40N Rosin.S2012 Agency Overview

Agency & Partnership Outline
Note: periodically the word factor will appear in this

outline for items which are not actually factors this
was for my personal use to help memorize also, this
outline is mostly sound, but still needs some minor
revision
- *** Agency ***
I Formation of Firms Agency Relationships
1. Rest 1 Agency is the fiduciary relation which results from the manifestation of
consent by principal to agent that the agent shall act on his behalf and subject to his
control, and consent by the agent to so act.
a. Mutual Consent - Principal must manifest consent and the agent just must
consent. By the agent taking on the task, it is sufficient to indicate consent.
b. One person will act on behalf of another, and
i. E.g., restaurants in Houston Center are not agents of HC because
they only comply with lease requirements in the way they operate
the restaurants; they do not act on behalf of HC.
c. That person will act subject to the principals control
d. 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. Attributes of the agency relationship (MO says these attributes are required; MD
says these attributes are factors only and not determinative)
a. Rest 12 Agent has the power to alter the legal relations between the principal
and 3rd persons and between the principal and himself.
i. E.g., power to bind principal to contract, power to settle
ii. P is generally not liable for the agents incidental torts, VL for agents torts
iii. can do this by acting negligently on his behalf, entering a contract, etc. the
signature on a K is not dispositive This can be compared to an attorney
client relationship. often power to alter can be satisfied by consultants who
negotiate for P
b. Rest 13 Agent is a fiduciary with respect to matters within the scope of his
agency - for the primary benefit of principal: agent is to act on behalf of principal
and primarily/principally for his benefit (agent cannot benefit itself).
c. Rest 14 The principal has the right to control the conduct of the agent with
respect to the matters entrusted to the agent. translator problem is translator
a servant?
i. Control the result (ultimate outcome or objective) but not the minutia of
achieving the result.
ii. right to set the task, like atty-client
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A. See Green v. H&R Block viewed the above underlined factors to
determine if agency existed was agent
Basille did not stipulate like in Green that tax preparer was agent - confidential
relationships can include business-related advisors, advisees where
disparity in position between the parties and inferior party places
primary trust in other's counsel
(i) Block actively encouraged taxpayers to trust in their services:
(A) no significant taxpayer expertise
(B) taxpayers did not understand "Rapid Refund" really a loan
(C) taxpayers primarily interested in getting their refunds quickly
(ii) limited holding tax consultant/client is not per se confidential
3. Rest 26 Creation of (Actual) Authority; 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, authority to do an act can be
created by written or spoken words or other conduct of the principal which,
reasonably interpreted, causes the agent to believe that the principal desires him
so to act on the principal's account.
a. The principals authorization of the agent need not be in any particular form.
Written, spoken, or conduct, reasonably interpreted by the agent such that he
believes the principal desires him to act on his behalf. Exceptions (Equal
Dignities Rule) (the formalities of the proposed action also apply to the
formalities to Ps authorization of A.)
A. Estate of Giannopoulos sometimes even when there appears to be equal
dignity it may not exist if a PoA for example does not meet statutory
reqs, it can invalidate all subsequent acts by the purported agent because
it fails to satisfy SoF
ii. For instruments under seal executed by agent (e.g., CL instruments required
to bear the seal of the principal; principals authorization to agent must be
granted in a sealed instrument) or
A. But no equal dignities rule at CL
iii. When a statute requires the principals authorization to be in a
particular form (not a statute that requires the underlying transaction to be
in a particular form) (e.g., statutory requirement when agent is executing a
deed for the conveyance of land on behalf of the principal, the principal must
authorize the agent in a written instrument that complies with same
formalities as a deed). E.g., Power of attorney
II Contractual Dealings by Agents

A. Firms liability in contract for acts of its agent
1. Authority is the agents power to bind the principal by acts done in accordance with
the principals manifestations of consent to the agent (authorized acts).
2. Agent sometimes has power to bind the principal even though the agent is not
authorized, such as where the agent has apparent authority, or inherent agency
power or where the principal is estopped from denying the agents authority.
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3. An agent who acts beyond the scope of his authority is liable for the acts beyond the
authority. Principal is bound by the authorized acts, as far as they can be plainly
separated from the unauthorized acts for which AG had no power to bind.
4. When an agent deals with a 3rd party, the agent gives an implied warranty that the
agent is authorized to do what he is doing; if the agent has no such authority, then
the agent becomes liable for breach of the implied warranty of authority to the 3P.
Rest 329
5. 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.
6. 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,
even a minor (infant).
a. #5 and 6 above are the only two CL reqs for agency as long as it wasnt for
things under seal
B. Firms rights under contracts entered into by its agentsdisclosure of principal

1. Issue: When can a principal enforce a contract against 3P? Rest 4(1)-(3) (disclosure
is assessed at time of contracting)
a. Rest 292 Disclosed when 3rd party has notice of the existence and identity
of the principal; principal can enforce contract against 3 rd party the agents
liability is also limited if P is disclosed
b. Rest 292 Partially disclosed when 3rd party has notice of the existence of a
principal but not his identity; principal can enforce contract against the 3 rd party
here the agent may be liable
c. Rest 302 Undisclosed 3rd party has no notice of the existence nor the
identity of the principal; 3rd party thinks it is dealing just with the agent; 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,
A. At CL when P is not fully disclosed he is a party to K, he is liable on it and
can enforce it in his own name
(1) A is also a party to K when P is not fully disclosed
ii. Rest 302 General Rule: A person who makes a contract with an agent of
an undisclosed principal, intended by the agent to be on account of his
principal and within the power of such agent to bind his principal, is liable to
the principal as if the principal himself had made the contract with him,
unless he is excluded by the form or terms of the contract, unless Ps
existence is fraudulently concealed or unless there is set-off or a similar
defense against the agent.
iii. Exceptions where
A. Principal is excluded by form/terms of contract
B. Principals existence is fraudulently concealed (related to iv below) Rest
304
C. Rest 306 There is a set-off or similar defense against the agent (protects
the interest of the 3rd Party; 3rd party thinks hes dealing only with the
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agent, 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 principals existence.
(2) Agent must have been acting within power to bind the principal.
(3) The liability of the agent to the 3rd party must exist at the time of
contracting (preexisting claim against the agent).
(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
D. Prte-nom: (name lending) The agent was lending their name to the
principal when the K was made. Under the doctrine of prte-nom,
undisclosed principals are not parties to contracts entered into by their
prte-noms. Only the prte-nom may sue or be sued on such contracts;
the principals may not sue or be sued in their own names. French law
sometimes applied in LA, but more often CL controls and the general rule
applies Woodlawn Park LP v Doster Const.
(1) Rationale is to avoid potential liability to multiple persons for third pt
E. General Rule (also called mandate): the principal can be bound on a
contract that was not specifically made on behalf of the principal
2. Rest 304 3rd party can rescind contract with undisclosed principal if
a. Agent misrepresents not acting for a principal and
i. Affirmative misrepresentation that agent is not acting for a certain principal
ii. Cm. a. If AG knows (mere suspicion is not enough) 3P will not deal with P and
fails to disclose that he is acting for such P, that could constitute a
misrepresentation. Some facts have to show knowledge e.g., history
between the parties, express statement by principal, express statement by 3 rd
party
b. 3P must show he would not have dealt with P at time of contracting if he had
known who P was, or known what the principal was going to do with land
( 304 il. 5) and
c. P/AG had notice that 3P would not deal with P
i. A mere suspicion by the undisclosed principal that the 3 rd party will not deal is
not sufficient to constitute notice. (Kelly Asphalt) Some facts have to show
knowledge to constitute notice e.g., history between the parties, express
statement by principal, express statement by 3 rd party
d. Affirmative misrepresentation v. failure to disclose (undisclosed P) both might
satisfy the condition of induced to enter into it by a representation.
3. 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 (set-off)
A. 306(2) (2) If the agent is authorized only to contract in the principals name, the
other party does not have set-off for a claim due him from the agent unless the agent
has been entrusted with the possession of chattels which he dispose of as directed or
unless the principal has otherwise misled the third person into extending credit to the
agent.
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4. 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. E.g., agent contracts to convey real property and contracts to give the agents
warranty deed; principal steps in and says agent was acting for him and that the
buyer will be getting the principals warranty deed
b. E.g., attorney contracts to perform services; another attorney steps in and says
the first attorney was acting as his agent and the other attorney is going to
provide the services
C. Agents Liability for Contractual Dealings

a). Agents duty to fully disclose principal/Problems with
D.B.A.(doing business as)
1. An Agent can become a party to the contract (making him liable):
a. Rest 320 - Unless otherwise agreed, an agent does not become a party to the
contract he makes for disclosed principal.
b. Rest 321 - Unless otherwise agreed, an agent does become a party to the
contract he makes for a partially disclosed principal.
c. Rest 322 - An agent purporting to act upon his own account, but in fact making
a contract on account of an undisclosed principal, is a party to the contract.
i. the agent has a duty to fully disclose the fact of the agency and the ID of the
P if he does not want to be liable on an obligation. This even applies if it is
partially disclosed. Under this rule for disclosure, the A and P are alternatively
liable, but 3rd pt will have to make an election of remedies and decide which
one to sue. the modern trend is joint and several liability
d. But must also consider the agreement of the parties: language of the contract
and the conduct of the parties and the circumstances.
i. a third party can be put on notice of the agency relationship and the ID of the
P if they actually know, should know, or have reason to know
2. Problem areas for businesses - Trade Names

a. Sign contracts as the principal d/b/a the trade name Example
i. Principal d/b/a trade name
A. By: person, title (agent)
b. Filing an assumed name certification may constitute sufficient notice to the third
party (not in all jurisdictions)
A. Some states have a dual indexing system. 3P has obligation to look into
public records to find the true principal.
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B. Some states impose no duty to research assumed names. Too much of a
burden on the 3P. Agent knows the information and should disclose it if it
wants to avoid personal liability for the contract.
C. No definitive authority in Texas on this point. Probably would side
with dissent. Cases emphasize the agents burden to disclose.
3. What happens when an agent becomes a party to the contract? Defenses
a. All defenses that arise under the contract because he is a party.
b. Also have any defenses that are personal to the agent e.g., 3P owes the agent
money from a prior transaction (set off), Agent does NOT have any defenses that
are personal to the principal e.g., if 3P owes principal money.
b) Liability of Attorneys
1. In general, an attorney is not personally liable for the obligations incurred on behalf
of his fully disclosed principal (the client), unless there is a specific agreement
otherwise. But, courts require attorneys to make clear to 3P that attorney will not be
personally liable for the clients obligations. But
a. 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, there was a custom that 3P could expect the
attorney to pay the bill whether or not the attorney is paid by the client, 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, not
the client). (modern trend)
b. Eppler, Guerin 685 sw2d 737 Texas law is not settled; Dallas Ct. App. says
attorney not liable unless otherwise agreed.
c) Agents Implied Warranty of Authority

1. Rest 329 Agent Who Warrants Authority: A person who purports to make a
contract, conveyance or representation on behalf of another who has full capacity
but whom he has no power to bind, thereby becomes subject to liability to the other
party thereto upon an implied warranty of authority, unless he has manifested that
he does not make such warranty or the other party knows that the agent is not so
authorized.
a. Knows means actual knowledge; not reason to know or should know.
i. 3rd pt has duty to act reasonably in determining As authority to bind
ii. Dealing with A in breach may be implicit waiver
b. E.g., death terminates agency powers; AG contracting after PRs death will
breach IWoA.
i. a warranty is a guarantee a guarantee that A has authority and the P is
alive. To not be personally liable if the P dies, maybe disclaim it to avoid
liability
c. 3P can recover actual damages as a result of the breach and any expectation
damages (benefit-of-the-bargain damages)
2. Applicability of 329 to Disclosed, Partially Disclosed, Undisclosed principals
a. If the principals identity was fully disclosed, agent gives IWoA.
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b. If the principals identity was partially disclosed, agent still gives IWoA; agent
becomes a party to the contract if he is acting within his authority. Agent has
potential liability either way, unless otherwise agreed.
c. If the principals identity is undisclosed, agent does not give IWoA because he
does not purport to act on behalf of another, but the agent is a party to the
contract.
3. If agent acts in an unauthorized manner, as long as the agent has power to
bind the principal (i.e., through apparent authority, estoppel, or inherent agency
power), the agent is not liable to the third party for breach of the implied warranty of
authority.
a. But, whenever the agent binds the principal by acting in an unauthorized way,
the agent is liable to the principal for any loss the principal incurs. By acting in an
unauthorized way, the agent also breaches his or her duty of obedience to the
principal. Rest 401, an agent is liable to the principal for any loss caused by a
breach of duty. Thus, whether the agent binds the principal through apparent
authority, estoppel, or inherent agency power, the agent is subject to liability to
the principal (even though his liability to 3 rd pt is limited)
4. SoL Accrual
a. 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.
b. KS Law: Breach of IWA can be either a tort action or a contract action. Under tort
action, date of discovery is when the action accrues. ??? what was the case on
this conflicting information
5. Redundant Overview Note: P does not authorize A to act a certain way, and A goes
ahead and acts anyway A is making an implied warranty of authority (there is not
express warranty). This does not depend on a K either, this warranty arises from the
relationship. A breach of the implied warranty of authority is a tort, not a K
claim. One who purports to act as anothers agent but has no authority is
personally liable on the implied warranty of authority to the one who deals in GF
reliance thereon. ALSO: always look for ostensible authority here
a. Actually a warranty - answer
d) Election of Remedies
1. Election of remedies The liability of an agent and an undisclosed principal is only
in the alternative (one or the other). 3P must choose which entity will satisfy the
liability; discharges the liability of the other entity.
a. If had a partially disclosed principal, agent & principal are J&S liable as parties
to the K.
b. If had a fully disclosed principal and agent was a party, then agent and
principal are J&S liable.
2. Some courts abandon EOR doctrine in AGY context; Plaintiff is not choosing between
inconsistent remedies and can only get one satisfaction. Policies in favor of EOR are
not implicated.
a. 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).
3. Election of Remedies doctrine is broader than the Principal/Agent context.
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4.
5.
6.
7.
a. Forces P to choose between inconsistent remedies.

i. E.g., P makes contract and has two theories for recovery; courts require the P
to choose his remedy.
A. Rescission does not recognize existence of contract
B. Damages for breach - recognizes existence of contract
Generally only a judgment against the principal operates as an election; Plaintiff
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.
EOR can also protect the undisclosed principal when 3P learns of PRs existence and
then gets a judgment against AG.
a. Principal can raise defense that 3P has elected his remedy against the agent and
discharged liability against principal.
i. Exception: If 3P gets judgment against the agent before learning of the
principals identity, this is not an election; 3P can pursue the principal for
unsatisfied portion but 3P must make choice upon discovery of the identity of
the principal.
Texas Cts App. apply the election of remedies in Principal/Agency context.
Generally - the agent has a duty to fully disclose the fact of the agency and the ID of
the P if he does not want to be liable on an obligation. This even applies if it is
partially disclosed. Under this rule for disclosure, the A and P are alternatively liable,
have to make an election of remedies and decide which one to sue. modern
trend is joint and several liability - Water, Waste & Land, Inc. v. Lanham
a. business card needs to be clear to effectuate disclosure of the principal to third
parties the agent should specify that he is an agent on the card, - the card must
give designate name of company, and to give the initials LLC- Corp. Inc. etc.
if there are requisite details on cards showing that the agent works for someone
else, that is generally constructive notice and people are required to look up state
records
IV Actual Authority of Agents and Its Consequences

A. Express Actual Authority
1. Express Authority:
a. Rest 26 Creation of Authority; 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, authority to do an act can be created by
written or spoken words or other conduct of the principal which, reasonably
interpreted, causes the agent to believe that the principal desires him so to act
on the principal's account.
i. express conveyance by written/oral words or conduct, reasonably
interpreted by the agent, that causes the agent to believe the
principal desires the agent to so act on the principals behalf except
A. Execution of instruments under seal
B. If the state statute requires the principals grant of authority to comply
with a particular form.
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C. Remember Kasselder v. Kapperman grader repair case- Here, P gave
actual authority to enter a K for up to $3000. --- for A to K for a greater amount is
beyond the scope of authority; then the A is liable for any obligation beyond scope of
his authority.
(1) general rule P is not liable for K which deviate from what he consented to, so P
is not liable for K as A could have made
D. Restatement 164 says that if A enters into an unauthorized K
without having power to bind P, then P will not be bound; unless,
if the only difference between the K as authorized and the K as
made is the difference in amount, or the inclusion or exclusion of
a separable part, the P is liable upon the K as it was authorized to
be made.
(1) - Pizza hypo ingredients are inseparable on same pizza, but if two
pizzas are ordered they are separable liability within the scope of
consent but not for the separable part which is not authorized
example of partial authorization
(i) so P is liable up to the amount authorized, beyond that A is
liable.
(ii) Express limitations like those seen in grader case (Kassalder)
may be more potent to limit scope of A authority to bind look
for express limitations
E. Ostensible authority = it is assumed that a party is an agent based on
the circumstances of the situation - might bind P for unauthorized acts
some states apply this basic test to determine scope of agency and
whether Agent/principal relationship existed at all
b. Rest 33 General Principle of Interpretation: An agent is authorized to do,
and to do only, 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.
c. Actual Authority
i. Express manifestation by Principal to Agent directly
ii. Implied e.g., agent has implied actual authority to represent the scope of his
authority to 3P, unless Principal instructs Agent not to. 27 cm. c
2. Duty of loyalty requires the Agent to act in the best interest of the principal.
a. Agent is only authorized to make a gift when the intent on that issue is very
clear; broad, boilerplate language is not specific enoughneed 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, as evidenced by the
surrounding facts and circumstances.
A. The principal must make some manifestation by words or conduct that
shows he authorizes the agent to make a gift.
3. If unforeseen circumstances arise and the agent cannot communicate with
the principal, the agent is authorized to take steps he reasonably believes
are necessary to protect the principals interests.
a. Rest 47 Inference of Authority to Act in an Emergency: Unless otherwise
agreed, if after the authorization is given, an unforeseen situation arises for
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which the terms of the authorization make no provision and it is impracticable for
the agent to communicate with the principal, 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.
B. Implied Actual Authority (Authorized Transactions)

1. Rest 35 When Incidental Authority Is Inferred: Unless otherwise agreed,
authority to conduct a transaction includes authority to do acts which are
incidental to it, usually accompany it, or are reasonably necessary to
accomplish it.
a. 35 Agent must have honest and reasonable belief based on manifestations of
the principal that he had authority to do the act.
i. Look at factors - Prior course dealing with the principal, knowledge of the
principal about what needs to be done, acts and conduct of the parties,
totality of the circumstances.
b. 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, usually accompany it or are reasonably
necessary) to carry out the duties actually delegated.
2. 77 General Rule: The authority to appoint agents, subagents or subservants of
the principal can be conferred in the same manner as authority to do other acts for
the principal, and the interpretation of the manifestations of the principal is
governed by the rules generally applicable to the interpretation of authority. see
next page Mill Street Church v. Hogan
3. 78 Inference as to Authority to Delegate Authority: Unless otherwise agreed,
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 BUT such authority, however, includes authority to delegate to a
subagent the performance of incidental mechanical and ministerial acts.
i. Mill Street Church v. Hogan: the church hired/employed Bill to do painting; Bill
was the agent of the church. Bill needed help, and in the past he had called
on his brother Sam. The church suggested another, but he could not be
found, so Bill hired Sam again. Sam got hurt and filed a workers comp claim.
The church and insurance company said Sam was not an employee. The issue
is whether Bill had any authority to hire Sam, if so Sam is an employee
A. Express authority
(1) No clear right to hire brother
(a) Recognition of need to hire helper
B. implied authority is actual authority circumstantially proven which the P
actually intended the A to possess and includes such powers as are
practically necessary to carry out these duties.
C. apparent authority is not actual authority but is the authority the A is
held out by the P to 3rd persons as possessing.
(1) the church had knowledge that Bill had hired Sam in the past; the
church had knowledge that Bill needed help; the existence of prior
similar practices is an important factor = Bill had implied authority to
hire Sam.
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C. Agents Duties of Care and Loyalty
1. Introduction to the Fiduciary Duties of Agents and
Servants
1. 13 An agent is a fiduciary with respect to matters within the scope of his agency
a. A fiduciary is a person having a duty, created by his undertaking, to act
primarily for the benefit of another in matters connected with his
undertaking.
2. Duty of Care
1. 377 under ordinary circumstances, the promise to act as an agent is interpreted as
being a promise only to make reasonable efforts to accomplish the directed results
2. 379(1) Unless otherwise agreed, a paid agent has duty to act with standard care
and skill and to use any special skill he has, if he has a special skill.
3. 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.
4. Rest 379 Duty of Care and Skill: (1) Unless otherwise agreed, 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, in addition, to exercise any special skill that he has. (2) Unless otherwise
agreed, 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.
a. A is liable to P for damages resulting from breach
b. Myers v. Maxey: legal malpractice suit against the lawyers who drafted the will
for P (who had a stroke and placed under guardianship) b/c they did not have the
testator who had been placed under a guardianship to sign the will in front of a
district judge.
i. an atty who acts in GF is not liable for reaching a conclusion to a
controversial point of law which subsequently proves to be
erroneous have to see whether a well-informed lawyer could reasonably
entertain this interpretation (and here the 2 experts could not even agree).
(1)But Myers may have been a failure to inform client of material matters
duty to disclose
(2) An attorney needs to research the law reasonably
ii. Agents must act with reasonable care and skill on behalf of the P - Maricopa
Partnerships v. Petyak (jaguar car case) The correct standard is whether A
acted with reasonable care and skill in performing his duty, it is not strict
liability
A. Same standard should go for a lawyer using best judgment
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3. Duty of Loyalty
a) In general
1. 387 Agent is subject to duty to act solely for the principal in all matters connected
with his agency.
a. Agent cannot put agents own interests or those of a 3 rd party above the
principals.
i. Look out for dual agency
b. Rest 387 General Principle: Unless otherwise agreed, 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.
c. Incudes duty to obey Ps reasonable instructions
2. The Duty of Loyalty is a deterrent rule to prevent agents from profiting from
transactions conducted for the principal (creates conflict of interest);
3. No personal benefit/profit w/o Ps informed consent (Schock v. Nash)
a. Reqs for consent - factor
i. Specificity re act
ii. Full disclosure of fact of interest and material facts re transaction
A. Use of pre-printed form
B. Did P really know what was signing?
C. Ditto short-form powers of attorney?
iii. Duty to ensure P gets impartial advice
iv. Show transaction FAIR to P
4. Watch for sale below FMV of real property as a breach of loyalty
b) Conflicts of Interest
1. 389 Unless otherwise agreed, an agent can act as an adverse party to the principal
only if the principal knows the agent is adverse;
a. 389 Agent must disclose to the principal when the agent acts as an adverse
party
i. Rest 389 Acting as Adverse Party Without Principal's Consent:
Unless otherwise agreed, 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.
2. 390 When AG acting adversely, AG must fully disclose all relevant facts he knows
or reasonably should know that would affect PRs judgment.
a. Failure to so disclose is a breach of the duty of loyalty. PR can bring an action
against the AG even if PR has suffered no harm and can recover any benefit
accrued to AG (disgorgement) P can also recover any damages he has suffered.
i. Rest 390 Acting as Adverse Party with Principal's Consent: An agent
who, to the knowledge of the principal, 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 which the agent knows or should know would
reasonably affect the principal's judgment, unless the principal has
manifested that he knows such facts or that he does not care to know them.
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ii. Rest 407 If an agent has received a benefit as a result of violating his duty
of loyalty, the principal is entitled to recover from him what he has so
received, its value, or its proceeds and also the amount of damage caused
thereby.
b. Rogers v. Robson dual representation doctor and medmal insurance carrier D attys
represent both. The D attys settled the case without consent of doctor client, but attys say
that the insurance carrier who actually hired Ds say they have the authority to settle.
i. when a conflict of interest arises the duty of loyalty means to fully disclose to
client/principal of the intent to settle that was contrary to his wishes.
c) Duty to Account for Profits
1. 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. the duty applies whether or not the principal is harmed or is better off as a result
of the transaction. Loyalty is to principal; example of otherwise agreed: waiter
keeping a tip.
b. Rest 388 Duty to Account for Profits Arising Out of Employment: Unless
otherwise agreed, 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.
d) Other Aspects of the Agents Duty of Loyalty

1. 391 Agent must disclose to principal when agent is representing an adverse party
a. Rest 391 Acting for Adverse Party Without Principal's Consent: Unless
otherwise agreed, 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.
2. 392 Agent must disclose all material facts regarding the adverse representation.
a. Rest 392 Acting for Adverse Party with Principal's Consent: An agent
who, to the knowledge of two principals, acts for both of them in a transaction
between them, 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, except as to a principal who has
manifested that he knows such facts or does not care to know them.
3. 393 The agent must not compete with the principal whilst acting as agent,
without principals consent. Doesnt matter if agent is doing so on his own time.
Agent can compete after the agency relationship terminates.
a. Rest 393 Competition as to Subject Matter of Agency: Unless otherwise
agreed, an agent is subject to a duty not to compete with the principal
concerning the subject matter of his agency.
4. 395 AG must not use confidential information about PR for his own benefit or
for anyone elses; this rule applies during and after termination of the agency
relationship (continuing duty)
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a. Rest 395 Using or Disclosing Confidential Information: Unless otherwise
agreed, 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, in competition with or to the injury of the principal, on his own account
or on behalf of another, although such information does not relate to the
transaction in which he is then employed, unless the information is a matter of
general knowledge.
b. Rest 396 Using Confidential Information After Termination of Agency:
Unless otherwise agreed, after the termination of the agency, the agent:
i. (a) has no duty not to compete with the principal;
A. Duty not to compete - Prudential Insurance v Crouch duty to not use
trade secrets in agents dealings apart from the principals interest Tyne
rule may not compete with P for incomplete contracts, but still has the
right to compete with P for new contracts and business with people he had
dealt with previously
(1) After termination, agent is no longer subject to the duty not to compete
(2) Preparations to compete some preparation is ok, even though one
is still a fiduciary but there are 2 things that the agent cannot do
before termination
(a) Cannot contact customers to take business
(b) Cannot ask other agents to leave with you
ii. (b) has a duty to the principal not to use or to disclose to third persons, on his
own account or on account of others, in competition with the principal or to
his injury, trade secrets, written lists of names, or other similar confidential
matters given to him only for the principal's use or acquired by the agent in
violation of duty. But, 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, if not acquired in violation of his duty as
agent;
A. ABKCO Music v. Harrisongs Music Beatles music case
(1) CANNOT disclose confidential info even after termination
(a) Cannot use it for own benefit or for benefit of third party
(b) To compete with the principal
(i) Both are loyalty breaches
(2) Constructive trust can be imposed on agent to turn over business
opportunity to P if the information was actually confidential
dicta: cant use info acquired through the relationship to compete for
As benefit in a transaction originally undertaken for Ps benefit
(a) But if disclosure is made before terminating agency, P would be on
notice and it may be less of a problem
B. A has a duty to account for profits made by the sale or use of trade secrets
and other confidential information, whether or not in competition with the
principal;
C. A has a duty to the principal not to take advantage of a still subsisting
confidential relation created during the prior agency relation.
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e) Principals Remedies
1. 401 Actual damages: Rest 401 Liability in Tort for Loss Caused: An agent is
subject to liability in tort for loss caused to the principal by any breach of duty.
2. 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 subject to a liability to deliver it, its value, or its
proceeds, to the principal. (disgorgement)
3. 404 Principal can recover the value of the use by the agent
a. Rest 404 Liability for Use of Principal's Assets: An agent who, in violation
of duty to his principal, 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. If the use predominates in producing a profit he is subject to
liability, at the principal's election, for such profit; he is not, however, 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.
4. Rest 407 Principal's Choice of Remedies: (1) If an agent has received a benefit
as a result of violating his duty of loyalty, the principal is entitled to recover from him
what he has so received, its value, or its proceeds, and also the amount of damage
thereby caused; except that, if the violation consists of the wrongful disposal of the
principal's property, the principal cannot recover its value and also what the agent
received in exchange therefor.
i. (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.
f. corporate setting remedies for breach of fiduciary duty of
agents
1. FDIC v Smith board of directors is accused of breach of fiduciary duty by reg commission that
took over the bank fed sues board on behalf of the bank P claims statute of limitations as a defnse
in TX there is special SoL for breach of fiduciary duty concerning statute of limitations: 4
years, this was added in 1999 so avoid any case law suggesting 2 yr. SoL (always remember
to check the statute, sheapardize/keycite) its not tort or contract, but statutory generally the
SoL begins to run in tort when person becomes aware of the tort, had reason to know, or been
notified
Doctrine of Adverse Domination: corporations only act through their officers and
directors, and those officers and directors cannot be expected to sue themselves
or to initiate any action contrary to their own interests
o Rationale: it is impossible for the corporation to bring the action while it is
controlled by culpable officers and directors
o Two versions of the Doctrine 0 only applies to SoL
Disinterested Majority: If board of directors is sufficiently dominated
by adverse directors, the corporation is not treated as having known
What is sufficiently dominated?
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Majority view: a majority of directors are adverse
Minority view: the entire board is adverse if one
innocent guy knows, the entire corporation knows via
imputation
A plaintiff benefits from a presumption that the cause of
action does not accrue or the statute of limitations does not
run so long as the culpable directors remain the majority
Defendant can rebut that presumption with evidence that
someone other than the wrongdoing directors had knowledge
of the basis for the cause of action, combined with the ability
and the motivation to bring an action.
Because corporation could not act, SOL tolls until suit may be
brought (the adverse agents are no longer in control
Single Disinterested Director: if there is one director with knowledge
in a board of directors and that director is adverse, P is not
responsible
Statutes of limitations are tolled only so long as there is no
director with knowledge of facts giving rise to possible liability
who could have induced the corporation to bring an action.
o Plaintiff has the burden of showing that the culpable
directors had full, complete, and exclusive control of
the corporation, and must negate the possibility that an
informed director could have induced the corporation
to sue.
o
o
V. Power of Agents to Bind the Firm by Unauthorized

Acts
Restatement(s)
Apparent Authority
Estoppel to Deny Agency
Inherent Agency Power
Not Restatement Third
Ostensible authority
Used in some states
Blending of other categories
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B. Apparent Authority (PR has done something to
create liability)
c. Apparent authority cannot be created by the agents
conduct
A. Apparent authority all depends on what the third party believes (1) the P holds out
that the agent has the authority Ps manifestation of consent to be bound, (2) 3rd
party reasonably believed/relied that the P consents to As authorization, AND (3) the
3rd party must actually believe the agent is authorized.
(1)
even if A makes statements, A can only bind P if P authorizes it Agents

authority alone cannot create apparent agency
ii. holds out can be created 3 ways = (1) by direct P to 3rd party
communications (not in the case of Hamilton hauling); by (2) appointment
to a position with customary duties; or by (3) prior acts (practice or
course of dealing) as between the parties.
1. Rest 8 Apparent authority is the power to affect the legal relations of another
person by transactions with third persons, professedly as agent for the other, arising
from and in accordance with the other's manifestations to such third persons.
2. 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, 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, reasonably interpreted,
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.
3. 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, and (b) if
there is a latent ambiguity in the manifestations of the principal for which he is not
at fault, the interpretation of apparent authority is based on the facts known to the
principal.
4. Elements of Apparent Authority
a. Manifestation by the principal - factor
i. Manifestation direct/indirect communication to 3P, appointing a person to a
position, a broadcast to the community that AG has authority, allowing or
acquiescing in AGs unauthorized conduct, especially if AG has acted in such
manner before without objection by PR.
b. Manifestation must reach the 3P: direct, indirect (e.g., via another agent)
(3rd pt must know of the holding out by P)
c. Manifestation must cause the 3P to actually believe the agent is
authorized.
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5.
6.
7.
8.
i. For actual authority, 3Ps state of mind is irrelevant. AGs state of mind is
relevant.
ii. For apparent authority, AGs state of mind is irrelevant. 3Ps state of mind is
relevant.
d. The 3Ps belief must be reasonable in the circumstances. BUT 3P may
have a duty to inquire further to establish a foundation for a reasonable belief.
There is no requirement that there be detrimental reliance from the 3Ps
belief that the agent was authorized.
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.
Apparent authority cannot be established when the principal is
undisclosed.
See Hamilton Hauling v GAF where agent for Trucking co. Kd for 800k per year - his
actual authority was only for 25k of Ks circumstances there were not enough to
create apparent agency
Ostensible authority = it is assumed that a party is an agent based on

the circumstances of the situation - might bind P for unauthorized acts - An
ostensible agency must be traceable to the principle and cannot be established
solely by the acts, declarations, or conduct of the agent like apparent auth. In
this regard
C. Estoppel (PR has done something to create liability)

1. Rest 8B - A person who is not otherwise liable as a party to a transaction
purported to be done on his account, is nevertheless subject to liability to persons
who have detrimentally changed their positions because of their belief that the
transaction was entered into by or for him: (go to b for elements) (do not say
relied in detriment its a different standard than that used in Ks)
i. Estoppel to deny agency = belief of an appearance of authority because
(1) P intentionally or negligently acts to cause such belief (is induced) (can
be an affirmative act or omission), (2) 3rd party in GF relies (3) and changes
its positions to its detriment.
Under pure negligence theory - If the person (P) (1)intentionally or carelessly
caused such belief, OR having notice of such belief, (2) that T/Ps might
change position, (3) no reasonable steps to notify T/Ps of the facts
A. Metalworking Machinery v. Fabco: P purchased a machine from D; but P left
it there for almost a year, and D then sold it to another.
(1) mere possession does not give authority (but the UCC 2-403 says that
we do not require merchants to show title) and here we have no
merchant so the UCC does not apply.
b. he intentionally or carelessly caused such belief, or
c. knowing of such belief and that others might change their positions
because of it, he did not take reasonable steps to notify them of the
facts
2. Detrimental change of position indicates $, labor, suffering a loss, or subjection to
legal liability.
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a.
(not the same as reliance, need actual change in position, not just reliance on
statements by A)
3. Estoppel General Rules
a. 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, giving the indicia of ownership to the agent along
with the property (e.g., giving agent the property and the title document to it)
b. UCC provision: A merchant can only transfer the rights of the entruster
to a buyer. A thief as the entruster had no rights at all so the merchant
acquired no rights it could transfer to Buyer.
4. Estoppel v. Apparent Authority
a. Mere failure to act by PR can give rise to estoppel. Mere failure to act normally
does not give rise to apparent authority because it is not seen as a manifestation
by PR. (Mere failure to act when the reasonable principal would have, might
create apparent authority)
b. To assert estoppel, the 3P must have changed his position detrimentally on his
belief that the agent was authorized. Mere entering into the contract is not
a change of position. 3P must show he has suffered from some damage
based on his belief. With apparent authority, the 3P does not have to show
reliance.
c. Apparent authority is a two-way street; estoppel is a one way street
3P can assert to hold the principal liable.
d. With either theory, an undisclosed principal cannot be bound.
e. Most situations where apparent authority exists, estoppel also exists. In situations
where estoppel exists, apparent authority does not usually exist.
5. Contrast between equitable estoppel and agency estoppel
a. Equitable estoppel only relief to extent of detriment and no benefit of the
bargain
b. Agency contract & benefit of the bargain
D.Inherent Agency Power (PR has done nothing; AG is

unauthorized)
1. Inherent Power to General Agents - overview
A. If A is a general agent with actual authority to conduct certain transactions,
(1) The agent is acting in the interests of the principal, and
(2) The agent does an act usual or necessary with regard to the authorized transactions,
B. Then the act binds the principal regardless of whether the agent had actual authority and even if the
principal has expressly forbidden the act.
2. DuPuis v. FHLMC: Fidelity was having financial trouble so it sold and assigned all its
loans to FHLMC; Dupuis, the borrower, had no idea of the assignment. FHLMC in
turn contracted with Fidelity to service Dupuis loan and all the notes, again she had
no idea. (undisclosed P) This K gave rise to an agency relationship thus Fidelity as
A had authority to bind FHLMC as P. Fidelity cannot be sued b/c of bankruptcy; which
innocent party will pay?
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i. FHLMC = undisclosed P; Fidelity = general agent. So the P is liable to the 3rd
party.
A. why? Fidelity is a general agent b/c it was appointed to act on behalf of
FHLMC, there was consent, etc. Servicing the loan includes acts that are
usual or necessary in such transactions.
ii. - cannot be apparent authority b/c there can be no holding out when there is
an undisclosed P
iii. - cannot be estoppel b/c the 3rd party cannot have a belief that an agency
exists if the P is undisclosed
A. the P did not authorize the A to mismanage the account, A was authorized
to properly service the loan. Here the A did receive payments but never
credited the account.
iv. this is inherent agency power = it arises from some agency
relationships general agents (defined by saying it is not apparent
authority and it is not estoppel).
A. the usual rule is that as between two innocent parties, the loss should fall
upon the one who created the enabling circumstances = the P.
v. for apparent authority, P must be disclosed- for inherent authority, P can be
undisclosed
3. Rest 3
a. (1) A general agent is an agent authorized to conduct a series of
transactions involving a continuity of service.
i. indicates a fairly close relationship between agent and principal; no fresh
authorization required for each transaction (aka enterprise liability) similar to
Respondeat Superior where only servants can subject principal to liability in
tort)
ii. Factors include the number of transactions, the length of time, and prior
dealings between the A & P
b. (2) A special agent is an agent authorized to conduct a single transaction or a
series of transactions not involving continuity
4. Rest 8A Inherent agency is a term used in the restatement to indicate the
power of an agent which is derived not from authority, apparent authority
or estoppel, but solely from the agency relation and exists for the protection of
3Ps harmed by or dealing with a servant or other agent.
a. Treat Principal as bound merely because of the agency relationship.
b. Remember: Respondeat Superior: Principals are vicariously liable for torts
committed by servants in some situations. 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 course & scope of employment. RS is a form of inherent agency power
for binding principal in tort.
5. Rest 161 Unauthorized Acts of General Agent - 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, although they are forbidden by the
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principal, the other party reasonably believes that the agent is authorized to do
them and has no notice that he is not so authorized.
a. Elements (factors of inherent agency)
i. A general agent
ii. for a disclosed or partially disclosed principal
iii. Unauthorized acts done on behalf of the principal
iv. The acts are those which usually accompany or are incidental to
transactions which the agent is authorized to conduct
A. Acts must not be too far removed for the agents authorized conduct.
v. 3P reasonably believes AG is authorized and has no notice that AG is not
authorized.
6. Rest 194 Acts of General Agents - A general agent for an undisclosed
principal authorized to conduct transactions subjects his principal to liability for
acts done on his account, if usual or necessary in such transactions, although
forbidden by the principal to do them.
a. Elements undisclosed principal. (inherent agency for undisclosed P - factor)
i. A general agent
ii. For an undisclosed principal
iii. Unauthorized act done on behalf of the principal
iv. Usual or necessary in such transactions
A. The act was not too far removed from what the agent is authorized to do.
v. NO belief by 3P that AG is authorized neccesary because PR is undisclosed.
7. No fault on part of Principal required to be bound by inherent authority
(similar to RS). With ostensible, apparent authority, and estoppel, the
Principal is somehow at fault.
E. Liability for Representations by Agent

1. Representations of PR to 3P are central for defining apparent authority. In contrast,
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.
2. Issue: Is the principal liable for the representations by the agent?
a. Likely yes, due to Inherent Agency. n.3, p.270, problem based on Dyer v.
Johnson
b. AG is liable to the 3P for his misrepresentations. AG is always liable for his own
misconduct.
c. AG has liability to PR if 3P recovers from PR. AG must indemnify PR for any loss
due to a breach of his duty.
i. 383 an agent is subject to a duty to the principal to act in the principals
affairs except in accordance with the principals manifestations of consent.
ii. 401 If agent breaches a duty and causes a loss to the principal, the agent
has a duty to make good on that loss. p.271
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3. An agents false statements can be attributable to the principal if the agent is acting
within the course and scope of employment. The attribution to the principal occurs
because of the inherent power of the agent in that position.
a. Inherent agency power in the contractual context bears a lot of resemblance to
respondeat superior. The principal is bound to a contract under IAP not because
the principal has done anything wrong, but solely because of the existence of the
agency relationship. The IAP requirement that the agent be a general agent
seems similar to the requirement in respondeat superior that the agent be a
servant. Further, the IAP requirement that the agents conduct be incidental
to the agents authorized conduct seems similar to the requirement in
respondeat superior that the servant commit the tort while acting in the scope of
employment.
b. Policy: avoid constant recourse by third persons to the principal, which would be
corollary of denying agent any latitude beyond his exact instructions. 3P ought to
be able to rely on agents authority without having to constantly check with the
principal.
c. 161 The act of the agent must usually accompany or be incidental to the
agents authorized conduct. Is the agents action the type of thing that is
within or not too far removed from his authorized conduct?
VI. Firms Accountability for notification

to/knowledge of the Agent
1. Knowledge of An Agent
1. Knowledge v. Notification and when it constitutes actual Notice
a. Knowledge is conscious awareness
i. Notification is an act intended to convey information to another person
to create awareness
b. 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.
i. Knowledge or notification leads to the legal consequence of notice.
ii. Notice can be found if the person should know or has reason to know a fact.
2. Rest 272 General Rule for Attributing Agents Knowledge to Principal:
a. Knowledge of an agent is attributable to PR regarding matters as to which
i. (1) AG acts within his power to bind the principal or
A. Power to bind, not authority. So agents knowledge can be attributable
even if the agent commits an unauthorized act.
ii. (2) it is the AGs duty to give the principal the information.
A. Normally expect AG to pass the information to PR. 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 PRs affairs
B. 381 Duty to Give Information, cm. a
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(1) Unless otherwise agreed, 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, as the agent has
notice, the principal would desire to have and which can be
communicated without violating a superior duty to a third
person.
(2)An agent may have a duty to act upon, or to communicate to his
principal or to another agent, information which he has received,
although not specifically instructed to do so. The duty exists if he
has notice of facts which, in view of his relations with the
principal, 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, just as an authority is inferred.
C. 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. - Udolf v. Aetna Ins (below)
(1) Limited to knowledge of those in control
2. Prior or Casually Obtained Knowledge of an Agent

1. Rest. 276 Time, Place, or Manner of Acquisition of Agent's Knowledge
a. Except for knowledge acquired confidentially, the time, 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.
i. 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.
A. E.g., info conveyed by a client to an attorney, physician/patient,
priest/parishioner
3. Notification to an Agent
1. 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.
a. 268 General Rule -factor
i. (1) Unless the notifier has notice that the agent has an interest
adverse to the principal, a notification given to an agent is notice to
the principal if it is given:
A. (a) to an agent authorized to receive it;
B. (b) to an agent apparently authorized to receive it;
b. Like the malpractice case where Dr. gave notice to agent thinking he still worked
with insurance provider Zukaitis v. Aetna- see also; Dvoracek v. Gillies rentor
notification case
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4. Time from which notification or knowledge affects the
principal
1. Knowledge and notice involve responsibility of awareness of information.
Notification is a formal act intended in itself to affect legal relations. (do not need a
reasonable time for notification to be effective) if it requires a response, then there
must be a reasonable time to communicate/act
2. When knowledge is effective: Principal attributable with knowledge when
a. 278 Time When Agent's Knowledge Affects Principal
i. 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, PR is
affected after the lapse of such time as is reasonable for its
communication. Cm. a: Knowledge is important only if, because of it, one
can intelligently choose his course of action. like decision to defend a suit
b. Before Principal may be charged with Agents knowledge or notice,
i. AG must have had both a reasonable time to communicate the
information to PR and
ii. PR must have had a reasonable opportunity to act on it. (e.g., time to
disseminate it to others)
A. In a corporate setting this could take a bit of time
3. Notification- when effective: Notification can be intended to do two things:
a. Notification to determine the parties rights from a specific point in
time. Notification is effective immediately.
i. a notification given to an agent is notice to the principal if it is given
to an agent authorized to receive it or to an agent apparently
authorized to receive it.
A. Dvoracek v. Gillies - rentor leaving notification at desk with persons who
usually receive mail and act as agent for their P is sufficient to qualify as
legal notification
b. Notification to require action on the part of the person notified.
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. If the person notified is also the decision
maker, notification is effective immediately.
4. Udolf v. Aetna Ins.: Ps had employee dishonesty insurance and sued D for coverage.
The employee stole some money from the business before, and the manager simply
made her give it back and reprimanded her never told the owner. Well, she did it
again and the owner finds out and wants coverage from D. D says no coverage b/c
the owner failed to make a claim on the first instance of dishonesty. The managers
who knew the first time were a store manager and a bookkeeper they had
positions of control
a. if an employee (agent) holds a position of management or control which gives
rise to a duty to report dishonesty of fellow employees, then the knowledge of
the dishonesty` is imputed to the owner/firm (principal).
i. agents in a position of control who have a duty to report to the
principal, impute knowledge to the principal.
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b. the principal rights are affected by [is imputed with] the knowledge of the agent
either (1) when the knowledge occurs within the scope of the agents power to
bind the principal [learn of a material fact within their duty to act on behalf of P]
OR (2) when the agent has a duty to give the principal that information.
Restatement 272.
c. Policy: imputed knowledge involves actual authority knowledge is imputed
because it is better to put the risk on the careless principal than on an innocent
3rd pt consider also the above elements
d. in corporations there may be problems communicating knowledge between other
remote officers the reasonable time standard should most likely be extended
in a case where corp is broad and there are remote agents rosins Exxon
example
i. Biggs - must allow a reasonable time for the A to pass the info on to P. Then
allow a reasonable time for P to act.
5. Exception to imputing knowledge and notification to P
a. adverse agent rule not acting entirely on Ps behalf; 3rd party must know the
adverse agent is acting without authority; acting adverse to P.
b. acts by agent acting without authority are not passed to P
5. Adverse Agents
1. Whether PR is affected by AGs knowledge/notification to AG when AG is acting
adversely to PR?
2. Knowledge: Lanchile v. CIGNA Exception to 272: Adverse Agent Exception
a. 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, except as stated in Subsection (2).
i. Policy: AG is not really acting for PR; we normally expect AG will convey
information he has a duty to convey and so attribute knowledge to PR; if AG is
acting adversely, he is not going to abide by that duty; hes gone off on a
frolic so his knowledge is not attributable to PR.
b. 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.
3. Sole Actor Doctrine 282(2)(b)&(c) Principal cannot claim the benefit of the
agents services and at the same time disavow any knowledge the agent had about
the transaction (really just (2)(c)). Policy: Estoppel.
a. 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. (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; or
ii. (c) if, before he has changed his position, the principal knowingly
retains a benefit through the act of the agent which otherwise he
would not have received.
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A. All this is most easily seen in the light of when knowledge is imputed to a P
via agent
(1) Limited to knowledge of those in control
4. Notification: Dvoracek v. Gillies
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. Notification to an adverse agent is also effective unless the
3P has notice that the agent is acting adversely.
i. Rest 271 Notification; 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, when
receiving or giving the notification, is acting adversely to the principal, unless
the third person has notice of the agent's adverse purposes.
VII. Ratification of Unauthorized Transactions

A. Affirmance
1. Two aspects: can a transaction be ratified and was it ratified?
a. See Botticello v. Stefanovicz no ratification and no adoption/affirmance
i. Court solved it by making H accountable to 3 rd pt for breach of IWoA
ii. Ratification relates back, adoption does not
2. 82 Ratification is the
a. Affirmance by a person
i. 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, or (b) conduct by him justifiable only if there were such an
election to affirm.
A. PR does not have to communicate the affirmance to 3P for it to be
effective.
B. Rest 94 Failure to Act as Affirmance: An affirmance of an
unauthorized transaction can be inferred from a failure to repudiate it[, in
certain circumstances.]
(1) Silence under such circumstances that, according to the ordinary
experience and habits of men, one would naturally be expected to
speak if he did not consent
b. of a prior act which did not bind him
i. Has to have knowledge of the material facts of the transaction, at the time of
affirmance.
c. but which was done or professedly done on his account,
d. whereby the act, as to some or all persons, is given effect as if originally
authorized by him.
3. There is no ratification unless an act has been done which the purported or intended
PR could have authorized (legal incapacity blocks ratification), by one who purported
to act as AG or intended to act as servant; and unless the act is affirmed, while still
capable of ratification ( 88-90), by a person who, at the time of affirmance,
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knows the facts ( 91), ( 86), and who is the person for whom AG purported
or intended to act. 87.
a. Affirmance in general
i. Can be express person agreeing expressly
ii. Can be implied by conduct indicating consent, but conduct CANNOT
be ambiguous ( that can only be explained as affirming the K, must
unequivocally reference K)
A. Wife knew of 3rd pts lease, but this was ok because they were joint tenants
even wifes taking money from the lease is not indicative here because
there is a right to be supported by ones spouse this demonstrates that
implied conduct can only be used to affirm if the conduct cannot be
explained in any other way than by affirmation of the K - Marriage does
not create an express or apparent authority
4. Can it be ratified?
a. Undisclosed PR cannot ratify a contact - Rest 85 Ratification does not
result from affirmance of a transactionunless the one acting purported to be
acting for the ratifier discloses.
i. A disclosed or partially disclosed principal may ratify.
b. In order to ratify, PR must have been able to undertake the transaction
at the point the agent entered into and at the point of affirmance. If PR
could not ratify at either point, then PR cannot ratify it at all (e.g., if principal was
a minor at time contract made, or a corp was defectively formed)
c. A principal can rescind his affirmance when he is ignorant of any
material fact at the time of affirmance.
i. 91 Knowledge of Principal at Time of Affirmance
A. If, at the time of affirmance, the purported PR is ignorant of
material facts involved in the original transaction, and is unaware of
his ignorance, he can thereafter avoid the effect of the affirmance.
(1) Material facts are those which substantially affect the existence
or extent of the obligations involved in the transaction, as
distinguished from those which affect the values or
inducements (e.g., AG sells PRs stock at a price lower than it was
worth-cannot rescind affirmance) involved in the transaction.
(2) Estate of Sawyer v. Crowell - claim of an unauthorized bond investment. The
P never knew, but the claimaint says he told Ps secretary. If the agent has no
knowledge of a material circumstance, then she has no duty to inform the
principal. Silence alone will not ratify an act need affirmance and actual
knowledge of all material facts. If the P does not have actual knowledge of the
material facts, then the affirmance alone will not work to ratify the act.
(a) but the P can have knowledge imputed through the A for facts known within
the scope of his authority (but facts known from unauthorized acts will not be
imputed).
(b) silence alone will not be affirmance (if there is no duty to speak).
5. When a principal ratifies a transaction, he may create actual authority
and/or apparent authority for future (similar) transactions. Principal must
give notice to AG & 3P that, although he ratified the particular transaction, it was
unauthorized and he will not ratify further transactions.
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6. Adoption
i. Occurs when
A. A has purported to bind P to an agreement while lacking power to do so;
B. P cannot ratify As unauthorized act, b/c P didnt exist at time of act or
wasnt able to authorize;
C. The original agreement made by A and T/P expressly or impliedly
empowers P to choose to receive the benefits and assume the obligations
of the agreement; and
D. P manifests its desire to receive the benefits and assume the obligations of
the agreement.
ii. Does not relate back
iii. Does not release A from liability
A. Unless the agreement did so
B. Knowledge of Agents: effect on ratification

1. Knowledge only attributed when AG acts within the scope of her authority. Rest 272
says knowledge of AG is attributable to PR if AG has power to bind or a duty to
convey the information.
a. If an agents knowledge can be attributable to the principal, then that affects the
principals ability to rescind ratification of a transaction.
X. Liability for Wrongful Acts of Servants

(Respondeat Superior)
A. Introduction
1. Rest. 219(1) Respondeat Superior/Vicarious Liabibility (form of strict
liability liable not because principal has done something wrong or
negligent but simply because of the principal/agent relationship):
i. this is different from general agency there is more control necessary to
demonstrate master servant relationship
a. A principal (master) is vicariously liable for the torts committed by an agent if
i. the agent is a servant
ii. acting in the course & scope of his employment.
2. A principal is directly liable if negligent in selecting or hiring an agent.
B. Masters Liability for Acts of Servants

1. Liability for Acts of a Servant within the Scope of
Employment
1. Rest 228 Conduct is within the scope of employment if, but only if (all must be
met):
a. it is of the kind he is employed to perform;
b. it occurs substantially within the authorized time and space limits;
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c. it is actuated, at least in part, by a purpose to serve the master, and
i. Courts are willing to stretch on scope of employment especially on this factor
(purpose to serve the master)
(1) Fraud will limit the denial of liability by master even if EE was not acting
to benefit the master
d. if force is intentionally used by the servant against another, the use of force is
not unexpectable by the master.
i. Torts: Negligent, intentional as long as not force is not unexpectable (Sage
Club as opposed to Noah v. Ziehl)
ii. 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.
2. Rest 229 Use as further guidance in helping to determine if the test in
228 is met.
i. (1) To be within the scope of the employment, conduct must be of the
same general nature as that authorized, or incidental to the conduct
authorized.
ii. (2) In determining whether or not the conduct, although not authorized, is
nevertheless so similar to or incidental to the conduct authorized as to be
within the scope of employment, the following matters of fact are to be
considered:
A. whether or not the act is one commonly done by such servants;
B. the time, place and purpose of the act;
C. the previous relations between the master and the servant;
D. the extent to which the biz of master is apportioned between different
servants;
E. whether or not the act is outside the enterprise of the master or, if
within the enterprise, has not been entrusted to any servant;
F. whether or not the master has reason to expect that such an act will be
done;
G. the similarity in quality of the act done to the act authorized;
H. whether or not the instrumentality by which the harm is done has been
furnished by the master to the servant;
I. the extent of departure from the normal method of accomplishing an
authorized result; and
J. whether or not the act is seriously criminal.
3. 261 - liability may be extended to master where not acting to benefit master when
master provides opportunity and reasonable appearance of apparent authority to
act, or if servant misrepresents to defraud a third party who relied on that apparent
authority
i. Masters are liable w/o fault for torts of employees that are within the scope of
employment
A. Ability to control actions of EE
B. Must act primarily with an intent to benefit master
(1) Fraud will limit the denial of liability by master even if EE was not acting
to benefit the master
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C. Time and place
D. Normal action for agent to conduct
4. Frolic if conduct is so clearly outside the scope of employment; detour if it is only a
slight deviation. Labels only, not analysis. When does a servant return from a
frolic?
a. When a servant has departed from the scope of employment, there is an issue as
to when the servant has returned to the scope of employment.
2. Masters RS Liability for Servants Abuse of Position Rest.

219(2)
1. Employer is VL even though servant is acting outside his scope of authority. An
exception to RS employer is liable for torts of employee outside the scope
of employment.
2. Rest 219(2) A master is not subject to [vicarious] liability for the torts of his
servants acting outside the scope of their employment, unless:
a.
b. (c)the conduct violated a non-delegable duty of the master, or (see section XI
below)
c. (d) the servant purported to act or to speak on behalf of the principal
and there was reliance upon apparent authority, or he was aided in
accomplishing the tort by the existence of the agency relation.
3. Entente v Parker lawyer buys royalty interest out from under a deal he was
overseeing- original proposed buyer sues law firm of lawyer for tortious interference
a. Because Sneed (P) was not the actual client, the court limited his ability to claim
because he was bound but if he had been the firms client he would have been
interfered with
i. Apparent authority is generally a question of fact to be presented to trier
4. Hypo lawyer absconds with 5k that was supposed to be for retainer, but was in
fact not used for that, but was instead to be used to start own firm
a. Must act primarily with an intent to benefit master
(1) So this is not typically considered to be w/in scope of employment
b. liability may be extended to master where not acting to benefit master when
master provides opportunity and reasonable appearance of apparent authority to
defraud a third party who relied on that apparent authority
(1) under this theory, master is liable from a more contractual theory
XIII Dissociation (Termination of Agents)

A. Voluntary Terminations
1. In general, agency relationship terminates in one of three ways
a. (1) Voluntary action of the principal or the agent
i. 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, unless otherwise agreed, when
the other has notice of dissent. Cm a: An agreement that the authority is
to be revoked or renounced only in a particular manner is ineffective; despite
such an agreement, any form of manifestation made known to the 3 rd party is
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effective. The authority terminates when either party knows or should know of
the manifestation of the other (see 10), or has been given a notification by
the other.
ii. Termination of the agency relationship occurs when one party has notice that
the other party manifests dissent to the continuance of the relationship.
A. Manifestation can be by word or conduct (inconsistent with authority
previously given). Notice to AG means AG knows, has reason to know,
should know or has been given a notification.
(1) Rest 134 When Principal or Agent Has Notice of Termination of
Authority
(a) Unless the parties have manifested otherwise to each other, a
principal or agent has notice that authority to do an act has
terminated or is suspended if he knows, has reason to know, should
know, 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, that the agent does not consent to act;
(ii) (b) by the AG, that P does not consent to the act or would not if
he knew the facts;
(iii) (c) by either, that the transaction has become impossible of
execution because of incapacity of the parties, destruction of the
subject matter, or illegality.
B. If the principal terminates the relationship, it is revocation.
(1) It terminates all agency powers but not apparent authority of a general
agent unless the third party has notice.
(a) Rest 124A Effect of Termination of Authority Upon Apparent
Authority and Other Powers - The termination of authority does not
thereby terminate apparent authority. 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.
(2) It terminates all agency power, including apparent authority, of a
special agent except in the cases mentioned in Rest 132
C. If the agent terminates the relationship, it is renunciation
iii. The principal and the agent always retain the power to terminate the
relationship.
A. Rest 118 cm. a, b. Power is retained but if exercised wrongfully, it may
result in breach of a contract between the agent and principal. The power
is retained even if the contract says the relationship is irrevocable. Rest
118 Revocation or Renunciation: Authority terminates if the principal or
the agent manifests to the other dissent to its continuance.
b. (2) By operation of law See next section
c. (3) By intervening events p682, n7
i. When an intervening event that should cause the agent to realize he is no
longer authorized.
A. Rest 109 a change in the value of the subject matter or business
conditions
B. Rest 110 the loss/destruction of the subject matter of the agency
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C. Rest 116 a change in law of which the agent has notice that will make
the act the subject of the agency illegal
D. Rest 113, 114 the bankruptcy or substantial impairment of the assets
of the agent or principal of which the agent has notice
E. Rest 115 the outbreak of war of which the agent has notice
2. Lingering Apparent Authority
i. Zukaitas v. Aetna Casualty & Surety Co. dr malpractice case where agent
failed to give notice to proper ins. provider
b. Distinction between general agent and special agent for how lingering
apparent authority is terminated
(1) general agent = authorized to conduct a series of transactions (not
just one) involving a continuity of service. Factors include the
number of transactions, the length of time, and prior dealings between
the A & P.
(2) special agent = not a general agent, usually for one act
ii. Notification to a general agent affects the principal when the agent has actual
or apparent authority to receive the notification.
iii. 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).
iv.Rest 127 Apparent Authority of General Agent
A. Unless otherwise agreed, if the principal has manifested that an agent is
a general agent, the apparent authority thereby created is not
terminated by the termination of the agent's authority by a cause
other than incapacity or impossibility, unless and until the third person
has notice thereof.
c. Lingering Apparent authority exists:
i. Lingering power to bind
A. by some As &
B. to some T/Ps
ii. General Agent
A. Always as to T/Ps with no
(1) Knowledge, reason to know or notification given to agent
B. By holding A out as a GA, T/P's may reasonably believe A continuing
authority. See R2A 127 cmt. a
iii. Special Agents - generally no LAA exists but see below for when it does
d. Effective notice for termination of lingering apparent authority of
agents
i. Rest 132 terminating LAA of Special Agent factor
A. Generally there is no LAA for special agents unless one of the following
criteria is met:
(1) (a) the principal has specially accredited the agent to the third person;
(2) (b) the agent has begun to deal with 3P and the principal has notice of
dealing;
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(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; 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.
B. To terminate LAA for the above, actual notice to third parties is required to
avoid P liability
ii. Rest 136 Notification to Terminate Lingering Apparent Authority A. (1) 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) when a reasonable time has elapsed after a writing stating such
fact has been delivered by PR (how to give actual notice to 3rd pt
who reqs. It)
(a) (i) to the other personally;
(b) (ii) to the other's place of business;
(c) (iii) to a place designated by the other as one in which business
communications are received; or
(d) (iv) to a place which, 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. see Dvoracek v.
Gillies
B. (2) Unless otherwise agreed, for a notification to be effective in terminating
apparent authority it must be given by the means stated in Subsection (1)
with respect to a third person: These req. actual notice - factor
(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;
(2) (b) to whom the agent has been specially accredited (when P calls up
and says this is my agent);
(3) (c) with whom the agent has begun to deal, if the principal does or
should know; or
(4) (d) who relies upon the possession by the agent of indicia of authority
entrusted to him by the PR.
C. (3) Except as to the persons included in Subsection (2), the principal can
properly give notification of the termination of the agent's authority by:
(for persons dealing with GAs who dont req. actual notice)
(1) (a) publication or advertising the fact in a newspaper of general
circulation in the place where the agency is regularly carried on; or
(2) (b) giving publicity by some other method reasonably adapted to give
the information to such 3P
D. Comment b: b. The requirements of Subsection (1) are not met by mailing
a letter to the third person; the letter or message must reach him
personally, his place of business, or other designated place; if delivered to
a person there or elsewhere, it must be delivered to a person who has
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authority or apparent authority to receive it. 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. See
268.
3. Rest 3d simplifies the rules around termination; no distinction between general &
special AGs.
B. Terminations by operation of law

1. Death
1. Common Law Rule Rest 120 Death of Principal
a. (1) The death of the principal terminates the [actual and apparent] authority of
the agent without notice to him, except as stated in subsections (2) and (3) and
in the caveat.
i. (2) Until notice of a depositor's death, a bank has authority to pay checks
drawn by him or by agents authorized by him before death.
ii. (3) Until notice of the death of the holder of a check deposited for collection,
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.
b. 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).
c. At CL, death of the P operates as an instantaneous and absolute
revocation of the agents authority or power, unless the agency is
coupled with an interest.
i. In case where POA gave authority to add name to decedents CDs as JT, the JT
would have been an interest, but the P dies before the interest was created = death
terminated the agency and agent had no authority to change names. Estate of
Krempasky
2. Modern Trend in some Courts & in Rest. 3d, AG would still have apparent
authority to act. This authority would last until 3P had notice of the death
of the principal. Schock v. United States remember that there must be some
manifestation from the principal to 3P before apparent authority will exist. If there
has been no manifestation of authority from principal to 3P, there would be no
apparent authority. Possible scenarios
i. Schock v US - Where bank had constructive notice because it checks
obituaries, it could not reasonably rely on a PoA to insulate itself from liability
because it had constructive notice
A. General business practice showed constructive notice
b. If PoA provided A the basis for the apparent authority, perhaps because
his actual authority terminated at death, his ability to create apparent
authority (by showing the PoA under his implied actual authority) also
terminated at death.
c. If AGs actual authority continued until AG had notice of the death, then
his ability to create apparent authority (implied actual authority to
show the PoA to create apparent authority) also continued.
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i. Policy for Shock rule: the point of apparent authority is to protect 3Ps based
on manifestations from the principal. They should continue to be protected
until have notice of the death. The risk of termination should fall on the estate
of the principal and not on the business. Protect business instead of the
estate.
ii. Rest 3d on p23 (KNOW THIS)
A. The death of a principal terminates the agents actual authority.
The termination is effective only when the agent has notice of the
principals death. The termination is also effective against a 3P
with whom the agent deals when the 3P has notice of the
principals death.
3. Rest 124A cm a Apparent authority. Authority and apparent authority,may exist
concurrently or there may be one and not the other. In any event, they are created
by independent means, one by a manifestation to the agent, the other by a
manifestation to third persons. If before the termination of authority, there
was no apparent authority, there is none afterwards, unless AG retains
indicia of authority or other basis of apparent authority, in which case the
termination of authority does not affect it. If there was apparent authority
previously, its existence is unaffected until the knowledge or notice of the
termination of authority comes to 3P, except when all agency powers are
terminated without notice by death, loss of capacity by PR or by an event
making the authorized transaction impossible.
4. Rest 133 Incapacity of Parties or Other Impossibility

a. The apparent authority of an agent terminates upon the happening of an event
which destroys the capacity of the principal to give the power, or an event which
otherwise makes the authorized transaction impossible. (at CL this acts like
death, incapacity terminates agency)
A. By statute, courts may provide durable powers of attny (this survives
incapacity, but not death)
(1) Power of attny must expressly state that it continues after incapacity
(that it is durable)
(2) Durable power of attny can be an alternative to guardianship most
states allow these
(i) Part of todays standard estate planning tools
(b) Must be in writing
(c) Both A and AA continue until Agent has until knows and A has LAA
until 3rd pt knows
(d) In CA LAA statutorily continues until parties have knowledge of
death or incapacity
B. "New York" rule - the principal's mental incapacity deprives the agent of
authority only when the agent learns that the incapacity is permanent;
otherwise, the agent's actions are merely voidable at the option of the
principal. Campbell v. United States
5. Illegality/Statutory Responses
a.
Durable Powers of Attorney statutory response to say that death or
incapacity of P does not revoke an executed written POA for either actual
or apparent authority. Powers survice the death or incapacity of P.
b.
California all agency powers continue by statute.
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c.
Durable Health-Care POA living wills, etc., to give other the power to
make health-care decisions on your behalf should you become comatose,
etc.
i.
TX - durable POA gives the holder lingering apparent authority
despite voluntary revocation, incapacity or death! See below
actual auth. too
ii.
CA - both actual and apparent authority continue until A or
the 3P know of death or incapacity.
2. Termination of the Agency Relationship/Statutory

Responses to the Death Issue
1. Three types of statutory responses
a. Written power of attorney
A. power of attorney is a (1) written document by which (2) one party,
the principal, appoints another as agent and confers upon the latter (3)
the authority to perform certain specified acts or kinds of acts (4) on
behalf of the principal.The principal must have legal capacity
to give consent agent must have capacity to consent and physical/mental
ability to do the act
B. King v. Bankerd: here Bankerd executed a POA granted to King, and he left
town (was nowhere to be found). The POA stated that King could convey,
grant, bargain, and/or sellon such terms as to him may seem best. King
couldnt find Bankerd so he then made a gratuitous transfer of his interest
in his home to Bankerds wife. Does this POA authorize a gratuitous
transfer?
(i) a POA grants those powers that are expressly delineated. (strict
construction)
(ii) even if you cant find him, but if he is dead, death terminates POA.
(iii)must find the intention of the parties
i.
the language of POA shows the intent and there was nothing
mentioned about giving away property (this is also not primarily
for Ps interest); and the agents belief is irrelevant must act
primarily for best interest of P.
ii.
the facts and surrounding circumstances also do not give rise to
an authority to make a gift.
There is a strong presumption against the ability to give gifts on Ps
behalf
d.
granting power to do all and everything that I could do if I were
present is too broad and usually will not work. (broad expressions are
read narrowly)
e.
the power to convey does not mean the power to give.
(1) Von Wedel primary grant in PoA = any and all acts I could do if personally
present regarding premises
(a) But need:
(i) Specific language for primary grants
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(A) Especially if want powers re gifts
(ii) Non-exclusive illustratory list OK IF follows specific primary grant
(2) Murray Divorce is too personal to be delegated
C. Schock v. Nash: the duty of loyalty case to refer all others to. Schock
had a general (and durable) POA granted from Dever to deal with property
and bank accounts. Nash is Devers estates administrator, and sues
Schock for a lot of self-dealing (transferring all of Devers property to
herself and her family).
(1) the POA does not authorize self-gifting, and if it did it would
subvert the agents duty of loyalty to the principal so can the duty
of loyalty be waived? NO
(2) should there be extrinsic evidence to determine intent of the parties to
the POA, to see if P intended to allow self-gifting. If so, the agent
would need to show that the P (1) meaningfully consented to
the self-gifting after (2) full disclosure of all material facts, and
(3) that P got independent advice - factor
ii. Uniform Durable Power of Attorney Act 4 Timing of Termination of

Agency Powers: If PR grants authority to AG in a written PoA, the death or
incapacity of PR does not terminate actual authority until AG has notice of
PRs death or incapacity. AGs apparent authority also does not terminate until
3P has notice of PRs death or incapacity.
A. 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 PRs
incapacity.
b. Durable Power of Attorney
i. Uniform Durable Power of Attorney Act 2 If a PoA expressly says it is not
affected by PRs incapacity, those words are given effect only if PR becomes
incapacitated.
A. Death of principal terminates durable power of attorney; no PoA
survives the death of the principal. Authority does continue as per UDPA
4 above.
B. Texas Probate Code 484 death kills PoA
c. Durable Healthcare Power of Attorney
i. Grants power to agent to make healthcare decisions on the principals behalf.
ii. Also execute a living will that states what the principals desires are
regarding the level of medical care the principals wishes to receive.
A. Texas Health & Safety Code 166.151 166.166
2. Summary of Terminations/Dissociations of Agents
a.
Voluntary Act requires notification to terminate actual authority and
lingering apparent authority.
b.
Operation of Law incapacity and death (no notice required to terminate
actual authority or lingering apparent authority); exceptions include
durable POA, and other statutes.
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c.
Agency powers are usually always revocable by voluntary act, even if the
document provides so; the P retains the power to revoke the agency. Two
exceptions:
i. where the power is coupled with an interest in the subject matter
of the power (the only one not terminated by death);
ii.a power given for consideration or as security (survives death)
like a real estate K to sell property
3. Terminations by operation of law statutory example below
a. Fidelity Bank v. Gorson: person appointed lender as agent to basically oversee
the entire loan, receive notices, and to enter judgment against debtor - this is
allowed in PA, but void as against public policy in TX confess judgment
clause in a note. The creditor only has an interest in getting paid, nothing
beyond that, so it can be terminated by death. The death of the maker/P of a
note revokes the power to confess judgment against the maker/P.
C. Irrevocable Agencies
1. Irrevocable Agency - Two Types
a. Power coupled with an interest A power coupled with an interest in the
subject matter of the power, not just an interest in the proceeds from the
exercise of the power. (e.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)
A. Look out for trick question where person owns an individual
interest in property and then signs a PoA for sale this IS NOT a
power coupled with an interest because the PoA is not coupled to a power
of sale there the subject matter of the power is in the interest of the
other persons estate, so the subject matter of the actual power is not tied
to a pre-existing interest
ii. Courts will stretch to classify possession only as power coupled with
an interest. e.g., Fisher v. NY&MCFR&C Co if grantor delivers to the holder
of the power the property securing the debt, it creates a power coupled with
an interest.
A. Lee v. OBrien -a will provided that the option to buy the land would go to
#1, if alive, then #2 if alive, etc. (primogeniture). All 4 kids agreed that
the trust should convey the land to all 4 of them as TIC, so each got a
present interest -- S1 did not have an interest in S4s interest in the
property so no power coupled with an interest. S4 could voluntarily
terminate. The power must be coupled with an interest in the subject
matter of the power.
(1) the POA said it was irrevocable but was it a power coupled with an
interest? No, they each have an interest in the property; but it must
be coupled with an interest in the subject matter of the power.
- the subject matter is not the property, it is the separate interests in the property.
(a) - to determine, remove power and then look for remaining interest
in the subject matter fridge example no power left no interest in
fridge
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(b) The interest held by agent must be independent from his authority
to exercise power
(c) For powers coupled with an interest, voluntary revocations,
revocations by death, or incapacity do not work to revoke
agency
(d) A lien on property will generally count as an interest in the property
sometimes equitable liens are valid like in the ring example where
man who had possession may have had an equitable lien
(e) Ask: what is the interest? What is the subject matter? Is the
interest in the subject matter? Is the interest independent of the
power?
(2) When there is no independent interest in the subject matter of the
thing, this is generally called a naked power of sale
iii.
Death does not terminate power coupled with an interest because
Agent has his own interest in the property and thus, is acting in his
own name when he exercises that power after the principals death.
(different from security interest where death will terminate it!)
b. Power given as security for an obligation of the PR; a power given for
security or for consideration in return for consideration from the AG.
i. Voluntary termination by principal does not terminate this power.
ii. Death of the principal does terminate this power.
A. 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 agents own benefit when he
exercises his power, not for the principal. Because the agent
exercising power would be acting in the name of the principal, if principal
is deceased, the agent can no longer act in the name of the principal.
*** General Partnerships ***
I Formation of Firms - B. General Partnerships

1. 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. RUPA 201 association of 2 or more persons to carry on as co-owners a business for
profit forms a partnership, whether or not the persons intend to form a partnership. this
is generally a distinct legal entity
b. UPA 15. 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;
c. RUPA 306(a). PARTNER'S LIABILITY: Except as otherwise provided in subsections (b)
and (c), all partners are liable jointly and severally for all obligations of the partnership
unless otherwise agreed
2. Elements
a. Association - Consensual agreement of the parties (an aggregation of
persons)
i. Pship can be formed in very informal manner, even accidentally.
b. 2 or more persons person can be another business entity
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i. Defn: Persons UPA 2, RUPA 101.10
c. To carry on as co-owners shared control of the business
i. UPA 18(e). Rules Determining Rights and Duties of Partners: All
partners have equal rights in the management and conduct of the partnership
business.
ii. RUPA 401(f). PARTNER'S RIGHTS AND DUTIES: Each partner has equal
rights in the management and conduct of the partnership business.
d. A business an activity that rises to the level of being a business (e.g.,
not mere co-owners of land) UPA 2, RUPA 101.1 A business is a series of
acts directed towards an end. Usually generating a profit
e. For profit to make money (there doesnt have to actually be profits for
there to be a partnership; only need the intent for there to be profits)
3. Characteristics of an employment relationship v. Partnership civiello case
a. Employers right to the employees labor
b. Employers right to control the employees performance
i. 18(e) All partners have equal rights in the management and conduct of the
partnership
ii. The partners have the right to control employees performance, as long as
neither of them has contracted that right away in the formation of their
partnership.
A. PROBLEM 6-6: grocers partnership (no p/s agreement as to who to get
groceries from) just started out. A Ks with Blue Bell for a week of ice
cream, B at the same time Ks with Ben & Jerrys for a month of ice cream.
C does nothing.
(1) since the Ks were in the name of the partnership, they are agents of
the partnership, so the partnership is bound (assuming the 3rd party
did not know there was no authority)
c. Employees rights to compensation for the performance
i. 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. UPA 7. Rules for Determining the Existence of a Partnership:
i. UPA 7(4), RUPA 202(c)(3) - persons who share profits are presumed
to be partners, unless they are being received in a non-partnership
capacity (wages, rent, etc.). UPA 7(4) said it was prima facie evidence.
RUPA says it is a rebuttable presumption. (see e factors below to rebut the
presumption)
ii. Must look to (1) the written agreement or (2) the conductto determine if it
was a partnership (need all 4 elements of intent; business; profit; coownership of profits, property and control).
b. Except as provided by 16 persons who are not partners as to each other are not
partners as to 3Ps
c. Joint tenancy, tenancy in common, tenancy by the entireties, joint property,
common property, or part ownership does not of itself establish a partnership,
whether such co-owners do or do not share any profits made by the use of the
property.
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d. The sharing of gross returns does not of itself establish a pship, whether or not
the persons sharing them have a joint or common right or interest in any
property from which the returns are derived.
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, but no such inference shall be
drawn if such profits were received in payment: - factor
A. As a debt by installments or otherwise. (e.g., creditor)
B. As wages of an employee or rent to a landlord,
C. As an annuity to a widow or representative of a deceased partner, (e.g.,
law firm)
D. As interest on a loan, though the amount of payment vary with the profits
of the business.
E. As the consideration for the sale of a good-will of a biz or other property
5. Partnership UPA 6, RUPA 202(a) (fact intensive inquiry to determine if partnership
formed;
a. There must be an agreement to share profits (necessary prerequisite but not
definitive; other non-partnership relationships also involve profit sharing;
normally sufficient to submit the issue to the fact finder). Intent to share
profits + shared control of the business will generally be enough to find
a partnership (but not always P&M Cattle). Actual profits are not
required.
b. 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
6. Consider In Re Keytonics factors to determine P/s
a. TBOC says that association as co-owners creates a partnership regardless of
whether parties call it a joint venture 152.051
A. This assoc test is the primary test used by courts to determine if a
partnership exists but this is basically an intent element
(1) TBOC incorporates some common law factors to determine if p/s exists
152.052 because this is what the courts actually do
(2) Factors for intent to assoc test view them in totality of
circumstances
(a) look at name of company formed, incorporating names into
the co. name may be seen as evidence of intent to associate
(b) profit sharing, - this creates a presumption of partnership unless
the money is shared for
(A) As a debt by installments or otherwise,
(B) As wages of an employee or rent to a landlord,
(C) As an annuity to a widow or representative of a deceased
Partner
(A) As an interest on a loan, though the amount of payment vary
with the profits of the business,
(B) As the consideration for the sale of the good-will of a
business or other property by installments or otherwise
(c) control sharing
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(i) someone may be appointed to manage a partnership
(d)loss- sharing- strongest possible evidence of partnership
(i) pretty clear indicator of a partnership someone is bearing the
risk of he business
(ii) in some states and express agreement to share losses was
necessary this was the TX CL rule
(A)
now, under TBOC an agreement to share losses
is not necessary to find a partnership relationship was
created TX is NOW a factor state, not an element
state
(e) contribution, see Ingram v Deere - Contribution, - DR contributed no
money or property - but services may be a contribution at common law

under TX law services are not generally a contribution unless its value is
laid out clearly in contract, will not qualify as contribution instead this is
seen as a wage in TX
(A) its difficult to separate wages due from p/s from a financial
contribution being made via time/work contribution
(f) co-ownership of property in keytronics
(g) expression of intent to be partners
(3) all the above are applied as factors, not elements
(4) TBOC factors 151.052a factors indicating a partnership profit
sharing, intent to be Ps, control, sharing or agreeing to share losses
and liabilities, contributing money or property to the business
Factors
Dalton
P&M
Profit sharing? (intent to share profits); necessary but

not determinative; creates presumption of partnership
202(c)(3)-(4); distinguish partner profit sharing from
compensation profit sharing
Analyzed,
found intent
to share
Analyzed,
agreed to
share profits
but not losses
Loss sharing a key factor

TBOC 152.052(a)(4)(a)sharing of losses is a factor
suggesting a pship
BUT TBOC 152.052(c) agreement to share losses
is not necessary to create a partnership
Not analyzed
Analyzed, not
found
Equal rights to participate in the control of the

business (shared control over the business)?
Carry on as a co-owner.
Analyzed,
both
operated biz
Analyzed, both
ctrld when sell
Property contributions by parties? A person does
Analyzed,
Not analyzed
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not have to contribute property to be a PN; a PN could
simply provide services and still be a PN.
both
contributed
ppty
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.
Evidence of conduct and dealings can establish pship.
202(a) whether or not the persons intend to form a
partnership; (dont have to have the intent to be a
partner to become one;
Yes; used the

term partner
Analyzed but D
did not think of
himself as a in
partnership;
Court saw
intent as a
key factor
Tax treatment by the parties history of how

parties have treated their dealings with other
parties from a tax perspective in the past
Not analyzed
Analyzed,
pship
treatment not
found
b. joint venture is a partnership, but to carry on a single transaction, not a

continuing business. Sometimes a single project is not a business and technically
not a partnership. see PM cattle co v. Holler
A. in TX, even if something is called a joint venture, it is governed by
partnership law
B. possible differences though between partnerships and joint ventures
(1) limited scope of undertaking, so
(2) limited apparent authority (partnership power)
(a) again have to look to their agreement, intent or conduct (for
conduct can look to their tax return to see how they treated the
profits and losses).
(b) NOTE: the courts are reluctant to find that parties have drifted
into partnership relationship, so it is not req. that they split the
losses 50/50
c. Alternate in class hypo --- Law firm firm pays for lease, staff, phone
A. 40% of fees go to firm to pay overhead
B. 40% fee goes to lawyer who did the work
C. 20% fee goes to the lawyer who brought in the client
ii. Might look at control in the firm, contributions would depend on how much
was Kd for
A. Consider profit sharing, may or may not be might be able to look at the
amount of money taken or deal granted to the employee but this may
not be a clear indicator
(1)Profits = revenue expenses
(a) So if the revenue > expenses and attorney does not get a share of
the firms profit over expenses, then no partnership if profits or
losses are shared, there is presumption under RUPA that there is a
partnership
(b) If only sharing gross returns, it is not a partnership
(i) The difference is whether or not the profit after expenses is
shared gross returns on services alone are not indicative of a
partnership
7. Views of partnership
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a. Aggregate the partnership is not separate and distinct from the partners; the
individual partners are the partnership; 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) a noun a collection of persons
i. Originally under UPA 6 p/s was an aggregate the modern view is to
treat p/s as an entity
b. Entity the partnership is an entity separate and distinct from the partners. It is
a separate legal person with its own rights & liability. partnership is a verb
under this theory
i. RUPA 201(a) PARTNERSHIP AS ENTITY: (a) A partnership is an entity
distinct from its partners.
ii. TBOC 152.056. PARTNERSHIP AS ENTITY: A partnership is an entity
distinct from its partners. generally TBOC follows the RUPA
c. Swiezynski v. Civiello: P was injured as an employee of a grocery store (D). She
filed for workers comp and was receiving it from the partnership grocery store. P
then filed a personal injury case against the partnership. If Ds (the partners) are
the employer of P then she gets no more money, b/c they are immune under
the workers comp statute (b/c employers are paying insurance to pay the claim
of employees and they give up claims against employers for negligence).
i. Is the partnership the employer? Employer = person, partnership,
corporation.
ii. Can partners be separately liable from the partnership? Aggregate theory
v. Entity theory
d. Approaches to analyzing partnership liability questions
i. Conceptual analysis of partnerships - Determine entity v. aggregate, then
analyze facts.
ii. Functional approach emphasizes looking at issues on the merits and
determines which view of partnership makes the most sense.
A. Use functional approach for class
i. Attorneys see law firm hypo above for more info

1. Entity/aggregate view has particular relevance to attorneys R1.13 attorney for an
organization is the attorney for the organization itself, not the constituents.
2. Can the partners in a partnership bring suit against the attorney for malpractice?
a. Conceptual View
i. If partnership is seen as an aggregate, the individual partners can sue the
attorney.
ii. If the partnership is seen as an entity, only the partnership can sue the
attorney, not the individual partners. Arpadi Conceptual approach
partnership is an aggregate so individual partners can sue the attorney for
malpractice; if partnership was considered an entity, only it could sue the
attorney for malpractice
b. Functional View
i. What were the expectations of the parties when the attorney began doing
work for the LP; did the partners think that the attorney was also their
attorney? If they did not (e.g., if the partners are geographically dispersed, not
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likely to think the attorney was their attorney too), then no, the individual
partners cannot sue the attorney for malpractice; if they did (e.g., if have few
partners, geographically compact, they all meet with the attorney, might all
think the attorney is their attorney, too), then, yes, they can.
VI. PShips Accountability for notification

to/knowledge of Partners
1. Knowledge: RUPA & UPA consistent with agency rules
a. UPA 12. Partnership Charged with Knowledge of or Notice to Partner.
Notice to any partner of any matter relating to partnership affairs, and the
knowledge of the partner acting in the particular matter, acquired while a partner
or then present to his mind, and the knowledge of any other partner who
reasonably could and should have communicated it to the acting partner, operate
as notice to or knowledge of the partnership, except in the case of a fraud on the
partnership committed by or with the consent of that partner
b. RUPA 102(a) knowledge = actual knowledge only; cognitive awareness;
different from UPA
i. UPA 3-actual knowledge thereof, but also when he has knowledge of such
other facts as in the circumstances shows bad faith; actual knowledge +
reason to know or should know.
c. RUPA 102(c) - A person notifies or gives a notification to another by taking steps
reasonably required to inform the other person in ordinary course, whether or not
the other person learns of it. An Act intended to convey information.
d. RUPA 102(b) Notice of a fact
i. A person has notice of a fact if the person: (A) knows of it; (B) has received a
notification of it; or (C) has reason to know it exists from all of the facts known
to the person at the time in question.
ii. RUPA 102(f) - A partners knowledge, notice, or receipt of a notification of
a fact relating to the partnership is effective immediately as knowledge
by, notice to, or receipt of a notification by the partnership, except in the
case of a fraud on the partnership committed by or with the consent
of that partner.
A. All partners are agents of the partnership; knowledge is
attributable to the partnership when it concerns a matter
regarding the partnership.
(1)Exception if partner is committing fraud or assisting fraud, it is not
notice to partnership, even if the 3P is not aware that the partner is
committing/assisting fraud. The knowledge of a partner who is
acting adversely in the sense of fraud is not attributable to the
partnership.
2. Dvoracek (see above) - If an agent (partner) has actual or apparent authority to
receive the notification, it operates as notice to the principal. Partners by being a
partner have actual or apparent authority to receive notification regarding
partnership business.
3. What if Dvoracek had been a limited partnership? Different from general prships
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a. Notice to or knowledge of a limited partner does not constitute notice to
the partnership, as long as the persons only role is a limited partner
(e.g., if the person is also an employeethus he is an agent toapply general
agency rules, not partnership rules).
VIII. Management and Conduct of Firm Business - GP

1. Rules that regulate intra-partnership relations may be modified by
agreement. Rules that regulate partnership-3rd party interactions cannot
be modified, unless agreed with the 3P (e.g., UPA 9).
2. UPA 9-1- RUPA 301(1) says that each partner is an agent of the partnership for the
purpose of the business, and every actfor apparently carrying on in the ordinary
course of the partnership business or the business of the kind, binds the
partnership, unless the partner had no authority to act and the 3rd party knew or
received notification that he lacked authority.
a. TBOC 152.301 Ps are agents of the p/s for the purposes of its business have
actual authority think about Nabisco case below - National Biscuit v. Stroud
b. Knowledge by 3rd pt is required by all 3 codes to eliminate liability
1. Partners as Agents (Creating Partnership Obligations)

a) Apparent Authority
1. A partner has express actual authority if the partnership agreement grants specific
authorization to do certain acts.
2. A partner has implied actual authority by virtue of the agreement to be partners in a
partnership.
a. UPA 9(1) Every partner is an agent of the partnership
i. Rest. 35 An agent has implied actual authority to commit its principal to 3P
to the extent that the commitments are incidental to, usually accompany
or are reasonably necessary to accomplish the business of the partnership.
(RUPA all tasks within the ordinary course of the business of the partnership)
b. UPA 18(e) all partners have equal rights in management and control of the
partnership and thus have some authority to bind the partnership.
i. National Biscuit v. Stroud: general partnership to sell groceries, one partner
wanted one kind of bread, the other did not and told NABISCO to sell bread at
your own risk. As between partners who is liable? The purchase and sale of
bread was apparently carrying on the usual way of the partnership business.
Each partner has an equal right to manage and conduct partnership business.
P/S is liable.
A. under UPA 18(e) and 401(f) = equal rights.
B. majority rules if there is a difference (vote), if no majority and no authority
to act, how do they have authority (like if there is a dispute)
(1) if the act of one of the 2 partners was in the ordinary course of the
partnership business, then the partnership is bound.
3. if partner has actual authority to bind the partnership, his act binds the
partnership
4. Partner Apparent Authority Ordinary Course Transactions
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a. UPA 9(1). Partner Agent of Partnership as to Partnership Business.
i. (1) Every partner is an agent of the partnership for the purpose of its
business, and the act of every partner, including the execution in the
partnership name of any instrument, for apparently carrying on in the
usual way the business of the partnership of which he is a member binds
the partnership, unless the partner so acting has in fact no authority to
act for the partnership in the particular matter, and the person with whom
he is dealing has knowledge of the fact that he has no such authority.
b. RUPA 301(1) - 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. An act of a partner, including the execution of an
instrument in the partnership name, for apparently carrying on in the
ordinary course the partnership business or business of the kind carried
on by the partnership binds the partnership, unless the partner had no
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.
c. Partner has bound the partnership because he has actual and apparent authority
based on his status of a partner and doing something in the usual way the
business of the partnership.
d. The party seeking to bind the partnership bears the burden of proving
the transaction was in the ordinary course of business.
e. Burns v. Gonzalez: suit to enforce a note, but did this partner have authority to
execute this note in question on behalf of the partnership? Is the partnership
bound? Was it the usual way of business, the partnership business or businesses
of the same kind. Not going to assume that is usual and customary to borrow
money, especially this partnership business which was selling advertising time on
the radio. Factor VVV
i. need to look at the character of the business.
ii. under UPA an act binds the firm if it is usual business, absent an express
limitation of authority known by the 3rd party.
A. in TX you must affirmatively plead lack of authority.
5. Extraordinary Course Transactions UPA 9(2) addresses acts outside the ordinary
course
a. UPA 4 says the law of estoppel and agency apply to partnerships so a
partnership could be bound through estoppel or inherent agency power.
b. 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.
i. If the partner does an act that is outside the ordinary course of
business (for which the partner would have no apparent authority),
the partnership is still bound if the partner acted with actual
authority (the other partners agree)
6. Consent from all partners required for these acts: UPA 9(3). Unless authorized by
the other partnersall partners are required to consent to
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a. Assign the partnership property in trust for creditors or on the assignee's promise to pay
the debts of the partnership,
b. Dispose of the good-will of the business,
c. Do any other act which would make it impossible to carry on the ordinary
business of a partnership,
d. Confess a judgment,
e. Submit a partnership claim or liability in arbitration or reference.
7. The partner has no apparent authority to make the UPA 9(3) decisions; the
partner must have been granted actual authority from all the partners to make
such a decision; otherwise all partners have to consent.
a. RUPA 301 does not contain this laundry list of actions BUT
b. Comment 4. UPA 9(3) contains a list of 5 extraordinary acts that require
unanimous consent of the partners before the partnership is bound. RUPA omits
that section. That leaves it to the courts to decide the outer limits of the agency
power of a partner. Most of the acts listed in UPA Section 9(3) probably remain
outside the apparent authority of a partner under RUPA, such as disposing of the
goodwill of the business, but elimination of a statutory rule will afford more
flexibility in some situations specified in UPA Section 9(3)
8. UPA 9 v. RUPA 301 Different
a. 9 Actual knowledge (conscious awareness only) v. 301 knowledge (knew or
should have known) or notice
b. 9 Scope of ordinary course of business transactions: limited to the partnership
itself v. 301 consideration of the way other businesses of the same kind conduct
the business
c. Handling of extraordinary acts which require consent of all partners: 9 list v. 301
no list
b) Partnership by Estoppel (purported partners, purported

partnerships)
1. UPA 7. Rules for Determining the Existence of a Partnership; In determining
whether a partnership exists, 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. UPA 16. Partner by Estoppel;
a. When a person, by words spoken or written or by conduct, represents
himself, or consents to another representing him to any one, as a partner
in an existing partnership or with one or more persons not actual partners,
he is liable to any such person to whom such representation has been made,
who has, on the faith of such representation, given credit to the actual or
apparent partnership, and if he has made such representation or
consented to its being made in a public manner he is liable to such
person, 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:
A. UPA 16 partner by estoppel = a person who, by words or conduct,
represents (or consents to another doing so) to any one that he is a
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partner and he is not, then he is liable to that 3rd party who relies on
the representation and gives credit to the partnership.
B. Traditional estoppel rules apply still need reasonable reliance by 3rd
pt if unreasonable, then no liability
ii. When a partnership liability results and person obtaining credit is not
a P, he is liable as though he were an actual member of the partnership.
A. When no partnership liability results, he is liable jointly with the other
persons, if any, so consenting to the contract or representation as to incur
liability, otherwise separately.
b. When a person has been thus represented to be a partner in an existing
partnership, or with one or more persons not actual partners, 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, with respect to
persons who rely upon the representation. Where all the members of the existing
partnership consent to the representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of the person acting and the
persons consenting to the representation.
3. Cheesecake Factory v. Baines: P contracted to give cheesecake to a sports bar; but
the sports bar was owned by a corporation the P did not know of this. The
manager of the sports bar represented to P that D is a partner. Did D consent to the
manager to tell P that he was a partner? The 3rd party must rely even though there
is a public holding out or a private holding out. Must always prove reliance and
at least give credit. (RUPA requires entering into a transaction, not just
credit) different
a. if in a private manner, then you are liable to a specific person; but in a public
manner you are liable to anyone who hears it
i. Public representation
A. Examples of public holding out
Newspaper radio tv or cable ads

Yellow pages
Name of/on the premises
A webpage
o For public representation there must still be reliance - so the one
who relies must have knowledge of the public representations
o But it is not necessary that the public representation be made
directly to the 3rd pt in reasonable detrimental reliance
Estoppel does not intervene to protect people who have no
knowledge of the representation
Private representations
o How to privately hold out - factors
Signature cards for accounts with name on it
Payment accounts with name on it
Telling people one is a partner in conversation
Manager telling people that one is a partner
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Being seen going in and out of the office
ii. there was enough evidence to prove there was a private
holding-out.
iii.
public holding out or consent to a public holding out (do
not have to prove there was consent to represent to a
specific person) in contrast to private holding out (must
prove a specific reference/rep to that person).
iv.
a public holding out may relieve proof of consent, but
does not relieve proof of reasonable reliance by the
third party.
4. A person is liable if
a. (1) There is a representation that the person is a partner in actual or
purported partnership.
b. (2) Spoken, written or conduct-based representation made by or with the
consent of the purported partner. Consent can be implied but
i. UPA: a mere failure to act does not create consent merely knowing youve
been held out as a partner is not enough to say you have consented.
ii. RUPA 308: a mere failure to act also does not create consent.
A. But. failure to act in circumstances where the reasonable person would
have corrected the mistaken belief might be seen as consent. (estoppel
theory)
c. 3P, on the faith of the representation, extends credit to the actual or
apparent partnership.
i. 3p has to rely on the representation.
ii. Credit has been interpreted broadly an executory contract that says, I
agree to extend you credit in the future is sufficient to be extending credit
A. RUPA 308(a) is liable to a person to whom the representation is made, if
that person, relying on the representation, enters into a transaction
with the actual or purported partnership (Not just extend credit) UPA
and TBOC only require extending credit different
d. Public broadcast of the representation
i. 3P has to show that it detrimentally relied on the public representation in
extending the credit. Estoppel always requires detrimental reliance.
ii. To be liable, the partnership does not have to have knowledge that the
representation has come to the attention of this 3P.
A. RUPA 308(a) purported partners = a person who purports to be a
partner (or consents to being represented by another as a
partner) is liable to the 3rd party to whom the representation in made if
the 3rd party relies on that and enters into a transaction.
e. Liability extends to
i. Where no actual partnership exists, the purported partner and with anyone
else who consented to the contract or the representation
ii. Where an actual partnership exists, the partnership is liable, and by
extension, all the actual partners.
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5. Analysis
a. Does an actual partnership exist?
i. No 16(1)(b) purported partner and other consenters
ii. Yes
A. Was a partnership obligation created (did the person bind the partnership
when he acted)? (Who is liable, and when)
(1) No 16(1)(b) purported partner and other consenters
(2) Yes 16(1)(a) partnership, partners, & purported partner are all liable
6. TBOC 152.054/152.307: Texas utilizes estoppel remedy but not through TBOC - uses
CL
a. TBOC 152.054
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.
ii. A representation or other conduct indicating that a person is a partner in an
existing partnership, if that is not the case, does not of itself make that person
a partner in the partnership.
b. TBOC 152.307 CL estoppel
i. The rights of a person extending credit in reliance on a representation
described by Section 152.054 are determined by applicable law other than
this chapter and the other partnership provisions, including the law of
estoppel, agency, negligence, fraud, and unjust enrichment.
ii. 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).
2. Partners as Managers
a) Generally
1. Partners by virtue of being partners have implied actual authority; the
principal is the partnership that was formed by the agreement of the partners; 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
partnerships business.
a. 9(1) Every partner is an agent of the partnership.
i. Rest 35 Implied actual authority an agent has implied actual authority
do acts that are incidental to or reasonably necessary to accomplish the
partnerships business
b. 18(e) all partners have implied actual authority.
c. 18(b) partnership has to indemnify every partner for expenses reasonably
incurred by him in the ordinary and proper conduct of its business.
2. When partners are acting with actual authority, they are not liable to each
other. (Blue bell ex.^^)
3. 18(h) (h) Any difference arising as to ordinary matters connected with the
partnership business may be decided by a majority of the partners; but no act
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in contravention of any agreement between the partners may be done rightfully
without the consent of all the partners.
a. Difference as to ordinary matters connected with partnership may be decided
by a majority vote of the partners. Default rule is: 1 vote per partner ( 18(e)
partners have equal rights to control), unless modified by partnership agreement.
18; RUPA 401(f),(j)
b. TBOC 152.209(a) default rule is a majority-in-interest (partners get same
vote % as their current percentage in the profits of the partnership)
i. All Ps still have an equal share in management of the p/s
ii. BUT TBOC 152.202(c) default rule, partners share profits equally (credit
account); Ps also share losses the same way they share profits (charge
account); Default rule on share of profits is UPA 18(a), RUPA 401(b)
Agreement otherwise must be in writing
A. To avoid a consensus when youre not in majority, partner must
dissolve and send out notice to avoid lingering partnership power
B. if B goes ahead outside the majority vote, and Ks with another (an
unauthorized act) then the partnership will not be liable (under UPA 9(1))
if B has no authority and the 3rd party knows that he has no authority.
(under RUPA it is if the 3rd party had been notified). This is a breach of
fiduciary duty of obedience.
C. Remember under TBOC though that default rules for voting are majority in
interest
c. If the partner acts knowing there is a disagreement about the matter,
the partner has committed an unauthorized act (act without actual authority).
This is a breach of duty to the partnership. If the act results in damage to the
partnership, the partner (AG) is liable to the partnership (PR). Constructive trust
on profits, compensation for damages to other Ps
b) Transactions Outside the Usual & Regular Course of

Business
1. UPA 18(h)
a. Disagreement on ordinary matters requires a majority vote to resolve.
b. Action in contravention of an agreement among the Partners (i.e., changes to
a formal written pship agreement) or an extraordinary transaction requires a
unanimous vote to resolve.
i. RUPA 401(j), cm. 11 Amendments to the pship agreement and
matters outside the ordinary course of the partnership business
require unanimous consent of the partners
UPA
RUPA
TBOC
Disagreement on
ordinary matters
Majority in
number 18(h)
equal vote
Majority in number
401(j) equal vote
Majority in interest
(%)
152.209(a),
151.001(4)
Action in
contravention of an
agreement among the
partners (i.e., changes
to a formal written
Unanimous 18(h)
Unanimous 401(j)
Unanimous 152.208
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partnership agreement)
an extraordinary
transaction
Unanimous 18(h)
Unanimous 401(j)
Unanimous
152.209(b)
Addition of new
partners
Unanimous 18(g)
Unanimous 401(i)
Unanimous 152.201
IX. Managerial Discretion and Fiduciary Duties

A. Duty of Loyalty - General Partnerships fiduciary duties
grow out of the power to act on behalf of another person
as a trustee
1. UPA 21
a. Every partner must account to the partnership for any benefit, and hold as
trustee for it any profits (fiduciaries) derived by him without the consent of
the other partners (unanimous consent) from any transaction connected
with the formation, conduct, or liquidation of the partnership or from any
use by him of its property
i. 21- is basically the essence of the duty of loyalty
ii. If fiduciary duties are breached, the breaching P is disgorged of
benefits gained from trans.
A. Policy - Looking to deter breaches by removing benefits
b. Cardozo Meinhard v Salmon Texas rejects the idea of uncompromising rigidity
- rhetoric of some cases (meinhard) but in general if you see Cardozo or
Meinhard quoted, person who breached loses
i. P is a trustee
A. Duties stricter than the morals of the market place
B. P has duty of the finest loyalty
(1) Not honesty alone, but the punctilio of an honor most sensitive
(2) Uncompromising rigidity
c. See also Enea v Superior court where family P/s formed to buy building one
newly admitted P claims rent is below FMV on part of the building being rented to
another solo practice lawyer P breach of duty of loyalty unless other Ps
consented after full disclosure of all material facts
2. Fiduciary duties supplementing partner duties to each other under UPA
21 (general agency principles added to 21)
a. Duty of loyalty partners are considered fiduciaries of each other; each partner
has a duty of loyalty to each other partner; occupy a position of trust
b. Affirmative Duty of full disclosure disclose when dealing on own account
(acting adverse) and disclose all material facts regarding the transaction. Rest.
390
c. Duty to account for all profits/benefits gained through the agency
relationship without consent of the other partners Rest 380.
i. Starr v. Intl Realty: Harris was a real estate broker who brokered the deal
between a third party and the Harris partnership. The other partners were
doctors who simply invested in the partnership for tax purposes. Harris was
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the president and owner of the company that brokered the deal and was to
receive a commission on the deal. Harris also received an interest in the
property. Ps claim that he breached his fiduciary duties as a partner.
A. UPA 21(1) is a remedy section, but partners are agents for the
partnership and they have fiduciary duties owed to each other and the
partnership (agency = A owes duty of loyalty to P to act for benefit of P).
B. partners account to the partnership (all the partners) for any benefits or
profits received; without consent of all partners. Not allowed to get
secret profits. Scope is any transaction in formation, conduct, and
liquidation.
d. Consent of all partners is required unless the partnership agreement
specifies otherwise.
e. Duty of due care to conduct partnership business with due care; breach by
gross negligence, reckless and willful misconduct.
i. UPA 21 does not list a duty of care but courts typically impose a duty of care
on partners to each other.
Johnson v. Buck - Managing P buys out other P at low price. Misrepresents and
fails to disclose
financial condition of P/s and the prospects of P/S property Buck sells property for huge
profit and mall is built there
Ps can deal with P/S or other Ps
only in good faith, full disclosure and fair price
burden of proof on P.
Note: other P was inactive in business

Result would have been different under RUPA -- info as 404(b)(1) P/S property,
403(c): must furnish without demand
info re partnerships business and affairs
Reasonably required for exercise of rights and duties under P/S
agreement & RUPA
TBOC 152.203: furnish info on request

But see Walter v Holiday Inns where withholding info both Ps had equal access to was ok
because they were both sophisticated businessmen
3. RUPA 404(a)
a. 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).
b. A partners duty of loyalty to the partnership and the other partners is limited
to the following:
i. to account to the partnership and hold as trustee for it any property,
profit, or benefit derived by the partner in the conduct and winding up of
the partnership business or derived from a use by the partner of partnership
property, including the appropriation of a partnership opportunity;
ii. 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; and
A. If an unauthorized sale was in connection with the startup of the
partnership, his action might be excluded from the duty of loyalty because
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p/s did not exist yet not prohibited from profiting or acting as an adverse
party.
(1)Different from UPA; RUPA excludes actions in the formation of
the partnership
(2)Different from UPA; other partners consent is not listed here; it
is listed in RUPA 103/ also TBOC 152.002(a).
(3) RUPA 103(a) says everything is a default rule; (a) Except as
otherwise provided in subsection (b), relations among the
partners and between the partners and the partnership are
governed by the partnership agreement. To the extent the
partnership agreement does not otherwise provide, this [Act] governs
relations among the partners and between the partners and the
partnership. (RUPA rules are default rules unless partnership
agreement modifies them)
(4)RUPA 103(b) is the list of things that cannot be changed by the
partners; these are mandatory rules / TBOC 152.002(b). Partners
cannot (SAME FOR LPS in TX for all following via linkage)
(a)RUPA 103(b)(3)/TBOC 152.002(b)(2) eliminate the duty of
loyalty under Section 404(b) or 603(b)(3), but
(i) (i) the partnership agreement may identify specific types or
categories of activities that do not violate the duty of
loyalty, if not manifestly unreasonable; or
(ii) (ii) all of the partners or a number or percentage specified in the
partnership agreement may authorize or ratify, after full
disclosure of all material facts, a specific act or transaction
that otherwise would violate the duty of loyalty;
(b) RUPA 103(b)(4)/ TBOC 152.002(b)(3) unreasonably
reduce the duty of care under Section 404(c) or 603(b)(3);
(c) RUPA 103(b)(5)/ TBOC 152.002(b)(4) - eliminate the
obligation of good faith and fair dealing under Section 404(d),
but the partnership agreement may prescribe the standards by
which the performance of the obligation is to be measured, if the
standards are not manifestly unreasonable
(d) Cannot Restrict Ps ability to withdraw
iii. to refrain from competing with the partnership in the conduct of the
partnership business before the dissolution of the partnership.
c. Covalt v. High
i. 2 corp officers formed a partnership to lease building to the corp. One quits,
but stays in the partnership; and he wants to raise the rent to the corp. Any
breach of fiduciary duties?
ii. Both have equal rights to manage, but it is self-dealing at an unfair rental
price. Was the price consented to? One might have an adverse interest to
the partnership.
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iii. Schock might say there was no informed consent. Like RUPA 103(b)(3)(ii)
cannot eliminate the duty of loyalty, but partners may authorize an act that
would violate the duty if there is full disclosure of all material facts.
iv.burden of proof is on the one who has allegedly breached the duty to
prove that he has not breached the duty
v. Labowitz v. Dolan: discretion does not relieve a partner of fiduciary
duties. Cannot K around (eliminate) fiduciary duties. GP was manipulating
distributions so Ps could not afford to pay income tax this drove down sale prices
monster breach of fid duty
A. but can the duties be waived? Need full disclosure as to specific acts or transactions,
not a blanket waiver of the duty of loyalty loyalty cannot be waived
B. GP decisions can be challenged if LP can show bad faith or willfull misconduct (like
an improper primary purpose)
(1)Burden shifts to GP to prove he acted fairly
4. When assessing breaches of fiduciary duty consider the following and remember
that limits on breaches of Fid. Duties are strictly construed
a. Columbus hockey LLC 3 member LLc formed to obtain and own a local NHL
franchise in Columbus OH when public financing of arena failed a national
insurance provider offered to build stadium and lease it to the franchise one
member rejects the insurance companys offer twice different member
accepted the lease offer on his own behalf he filed a competing application
and obtained franchise, excluding the other two members
i. LLC agreement said that the members may compete members may
compete with one another in any other bus. Venture which may even be
competitive because of the limitation court dismissed claim for breach of fid
duty
ii. This is where strict construction comes into play - if a business
opportunity is property of the firm, then member breached his duty of
loyalty by diverting LLc asset (the opportunity) to himself this is different
from duty not to compete via strict construction because member is
converting firm property for his own use
A. Consider how member learned of the opportunity
(1) As a member of firm or independently?
B. id fiduciary use firm assets to develop the opportunity?
b. A partners 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, intentional
misconduct, or a knowing violation of law.
c. 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
consistently with the obligation of good faith and fair dealing. Not a
fiduciary duty but a contractual duty which is present in every deal;
d. A partner does not violate a duty or obligation under this [Act] or under the
partnership agreement merely because the partners conduct furthers the
partners own interest.
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i. Modern law allows some degree of self-dealing as long as there is full
disclosure and it can be shown the transaction was fair TBOC prolly
treats this the same
e. P may loan money to p/s or transact business with P/S and not be guilty with the
rights of a non P not owed duty TBOC hides this in 154.201
5. Texas Rules
a. TBOC 152.204 (fiduciary duty is not used anywhere because dont want
partners held to standard of trustee - no duty to place others interests above
own???
i. A partner owes to the partnership, the other partners, and a transferee of a
deceased partner's partnership interest as designated in Section 152.406(a)
(2):
A. a duty of loyalty; and
B. a duty of care. (not exclusive list, may be other duties)
ii. 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: (generally)
A. in good faith; and
B. in a manner the partner reasonably believes to be in the best interest
of the partnership.
iii.
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.
iv. A partner, in the partner's capacity as partner, is not a trustee and is not
held to the standards of a trustee. (anti meinhard rule)
b. TBOC 152.205 A partner's duty of loyalty includes (not an exclusive list):
(no scope limits like in RUPA)
i. accounting to and holding for the partnership property, profit, or benefit
derived by the partner:
(1) in the conduct and winding up of the partnership business; or
(2) from use by the partner of partnership property;
ii. refraining from dealing with the partnership on behalf of a person who has an
interest adverse to the partnership; and
iii. Refraining from competing or dealing with the partnership in a manner
adverse to the partnership.
A. 152.205 omits the taking of partnership opportunities - but this might not
make a difference because the list is not an exclusive list - most likely
common law applies to make this a violation in TX
c. TBOC 152.206 PARTNER'S DUTY OF CARE.
i. A partner's duty of care to the partnership and the other partners is to act in
the conduct and winding up of the partnership business with the care
an ordinarily prudent person would exercise in similar circumstances.
ii. An error in judgment does not by itself constitute a breach of the duty of care.
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iii. A partner is presumed to satisfy the duty of care if the partner acts
on an informed basis and in compliance with Section 152.204(b).
(business judgment rule)
A. P must be informed about material facts or they are acting
negligently
6. Del LLC act
a. 18-1104 rules of law and equity apply see Auriga Capital Corp v Gatz
Properties
i. INEQUITABLE action is still inequitable even if legally permissible
X. Partnership Liability for Wrongful Acts of Partners

(RS)
C. RS Liability of Partnerships & Partners (Creating PShip
Liability in Tort)
1. Two basis issues
a. When is a partnership VL for a partners wrongful conduct?
b. If the partnership is VL, what is the form of the partners liability?
2. UPA 13. Partnership Bound by Partner's Wrongful Act.
Where, 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, loss or injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.
3. UPA 14. Partnership Bound by Partner's Breach of Trust.
a. The partnership is bound to make good the loss:
i. Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
ii. 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.
4. UPA 15. Nature of Partner's Liability.
a. All partners are liable:
i. Jointly and severally for everything chargeable to the partnership
under 13 and 14.
A. Plaintiff can sue the partners and the partnership at the same
time or separately; each is liable for the whole obligation.
ii. Jointly for all other debts and obligations of the partnership; but any
partner may enter into a separate obligation to perform a partnership
contract.
A. Jointly liable means liable only collectively. Plaintiff must exhaust
partnership assets before reaching partner assets. BUT the
plaintiff must still join the partnership and all the partners in the
same suit.
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5. Looks like there is a difference in liability based on what type of claim/debt it is. GF
vs. BF
a. For GF breaches, that is acting with authority, not liable to other Ps
b. For BF breaches (breach of fid duties) liable to other Ps
6. RUPA 305. PARTNERSHIP LIABLE FOR PARTNERS ACTIONABLE CONDUCT.
a. A partnership is liable for loss or injury caused to a person, or for a penalty
incurred, as a result of a wrongful act or omission, or other actionable
conduct, of a partner acting in the ordinary course of business of the
partnership or with [actual or apparent] authority of the partnership.
b. If, in the course of the partnerships business or while acting with
[actual] authority of the partnership, a partner receives or causes the
partnership to receive money or property of a person who is not a partner, and
the money or property is misapplied by a partner, the partnership is liable for the
loss.
i. Law firm ex. Where lawyer who is leaving firm dies in possession of clients
retainer
7. RUPA 306. PARTNERS LIABILITY.
a. Except as otherwise provided in subsections (b) and (c), all partners are liable
jointly and severally for all obligations of the partnership unless
otherwise agreed by the claimant or provided by law.
i. J&S liable for all partnership obligations. Different from UPA even
though J&S liable, plaintiff has to exhaust partnership assets before
judgment can be satisfied against a partner.
A. Remember that Ps must share losses
b. 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 152.304(a).
NATURE OF PARTNER'S LIABILITY. (a) Except as provided by Subsection (b) or
Section 152.801(b), all partners are liable jointly and severally for a debt or
obligation of the partnership unless otherwise: (1) agreed by the claimant; or (2)
provided by law TBOC 152.306(a) ENFORCEMENT OF REMEDY. (a) A judgment
against a partnership is not by itself a judgment against a partner. A judgment
may be entered against a partner who has been served with process in a suit
against the partnership. (Go after partnership assets first)
8. Correlation different
a. UPA 13 (excludes injury to other partner) RUPA 305(a) (includes injury to other
partner) TBOC 152.303 (includes injury to other partner)
b. UPA 14(a) (apparent authority only) RUPA 305(a) authority means actual or
apparent authority TBOC 152.303
9. LLP note:
a. An obligation of a partnership incurred while the partnership is a limited
liability partnership, whether arising in contract, tort, or otherwise, is
solely the obligation of the partnership. A limited partner is not personally
liable, directly or indirectly, by way of contribution or otherwise, for
such an obligation solely by reason of being or so acting as a partner. This
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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).
i. No liability based on status as partners; a partner is still liable for
wrongs he personally commits (e.g., Pedestrian could sue partnership and
the partner that hit him)
ii. WARNING w.r.t. LLP: if a state has a full shield LLP statute, it operates like
306(c) no liability for tort & contract obligations of the partnership; partial
shield LLP statutes only cut off liability for tort obligations
iii. Texas is a full shield state since Sep 2011
XII Ownership of the Firm v. Ownership of Firm Assets

GP
A. Ownership of the Firm (Firm Property)
1. UPA 24 property rights of partner share of profits and surplus
a. (1) his 3 rights in specific partnership property,
i. UPA 25 Nature of a Partner's Right in Specific Partnership Property
A. A partner is co-owner with his partners of specific partnership
property holding as a tenant in partnership. The partners are owners of
partnership property aggregate theory of partnership.- remember that
the UPA did not originally recognize entities
B. The incidents of this tenancy over specific partnership property are such
that:
(i) entity theory is basically the modern view under the UPA, but it
uses the tenant-in-partnership distinction to overcome the
historical aggregate view of the UPA
(2) Equal right to possess only for partnership purposes without
consent of partners
(a) Partner cannot use partnership property for his own purposes or to
satisfy his own liabilities. 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.
(3) Partners Interest is not separately assignable unless all partners
are assigning their interests
(4) Partners interest is not subject to attachment or execution, unless
for a claim against the partnership. (individual creditors cannot glom
onto partnership assets)
(a) Also not subject to marital property rights
(b) On death, rights in specific property vest in remaining partners
(i) But they must distribute to heirs of decedent FMV for the p/s
property at the current value, not what it was at time of dead Ps
death
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b. (2) his interest in the partnership, and
i. UPA 26. Nature of Partner's Interest in the Partnership: A partner's interest
in the partnership is his share of the profits and surplus, and it is viewed
as personal property. this is assignable see 25 comments
A. Because its personal property, sale of p/s interest is not subject to SoF
B. Surplus this is what is distributed unless P contracts for
distributions, he is not entitled to them and the p/s may withhold capital to
work the p/s
(1) surplus distributions are what is assignable
ii. A partner has a beneficial interest in partnership property considered as a
whole. As profits accrue, he has a right to be paid his proportion, and on
winding up the business, after obligations to 3rd parties have been met, he
has a right to be paid in cash his share of what remains of the partnership
property. The rights are considered his interest in the partnership
and he may assign this in whole or in fractional part as indicated by
27.
c. (3) his right to participate in the management. - UPA 18(e) (this is seen as
one of the three property rights)
2. RUPA share of profits and losses and right to distribution

a. 203, 501 The partnership owns partnership property (UPA 25(1) - partners
own partnership property); entity theory partnership is separate from partners;
(no longer necessary to define the tenancy-in-partnership used under UPA.)
Different
b. 401(g) Partners can only use partnership property for partnership purposes.
(UPA 25(2))
c. 502 - The only transferable interest of a partner is his interest in profits/losses
of the partnership and distributions. (UPA 26)
i. Beware of 101(9) defines p/s interest as ALL interest in p/s including
management and other rights this can be misleading because assignees
dont get power to manage like a P unless the assignee is admitted as a P by
all other Ps
d. Distributions 101(3) transfer of property, including cash, from p/s to
partners or assignees in the Ps capacity as a partner so this excludes loan
payments, salary, etc
3. TBOC partner ownership interests in p/s property
a. 152.201 property is not property of the individual partner and no spousal
interest in it,
b. 152.501 Ps are not co-owners of specific p/s property cannot convey their
share of the specific property, all that can be conveyed is the interest in the P/S
rights to profits and debts
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c. Partnership interests
i. 1.002 (68) p/s interests = interest in partnerships which includes share of
profits and losses & similar items along with the right to receive distributions
A. But p/s interest does NOT include a right to participate in management
B. 1.002 (67) this applies to both general partners and limited partnerships
d. 151.001 (2) distributions - generally in accord with RUPA
i. For llcs - 101.206 limits on distributions to protect creditors do not include
reasonable compensation, or payments into retirement plans etc
e. 153.209 distributions before withdrawal
i. P to receive to the extent, at the time, on the occurrence of event, or as
specified in p/s agreement no right to make demand for distribution unless it
is Kd for
f. 153.206 profits and losses are allocated
i. As p/s records OR
ii. In proportion to capital accounts
g. 153.210 limits distributions in LPs and LLCs
h. Rights to Distribution under TBOC - as per capital accounts
i. On withdrawal 153.111
ii. On winding up 153.504
i. LPs are charged with losses only to the extent of their capital account
B. Rights of Assignees and Creditors

1. Assignees
1. UPA 27(1) A conveyance by a partner of a partners interest in the
partnership does not of itself dissolve the partnership
a. 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. (remember aggregate theory)
A. p/s is mutual agency cannot be forced to continue against ones will
ii. Reasons for dissolution 31 death, term ends, at will of partner (partner
always has the power to walk away, unless the partnership is for a term),
etc.
iii. UPA 30: Dissolution does not terminate P/S
A. P/S continues until winding up is complete
iv. 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 (in an at will partnership partner can trigger dissolution at
any time) RUPA 601, 602
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v. UPA 38 - When dissolution is caused in any way, except in contravention of
the P/S agt, each P , unless otherwise agreed, may have partnership
property applied to discharge its liabilities, and the surplus applied to pay in
cash the net amount owing to the respective P
A. TBOC 152.501 Events of Withdrawal
(1) This is similar to RUPA 601 except that the language is different; a
partner withdrawals
(2) A person ceases to be a partner upon withdrawal.
(3) (b) any partner can withdraw by notice of will to withdraw as a partner
now, or on a later date.
B. Also can happen by event specified in agreement, expulsion, illegality, etc
vi. 31(2) If dissolution is caused in contravention of an express agreement
among the partners (e.g., partnership for a period of time); partner can still
walk away at any time but will affect his rights at time of withdrawal
A. UPA 31. Causes of Dissolution. Dissolution is caused:
(1)Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking
specified in the agreement,
(b) By the express will of any partner when no definite term or
particular undertaking is specified,
(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,
either before or after the termination of any specified term or
particular undertaking,
(d) By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement
between the partners;
(2)In contravention of the agreement between the partners,
where the circumstances do not permit a dissolution under any
other provision of this section, by the express will of any
partner at any time; or
(a) 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;
(b) By the death of any partner;
(c) By the bankruptcy of any partner or the partnership;
(d) By decree of court under 32.
b. Assignment of a partners interest in the partnership does not automatically
make the assignee a partner. UPA 18(g) No person can become a member of a
partnership without the consent of all the partners., 27(1), RUPA 503(3)
TBOC 152.201
c. Assignment of a partners interest in the partnership does not give the assignee
rights to that partners share of partnership property. UPA 27(1) merely
entitles the assignee to the profits to which the assigning partner would
otherwise be entitled. 25(2)(a)(b)(c) interest in partnership property is
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undivided; a partner has no interest which she can convey; cant be attached for
personal debts; RUPA 501 same for TBOC 154.001 - .002
d. An assignee cannot force the partnership to make managerial decisions favorable
to it. UPA 27(1) assignee has no rights to interfere in management or
administration of partnership; RUPA 503(a)(3); Bauer v. Blomfield partners
owe assignee no fiduciary duty w.r.t. distribution to transferees; dissent says they
should
i. TBOC is basically same as RUPA 152.401-403
Transfer does not cause withdrawal of transferor P or Cause winding up of P/S
or Entitle transferee to participate in management or conduct of P/S

business
.403: transferor retains rights & duties as P
Except to extent transferred interest
Effect of Dissociation
(1) Generally under RUPA

(a) Not every dissociation causes dissolution
(b) Though it is immediate when
(i) At will P/S express will of partner who has not been previously
dissociated through some other cause.
(ii) In a P/S for a term or undertaking at end of term/undertaking.
(iii)Express will of at least of remaining partners to wind up (only
half needed after a dissociation consent of all Ps needed w/o
dissociation)
(iv)
Manifested w/in 90 days after another partners dissociation
by death or otherwise under RUPA 601(6) (10) switching
rule
(2) RUPA 603 Effect of Partners Dissociation
(a) (a) - If dissociation results in dissolution or winding up RUPA
Article 8 applies
(i) If not RUPA Article 7 applies. switching rule
(b) (b) upon a partners dissociation:
(i) Withdrawing partners rights to participate in
management and conduct of P/S business terminates
(A) except as provided in RUPA 803
(ii) partners duty of loyalty under RUPA 404(b)(3) terminates; but
(iii)Partners duty of loyalty under RUPA 404(b)(1) and (2) and duty
of care under RUPA 404(c) continue only with regard to matters
arising and events occurring before partners dissociation
(A) Unless partner participates in winding up under RUPA 803.
(c) Comments
Cmt. 1 of RUPA 601 P remains a P for some purposes
some residual rights, duties, powers and liabilities.
consequences of P's dissociation do not all occur at the same time
(i) Cmt 1 of RUPA 603 switching rule
(A) Effects of RUPA 603(a)
i. After partners dissociation, the partners interest must be
bought out under RUPA Article 7
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ii.
unless there is a dissolution or winding up under RUPA

Article 8
iii. Means a partners dissociation will always result in either a
buyout or a dissolution and winding up. switching rule
again
(ii) Cmt. 2 of RUPA 603
(A) Duty to not compete is gone immediately upon dissolution.
(Remains at dissociation?) ???
(B) Other duties remain as to matter that arose before dissolution
i. E.g. a partner who leaves a firm may immediately
compete for new clients, but must exercise care in
completing on-going transactions with old clients
ii. Must also account to P/S for any fees received.
(C)
But if the partner participates in dissolution and
winding up, all duties remain.
(d) Example
(i) Say a partner dissociates wrongfully. He is not allowed to be in
winding up process b/c that is only provided in Article 8 and
because of his wrongful dissociation, he is bound under only
Article 7.
ii.
Partnership at Will, for a Definite Term, and for a

Particular Undertaking.
A. RUPA 101(8) Partnership at Will
(1) Is a p/s in which the partners have not agreed to remain partners until
the expiration of a definite term or the completion of a particular
undertaking.
(a) A particular undertaking is capable of completion at some time,
though the exact time may be unknown and unascertainable.
B. RUPA 601 P is dissociated from p/s by Ps express will
(1) RUPA 602 P has power to dissociate at will
C. RUPA 801 b below shows the switching statute basically - Events
causing the Dissolution and Winding up of the P/S Business
(1) P/S can dissolve and wind up, only upon following events:
(a) With a P/S at will P/S must have notice from a partner, other
than a partner who is already dissociated under RUPA 601(2) (10),
of express will to withdraw now or on a later date.
(b) With a P/S for a definite term or particular undertaking
(i) w/in 90 days after a partners dissociation by death or otherwise
under RUPA 601(6) (10) or wrongful dissociation under RUPA
602(b), must have the express will of at least of
remaining partners to wind up.
i. Remember wrongfully dissoc P doesnt have
voting rights anymore
(B) But If dissociation was rightful pursuant to RUPA
602(b)(2)(i), then this is an expression of that
partners will to wind up.
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(c) Without withdrawal of a P, Dissolution is triggered by:
(i) Express will of all partners to wind up
(ii) Expiration of term or completion of undertaking.
(iii)Election under 801 see b bold just above
(iv)
Event occurs which was agreed to in P/S agreement.
(v) Illegality to continue
(vi)
On application by partner, a judicial determination
(vii) On application by transferee, a judicial determination
different only under UPA can transferee seek dissolution
(2) Cmt. 1
(a) P/S is dissolved only upon the occurrence of one of the events
listed in RUPA 801 auto dissolution on the events listed
(3) Cmt. 2
(a) Dissolution is the commencement of the winding up process.
(b) The P/S continues until winding up is completed
(i) Winding up selling assets; paying debts; and
distributions
(4) Cmt. 3
(a) Any member of an at-will P/S has right to force liquidation.
(b) Partners who wish to continue business of a term P/S cannot be
forced to liquidate by partner who withdraws wrongfully.
(c) See RUPA 807(a)
(i) Right to liquidation.
(ii) Equivalent to UPA 38(1)
(A) Also, Recall that in RUPA 103(b), you can waive right to
winding up and liquidation. - b/c its not listed in items there
which can be controlled by p/s agreement.
D. RUPA 701 Repurchase other half of switching rule alternative
to dissolution
(1) If dissociation does not result in dissolution and winding up, then the
P/S must repurchase dissociated partners interest in P/S for a buyout
price.
(2)Purchase Price
(a) This is the amt that would have been distributable to the
dissociating partner under RUPA 807(b), if
(i) P/S assets are sold at a price equal to the greater of
(A) Liquidation value, or
(B) Value as a going concern. (value w/o absent P)
(b) This eliminates the loss of good will
(3)Damages
(a) Damages for wrongful dissociation, and all other amounts owed
from the dissociating partner must be offset against the buyout
price
(b) Interest must be paid from the date of the amount owed becomes
due to date of payment.
(4)Indemnity
(a) P/S must indemnify dissociated partner whose interest is being
purchased against all liabilities
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(i) Except for liabilities incurred as a result of the dissociation.
(A) This is different from UPA which gives dissoc P a
discharge (language difference only, substance is essentially
the same)
(5)Timing of Payment to Partner

(a) If wrongful dissociates before completion of term or
undertaking, hes not entitled to buyout payment until the
expiration of term or completion of undertaking.
(i) Unless, he can demonstrate that it wouldnt cause hardship to
P/S
(b) A deferred payment must be adequately secured and bear interest
(i) The partner essentially becomes a third party creditor of the P/S
iii.
Undoing Winding Up
A. RUPA 802 P/S Continues After Dissolution
(i) Note: Authority of Ps terminates generally EXCEPT
i. As necessary to wind up p/s affairs
ii. To complete transactions begun but not yet completed
(unfinished business)
(ii) P/s can still be bound if it would have been bound had there been
no dissolution AND T/P had no knowledge or notice of winding
up/dissolution
(2) P/S will continue during winding up and is terminated upon completion
(a)Unless
(i) At any time after dissolution but before winding up is completed,
ALL of the partners can waive right to wind up and have P/S
terminated.
(A) Including any dissociating partner (notice this dissoc P
has vote right here) different
i. But only those whose dissociation was the immediate
cause of dissolution.
(B)
Other than wrongfully dissociated partners.
i. Their consent is not required.
(ii) If this happens, then it just continues on like nothing had
happened.
(A) But the rights of a t/p relying on dissolution is not adversely
affected by the continuation of P/S.
e. TBOC
i. Events that Cause Withdrawal

A. TBOC 152.501 Events of Withdrawal
(1) This is similar to RUPA 601 except that the language is different; a
partner withdrawals
(2) A person ceases to be a partner upon withdrawal.
(3) (b) any partner can withdraw by notice of will to withdraw as a partner
now, or on a later date.
(a) Also can happen by event specified in agreement, expulsion,
illegality, etc.
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ii. Liquidation
A. TBOC 11.051- Event Requiring Winding Up of Domestic Entity
(1) General requirements which require winding up.
(a) i.e. same basic stuff.
B. TBOC 11.057 Supplemental Provisions
(1) Unless otherwise agreed, a voluntary decision to wind up an atwill P/S requires express will of a majority-in-interest of the
partners who have not assigned their interests.
(a) Once youre withdrawn, youre no longer a partner, so you cannot
vote.
(2) Unless otherwise agreed, a voluntary decision to wind up after a
period of duration, a particular undertaking or the occurrence of a
specified event P/S, requires the express will of all the partners. Or the
expiration/completion/occurrence of event.
(3) TBOC SWITCHING RULE Different from RUPA - Unless otherwise
agreed, if its an at-will P/S the event requiring the winding up occurs
on the 60th day after the date on which the P/S receives notice of a
request for winding up from a partner who has agreed not to withdraw. 90 days under RUPA
(i) Automatic redemption of withdrawn Ps p/s interest if
there is no winding up before 61st day after withdrawal
(A) 152.602 P is entitled to fair value as of date of
withdrawal unless the withdrawal was wrongful
(B) 152.606 P is also entitled to indemnification
(b) Unless a majority-in-interest deny request to wind up or agree to
continue P/S
(A) Different majority in interest under TBOC remaining Ps
under RUPA
(c) There is prima facie evidence of intent to continue if there
is no settlement, or liquidation. if remaining Ps do nothing,
its like a vote to continue
C. Explained
(1) Where there is not definite term, particular undertaking, or specified
event,
(2) You can wind up by express vote of majority-in-interest of partners
(a) But once a partner withdraws he is no longer a partner so he
cannot vote.
(3) Any partner who has not agreed to withdraw can request winding up
(a) After the request, P/S must wind up unless a majority-in-interest
vote to continue
(b) If the partner has only requested to wind up, hes still a partner, so
he can vote.
D. The 60 day window period is not on Exam, but it might be on the BAR
iii.
Wrongful Withdrawal
A. TBOC 152.503(b)(2)
(1) P can withdrawal at any time
(2) Only wrongful if:
(a) Breach of express provision of agreement;
(b) Early withdrawal if for a period of duration/undertaking/event
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(i) **There is no exception for responsive withdrawals.
iv.Redemption
A. TBOC 152.601 Redemption if P/S Not Wound Up
(1) Automatic redemption of withdrawn partners P/S interest if
(a) The event of winding up does not occur before the 61st day after
the date of withdrawal, or
(b) The event of withdraw occurs under TBOC 152.501(b)(10)
(i) TBOC 152.501(b)(10) an agreement to continue P/S under
TBOC 11.057(d) if P/S has received notice under TBOC 11.057(d)
requesting winding up.
(A)
Withdrawing P cannot request winding up but P
who requests winding up is still a P and still has voting
rights
B. TBOC 152.602(a) Price
(1) Redemption price is its fair market value of the interest of the date of
withdrawal.
(a) Unless it was wrongful, or not an at-will P/S
(2) Price is different in RUPA and TBOC.
(a) TBOC 152.602(b)
(i) Wrongfully withdrawn partner (before
duration/undertaking/event) requiring winding up, take lesser of
(under RUPA its the Greater of the two)
(A) FMV of partners P/S interest on date of withdrawal, or
(B) Amount he would have received in liquidation.
(ii) Interest is payable on amt owed.
(3)Timing of payments to withdrawing P

(a) TBOC 152.608 Deferred Payment
(i) If wrongful early withdrawal (before duration/undertaking/event)
which requires winding up not entitled to receive payment
until completion of duration/undertaking/event.
(A) Unless partner proves that the earlier payment will not cause
hardship
(ii) Deferred payment bears interest
(iii)Secured if withdrawn partner can prove its appropriate ???
C. TBOC 152.606 Indemnification
(1) P/S shall indemnify a withdrawn partner against a P/S liability incurred
before ??? the date of withdrawal
(a) Unless its unknown to P/S at the time; or
(b) Was incurred b/c of partners withdrawal.
v. Damages
A. TBOC 152.503
(1) Withdrawing P is Liable for damages caused by withdrawal
B. TBOC 152.604
(1) P/S may set off against the redemption price the damages for wrongful
withdrawal and all other amts owed to P/S; doesnt matter when theyre
due.
f. Death of a P and effect on GP-ship Different under all 3 codes
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i. UPA - P/S dissolution caused by death of a P
(1)estate has 38(1) liquidation right
ii. RUPA
A. 601(7)(i): dissociation on death of P
(1)Death is At-Will:
(a)No 801(1) auto. dissolution & winding up
(2)Def. term/part. Undertaking
(a) 602(b) death is not wrongful dissociation
(i) 801(2)(i): remaining Ps 90-day election- switching rule applies
(A)
603(a): if no winding up occurs, then buyout
(redemption) applies (Art. 7)
iii.
TBOC
A. 152.501: P withdrawal on death

(1) partnerships at will
(a) 11.057(a): no individual P liquidation rights so estate has non either
(b) 11.057(d): estate not a P, cant request winding up *** different
(i) But remember death is a withdrawal of a P
(2) Partnerships for term/undertaking/occurrence
(a) 152.602(b)(2)(A): not wrongful dissociation for dying
B. 152.601(1):
(1) if withdrawal & no dissolution before 61st day after death (withdrawal of P)
(a) P/S must buy partnership interest of withdrawn P
(b) IndemnificFdetrimentation of estate
g.
Lingering P/S power a lot of different throughout

i. UPA 30 - RUPA 802 TBOC 152.701 - P/S Continues After Dissolution
A. For old business matters/ unfinished business
(1) Authority of Ps terminates generally EXCEPT
(a) As necessary to wind up p/ affairs
(b) To complete transactions begun but not yet completed (unfinished
business)
ii. For new business matters (same for UPA 35, RUPA 804, and
TBOC152.704)
A. P/s will still be bound if it would have been bound had there been no
dissolution AND T/P had no knowledge or notice of winding
up/dissolution
iii.
Eliminating lingering p/s power different under all 3 codes
A. UPA 35
(1) Prior creditors need knowledge or notice
(2) Others need: knowledge notice or publication
B. RUPA 804 need to give notice
(1) Can file 805 statement of dissolution to give constructive notice
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(2) Notice after 90 days
C. TBOC
(1) Must give notice but there is no statement of dissolution
iv. Liability for losses for new business liable to other Ps - UPA different
from RUPA/TBOC
A. UPA 34
(1) Voluntary: knowledge of act
(a) Death: knowledge or notice of death
B. RUPA 806
(1) Knowledge of dissolution
C. TBOC 152.705
(1) Notice of dissolution
D. The differences here flow out of path dependence. Because UPA withdrawal
triggers dissolution, knowledge of withdrawal/ death will create liability
between Ps. Because dissolution is not triggered automatically by
withdrawal under TBOC and RUPA, must have knowledge or notice of
dissolution.
v. UPA
A. P/S dissolves
(1) New P/S continues, but
(a) Lingering appearance of old P/S
(i) Other Ps liable for acts of dissociated P
(A) Dissociated P liable for obligations of new P/S
vi. RUPA
A. 702: ex-P lingering P/S power to bind
(1) 703: ex-P liable, but only if T/P
(a) Reasonably believed was a P
(b) No notice, knowledge of dissociation
(i) 701(d) ex-P right to indemnification
B. Cutting off lingering power/liability
(1) 702 & 703: after two years OR
(2) 704: 90 days after Statement of Dissociation filed to give constructive notice
vii. TBOC
A. 152.504 (a): ex-P power to bind for one year if T/P
(1) Had no notice of withdrawal, and
(2) Had done business with P/S within 1 year before withdrawal, and
(3) Reasonably believed ex-P was a P at time of transaction
(a) No Statement of Dissociation available to limit liability of dissoc P
(i) ex-P liable to P/S for loss
B. 152.506 ex P liable for transactions within 2 years if 3rd pt
(1)Had no notice of Ps withdrawal and
(2)Reasonably believed ex P was a partner at the time of transaction
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C. 152.606 indemnification only for existing liabilities
(1)This should be put in p/s agreement
h. Estate of Dead P is owed duties
i. Rights of assignee
i. Receive share of profits allocated to assigning partner
A. Partners trying to mask distributions as salary can sue to challenge
characterization of monies allocated by firm
ii. Petition for judicial dissolution, if it is a partnership at will (not for a definite
term of for a specific undertaking); UPA 28/32(2)(b) (no equitable
requirement under UPA)/RUPA 801(6) (court can order dissolution if it
deems such action equitable)
(a)Know this part of the codes cold
B. Different - Texas Rule: Assignees cannot seek judicial dissolution
of partnership TBOC 11.314 (only a partner can seek judicial
dissolution) but:
(1) Right to redemption of p/s interest (this is much more limited than
RUPA)
iii. Not liable to 3rd pts or for capital contributions
A. Until made a partner by consent of all parties assignee is not a P
iv. 152.404 right for proper purpose to info about financial status of Company
see Buck case supra for more details about right to info under all 3 codes
2. Creditor Rights - Charging Orders (a) General

Partnerships
1. A judgment creditor cannot seek attachment of partnership assets to satisfy a
partners individual debts.
a. UPA 25(2)(c) A partner's right in specific partnership property is not subject to
attachment or execution, except on a claim against the partnership.
b. Same result under RUPA no access to partnership property (stated less
obviously)
i. RUPA 203. PARTNERSHIP PROPERTY. - Property acquired by a partnership is
property of the partnership and not of the partners individually.
ii. RUPA 501. PARTNER NOT CO-OWNER OF PARTNERSHIP PROPERTY. - A
partner is not a co-owner of partnership property and has no interest in
partnership property which can be transferred, either voluntarily or
involuntarily.
2. A judgment creditor may seek a charging order against the partners

interest in the partnership to satisfy a partners individual debts.
a. UPA 28(1) On due application to a competent court by any judgment creditor
of a partner, the court which entered the judgment, order, or decree, or any other
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court, may charge the interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest thereon;
b. RUPA 504(a) On application by a judgment creditor of a partner or of a
partners transferee, a court having jurisdiction may charge the transferable
interest of the judgment debtor to satisfy the judgment.
c. TBOC - Texas & Charging Order
i. Texas dropped the charging order provision for GPs in 1993 but
brought it back in 2011.
ii. Texas retains charging orders for LPs and LLCs.
iii. TBOC 154.002 states a creditor of a partner has no right to get access to
partnership assets. ~ essentially same as UPA 25(2)(c).
3. The charging order does not entitle the judgment creditor to the partners interest in
partnership property. The charging order is a lien on the partners interest in
the partnership.
a. 25(2)(c) A partner's right in specific partnership property is not subject to
attachment or execution, except on a claim against the partnership.
a. RUPA 504(b) A charging order constitutes a lien on the judgment debtors
transferable interest in the partnership.
b. UPA 28/RUPA 504 authorize the court to appoint a receiver to receive
distributions from the partnership (e.g., if there were 5 creditors with a
judgment); also allow court broad authority to issue orders as appropriate in the
case. BUT 28/504 dont give much guidance on what is appropriate;
A. Court says to use local procedural law dealing with creditor rights to fill in
the gaps.
B. A receiver essentially manages the business Ps lose A LOT of
control/right
c. Once the debt is satisfied, creditor is not entitled to further distributions due the
debtor P and debtor P still retains p/s ownership interest.
i. No provisions from UPA & RUPA that state this exactly.
ii. RUPA 504(b) nature of charging order is a lien on a judgment debtors
transferable interest . It is a form of garnishment; once paid, no further rights
to distributions.
4. A judgment creditor can seek foreclosure against PNs interest subject to
the charging order. Different under the codes
a. UPA 28(2) foreclosing on the partnership interest because it is a lien - (2) The
interest charged may be redeemed at any time before foreclosure, or in
case of a sale being directed by the court may be purchased without thereby
causing a dissolution:
i. If the judgment is paid, the order terminates
b. RUPA 504(b) The court may order a foreclosure of the interest subject to
the charging order at any time. (equitable discretion of the court reigns)
i. The purchaser at the foreclosure sale has the rights of a transferee. They do
not become a P. But, the affected P no longer owns the p/s interest - proceeds
go first to creditor until debt is paid, then any remainder goes to the debtor P
c. At the court directed sale of the interest, three possible buyers
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i. Other partners creditor will be paid proceeds up to the judgment amount
ii. Third parties creditor will be paid proceeds up to the judgment amount
iii. The creditor creditor gains the partners interest in the partnership outright
becomes an assignee by purchase; as an assignee, creditor is then
A. Entitled to ALL future distributions from the partnership that debtor P
would have received
B. May institute judicial dissolution of the partnership if court deems it
equitable and get ALL amounts due to the debtor partner at termination.
(but not in TEXAS) different
153.251 adds to right to distributions: Right to be allocated income, gain, loss,
deduction, credit, or similar items (tax)

153.252: assigning P retains rights as P
Until assignee admitted to extent not assigned
Caveat (b): If gen. P assigns all of interest then majority-in-int. of ltd Ps
can terminate as a gen. P
d. 152.308 - court may charge partnership interest of judgment debtor (a)
A. To extent of charge: there is only a right of distribution so after charge is
paid, P retains property
B. A lien on judgment debtors p/s interest which cannot be
foreclosed on
C. This is the exclusive remedy
(1) No right of possession, or to exercise legal or equitable title, re the p/s
property
5. LLCs same as others
a. 18-702 transferee does not become a member
i. If member transfers all of his interest he stops being a member but this
doesnt take effect on pledge or lien, - it only takes effect on foreclosure???
(Del-LLC act is silent on foreclosure)
b. 18-703 judgment creditor has same rights to distributions it constitutes a lien
but silent on foreclosure exclusive remedy, but does not allow access to
property of LLCs
A. Single member llcs still does not allow transferee to take but some
cases are saying that transferee on LLc assets has rights to total
management but still no statutory right to take control
(1) If single member transfers all his interest the LLC dissolves unless
estate consents or transferee otherwise dissolution may occur
c. TBOC same- no right to management only profit distributions
i. Do get information on financial info of the company
d. Charging orders under all three entities are essentially identical in TX
only gives right to distributions it is a lien, but does not allow any
foreclosure- exclusive remedy in TX do get to see company info/financial info
i. GPs - 152.308 charging orders are back
ii. LLPs 153.256 linkage?
iii. LLCs 101.112 linkage?
6. Exclusivity of remedy charging order is the only way to get at Ps interest in p/s
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a. Because its remedial (a remedy) choice of law issues
7. Charging Order Summary

General Partnership
LP
UPA/RUPA
TBOC
RULPA
TBOC
Can creditor seek a

charging order?
Yes
Yes 152.308
Lien w/o
foreclosue
Yes, RULPA 703
Yes TBOC
153.256(a)
If get a C/O, can creditor

seek appointment of a
receiver
Yes
UPA 28(1)
yes
RULPA 1105
RULPA does not
address so use UPA
28(1)
yes
If get C/O, can creditor

seek foreclosure on the
partnership interest
Yes
No
RULPA 1105
RULPA does not
address so use UPA
28(1) - yes
No limited to
receive
disbursements
Assignors rights: If
creditor forecloses and
buys partnership interest
or gets a voluntary
assignment of the
interest, can creditor
seek dissolution
Yes UPA
32(2)(b), RUPA
801(6)
32 (2) know
this cold
No TBOC
11.314
(partner or
owner only)
No, RULPA 802

(makes foreclosure
less valuable with a
LP no right to seek
judicial dissolution)
No, TBOC
11.314 (partner or
owner only)
C. Ownership interests in the firm - Distributions on

Liquidation
1. Balance Sheet Left side is assets; right side shows who has a claim on the assets
a. The default rule is that partners are not entitled to salary for services
rendered in the business of the partnership. Default rule can be changed by
agreement. Partners are compensated through their share of the profits.
i. UPA 18(f) - No partner is entitled to remuneration for acting in the
partnership business, except that a surviving partner is entitled to
reasonable compensation for his services in winding up the
partnership affairs.
b. Service Contributions: It is generally not appropriate to treat service
contributions as a capital contribution. cm. 3, UPA 40. Partners must agree to
treat the services as a capital contribution.
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i. In the absence of an agreement to such effect, a partner contributing only
personal services is ordinarily not entitled to any share of partnership capital
pursuant to dissolution. Personal services may, however, qualify as capital
contributions to a partnership where an express or implied agreement to such
effect exists.
ii. TBOC 152.052 money or property is a factor in determining capital
contributions, but not services
c. Loss Sharing Default rule - each partner shares the loss equally.(and
profits)
i. UPA 18(a) -- Each partner shall be repaid his contributions, whether
by way of capital or advances to the partnership property and share
equally in the profits and surplus remaining after all liabilities,
including those to partners, are satisfied; and must contribute
towards the losses, whether of capital or otherwise, sustained by the
partnership according to his share in the profits.
2. Order of distributions
a. UPA 40(b)The liabilities of the partnership shall rank in order of payment, as
follows: (4 ranks)
(1) Those owing to creditors other than partners,
(2) Those owing to partners other than for capital and profits, (e.g., if a
partner has also made a loan to the partnership, a partners agreed but
unpaid salary, expenses incurred under 18(b) activities; fee due to
partner for services in winding up partnership)
(3) Those owing to partners in respect of capital, ($, equipment, property
The partners are repaid the VALUE of their contributions, not
necessarily what they actually contributed (e.g., dont
necessarily get their property back).
(a) UPA 40(d) The partners shall contribute, as provided by
18 (a) the amount necessary to satisfy the liabilities; but if
any, but not all, of the partners are insolvent, or, not being subject
to process, refuse to contribute, the other partners shall contribute
their share of the liabilities, and, in the relative proportions in which
they share the profits, the additional amount necessary to pay the
liabilities.
(i) No right to repayment before liquidation and settlement (unless
agreed)
(ii) No right to interest unless agreed
(b) UPA 40(b) lists the liabilities
(4) Those owing to partners in respect of profits. (but usually there are no
profits because there was a loss)
ii. UPA 40. Rules for Distribution. In settling accounts between the partners
after dissolution, the following rules shall be observed, subject to any
agreement to the contrary:
A. The assets of the partnership are:
(1) The partnership property,
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(2) The contributions of the partners necessary for the payment of all the
liabilities specified in clause (b) of this paragraph.
B. The liabilities of the partnership shall rank in order of payment, as
follows:
(1) Those owing to creditors other than partners,
(2) Those owing to partners other than for capital and profits,
(3) Those owing to partners in respect of capital,
(4) Those owing to partners in respect of profits.
C. The assets shall be applied in the order of their declaration in clause (a) of
this paragraph to the satisfaction of the liabilities.
3. Becker v. Killarney When one partner puts in only services and the other puts in only
capital, the service partner should not have to contribute to the loss to allow the
capital partner to be repaid at termination (fairness argument). Otherwise, capital
contributions are favored over service contributions. Other courts disagree this
approach is inconsistent with the UPA.
a. UPA 40(d)- the partners shall contribute the amount necessary to satisfy the
liability of the partnership it does not say partners who contributed capital.
b. RUPA 401 cm. 3 expressly rejects Becker & Kovacek; recommends partners
amend default rule.
4. If a partnership is an LLP, LPs have no obligation to contribute to obligations
outstanding at termination, even to even out each others capital accounts.
a. Under a full shield LLP statute, the limited partners have no obligation to
contribute any funds to cover any tort or contract liabilities outstanding at
termination.
b. Under a partial shield LLP statute, the limited partners must contribute towards
contract liabilities outstanding but not tort liabilities. (Partial shield only protects
against tort type actions, not contract type actions).
5. UPA does not expressly recognize capital accounts of partners in the equity
portion of balance sheet; RUPA 401(a) does.
6. RUPA 401. PARTNERS RIGHTS AND DUTIES. TBOC 152.707 is the same
(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, net of the amount of any liabilities, the partner contributes to the
partnership and the partners share of the partnership profits; and
(2) charged with an amount equal to the money plus the value of any other
property, net of the amount of any liabilities, distributed by the partnership
to the partner and the partners 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 the same proportion to the
partners share of the profits.
(i) Can K for unequal divisions in agreement
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(h) A partner is not entitled to remuneration for services performed for the
partnership, except for reasonable compensation for services rendered in
winding up the business of the partnership.
7. RUPA 807. SETTLEMENT OF ACCOUNTS AND CONTRIBUTIONS AMONG
PARTNERS. equivalent to UPA 38 (liquidation right at the end of p/s
between Ps)
(a) In winding up a partnerships business, the assets of the partnership, including
the contributions of the partners required by this section, must be applied to
discharge its obligations to creditors, including, to the extent permitted by law,
partners who are creditors. 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).
(b) Each partner is entitled to a settlement of all partnership accounts upon winding
up the partnership business. In settling accounts among the partners, profits and
losses that result from the liquidation of the partnership assets must be credited
and charged to the partners accounts. The partnership shall make a distribution
to a partner in an amount equal to any excess of the credits over the charges in
the partners account. A partner shall contribute to the partnership an amount
equal to any excess of the charges over the credits in the partners account - but
excluding from the calculation charges attributable to an obligation for which the
partner is not personally liable under Section 306.
(c) If a partner fails to contribute the full amount required under subsection (b), all of
the other partners shall contribute, in the proportions in which those partners
share partnership losses, the additional amount necessary to satisfy the
partnership obligations for which they are personally liable under Section 306. A
partner or partners legal representative may recover from the other partners any
contributions the partner makes to the extent the amount contributed exceeds
that partners share of the partnership obligations for which the partner is
personally liable under Section 306.
(d) After the settlement of accounts, each partner shall contribute, in the
proportion in which the partner shares partnership losses, 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.
(e) The estate of a deceased partner is liable for the partners obligation to
contribute to the partnership. (could easily intentionally defraud an estate with
breach of fid duty)
(f) An assignee for the benefit of creditors of a partnership or a partner, or a person
appointed by a court to represent creditors of a partnership or a partner, may
enforce a partners obligation to contribute to the partnership.
*** Limited Partnerships (LP) ***
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I Formation of Firms - LP
1. 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.
i. Linkage limited partnership statutes do not stand alone some statutes

apply to the business to the extent that they are not inconsistent with one
another limited partnerships are just a spoke in the wheel of partnerships
generally
b. Partnership with
i. At least one general partner 403 rights to manage and control the
business (rights of a partner in a GP); personal liability for business obligations
(liability of a partner in a GP)
A. TBOC 153.152 and Rulpa 404- all demonstrate the linkage
(1) re-rulpa here would attempt to eliminate the linkage and create a
completely separate, stand-alone code
ii. And at least one limited partner 302 some voting rights must be granted
in LP agreement; 303 no rights to manage and control the business
(control is the essence of co-ownership, so limited partners are only
technically partners on paper)
A. but no personal liability (beyond investment amount) for the business
obligations; RULPA 303(a). LIABILITY TO THIRD PARTIES: Except as
provided in subsection (d), 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 [or her] rights and powers as a limited
partner, he participates in the control of the business. However, if
the limited partner participates in the control of the business, 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. same for TBOC 153.102
(1) Some acts though need LP approval ulpa 9
(a) RULPA 302 lps get voting rights but under 401 admission of a
GP requires vote if agreement is silent
(b) TBOC 153.105 to create any rights for the LP reqs. Unanimous
vote
(2)Need to be careful in most states about using LPs name in the
name of the business
(a)This can create liability for LP
iii. LP is often seen as a hybrid entity/aggregate. Agents of the partnership owe a
fiduciary duty to both the partnership (collective interests of the partners) and
the partners (interests of individual partners). However, 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. This standard applies to GP-ships also.
A. If the agent (LP or GP) is accused of violating its fiduciary duty to either the
partnership or the partners, it must produce evidence that it was acting in
the best interests of the partners or the partnership.
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2. Creation
a. File a document with the appropriate state office; "certificate of limited
partnership." RULPA 201(a).
A. Texas: certificate of formation. TBOC 1.002(6), 3.001(a), 3.011(a).
ii. Must be signed by all general partners. RULPA 204; TBOC 3.004(b)(1),
153.553(a)(1).
A. TBOC 3.004 (a) perpetual duration unless period of duration is in
certificate of formation
iii. Information required is very basic. See RULPA 201(a); TBOC 3.005,
3.011(c).
b. Limited partnership is formed at the time the certificate is filed (or on a
later date specified in the certificate). RULPA 201(b); TBOC 3.001(c), 4.051,
4.052.
A. DIFFERENT Note: RULPA provides limited partnership is formed upon filing
if "there has been substantial compliance with the requirements"
ii. Dwinnells Central Neon v. Cosmopolitan Chinook Hotel until LP is filed
legally, it doesnt exist
c. There is some fee.
3. Limited Partnership Agreement
a. RULPA and Texas do not require a written agreement, but limited
partnerships normally have a written limited partnership agreement.
b. The limited partnership agreement is not filed with the state.
c. The typical limited partnership agreement is very detailed, and spells out the
rights and obligations of the partners, such as:
i. Each partner's share of profits and losses.
ii. How much capital each partner is required to contribute to the partnership.
iii. Voting rights of partners.
4. Limited Partnership Name
a. Typically, state statutes require the partnership name to contain the words
"limited partnership" or an abbreviation of those words. See RULPA 102(1);
TBOC 5.055(a).
b. Under many state statutes, the name of the limited partnership cannot contain
the name of a limited partner, unless certain exceptions apply. See RULPA
102(2). (if company also has a GP with same name)
i. If name is used, LP is personally liable to creditors who extend credit to the
LPship without actual knowledge that the partner is not a general partner.
RULPA 303(d).
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A. But see Shimko case where law firm sued LPs to get fees paid and courts
rejected the suit because the firm should have known it was a LP-ship
before extending so much credit
(1)Creditor reliance must be reasonable law firm should know
better^^
ii. Texas: the TRLPA contained this prohibition; the TBOC does not.
A. So ABC, Ltd., LLP is how TX name would read in other states ABC,
LLLP
5. Limited Partnership Name Reservation & Registration
a. Reservation of a name. TBOC 5.101 to 5.106.
i. Sets the name aside for exclusive use for a short period of time (120 days in
Texas).
b. Registration of a name. TBOC 5.151 to 5.155.
i. Sets the name aside for a longer period of time (one year in Texas).
II. Liability for Contracts entered into before

formation of a LL firm
a) Limited Partners: when face liability if problems in
forming LPship
1. Who incurs liability for obligations entered into before limited liability status
achieved?
a. Dwinnells Central Neon v. Cosmopolitan Chinook Hotel
2. ULPA 11. 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, is not, by reason of his exercise of the rights of a limited
partner, a general partner with the person or in the partnership carrying on the
business, or bound by the obligations of such person or partnership; provided that
on ascertaining the mistake he promptly -- renounces his interest in the
profits of the business, or other compensation by way of income.
3. RULPA 304. PERSON ERRONEOUSLY BELIEVING HIMSELF A LIMITED
PARTNER. - different
a. Except as provided in subsection (b), 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, receiving distributions from the enterprise, or
exercising any rights of a limited partner, AND if, on ascertaining the
mistake, he:
i. causes an appropriate certificate of limited partnership or a certificate of
amendment to be executed and filed; or
ii. 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.
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iii. Briargate Condo Assoc v. Carpenter states that the good faith element for
mistaken belief is not a subjective test believing something that it is utterly
foolish cannot protect someone from liability
(a) to make the persons belief subjective would protect a partys
deliberate indifference to his personal or financial affairs
(2)Notice RULPA has no prompt req like the UPA and it uses the
words good faith to describe mistaken Ps belief - but risks
liability to creditor under 304 b see below
b. 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, or (ii) before an appropriate certificate is filed to show that
he is not a general partner, 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.
c. Key point: erroneously belief at the time of contribution that he is becoming a
limited partner.
i. Objectively reasonable test for erroneous belief: honest & reasonable
d. ULPA 11 focus is on promptness, how quickly the person renounces in
profits, after realizing the mistake
i. policy protect 3Ps expectations in dealing with the entity; reduces the risk
that there will be creditors that thought the person was a GP);
ii. Unclear whether person has to renounce all profits, past and future,
or just future; looks like just future
e. RULPA 304 (focus is on reliance by 3P on persons status, not how

quickly withdraws no reasonable time req. like in TX)
i. On ascertaining the mistake
A. 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.
B. Withdraws from future equity participation by filing a certificate of
withdrawal with the State
ii. Upon complying, limited liability for future obligations is established.
P who has not discovered mistake is out in the cold)
iii. BUT person is liable to creditors who transact business with the enterprise
before corrective action was taken, if the creditor actually believed in
good faith that the person was a GP at the time of the transaction.
f. TBOC 153.106 109
i. 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. cause certificate of formation to be filed by GP, TBOC 3.001 (no
substantial compliance language in TX) effective on date of filing
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B. withdraw from participation in future profits,
C. 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; after that partner must withdraw or bring an action against
GP to compel filing the certificate of limited partnership
ii. 153.109 Person is liable as a GP to a 3P who transacts business with the
partnership before corrective action is taken if
A. The person knows or has notice that no certificate has been filed or it was
filed inaccurately and
B. 3P reasonably believes that based on the person who believes himself to
be a LPs 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.
(1)3rd pt belief must be based on the conduct of the mistaken LP
only
VIII. Management and Conduct of Firm Business - LP

1. Rights of General Partners
1. 1916 ULPA 9(1)
a. A general partner shall have all the rights and powers
b. and be subject to all the restrictions and liabilities of a partner in a partnership
without limited partners,
c. except that without the written consent or ratification of the specific act by all
the limited partners, a general partner or all of the general partners have no
authority to
i. Do any act in contravention of the certificate,
ii. Do any act which would make it impossible to carry on the ordinary business
of the partnership,
iii. Confess a judgment against the partnership,
iv. Possess partnership property, or assign their rights in specific partnership
property, for other than a partnership purpose,
v. Admit a person as a general partner,
vi. Admit a person as a limited partner, unless the right to do so is given in
the certificate,
vii. Continue the business with partnership property on the death, retirement
or insanity of a general partner, unless the right to do so is given in the
certificate.
2. RULPA 403
a. (a) Except as provided in this [Act] or in the partnership agreement, 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. linked to
regular partnerships (see above)
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b. (b) Except as provided in this [Act], 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 as provided in this
[Act] or in the partnership agreement, 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.
c. Leaves out the enumerated list of disallowed acts from ULPA; must be
specified in the partnership agreement.
i. Google the following caption to find a published paper on the
differences between ULPA and RULPA which is more detailed if
changes to outline are necessary in this area there is a table in the
paper which outlines the differences and discusses linkage between
the two acts
A. The new Limited Partnership Act is a stand alone act, de-linked from both the
original general partnership act (UPA) and the Revised Uniform Partnership Act
(RUPA). To be able to stand alone, the Limited Partnership incorporates many
provisions from RUPA and some from the Uniform Limited Liability Company Act
(ULLCA). As a result, the new Act is far longer and more complex than its
immediate predecessor, the Revised Uniform Limited Partnership Act (RULPA).
3. TBOC chapter 153
a. 153.003- In any case not provided for the rules of equity apply
b. Provisions of ch. 152 apply according to 153.152
i. But not to LP-ships where inconsistent with the nature and role of
ltd. Ps
ii. No ltd. P right to manage
A. If no power to manage- generally dont owe F duties
(1) But, even if no power to manage, can still owe F duties if they somehow
dominate the management (maybe with a dummy co. set up for
control) Atlas Red River wings as examples
2. Voting Rights of Limited Partners

1. Voting Rights of LPs generally (basic deferral to partnership agreement)
a. RULPA 302 Voting rights are determined by the partnership agreement. Can
be on a per capita basis or a percentage basis or other basis)
b. RULPA 401 LPs have voting rights on the admission of a GP, only if the
matter is not addressed in the partnership agreement
c. RULPA 301(b)(1) LPs have voting rights on the admission of an LP,
only if the matter is not addressed in the partnership agreement.
d. RULPA 801(4) - LPs 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.
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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 LPs creditworthiness rather than the credit status of the
corporation?
i. Liability: If the LPs dont 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 old case.
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;
(a) But see Wolf case where brother was a LP of business and was held
liable for building supplies cost this may have been partly
because of him sharing the same name as the LP-ship
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 partners 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;
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(2) consulting with and advising a general partner with respect to the
business of the limited partnership;
(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 LPs conduct
that the LP was a GP.
(1) Again, see Wolfe case for example and Shimko for an example
of 3rd pt not being reasonably fooled
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.
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A. The control rule is a surplus rule because parties are free to
choose LLC, LLLP, LLP where partners can choose to participate
and still have limited liability.
ii. Texas still follows basically the same the control rule: TBOC 153.102,
153.103 ??? ask later if Q comes back to you
4. EXAM: LP can become personally liable if
a. Participate in the control of the business.
b. LPs name is used as part of the name of the Lpship not under one of the
exceptions (RULPA 303(d))
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 LPs name can be
used in the partnership name.
c. LP is defectively formed (Briargate condominium v Carpenter); liable to 3Ps who
think the LP is a GP
d. LP personally causes injury to a 3p (commits a tort - e.g., negligence)
e. LP agrees to be personally liable for an obligation
f. 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).
2. Withdrawal of GPs, LPs and effect on the Limited

Partnership
RULPA 402 Gen. P ceases to be a gen. P on events of withdrawal, including

(1): voluntary withdrawal under 602
(2): assigns all of part. interest (702)
(3): removed as a general partner
in accordance with the partnership agreement.
(6) death
RULPA 801 GP withdrawal dissolves ltd p/s
Unless clause
There is at least one remaining gp AND
p/s agreement permits remaining GPs to continue business AND
LPs choose to do so
But clause within 90 days all Ps may agree
To continue business AND/or
Appoint new GPs (if necessary and desired)
See Red River Wings case where minority lps did not agree to removal of
GP and appointment of new one court here distinguishes between
removal of GP and death/bankruptcy this triggered winding up 90 days
after gp was removed
Texas Withdrawal as a general partner (generally a RULPA state)
o 155.155 (b) - Voluntary withdrawal at will, at any time, by
notice to other Ps
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o
153.252 (b) if GP assigns all rights and interests as GP

By way of obtaining permission via vote of majority in interest of
LPs
o
o
Unless p/s agreement limits this right which makes it void

ab initio
Removed as GP under agreement
Death of GP or any entity equivalent like bankruptcy etc
153.158 effect of GP withdrawal

no longer a gen. P - he becomes: (b) an assignee of P/S interest unless
remaining gen Ps (or maj.-in-interest of limited Ps if no general P) may

Convert ex-general Ps P/S interest to a limited P interest,
OR
pay general P value of partnership interest
Note: if P/S continues / is reconstituted
See Della Ratta where GP tried to do capital call to squeeze out LPs LPs had
right to FMV of their p/s interest when they rightfully withdrew from p/s
11.058 supplemental causes for limited p/s to trigger winding up/dissolution

o Written consent of all ps
Unless p/s agreement precludes this
o
Withdrawal of gp (or removal)

Automatically triggers dissolution unless 11.152 kicks in
May cancel winding up by within 1 year if governing

documents do not prohibit it, AND the entity spoke will
allow it 153.501 is like
RULPA 801
o At least 1 gp is left
o One year to make agreement
o Partnership Agreement permits
Also similar to RULPAs unless/but clause
just a longer period to reconstitute the LPship
Need all remaining Ps to agree
If There are No remaining lps
Under UPA anytime P leaves, P/S dissolves (remainders may continue in new
P/s) --o Under RUPA a dissociation(withdrawal) of P does not automatically
dissolve P
Must analyze a withdrawal to determine whether it dissolves the
P/s or they continue
Path dependence where you end up depends on where u start evolution of

statutes ex particularly important under aggregate theory and what it
necessitated or RUPA RULPA
LTD P right to withdraw RUPA 603 - (default rules unless agreement has
info on point)
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o
On 6 months notice if:

p/s agreement did not specify
when they could withdraw
when dissolution would occur by event or specified time

ends
if agreement says when partners may withdraw, that is only time
they can withdraw, or else not at all
in many states LPs are becoming much more like

corporations capital is captive once put in, you cant get it
back w/o consent of all Ps or a Kd right
RUPA 604- when P withdraws he is entitled to fair market value for his
shares - this is a distribution from the P/s
o Repurchases are not the equivalent of withdrawals because other Ps
are buying out the withdrawing partner for the p/s agreement to
control this right, it must be specific
RULPA 801 - LP withdrawal does not dissolve p/s unless p/s
agreement says it does
TBOC 153.110 lmtd P may withdraw only at the time or event specified in
agreement
o 153 111 withdrawing LP is entitled to fair value of p/s interest after
withdrawal
Different under all 3 code sections
So, agreement silence favors withdrawing Ps in RULPA states, in

states like TBOC silence favors remaining Ps
o TBOC 11.058 if no ltd Ps are left, there is a dissolution triggered
11.152 but cancellation of winding up if:
153.501 if no ltd Ps remain, and all GPs agree, and

estate/successors of last LP agrees to continue and
appoint new LPs

Duty of Loyalty- 2. Limited Partnerships
1. GP cant prospectively limit is his liability for breach of fiduciary duty of loyalty.
Contract cant 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 peoples
assets or welfare. Fiduciaries naturally possess discretion. To argue that he has
discretion and so cant 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.
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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 persons 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.
d. Give more effect to the vote and shift the standard from fairness to the
business judgment rule. Code words for challengers lose. Plaintiffs would
have to show gross negligence, fraud, gift or waste of partnership assets.
5. 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. 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).
XII Ownership of the Firm-LP Rights of Creditor of

Limited Partner
2. Creditor Rights - Charging Orders-b) Limited
Partnerships
1. RULPA sections
a. RULPA sec? - (10) Partnership interest means a partners share of the
profits and losses of a limited partnership and the right to receive
distributions of partnership assets.
b. RULPA 702 Except as provided in the partnership agreement, a partnership

interest is assignable in whole or in part. An assignment entitles the
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assignee to receive, to the extent assigned, only the distribution to which
the assignor would be entitled. (UPA 27/RUPA 503). Except as provided in
the partnership agreement, a partner ceases to be a partner upon assignment of
all his partnership interest.
i. If P transfers all of his P/s interest, the transferor stops being a
partner
c. RULPA 704(a) Assignee can become a LP - (a) An assignee of a
partnership interest, including an assignee of a general partner, 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,
and / or (ii) all other partners consent.
2. An assignee has no right to sue for judicial dissolution under RULPA.
a. RULPA 802. JUDICIAL DISSOLUTION. 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.
b. RULPA 1105. 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.
i. UPA/RUPA provide for judicial dissolution by an assignee; RULPA does not. But
it does defer to UPA via linkage default
3. A creditor of a partner in a LP may seek a charging order.
a. RULPA 703. RIGHTS OF CREDITOR. On application to a court of competent
jurisdiction by any judgment creditor of a partner, the court may charge the
partnership interest of the partner with payment of the unsatisfied amount of the
judgment with interest.
i. Creditor has only the rights of an assignee
4. Texas Rules TBOC 153.256 (2007)
a. On application by a judgment creditor of a partner or of any other owner of a
partnership interest, a court having jurisdiction may charge the partnership
interest of the judgment debtor to satisfy the judgment. (Charging order)
b. To the extent that the partnership interest is charged in the manner provided by
Subsection (a), 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.
i. Its treated like a garnishment, once the debt is paid the creditor is OUT
c. A charging order constitutes a lien on the judgment debtor's partnership
interest.
d. 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.
e. 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.
f. A creditor of a partner or of any other owner of a partnership interest does not
have the right to obtain possession of, or otherwise exercise legal or
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equitable remedies with respect to, the property of the limited
partnership.
5. 153.251 adds rights to distributions: Right to be allocated income, gain, loss,
deduction, credit, or similar items
*** LLP & LLLP ***

I Formation of Firms LLP & LLLP
1. TBOC 1.002(48). DEFINITIONS: "Limited liability partnership" means a partnership
governed as an LLP under Title 4.
2. Registering an LLP requirements are hard and fast; substantial compliance

is not sufficient
a. 152.802 File an application with the secretary of state with required
information
i. 4.158 pay $200 filing fee per partner; renew annually
ii. Failure to renew LLP status causes GP to lose the limited liability shield.
b. 152.803 proper name for the company; 5.063 name must include LLP in
some form
i. Outside TX use LLLP Re-Rulpa108 --- Rulpa silent on this
c. Deleted SEP 2011 but still valid in many states---- 152.804 $100k of
liability insurance/set aside for liability purposes
i. Failure to maintain the financial responsibility requirements means that the
partnership does not have the limited liability shield.
3. Registration of LLLP
a. 153.351 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.
b. Pay the registration fees $200/partner
c. Get $100k liability insurance or set aside $100k for liability
d. 5.055 Modify their name to include LLP or LLLP
e. 153.353 GP of LP now gets limited liability protection such that 152.801 applies
to the GP; 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.
f. LLLP v. LLP
i. LLP is a GP that has registered and obtained limited liability
ii. LLLP is an LP that has registered and obtained limited liability
iii. There is no difference in the functioning of the liability shield between the two;
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.
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4. TBOC 152.801(a) protects partners from VL for both contract and tort type
liability incurred by the partnership.
a. Texas is a full-shield or second generation statute protects from VL for
both contract and tort type liability. (RUPA has full shield provision 306(c))
A. But beware Ederer v. Gursky LLP shield does not protect against suits by
other Ps
b. Partial shield or first generation statute only protects the partner from VL
for tort-type obligations of the partnership
c. Partner is liable for:
i. Own wrongful acts
ii. When acting as an agent, P is bound by Ks entered into for LLP unless he
disclosed he was only acting as agent AND identifies the principal
5. TBOC 152.801(e)(2)
a. VL - person has liability not because he has done something wrong but because
of his status.
i. A partner in an LLP/LLLP is not VL for the tort misconduct of another partner.
(partial and full-shield statutes)
ii. A partner in an LLP/LLLP is not VL for the tort OR contract misconduct of
another partner. (full-shield statutes)
iii. 152.801(b) VL does attach to a partner if ???
A. (b)(1) the partner was directly managing or directing the partner
committing the tort misconduct;
(1) Supervise or direct might mean reviewer of billing, bringing in the
client, managing partner of the firm, or performs performance
assessments of persons.
B. (b)(2) the partner was directly involved in the activity during which the
misconduct was committed by another
(1) Directly involved must be interpreted.
C. or had notice of the misconduct but failed to take steps to mitigate the
effects (b)(3).
(1) Notice has to be interpreted.
6. Edited to here
a. Direct liability a partner is liable for a partners own actions.
i. A partner in an LLP is always directly liable for his own tort misconduct. The
liability shield of an LLP does not protect one from ones own misconduct.
ii. Direct liability can attach to the partner for someone elses misconduct such
as for negligent hiring or negligent supervision by the partner.
7. Formality required. Four points
a. When GP becomes an LLP, it is the same GP but has purchased the attribute of
limited liability for the partners. It is still subject to the UPA/RUPA. Procedure for
becoming an LLP 4 requirements!
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i. Filing application with appropriate state office.
ii. Paying appropriate fee; renew yearly
iii. Name TBOC 5.063 (contain LLP in some form),
A. 5.055: L/P/S must have limited or limited partnership or abbreviation
in name
B. 5.063: LLPs must have limited liabity partnership or abbreviation
iv. financial responsibility TBOC 152.804 (liability insurance. or $100k cash
separated)
b. (Some states, Texas is one) Registration must be renewed annually or limited
liability shield is lost for the period of time not renewed. TBOC 152.802(g)
c. In some states, including Texas, both a GP and an LP can register to become an
LLP.
i. If LP becomes an LLP, name must include LLLP. GP of LPship gains
limited liability for partnership obligations. 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 LPships business or 2) LPs name has been used in
the name of the LPship. If LP assumed personal liability for a specific debt,
becoming an LLP would not cut off that liability.
*** Limited Liability Companies (LLC) ***

I Formation of Firms - LLC
1. TBOC 1.002(46). DEFINITIONS.: "Limited liability company" means an entity
governed as a limited liability company under Title 3 or 7. The term includes a
professional limited liability company. Certificate of formation must be filed and
become effective for llc to exist
2. TBOC 101.001(1), (3). DEFINITIONS: "Company agreement" = articles of
formation - means any agreement, written or oral, of the members concerning the
affairs or the conduct of the business of a limited liability company. 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. "Limited liability company" or "company" means a domestic limited
liability company subject to this title.
3. TBOC 101.052. COMPANY AGREEMENT: (a) Except as provided by Section
101.054, the company agreement of a limited liability company governs: (1) the
relations among members, managers, and officers of the company, assignees of
membership interests in the company, and the company itself; and (2) other
internal affairs of the company.
4. LLC compared to Corporation & Partnerships
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Corporation
Partnership
LLC
Perpetual
Existence
Yes (change of
shareholders does not
dissolve the corp)
No (change of
partners dissolves
the partnership)
Maybe, depends on
statute
Centralized
Management
Yes (board of directors)
No
Optional
Transferable
interests
Yes (xfer shares)
No
Maybe, depends on
statute/ agreement
Limited Liability
Yes
No
Yes
Structure
Rigid, formal,
Flexible, informal,
easily changed
Flexible and more

formal (Operating
agreement defines
reln btwn mbrs)
Taxes
Taxed at corporate
level & shareholder
dividend level
Pass through
taxation
CAN ELECT Pass

through taxation
5. Purpose of LLC is to achieve limited liability without the rigidity of a corporation and
still obtain favorable tax treatment.
6. Entity/Aggregate theories are still applicable to analyzing legal issues with an LLC
(Elf Atochem v. Malek, LLC).
i. Elf also points out that member agreement reigns supreme generally for LLCs
ii. Elf LLC can be bound before it exists to the agreement argument that it
isnt a party to the K wont work
A. The members are the real parties in interest
B. Remember US is bound by the constitution even though the US didnt sign
it
7. Most states permit single-member LLCs. See TBOC

101.101(a); Del. LLCA 18-101(6).
a. LLC might be managed by its members (member-managed LLC), or by one or
more managers (manager-managed LLC). See TBOC 1.002(51).
i. Can admit new members by consent of all members or be member by
certificate of formation
b. Members and managers are not, by virtue of being members or managers, liable
for the debts and obligations of the LLC. TBOC 101.114; Del. LLCA 18-303.
8. Creating a Limited Liability Company

a.
b.
c.
d.
e.
File a document with the appropriate state office.

Fees TBOC 4.152, 4.154
Most common name: articles of organization." ULLCA (1995) 202(a).
Texas: certificate of formation. TBOC 1.002(6), 3.001(a), 3.010.
Information required in the certificate is very basic. See Del. LLCA 18-201(a);
TBOC 3.005, 3.010.
f. LLC is formed at the time the certificate is filed (or on a later date specified in the
certificate). Del. LLCA 18-201(b); TBOC 3.001(c), 4.051, 4.052.
g. There is no financial responsibility requirement.
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h. CF must state purpose of company
i. TBOC 2.001 any lawful purpose for that entity
ii. TBOC 2.003 not engaging in business or activity
A. Prohibited by law or
B. Cannot lawfully be engaged in by that entity
(1) 2.007 - Prohibited businesses by for-profit corporations see list in code
9. Operating Agreement of LLC

a. Delaware and Texas do not require a written agreement, but LLCs normally have
a written operating agreement.
i. Terminology:
A. Most common: operating agreement.
B. Delaware: limited liability company agreement. Del. LLCA 18-101(7).
C. Texas: company agreement. TBOC 101.001(1).
b. Operating agreement is not filed with the state.
c. The typical operating agreement is very detailed, and spells out the rights and
obligations of members and managers, such as:
i. Each members share of profits and losses.
ii. Rules regarding voting by members and managers.
iii. Procedure for calling meetings of members and managers
10. Limited Liability Company Name

a. Typically, state statutes require the LLC name to contain the words "limited
liability company" or an abbreviation of those words.
i. Del. LLCA 18-102(1): name must contain the words "Limited Liability
Company" or the abbreviation "L.L.C." or the designation "LLC"
ii. TBOC 5.056: must contain the phrase limited liability company or limited
company or an abbreviation of one of those phrases
11. Terminology & General Concepts

a. LLC might be managed by its members (member-managed LLC), or by one or
more managers (manager-managed LLC). See TBOC 1.002(51).
b. Typical default rule: LLC is member-managed with voting in proportion to profits.
See Del. LLCA 18-402.
i. Members can delegate to management 18-407
ii. Each member and manager has authority to bind llc del 18-402
A. Agreement needs to deny members the right to bind
c. Texas: does not have a default rulecertificate of formation must state how LLC
is managed. See TBOC 3.010; see also 101.251, 101.252.
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II. 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. PROMOTERS: Issue: what liability for members for obligations entered into before
LLC formed?
a. Who is party to a contract when the LLC is not yet formed? Agent acting on
behalf of undisclosed principal, the agent is a party to the contract (Water, Waste
and Land case) because the 3P likely intended to contract with the person he was
personally dealing with.
b. 326 Principal Known to Be Nonexistent or Incompetent: Unless otherwise
agreed, a person who, in dealing with another, purports to act as agent for a
principal whom both know to be nonexistent or wholly incompetent, becomes a
party to such a contract.
c. There is an inference that a person intends to make a present contract with an
existing person.
d. Other members may be liable as GPs in a general partnership since the LLC has
not been formed. Courts in equity might say that a simple investor in the venture
is not liable because he was just an investor. There is no corrective provision,
as there is for LPs, for persons who erroneously believe they are
members in an LLC.
2. Lessons
a. File correctly.
b. No business until confirmation that your filing was successful.
c. If do pursue business, make the contract clear about who will be parties and if
there will be a substitution of parties.
d. TBOC 4.051, 3.001(c) LLCs existence commences upon the filing of the cert
of formation.
3. In the absence of intent to the contrary, a promoter becomes liable on contracts he
signs for an unformed limited liability entity. Courts presume 3P intended to contract
with the person who signs the contract.
a. Unless the other party knows of the nonexistence of the LL entity and agrees to
look solely to the LL entity.
b. While LL entity remains unformed, the persons trying to form the entity are likely
operating as a GP-ship and are J&S liable for all obligations created on behalf of
the Pship.
c. LL entity does not automatically become liable on contracts signed on its behalf
preformation. It must adopt the contracts either expressly or by conduct.
i. When the LLC adopts the contracts, it does not relieve the promoters (the
members of the unformed LLC at the time the contract was made) of liability,
unless the 3P agrees to release them from liability (executes a
novation).
4. The members of the unformed LLC might raise defenses
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a. Corporation [LLC] by estoppel 3P is estopped from denying LLC existence
because the 3P acted as though the LLC existed.
i. 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. De facto [LLC] corporation A bona fide, colorable attempt has been made to
create the LLC
i. Policy: protect individuals from personal liability when they were legitimately
conducting corporate business before the corporate formalities were complete
ii. Elements
A. Valid law authorizing formation of the LLC/corporation
B. 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.
iii. Doctrine is no longer valid because the statute says LLC does not
exist until the issuance of the certificate of formation. Legislature has
overruled the CL de facto corporation doctrine with the statute. Before
issuance, there is no LL entity and therefore, there can be no limited liability.
TX probably wont apply the doctrine but no settled law.
A. TX LLC act 4.051, 3.001(c) LLC comes into existence on the
date of filing.
c. Election of remedies does not apply; 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. State
LLC statutes generally do not specify the liability of agents of the
preformed LLC for contracts formed before formation. Use agency
concepts to hold the agents liable for contracts formed before the LLC
comes into existence.
VIII. Management and Conduct of Firm Business - LLC

1. Actual & Apparent Authority of Members or Managers
1. LLC formed by filing articles of organization (Tx Certificate of Formation);
contains limited info.
2. LLC Operating Agreement (Tx company agreement; previously regulations of the
LLC) governs the details of the relationship among the members.
a. LLC governance structure
i. Member-managed (partnership-like) company is managed by its members
ii. Manager- managed (corporation-like) company is managed by an appointed
manager(s)
iii.
Default rule is member managed. Texas has no default rule. The
Certificate of Formation must specify which type.
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3. EXAM: Texas law (very corporate like in terms of procedure): TBOC does not
define actual authority either. TBOC repeats UPA 9 definition of apparent
authority.
a. TBOC 101.251 governing authority is members or managers, depending on type
of structure.
b. TBOC 101.254(a) each governing person ( 1.002(37)) is an officer and
agent of the LLC with (implied) actual or apparent authority to conduct
transactions (which bind the LLC) for carrying out the business of the
company (ordinary transactions). This gives apparent authority unless
governing person had no authority and T/P knew they lacked authority (members are not necessarily governing persons)
i. Acts not in ordinary course of business do not bind unless manager has actual
auth.
ii. Taghipour v. Jerez - LLC formed to purchase & develop a particular parcel of
real estate manager borrows money in violation of operating agreement and
then absconds with money bank takes real property as collateral because
payments were not being made
18-402 (manager-managed LLCs):
any manager has authority to bind the limited liability
company,
(i) unless otherwise provided in the articles of organization or
operating agreement
(2) Utah LLC Act sec 127(2):
(a) Instruments & documents for acquisition, mortgage, or
disposition of property
(i) shall be valid and binding upon LLC
(ii) if executed by one or more managers of [manager-managed L
c. TBOC 10.253 conveyances signed by officers is prima facie evidence of
authority under governing docs. (this applies largely to real property)
i. Officer can be an manager in an llc a president is an example of an officer
A. This is different from P/s because LLC isnt automatically bound - 152.302
document signed by partner only binds P/S if the property is sold to bone
fide purchaser for value
(1) Can stop problems of bfp by filing a lis pendens action action stating
title is in dispute gives potential buyers constructive notice
d. To approve extraordinary transactions(outside ordinary course of business), have
to get approval of other members
i. TBOC 101.353 a majority of members must be present to constitute a
quorum for voting purposes.
ii. TBOC 101.354 default rule is that each member gets one vote the fact that
corp procedures are not used does not determine the liability of the members
iii. 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.
iv. TBOC 101.356 if a fundamental business transaction ( 1.002(32) a
sale of all or substantially all assets) or the transaction is not apparently
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for carrying out the ordinary course of business, there must be a vote
by an absolute majority of the members. If the transaction would make it
impossible to carry out the ordinary business.
4. ULLCA 301(a)
a. Apparent Authority of an LLC Member (1) Each member is an agent of the
limited liability company for the purpose of its business, and an act of a member,
including the signing of an instrument in the company's name, 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. (Similar to Apparent Authority of Partners in
UPA 9 Burns v. Gonzalez/ Tagipour v. Jerez)
i. Nothing in the ULLCA addresses a members actual authority.
ii. Members have actual authority by virtue of agreeing to be members together
in an LLC. 303(1) each member is an agent; all agents have implied actual
authority to do things reasonable & necessary in the course of biz for
transactions for the ordinary course of biz
b. (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.
5. ULLCA 301(c) - Unless the articles of organization limit their authority, any
member of a member-managed company or manager of a managermanaged company may sign and deliver any instrument transferring or
affecting the company's interest in real property. 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.
a. EXAM: Under TX There is no Texas equivalent of ULLCA 301(c).
6. ULLCA 404 (a) In a member-managed company:
a. each member has equal rights in the management & conduct of
company's business; and
b. except as otherwise provided in subsection (c), any matter relating to the
business of the company may be decided by a majority of the members.
7. 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. the amendment of the operating agreement under Section 103;
b. the authorization/ratification of acts/trans under 103(b)(2)(ii) which would
otherwise violate the duty of loyalty;
c. an amendment to the articles of organization under Section 204;
d. the compromise of an obligation to make a contribution under Section 402(b);
e. the compromise, as among members, of an obligation of a member to make a
contribution or return money or other property paid or distributed in violation of
this [Act];
f. the making of interim distributions under Section 405(a), including the
redemption of an interest;
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g. the admission of a new member;
h. the use of the company's property to redeem an interest subject to a charging
order;
i. the consent to dissolve the company under Section 801(b)(2);
j. a waiver of the right to have the company's business wound up and the company
terminated under Section 802(b);
i. all Ps can waive dissolution except for wrongfully dissociating Ps
k. the consent of members to merge with another entity under Section 904(c)(1);
and
l. sale, lease, exchange, or other disposal of all, or substantially all, of the
company's property with or without goodwill.
8. Two points
a. Members are not agents of a manager managed LLC.
b. 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. Specify LLC mgmt
mode in the articles of org.
Default
Rules -
Ordinary Matters
Extraordinar
y Matters
Fundamental Biz
Trans/Act makes
it impossible to
carry out
business
Amend certificate
of formation
Member
managed
Majority of
members present
at meeting where a
quorum is present
101.355
Absolute
majority of
members
101.356(b)
Absolute majority of
members
101.356(c)
Unanimous
approval 101.356(d)
Manager
managed
Majority of the
managers present
at a meeting where
a quorum is
present; members
do not have to
approve 101.355
Absolute
majority of
managers;
101.356(b)
Approval by a
majority of
managers at a
meeting with a
quorum 101.355
and by an absolute
majority members
101.356(c)
Approval by a
majority of
managers at a
meeting with a
quorum 101.355
and unanimous
approval of
members
101.356(d)
XII Ownership of the Firm LLC Rights of a Creditor

of a Member
2. Creditor Rights - Charging Orders
1. TBOC 101.112 provision is identical to TBOC 153.256 for Limited
Partnerships
a. Creditor
i. Can get a charging order.
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ii. Can seek appointment of receiver
iii. Cannot seek foreclosure of the partnership interest
iv. Cannot seek judicial dissolution of partnership if gets assignment of
partnership interest.
2. TBOC 101.112. (2007) MEMBER'S MEMBERSHIP INTEREST SUBJECT TO
CHARGING ORDER.
a. 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, a
court having jurisdiction may charge the membership interest of the judgment
debtor to satisfy the judgment.
b. If a court charges a membership interest with payment of a judgment as provided
by Subsection (a), 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.
c. A charging order constitutes a lien on the judgment debtor's membership
interest.
d. 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.
e. 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.
f. A creditor of a member or of any other owner of a membership interest does not
have the right to obtain possession of, or otherwise exercise legal or equitable
remedies with respect to, the property of the limited liability company.
3. Withdrawal from llc

a. 18-603 LLc memebrs may resign with 6 months written notice if there is no
definite term and no specific occurrence provided that member agreement
doesnt say otherwise (default)
i. If LLC agreement is on point, then members may resign (withdraw) at a time
or on events specified in the agreement
b. 18-604 resigning member gets fair value of LLc interest
i. No dissolution after member resignation just like p-ships once a member
resigns they cannot pursue dissolution
c. 18-801 - voluntary dissolution requires 2/3 vote to dissolve more see slides
d. TBOC
e. 101.107 - No member withdrawal or expulsion (unless Company Agreement)
f. 101.552(a)(1): voluntary winding on vote of a majority of the member
g. LLc is bound by the member agreements whether it signs it or not
A. Dissolution of LLC - ocean avenue case

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3.003 perpetual existence, unless Certificate of Formation
Think that all LLPs need to renew

LLCs need to and LPs have the margin tax does noty
terminate immediately
Margin tax does not apply to p/s composed wholly of
natural people
4. Judicial dissolutions
i. 11.051 dissolution by court under this code or other law what other
law receiverships, etc - all the ways to get dissolutions
ii. 11.301 dissolution on suit by attorney general
b. 11.314 member suits for dissolution possible if it is not reasonably
practicable to carry on business in conformity with governing documents (can
appoint receivers for these same standards)
i. Deadlock among members is grounds for dissolution if also:
A. Irreparable injury will happen to llc
B. Business cannot be conducted to the advantage of the shareholders
C. Continuing entity is no longer financially feasible
ii. Actions of governing persons are Illegal, oppressive or fraudulent more see
slides
iii. Property is being wasted or misapplied
c. 11.404 - Texas allows for appointment of receivers only if:
i. Court considers circumstances to necessitate appointment of a receiver
A. To conserve entity property and business and Avoid damage to interested
parties, AND
ii. All other reqs. Of law complied with, AND
iii. All other legal and equitable remedies are inadequate
d. 11.405 receivership to liquidate is possible if entity is in receivership and no
plan is presented in 1 year to remedy the condition the required receivership
i. The conditions to show this are the same as those above in 11.404
e. See In re 1545 Ocean Ave LLC NY case - contractor formed llc to fix up house
with another person. Other person became dissatisfied and pursued judicial
dissolution sayin that carrying on was impracticable
i. Not reasonably practicable = strict standard
ii. Judicial dissolution only when LLC
A. management unable or unwilling to reasonably permit or promote stated
purpose of the entity to be realized or achieved, or
B. continuing the entity is financially unfeasible
iii. 4 sisters owning farm example where 2 want to sell and 2 want to operate
impraciable to operate farm wont fly, it is possible to operate llc for purpose
instead might try breach of loyalty or try for ratification of terms of lease
5. Winding up generally
a. 11.056 winding up on termination of last remaining member unless
i. No later than 90 days after termination - the representative or successor of
last member either becomes a member or designates a new member
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*** Miscellaneous ***

VIII. Management and Conduct of Firm BusinessCorporations
1. Partnership: Partners are agents of partnership; partners have equal rights to
manage the partnership; governance of a partnership is very informal.
a. Corporation: Shareholders in a corporation are not agents of the corporation;
shareholders have no management rights; shareholders delegate management
responsibility to a board of directors; the board of directors delegates operation
authority to the corporate officers; governance structure is very formal (required
meetings, minutes, reporting, etc.)
b. Shareholders have limited voting rights: election of the board of directors and
extraordinary matters (e.g., merger, amendment to articles of incorporation)
c. Shareholders in a small corporation can enter into an agreement that
fundamentally alters the governance structure of the corporation.

A. Business Judgment Rule / also applies to agents
1. 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. BJR does not apply to asses whether attorneys are liable for
malpractice.
a. Attorney liability is assessed by applying an objective standardthe attorney is
not liable if they make a decision which a reasonably prudent attorney could
make under the same or similar circumstances.
2. In contrast, when courts apply the BJR in the context of corporate directors or other
managers, the courts do not ask what a reasonably prudent director or manager
would have done. Instead, if the BJR applies, the court refuses to question the
director or managers decision at all. Circumstances in which a court will not apply
the BJR, include, e.g., the director or manager did not act in good faith or acted out
of self-interest, improper primary purpose, was wasteful, with intentional disregard
of duties, or in knowing violation of the law.
3. Attorney
a. 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.
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i. The attorney must have been acting as a reasonably prudent attorney in the
same or similar circumstances. Did the attorney fail to act reasonably in
interpreting the law?
b. Wood v. McGrath even if an attorneys interpretation of unsettled law is
reasonable, he can still be liable to the client if he fails to make adequate
disclosure for the basis of his interpretation.
4. Regular Business
a. Business judgment rule courts are reluctant to second guess the business
decisions of corporate directors. Not sufficient to allege an imprudent decision;
more than imprudence or mistake in judgment must be shown, even if results are
unwise or inexpedient.
b. Kamin v. Amex Co
i. Court will second guess a manager, such as general partner or board when
A. The person acts with self-interest, apart from any interest of the
partnership
B. The person acts with self-interest gross negligence in informing himself
regarding the decision, mere negligence is not enough; RUPA 404(c)
partner must refrain from grossly negligent, reckless or willful misconduct.
C. The person is not acting in good faith for the best interest of the entity.
Subjective standard: good faith means persons primary purpose must be
profitable. Directors have acted or are about to act in bad faith for a
dishonest purpose. Good faith and reflect legitimate business concerns.
D. GPs actions amount to a gift or waste of partnership assets. No reasonable
person could conclude the business is getting fair value for what it is being
paid. (e.g., charitable contribution of assetsget nothing in return, might
be a waste of assets)
ii. Court applies a subjective good faith rule not an objective good faith rule.
Shareholders expect the board to take risks to increase return for all
shareholders. Fear of liability should something go wrong would
hamper the decision making of boards; would not take justifiable risks for
fear of liability.
***Distributions for p/s and llcs see slides generally TBOC 101.201, 101.203
-
Delaware 17-1101 even with fiduciary duties, can K in advance to expand or

restrict fiduciary duties
This also applies to TX llcs
o
Gotham partners allows restrictions, but not elimination of fid. Duty of

loyalty Del case
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23-Jun-12 1:16:00 PM
But allowed substitution of K duty of loyalty for the CL duty of

loyalty
But this must be reviewed by disinterested directors to be ok
Where a gP is a corp, the directors owe fid duty to both the

corporation AND to the LP (because the directors cant really
be disinterested any other way)
2004 amendment - NOW - in response to gotham partners, can
modify or eliminate fid duty in delaware or you can eliminate
liability for breach of duty exculpation clause
Manifestly unreasonable changes are probably still not ok
To the extent that fid duties arent limited, normal cl fid duty
applies
See red river wings for example of fid duty breach by

member management who would normally not have fid duty
Also owe fid duties to other members and to LLC

But may not limit or eliminate liability for bad faith breaches of
implied contractual covenant of good faith and fair dealing but
the standard is subjective good faith assessed from view of
breaching party
Most of the time this is meaningless

TBOC 101.401 can expand or restrict fid duties and related liabilities- but
cannot eliminate
o No implied covenant of good faith and fair dealing in TX
Difference between llc and p/s in TX
Interpreting fiduciary out clauses
o Strict construction when interpreting fid limitation clauses
o Must explicitly eliminate fid duty in question
We dont owe any fid duties will get rid of all of them if its explicit
o
7.9 a in ATLas no conflict of interest duty but look at scope

Any affiliate of the co.
The company OR any group member
Limiting duties to LLc is not same as limiting duties to the members who
own llc
So CL fid duty applies
So nurden falls on fiduciary to prove transaction is/was fair
Two elements to fairness

o Fair dealing in atlas there were allegations of
overreaching, pressured members with time limits for
contributions,
o Fair price even though Atlas used its own advisors, it
deviated from its own advisor opinion and there was a
loss of distribution
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40N Rosin.S2012 Agency Overview

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Agency & Partnership Outline

Note: periodically the word factor will appear in this

Agency & Partnership Outline

3. Rest 26 Creation of (Actual) Authority; General Rule: Except for the

II Contractual Dealings by Agents

Agency & Partnership Outline

B. Firms rights under contracts entered into by its agentsdisclosure of principal

Agency & Partnership Outline

Agency & Partnership Outline

C. Agents Liability for Contractual Dealings

2. Problem areas for businesses - Trade Names

Agency & Partnership Outline

c) Agents Implied Warranty of Authority

Agency & Partnership Outline

Agency & Partnership Outline

a. Forces P to choose between inconsistent remedies.

IV Actual Authority of Agents and Its Consequences

Agency & Partnership Outline

Agency & Partnership Outline

B. Implied Actual Authority (Authorized Transactions)

Agency & Partnership Outline

Agency & Partnership Outline

Agency & Partnership Outline

d) Other Aspects of the Agents Duty of Loyalty

Agency & Partnership Outline

Agency & Partnership Outline

Agency & Partnership Outline

V. Power of Agents to Bind the Firm by Unauthorized

Agency & Partnership Outline

even if A makes statements, A can only bind P if P authorizes it Agents

Agency & Partnership Outline

Ostensible authority = it is assumed that a party is an agent based on

C. Estoppel (PR has done something to create liability)

Under pure negligence theory - If the person (P) (1)intentionally or carelessly

Agency & Partnership Outline

D.Inherent Agency Power (PR has done nothing; AG is

Agency & Partnership Outline

Agency & Partnership Outline

E. Liability for Representations by Agent

Agency & Partnership Outline

VI. Firms Accountability for notification

Agency & Partnership Outline

2. Prior or Casually Obtained Knowledge of an Agent

Agency & Partnership Outline

Agency & Partnership Outline

Agency & Partnership Outline

VII. Ratification of Unauthorized Transactions

Agency & Partnership Outline

Agency & Partnership Outline

B. Knowledge of Agents: effect on ratification

X. Liability for Wrongful Acts of Servants

B. Masters Liability for Acts of Servants

Agency & Partnership Outline

Agency & Partnership Outline

2. Masters RS Liability for Servants Abuse of Position Rest.

XIII Dissociation (Termination of Agents)

Agency & Partnership Outline

Agency & Partnership Outline

Agency & Partnership Outline

Agency & Partnership Outline

B. Terminations by operation of law

Agency & Partnership Outline

4. Rest 133 Incapacity of Parties or Other Impossibility

Agency & Partnership Outline

* General Partnerships *