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Sources: * ALL SLIDES IN THIS PRESENTATION ARE REFERENCED FROM THE BELOW SOURCES: Conviser, R.J (2003) Gilbert Law Summaries: Agency, Partnership & Limited Liability Companies BAR/BRI, Chicago, IL Kaufman, M.J (2006) Gilbert Law Summaries: Agency and Partnership Loyola University of Chicago School of Law CD Series
Definition: An agency is a fiduciary relationship arising from the mutual manifestation of consent that an agent shall act on behalf of and subject to the control of the principal [Conviser, R.J (2003)].
Definition: A Principal is the one for whom the agent will perform the work for.
There are (3) types of principals: 1. Disclosed Principals the principals identity is known to the third party 2. Undisclosed Principals the third party does not know there is a principal or the identity of the principal, the third party only sees the agent. 3. Partially Disclosed Principals the third party knows the
An agent is the person who assents to perform tasks for the benefit of the principal and is subject to be under the control of the principal. There are different types of agents: 1. General Agent 2. Special Agent 3. Factors 4. Subagents
A general agent has authority to conduct a series of transactions involving a continuity of service.
A special Agent has authority for only a single transaction or a series of transactions not involving continuity of service.
Definition: A Factor is a commercial agent employed to sell consigned merchandise in the agents own name for the principal
When an agent has the authority to appoint another to assist in performing tasks for the principal this person is considered a subagent If the agent is authorized to appoint a subagent, the subagent will perform tasks for the principal just as the agent does. The Agent is responsible for the subagent primarily (pay, torts, etc) The Principal is liable for the authorized subagent Secondarily
UNAUTHORIZED SUBAGENTS These people are not considered subagents They are considered agents of the agent The principal is not responsible for the unauthorized agent the agent who appointed the unauthorized agent is liable for the torts, contracts, payment of the agent and actions therein.
The most common question is: Is the principal liable for the torts of his agent? The second part of this is: When, how and why? To get to the answer, we must first find out IF there is an agency relationship in existence.
To find out if there is a Principal Agent relationship established three things must exist:
ASSENT BENEFIT CONTROL
ASSENT Assent is an informal agreement between a principal with capacity and an agent
BENEFIT The agents conduct must be for the principals benefit only
CONTROL The principal must have the right to control the agent by having the power to supervise the manner of the agents performance Subagents & Borrowed Agents There can be no vicarious liability for a subagents or borrowed agents tort unless there is assent, benefit and the right to control the subagent or borrowed agent.
Independent Contractors: there is no power to control an independent contractor because there is no power to supervise the manner of an independent contractors performance
GENERALLY there can be no liability for an independent contractors torts
EXCEPTION: If the independent contractor is engaged in ULTRA HAZARDOUS activities or Estoppel is raised by a third party based on the principal holding out the I.C as one of his agents.
Once the relationship has been established and you can clearly state that there is a principal agent relationship, we can then ask the question: When is a principal liable for the torts of his agent (s)?
When we come back we will talk about the Liability of a principal to third parties for contracts entered into by an agent
RULE: The principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the contract
Ways in which the principal can authorize the agent to enter into a contract: 1. 2. 3. 4. By actual express authority By actual Implied Authority By Apparent Authority By Ratification
Actual Express Authority: The principal has used words to express authority to an agent to enter a contract on the principals behalf. Can be oral Can be private Narrowly construed
EXCEPTION: Equal Dignity Doctrine: if the contract must be in writing, then so to equally must the expressed authority to enter that contract be in writing [Conviser, R.J (2003)]
Express Authority will be revoked by: Unilateral act of either party Death or incapacity of the principal EXCEPTION: Express authority cannot be revoked if the principal gives the agent a durable power of attorney: A power of attorney is a written expression of authority to enter a transaction
Apparent Authority This is what the principal holds out to the third party or the public by indicating he has an agent or that a certain person is his agent
a.
Two prong test: (1) the principal has cloaked the agent with the appearance of authority & (2) the third party reasonably relies on the appearance of authority
1.
As previously stated:
The principal must have cloaked the agent with the appearance of authority to enter the contract AND
1.
Ratification Authority conferred by the principal to the agent AFTER the contract has been entered into.
1. Determine there is an agency relationship 2. Determine if the agent entered into a contract on the Principals behalf or his own 3. Determine on what authority did the agent have the right to enter into that contract: Actual Expressed, Actual Implied, Apparent authority, or by Ratification
If there IS NO authority, the principal is not liable on the contract and the agent becomes personally liable on the unauthorized contract
If there IS authority, the principal is liable on the contract. If the principal is liable on the authorized contract, then, generally, the agent is not liable on the contract. Exception: if the principal is partially disclosed, or undisclosed, then the authorized agent may be liable even on its authorized contract. The third party may choose to sue either the authorized agent or the principal once it becomes disclosed.
Duty to exercise reasonable care Duty to obey reasonable instructions Duty of loyalty
a benefit to herself to the detriment of the principal No usurping the principals opportunity No secret profits
General partnership formations do not require any formalities to form or become a general partnership Definition: a general partnership is an association of two or more people, carrying on as co-owners of a business for a profit The contribution of money or services in return for a share of the profits creates a presumption that a general partnership exists
Incoming partners liability for pre existing debt: there is no direct personal liability for prior debts
Dissociating partners liability for subsequent debts - dissociating partners retain liability on future debts until actual notice of dissociation is given to creditors, or until 90 days after filing of dissociation with the state
A person who represents to a third party that he is a partner in a partnership will be liable to that third party as if he was a partner in the partnership even if he is not
Now that we have covered general partnerships lets discuss some other types of partnerships:
Limited Partnerships Registered Limited Partnerships
Definition: a limited partnership is a partnership with at least one general partner and one limited partner
Formation: must file a limited partnership certificate that includes the names of all general partners Limited Liability Control: General Partners are liable for all debts and obligations. General partners have substantial managerial control; Limited Partners are not liable for debts and obligations. Must pay full consideration for their interests. Generally, they have limited control.
Duty of loyalty No usurping partnership opportunities Partners may never make as secret, undisclosed profit at the expense of the partnership Action for accounting: the only form of action that can be brought by a partnership against one of its own disloyal, breaching partners
Specific partnership assets: Land Leases and equipment that are owned by the partnership are not transferable by any individual partner unless ALL partners agree
Share of profits and Surplus- this is a partners individual profit and surplus, they can transfer as they wish
Partners share of profits and losses absent an agreement profits are shared equally. Regarding losses - absent an agreement, losses are shared like profits
In a partnership at will where there is no agreement among partners, the partnership will dissolve when any single partner expresses the will to dissociate In a partnership NOT at will, where there is an agreement among the partners, the partnership will dissolve according to the terms of the agreement, OR if any single partner dissociates and the remaining partners by majority vote, vote to dissolve within 90 days of the dissociation of the single partner
Termination = the real end of the partnership.
The winding up period is the period between dissolution and termination in which the remaining partners liquidate the partnerships assets to satisfy the partnership creditors
b. New Business the partnership and its individual partners, still retain liability until actual notice of dissolution is given to creditors or until 90 days after the filing a statement of dissolution with the state
Rule: Each partner must be repaid his or her loans and capital contributions, plus the partners share of profits or minus the partners share of losses
Outside Creditors
Partner Creditors
Capital contributions by partners must be paid to the partnership no fixed rate interest
Profits and Surplus if any Profits and Surplus if any Profits and Surplus if any
PLEASE BE SURE AND REFERENCE YOUR COURSE MATERIALS FOR A MORE INDEPTH LEARNING OF THE LAW AND ASK YOUR LAW PROFESSORS ANY QUESTIONS YOU MAY HAVE THIS IS INTENDED AS A BRIEF AND MAY NOT CONTAIN EVERYTHING YOU NEED TO KNOW ALTHOUGH IT IS CONSICE.
References
Conviser, R.J (2003) Gilbert Law Summaries: Agency, Partnership & Limited Liability Companies BAR/BRI, Chicago, IL Kaufman, M.J (2006) Gilbert Law Summaries: Agency and Partnership Loyola University of Chicago School of Law CD Series