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Formation: When principal manifests assent to another person to act on behalf of principal. Both parties must assent to the
relationship. No consideration required.
Capacity Issue: Incompetent person cannot be principal but can be agent.
Agent cannot serve for two adverse parties in a transaction. If he does, transaction is voidable by either party
Burden of proof for agency rests on party asserting the relationship and proven by a preponderance of evidence
Subagent: Hired by the agent. If subagent appointed without authority of principal, no agency relationship exists between
the principal and the subagent.
Contract liability: When can an agent bind a principal?
1. Actual authority – When P manifest to the agent to act in behalf of P. This can be express or implied. Express
authority is a direct request from the P while implied authority is anything the agent reasonably believes is
necessary to accomplish the principal’s express request
2. Apparent authority – Arises from reasonable belief of third parties. When due to behavior of the P, third party is led
to believe that agent is acting within the principal’s behalf. This requires some sort of overt action by the principal
such as words, conduct, failure to act.
a. Arises when agent exceeds authority and third party has no reason to know or agent has no authority
b. P is estopped from denying existence of agency relationship where P intentionally cause mistaken belief
Principle may ratify – grant retroactive authority for his agent’s earlier unauthorized actions.
Contract liability to third parties:
1. Third party versus Agent - Agent is personally liable where the principal is undisclosed or partially disclosed. If
third party later learns of identity of principal, it can elect to sue either principal or agent. For torts, agent is liable
for his own actions unless tort is within scope of employment.
2. Principal versus Third party: P can be vicariously liable for acts of agent (respondeat superior).
a. Two questions to ask: Is it employee or contractor? Was the worker within scope of employment?
b. Conduct within scope of employment: liability is imposed if employee is performing tasks assigned by the
employer. A frolic (substantial deviation from work) imposes no liability on principal but a detour does.
Note whether employee was advancing P’s interest, deviation occurred before or after employer’s objective
c. Independent contractors: No liability on principal unless inherently dangerous activity or non-delegable
duty, or negligent hiring
d. Employee driving his own vehicle can still impose liability but commuting is an exception.
e. Knowledge of the agent is imputed to principal
Duties owed by the agent:
Duty of care – Agent must perform contract and render services with reasonable care, indemnify principal against
Duty of loyalty - Agent may not engage in self-dealing or usurp a business opportunity belonging to the principal.
Business opportunity is one that is so closely relayed to the principal’s business that it could be deemed incidental
to the business.
Duty to account – Agent must account for money or property received for the principal separately from his own.
Duty of candor – Agent must disclose to principal any and all facts relevant to transaction that principal should
Duty of confidentiality -
Duty not to compete – Ends upon termination of agency relationship
Duties owed by principal: Duty to compensate or reimburse, cooperate, due care towards agent, indemnify and exonerate
Remedies to agent: Breach of contract, retain lien on any property of the principal to which he has lawful possession
Remedies to principal: Agent must indemnify the principal, Agent must regurgitate profits earned by engaging in self-dealing
Termination: Power to terminate at any time. Death or incapacity terminates the relationship. All duties cease.
Capacity: While a minor can enter into a partnership agreement, he may void the partnership agreement on the basis of his
infancy. However, if a minor voids a partnership agreement on the basis of his infancy, his investment in the business is
subject to the claims of creditors
Joint venture: Generally, a joint venture may be described as an association contemplating a single transaction or related
series of transactions. In contrast, a partnership is generally considered to be carrying on an ongoing business.
General Partnership: An association of two or more people to carry on a business for profit. There is no requirement that the
parties subjectively intend to form a partnership, only that they intend to run a business as co-owners. There are also no
formal requirements for a general partnership. Under the RUPA, receipt of profits (not gross returns) from business is prima
facie evidence of partnership. Courts generally look to the intent of the parties to determine if a partnership exists.
Relationship between partners and third parties: Partner’s ability to bind partnership can be express or apparent. If there is
no partnership agreement, partner may still bind business through apparent authority.
AGENCY AND PARTNERSHIP ONE-SHEET
The general partners are jointly and severally liable for all obligations of the partnership. Each partner is
individually liable for the entire amount of the partnership obligation. Partners are also liable for any torts
committed by a partner or employee in the ordinary course of the partnership.
Rights: Partners share equally in profits and each partner must contribute towards the losses in proportion of her
profits. Partners have equal management rights unless otherwise stated in agreement.
Indemnification: Where one partner is compelled to satisfy the whole obligation, he is entitled to seek
indemnification from the partnership. If the partnership cannot indemnify, then he can seek contributions. All
partners must contribute in proportion to their relative share of losses.
Partnership by estoppel: Even when a person is not actually a partner in a partnership, the person's agency
authority may be created by the "holding out" of the person as a partner. If all the members of the partnership
consent to the representation, any liability incurred by the person is a partnership obligation; otherwise, the person
acting and the partners consenting to the representation are jointly and severally liable.
Retiring partner usually remains liable for all obligations incurred before his retirement.
Transfer: Partner can transfer economic rights (profits/loss) in partnership but not management rights. Any
shares put into partnership become partnership property. Transferee only has right to receive distributions, but not
participate in management or require access to any information concerning partnership.
No new members can become a partner without consent of all partners. Conversion: A GP may convert to an LLP by
a vote of the partners with a majority share of the interests
Duty of care – Each GP owes partnership duty of care in conduct and winding up of partnership business
Duty of loyalty – Duty not to compete – Partner may not exploit a business opportunity that comes to her in her
capacity as a partner. Partner must first present the opportunity to partnership and can only pursue if they reject.
Duty to disclose: Duty to render true and full info concerning things affecting the partnership.
Duty to account: Partner must account to the GP and hold as trustee GP property
Duty to keep books and right of inspection – Every partner shall have access to and may inspect, copy any books
Dissociation: Withdrawal of a partner, expulsion via judicial order, bankruptcy or financial insolvency.
GP must purchase the dissociated partner’s interest for a buyout price equal or greater than liquidation of assets
Dissociated partner can still bind partnership: Where partnership continues after dissociation, the partnership is
bound by an act of the dissociated partner if the other party: 1) reasonably believed that the dissociated partner
was then a partner; and 2) is deemed not to have knowledge or notice of the dissociation.
GP is not discharged from obligations incurred while he was still a partner.
Dissolution: Beginning of the termination in relation of the partners caused by dissolution. Winding up: Process of settling
affairs. Termination: Point at which all partnership affairs are wound up.
Mandatory: Partner dissociated and majority of GP vote for dissolution, an event agreed upon in partnership
agreement, a partnership for specific undertaking, or when an event makes it unlawful for all or substantially all of
business partnership to continue, unless there is a cure for the illegality within 90 days.
Permissive: May be dissolved by express will of all the partners at any time or if a partner applies to court and can
show frustration of economic purpose or if a GP is engaged in conduct that makes it impractical to carry on part.
Distribution of assets: Assets must be applied towards outside creditors, including any partners who are creditors,
and then any surplus goes to GP according to their relative rights.
Limited Liability Partnership – Partnership must file a statement of qualification with the SOS with correct notation.
Partnership becomes an LLP at the time of filing or on date specified in the statement. Partners are not liable for the LLP’s
obligations, but partner remains liable for her own wrongful acts and the acts of those she supervises.
Limited Partnership – LP is composed of at least one general partner and one limited partner. GP manages the
partnership while LPs contribute capital and share in profits. LP is not liable even if she participates in management. If LP is
not listed as an LP, he has opportunity to amend the filing. The GP are jointly and severally liable for partnership
obligations while the limited partners do not have liability beyond their contributions.
Formation: In order to validly form an LP, a certificate must be filed with the SOS.
Consent of all partners is required to amend partnership agreement, amend certificate of the LP, sell, lease or
exchange LP’s property other than in ordinary course of business, approve a new general partner.
Dissociation is automatic after dissociation of GP or last limited partner. Dissociation is wrongful where there is
breach of partnership agreement, expelled by judicial order, bankruptcy.
Only GP, who have no dissociated wrongfully, can wind up the partnership.
Limited Liability Limited Partnership: Both the general and limited party have limited liability.
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