* Business Associations (Agency)

Shared the above photo from "dlapiper.com" . . Thank You . . Please click here to view the photo

* Business Associations (Agency & Partnership) *

** Agency Principle
1. Liability of the Principal for the torts committed by the Agent
  1. Issue: Whether the principal will be vicariously liable (i.e.,when an employee commits an act of negligence causing harm or damage to a third party for which the employer has to bear liability) for the torts committed by the agent
  2. In order to figure out whether the principal is indeed liable, need to look at Principal-Agent Principle: (a) "Principal-Agent Relationship"; and (b) "Scope of the Principal-Agent Relationship" **
    1. "Principal-Agent Relationship"
      1. In order for the principal to be liable for the torts committed by the agent, there must be some relationship made between the Principal and the Agent ( = Assent, Benefit & Right to Control)
        
        Assent – There must be voluntary and informal agreement between the principal, with contractual capacity, and the agent **
        
        Benefit – The conduct by the agent must be for the benefit of the principal
        
        Right to Control – The principal must have the Right to Control the agent by having the power to supervise his or her performance
        
        Sub-Agent ( = When the agent gets help from a third party): There can be no vicarious liability for the tort committed by the sub-agent unless there is aforementioned assent, benefit, and right to control the sub-agent who committed the tort **
        
        Borrowed agent ( = Employer borrows another agent): There can be no vicarious liability for a tort committed by the borrowed agent unless there is assent, benefit, and right to control the borrowed agent who committed the tort
        
        Contract with Independent Contractor
        
        Rule: Generally, as to Independent Contractor, the principal does not have the right to control him or her, because there is no power to supervise the performance of the Independent Contractor, thus the principal will not be vicariously liable for independent contractor who committed the tort **
        
        Exceptions
        
        Ultra Hazardous Activities – A person is liable for tort committed while engaged in ultra hazardous activity (i.e., an act that is inherently dangerous that the person performing it can be held liable for injuries to other persons, even if they took every reasonable step to prevent the injury such as storage of explosives, blasting operations, or using hazardous chemicals)
        
        Non-Delegable Duties – An obligation that cannot be done by another party (i.e., building a fence on a construction site could be done only by certain people)
        
        Estoppel – If the principal hold out the independent contractor as his or her employee and the third party relies on the fact, the principal is estopped from denying he or she is vicariously liable to the third party from the act done by the independent contractor **
    2. "Scope of Principal-Agent Relationship"
      1. The principal will be liable for the tort committed by the agent within the scope of agency relationship (Thus, in this case you will have to see whether the agent was acting within the scope of the Principal-Agent Relationship)
        
        The conduct was the kind the agent was hired to perform (i.e., in the job description). If it is, the principal will be liable for the tort committed by the agent
        
        The conduct was either made near or far away **
        
        Frolic – The principal is not liable to the conduct of the agent if the agent made “Substantial Deviation” in time or geographic area
        
        Detour – The principal is Liable to the conduct of the agent if the agent made “Minor Deviation” from an assigned task
        
        Example) A delivery company (= principal) could be liable for the injuries of another driver if one of its agents caused a car accident while racing to make a delivery; yet, the company may not be liable if the same driver deviated from his or her route by going to visit a relative, causing an accident while on his or her way to his or her relative's house
        
        Intent to Benefit the Principal– If the agent, even in part, intended to benefit the principal, the principal will be vicariously liable **
        
        Intentional Torts– Intentional torts committed by the agent are generally outside the scope of Principal-Agent Relationship, thus the principal will not be liable for the tort committed by the agent
        
        Exceptions (The cases below are the situations where Intentional torts committed by the agent are within the scope of the Principal-Agent Relationship that makes the principal liable for the tort committed by the agent):
        
        Tort specifically authorized by the principal,
        
        Tort natural from the nature of the employment (i.e., in the job description), or
        
        Tort motivated by a desire by the agent to serve the principal **
2. Liability of the Principal for the contracts entered into by the Agent
  1. Issue – Whether the principal is liable for authorized contracts entered into by his or her agent
    1. Namely, the principal will be liable for the contracts entered into by his or her agent, only when the principal actually granted the authority to his or her agent to enter into a contract
  2. In order to figure out whether the principal is indeed liable, need to look at Principal-Agent Principle: (a) "Principal-Agent Relationship"; and (b) "Principal-Agent Authority" **
    1. "Principal-Agent Relationship"
      1. In order for the principal to be liable for the torts committed by the agent, there must be some relationship made between the Principal and the Agent ( = Assent, Benefit & Right to Control)
        
        Assent – There must be voluntary and informal agreement between the principal, with contractual capacity, and the agent **
        
        Benefit – The conduct by the agent must be for the benefit of the principal
        
        Right to Control – The principal must have the Right to Control the agent by having the power to supervise his or her performance
        
        Sub-Agent ( = When the agent gets help from a third party): There can be no vicarious liability for the tort committed by the sub-agent unless there is aforementioned assent, benefit, and right to control the sub-agent who committed the tort **
        
        Borrowed agent ( = Employer borrows another agent): There can be no vicarious liability for a tort committed by the borrowed agent unless there is assent, benefit, and right to control the borrowed agent who committed the tort
        
        Contract with Independent Contractor
        
        Rule: Generally, as to Independent Contractor, the principal does not have the right to control him or her, because there is no power to supervise the performance of the Independent Contractor, thus the principal will not be vicariously liable for independent contractor who committed the tort **
        
        Exceptions
        
        Ultra Hazardous Activities – A person is liable for tort committed while engaged in ultra hazardous activity (i.e., an act that is inherently dangerous that the person performing it can be held liable for injuries to other persons, even if they took every reasonable step to prevent the injury such as storage of explosives, blasting operations, or using hazardous chemicals)
        
        Non-Delegable Duties – An obligation that cannot be done by another party (i.e., building a fence on a construction site could be done only by certain people)
        
        Estoppel – If the principal hold out the independent contractor as his or her employee and the third party relies on the fact, the principal is estopped from denying he or she is vicariously liable to the third party from the act done by the independent contractor **
    2. Principal-Agent Authority
      1. Actual Express Authority
        
        Rule – The principal may expressly grant oral or written authority to the agent to enter into a contract
        
        Exception – If the contract itself must be in writing to satisfy the Statute of Fraud (i.e., the requirement that certain kinds of contracts be memorialized in writing, signed by the party to be charged, with sufficient content to evidence the contract), Actual Express Authority must also be in writing (e.g., contract to sell land must always be in writing)
        
        Revocation of the Actual Express Authority
        
        Unilateral act of either party (= either party may freely revoke), **
        
        Death or incapacity of the principal (automatically revoked), or
        
        Exception
        
        Durable Power of Attorney Exception (Actual Express Authority cannot be revoked if principal gives the agent the "Durable Power of Attorney (i.e., a legal document giving one person the power to act for another person such as entering into a contract)", thus even if you become incapacitated or unstable to handle matters, if you have the Durable Power of Attorney, all the document stay in effect) **
      2. Actual Implied Authority – Authority which the agent reasonably believes the principal has given, because of:
        
        Necessity – To do all tasks which are necessary to accomplish an expressly authorized task
        
        Custom – To do all tasks customarily performed by the person with the same title or position of the agent **
        
        Prior Acceptance by the Principal – To do all tasks which the agent reasonably believes to have been authorized based on the prior acceptance of the principal
      3. Apparent Authority
        
        Two Part Test
        
        First, the Principal secretly endowed the agent with the appearance of authority **
        
        Second, the Third Party reasonably relies on the Appearance of authority of the agent
        
        Yet, even if the Actual Authority has been terminated, and the agent continues to act on behalf of the principal, the agent is liable for all acts until notice is given to the third parties that the authority of the agent has terminated (e.g., the Agent is fired but keep on continues to sell the product to a third party who mistakenly believes that the agent has the authority to sell) **
      4. Ratification of Authority
        
        Rule - Authority can be granted after the contract has been entered into if:
        
        Principal has knowledge of all material facts regarding the contract, and
        
        Principal Accepts its Benefits
        
        Cannot Alter Terms – Must accept all terms of the contract in order for the principal to ratify. That is, Ratification is not valid if the principal attempts to alter the terms of the contract **
      5. Termination of Authority
        
        Lapse of specified or reasonable time
        
        Destruction of subject matter of the authority
        
        Change in circumstances (e.g., insolvency of principal or agent, a change in the law, a change in business condition)
        
        Death or incapacity of principal or agent
        
        Unilateral termination of the authority by either party
        
        Breach of fiduciary duty (i.e., a duty to act in the best interest of another party) by the agent **
      6. Rules of Liability on the Contract
        
        Generally, if there was no authority given to the agent,
        
        the principal is not liable to the contract
        
        the agent is liable to the contract **
        
        Generally, if there was authority given to the agent,
        
        the principal is liable to the contract
        
        the agent is not liable to the contract **
        
        Undisclosed/Partially Disclosed Principal Exception
        
        If the principal is only partially disclosed (i.e., the identity/name of the principal is only concealed) or undisclosed (i.e., the fact of the principal is concealed) to the third party, the authorized agent may nonetheless be liable to the contract **
      7. Duties of Agent to the Principal
        
        Fiduciary Duty (i.e., the relationship between parties that has a duty to act in the interest of the other)
        
        Rule: Agents are Fiduciaries to the Principal
        
        Duty to exercise reasonable care
        
        Duty of Loyalty
        
        The agent cannot make a profit that is not revealed to the principal
        
        Example) The principal authorizes the agent to buy diamonds. The agent buys diamonds for himself or herself without revealing the purchase to the principal. The agent then resells it for double the price. In this case, the principal could fire the agent because the agent breached the duty of loyalty by self-dealing, usurping the opportunity of the principal, and profiting without revealing the profit to the principal **
        
        The agent cannot engage in self-dealing, that is, the agent cannot receive a benefit to the detriment of the principal
        
        The agent cannot usurp (i.e., expropriate) the opportunity of the principal **
        
        Remedy: The principal can (i) recover loss caused by the breach, and (ii) receive profits made by the breaching agent
      8. Duties of Principal to the Agent
        
        Compensation – If the agreement is silent, the agent is entitled to reasonable compensation by the principal **
        
        Cooperation – The principal should not interfere with the performance by agent
        
        Reimbursement – The principal must reimburse the agent for expenses of the duties **
General Partnership
1. Formation
  1. Formalities: No formalities to form a General Partnership (“GP”)
    1. Note that "Partnership" is an association of two or more people as partners
  2. Definition of General Partnership:
    1. an association of two or more persons (or entities) who have capacity,
    2. who are carrying on as co-owners,
    3. of a business for profit
  3. How do you know there was GP
    1. The courts look into the intent of the parties
    2. Yet, in the absence of the intent of the parties:
      1. sharing of profits between general partners creates a presumption of GP
      2. contribution of money or services in return for a share of profits creates a presumption of GP
        
        However, lending arrangements do not create a presumption of a GP **
2. Liabilities of General Partners
  1. General Theory
    1. Agency Principle (see above) applies
      1. Partnership is bound by the torts committed by partners within the partnership business
      2. Partnership is bound by the contracts entered by partners with authority given by the partnership
        
        Note that the “Partnership” will be the Principal, and the “Partner” will be the Agent in this case of General Partnership
  2. Each general partner is personally liable for the debts of the partnership **
    1. However, if general partners get to pay beyond the debts incurred by the partnership, they are entitled to contribution (i.e., the D suing other parties for portion of the total damages) or indemnification (i.e., the D suing other parties for the total damages)
      1. Liability of the Incoming Partner for Pre-existing Debts: Generally, incoming partner is not personally liable for prior debts. However, any money paid in by the incoming partner to the partnership can be used to satisfy the prior debts **
      2. Liability of the Withdrawing Partner for Subsequent Debts: Generally withdrawing (i.e., disassociating) partner remains liable for all future debt incurred until:
        
        actual notice of withdrawal is given to the creditors, or
        
        after filing notice of disassociation with the state **
  3. General Partnership Liability by Estoppel
    1. Definition of Estoppel: Estoppel is a legal principle that bars a party from denying or alleging a certain fact due to the previous conduct, allegation of the party which contradicts the certain fact the party is claiming
    2. General Partnership Liability by Estoppel
      1. Rule
        
        A partner who represents to a person, who is not a party to the partnership, that a general partnership exists, when actually there was no partnership in the first place, will be liable to the person as if general partnership existed
      2. Example)
        
        H says to X, he or she is in a general partnership with L (when they are actually not), and they are beginning a school and they need fund. X lends the fund to H. Later, L accidentally loses the fund. H cannot deny that there was no general partnership in the first place to X to avoid the liability. H is estopped from denying there was no general partnership **
  4. Criminal Liability of General Partnership
    1. Partners will not be criminally liable for the crimes of other partners committed to the extent of the business, unless there was a participation **
3. Duties Between General Partners
  1. Fiduciary Duty (i.e., the relationship between parties that has a duty to act in the interest of the other)
    1. Rule: General Partners are Fiduciaries of each other and the Partnership **
      1. Duty to exercise reasonable care
      2. Duty of Loyalty
        
        Partners, just like agents who must not breach his or her fiduciary duty to the principal, must not breach his or her fiduciary duty to the partnership (see above at ‘Duties of Agent to the Principal’. The content of fiduciary duty is written in details) **
4. Rights to Partnership Property
  1. Definition of Partnership Property: All property and rights, and interest in property that the partnership purchases
  2. Rule
    1. Rule as to Rights in Partnership Property
      1. Individual partner has no right to transfer specific partnership asset (i.e., land, leases, or equipment possessed by the partnership) to another person without partnership authority
      2. Individual partner has right to transfer his or her personal property share of profits to another party
      3. Individual partner has no right to transfer his or her management right to another party regardless of the partnership authority
      4. When there is a confusion as to whether the property is partnership asset or personal property, the parties could decide by:
        
        whose funds were used to purchase the property, or
        
        whose title did the property take, partnership or the partner **
    2. Rule as to Administrational Rights in General Partnership
      1. Control - Absent an agreement, each partner is entitled to equal control of the administrational work (e.g., right to vote for issues are equally done by the partners)
      2. Wage – Absent an agreement, partners get no wage (i.e., salary) except when the partners wind-up (i.e., the process of dissolving a partnership or corporation by paying off its debts, settling accounts and collecting the remaining asset for distribution to the partners or shareholder)
        
        Note that the partners are entitled to compensation for helping to wind up the partnership business
        
        Priority of distribution of the remaining asset when wind-up
        
        First, creditors are paid:
        
        creditors who are outside & non-party must be paid first, and then the creditors who are inside & partners who have loaned money must be paid
        
        Next, capital contribution by partners are paid:
        
        Note that 'capital contribution' is cash or asset given to a partnership or a corporation in exchange for either an equity interest (i.e., level of interest a person has in the business) or as part of a continuous duty (i.e., capital commitment), to fund the partnership or the corporation
        
        Finally, profits and losses are shared among the partners
      3. Profits & Losses - Absent an agreement, profits are shared equally & Absent an agreement, losses are shared as the profits are shared
      4. Inspect – A partner has the right to inspect and copy partnership documents
      5. Lawsuits – A partner may sue the partnership and the partnership may sue the partner
      6. Indemnity – A partner has a right to be indemnified by other partners for expenses incurred on behalf of the partnership
      7. Contribution – A partner has a right to contribution when the partner has paid beyond the share
        
        Note that the difference between "indemnity" & "contribution" is the former allows a person to take action against other parties for the entire amount of damages if the person is completely not at fault, while the latter allows a person to take action against other parties for just a portion of the damages because the person is at fault as well **

- The End -