability by Estoppel?
- When one who represents to a 3rd party that a general partnership exists - when it doesn't - they will be liable as if a general partnership exists – even is if doesn’t.
- Define "limited partnership"
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A limited partnership is a partnership with at least one general partner, and at least one limited partner.
By definition, this is a two-tiered, dual liability structure. - How is a limited partnership formed?
- Must file a limited partnership certificate with the state that includes the names of all general partners.
- What is the liability of partners in a limited partnership?
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General Partners – have personal liability for all obligations of the limited partnership.
Limited Partners – have limited liability. They are NOT liable for the debts and obligations of this business form. - What kind of control do the partners have in a limited partnership?
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General Partners – have power to control the partnership.
Limited Partners: have limited control. They generally do not manage the business. - How do you form Registered Limited Liability Partnerships (RLLP)?
- Register with the state by filing a certificate of registration. PLUS, must file annual reports.
- What kind of liability do the partners have in a Registered Limited Liability Partnership (RLLP)?
- If you are a RLLP, NO PARTNER (not generals and not limiteds) is liable for the debts and obligations of this business form.
- What duties do partners owe to each other and to the partnership?
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Duty of Loyalty - General partners owe to each other and the partnership a duty of loyalty.
As in agency, general partners may never do ANY one of these things:
i. No self-dealing (benefiting self to the harm of partnership)
ii. No usurping (taking away partnership opportunities)
iii. No making of secret, undisclosed profits at partnership’s expense. - What remedies do partners/partnershp have if a partner breaches the duty of loyalty?
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If a partner has breached the duty of loyalty, the partners can have an action for accounting.
The partnership may bring an action for an accounting against one of its own breaching partners for:
1. losses caused by the breach, and
2. to disgorge profits made by the breaching partner. - What are the 3 kinds of property rights that partners have in a partnership?
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1. Specific Partnership Assets
2. Share of Profits and Surplus
3. Share in management - Who owns Specific Partnership Assets? What kind of assets are included in that category?
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They are owned by the partnership as partnership assets.
Therefore, no individual partner may transfer these assets w/o partnership authority.
Includes:
i. Land
ii. Leases
iii. Equipment - Who owns the Shares of Profits and Surplus (if any) in a partnership?
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A partner’s share of profits is PERSONAL PROPERTY, owned as personal property by individual partners.
Therefore, individual partners MAY transfer their share of profits and surplus to third parties. - Who owns the share in management of partners in a partnership?
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General partners have power to control. BUT the share in management is an asset that belongs only to the partnership itself.
Therefore, no indiv. partner may transfer their share in management to 3rd parties. (Eg, a partner can’t sell their right to vote). - How much control (%) does each partner have?
- Absent an agreement, each partner is entitled to EQUAL CONTROL (vote)
- Do partners get a salary?
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Absent an agreement, partners get NO SALARY.
EXCEPTION: partners DO receive compensation for helping to wind up the partnership business. - What is the default rule for calculating each partner's share of PROFITS?
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Absent an agreement, PROFITS ARE SHARED EQUALLY.
NB: Always figure out the profits split before determining losses. - What is the default rule for calculating each partner's share of LOSSES?
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FIRST run the PROFITS default rule.
THEN: Absent an agreement, LOSSES ARE SHARED LIKE PROFITS. - If there’s an agreement that is silent on profits and losses, how are both shared?
- First, absent an agreement profits, profits are shared equally. Second, absent an agreement on losses, they are shared just like profits, which would be equally, as well.
- If there’s an agreement that reads, “Profits shared 60/40,†how are losses shared?
- Because there is an agreement on profits, those are shared 60/40. But in the absence of an agreement on losses, they are shared just like profits. In this case, profits are shared 60/40, so losses must be shared 60/40 as well.
- If there’s an agreement that reads, “Losses shared 60/40,†how are profits shared?
- In the absence of an agreement on profits, they are shared equally. In this case, there is no agreement about profits, so they are shared equally.
- If Partner A puts up all the $, Partner B does all the work, Partner C gives the partnership its name, and Partner D does nothing -- how are the profits shared?
- profits are shared equally, in the absence of an agreement to the contrary.
- Can a partnership last indefinitely?
- NO. A partnership by definition must have some limit on its life.
- What is the process by which a partnership ends called?
- Dissolution
- When does dissolution of a partnership occur?
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Under RUPA:
First, for dissolution in a partnership *at will* where there is no agreement, dissolution occurs upon notice of the express will of any single partner to dissociate.
Second, in a partnership *not at will*, where there IS an agreement, dissolution occurs ONLY upon the happening of an event specified in the agreement OR upon unanimous consent of all partners to wind up. - When a partnership finished the process of dissolution, what is that called?
- Termination
- What is "winding up" for parternship purposes?
- The period btw dissolution and termination in which the remaining partners liquidate the partnership’s assets to satisfy the partnership’s creditors.
- Do partnership get compensation for winding up?
- Yes (this is an exceuption to the no salary general rule)
- What are a partners' liabilities for old business transactions while winding up? What about the partnership's liability?
- The partnership, and therefore its general partners, retain liability on all transactions entered into to wind up old business with existing creditors.
- What are a partners' liabilities for new business transactions while winding up? What about the partnership's liability?
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As to brand new business, the partnership and therefore its general partners retain liability on brand new business transactions UNTIL either:
1. notice of dissolution is given to creditors OR
2. 90 days after filing a statement of dissolution with the State Corporation Commission. - What is the order of distribution of assets to creditors upon dissolution of a partnership?
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Each level of priority must be fully satisfied before beginning the next level in THIS ORDER:
1. First, all creditors must be paid. There are 2 separate kinds of creditors, both of which must be fully paid first:
i. All outside, non-partner trade creditors
ii. All inside, partner creditors who have loaned $ to the partnership
2. Second, capital contributions by partners must be paid (NOT LOANS. This is $ turned in in return for a share of profits)
3. Third, profits and surplus, if any. - What is the overall distribution rule for PARTNERS when a partnership dissolves?
- Distribution rule: each partner must be repaid loans and capital PLUS their share of profits, BUT ALSO minus their share of losses.