Agency & Partnership Outline

I Formation of Firms – Agency Relationships....................................................................4 II Contractual Dealings by Agents..................................................................................... 5 A. Firm’s liability in contract for acts of its agent..........................................................5 B. Firms rights under contracts entered into by its agents-disclosure of principal........5 C. Agent’s Liability for Contractual Dealings..................................................................7 a). Agent’s duty to fully disclose principal/Problems with D.B.A.................................7 b) Liability of Attorneys.............................................................................................. 7 c) Agent’s Implied Warranty of Authority...................................................................8 d) Election of Remedies ............................................................................................. 8 IV Actual Authority of Agents and Its Consequences........................................................9 A. Express Actual Authority........................................................................................... 9 B. Implied Actual Authority (Authorized Transactions!)...............................................10 C. Agent’s Duties of Care and Loyalty.........................................................................10 1. Introduction to the Fiduciary Duties of Agents and Servants...............................10 2. Duty of Care......................................................................................................... 11 3. Duty of Loyalty..................................................................................................... 11 a) In general.......................................................................................................... 11 b) Conflicts of Interest........................................................................................... 11 c) Duty to Account for Profits................................................................................ 12 d) Other Aspects of the Agent’s Duty of Loyalty...................................................12 e) Principal’s Remedies......................................................................................... 13 V. Power of Agents to Bind the Firm by Unauthorized Acts.............................................13 B. Apparent Authority (PR has done something to create liability)..............................13 C. Estoppel (PR has done something to create liability)..............................................14 D. Inherent Agency Power (PR has done nothing; AG is unauthorized).......................15 E. Liability for Representations by Agent.....................................................................16 VI. Firm’s Accountability for notification to/knowledge of the Agent..............................17 1. Knowledge of An Agent........................................................................................... 17 2. Prior or Casually Obtained Knowledge of an Agent..................................................18 3. Notification to an Agent........................................................................................... 18 4. Time from which notification or knowledge affects the principal.............................18 5. Adverse Agents........................................................................................................ 19 VII. Ratification of Unauthorized Transactions................................................................20 A. Affirmance............................................................................................................... 20 B. Knowledge of Agents: effect on ratification.............................................................21 X. Liability for Wrongful Acts of Servants (Respondeat Superior)...................................21 A. Introduction............................................................................................................. 21 B. Masters Liability for Acts of Servants......................................................................21 1. Liability for Acts of a Servant within the Scope of Employment...........................21 2. Master’s RS Liability for Servant’s Abuse of Position Rest. § 219(2).....................23 XI. Liability for Wrongful Acts of Independent Contractors.............................................23 Page 1 10-Feb-08 18:27:00 a2/p2

Agency & Partnership Outline
A. Non-liability for Acts of Independent Contractors....................................................23 B. Exceptions to the Independent Contractor Rule employer will be VL liable for torts of a non-servant agent/independent contractor..........................................................24 Non-delegable duty (NDD) doctrine..........................................................................24 Apparent Authority/Estoppel ................................................................................... 25 XIII Dissociation of Non-owner Agents............................................................................25 A. Voluntary Terminations........................................................................................... 25 B. Terminations by operation of law............................................................................ 28 1. Death ................................................................................................................... 28 2. Termination of the Agency Relationship/Statutory Responses to the Death Issue ................................................................................................................................. 29 C. Irrevocable Agencies............................................................................................... 29 I Formation of Firms - B. General Partnerships...............................................................30 i. Attorneys.................................................................................................................. 32 VI. PShip’s Accountability for notification to/knowledge of Partners...............................33 VIII. Management and Conduct of Firm Business - GP....................................................34 1. Partners as Agents (Creating Partnership Obligations)............................................34 a) Apparent Authority............................................................................................... 34 b) Partnership by Estoppel (purported partners, purported partnerships)................36 2. Partners as Managers.............................................................................................. 38 a) Generally.............................................................................................................. 38 b) Transactions Outside the Usual & Regular Course of Business............................38 IX. Managerial Discretion and Fiduciary Duties...............................................................39 A. Duty of Loyalty - General Partnerships....................................................................39 X. Partnership Liability for Wrongful Acts of Partners (RS)..............................................42 C. RS Liability of Partnerships & Partners (Creating PShip Liability in Tort).................42 XII Ownership of the Firm v. Ownership of Firm Assets – GP...........................................43 A. Ownership of the Firm (Firm Property)....................................................................43 B. Rights of Assignees and Creditors...........................................................................44 1. Assignees............................................................................................................. 44 2. Creditor Rights - Charging Orders - a) General Partnerships................................45 C. Ownership interests in the firm - Distributions on Liquidation.................................47 I Formation of Firms - LP................................................................................................. 50 II. Liability for Contracts entered into before formation of a LL firm...............................51 a) Limited Partners: when face liability if problems in forming LPship.........................51 VIII. Management and Conduct of Firm Business - LP.....................................................53 1. Rights of General Partners....................................................................................... 53 2. Voting Rights of Limited Partners............................................................................53 3. Limits on Contractual Expansion of LP Rights..........................................................54 IX. Managerial Discretion and Fiduciary Duties...............................................................56 Duty of Loyalty- 2. Limited Partnerships......................................................................56

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Agency & Partnership Outline
XII Ownership of the Firm-LP – Rights of Creditor of Limited Partner..............................57 2. Creditor Rights - Charging Orders-b) Limited Partnerships .....................................57 I Formation of Firms - LLC............................................................................................... 58 II. Liability for Contracts entered into before formation of a LL firm...............................60 b) Members of a LLC: when face liability if problems in forming LLC...........................60 VIII. Management and Conduct of Firm Business - LLC...................................................61 1. Actual & Apparent Authority of Members or Managers............................................61 XII Ownership of the Firm – LLC – Rights of a Creditor of a Member...............................64 2. Creditor Rights - Charging Orders............................................................................64 I Formation of Firms – LLP & LLLP................................................................................... 64 VIII. Management and Conduct of Firm Business-Corporations.......................................66 IX. Managerial Discretion and Fiduciary Duties...............................................................67 A. Business Judgment Rule.......................................................................................... 67

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E.. the principal must authorize the agent in a written instrument that complies with same formalities as a deed). General Rule: Except for the execution of instruments under seal or for the performance of transactions required by statute to be authorized in a particular way. CL instruments required to bear the seal of the principal. power to bind principal to contract. Rest §12 Agent has the power to alter the legal relations between the principal and 3rd persons and between the principal and himself. Mutual Consent b.. One person will act on behalf of another.Agency & Partnership Outline *** Agency *** I Formation of Firms – Agency Relationships 1.g. Written. VL for agent’s torts b. i. Rest §1 Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control. reasonably interpreted. Control the result (ultimate outcome or objective) but not the minutia of achieving the result. statutory requirement when agent is executing a deed for the conveyance of land on behalf of the principal. E. principal’s authorization to agent must be granted in a sealed instrument) or ii.g. Attributes of the agency relationship (MO says these attributes are required. spoken. restaurants in Houston Center are not agents of HC because they only comply with lease requirements in the way they operate the restaurants. Rest §14 The principal has the right to control the conduct of the agent with respect to the matters entrusted to the agent. Rest §13 Agent is a fiduciary with respect to matters within the scope of his agency c.. Power of attorney Page 4 10-Feb-08 18:27:00 a2/p2 . When a statute requires the principal’s authorization to be in a particular form (not a statute that requires the underlying transaction to be in a particular form) (e. causes the agent to believe that the principal desires him so to act on the principal's account. a.g. Exceptions ( Equal Dignities Rule): i. For instruments under seal executed by agent (e. 3. authority to do an act can be created by written or spoken words or other conduct of the principal which. they do not act on behalf of HC.. c. and i..g. MD says these attributes are factors only and not determinative) a. E. The principal’s authorization of the agent need not be in any particular form. Intent or awareness of the creation of an agency relations IS NOT required (“the fiduciary relation which results from” not “is intended” to result from) 2. That person will act subject to the other person’s control d. reasonably interpreted by the agent such that he believes the principal desires him to act on his behalf. or conduct. Rest § 26 Creation of (Actual) Authority. power to settle.g. a. i. and consent by the other to so act.

then the agent becomes liable for breach of the implied warranty of authority to the 3P. Agent sometimes has power to bind the principal even though the agent is not authorized. even a minor (infant). B. is liable to the principal as if the principal himself had made the contract with him. An agent must have the physical or mental capability to do the thing he has been appointed to do. Anyone who can receive and convey information can be an agent. as far as they can be plainly separated from the unauthorized acts for which AG had no power to bind. principal can enforce contract against the 3 rd party c. When an agent deals with a 3rd party. such as where the agent has apparent authority. 6. Principal is excluded by form/terms of contract B. principal can enforce contract against 3 rd party b. Rest § 302 Undisclosed – 3rd party has no notice of the existence nor the identity of the principal. Authority is the agent’s power to bind the principal “by acts done in accordance with the principal’s manifestations of consent” to the agent (authorized acts). i. An agent who acts beyond the scope of his authority is liable for the acts beyond the authority. unless his existence is fraudulently concealed or unless there is set-off or a similar defense against the agent. Rest § 306 There is a set-off or similar defense against the agent (protects the interest of the 3rd Party. 3rd party thinks he’s dealing only with the Page 5 10-Feb-08 18:27:00 a2/p2 . 4. intended by the agent to be on account of his principal and within the power of such agent to bind his principal. Rest § 292 Disclosed – 3rd party has notice of the existence and identity of the principal. Rest § 292 Partially disclosed – 3rd party has notice of the existence of a principal but not his identity. Issue: When can a principal enforce a contract against 3P? Rest § 4(1)-(3) (disclosure is assessed at time of contracting) a. ii. 2.Agency & Partnership Outline II Contractual Dealings by Agents A. if the agent has no such authority. Firm’s liability in contract for acts of its agent 1. principal can enforce the contract against the 3rd party if agent intended to act on behalf of principal and had power to bind the principal. the agent gives an implied warranty that the agent is authorized to do what he is doing. A principal without the capacity to give legal consent to the agency relationship/enter into the underlying transaction or to do the act he is authorizing the agent to do cannot be bound by the acts of the agent. unless he is excluded by the form or terms of the contract. Rest § 302 General Rule: A person who makes a contract with an agent of an undisclosed principal. Principal is bound by the authorized acts. Principal’s existence is fraudulently concealed (related to iv below) Rest § 304 C. Exceptions where A. 3rd party thinks it is dealing just with the agent. Rest § 329 5. 3. or inherent agency power or where the principal is estopped from denying the agent’s authority. Firms rights under contracts entered into by its agentsdisclosure of principal 1.

express statement by 3 rd party e. (4) 3rd party can avoid liability to the undisclosed principal up to the amount of the obligation of the agent to the 3 rd party 2. PR/AG had notice that 3P would not deal with PR i. history between the parties. A person with whom an agent contracts on account of an undisclosed principal can rescind the contract if he was induced to enter into it by a representation that the agent was not acting for a principal and if. E.. If AG knows (mere suspicion is not enough) 3P will not deal with PR and fails to disclose that he is acting for such PR. Agent misrepresents not acting for a principal and i. express statement by 3 rd party c.g. Generally an undisclosed principal can substitute his performance for that of the agent unless doing so would substantially change the nature of the transaction from the perspective of the 3rd party. A mere suspicion by the undisclosed principal that the 3 rd party will not deal is not sufficient to constitute notice. a. Affirmative misrepresentation that agent is not acting for a principal ii. another attorney steps in and says the first attorney was acting as his agent and the other attorney is going to provide the services 6. history between the parties. express statement by principal. (Kelly Asphalt) Some facts have to show knowledge to constitute notice – e. Rest § 304 3rd party can rescind contract with undisclosed principal if i. attorney contracts to perform services. (3) The liability of the agent to the 3rd party must exist at the time of contracting (preexisting claim against the agent). § 306(1) liability by 3P on a contract with an undisclosed principal can be offset by any claim the 3P has against the agent at time of making contract and until the principal becomes known § 306(2) liability by 3P on a contract where agent only authorized to contract in principal’s name cannot be offset by a claim against the agent unless the agent took possession of the chattels he is disposing of with the 3P or the principal otherwise misled the 3P into extending credit to the agent. 5.g. as the agent or principal had notice. he would not have dealt with the principal. failure to disclose – both might satisfy the condition of “induced to enter into it by a representation”. b. agent contracts to convey real property and contracts to give the agent’s warranty deed.. 3..Agency & Partnership Outline agent..g.g. An undisclosed principal can generally require the 3 rd party to render the contracted services to the principal instead of the agent unless the contract deals with personal services § 310 Page 6 10-Feb-08 18:27:00 a2/p2 . E. a. (2) Agent must have been acting within power to bind the principal. Cm. Some facts have to show knowledge – e. 3P must show he would not have dealt with PR at time of contracting if he had known who PR was or known what the principal was going to do with land (§ 304 il. Affirmative misrepresentation v. 4. 5) and d. that could constitute a misrepresentation. who owes him money so should be able to reduce any liability 3 rd party has by the amount owed the 3rd party from the agent) (1) Agent must have been authorized to conceal the principal’s existence. express statement by principal. principal steps in and says agent was acting for him and that the buyer will be getting the principal’s warranty deed b.

3P owes the agent money from a prior transaction (set off). Agent does NOT have any defenses that are personal to the principal – e.Unless otherwise agreed. In general. courts require attorneys to make clear to 3P that attorney will not be personally liable for the client’s obligations. b) Liability of Attorneys 1. (modern trend) Page 7 10-Feb-08 18:27:00 a2/p2 .Agency & Partnership Outline C. an attorney is not personally liable for the obligations incurred on behalf of his fully disclosed principal (the client).B. unless there is a specific agreement otherwise. an agent does become a party to the contract he makes for a partially disclosed principal. b. Agent’s Liability for Contractual Dealings a). 3. But. c. Problem areas for businesses . an agent does not become a party to the contract he makes for disclosed principal. Too much of a burden on the 3P. But… a. All defenses that arise under the contract because he is a party. there was a custom that 3P could expect the attorney to pay the bill whether or not the attorney is paid by the client. Agent’s duty to fully disclose principal/Problems with D. is a party to the contract.An agent purporting to act upon his own account. Also have any defenses that are personal to the agent – e.g. Rest § 321 .Unless otherwise agreed. Rest § 322 . 1. What happens when an agent becomes a party to the contract? Defenses a. d. and 3P is looking primarily to the attorney for payment of fee (3P provider is primarily relying on the standing of the law firm and expecting payment from the firm. 3P has obligation to look into public records to find the true principal. B. but in fact making a contract on account of an undisclosed principal. “Principal” d/b/a “trade name” ii. Cases emphasize the agent’s burden to disclose. Some states have a dual indexing system. Probably would side with dissent. “title” (agent) b. Filing an assumed name certification may constitute sufficient notice to the third party (not in all jurisdictions) A. not the client). Copp – Court holds attorney liable for the 3P fee even though the attorney is an agent for a disclosed principal because the attorney did not make clear to 3P that firm would not be personally liable. b. But must also consider the agreement of the parties: language of the contract and the conduct of the parties and the circumstances.Trade Names (DBA) a. Agent knows the information and should disclose it if it wants to avoid personal liability for the contract. 2. if 3P owes principal money..g. C. An Agent can become a party to the contract (making him liable): a.. Sign contracts as the principal d/b/a the trade name Example i.A. Some states impose no duty to research assumed names. Rest § 320 . By: “person”. No definitive authority in Texas on this point.

estoppel.. c) Agent’s Implied Warranty of Authority 1. Rest § 401. Election of remedies – The liability of an agent and an undisclosed principal is only in the alternative (one or the other).e. agent gives IWoA. or inherent agency power. whenever the agent binds the principal by acting in an unauthorized way. Partially Disclosed. a. Dallas Ct. a. Undisclosed principals a. But. b. If the principal’s identity is undisclosed. the agent is not liable to the third party for breach of the implied warranty of authority. death terminates agency powers. If the principal’s identity was fully disclosed. AG contracting after PR’s death will breach IWoA. KS Law: Breach of IWA can be either a tort action or a contract action. but the agent is a party to the contract. or inherent agency power). b. Does breach occur at time of agreement or when discover? § 329 When discover the lack of authority or suffer damages or fails to gain the benefits. unless he has manifested that he does not make such warranty or the other party knows that the agent is not so authorized. Page 8 10-Feb-08 18:27:00 a2/p2 . b. thereby becomes subject to liability to the other party thereto upon an implied warranty of authority. Knows – means actual knowledge.g. as long as the agent has power to bind the principal (i. Under tort action. date of discovery is when the action accrues. not reason to know or should know. the agent breaches his or her duty of obedience to the principal. Applicability of § 329 to Disclosed. Thus. Guerin 685 sw2d 737 – Texas law is not settled. By acting in an unauthorized way. the agent is subject to liability to the principal 4. Eppler. agent & principal are J&S liable as parties to the K. agent does not give IWoA because he does not purport to act on behalf of another. an agent is liable to the principal for any loss caused by a breach of duty. App. SoL Accrual a. E. a. conveyance or representation on behalf of another who has full capacity but whom he has no power to bind. estoppel. unless otherwise agreed. 3. b.Agency & Partnership Outline b.. d) Election of Remedies 1. c. then agent and principal are J&S liable. says attorney not liable unless otherwise agreed. Rest § 329 Agent Who Warrants Authority: A person who purports to make a contract. the agent is liable to the principal for any loss the principal incurs. agent still gives IWoA. through apparent authority. discharges the liability of the other entity. If the principal’s identity was partially disclosed. agent becomes a party to the contract if he is acting within his authority. c. If had a fully disclosed principal and agent was a party. If had a partially disclosed principal. If agent acts in an unauthorized manner. 3P must choose which entity will satisfy the liability. Agent has potential liability either way. whether the agent binds the principal through apparent authority. 3P can recover actual damages as a result of the breach and any expectation damages (benefit-of-the-bargain damages) 2.

i. Texas Cts App. b. Express –manifestation by Principal to Agent directly Page 9 10-Feb-08 18:27:00 a2/p2 .g. Rest § 26 Creation of Authority. 4. Express Actual Authority 1. Election of Remedies doctrine is broader than the Principal/Agent context. c. that causes the agent to believe the principal desires the agent to so act on the principal’s behalf except A. courts require the P to choose his remedy. Policies in favor of EOR are not implicated. Exception: If 3P gets judgment against the agent before learning of the principal’s identity. Policy: Plaintiff should only be able to collect the amount from one person (one satisfaction) and not get a second recovery from the second entity (windfall of a remedy). Some courts abandon EOR doctrine in AGY context. i. IV Actual Authority of Agents and Its Consequences A. 7. Actual Authority i. this is not an election. P simply telling the agent that he will only get satisfaction from the principal is not enough to constitute an election. unless the agent detrimentally relies on that representation. Rescission – does not recognize existence of contract B.recognizes existence of contract 5. Express Authority: a. Damages for breach . apply the election of remedies in Principal/Agency context. reasonably interpreted by the agent. If the state statute requires the principal’s grant of authority to comply with a particular form. 6. 3. b. express conveyance by written/oral words or conduct. P is not choosing between inconsistent remedies and can only get one satisfaction. A. EOR can also protect the undisclosed principal when 3P learns of PR’s existence and then gets a judgment against AG. Principal can raise defense that 3P has elected his remedy against the agent and discharged liability against principal.. causes the agent to believe that the principal desires him so to act on the principal's account. Rest § 33 General Principle of Interpretation: An agent is authorized to do. a. a. reasonably interpreted. General Rule: Except for the execution of instruments under seal or for the performance of transactions required by statute to be authorized in a particular way. P makes contract and has two theories for recovery. what it is reasonable for him to infer that the principal desires him to do in the light of the principal's manifestations and the facts as he knows/should know at the time he acts. and to do only. Generally only a judgment against the principal operates as an election. E. 3P can pursue the principal for unsatisfied portion but 3P must make choice upon discovery of the identity of the principal. Forces P to choose between inconsistent remedies.Agency & Partnership Outline 2. Execution of instruments under seal B. authority to do an act can be created by written or spoken words or other conduct of the principal which.

Rest § 35 When Incidental Authority Is Inferred: Unless otherwise agreed. and the interpretation of the manifestations of the principal is governed by the rules generally applicable to the interpretation of authority. a. 2. he is authorized to do what he reasonably believes to be necessary in order to prevent substantial loss to the principal with respect to the interests committed to his charge. if after the authorization is given. § 78 Inference as to Authority to Delegate Authority: Unless otherwise agreed. Implied actual authority: Actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary (incidental to it. § 35 Agent must have honest and reasonable belief based on manifestations of the principal that he had authority to do the act. totality of the circumstances. includes authority to delegate to a subagent the performance of incidental mechanical and ministerial acts. the agent is authorized to take steps he reasonably believes are necessary to protect the principal’s interests. subagents or subservants of the principal can be conferred in the same manner as authority to do other acts for the principal. Duty of loyalty requires the Agent to act in the best interest of the principal.Agency & Partnership Outline ii. Implied Actual Authority (Authorized Transactions!) 1. acts and conduct of the parties. however. or are reasonably necessary to accomplish it. b. C. unless Principal instructs Agent not to. usually accompany it. §13 An agent is a fiduciary with respect to matters within the scope of his agency Page 10 10-Feb-08 18:27:00 a2/p2 . Rest § 47 Inference of Authority to Act in an Emergency: Unless otherwise agreed. boilerplate language is not specific enough—need an express referral of such authority unless the power arises as a necessary implication from the conferred powers or it is clearly intended by the parties. knowledge of the principal about what needs to be done. authority to conduct a transaction includes authority to do acts which are incidental to it. c. Agent is only authorized to make a gift when the intent on that issue is very clear. authority to conduct a transaction does not include authority to delegate to another the performance of acts incidental thereto which involve discretion or the agent's special skill. Agent’s Duties of Care and Loyalty 1.. Introduction to the Fiduciary Duties of Agents and Servants 1.g. broad. If unforeseen circumstances arise and the agent cannot communicate with the principal. a. A. c 2. a. 3. agent has implied actual authority to represent the scope of his authority to 3P. such authority. § 77 General Rule: The authority to appoint agents. § 27 cm. The principal must make some manifestation by words or conduct that shows he authorizes the agent to make a gift. as evidenced by the surrounding facts and circumstances. an unforeseen situation arises for which the terms of the authorization make no provision and it is impracticable for the agent to communicate with the principal. Implied – e. usually accompany it or are reasonably necessary) to carry out the duties actually delegated. B. 3. Prior course dealing with the principal.

PR can bring an action against the AG even if PR has suffered no harm and can recover any benefit accrued to AG. Duty of Loyalty a) In general 1. 4. to the knowledge of the principal. a paid agent – has duty to act with standard care and skill and to use any special skill he has. Rest § 379 Duty of Care and Skill: (1) Unless otherwise agreed. Agent cannot put agent’s own interests or those of a 3 rd party above the principal’s. 2. b. a paid agent is subject to a duty to the principal to act with standard care and with the skill which is standard in the locality for the kind of work which he is employed to perform and. 3. § 377 under ordinary circumstances. to exercise any special skill that he has. a gratuitous agent is under a duty to the principal to act with the care and skill which is required of persons not agents performing similar gratuitous undertakings for others.Agency & Partnership Outline a. a. § 379(1) Unless otherwise agreed. created by his undertaking. i. Rest § 377 Contractual Duties: A person who makes a contract with another to perform services as an agent for him is subject to a duty to act in accordance with his promise. (2) Unless otherwise agreed. § 389 Agent must disclose to the principal when the agent acts as an adverse party i. if he has a special skill. AG must fully disclose all relevant facts he knows or reasonably should know that would affect PR’s judgment. Rest § 389 Acting as Adverse Party Without Principal's Consent: Unless otherwise agreed. a. A fiduciary is a person having a duty. the promise to act as an agent is interpreted as being a promise only to make reasonable efforts to accomplish the directed results 2. an agent is subject to a duty not to deal with his principal as an adverse party in a transaction connected with his agency without the principal's knowledge. b) Conflicts of Interest 1. acts on his own account in a transaction in which he is employed has a duty to deal fairly with the principal and to disclose to him all facts Page 11 10-Feb-08 18:27:00 a2/p2 . in addition. 2. § 390 When AG acting adversely. a. to act primarily for the benefit of another in matters connected with his undertaking. 2. Rest § 387 General Principle: Unless otherwise agreed. an agent can act as an adverse party to the principal only if the principal knows the agent is adverse. § 387 Agent is subject to duty to act solely for the principal in all matters connected with his agency. The Duty of Loyalty is a deterrent rule to prevent agents from profiting from transactions conducted for the principal (creates conflict of interest). Duty of Care 1. § 389 Unless otherwise agreed. Rest § 390 Acting as Adverse Party with Principal's Consent: An agent who. an agent is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency. 3. Failure to so disclose is a breach of the duty of loyalty.

b. although such information does not relate to the transaction in which he is then employed. Page 12 10-Feb-08 18:27:00 a2/p2 . a. has a duty to act with fairness to each and to disclose to each all facts which he knows or should know would reasonably affect the judgment of each in permitting such dual agency. an agent who makes a profit in connection with transactions conducted by him on behalf of the principal is under a duty to give such profit to the principal. c) Duty to Account for Profits 1. § 392 –Agent must disclose all material facts regarding the adverse representation. (a) has no duty not to compete with the principal. Rest § 388 Duty to Account for Profits Arising Out of Employment: Unless otherwise agreed. a. Rest § 391 Acting for Adverse Party Without Principal's Consent: Unless otherwise agreed. example of “otherwise agreed”: waiter keeping a tip. the duty applies whether or not the principal is harmed or is better off as a result of the transaction. b. acts for both of them in a transaction between them. Doesn’t matter if agent is doing so on his own time. to the knowledge of two principals. 2. except as to a principal who has manifested that he knows such facts or does not care to know them. an agent is subject to a duty to the principal not to use or to communicate information confidentially given him by the principal or acquired by him during the course of or on account of his agency or in violation of his duties as agent. d) Other Aspects of the Agent’s Duty of Loyalty 1. § 393 – The agent must not compete with the principal whilst acting as agent. the agent: i. § 388 An agent who makes a profit in connection with transactions conducted by him is under a duty to give such profit to the principal a. on his own account or on behalf of another. after the termination of the agency. an agent is subject to a duty to his principal not to act on behalf of an adverse party in a transaction connected with his agency without the principal's knowledge. unless the information is a matter of general knowledge. an agent is subject to a duty not to compete with the principal concerning the subject matter of his agency. § 391 – Agent must disclose to principal when agent is representing an adverse party a. without principal’s consent. Agent can compete after the agency relationship terminates. Rest § 395 Using or Disclosing Confidential Information: Unless otherwise agreed. 3. its value. this rule applies during and after termination of the agency relationship (continuing duty) a. 4. § 395 – AG must not use confidential information about PR for his own benefit or for anyone else’s. ii. Rest § 396 Using Confidential Information After Termination of Agency: Unless otherwise agreed. the principal is entitled to recover from him what he has so received. Loyalty is to principal. Rest § 392 Acting for Adverse Party with Principal's Consent: An agent who. unless the principal has manifested that he knows such facts or that he does not care to know them. Rest § 407 If an agent has received a benefit as a result of violating his duty of loyalty. or its proceeds and also the amount of damage caused thereby.Agency & Partnership Outline which the agent knows or should know would reasonably affect the principal's judgment. in competition with or to the injury of the principal. Rest § 393 Competition as to Subject Matter of Agency: Unless otherwise agreed.

or other similar confidential matters given to him only for the principal's use or acquired by the agent in violation of duty. e) Principal’s Remedies 1. and also the amount of damage thereby caused. V. Rest § 27 Except for the execution of instruments under seal or for the conduct of transactions required by statute to be authorized in a particular way. iii. the principal is entitled to recover from him what he has so received. Power of Agents to Bind the Firm by Unauthorized Acts B. arising from and in accordance with the other's manifestations to such third persons. 2. If the use predominates in producing a profit he is subject to liability. whether or not in competition with the principal. 4. (b) has a duty to the principal not to use or to disclose to third persons. to the principal. The agent is entitled to use general information concerning the method of business of the principal and the names of the customers retained in his memory. § 403 Constructive Trust: Rest § 403 Liability for Things Received in Violation of Duty of Loyalty: If an agent receives anything as a result of his violation of a duty of loyalty to the principal. he is not. Rest § 8 Apparent authority is the power to affect the legal relations of another person by transactions with third persons. if not acquired in violation of his duty as agent. at the principal's election. Rest § 404 Liability for Use of Principal's Assets: An agent who. or its proceeds. however. its value. 2. on his own account or on account of others. uses for his own purposes or those of a third person assets of the principal's business is subject to liability to the principal for the value of the use. professedly as agent for the other. the principal cannot recover its value and also what the agent received in exchange therefor. in competition with the principal or to his injury. reasonably interpreted. Page 13 10-Feb-08 18:27:00 a2/p2 . in violation of duty to his principal. (d) has a duty to the principal not to take advantage of a still subsisting confidential relation created during the prior agency relation.Agency & Partnership Outline ii. trade secrets. iv. (2) A principal who has recovered damages from a third person because of an agent's violation of his duty of loyalty is entitled nevertheless to obtain from the agent any profit which the agent improperly received as a result of the transaction. written lists of names. apparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which. § 401 Actual damages: Rest § 401 Liability in Tort for Loss Caused: An agent is subject to liability for loss caused to the principal by any breach of duty. Rest § 407 Principal's Choice of Remedies: (1) If an agent has received a benefit as a result of violating his duty of loyalty. Apparent Authority (PR has done something to create liability) 1. its value. if the violation consists of the wrongful disposal of the principal's property. 3. for such profit. he is subject to a liability to deliver it. (c) has a duty to account for profits made by the sale or use of trade secrets and other confidential information. liable for profits made by him merely by the use of time which he has contracted to devote to the principal unless he violates his duty not to act adversely or in competition with the principal. or its proceeds. § 404 Principal can recover the value of the use by the agent a. except that.

he intentionally or carelessly caused such belief. indirect (e. or subjection to legal liability. 5. For apparent authority. Apparent authority cannot be established when the principal is undisclosed.g. Change of position indicates $. d. the interpretation of apparent authority is based on the facts known to the principal. 4. Manifestation must reach the 3P: direct. Apparent authority is a two way street: Principal can use apparent authority to enforce the agreement and the 3P can use apparent authority enforce the agreement. suffering a loss.A person who is not otherwise liable as a party to a transaction purported to be done on his account. AG’s state of mind is irrelevant. 3. labor. Manifestation – direct/indirection communication to 3P. b. appointing a person to a position. Estoppel (PR has done something to create liability) 1. 6. if a. and (b) if there is a latent ambiguity in the manifestations of the principal for which he is not at fault. via another agent) c. a broadcast to the community that AG has authority. 3P’s state of mind is irrelevant. knowing of such belief and that others might change their positions because of it. causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him. For actual authority. Manifestation must cause the 3P to actually believe the agent is authorized. – BUT 3P may have a duty to inquire further to establish a foundation for a reasonable belief. Elements of Apparent Authority a. 7. Manifestation by the principal i. CL rule: Merely giving possession of property to someone else does not create apparent authority or estoppel… slight additional circumstances can create apparent authority or estoppel – such as.Agency & Partnership Outline 3. giving the indicia of ownership to the Page 14 10-Feb-08 18:27:00 a2/p2 . Rest § 8B . Rest § 49 The rules applicable to the interpretation of authority are applicable to the interpretation of apparent authority except that: (a) manifestations of the principal to the other party to the transaction are interpreted in light of what the other party knows or should know instead of what the agent knows or should know.. he did not take reasonable steps to notify them of the facts… 2. 3P’s state of mind is relevant. There is no requirement that there be detrimental reliance from the 3P’s belief that the agent was authorized. is nevertheless subject to liability to persons who have changed their positions because of their belief that the transaction was entered into by or for him. ii. especially if AG has acted in such manner before without objection by PR. i. AG’s state of mind is relevant. allowing or acquiescing in AG’s unauthorized conduct. or b. C. Estoppel General Rules a. The 3P’s belief must be reasonable in the circumstances .

e. (1) A general agent is an agent authorized to conduct a series of transactions involving a continuity of service. Estoppel v. estoppel also exists. The agent has to be (1) a servant – principal has right to control his work and (2) has to commit the tort while acting in the scope of employment. Mere entering into the contract is not a change of position. the 3P must have changed his position in detrimental reliance on his belief that the agent was authorized. no fresh authorization required for each transaction (aka enterprise liability)– similar to RS where only servants can subject principal to liability in tort) b. estoppel is a one way street – 3P can assert to hold the principal liable. Treat Principal as bound merely because of the agency relationship. indicates a fairly close relationship between agent and principal. 3.. i. Rest § 3 a. the 3P does not have to show reliance. Apparent Authority a. With apparent authority. b. Mere failure to act by PR can give rise to estoppel. although they are forbidden by the Page 15 10-Feb-08 18:27:00 a2/p2 . With either theory. (2) A special agent is an agent authorized to conduct a single transaction or a series of transactions not involving continuity 2. apparent authority does not usually exist. UCC provision: A merchant can only transfer the rights of the entruster to a buyer. giving agent the property and the title document to it) b. Most situations where apparent authority exists. d. Mere failure to act normally does not give rise to apparent authority because it is not seen as a manifestation by PR.Agency & Partnership Outline agent along with the property – (e. an undisclosed principal cannot be bound. A thief as the entruster had no rights at all so the merchant acquired no rights it could transfer to Buyer. In situations where estoppel exists. but sole from the agency relation and exists for the protection of 3P’s harmed by or dealing with a servant or other agent. To assert estoppel. a. 3P must show he has suffered from some damage based on his belief. (Mere failure to act when the reasonable principal would have though might create apparent authority) b. c.g. Remember: Respondeat Superior: Principals are vicariously liable for torts committed by servants in some situations.A general agent for a disclosed or partially disclosed principal subjects his principal to liability for acts done on his account which usually accompany or are incidental to transactions which the agent is authorized to conduct if. AG is unauthorized) 1. Rest § 161 Unauthorized Acts of General Agent . Inherent Agency Power (PR has done nothing. Apparent authority is a two-way street. RS is a form of inherent agency power for binding principal in tort. D. apparent authority or estoppel. Rest § 8A Inherent agency is a term used in the restatement to indicate the power of an agent which is derived not from authority. 4.

No fault on part of Principal required to be bound by inherent authority (similar to RS). AG is liable to the 3P for his misrepresentations. i. The act was not too far removed from what the agent is authorized to do. problem based on Dyer v. c. 4. Representations of PR to 3P are central for defining apparent authority. Liability for Representations by Agent 1. Usual or necessary in such transactions A. the agent has a duty to make good on that loss. Elements i.Agency & Partnership Outline principal. Johnson b.270. Likely yes. § 383 an agent is subject to a duty to the principal to act in the principal’s affairs except in accordance with the principal’s manifestations of consent. i. Unauthorized acts done on behalf of the principal iv. Elements undisclosed principal. With apparent authority and estoppel. inherent authority originates from the customary authority of the person in the particular AGY relationship and no representations beyond the fact of the existence of the relationship need be shown. § 401 – If agent breaches a duty and causes a loss to the principal. a. AG is always liable for his own misconduct. the other party reasonably believes that the agent is authorized to do them and has no notice that he is not so authorized. In contrast. 2. Acts must not be too far removed for the agent’s authorized conduct.3. v. Issue: Is the principal liable for the representations by the agent? a. AG must indemnify PR for any loss due to a breach of his duty. A general agent ii. if usual or necessary in such transactions.271 Page 16 10-Feb-08 18:27:00 a2/p2 .A general agent for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his account. E. p. due to Inherent Agency. 5. p. NO belief by 3P that AG is authorized because PR is undisclosed. Unauthorized act done on behalf of the principal iv. the Principal is somehow at fault. AG has liability to PR if 3P recovers from PR. although forbidden by the principal to do them. For an undisclosed principal iii. The acts are those which usually accompany or are incidental to transactions which the agent is authorized to conduct A. v. for a disclosed or partially disclosed principal iii. ii. 3P reasonably believes AG is authorized and has no notice that AG is not authorized. Rest § 194 Acts of General Agents . A general agent ii. n. a.

Knowledge of an agent is attributable to PR regarding matters as to which i. Normally expect AG to pass the information to PR. Knowledge of An Agent 1. 3P ought to be able to rely on agent’s authority without having to constantly check with the principal. The IAP requirement that the agent be a “general agent” seems similar to the requirement in respondeat superior that the agent be a “servant. a. n3. Power to bind. A. The attribution to the principal occurs because of the inherent power of the agent in that position. ii.cm.Agency & Partnership Outline 3. but solely because of the existence of the agency relationship. Notice describes a legal consequence of a person being charged with information because the person has acquired knowledge [should know/has reason to know] or received notification. Knowledge or notification leads to the legal consequence of notice. (1) AG acts within his power to bind the principal or A. n1 §9(3). Firm’s Accountability for notification to/knowledge of the Agent 1. So agent’s knowledge can be attributable even if the agent commits an unauthorized act. Notice can be found if the person should know or has reason to know a fact.” Further. Is the agent’s action the type of thing that is within or not too far removed from his authorized conduct? VI. a Page 17 10-Feb-08 18:27:00 a2/p2 . § 381 Duty to Give Information. ii. § 9(1). Policy: avoid constant recourse by third persons to the principal. Knowledge v. p397. An agent’s false statements can be attributable to the principal if the agent is acting within the course and scope of employment. b. § 161 The act of the agent must usually accompany or be incidental to the agent’s authorized conduct. c b. cm. not authority. cm. Notification a. p400. cm. (2) it is the AG’s duty to give the principal the information. c. n3 Rest § 9. Notification is an act intended to convey information to another person. Inherent agency power in the contractual context bears a lot of resemblance to respondeat superior. Knowledge is attributable when AG has a duty to pass along the information to PR and when we expect AG would follow through on his duty to tell PR about information that would affect the PR’s affairs B. The principal is bound to a contract under IAP not because the principal has done anything wrong. which would be corollary of denying agent any latitude beyond his exact instructions. b i. 2. Rest § 272 General Rule for Attributing Agent’s Knowledge to Principal: a. the IAP requirement that the agent’s conduct be “incidental to” the agent’s authorized conduct seems similar to the requirement in respondeat superior that the servant commit the tort while acting in the scope of employment. Knowledge is conscious awareness p397. f c.

(a) to an agent authorized to receive it. as the agent has notice. a An agent may have a duty to act upon. although not specifically instructed to do so. § 276 Time. E. a notification given to an agent is notice to the principal if it is given: A. § 278 Time When Agent's Knowledge Affects Principal Page 18 10-Feb-08 18:27:00 a2/p2 . or to communicate to his principal or to another agent. the time. Knowledge § 272. The knowledge of an employee may be imputed to an employer if the employee holds a position of management or control in the exercise of which a duty to report known dishonesty of a fellow employee can be found to exist either explicitly or by fair inference from a course of conduct. information which he has received. a. Notification to the agent results in notification to the principal if the agent has actual or apparent authority to receive the notification at the time the notification is given to the agent. (2) Cm. 2. Notification to an Agent 1. § 281 Agent Privileged Not to Disclose Knowledge: A principal is not affected by the knowledge of an agent who is privileged not to disclose or act upon it and who does not disclose or act upon it. Rest. Place. or manner in which knowledge is acquired by a servant or other agent is immaterial in determining the liability of his principal because of it. Prior or Casually Obtained Knowledge of an Agent 1.Agency & Partnership Outline (1) Unless otherwise agreed. b. an agent is subject to a duty to use reasonable efforts to give his principal information which is relevant to affairs entrusted to him and which. (1) Unless the notifier has notice that the agent has an interest adverse to the principal. in view of his relations with the principal. § 268 General Rule i.. Except for knowledge acquired confidentially. B. priest/parishioner 3.g. Notification § 268 4. or Manner of Acquisition of Agent's Knowledge a. just as an authority is inferred. he should know may affect the desires of his principal as to his own conduct or the conduct of the principal or of another agent… the duty of the agent is inferred from his position. the principal would desire to have and which can be communicated without violating a superior duty to a third person. A. i. (b) to an agent apparently authorized to receive it. 276. C. place. When knowledge is effective: Principal attributable with knowledge when a. Time from which notification or knowledge affects the principal 1. The duty exists if he has notice of facts which. physician/patient. info conveyed by a client to an attorney.

Policy: AG is not really acting for PR.. a: Knowledge is important only if. b. or Page 19 10-Feb-08 18:27:00 a2/p2 . 5. CIGNA Exception to § 272: Adverse Agent Exception a.when effective: Notification can be intended to do two things: a. i. notification is effective immediately. Exception to the adverse agent exception: § 282 (2) The principal is affected by the knowledge of an agent who acts adversely to the principal: i. Cm. i. Before Principal may be charged with Agent’s knowledge or notice. PR is affected by the knowledge which AG has when acting for him or. if it is the duty of AG to communicate the information and not otherwise to act.g. Knowledge: Lanchile v. Notification. if AG is acting adversely. except as stated in Subsection (2).. we normally expect AG will convey information he has a duty to convey and so attribute knowledge to PR. mall tenant has to provide notification of intent to renew by 5pm on Friday. An agent is not acting adversely merely because he has a conflict of interest with the principal or because he is not acting primarily for his principal. i. AG must have had both a reasonable time to communicate the information to PR and ii.Agency & Partnership Outline i. PR is affected after the lapse of such time as is reasonable for its communication. he’s gone off on a frolic so knowledge not attributable to PR. time to disseminate it to others) 2. Notification to require action on the part of the person notified. Adverse Agents 1. (e. Policy: Estoppel. b. because of it. Sole Actor Doctrine § 282(2)(b)&(c) – Principal cannot claim the benefit of the agent’s services and at the same time disavow any knowledge the agent had about the transaction (really just (2)(c)). That notification is to determine the parties’ rights from a specific point in time. b. If the person notified is also the decision maker. …(b) if AG enters into negotiations within the scope of his powers and the person with whom he deals reasonably believes him to be authorized to conduct the transaction. one can intelligently choose his course of action.g. Whether PR is affected by AG’s knowledge/notification to AG when AG is acting adversely to PR? 2. Notification is effective immediately. Notification to determine the parties’ rights from a specific point in time. § 282 Agent Acting Adversely to Principal: (1) A principal is not affected by the knowledge of an agent in a transaction in which the agent secretly is acting adversely to the principal and entirely for his own or another's purposes. PR must have had a reasonable opportunity to act on it. Notification is effective when the person notified has reasonable opportunity to convey that information to the decision maker and decision maker has to have reasonable amount of time to act. he is not going to abide by that duty. E. a. 3.

whereby the act. 3. § 82 Ratification is the a. in certain circumstances. Agent's Interests Adverse to Principal's: A notification by or to a third person to or by an agent is not prevented from being notice to or by the principal because of the fact that the agent. according to the ordinary experience and habits of men. (§ 86). unless the third person has notice of the agent's adverse purposes.] (1) Silence under such circumstances that. while still capable of ratification (§§ 88-90). and who is the person for whom AG purported or intended to act. Notification: Dvoracek v. (c) if. Rest § 94 Failure to Act as Affirmance: An affirmance of an unauthorized transaction can be inferred from a failure to repudiate it[. before he has changed his position. Rest § 83 Affirmance is either (a) a manifestation of an election by one on whose account an unauthorized act has been done to treat the act as authorized. but which was done or professedly done on his account. Has to have knowledge of the material facts of the transaction. is acting adversely to the principal. Affirmance by a person i. by a person who. of a prior act which did not bind him i. Can it be ratified? Page 20 10-Feb-08 18:27:00 a2/p2 . Gillies a.Agency & Partnership Outline ii. A. one would naturally be expected to speak if he did not consent… b. 4. Notification to the agent results in notification to the principal if the agent has actual or apparent authority to receive the notification at the time the notification is given to the agent. c. knows the facts (§ 91). the principal knowingly retains a benefit through the act of the agent which otherwise he would not have received. § 87. when receiving or giving the notification. Rest § 271 Notification. Ratification of Unauthorized Transactions A. PR does not have to communicate the affirmance to 3P for it to be effective. is given effect as if originally authorized by him. VII. d. at the time of affirmance. by one who purported to act as AG or intended to act as servant (§ 85). There is no ratification unless an act has been done which the purported or intended PR could have authorized (§ 84). at the time of affirmance. i. 4. Two aspects: can a transaction be ratified and was it ratified? 2. and unless the act is affirmed (§§ 93-99). B. or (b) conduct by him justifiable only if there were such an election to affirm. as to some or all persons. Notification to an adverse agent is also effective unless the 3P has notice that the agent is acting adversely. Affirmance 1.

it was unauthorized and he will not ratify further transactions. at the time of affirmance. 2. B.g. if principal was a minor at time contract made) c. i. A principal is directly liable if negligent in selecting or hiring an agent. p430. the agent is a servant ii. Principal must tell AG & 3P that. Rest § 91 p430. as distinguished from those which affect the values or inducements (e. but only if (all must be met): Page 21 10-Feb-08 18:27:00 a2/p2 . § 219(1) Respondeat Superior/VL (form of strict liability – liable not because principal has done something wrong or negligent but simply because of the principal/agent relationship): a. Undisclosed PR cannot ratify a contact . A disclosed or partially disclosed principal may ratify. n4 – In order to ratify. p430.Rest § 85 Ratification does not result from affirmance of a transaction…unless the one acting purported to be acting for the ratifier. although he ratified the particular transaction. Liability for Acts of a Servant within the Scope of Employment 1. Knowledge of Agents: effect on ratification 1. If PR could not ratify at either point.. If an agent’s knowledge can be attributable to the principal. Liability for Wrongful Acts of Servants (Respondeat Superior) A.g.. X. a. Masters Liability for Acts of Servants 1. Introduction 1. he may create actual authority and/or apparent authority for future (similar) transactions .Agency & Partnership Outline a. § 91 Knowledge of Principal at Time of Affirmance A. b. (1) If. then that affects the principal’s ability to rescind ratification of a transaction. Rest § 272 says knowledge of AG is attributable to PR if AG has power to bind or a duty to convey the information. and is unaware of his ignorance. n5 – When a principal ratifies a transaction. the purported PR is ignorant of material facts involved in the original transaction. Knowledge only attributed when AG acts within the scope of her authority. acting in the scope of his employment. then PR cannot ratify it at all (e. A principal (master) is vicariously liable for the torts committed by an agent if i. i. PR must have been able to undertake the transaction at the point the agent entered into and at the point of affirmance. Rest § 228 Conduct is within the scope of employment if. B. B. (2) Material facts are those which substantially affect the existence or extent of the obligations involved in the transaction. Rest. AG sell’s PR’s stock at a price lower than it was worthcannot rescind affirmance) involved in the transaction. n3 – A principal can rescind his affirmance when he is ignorant of any material fact at the time of affirmance . he can thereafter avoid the effect of the affirmance. 5.

(e) whether or not the act is outside the enterprise of the master or. ii. viii. detour if it is only a slight deviation. When does a servant return from a frolic? a. (j) whether or not the act is seriously criminal. The employer need not have foreseen the precise act or the exact manner of injury so long as the general type of conduct may have been reasonably expected. b. (a) whether or not the act is one commonly done by such servants. it occurs substantially within the authorized time and space limits. ix. conduct must be of the same general nature as that authorized. (b) the time. Courts are willing to stretch on scope of employment especially on this factor (purpose to serve the master) d. the use of force is not unexpectable by the master. customarily stop by the post office Page 22 10-Feb-08 18:27:00 a2/p2 . if force is intentionally used by the servant against another. (2) In determining whether or not the conduct. 3. it is actuated. Rest 229 Use as further guidance in helping to determine if the test in § 228 is met.g. When a servant has departed from the scope of employment. vii. if within the enterprise. iii. Frolic if conduct is so clearly outside the scope of employment. b. Labels only. Torts: Negligent. (e.. by a purpose to serve the master. i. and i. Henderson – traveling to/from work is generally not considered within the scope of employment a. (g) the similarity in quality of the act done to the act authorized. or incidental to the conduct authorized. (h) whether or not the instrumentality by which the harm is done has been furnished by the master to the servant. the employee is acting within the scope of employment. at least in part. is nevertheless so similar to or incidental to the conduct authorized as to be within the scope of employment. iv.Agency & Partnership Outline a. place and purpose of the act. (i) the extent of departure from the normal method of accomplishing an authorized result. intentional as long as not force is not unexpectable (Sage Club as opposed to Noah v. vi. (d) the extent to which the biz of master is apportioned between different servants. v. has not been entrusted to any servant. there is an issue as to when the servant has returned to the scope of employment. and x. although not authorized. it is of the kind he is employed to perform. (f) whether or not the master has reason to expect that such an act will be done. the following matters of fact are to be considered: i. Special Errand Rule exception: if the employee while commuting does a special errand that would otherwise require a separate trip. Ziehl) ii. a. not analysis. 4. (c) the previous relations between the master and the servant. (1) To be within the scope of the employment. c. 2.

b. unless: a. Page 23 10-Feb-08 18:27:00 a2/p2 . 2. The errand does not necessarily have to be requested by the employer as long as the errand is to serve a business interest of the employer. 3. But 219(2)(d) provides a basis for VL where: a. Independent contracts may be agents but are not always. Employer cannot be VL under 219(1). XI. or he was aided in accomplishing the tort by the existence of the agency relation. Non-liability for Acts of Independent Contractors 1. b. § 219(2) 1. Issue: when is an agent classified as a servant (~employee) as opposed to an independent contractor? If a person is an independent contractor. Example: Sexual harassment is outside the scope of employment. generally the principal is not liable. a. An exception to RS – employer is liable for torts of employee outside the scope of employment.1). § 2 i. Employer has no defense for QPQ cases. (d) the servant purported to act or to speak on behalf of the principal and there was reliance upon apparent authority. Employer is VL even though servant is acting outside his scope of authority. Liability for Wrongful Acts of Independent Contractors A. Master’s RS Liability for Servant’s Abuse of Position Rest. 2. or just a hostile environment. threats but not carried out. Hostile Work Environment no adverse employment action. or (see section XI below) c. Rest. and ii. Employer actionable under 219(2)(d) 2nd clause because the supervisor might have been “aided in accomplishing the tort by the existence of the agency relation. The employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise. The employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior. Actionable under 219(2)(d) 1st clause “the servant purported to act or to speak on behalf of the principal and there was reliance upon apparent authority” is always met because there is an adverse employment action which affects the employee (reliance) i. Servants are a subcategory of agents ii.” Results in VL but employer has a defense i.Agency & Partnership Outline on the way to work to pick up employer’s mail –p463. Quid pro quo: supervisor makes threats of adverse employment action if employee does not go along and those threats are carried out. Rest § 219(2) A master is not subject to [vicarious] liability for the torts of his servants acting outside the scope of their employment. … (c)the conduct violated a non-delegable duty of the master. n.

if by time. Method of payment – by time or by job. Skill required to do the work – points to lack of control if the person has to have a special skill which the principal is unlikely to understand much less able to control. Some independent contractors are not agents (non agent service providers) 2. Exceptions to the Independent Contractor Rule employer will be VL liable for torts of a non-servant agent/independent contractor 1. Employee v. b. A duty is non-delegable if i. Not clearly defined. contract law – duty imposed by contract). All servants are agents. c. Rest. Once independent contractor status is established through the 220 factors. h.Agency & Partnership Outline b. but liability usually attaches when the responsibility is so important to the community that the employer should not be permitted to transfer it to another. PR is liable for the torts of an independent contractor if the IKR is performing a NDD. Liability for acts of independent contractors. more likely control is exercised by employer. d. Length of time – less time. Work is part of the regular business of the employer – if it is. and j. e. whether or not the parties believe they are creating the relation of master and servant. B. the principal is not liable unless it was a NDD or ostensible agency. duty arises through the LL/T relationship. LL duty to maintain premises in a safe way. Non-delegable duties arise by statute or common law (e. a. less detailed control g.g.g. a. All of the other factors point to this factor. § 219 Principal is only VL for torts of its servants. Page 24 10-Feb-08 18:27:00 a2/p2 . Distinct occupation or business – it is separate from the principal’s business and unlikely to result in control by the principal. (servant agents) ii. the employer exercises more control. Non-delegable duty (NDD) doctrine 1. in the locality. whether the principal is or is not in business. i.. NOT agency law. (e. with reference to whether. Independent Contractor Analysis Rest § 220 factors – a. i. the work is usually done under the direction of the employer or by a specialist without supervision. Some independent contractors are agents (non-servant agents) iii. extent of control is most important. the kind of occupation. Supplies his own instrumentalities – control is less likely f. tort law – duty arises through the relationship. b.

(covers conscious and unconscious patients – sort of reads the reliance out of the rule) 2. Independently owned services station where national advertising indicated “you can trust your car to the man who wears the star”. 3P justifiably relied on the appearance of agency. The authority terminates when either party knows or should know of the manifestation of the other (see § 10). Funeral home contracts for drivers to drive family to cemetery. Page 25 10-Feb-08 18:27:00 a2/p2 . NOTE: Ostensible Agency applies only to tort actions. when the other has notice of dissent. For hospitals. RS a. In general. c. (1) Voluntary action of the principal or the agent i. b. b. Must show 3P relied on the representation of PR that the actor was its AG or servant.g. or has been given a notification by the other. agency relationship terminates in one of three ways a. RS focuses on the relationship between the employee (servant) and employer (principal). the court treats you as having relied on the appearance of agency. When a duty is non-delegable means that the person who has the duty is liable for breach of that duty even if the breach is committed by an independent contractor. despite such an agreement any form of manifestation made known to the other party is effective. Ostensible agency applies in other settings – powerful doctrine for when independent contractors are used a. i. XIII Dissociation of Non-owner Agents A. b. i. Ostensible Agency v. Generally an affirmative misrepresentation. OA focuses on the relationship between the third party and the principal . Third party’s expectations have no relevance here. PR’s representation causes 3P to reasonably believe that person was AG/employee of PR. c.Agency & Partnership Outline c. Termination of the agency relationship occurs when one party has notice that the other party manifests dissent to the continuance of the relationship. unless otherwise agreed. the general rule is that if you are admitted without objection to the hospital. Rest § 119 Manner of Revocation or Renunciation: Authority created in any manner terminates when either party in any manner manifests to the other dissent to its continuance or. process serving is a non-delegable duty of lawyers. ii. contract actions use the separate theories of apparent authority and estoppel) a. E. Third party’s expectations are key. Voluntary Terminations 1. Independent franchisee owners of hotels of national chain subject to national advertising. Cm a: An agreement that the authority is to be revoked or renounced only in a particular manner is ineffective. PR represents by its conduct or otherwise that a person is its AG or servant (employee). Elements Ostensible Agency § 267 (Texas). 3.. Apparent Authority/Estoppel 1.

has reason to know. The principal and the agent always retain the power to terminate the relationship. – Lingering Apparent Authority a. it is renunciation iii. that the agent does not consent to act. Rest § 110 – the loss/destruction of the subject matter of the agency C. has reason to know. a principal or agent has notice that authority to do an act has terminated or is suspended if he knows. Rest § 113. Distinction between general agent and special agent i. Page 26 10-Feb-08 18:27:00 a2/p2 . A. of a special agent except in the cases mentioned in Rest § 132 C. including apparent authority. or has been given a notification of the occurrence of an event from which the inference reasonably would be drawn: (i) (a) by the principal. (ii) (b) by the AG. that RP does not consent to the act or would not if he knew the facts. When an intervening event that should cause the agent to realize he is no longer authorized. Aetna Casualty & Surety Co. b. Manifestation can be by word or conduct (inconsistent with authority previously given). B. Rest § 109 – a change in the value of the subject matter or business conditions B. n7 i. should know. a. destruction of the subject matter. it is revocation. Rest § 118 Revocation or Renunciation: Authority terminates if the principal or the agent manifests to the other dissent to its continuance. (3) By intervening events p682. (1) Rest § 134 When Principal or Agent Has Notice of Termination of Authority (a) Unless the parties have manifested otherwise to each other. If the principal terminates the relationship. Notice to AG means AG knows. (2) It terminates all agency power. If the agent terminates the relationship. Rest § 115 – the outbreak of war of which the agent has notice 2. should know or has been given a notification. or illegality. it may result in breach of a contract between the agent and principal. 114 – the bankruptcy or substantial impairment of the assets of the agent or principal of which the agent has notice E.Agency & Partnership Outline A. The power is retained even if the contract says the relationship is irrevocable. that the transaction has become impossible of execution because of incapacity of the parties. Zukaitas v. (2) By operation of law – See next section c. Power is retained but if exercised wrongfully. (iii) (c) by either. All other powers of the agent resulting from the relation terminate except powers necessary for the protection of his interests or of those of the principal.The termination of authority does not thereby terminate apparent authority. b. Rest § 116 – a change in law of which the agent has notice that will make the act the subject of the agency illegal D. (a) Rest § 124A Effect of Termination of Authority Upon Apparent Authority and Other Powers . Rest § 118 –cm. A. (1) It terminates all agency powers but not apparent authority of a general agent unless the third party has notice. Notification to a general agent affects the principal when the agent has actual or apparent authority to receive the notification.

v. Unless otherwise agreed. there is a notification by the principal to the third person of revocation of an agent's authority or other fact indicating its termination: (1) (a) when the principal states such fact to the third person. or (2) (b) giving publicity by some other method reasonably adapted to give the information to such 3P D. (1) Unless otherwise agreed. it must be delivered to a person who has authority or apparent authority to receive it. as the principal should know. the apparent authority thereby created is not terminated by the termination of the agent's authority by a cause other than incapacity or impossibility. (3) (c) the agent is in possession of indicia of authority entrusted to him by the principal and shown by him to the third person. a notification to be effective in terminating apparent authority must be given by the means stated in Subsection (1) with respect to a third person: (1) (a) who has previously extended credit to or received credit from the principal through the agent in reliance upon a manifestation from the principal of continuing authority in the agent.Agency & Partnership Outline ii. the principal can properly give notification of the termination of the agent's authority by: (1) (a) advertising the fact in a newspaper of general circulation in the place where the agency is regularly carried on. B. (c) (iii) to a place designated by the other as one in which business communications are received. See § 268. or (4) (d) who relies upon the possession by the agent of indicia of authority entrusted to him by the PR. Rest § 136 Notification Terminating Apparent Authority A. Page 27 10-Feb-08 18:27:00 a2/p2 . (2) (b) to whom the agent has been specially accredited. (2) (b) the agent has begun to deal with 3P as the principal has notice. if delivered to a person there or elsewhere. The requirements of Subsection (1) are not met by mailing a letter to the third person. if the principal has manifested to the third person that the agent is to do a single act or perform a single transaction. (2) Unless otherwise agreed. or other designated place. the apparent authority terminates with the termination of the agent's authority. Agent does not have actual authority to receive notification when the agency relationship is terminated but he can have apparent authority ( lingering apparent authority of general agent). Rest § 127 Apparent Authority of General Agent A. or (d) (iv) to a place which. Rest § 132 Apparent Authority of Special Agent A. in view of the business customs or relations between the parties is reasonably believed to be the place for the receipt of such communications by the other. The principles of agency are applicable and a notification given to an agent of the third person with power to bind his principal by its receipt is notification to the principal. his place of business. (3) Except as to the persons included in Subsection (2). or (4) (d) the principal has manifested that the agent has authority to represent the nonexistence of the terminating event and the agent does so represent. unless the third person has notice thereof. the letter or message must reach him personally. Comment b: b. if the principal has manifested that an agent is a general agent. iii. unless: (1) (a) the principal has specially accredited the agent to the third person. iv. or (2) (b) when a reasonable time has elapsed after a writing stating such fact has been delivered by PR (a) (i) to the other personally. (b) (ii) to the other's place of business. (3) (c) with whom the agent has begun to deal. C. Unless otherwise agreed.

i. Common Law Rule Rest § 120 Death of Principal – a. except as stated in subsections (2) and (3) and in the caveat. Protect business instead of the estate. c. one by a manifestation to the agent. 3. Rest § 124A cm a Apparent authority. ii. the bank in which it is deposited and those to which the check is sent for collection have authority to go forward with the process of collection. The death of a principal terminates the agent’s actual authority.Agency & Partnership Outline 3. AG would still have apparent authority to act. B. (1) The death of the principal terminates the [ actual and apparent] authority of the agent without notice to him. then his ability to create apparent authority (implied actual authority to show the PoA to create apparent authority) also continued. i. If before the termination of authority. Policy for Shock rule: the point of apparent authority is to protect 3Ps based on manifestations from the principal. Modern Trend in some Courts & in Rest. b. Rest 3d on p23 (KNOW THIS) A. Rest 3d simplifies the rules around termination. the other by a manifestation to third persons. they are created by independent means. a bank has authority to pay checks drawn by him or by agents authorized by him before death. Death 1. Authority and apparent authority. Terminations by operation of law 1.…may exist concurrently or there may be one and not the other. there is none afterwards. Possible scenarios a. They should continue to be protected until have notice of the death. (2) Until notice of a depositor's death. no distinction between general & special AGs. The risk of termination should fall on the estate of the principal and not on the business. In any event. The termination is effective only when the agent has notice of the principal’s death. there would be no apparent authority. The effect of the common law rule on the agent means that the agent has breached his implied warranty of authority (he has no power to bind when principal dies). b. If AG’s actual authority continued until AG had notice of the death. 3d. perhaps because his actual authority terminated at death. If PoA provided the basis for the apparent authority. Schock v. United States – remember that there must be some manifestation from the principal to 3P before apparent authority will exist. 2. its existence is Page 28 10-Feb-08 18:27:00 a2/p2 . If there has been no manifestation of authority from principal to 3P. in which case the termination of authority does not affect it. there was no apparent authority. his ability to create apparent authority (by showing the PoA under his implied actual authority) also terminated at death. unless AG retains indicia of authority or other basis of apparent authority. The termination is also effective against a 3P with whom the agent deals when the 3P has notice of the principal’s death. If there was apparent authority previously. This authority would last until 3P had notice of the death of the principal. (3) Until notice of the death of the holder of a check deposited for collection.

Durable Power of Attorney i. loss of capacity by PR or by an event making the authorized transaction impossible. AG’s apparent authority does not terminate until 3P has notice of PR’s death or incapacity. Three types of statutory responses a.Two Types a. Irrevocable Agency . e. not just an interest in the proceeds from the exercise of the power. Also execute a “living will” that states what the principal’s desires are regarding the level of medical care the principal’s wishes to receive. Durable Healthcare Power of Attorney i. Irrevocable Agencies 1. Courts will stretch to classify possession only as power coupled with an interest. Uniform Durable Power of Attorney Act § 4 Timing of Termination of Agency Powers: If PR grants authority to AG in a written PoA. Authority does continue as per UDPA § 4 above. Page 29 10-Feb-08 18:27:00 a2/p2 .. Rest § 133 Incapacity of Parties or Other Impossibility a. Power coupled with an interest – A power coupled with an interest in the subject matter of the power.Agency & Partnership Outline unaffected until the knowledge or notice of the termination of authority comes to 3P. Texas Probate Code § 484 c. A.151 – 166. (e. Written power of attorney i.g. Termination of the Agency Relationship/Statutory Responses to the Death Issue 1. ii. The apparent authority of an agent terminates upon the happening of an event which destroys the capacity of the principal to give the power. 4. b. B. Uniform Durable Power of Attorney Act § 2 If a PoA expressly says it is not affected by PR’s incapacity. 2. it creates a power coupled with an interest.g. mortgage granted where mortgager transfers title to the property to the mortgagee and grants a power to sell the property in the event of default) i.. NY&MCFR&C Co – if grantor delivers to the holder of the power the property securing the debt. Death of principal terminates durable power of attorney. Grants power to agent to make healthcare decisions on the principal’s behalf. the death or incapacity of PR does not terminate actual authority until AG has notice of PR’s death or incapacity. except when all agency powers are terminated without notice by death. those words are given effect if PR becomes incapacitated. A.166 C. or an event which otherwise makes the authorized transaction impossible. Texas Health & Safety Code § 166. no PoA survives the death of the principal. Fisher v. Texas Probate Code § 486 (1) Texas version is the same but applies only to durable powers of attorney not regular written powers of attorney (2) Durable Power of Attorney is one that says it is not affected by PR’s incapacity. A.

even accidentally. To carry on as co-owners – shared control of the business i. A business – an activity that rises to the level of being a business (e. b. RUPA § 101. not for the principal.B. (different from security interest!) b.Agency & Partnership Outline A. Nature of Partner's Liability: All partners are liable: Jointly and severally for everything chargeable to the partnership and for all other debts and obligations of the partnership. UPA § 18(e). a power given for security or for consideration in return for consideration from the AG. not mere co-owners of land) UPA § 2. O’Brien -S1 did not have an interest in S4’s ¼ interest in the property so no power coupled with an interest..1 A business is a series of acts directed towards an end. the agent can no longer act in the name of the principal. Power given as security for an obligation of the PR. RUPA § 306(a). RUPA § 201 association of 2 or more persons to carry on as co-owners a business for profit forms a partnership.Consensual agreement of the parties (an aggregation of persons) i. RUPA § 101.g. Page 30 10-Feb-08 18:27:00 a2/p2 . Lee v. UPA § 15. Association . Pship can be formed in very informal manner. Voluntary termination by principal does not terminate this power. Death of the principal does terminate this power. PARTNER'S RIGHTS AND DUTIES : Each partner has equal rights in the management and conduct of the partnership business. is acting in his own name when he exercises that power after the principal’s death. … c. The power must be coupled with an interest in the subject matter of the power. if principal is deceased. 2 or more persons – person can be another business entity i. General Partnerships 1. ii. Elements a. Because the agent exercising power would be acting in the name of the principal. UPA § 6(1) Partnership is an association of two or more persons to carry on as co-owners a business for profit (RUPA § 101(6) "Partnership" means an association of two or more persons to carry on as co-owners a business for profit formed … ) a. i.10 c. ii. *** General Partnerships *** I Formation of Firms . ii. Rules Determining Rights and Duties of Partners: All partners have equal rights in the management and conduct of the partnership business. S4 could voluntarily terminate. Defn: Persons – UPA § 2. PARTNER'S LIABILITY: Except as otherwise provided in subsections (b) and (c). whether or not the persons intend to form a partnership. b. RUPA § 401(f). Death does not terminate power coupled with an interest because Agent has his own interest in the property and thus. Policy: Majority rule that death terminates an irrevocable agency created through power given as security is based on the principle that an Agent is acting for the agent’s own benefit when he exercises his power. A. all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed… 2. d.

law firm) D. other non-partnership relationships also involve profit sharing. agreed to share profits but not losses Page 31 10-Feb-08 18:27:00 a2/p2 . E. The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business. common property. § 18(e) All partners have equal rights in the management and conduct of the partnership ii. As interest on a loan. (e. Employee’s rights to compensation for the performance i. UPA § 7. or part ownership does not of itself establish a partnership. normally sufficient to submit the issue to the fact finder). c.. only need the intent for there to be profits) 3. Partnership a. RUPA § 202(c)(3) a person who receives a share of the profits of a business is presumed to be a partner in the business Factors Profit sharing? (intent to share profits). As an annuity to a widow or representative of a deceased partner. Intent to share profits + shared control of the business will generally be enough to find a partnership (but not always P&M Cattle).Agency & Partnership Outline e. joint property. Employer’s right to the employee’s labor b. Characteristics of an employment relationship v. Partnership UPA § 6. necessary but not determinative. For profit – to make money (there doesn’t have to actually be profits for there to be a partnership. d. tenancy in common. As the consideration for the sale of a good-will of a biz or other property … 5. but no such inference shall be drawn if such profits were received in payment: A. The sharing of gross returns does not of itself establish a pship. Joint tenancy. Employer’s right to control the employee’s performance i. as long as neither of them has contracted that right away in the formation of their partnership.g. As a debt by installments or otherwise. b. As wages of an employee or rent to a landlord. (e. distinguish partner profit sharing from compensation profit sharing Dalton Analyzed. whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. Except as provided by § 16 persons who are not partners as to each other are not partners as to 3P’s b. Actual profits are not required. RUPA § 202(a) (fact intensive inquiry to determine if partnership formed. The partners have the right to control employee’s performance. There must be an agreement to share profits (necessary prerequisite but not definitive.g. creditor) B. though the amount of payment vary with the profits of the business. C. a. c. Rules for Determining the Existence of a Partnership: a.. tenancy by the entireties. found intent to share P&M Analyzed. whether such coowners do or do not share any profits made by the use of the property. § 15 partners have personal liability for partnership obligations – employee can go after the partners’ personal assets if they do not pay her for her performance 4. creates presumption of partnership § 202(c)(3)-(4).

i. ii. Functional approach – emphasizes looking at issues on the merits and determines which view of partnership makes the most sense. ii. then analyze facts. a PN could simply provide services and still be a PN. pship treatment not found 6. aggregate. the individual partners are the partnership. It is a separate legal person with its own rights & liability. Entity/aggregate view has particular relevance to attorneys R1.13 – attorney for an organization is the attorney for the organization itself. partnership is merely a way of describing the relationship among the partners (like a family and its members – family describes the relationship of the persons) b. Not analyzed Analyzed. not found Analyzed. used the term partner Analyzed. Attorneys 1. Entity – the partnership is an entity separate and distinct from the partners. both contributed ppty Yes. § 202(a) …whether or not the persons intend to form a partnership. not the constituents. Page 32 10-Feb-08 18:27:00 a2/p2 . c. Conceptual View i. PARTNERSHIP AS ENTITY: A partnership is an entity distinct from its partners. Approach to analyzing partnership liability questions i. Evidence of conduct and dealings can establish pship. Aggregate – the partnership is not separate and distinct from the partners.Determine entity v. Tax treatment by the parties Not analyzed Analyzed. RUPA § 201(a) PARTNERSHIP AS ENTITY : (a) A partnership is an entity distinct from its partners. Can the partners in a partnership bring suit against the attorney for malpractice? a.Agency & Partnership Outline Loss sharing TBOC § 152.052(a)(4)(a)–sharing of losses is a factor suggesting a pship BUT TBOC § 152. Views of partnership a. the individual partners can sue the attorney. Property contributions by parties? A person does not have to contribute property to be a PN. 2. both operated biz Analyzed. (don’t have to have the intent to be a partner to become one. Conceptual analysis of partnerships . both ctrl’d when sell Not analyzed Analyzed but D did not think of himself as a in partnership.052(c) – agreement to share losses is not necessary to create a partnership Equal rights to participate in the control of the business (shared control over the business)? Carry on as a co-owner. TBOC § 152.056. If partnership is seen as an aggregate. i. Intent of the parties? What did the parties think their relationship was? BUT the parties do not have to intend to (purpose to) create a pship in order to be PNs.

All partners are agents of the partnership. but also when he has knowledge of such other facts as in the circumstances shows bad faith”.. might all think the attorney is their attorney. if they did (e. What were the expectations of the parties when the attorney began doing work for the LP.Agency & Partnership Outline ii. “An Act intended to convey information. VI. or (C) has reason to know it exists from all of the facts known to the person at the time in question. except in the case of a fraud on the partnership committed by or with the consent of that partner b. Functional View i. they can. different from UPA i. if have few partners. or receipt of a notification by the partnership.A person notifies or gives a notification to another by taking steps reasonably required to inform the other person in ordinary course. RUPA § 102(c) . Exception – if partner is committing fraud or assisting fraud. A person has notice of a fact if the person: (A) knows of it. Partnership Charged with Knowledge of or Notice to Partner. whether or not the other person learns of it. or receipt of a notification of a fact relating to the partnership is effective immediately as knowledge by. not the individual partners. did the partners think that the attorney was also their attorney? If they did not (e. not likely to think the attorney was their attorney too). RUPA § 102(f) . Knowledge: RUPA & UPA consistent with agency rules a. too). actual knowledge + reason to know or should know. Arpadi – Conceptual approach – partnership is an aggregate so individual partners can sue the attorney for malpractice. knowledge is attributable to the partnership when it concerns a matter regarding the partnership. RUPA § 102(b) – Notice of a fact i. except in the case of a fraud on the partnership committed by or with the consent of that partner. Page 33 10-Feb-08 18:27:00 a2/p2 . PShip’s Accountability for notification to/knowledge of Partners 1. UPA § 3-“actual knowledge thereof. c. If the partnership is seen as an entity. they all meet with the attorney. then no. cognitive awareness. even if the 3P is not aware that the partner is committing/assisting fraud.A partner’s knowledge.” d.. notice to. only the partnership can sue the attorney. A. yes. the individual partners cannot sue the attorney for malpractice.g. geographically compact. acquired while a partner or then present to his mind. then. operate as notice to or knowledge of the partnership. and the knowledge of the partner acting in the particular matter. if the partners are geographically dispersed. if partnership was considered an entity. only it could sue the attorney for malpractice b. RUPA § 102(a) knowledge = actual knowledge only. UPA § 12. Notice to any partner of any matter relating to partnership affairs.g. ii. (B) has received a notification of it. it is not notice to partnership. The knowledge of a partner who is acting adversely in the sense of fraud is not attributable to the partnership. and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner. notice. B.

1. Rest.. UPA § 9(1) Every partner is an agent of the partnership b.If an agent has actual or apparent authority to receive the notification. including the execution in the partnership name of any instrument.Subject to the effect of a statement of partnership authority under Section 303: (1) Each partner is an agent of the partnership for the purpose of its business.Agency & Partnership Outline 2. not partnership rules). unless the partner had no Page 34 10-Feb-08 18:27:00 a2/p2 . Notice to or knowledge of a limited partner does not constitute notice to the partnership. What Dvoracek had been a limited partnership? a. 3. his act binds the partnership 4. Rules that regulate intra-partnership relations may be modified by agreement. A partner has implied actual authority by virtue of the agreement to be partners in a partnership. Partner Agent of Partnership as to Partnership Business. it operates as notice to the principal. UPA § 9). (RUPA all tasks within the ordinary course of the business of the partnership) c. Dvoracek . Partners as Agents (Creating Partnership Obligations) a) Apparent Authority 1. b. (1) Every partner is an agent of the partnership for the purpose of its business. Rules that regulate partnership-3rd party interactions cannot be modified. UPA § 18(b) authorized acts qualify for indemnification. if partner has actual authority to bind the partnership. if the person is also an employee—thus he is an agent to—apply general agency rules. § 35 An agent has implied actual authority to commit its principal to 3P to the extent that the commitments are “incidental to.GP 1. as long as the person’s only role is a limited partner (e. UPA § 9(1).g. RUPA § 301(1) . An act of a partner. usually accompany… or are reasonably necessary to accomplish” the business of the partnership. including the execution of an instrument in the partnership name. unauthorized acts don’t 3. 2. for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership. and the person with whom he is dealing has knowledge of the fact that he has no such authority . unless agreed with the 3P (e.. for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership. a. VIII.g. Partners by being a partner have actual or apparent authority to receive notification regarding partnership business. d. A partner has express actual authority if the partnership agreement grants specific authorization to do certain acts. Partner Apparent Authority – Ordinary Course Transactions a. and the act of every partner. unless the partner so acting has in fact no authority to act for the partnership in the particular matter. i. Management and Conduct of Firm Business . UPA § 18(e) all partners have equal rights in management and control of the partnership and thus have some authority to bind the partnership.

e. the partnership is still bound if the partner acted with actual authority (the other partners agree) 6. UPA § 9(3) contains a list of 5 extraordinary acts that require unanimous consent of the partners before the partnership is bound. § 9(2) An act of a partner which is not apparently for the carrying on the business of the partnership in the usual way does not bind the partnership unless authorized by the other partners. Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership. 5. otherwise all partners have to consent. The party seeking to bind the partnership bears the burden of proving the transaction was in the ordinary course of business. 301 knowledge (knew or should have known) or notice b. the partner must have been granted actual authority from all the partners to make such a decision. That leaves it to the courts to decide the outer limits of the agency power of a partner. Confess a judgment. c. Most of the acts listed in UPA Section 9(3) probably remain outside the apparent authority of a partner under RUPA.Agency & Partnership Outline authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority. RUPA § 301 – does not contain this laundry list of actions BUT b. UPA § 4 says the law of estoppel and agency apply to partnerships so a partnership could be bound through estoppel or inherent agency power. c. RUPA § 301 – Differences a. RUPA omits that section. 9 Actual knowledge (conscious awareness only) v. d. Dispose of the good-will of the business. b. 301 consideration of the way other businesses of the same kind conduct the business Page 35 10-Feb-08 18:27:00 a2/p2 . UPA § 9 v. 7. b. The partner has no apparent authority to make the UPA 9(3) decisions. Extraordinary Course Transactions UPA § 9(2) addresses acts outside the ordinary course a. a. such as disposing of the goodwill of the business. d. but elimination of a statutory rule will afford more flexibility in some situations specified in UPA Section 9(3) 8. If the partner does an act that is outside the ordinary course of business (for which the partner would have no apparent authority). Submit a partnership claim or liability in arbitration or reference. Consent from all partners required for these acts: UPA § 9(3). Unless authorized by the other partners…all partners are required to consent to a. Comment 4. 9 Scope of ordinary course of business transactions: limited to the partnership itself v. Partner has bound the partnership because he has apparent authority based on his status of a partner and doing something in the usual way the business of the partnership. i. Do any other act which would make it impossible to carry on the ordinary business of a partnership.

Handling of extraordinary acts which require consent of all partners: 9 list v. by words spoken or written or by conduct. Page 36 10-Feb-08 18:27:00 a2/p2 . Partner by Estoppel. and if he has made such representation or consented to its being made in a public manner he is liable to such person. (2) Spoken. he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact. b. given credit to the actual or apparent partnership. whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made: i. with respect to persons who rely upon the representation. purported partnerships) 1. c. ii. a. b. ii. When a person. these rules shall apply: (1) Except as provided by § 16 persons who are not partners as to each other are not partners as to third persons … 2. otherwise separately. written or conduct-based representation made by or with the consent of the purported partner. but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation.Agency & Partnership Outline c. on the faith of such representation. Consent can be implied but i. Failure to act in circumstances where the reasonable person would have corrected the mistaken belief might be seen as consent. In determining whether a partnership exists. When no partnership liability results. 3P. UPA: a mere failure to act does not create consent – merely knowing you’ve been held out as a partner is not enough to say you have consented. he is liable jointly with the other persons. 301 no list b) Partnership by Estoppel (purported partners. UPA § 16. or consents to another representing him to any one. he is liable as though he were an actual member of the partnership. When a person has been thus represented to be a partner in an existing partnership. so consenting to the contract or representation as to incur liability. represents himself. or with one or more persons not actual partners. who has. as a partner in an existing partnership or with one or more persons not actual partners. When a partnership liability results. iii. UPA § 7. a partnership act or obligation results. A person is liable if a. (1) There is a representation that the person is a partner in actual or purported partnership. i. extends credit to the actual or apparent partnership. Rules for Determining the Existence of a Partnership. RUPA § 308: a mere failure to act also does not create consent. if any. Where all the members of the existing partnership consent to the representation. 3. on the faith of the representation. he is liable to any such person to whom such representation has been made. 3p has to rely on the representation.

Agency & Partnership Outline ii.307 i. A false representation or other conduct falsely indicating that a person is a partner with another person does not of itself create a partnership. 3P has to show that it detrimentally relied on the public representation in extending the credit. partners. is made in a public manner.054/152. RUPA § 308(a) If the representation. negligence. either by the purported partner or by a person with the purported partner’s consent. Public broadcast of the representation i. The rights of a person extending credit in reliance on a representation described by Section 152. agency. The rights and duties of a person held liable under Subsection (a) are also determined by law other than the law described by Subsection (a). the purported partner is liable to a person who relies upon the purported partnership even if the purported partner is not aware of being held out as a partner to the claimant. relying on the representation. RUPA § 308(a) is liable to a person to whom the representation is made. Page 37 10-Feb-08 18:27:00 a2/p2 . b. Where no actual partnership exists.054 i. does not of itself make that person a partner in the partnership. TBOC 152. ii. Estoppel always requires detrimental reliance. all the actual partners. fraud. Where an actual partnership exists. and unjust enrichment .054 are determined by applicable law other than this chapter and the other partnership provisions. the purported partner and with anyone else who consenting to the contract or the representation ii. Does an actual partnership exist? i. 4. & purported partner are all liable 5. the partnership does not have to have knowledge that the representation has come to the attention of this 3P. Was a partnership obligation created (did the person bind the partnership when he acted)? (1) No  § 16(1)(b) purported partner and other consenters (2) Yes  § 16(1)(a) partnership. A. “I agree to extend you credit in the future” is sufficient to be “extending credit” A. including the law of estoppel. Liability extends to i. TBOC § 152. Yes A. To be liable. if that person. ii. enters into a transaction with the actual or purported partnership (Not just extend credit) d. No  § 16(1)(b) purported partner and other consenters ii. A representation or other conduct indicating that a person is a partner in an existing partnership. Credit has been interpreted broadly – an executory contract that says.307: Texas has abandoned partnership by estoppel a. e. and by extension. Analysis a. TBOC § 152. if that is not the case. the partnership is liable. ii.

they not liable to each other. § 18. changes to a formal written pship agreement) or an extraordinary transaction requires a unanimous vote to resolve. § 18(e) – all partners have implied actual authority. unless modified by partnership agreement.. but no act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners. Partners as Managers a) Generally 1. When partners are acting with actual authority. TBOC § 152. a. Partners by virtue of being partners have implied actual authorit y. b. § 9(1) Every partner is an agent of the partnership . the principal is the partnership that was formed by the agreement of the partners. i. Rest § 35 Implied actual authority – an agent has implied actual authority do acts that are incidental to or reasonably necessary to accomplish the partnership’s business c. UPA § 18(h) a. Default rule on share of profits is UPA § 18(a). RUPA § 401(b) c. If the act results in damage to the partnership. § 18(h) – (h) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners. partners share profits equally. i. This is a breach of duty to the partnership. § 18(b) – partnership has to indemnify every partner for expenses reasonably incurred by him in the ordinary and proper conduct of its business.Agency & Partnership Outline 2. the partner (AG) is liable to the partnership (PR). the partner has committed an unauthorized act (act without actual authority). RUPA § 401(j). 2. TBOC § 152. b) Transactions Outside the Usual & Regular Course of Business 1.209(a) – default rule is a majority-in-interest (partners who own more than 50% of the current percentage in the profits of the partnership) not a majority in numbers.e. Action in contravention of an agreement among the PNs (i. Difference as to ordinary matters connected with partnership may be decided by a majority vote of the partners. d. a.202(c) – default rule. RUPA § 401(f). cm. Default rule is: 1 vote per partner (§ 18(e) partners have equal rights to control). 11 Amendments to the pship agreement and matters outside the ordinary course of the partnership business require unanimous consent of the partners Page 38 10-Feb-08 18:27:00 a2/p2 . 3. Disagreement on ordinary matters requires a majority vote to resolve. If the partner acts knowing there is a disagreement about the matter.(j) b. b. the formation of the partnership itself can cause each partner to reasonably believe that he is authorized to act to execute transactions in the ordinary course of the partnership’s business.

Duty of Loyalty .e. and hold as trustee for it any profits derived by him without the consent of the other partners (unanimous consent) from any transaction connected with the formation. Duty of due care – to conduct partnership business with due care. The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c). 151. or benefit derived by the partner in the conduct and winding up of Page 39 10-Feb-08 18:27:00 a2/p2 . Duty to account for all profits/benefits gained through the agency relationship without consent of the other partners Rest § 380.Agency & Partnership Outline UPA Disagreement on ordinary matters Action in contravention of an agreement among the partners (i. breach by gross negligence. conduct. Rest. b. Managerial Discretion and Fiduciary Duties A. Every partner must account to the partnership for any benefit. changes to a formal written partnership agreement) an extraordinary transaction Addition of new partners Majority in number 18(h) Unanimous 18(h) RUPA Majority in number 401(j) Unanimous 401(j) TBOC Majority in interest 152. occupy a position of trust b. UPA § 21 a. § 390 c. UPA § 21 does not list a duty of care but courts typically impose a duty of care on partners to each other.General Partnerships 1. Duty of loyalty – partners are considered fiduciaries of each other. profit..201 IX. i. A partner’s duty of loyalty to the partnership and the other partners is limited to the following: i.001(4) Unanimous 152. Consent of all partners is required unless the partnership agreement specifies otherwise. Fiduciary duties supplementing partner duties to each other under UPA § 21 (general agency principles added to § 21) a. RUPA § 404(a) a.209(b) Unanimous 152. or liquidation of the partnership or from any use by him of its property… 2. e. reckless and willful misconduct. Affirmative Duty of full disclosure – disclose when dealing on own account (acting adverse) and disclose all material facts regarding the transaction. d.208 Unanimous 18(h) Unanimous 18(g) Unanimous 401(j) Unanimous 401(i) Unanimous 152. to account to the partnership and hold as trustee for it any property. 3.209(a). each partner has a duty of loyalty to each other partner.

relations among the partners and between the partners and the partnership are governed by the partnership agreement. after full disclosure of all material facts. other partners’ consent is not listed here. this [Act] governs relations among the partners and between the partners and the partnership. these are mandatory rules / TBOC § 152. and A. c. (1) RUPA § 103(a) says everything is a default rule. to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership. (b) RUPA § 103(b)(4)/ TBOC § 152.002(b). but the partnership agreement may prescribe the standards by which the performance of the obligation is to be measured. A partner’s duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct. d.eliminate the obligation of good faith and fair dealing under Section 404(d). including the appropriation of a partnership opportunity. A partner shall discharge the duties to the partnership and the other partners under this [Act] or under the partnership agreement and exercise any rights Page 40 10-Feb-08 18:27:00 a2/p2 . if the standards are not manifestly unreasonable iii. Partners cannot (a) RUPA § 103(b)(3)/TBOC § 152. ii. a specific act or transaction that otherwise would violate the duty of loyalty. his action might be excluded from the duty of loyalty –not prohibited from profiting or acting as an adverse party.002(b)(3) unreasonably reduce the duty of care under Section 404(c) or 603(b)(3). (c) RUPA § 103(b)(5)/ TBOC § 152. intentional misconduct. but (i) (i) the partnership agreement may identify specific types or categories of activities that do not violate the duty of loyalty.002(b)(4) .002(a). Different from UPA. (a) Except as otherwise provided in subsection (b). B. if not manifestly unreasonable. Different from UPA.Agency & Partnership Outline the partnership business or derived from a use by the partner of partnership property. to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership. If an unauthorized sale was in connection with the start up of the partnership. it is listed in RUPA § 103/ also TBOC § 152. or a knowing violation of law. To the extent the partnership agreement does not otherwise provide. (RUPA rules are default rules unless partnership agreement modifies them) (2) RUPA § 103(b) is the list of things that cannot be changed by the partners. or (ii) (ii) all of the partners or a number or percentage specified in the partnership agreement may authorize or ratify. RUPA excludes actions in the formation of the partnership C.002(b)(2) eliminate the duty of loyalty under Section 404(b) or 603(b)(3).

c.204 (fiduciary duty is not used anywhere because don’t want partners held to standard of trustee) i. in good faith. a duty of care. e. no further defn. and B. iv. Texas Rules a. TBOC § 152. b. ii. is not a trustee and is not held to the standards of a trustee. and iii. refraining from dealing with the partnership on behalf of a person who has an interest adverse to the partnership. Not a fiduciary duty but a contractual duty. or benefit derived by the partner: (1) in the conduct and winding up of the partnership business. A partner does not violate a duty or obligation under this [Act] or under the partnership agreement merely because the partner’s conduct furthers the partner’s own interest. iii. profit. ii. in a manner the partner reasonably believes to be in the best interest of the partnership. A partner's duty of care to the partnership and the other partners is to act in t he conduct and winding up of the partnership business with the care an ordinarily prudent person would exercise in similar circumstances.406(a)(2): A. in the partner's capacity as partner. TBOC § 152.204(b) . may be other duties) ii. a duty of loyalty. refraining from competing or dealing with the partnership in a manner adverse to the partnership. A partner. or (2) from use by the partner of partnership property. (business judgment rule) Page 41 10-Feb-08 18:27:00 a2/p2 .206 PARTNER'S DUTY OF CARE. 4. and B. A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner's conduct furthers the partner's own interest. An error in judgment does not by itself constitute a breach of the duty of care. and a transferee of a deceased partner's partnership interest as designated in Section 152.205 A partner's duty of loyalty includes (not an exclusive list): i. A partner shall discharge the partner's duties to the partnership and the other partners under this code or under the partnership agreement and exercise any rights and powers in the conduct or winding up of the partnership business: A. TBOC § 152. (not exclusive list. A partner owes to the partnership. iii.Agency & Partnership Outline consistently with the obligation of good faith and fair dealing. A partner is presumed to satisfy the duty of care if the partner acts on an informed basis and in compliance with Section 152. the other partners. i. accounting to and holding for the partnership property.

a. a partner receives or causes the partnership to receive money or property of a person not a partner. BUT the plaintiff must join the partnership and all the partners in the same suit . and ii. and the money or property is misapplied by a partner. Two basis issues a. Page 42 10-Feb-08 18:27:00 a2/p2 . ii. the partnership is liable for the loss. what is the form of the partners’ liability? 2. The partnership is bound to make good the loss: i. Jointly and severally for everything chargeable to the partnership under § 13 and 14. All partners are liable: i. or for a penalty incurred. If the partnership is VL. but any partner may enter into a separate obligation to perform a partnership contract. Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it. the partnership is liable therefor to the same extent as the partner so acting or omitting to act. or other actionable conduct. b. Jointly for all other debts and obligations of the partnership . UPA § 15. Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. UPA § 13. When is a partnership VL for a partner’s wrongful conduct? b. Partnership Liability for Wrongful Acts of Partners (RS) C. Nature of Partner's Liability. not being a partner in the partnership. RUPA § 305. 6. loss or injury is caused to any person. in the course of the partnership’s business or while acting with [actual] authority of the partnership. Partnership Bound by Partner's Breach of Trust. RUPA § 306. Jointly liable means liable only collectively. PARTNERSHIP LIABLE FOR PARTNER’S ACTIONABLE CONDUCT. Plaintiff must exhaust partnership assets before reaching partner assets. RS Liability of Partnerships & Partners (Creating PShip Liability in Tort) 1. 5. Where. as a result of a wrongful act or omission. A. PARTNER’S LIABILITY. Partnership Bound by Partner's Wrongful Act. each is liable for the whole obligation. of a partner acting in the ordinary course of business of the partnership or with [actual or apparent] authority of the partnership .Agency & Partnership Outline X. UPA § 14. a. A. by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the [actual] authority of his co-partners. or any penalty is incurred. 3. A partnership is liable for loss or injury caused to a person. a. Plaintiff can sue the partners and the partnership at the same time or separately. If. 4.

Correlation a. UPA § 25 Nature of a Partner's Right in Specific Partnership Property A. plaintiff has to exhaust partnership assets before judgment can be satisfied against a partner.r. A judgment may be entered against a partner who has been served with process in a suit against the partnership. partial shield LLP statutes only cut off liability for tort obligations XII Ownership of the Firm v..306(a) ENFORCEMENT OF REMEDY. J&S liable for all partnership obligations. by way of contribution or otherwise. UPA § 24 property rights of partner a. it operates like 306(c) no liability for tort & contract obligations of the partnership.303 8. Pedestrian could sue partnership and the partner that hit him) ii. No liability based on status as partners. This subsection applies notwithstanding anything inconsistent in the partnership agreement that existed immediately before the vote required to become a limited liability partnership under Section 1001(b). whether arising in contract. (a) Except as provided by Subsection (b) or Section 152. (a) A judgment against a partnership is not by itself a judgment against a partner. RUPA § 307(d) A judgment creditor of a partner may not levy execution against the assets of the partner to satisfy a judgment based on a claim against the partnership unless the partner is personally liable for the claim under Section 306 (Go after partnership assets first)  TBOC § 152. all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law. Except as otherwise provided in subsections (b) and (c). i. LLP note: a. or otherwise. (1) his rights in specific partnership property.304(a).Agency & Partnership Outline a. a partner is still liable for wrongs he personally commits (e.g. all partners are liable jointly and severally for a debt or obligation of the partnership unless otherwise: (1) agreed by the claimant.t. A partner is co-owner with his partners of specific partnership property holding as a tenant in partnership. for such an obligation solely by reason of being or so acting as a partner. directly or indirectly. LLP: if a state has a full shield LLP statute. The partners are owners of partnership property – aggregate theory of partnership. is solely the obligation of the partnership. (Go after partnership assets first) 7. UPA § 14(a) (apparent authority only)  RUPA § 305(a) authority means actual or apparent authority  TBOC 152.303 (includes injury to other partner) b. NATURE OF PARTNER'S LIABILITY. or (2) provided by law… TBOC § 152. tort. b. WARNING w. UPA 13 (excludes injury to other partner)  RUPA 305(a) (includes injury to other partner)  TBOC § 152. i. Ownership of Firm Assets – GP A. A partner is not personally liable. i. Different from UPA – even though J&S liable. Ownership of the Firm (Firm Property) 1. An obligation of a partnership incurred while the partnership is a limited liability partnership.801(b). Page 43 10-Feb-08 18:27:00 a2/p2 .

UPA § 18(e) 2. he has a right to be paid in cash his share of what remains of the partnership property. (3) his right to participate in the management. As profits accrue. unless for a claim against the partnership. and i. . entity theory – partnership is separate from partners. UPA § 27(1) A conveyance by a partner of a partner’s interest in the partnership does not of itself dissolve the partnership a. b. RUPA a. § 31(2) Dissolution is caused in contravention of an express agreement among the partners (e. § 501 The partnership owns partnership property (UPA § 25(1) . etc. Dissolution is caused: Page 44 10-Feb-08 18:27:00 a2/p2 . Causes of Dissolution. and on winding up the business.g. The incidents of this tenancy are such that (1) Equal right to possess for business purposes only without consent of partners (a) Partner cannot use partnership property for his own purposes or to satisfy his own liabilities. he has a right to be paid his proportion. ii. no longer necessary to define the tenancy-in-partnership used under UPA. UPA § 29 Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying of the business. (UPA § 25(2)) c. after obligations to 3rd parties have been met. Nature of Partner's Interest in the Partnership: A partner's interest in the partnership is his share of the profits and surplus. partner can still walk away at any time but will affects his rights at time of withdrawal A.partners own partnership property). at will of partner (partner always has the power to walk away). Rights of Assignees and Creditors 1. (aggregate theory) i. A partner has a beneficial interest in partnership property considered as a whole. (2) Partner’s Interest is not assignable unless all partners are assigning their interests (3) Partner’s interest is not subject to attachment or execution. UPA § 25(2) exceptions to UPA § 25(1) tenants in partnership concept constrict use of partnership property to partnership purposes and not assignable without all partners assigning. ii. UPA § 26. UPA § 31. Assignees 2. (2) his interest in the partnership. § 203. partnership for a period of time). § 31(1)(b) Dissolution is caused without violation of agreement among the partners by the express will of a partner when no definite term has been undertaken (at will partnership – partner can trigger dissolution at any time) iii. Reasons for dissolution § 31 death. § 502 The only transferable interest of a partner is his interest in profits/losses of the partnership and distributions. b.Agency & Partnership Outline B. c. (UPA § 26) B. term ends. The rights are considered his “interest in the partnership” and he may assign this in whole or in fractional part as indicated by § 27. § 401(g) Partners can only use partnership property for partnership purposes. and the same is personal property..

UPA §§ 27(1) merely entitles the assignee to …the profits to which the assigning partner would otherwise be entitled. RUPA § 503(3) c. UPA § 18(g) No person can become a member of a partnership without the consent of all the partners. where the circumstances do not permit a dissolution under any other provision of this section. a.r. (5) By the bankruptcy of any partner or the partnership.Charging Orders . Receive share of profits allocated to assigning partner ii. Same result under RUPA – no access to partnership property (stated less obviously) Page 45 10-Feb-08 18:27:00 a2/p2 . (4) By the death of any partner. (2) In contravention of the agreement between the partners. b.. Blomfield – partners owe assignee no fiduciary duty w.314 (only a partner can seek judicial dissolution) 2. RUPA § 503(a)(3). a partner has no interest which she can convey. by the express will of any partner at any time. Bauer v. dissent says they should e. UPA § 32(2)(b) (no equitable requirement under UPA)/RUPA § 801(6) (court can order dissolution if it deems such action equitable) iv.t. (6) By decree of court under § 32. can’t be attached for personal debts. (b) By the express will of any partner when no definite term or particular undertaking is specified. (3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership. An assignee cannot force the partnership to make managerial decisions favorable to it. iii. Creditor Rights . § 27(1). if it is a partnership at will (not for a definite term of for a specific undertaking). Assignment of a partner’s interest in the partnership does not give the assignee rights to that partner’s “share” of partnership property. Assignment of a partner’s interest in the partnership does not automatically make the assignee a partner. either before or after the termination of any specified term or particular undertaking. except on a claim against the partnership. b. A judgment creditor cannot seek attachment of partnership assets to satisfy a partner’s individual debts.Agency & Partnership Outline (1) Without violation of the agreement between the partners: (a) By the termination of the definite term or particular undertaking specified in the agreement. Rights of assignee i. Sue if fraudulent action by the partners in making no distributions. distribution. (c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts. RUPA § 501 d. UPA § 27(1) assignee has no rights to interfere in management or administration of partnership. (d) By the explusion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners. § 25(2)(a)(b)(c) interest in partnership property is undivided. Texas Rule: Assignees cannot seek judicial dissolution of partnership TBOC § 11. UPA § 25(2)(c) A partner's right in specific partnership property is not subject to attachment or execution. Petition for judicial dissolution.a) General Partnerships 1.

ii. It is a form of garnishment.Property acquired by a partnership is property of the partnership and not of the partners individually.Agency & Partnership Outline i. c. b. The charging order is a lien on the partner’s interest in the partnership. The charging order does not entitle the judgment creditor to the partner’s interest in partnership property. RUPA § 501. No provisions from UPA & RUPA that state this exactly.A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred. ii.g. UPA § 28(1) On due application to a competent court by any judgment creditor of a partner. iii. creditor is not entitled to further distributions due the debtor PN. Texas dropped the charging order provision for GPs in 1993. b. a. c. . Texas & Charging Order i. UPA § 28/RUPA § 504 authorize the court to appoint a receiver to receive distributions from the partnership (e. 3. 4. no further rights to distributions. or any other court. ~ UPA § 25(2)(c). PARTNERSHIP PROPERTY. The purchaser at the foreclosure sale has the rights of a transferee. a..(2) The interest charged may be redeemed at any time before foreclosure. TBOC § 154. if there were 5 creditors with a judgment). or decree. UPA § 28(2) foreclosing on the partnership interest . either voluntarily or involuntarily. RUPA § 504(b) A charging order constitutes a lien on the judgment debtor’s transferable interest in the partnership. a. the court which entered the judgment. A judgment creditor may seek a charging order against the partner’s interest in the partnership to satisfy a partner’s individual debts. RUPA §504(b) …The court may order a foreclosure of the interest subject to the charging order at any time. BUT 28/504 don’t give much guidance on what is appropriate. ii. Page 46 10-Feb-08 18:27:00 a2/p2 . 25(2)(c) A partner's right in specific partnership property is not subject to attachment or execution. Court says local procedural law dealing with creditor rights to fill in the gaps.002 allows a creditor of a partner has no right to get access to partnership assets. Once the debt is satisfied. except on a claim against the partnership. order. once paid. RUPA § 504(b) nature of charging order is a lien on a judgment debtor’s transferable interest . RUPA § 504(a) On application by a judgment creditor of a partner or of a partner’s transferee. A judgment creditor can seek foreclosure against PN’s interest subject to the charging order. PARTNER NOT CO-OWNER OF PARTNERSHIP PROPERTY. also allow court broad authority to issue orders as appropriate in the case. . a court having jurisdiction may charge the transferable interest of the judgment debtor to satisfy the judgment. Texas retains charging orders for LPs and LLCs. a. or in case of a sale being directed by the court may be purchased without thereby causing a dissolution: b. RUPA § 203. may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon. 2. i.

Personal services may. Partners are compensated through their share of the profits.314 (partner or owner only) C. (but not in TEXAS) 5. TBOC § 11.314 (partner or owner only) Yes UPA § 32(2)(b). RUPA § 801(6) No TBOC § 11. except that a surviving partner is entitled to reasonable compensation for his services in winding up the partnership affairs.Distributions on Liquidation 1. Default rule can be changed by agreement. May institute judicial dissolution of the partnership and get ALL amounts due to the debtor partner at termination.256(a) No? (not in statute) N/A No? (not in statute – prior version allowed) No. UPA § 40. a partner contributing only personal services is ordinarily not entitled to any share of partnership capital pursuant to dissolution. however. Balance Sheet Left side is assets. b. The default rule is that partners are not entitled to salary for services rendered in the business of the partnership. creditor is then A.each partner shares the loss equally . cm. right side shows who has a claim on the assets a. Service Contributions: It is generally not appropriate to treat service contributions as a capital contribution. Partners must agree to treat the services as a capital contribution. can creditor seek foreclosure on the partnership interest Assignor’s rights: If creditor forecloses and buys partnership interest or gets a voluntary assignment of the interest.Agency & Partnership Outline c. as an assignee. Page 47 10-Feb-08 18:27:00 a2/p2 . In the absence of an agreement to such effect. RULPA § 802 (makes foreclosure less valuable with a LP – no right to seek judicial dissolution) LP TBOC Yes TBOC § 153. Third parties – creditor will be paid proceeds up to the judgment amount iii. three possible buyers i. i. Loss Sharing Default rule . At the court directed sale of the interest. i. can creditor seek appointment of a receiver If get C/O. 3. qualify as capital contributions to a partnership where an express or implied agreement to such effect exists. UPA 18(f) . The creditor – creditor gains the partner’s interest in the partnership outright —becomes an assignee by purchase. Ownership interests in the firm . Other partners – creditor will be paid proceeds up to the judgment amount ii. RULPA § 703 RULPA § 1105 – RULPA does not address so use UPA § 28(1) RULPA § 1105 – RULPA does not address so use UPA § 28(1) No.No partner is entitled to remuneration for acting in the partnership business. c. can creditor seek dissolution Yes Yes UPA § 28(1) Yes TBOC No N/A RULPA Yes. Charging Order Summary General Partnership UPA/RUPA Can creditor seek a charging order? If get a C/O. Entitled to ALL future distributions from the partnership B.

in the relative proportions in which they share the profits. Order of distributions a. ii. capital contributions are favored over service contributions. but if any.. or. property – The partners are repaid the VALUE of their contributions. the other partners shall contribute their share of the liabilities. refuse to contribute. UPA § 18(a) -. 3. Becker v. (2) Those owing to partners other than for capital and profits. not being subject to process.g. Those owing to partners in respect of profits. and. a partner’s agreed but unpaid salary. UPA § 40(d) The partners shall contribute. in the relative proportions in which they share the profits. whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities. and. The liabilities of the partnership shall rank in order of payment. Those owing to partners other than for capital and profits. Other courts disagree – this approach is inconsistent with the UPA. subject to any agreement to the contrary: A. UPA § 40. (e. ($. C. as follows: (1) Those owing to creditors other than partners. Those owing to partners in respect of capital. equipment. if a partner has also made a loan to the partnership. the additional amount necessary to pay the liabilities. Page 48 10-Feb-08 18:27:00 a2/p2 .. the other partners shall contribute their share of the liabilities. as provided by § 18 (a) the amount necessary to satisfy the liabilities. and must contribute towards the losses. but not all. as provided by § 18 (a) the amount necessary to satisfy the liabilities. (4) Those owing to partners in respect of profits. not being subject to process. don’t necessarily get their property back). as follows: i. the additional amount necessary to pay the liabilities. In settling accounts between the partners after dissolution. the following rules shall be observed. UPA § 40(b)The liabilities of the partnership shall rank in order of payment. (2) The contributions of the partners necessary for the payment of all the liabilities specified in clause (b) of this paragraph. but if any.Agency & Partnership Outline i. D. UPA § 40(b) lists the liabilities iv. (3) Those owing to partners in respect of capital. expenses incurred under § 18(b) activities. refuse to contribute. of the partners are insolvent.Each partner shall be repaid his contributions. not necessarily what they actually contributed (e. whether of capital or otherwise. Those owing to creditors other than partners. The partners shall contribute. of the partners are insolvent. Killarney When one partner puts in only services and the other puts in only capital. Otherwise. B. The assets of the partnership are: (1) The partnership property. are satisfied. fee due to partner for services in winding up partnership) iii.g. or. the service partner should not have to contribute to the loss to allow the capital partner to be repaid at termination (fairness argument). 2. but not all. (no profits because there was a loss) v. Rules for Distribution. including those to partners. The assets shall be applied in the order of their declaration in clause (a) of this paragraph to the satisfaction of the liabilities. B. A. sustained by the partnership according to his share in the profits.

the partner contributes to the partnership and the partner’s share of the partnership profits. the amount necessary to satisfy partnership obligations that were not known at the time of the settlement and for which the partner is personally liable under Section 306. (partial shield only protects against tort type actions. 7. the assets of the partnership. 5. profits and losses that result from the liquidation of the partnership assets must be credited and charged to the partners’ accounts. and (2) charged with an amount equal to the money plus the value of any other property. Under a full shield LLP statute. (f) An assignee for the benefit of creditors of a partnership or a partner.Agency & Partnership Outline a. PARTNER’S RIGHTS AND DUTIES. may enforce a partner’s obligation to contribute to the partnership. not contract type actions). the additional amount necessary to satisfy the partnership obligations for which they are personally liable under Section 306. (b) Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business. SETTLEMENT OF ACCOUNTS AND CONTRIBUTIONS AMONG PARTNERS. (a) Each partner is deemed to have an account that is: (capital account) (1) credited with an amount equal to the money plus the value of any other property. RUPA § 401 cm. distributed by the partnership to the partner and the partner’s share of the partnership losses. (b) Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in proportion to the partner’s share of the profits. recommends partners amend default rule. (h) A partner is not entitled to remuneration for services performed for the partnership. must be applied to discharge its obligations to creditors.the partners shall contribute the amount necessary to satisfy the liability of the partnership – it does not say partners who contributed capital. net of the amount of any liabilities. (e) The estate of a deceased partner is liable for the partner’s obligation to contribute to the partnership. 4. A partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner’s account but excluding from the calculation charges attributable to an obligation for which the partner is not personally liable under Section 306. the partners have no obligation to contribute any funds to cover any tort or contract liabilities outstanding at termination. UPA § 40(d). Page 49 10-Feb-08 18:27:00 a2/p2 . in the proportions in which those partners share partnership losses. each partner shall contribute. In settling accounts among the partners. UPA does not expressly recognize capital accounts of partners in the equity portion of balance sheet. net of the amount of any liabilities. to the extent permitted by law. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner’s account. (a) In winding up a partnership’s business. b. or a person appointed by a court to represent creditors of a partnership or a partner. including the contributions of the partners required by this section. a. RUPA § 401. in the proportion in which the partner shares partnership losses. all of the other partners shall contribute. 6. If a partnership is an LLP. except for reasonable compensation for services rendered in winding up the business of the partnership. 3 – expressly rejects Becker & Kovacek. including. (c) If a partner fails to contribute the full amount required under subsection (b). (d) After the settlement of accounts. partners who are creditors. b. A partner or partner’s legal representative may recover from the other partners any contributions the partner makes to the extent the amount contributed exceeds that partner’s share of the partnership obligations for which the partner is personally liable under Section 306. the partners must contribute towards contract liabilities outstanding but not tort liabilities. LPs have no obligation to contribute to obligations outstanding at termination. Under a partial shield LLP statute. Any surplus must be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions under subsection (b). even to even out each other’s capital accounts. RUPA § 401(a) does. RUPA § 807.

2. TBOC §§ 3.Agency & Partnership Outline *** Limited Partnerships (LP) *** I Formation of Firms . he participates in the control of the business. if the limited partner participates in the control of the business. However. 4. LP is often seen as a hybrid entity/aggregate. LIABILITY TO THIRD PARTIES: Except as provided in subsection (d). it must produce evidence that it was acting in the best interests of the partners or the partnership. This duty applies to GPships also. b. Texas: “certificate of formation. RULPA § 101(7) Limited partnership: "Limited partnership" and "domestic limited partnership" mean a partnership formed by two or more persons under the laws of this State and having one or more general partners and one or more limited partners. RULPA and Texas do not require a written agreement.052. Agents of the partnership owe a fiduciary duty to both the partnership (collective interests of the partners) and the partners (interests of individual partners). At least one general partner – § 403 rights to manage and control the business (rights of a partner in a GP). 4.” TBOC §§ 1. b. iii.001(a).011(c). a. TBOC §§ 3. ii. The limited partnership agreement is not filed with the state. Partnership with i. There is some fee. And at least one limited partner – § 302 voting rights granted in LP agreement. but limited partnerships normally have a written limited partnership agreement. 3.002(6). However. File a document with the appropriate state office.553(a)(1). Information required is very basic. RULPA § 204.051. 3. iii. Must be signed by all general partners.LP 1. Creation a. but no personal liability (beyond investment amount) for the business obligations. a limited partner is not liable for the obligations of a limited partnership unless he is also a general partner or. i.005.001(c). that the limited partner is a general partner. 3. Limited Partnership Agreement a. 153. RULPA § 303(a). A. RULPA § 201(b). Limited partnership is formed at the time the certificate is filed (or on a later date specified in the certificate). based upon the limited partner's conduct. personal liability for business obligations (liability of a partner in a GP) ii. in addition to the exercise of his [or her] rights and powers as a limited partner.011(a). the duty to the partnership itself takes precedence over the duty to the partners when there is a conflict between the interests of the partnership and the interests of the partners. See RULPA § 201(a).004(b)(1). is liable only to persons who transact business with the limited partnership reasonably believing. If the agent is accused of violating its fiduciary duty to either the partnership or the partners. "certificate of limited partnership. 3. TBOC §§ 3. § 303 no rights to manage and control the business A." RULPA § 201(a). Page 50 10-Feb-08 18:27:00 a2/p2 . Note: RULPA provides limited partnership is formed upon filing if "there has been substantial compliance with the requirements" c.

i. if. or other compensation by way of income. b. Each partner's share of profits and losses. See RULPA § 102(2). provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business. causes an appropriate certificate of limited partnership or a certificate of amendment to be executed and filed.Agency & Partnership Outline c. ii. Typically. Limited Partnership Name a. Under many state statutes. state statutes require the partnership name to contain the words "limited partnership" or an abbreviation of those words. Texas: the TRLPA contained this prohibition.155. Sets the name aside for exclusive use for a short period of time (120 days in Texas). a general partner with the person or in the partnership carrying on the business. II. iii. 3. and spells out the rights and obligations of the partners. Voting rights of partners. PERSON ERRONEOUSLY BELIEVING HIMSELF A LIMITED PARTNER. How much capital each partner is required to contribute to the partnership. a. such as: i. a person who makes a contribution to a business enterprise and erroneously but in good faith believes that he [or she] has become a limited partner in the enterprise is not a general partner in the enterprise and is not bound by its obligations by reason of making the contribution. by reason of his exercise of the rights of a limited partner. ULPA § 11. TBOC § 5. RULPA § 303(d). If name is used.101 to 5. 4. or ii. TBOC §§ 5. b.151 to 5. Status of Person Erroneously Believing Himself a Limited Partner: A person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership. withdraws from future equity participation in the enterprise by executing and filing in the office of the Secretary of State a certificate declaring withdrawal under this section. RULPA § 304. LP is personally liable to creditors who extend credit to the LPship without actual knowledge that the partner is not a general partner. the name of the limited partnership cannot contain the name of a limited partner. Sets the name aside for a longer period of time (one year in Texas). ii.055(a).106. or exercising any rights of a limited partner. Registration of a name. Except as provided in subsection (b). See RULPA § 102(1). Page 51 10-Feb-08 18:27:00 a2/p2 . on ascertaining the mistake. i. he: i. Reservation of a name. the TBOC does not. The typical limited partnership agreement is very detailed. TBOC §§ 5. unless certain exceptions apply. i. receiving distributions from the enterprise. Who incurs liability for obligations entered into before limited liability status achieved? 2. Liability for Contracts entered into before formation of a LL firm a) Limited Partners: when face liability if problems in forming LPship 1. Limited Partnership Name Reservation & Registration a. 5. or bound by the obligations of such person or partnership. is not.

after realizing the mistake i. 3P reasonably believes that based on the person who believes himself to be a LP’s own conduct that the person was a GP at the time of the transaction and extended credit to the partnership in reasonable reliance on the contributor. reduces the risk that there will be creditors that thought the person was a GP). i. Causes certificate of LP to be executed and filed showing not a GP or (1) Requires the agreement of the voting partners and GP would have to sign & file it. file a written statement that shows person tried to get a cert of formation to be filed by the GP and claims status as an LP(1) gets partner 180 days to persuade the GP to file the certificate of formation. ULPA § 11 focus is on promptness. if the creditor actually believed in good faith that the person was a GP at the time of the transaction. cause certificate of formation to be filed by GP. not how quickly withdraws) i. or just future. or (ii) before an appropriate certificate is filed to show that he is not a general partner. e.Agency & Partnership Outline b. B. after that partner must withdraw or bring an action against GP to compel filing the certificate of limited partnership ii. Objectively reasonable test for erroneous belief: honest & reasonable d. Page 52 10-Feb-08 18:27:00 a2/p2 . BUT person is liable to creditors who transact business with the enterprise before corrective action was taken. f. c. C. Withdraws from future equity participation by filing a certificate of withdrawal with the State ii. RULPA § 304 (focus is on reliance by 3P on person’s status. TBOC § 153.106 Erroneous but good faith belief that the person is a limited partner and within a reasonable time after ascertaining the mistake the person takes corrective action A. but in either case only if the third party actually believed in good faith that the person was a general partner at the time of the transaction. Key point: erroneously belief at the time of contribution that he is becoming a limited partner. limited liability for future obligations is established. B. The person knows or has notice that no certificate has been filed or it was filed inaccurately and B. On ascertaining the mistake A. withdraw from participation in future profits.106 – 109 i.109 Person is liable as a GP to a 3P who transacts business with the partnership before corrective action is taken if A. policy – protect 3Ps expectations in dealing with the entity. Unclear whether person has to renounce all profits. how quickly the person renounces. Upon complying. ii. past and future. § 153. 153. A person who makes a contribution of the kind described in subsection (a) is liable as a general partner to any third party who transacts business with the enterprise (i) before the person withdraws and an appropriate certificate is filed to show withdrawal. iii.

iii. Voting Rights of LP’s generally (basic deferral to partnership agreement) a. (a) Except as provided in this [Act] or in the partnership agreement. (b) Except as provided in this [Act]. A general partner shall have all the rights and powers b. Admit a person as a limited partner. c. Do any act which would make it impossible to carry on the ordinary business of the partnership. RULPA § 302 – Voting rights are determined by the partnership agreement.Agency & Partnership Outline VIII. b. or assign their rights in specific partnership property. v. a general partner of a limited partnership has the liabilities of a partner in a partnership without limited partners to the partnership and to the other partners. Rights of General Partners 1. Do any act in contravention of the certificate. Confess a judgment against the partnership. Leaves out the enumerated list of disallowed acts from ULPA. Management and Conduct of Firm Business . and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners. 1916 ULPA § 9(1) a. for other than a partnership purpose. only if the matter is not addressed in the partnership agreement c. RULPA § 301(b)(1) – LP’s have voting rights on the admission of an LP. Possess partnership property. must be specified in the partnership agreement.LP 1. iv. unless the right to do so is given in the certificate. ii. RULPA § 401 – LP’s have voting rights on the admission of a GP. retirement or insanity of a general partner. a general partner of a limited partnership has the rights and powers and is subject to the restrictions of a partner in a partnership without limited partners. vii. unless the right to do so is given in the certificate. Page 53 10-Feb-08 18:27:00 a2/p2 . Except as provided in this [Act] or in the partnership agreement. only if the matter is not addressed in the partnership agreement. Voting Rights of Limited Partners 1. a general partner of a limited partnership has the liabilities of a partner in a partnership without limited partners to persons other than the partnership and the other partners. except that without the written consent or ratification of the specific act by all the limited partners. RULPA § 403 a. Admit a person as a general partner. c. 2. vi. a general partner or all of the general partners have no authority to i. 2. Can be on a per capita basis or a percentage basis or other basis) b. Continue the business with partnership property on the death.

Agency & Partnership Outline
d. RULPA § 801(4) - LP’s have voting rights on whether the business continues after the withdrawal of a general partner, only if the matter is not addressed in the partnership agreement.

3. Limits on Contractual Expansion of LP Rights
1. ULPA § 7 (1916) A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business . a. LP acting as an employee must act without the oversight and control of the GP to waive limited liability. If LP has authority to make decisions without GP oversight, waives limited liability. b. LPs should be held liable under § 7 only when a creditor has mistakenly assumed the LPs are GPs. The whole issue is creditor reliance: did the creditor rely on the individual LP’s creditworthiness rather than the credit status of the corporation? i. Liability: If the LPs don’t make clear the role in which they are acting (as agent of disclosed principal corp), they may face liability. ii. Liability: If the corp-as-GP is a sham corporation and not really being conducted as a corp (e.g., failing to hold required meetings, keeping minutes, under capitalization, etc.), then the officers/directors are really acting directly as a GP-corp, not agents of the GP-Corp. c. Delaney - TX S Ct said LPs are liable if they are acting as officers of the corporate GP. 2. Under RULPA § 303(a) & (b) a. Element 1: a limited partner is not liable for the obligations of a limited partnership unless he is also a general partner or, in addition to the exercise of his rights and powers as a limited partner, he participates in the control of the business AND i. (b) A limited partner does not participate in the control of the business within the meaning of subsection (a) solely by doing one or more of the following: A. (1) being a contractor for or an agent or employee of the limited partnership or of a general partner or being an officer, director, or shareholder of a general partner that is a corporation; b. Element 2: if the limited partner participates in the control of the business, he is liable only to persons who transact business with the limited partnership reasonably believing, based upon the limited partner’s conduct, that the limited partner is a general partner c. LP is liable for pship obligations if i. LP participates in control of the business (see list in 303(b)) and
A. § 303(b) A limited partner does not participate in the control of the business within the meaning of subsection (a) solely by doing one or more of the following: (1) being a contractor for or an agent or employee of the limited partnership or of a general partner or being an officer, director, or shareholder of a general partner that is a corporation; (2) consulting with and advising a general partner with respect to the business of the limited partnership;

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Agency & Partnership Outline
(3) acting as surety for the limited partnership or guaranteeing or assuming one or more specific obligations of the limited partnership; (4) taking any action required or permitted by law to bring or pursue a derivative action in the right of the limited partnership; or (5) requesting or attending a meeting of partners; (6) proposing, approving, or disapproving, by voting or otherwise, one or more of the following matters: (a) the dissolution and winding up of the limited partnership; (b) the sale, exchange, lease, mortgage, pledge, or other transfer of all or substantially all of the assets of the limited partnership (c) the incurrence of indebtedness by the limited partnership other than in the ordinary course of its business; (d) a change in the nature of the business; or (e) the admission or removal of a general partner.; (f) the admission or removal of a limited partner; (g) a transaction involving an actual or potential conflict of interest between a general partner and the limited partnership or the limited partners; (h) an amendment to the partnership agreement or certificate of limited partnership; or (i) matters related to the business of the limited partnership not otherwise enumerated in this subsection (b), which the partnership agreement states in writing may be subject to the approval or disapproval of limited partners; (7) winding up the limited partnership pursuant to Section 803; or (8) exercising any right or power permitted to limited partners under this [Act] and not specifically enumerated in this subsection (b).

ii. Element 3: 3P must reasonably believe based on that LP’s conduct that the LP was a GP. 3. ULPA § 303 (2001). NO LIABILITY AS LIMITED PARTNER FOR LIMITED PSHIP OBLIGATIONS. a. An obligation of a limited partnership, whether arising in contract, tort, or otherwise, is not the obligation of a limited partner. A limited partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for an obligation of the limited partnership solely by reason of being a limited partner, even if the limited partner participates in the management and control of the limited partnership. i. Control rule has been eliminated; LPs can control at will without liability. The burden is on the 3P to verify with whom it is transacting. ii. The control rule is anachronism because parties are free to choose LLC, LLLP, LLP where partners can choose to participate and still have limited liability. iii. Texas still follows the control rule: TBOC §§ 153.102, 153.103 4. EXAM: LP can become personally liable if a. Participate in the control of the business. b. LP’s name is used as part of the name of the Lpship not under one of the exceptions (RULPA § 303(d))

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Agency & Partnership Outline
A. A limited partner who knowingly permits his [or her] name to be used in the name of the limited partnership, except under circumstances permitted by Section 102(2), is liable to creditors who extend credit to the limited partnership without actual knowledge that the limited partner is not a general partner. B. Texas has abandoned this rule; in Texas the LP’s name can be used in the partnership name. LP is defectively formed (Briargate condominium); liable to 3Ps who think the LP is a GP LP personally causes injury to a 3p (commits a tort - e.g., negligence) LP agrees to be personally liable for an obligation The first two can be ameliorated by registering the LP as an LLLP (so LPs can get benefits from being in an LLLP as well).

c. d. e. f.

IX. Managerial Discretion and Fiduciary Duties
Duty of Loyalty- 2. Limited Partnerships
1. GP can’t prospectively limit is his liability for breach of fiduciary duty of loyalty. Contract can’t eliminate the duty of loyalty by giving GP sole discretion for distributions. Court says complete waiver of fiduciary duties is not allowed in a partnership. 2. GPs are agents of the partnership and so under agency principles the GP has a fiduciary duty to the partnership. They are entrusted with other people’s assets or welfare. Fiduciaries naturally possess discretion. To argue that he has discretion and so can’t be liable turns the relationship on its head. It is precisely when a person has discretion that he has fiduciary duty, which constrains that discretion. 3. Partnership agreement can modify the fiduciary duty of loyalty for extraordinary transactions; contracted around the duty and replaced it with voting rights of LP; a. Competing views of fiduciary duties i. Traditionalists – fiduciary duties are imposed by virtue of a person’s status (e.g., agent, partner, corporate director); duties are mandatory by virtue of status ii. Modernists - Fiduciary duties are default rules; the rules most people would choose to apply if they could negotiate without cost; the parties are free to contract around fiduciary duties. 4. Instituting limited partner voting to approve a transaction in place of the duty of loyalty. How courts might interpret the vote: a. Insulates transaction from attack: LPs have given actual authority to do the transaction so they give up their cause of action. b. Give no effect to the vote of approval; still assess whether the transaction is fair & reasonable with burden of proof on the fiduciary GP. The vote is a just a factor in determining whether the transaction is fair & reasonable. c. Give some effect to the vote by shifting the burden to LPs to prove not fair or reasonable. Standard is still fairness with challengers bearing burden.

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Agency & Partnership Outline d. RULPA does not. RULPA § 802. RULPA provides a rule for judicial dissolution a. RULPA § 702 Except as provided in the partnership agreement. On application by or for a partner the court may decree dissolution of a limited partnership whenever it is not reasonably practicable to carry on the business in conformity with the partnership agreement. Does RUPA allow elimination of duty of loyalty? What if pship had been a GP subject to RUPA: would the contractual provision in pship agreement be permissible under 103(b)? a. Give more effect to the vote and shift the standard from fairness to the business judgment rule. Page 57 10-Feb-08 18:27:00 a2/p2 . RULPA § 1105. XII Ownership of the Firm-LP – Rights of Creditor of Limited Partner 2.Charging Orders-b) Limited Partnerships 1. the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment with interest.10 .(a) An assignee of a partnership interest. a partner ceases to be a partner upon assignment of all his partnership interest. 5. b. Except as provided in the partnership agreement. 103(b)(3)(i) & (ii) would not allow elimination of duty of loyalty but can contract for specific types and categories of transactions that do not violate the duty or specify authorization/ ratification after full disclosure of all material facts (by all partners [default rule] or number specified in partnership agreement). RULPA § 704(a) – Assignee can become a LP . 2. a. only the distribution to which the assignor would be entitled. RULES FOR CASES NOT PROVIDED FOR IN THIS [ACT]. In any case not provided for in this [Act] the provisions of the Uniform Partnership Act govern. fraud. RULPA sections a. A creditor of a partner in a LP may seek a charging order. i.(10) “Partnership interest” means a partner’s share of the profits and losses of a limited partnership and the right to receive distributions of partnership assets.” Plaintiffs would have to show gross negligence. RULPA § 101. An assignment entitles the assignee to receive. On application to a court of competent jurisdiction by any judgment creditor of a partner. UPA/RUPA provide for judicial dissolution by an assignee. RULPA § 703. gift or waste of partnership assets. Code words for “challengers lose. a partnership interest is assignable in whole or in part…. An assignee has no right to sue for judicial dissolution under RULPA. c. RIGHTS OF CREDITOR. JUDICIAL DISSOLUTION. 3. Creditor Rights . may become a limited partner if and to the extent that (i) the assignor gives the assignee that right in accordance with authority described in the partnership agreement. b. (UPA § 27/RUPA § 503). including an assignee of a general partner. to the extent assigned. or (ii) all other partners consent.

d.Agency & Partnership Outline 4. and (2) other internal affairs of the company. TBOC § 1. or otherwise exercise legal or equitable remedies with respect to. *** Limited Liability Companies (LLC) *** I Formation of Firms . A company agreement of a limited liability company having only one member is not unenforceable because only one person is a party to the company agreement. a court having jurisdiction may charge the partnership interest of the judgment debtor to satisfy the judgment. DEFINITIONS. written or oral. A creditor of a partner or of any other owner of a partnership interest does not have the right to obtain possession of.001(1). of the members concerning the affairs or the conduct of the business of a limited liability company. LLC compared to Corporation & Partnerships Corporation Perpetual Existence Centralized Management Transferable interests Limited Liability Structure Yes (change of shareholders does not dissolve the corp) Yes (board of directors) Yes (xfer shares) Yes Rigid. TBOC § 101. e. A charging order constitutes a lien on the judgment debtor's partnership interest. c. To the extent that the partnership interest is charged in the manner provided by Subsection (a). informal. Texas Rules TBOC § 153. 3. and officers of the company. managers. (Charging order) b.002(46). The term includes a professional limited liability company. On application by a judgment creditor of a partner or of any other owner of a partnership interest. and the company itself. DEFINITIONS: "Company agreement" means any agreement. 2. 4.: "Limited liability company" means an entity governed as a limited liability company under Title 3 or 7. TBOC § 101. depends on statute Yes Flexible and more Page 58 10-Feb-08 18:27:00 a2/p2 . COMPANY AGREEMENT: (a) Except as provided by Section 101. The entry of a charging order is the exclusive remedy by which a judgment creditor of a partner or of any other owner of a partnership interest may satisfy a judgment out of the judgment debtor's partnership interest.256 (2007) a. depends on statute Optional Maybe. assignees of membership interests in the company. "Limited liability company" or "company" means a domestic limited liability company subject to this title. the company agreement of a limited liability company governs: (1) the relations among members. LLC Maybe. the judgment creditor has only the right to receive any distribution to which the judgment debtor would otherwise be entitled in respect of the partnership interest. f.LLC 1. (3).054. the property of the limited partnership. Partnership No (change of partners dissolves the partnership) No No No Flexible. This section does not deprive a partner or other owner of a partnership interest of a right under exemption laws with respect to the judgment debtor's partnership interest.052. formal.

005. 7. but LLCs normally have a written operating agreement.” TBOC §§ 1.010." or the designation "LLC" Page 59 10-Feb-08 18:27:00 a2/p2 . See TBOC § 1. Purpose of LLC limited liability without the rigidity of a corporation and favorable tax treatment. Del. 8. Typically. state statutes require the LLC name to contain the words "limited liability company" or an abbreviation of those words.001(1). liable for the debts and obligations of the LLC. Creating a Limited Liability Company a.152. such as: i. d.002(6). LLCA § 18-303. 4. Texas: “certificate of formation. a. g. Fees TBOC §§ 4. LLC). The typical operating agreement is very detailed. Del. b. Procedure for calling meetings of members and managers 10. Most common name: “articles of organization. Information required in the certificate is very basic.052. 3.001(c). Rules regarding voting by members and managers. 3. Terminology: i. b. 4. There is no financial responsibility requirement. or by one or more managers (manager-managed LLC).Limited Liability Company Name a.C. 4.L.154 c.010.Agency & Partnership Outline easily changed formal (Operating agreement defines reln btwn mbrs) Pass through taxation Taxes Taxed at corporate level & shareholder dividend level Pass through taxation 5. iii. 6." ULLCA (1995) § 202(a). Most states permit single-member LLCs.101(a). LLCA § 18-201(a). e. LLCA § 18-102(1): name must contain the words "Limited Liability Company" or the abbreviation "L. Delaware and Texas do not require a written agreement. Most common: “operating agreement. Malek. Each member’s share of profits and losses. 9. Texas: “company agreement.001(a).114. LLCA § 18-101(7). See TBOC § 101. LLC is formed at the time the certificate is filed (or on a later date specified in the certificate). and spells out the rights and obligations of members and managers. b. File a document with the appropriate state office.” Del.” ii. f. See Del. TBOC §§ 3. LLCA § 18101(6). Operating agreement is not filed with the state. Delaware: “limited liability company agreement.002(51). Del. ii.” TBOC § 101. Entity/Aggregate theories are still applicable to analyzing legal issues with an LLC (Elf Atochem v. Operating Agreement of LLC a. LLCA § 18-201(b). d. iii. LLC might be managed by its members (member-managed LLC).051. TBOC § 101. by virtue of being members or managers. 3. Del. i. TBOC §§ 3. Members and managers are not. c.

c. a person who. Texas: does not have a default rule—certificate of formation must state how LLC is managed. LLC might be managed by its members (member-managed LLC). see also §§ 101. the persons trying to form the entity are likely operating as a GPship and are J&S liable for all obligations created on behalf of the Pship. Unless the other party knows of the nonexistence of the LL entity and agrees to look solely to the LL entity. II. Other members may be liable as GPs in a general partnership since the LLC has not been formed. make the contract clear about who will be parties and if there will be an substitution of parties. If do pursue business. Liability for Contracts entered into before formation of a LL firm b) Members of a LLC: when face liability if problems in forming LLC 1.010.051. as there is for LPs. See Del.002(51). b. While LL entity remains unformed. There is an inference that a person intends to make a present contract with an existing person. b. See TBOC § 1. Lessons a. LLCA § 18-402. for persons who erroneously believe they are members in an LLC. a promoter becomes liable on contracts he signs for an unformed limited liability entity. b. in dealing with another. Who is party to ta contract when the LLC is not yet formed? Agent acting on behalf of undisclosed principal.001(c) – LLC’s existence commences upon the filing of the cert of formation. Typical default rule: LLC is member-managed. becomes a party to such a contract. No business until confirmation that your filing was successful.056: must contain the phrase “limited liability company” or “limited company” or an abbreviation of one of those phrases 11. or by one or more managers (manager-managed LLC). File correctly. 2. c. In the absence of intent to the contrary. Courts presume 3P intended to contract with the person who signs the contract. TBOC § 5. See TBOC § 3. There is no corrective provision. 3.Terminology & General Concepts a.252. Waste and Land case) because the 3P likely intended to contract with the person he was personally dealing with. b. 3. d. a.251. Page 60 10-Feb-08 18:27:00 a2/p2 . Courts in equity might say that a simple investor in the venture is not liable because he was just an investor. 101. purports to act as agent for a principal whom both know to be nonexistent or wholly incompetent. c. d. PROMOTERS: Issue: what liability for members for obligations entered into before LLC formed? a. the agent is a party to the contract (Water. TBOC § 4. § 326 Principal Known to Be Nonexistent or Incompetent: Unless otherwise agreed.Agency & Partnership Outline ii.

Corporation [LLC] by estoppel – 3P is estopped from denying LLC existence because the 3P acted as though the LLC existed. TX probably won’t apply the doctrine but no settled law. it does not relieve the promoters (the members of the unformed LLC at the time the contract was made) of liability. contains limited info. Actual & Apparent Authority of Members or Managers 1. Some states say the doctrine applies only where both the 3P and the agents (both parties to the contracts) have no constructive notice of the nonexistence of the LL entity. Rest § 326 b. there is no LL entity and therefore. Management and Conduct of Firm Business .051. Elements A. The members of the unformed LLC might raise defenses a. a. previously regulations of the LLC) governs the details of the relationship among the members. LL entity does not automatically become liable on contracts signed on its behalf preformation. Valid law authorizing formation of the LLC/corporation B.001(c) – LLC comes into existence on the date of filing. When the LLC adopts the contracts. i. unless the 3P agrees to release them from liability (executes a novation). Policy: protect individuals from personal liability when they were legitimately conducting corporate business before the corporate formalities were complete ii. Legislature has overruled the CL de facto corporation doctrine with the statute. Doctrine is no longer valid because the statute says LLC does not exist until the issuance of the certificate of formation.Agency & Partnership Outline c. Attempt in good faith to form the entity C. Actual use of LLC/corporate powers (1) 1 & 3 are always found because 3 gets the parties into trouble and 1 authorizes the creation of the LL entity. Member-managed (partnership-like) – company is managed by its members Page 61 10-Feb-08 18:27:00 a2/p2 . Election of remedies – does not apply. c. Agents of the preformed corporation and the subsequently formed corporation are liable unless novation or the agreement provides that performance is solely the responsibility of the corporation. 4. 2. Use agency concepts to hold the agents liable for contracts formed before the LLC comes into existence. A. Before issuance. colorable attempt has been made to create the LLC i. VIII. i. It must adopt the contracts either expressly or by conduct. LLC formed by filing articles of organization (Tx Certificate of Formation). LLC Operating Agreement (Tx company agreement. LLC governance structure i. TX LLC act § 4. De facto [LLC] corporation – A bona fide. there can be no limited liability. 3. State LLC statutes generally do not specify the liability of agents of the preformed LLC for contracts formed before formation. iii.LLC 1.

3. all agents have implied actual authority to do things reasonable & necessary in the course of biz for transactions in the ordinary course of biz b. depending on type of structure. (Similar to Apparent Authority of Partners in UPA § 9 – Burns v.managed (corporation-like) – company is managed by an appointed manager(s) iii.356 if a fundamental business transaction (§ 1. for apparently carrying on in the ordinary course the company's business or business of the kind carried on by the company binds the company . unless the member had no authority to act for the company in the particular matter and the person with whom the member was dealing knew or had notice that the member lacked authority.353 a majority of members must be present to constitute a quorum for voting purposes. 303(1) each member is an agent.002(37)) is an officer and agent of the LLC with (implied) actual or apparent authority to conduct transactions for carrying out the business of the company (ordinary transactions). there must be a vote by an absolute majority of the members. ULLCA § 301(c) . and an act of a member. b. TBOC § 101. ULLCA § 301(a) a. Default rule is member managed. ii. TBOC § 101. a. To approve extraordinary transactions. TBOC § 101.254(a) – each governing person (§ 1. ii. Members have actual authority by virtue of agreeing to be members together in an LLC. Apparent Authority of an LLC Member (1) Each member is an agent of the limited liability company for the purpose of its business. c. any member of a member-managed company or manager of a managermanaged company may sign and deliver any instrument transferring or Page 62 10-Feb-08 18:27:00 a2/p2 . EXAM: Texas law (very corporate like in terms of procedure): TBOC does not define actual authority either. iv. If the transaction would make it impossible to carry out the ordinary business. Texas has no default rule.251 governing authority is members or managers. Manager. TBOC repeats UPA § 9 definition of apparent authority. The Certificate of Formation must specify which type. including the signing of an instrument in the company's name.002(32) – a sale of all or substantially all assets) or the transaction is not apparently for carrying out the ordinary course of business. TBOC § 101.355 a majority of the quorum present is required for the governing authority to authorize a transaction in the ordinary course of business.354 default rule is that each member gets one vote iii. have to get approval of other members i.Agency & Partnership Outline ii. TBOC § 101. (2) An act of a member which is not apparently for carrying on in the ordinary course the company's business or business of the kind carried on by the company binds the company only if the act was authorized by the other members. Nothing in the ULLCA addresses a member’s actual authority. Gonzalez) i.Unless the articles of organization limit their authority. 5. TBOC § 101. 4.

of an obligation of a member to make a contribution or return money or other property paid or distributed in violation of this [Act]. i. or other disposal of all. 8. ULLCA § 404 (a) In a member-managed company: a.356(b) Absolute majority of managers. d. the compromise. ULLCA § 404(c) The only matters of a member or manager-managed company's business requiring the consent of all of the members are: a. except as otherwise provided in subsection (c).355 and unanimous approval of Page 63 10-Feb-08 18:27:00 a2/p2 . b. k. b. Members are not agents of a manager managed LLC.356(c) Amend certificate of formation Member managed Majority of members present at meeting where a quorum is present 101. an amendment to the articles of organization under Section 204. the use of the company's property to redeem an interest subject to a charging order. the making of interim distributions under Section 405(a). the compromise of an obligation to make a contribution under Section 402(b). g. Include managers and members list in the articles of organization so the public is on notice of who is authorized to act for the LLC. and b.356(d) Manager managed Approval by a majority of managers at a meeting with a quorum 101. members do not have to approve 101. 7. the authorization/ratification of acts/trans under § 103(b)(2)(ii) which would otherwise violate the duty of loyalty. exchange.Agency & Partnership Outline affecting the company's interest in real property. each member has equal rights in the management & conduct of company's business. c. h. including the redemption of an interest. e. lease. Two points a. The instrument is conclusive in favor of a person who gives value without knowledge of the lack of the authority of the person signing and delivering the instrument. the consent to dissolve the company under Section 801(b)(2). j. f. Default Rules - Ordinary Matters Extraordinar y Matters Fundamental Biz Trans/Act makes it impossible to carry out business Absolute majority of members 101. the amendment of the operating agreement under Section 103. l. 101.355 Absolute majority of members 101. a.356(b) Unanimous approval 101. a waiver of the right to have the company's business wound up and the company terminated under Section 802(b). and sale. or substantially all. as among members. the consent of members to merge with another entity under Section 904(c)(1). EXAM: Under TX – There is no Texas equivalent of ULLCA § 301(c). Specify LLC mgmt mode in the articles of org. any matter relating to the business of the company may be decided by a majority of the members . 6.355 and by an absolute majority members Approval by a majority of managers at a meeting with a quorum 101. the admission of a new member.355 Majority of the managers present at a meeting where a quorum is present. of the company's property with or without goodwill.

Charging Orders 1. (2007) MEMBER'S MEMBERSHIP INTEREST SUBJECT TO CHARGING ORDER.803 proper name for the company. Creditor Rights . renew annually ii.002(48). Cannot seek foreclosure of the partnership interest iv.256 for Limited Partnerships a. § 152.063 name must include LLP in some form Page 64 10-Feb-08 18:27:00 a2/p2 . A charging order constitutes a lien on the judgment debtor's membership interest. The entry of a charging order is the exclusive remedy by which a judgment creditor of a member or of any other owner of a membership interest may satisfy a judgment out of the judgment debtor's membership interest. Can get a charging order. the judgment creditor has only the right to receive any distribution to which the judgment debtor would otherwise be entitled in respect of the membership interest. TBOC § 101. b. Cannot seek appointment of receiver iii.Agency & Partnership Outline 101. d.158 pay $200 filing fee per partner. c. *** LLP & LLLP *** I Formation of Firms – LLP & LLLP 1. TBOC § 1. or otherwise exercise legal or equitable remedies with respect to.356(d) XII Ownership of the Firm – LLC – Rights of a Creditor of a Member 2. substantial compliance is not sufficient a. 2. 2. Creditor i. § 5. Registering an LLP – requirements are hard and fast. Cannot seek judicial dissolution of partnership if gets assignment of partnership interest.112. e. ii. b. This section may not be construed to deprive a member of a limited liability company or any other owner of a membership interest in a limited liability company of the benefit of any exemption laws applicable to the membership interest of the member or owner. If a court charges a membership interest with payment of a judgment as provided by Subsection (a). § 4. Failure to renew LLP status causes partnership to lose the limited liability shield. A creditor of a member or of any other owner of a membership interest does not have the right to obtain possession of. f. a court having jurisdiction may charge the membership interest of the judgment debtor to satisfy the judgment.112 provision is identical to TBOC § 153. the property of the limited liability company. TBOC § 101. a.356(c) members 101. § 152. DEFINITIONS: "Limited liability partnership" means a partnership governed as an LLP under Title 4.802 File an application with the secretary of state with required information… i. On application by a judgment creditor of a member of a limited liability company or of any other owner of a membership interest in a limited liability company.

§ 5. A partner in an LLP/LLLP is not VL for the contract misconduct of another partner. or had notice of the misconduct but failed to take steps to mitigate the effects (b)(3). TBOC § 152. GPS and LPs get liability shield against VL for obligations that the GP or LP would otherwise have had personal liability for in the GP or LP construct. (1) Supervise or direct might mean reviewer of billing. § 153. (partial and full-shield statutes) ii. Partial shield or first generation statute only protects the partner from VL for tort-type obligations of the partnership 5.801 applies to the GP. A partner in an LLP/LLLP is not VL for the tort misconduct of another partner.353 GP of LP now gets limited liability protection such that 152. bringing in the client. LLP – is a GP that has registered and obtained limited liability ii. B. LLLP v. (RUPA has full shield provision § 306(c)) b. § 153. LLLP – is an LP that has registered and obtained limited liability iii. i.801(a) protects partners from VL for both contract and tort type liability incurred by the partnership. Pay the registration fees $200/partner c. LLP i. Texas is a full-shield or second generation statute – protects from VL for both contract and tort type liability. (b)(1) the partner was directly managing or directing the partner committing the tort misconduct. (full-shield statutes) iii. § 152.801(e)(2) a. VL . Failure to maintain the financial responsibility requirements means that the partnership does not have the limited liability shield. (b)(2) the partner was directly involved in the activity during which the misconduct was committed by another (1) Directly involved must be interpreted.351 If LP registers as an LLLP and the partnership agreement allows for the change in status or if the partners required to vote consent to the change in status.801(b) VL does attach to a partner if A. There is no difference in the functioning of the liability shield between the two.Agency & Partnership Outline c. managing partner of the firm. Page 65 10-Feb-08 18:27:00 a2/p2 . f. Get $100k liability insurance or set aside $100k for liability d.804 $100k of liability insurance/set aside for liability purposes i. 3.person has liability not because he has done something wrong but because of his status. or performs performance assessments of persons. b. TBOC § 152. C. 4. § 152. LP who is personally liable for the debts and obligations of the partnership (such as when the LP agrees to or is reasonably seen as a GP by a 3 rd party doing business with the LLLP) also now has limited liability.055 Modify their name to include LLP or LLLP e. a. Registration of LLLP a.

Procedure for becoming an LLP – 4 requirements! i. Management and Conduct of Firm BusinessCorporations 1. Paying appropriate fee. The liability shield of an LLP does not protect one from one’s own misconduct.Agency & Partnership Outline (1) Notice has to be interpreted. ii. *** Miscellaneous *** VIII. renew yearly iii. financial responsibility TBOC § 152. When GP becomes an LLP.804 (liability insurance. 6. becoming an LLP would not cut off that liability.) b. etc. In some states. The Limited Partner may also benefit where he would have had liability by operation of law in the LPship: 1) if participated in control of LPship’s business or 2) LP’s name has been used in the name of the LPship. i. Partnership: Partners are agents of partnership. both a GP and an LP can register to become an LLP. b. name must include LLLP. it is the same GP but has purchased the attribute of limited liability for the partners. Corporation: Shareholders in a corporation are not agents of the corporation. A partner in an LLP is always directly liable for his own tort misconduct. reporting. a. Direct liability – a partner is liable for a partner’s own actions. Four points a. governance structure is very formal (required meetings. minutes. GP of LPship gains limited liability for partnership obligations. Formality required.g. Name TBOC § 5. shareholders have no management rights. the board of directors delegates operation authority to the corporate officers. amendment to articles of incorporation) c. merger. or $100k cash separated) b. Page 66 10-Feb-08 18:27:00 a2/p2 . If LP assumed personal liability for a specific debt. i. (Some states) Registration must be renewed annually or limited liability shield is lost for the period of time not renewed. ii. Shareholders have limited voting rights: election of the board of directors and extraordinary matters (e. iv. partners have equal rights to manage the partnership. shareholders delegate management responsibility to a board of directors. Shareholders in a small corporation can enter into an agreement that fundamentally alters the governance structure of the corporation. including Texas. It is still subject to the UPA/RUPA.063 (contain LLP in some form).802(g) c. Direct liability can attach to the partner for someone else’s misconduct such as for negligent hiring or negligent supervision by the partner.. TBOC § 152. governance of a partnership is very informal. If LP becomes an LLP. Filing application with appropriate state office.

. include. Attorney liability is assessed by applying an objective standard—the attorney is not liable if they make a decision which a reasonably prudent attorney could make under the same or similar circumstances. Managerial Discretion and Fiduciary Duties A. 4. mere negligence is not enough. D. such as general partner or board when A. Circumstances in which a court will not apply the BJR. he can still be liable to the client if he fails to make adequate disclosure for the basis of his interpretation. The person acts with self-interest gross negligence in informing himself regarding the decision. the director or manager did not act in good faith or acted out of self interest. more than imprudence or mistake in judgment must be shown. Regular Business a. RUPA § 404(c) partner must refrain from grossly negligent. BJR does not apply to asses whether attorneys are liable for malpractice. even if results are unwise or inexpedient. Amex Co i. 3. Not sufficient to allege an imprudent decision. Business judgment rule – courts are reluctant to second guess the business decisions of corporate directors. if the BJR applies. the court refuses to question the director or manager’s decision at all. C. McGrath – even if an attorney’s interpretation of unsettled law is reasonable. Instead. Good faith and reflect legitimate business concerns. Did the attorney fail to act reasonably in interpreting the law? b. when courts apply the BJR in the context of corporate directors or other managers. b. The person is not acting in good faith for the best interest of the entity. Attorney a. reckless or willful misconduct. GP’s actions amount to a gift or waste of partnership assets.g. Wood v. i. the courts do not ask what a reasonably prudent director or manager would have done. Business Judgment Rule 1. e.Agency & Partnership Outline IX. Subjective standard: good faith means person’s primary purpose must be profitable. The business judgment rule describes a standard of review that courts apply when they assess whether corporate directors/partnership managers have breached their duty of care. Court will second guess a manager. Directors have acted or are about to act in bad faith for a dishonest purpose. No reasonable person could conclude the business is getting fair value for what it is being Page 67 10-Feb-08 18:27:00 a2/p2 . In contrast. 2. Objective good faith: Attorney acts in good faith and in an honest belief that his advice and acts are well founded and in the best interest of the client is not answerable for a mere error in judgment or for a mistake on an unsettled point of law on which well informed lawyers my reasonably disagree. apart from any interest of the partnership B. The person acts with self-interest. Kamin v. The attorney must have been acting as a reasonably prudent attorney in the same or similar circumstances.

Court applies a subjective good faith rule not an objective good faith rule. Fear of liability should something go wrong would hamper the decision making of boards. (e.g.. charitable contribution of assets—get nothing in return. would not take justifiable risks for fear of liability. Page 68 10-Feb-08 18:27:00 a2/p2 . Shareholders expect the board to take risks to increase return for all shareholders.Agency & Partnership Outline paid. might be a waste of assets) ii.

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