Agency And Partnerships

Front 1

When is the principal liable for the torts of the agent?

Back 1

principal will be liable for torts committed by agent if: 1) principal-agent relationship exists and 2) the tort was committed by the agent within the scope of the that relationship.

Front 2

What is needed to create an agency relationship?

Back 2

○ Assent: informal agreement between principal, who has capacity, and the agent.
○ Benefit: agent's conduct is for the principal's benefit
○ Control: principal must have the right to control the agent by having the power to supervise the manner of the agent’s performance.

Front 3

Subagents and borrowed agents

Back 3

○ Sub-agents: agent enlists help of sub-agent. No vicarious liability for a subagent’s tort, unless there is asset, benefit, and the right to control that subagent tortfeasor.
§ Exam Tip: unlikely to find assent and control.
○ Borrowed agents: principal borrows another principal’s agent. No vicarious liability for a borrowed agent’s tort (for the borrowing principal), unless there is assent, benefit, and the right to control the borrowed agent tortfeasor.
§ Exam Tip: will not find a right to control.

Front 4

Contrast Agent with Independent contractor

Back 4

○ Factors: no right to control an independent contractor because there's no power to supervise the manner of the independent contractor's performance.
○ Rule: no vicarious liability for independent contractor's torts
○ Exceptions: Principal is liable for independent contractor's torts:
§ Ultra-hazardous activity: if independent contractor commits a tort while engaged in ultra-hazardous liability, then principal is vicariously liable.
§ Estoppel: if you hold out your independent contractor with the appearance of agency, principal is estopped from denying vicarious liability.

Front 5

Tory Victus went to E-Stop-L Gas Station to have her brakes repaired. E-Stop-L Gas Station had an independent contractor arrangement with the brake repairer. Brake repairer negligently repaired Tory Victus' brakes, resulting in an accident. Is E-Stop-L Gas Station liable?

Back 5

Yes. The general is rule there is no vicarious liability for an independent contractor’s torts. Except: ultra hazardous activities and estoppel. In this case, brake repair is an ultra-hazardous activity and therefore there will be independent liability. Moreover, the gas station will be estopped from denying vicarious liability if it has held out its independent contactor with the appearance of agency.

Front 6

What is the three-part weighing test for scope of the principal-agent relationship?

Back 6

○ Was the conduct "of the kind" agent was hired to perform? If conduct was within the job description, likely to be in scope.
○ Did tort occur "on the job"? Frolic v. detour:
§ Frolic: new and independent journey. Not within scope of agency
§ Detour: mere departure is from an assigned task. Within scope of agency. (on the way back)
○ Did the agent intend to benefit the principal? If agent even in part intended to benefit the principal, enough to be inside the scope of agency.

Front 7

Employer instructs employee to drive across town to deliver files to a branch office. On the way back, employee stops to pick up shirts at the dry cleaner for work the next day. In the parking lot of the dry cleaner, employee hits a pedestrian. Is employer liable?

Back 7

○ The principal will be liable for its agent’s torts within the scope of agency. In this case, the agent was on a detour, a mere departure from an assigned task because the tort occurred on way the back to work. Therefore, this tort occurred within the scope of agency and there will be vicarious liability

Front 8

Intentional torts

Back 8

○ Rule: Intentional torts are generally outside the scope of agency.
○ Exceptions: intentional torts are still within the scope if the conduct was--
§ Specifically authorized by principal
§ Natural from the nature of employment
§ Motivated by desire to benefit principal
○ Example: bouncer for a bar (satisfies all three)

Front 9

Principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the contract. What are the types of authority?

Back 9

○ 4 types of authority: actual express, actual implied, apparent or ratification.

Front 10

Actual express authority: Principal used words to express authority to agent

Back 10

○ Rule: Oral, private (whispered), narrow (tailored to actual words to authorize).
○ Exception: Land--if contract involved interest in land lasting more than 1 year, express authorization must be in writing (statute of frauds)

Front 11

How can express authority be revoked?

Back 11

○ Express authority will be revoked by: Unilateral act of either party OR death or incapacity of the principal
§ Express authority cannot be revoked if there is a durable power of attorney.
□ power of attorney: written expression of authority to enter a transaction. Durable is conspicuous survival language—“survives incapacity,” does not survive death in NY.
□ Springing power of attorney: POA is in effect upon some occurrence (e.g. incapacity). Power holder must declare in writing when event occurs.

Front 12

Agent tells Principal that she is an expert in negotiating real estate transactions. Principal whispers into Agent's ear at party that principal wants Agent to negotiate the sale of Green Acres Farm. Agent negotiates the sale of Green Acres Farm for the Principal. Is Principal bound on the sale?

Back 12

□ No. The principal will be liable on its expressly authorized contracts. In this case, because the contract involved the sale of land, the express authority must have been
□ Pin writing. Therefore, the oral, private whisper was not sufficient to authorize this contract. There can be no liability on the unauthorized contract. Principal will not be liable.

Front 13

Paula collects rare books. She hires Alice to find a rare book to complete her collection. Alice searches everywhere for the rare book. As Alice is about to pay for the book, Paula dies. Is Paula's estate bound by the contract?

Back 13

□ No. The principal will be liable on its authorized contract. In this case, actual express authority terminated upon the principal’s death. Therefore there was no express authority to enter the contract. Therefore the estate will not be liable on the contract. The Agent becomes liable personally on the unauthorized contract.

Front 14

Actual implied authority: when is there authority from conduct or circumstance which agent reasonably believes the principal has given?

Back 14

○ Necessity: implied authority to do all tasks which are necessary to accomplish an expressly authorized task.
○ Custom: implied authority to do all tasks which are customarily performed by persons with the agent's title or position
○ Prior dealings between principal and agent. Implied authority to do all tasks which the agent believes to be authorized to do from prior acquiescence

Front 15

When is there apparent authority?

Back 15

2 part test--1) principal "cloaked" agent with appearance of authority and 2) third-party reasonably relies on appearance of authority.
○ Secret limiting instruction: agent has actual authority, but principal has secretly limited that authority. Agent acts beyond the scope of the limitation.
○ Lingering authority: actual authority has been terminated. Afterwards, agent continues to act on principal's behalf.

Front 16

Charles owns an antique store. A shipment of antique clocks arrives from London. Charles tells his employee Dufus not to sell a special grandfather clock. Charles goes to lunch. Dufus sells the clock. Is Charles bound on the sales contract?

Back 16

□ Yes. The principal will be liable on its authorized contacts. In this case, there was no actual express or implied authority to sell the clock. Nonetheless, there was apparent authority because (1) the principal did cloak Dufus with the appearance of authority and (2) the buyer relied reasonably on Dufus’s appearance of authority. Therefore Charles in liable based on apparent authority.

Front 17

For many years, Agnes has sold goods as Priscilla's agent. Priscilla finds out, however, that Agnes has been stealing money from her. Priscilla terminates Agnes. Agnes continues selling to customers and runs away with their money. Is Priscilla bound on contracts entered into by Agnes after termination?

Back 17

□ Yes. The principal will be liable on its authorized contracts. In this case, there was no actual express or implied authority because it has been terminated. Nonetheless, apparent authority still lingers because (1) the principal has cloaked the agent with the on going appearance of authority and (2) the third party customers may continue to rely reasonably on the lingering authority until they receive notice of termination.

Front 18

When is there ratification?

Back 18

• Ratification: Authority can be granted after the contract has been entered if:
○ Knowledge: Principal has knowledge of all material facts regarding the contract, and
○ Benefits: principal accepts its benefits.
○ Exception: ratification cannot alter the terms of the contract, complete ratification required. Attempting to modify contract means no ratification.

Front 19

Priscilla gives Agnes a power of attorney to purchase steel drums. Agnes enters a contract to purchase 11,000 wooden barrels. Priscilla tells Agnes "great job, I love wooden barrels, but I only need 10,000." Is Priscilla bound?

Back 19

§ No. The principal will be liable on its authorized contracts. In this case, there was no actual express or implied authority or even apparent authority to buy to purchase wooden barrels because the power of attorney said steel drums. Nonetheless, the principal arguably ratified the contract (1) knowledge and (2) acceptance of its benefits because she said “great job” (knowledge) and “I love wooden barrels” (acceptance). But in New York, ratification is not valid because it was not complete because there is an attempt to change the deal. Thus, no authority/liability.

Front 20

• Rules of liability on the contract

Back 20

○ General rules:
§ If no authority, principal is not liable on the contract. If no authority, agent is liable on the contract.
§ If authority, principal is liable on the contract. If authority, agent is not liable on the contract
○ Exception: Ambiguity of existence or identity of principal--- If principal is partially disclosed (only the identity of the principal concealed) or undisclosed (fact or principal concealed), authorized agent may nonetheless be liable at the election of the third-party.

Front 21

Duties agent owes to principal

Back 21

• Duty to exercise reasonable care
• Duty to obey reasonable instructions (i.e., not lie or break the law, not lying).
• Duty of loyalty--agent cannot:
○ Self-dealing: agent cannot receive a benefit to the detriment of the principal
○ Usurping the principal's opportunity, OR
○ Secret profits

Front 22

Priscilla authorizes Agnes to buy diamonds. Agnes spots choice diamonds, and secretly buys them for herself for $1 million. Agnes then resells the diamonds for $2 million.

Back 22

○ What duties, if any, has Agnes breached? The agent has breached the duty of loyalty by (1) self dealing (i.e. receiving a benefit to the principal’s detriment); (2) usurping the principal’s opportunity to buy diamonds; and (3) making a secret profit at the principal’s expense.
○ What remedies, if any, does Priscilla have against Agnes? The principal may recover any losses caused by the breach, and also may disgorge the agent’s profits.

Front 23

Partnership formation

Back 23

• Formalities: no formalities required for a general partnership. No filing, no writing
○ Deemed to be a partnership by conduct alone
• Definition: a general partnership is an association of 2 or more persons who are carrying on as co-owners of a business for profit.
• Sharing of the profits: contribution of money or services in return for a share of profits is prima facie evidence of a general partnership. (employee for wages is not partnership)

Front 24

Liabilities of partners to third-parties

Back 24

• Agency principles apply
○ Partners are agents of the partnership for carrying on usual partnership business
○ Partnership is bound by torts committed by partnership in scope of partnership business
○ Partnership is bound by contracts entered by partners with authority
• General partners are personally liable for debts of the partnership.
○ Incoming partner's liability for pre-existing debts: generally not liable for prior debts, but any money paid into partnership by incoming partner can be used to satisfy those prior debts.
○ Outgoing partner's liability for subsequent debt: retains liability on future debts until they die unless notice of their withdrawal has been given to all known and potential creditors.
• General partnership liability by estoppel--one who represents to a third-party that a partnership exists will be liable as if a partnership exists.

Front 25

Paula convinced her friend Peter to start a sailing school, and agreed to lend Peter money to purchase a boat for that purpose. At a party, Paula told a wealthy friend: "My partner Peter and I are starting a sailing school and we need a boat." The wealthy friend offered to sell Paula and Peter a boat, and agreed to allow Peter to take it for a test ride the next day. Later that night, however, Peter and Paula fight and decide to drop the sailing school idea. The next day Peter takes the boat for a ride and destroys the boat. May wealthy friend sue Paula for the loss of the boat?

Back 25

§ General partners are liable for all partnership obligations, including co-partners torts. In this case, however, Paula and Peter never really formed a general partnership because there was only a lending relationship not based on the sharing of the profits. Nonetheless, Paula has represented to a third party that she is a partner in a partnership will be liable under the Doctrine of General Partnership Liability by Estoppel. Therefore, she is liable for the co-partner (Peter’s) tort.

Front 26

○ Limited Partnership: partnership with at least 1 general partner and at least 1 limited partner

Back 26

§ Formation: file a limited partnership certificate that includes names of all GPs
§ Liability and control
□ General partners: liable for all limited partnership obligations, but also have right to manage/control the business
Limited partners: not liable for limited partnership obligations, only liable for their contributions, but may not manage business without forfeiting limited liability status.

Front 27

○ Registered limited liability partnerships (RLLP): limited partnership for professional services

Back 27

§ Formation: must register with the state and indicate which profession you will be practicing.
§ Liability: no partner is liability for RLLP's debts. Partner is always liable for his own torts and those of anyone he supervises.

Front 28

○ Limited Liability Corporation:

Back 28

§ Original purpose: designed to provide owners (members) the same limited liability of shareholders in a corporation and the benefits of partnership tax treatment.
§ Formation: must file the articles of organization with the state and publish a summery of the articles once a week for 6 weeks in a row in 2 newspapers.
§ Liabilities: members are not liable for the debts and obligations of the company itself if company has partnership characteristics.
□ Partnership characteristics
® Members control, but may delegate to managers
® Limited liquidity--member interests are not freely transferable
® Limited life--events of dissolution in articles.
§ LLCs = limited liability + limited liquidity + limited life + limited tax.

Front 29

What are the rights and liabilities of general partners?

Back 29

• General partners are fiduciaries of each other and the partnership
○ Duty of loyalty--no self-dealing, no usurpation of partnership opportunities, no secret profits at partnership expense.
○ Remedy: Action for accounting--partnership can recover against breaching partner loses caused by the breach and may disgorge profits made by breaching partner.

Front 30

Partners' rights in partnership property

Back 30

1. Specific partnership assets--land, leases, equipment owed by partnership as specific partnership assets. Assets may not be transferred to third parties without partnership authority.
2. Share of profits and surplus--personal property owed by individual general partners. Individual partners may transfer to third-parties.
3. Share in management--asset owned by partnership itself, therefore no individual partner may transfer their share in management to third-party.
○ Conflict between specific partnership assets and personal property: test--whose money was used to buy the property? If partnership money was used to by property, then partnership assets. But if personal funds used, then personal property.

Front 31

John buys a car in John's own name with John's money which John uses in partnership business. John dies. Does John's spouse Yoko get the car or is it a specific asset of the partnership?

Back 31

§ In this case, because John bought the car with his own money, it is his own car, and therefore he may freely transfer the car (i.e. it is not partnership property).

Front 32

How are management, salary and profits/losses shared?

Back 32

• Management: absent an agreement, each partner entitled to EQUAL control (vote)
• Salary: absent an agreement, partners get NO SALARY
○ Exception: partners do receive compensation for helping to wind up the partnership's interest.
• Partner's share of profits and losses
○ Absent an agreement, profits shared equally
○ Absent an agreement, losses shared like profits.

Front 33

○ A, B and C agree to contribute money and share profits 60-30-10. How do they vote?

Back 33

§ Absent agreement, each party is entitled to equal control, regardless of how much money is contributed by each and how profits are shared.

Front 34

A and B are partners. A works 96 hours a week. B sleeps all day. Does A get any salary?

Back 34

§ In absence of an agreement, A does not get a salary.

Front 35

if agreement is silent on profits and loss: Profits shared equally, losses shared equally.

Back 35

§ If agreement says profits shared 60/40: Losses shared 60/40.
§ If agreement says losses shared 60/40: profits shared equally
§ Partner A puts up all of the money. B does all of the work. C gives partnership its fine name. D does nothing. Profits shared? Equally

Front 36

Dissolution

Back 36

○ Dissolution--any material change in partnership caused by death, or withdrawal of any single general partner, creates automatic dissolution of partnership in NY. (bankruptcy, incapacity, death, or withdrawal) of any single general partner. Begins the end.
○ Termination--the real end
○ Winding up--period between dissolution and termination in which the remaining partners liquidate the partnership's assets to satisfy partnership's creditors.
○ Partners can receive compensation for winding up
○ Partnership's liability for winding up
§ Old business: partnership and therefore its individual general partners retain liability on all transactions entered into to wind up old business with existing creditors.
§ New business: partnership and therefore its individual general partners still retain liability on all new business transactions until notice of dissolution is given to all existing and potential creditors.

Front 37

• Priority of distribution--each level of priority must be fully satisfied before beginning the next level in this order:

Back 37

1. Creditors must be paid
§ Outside, nonpartner trade creditors get paid first, then all partners who have loaned money to partnership must be paid back.
2. Capital contributions by partners must be paid--partnership owes its own partners the full repayment of their capital contribution.
3. If anything remains, profits and surplus shared equally (absent agreement).
○ Rule: each partner must be repaid his or her loans and capital contributions, plus that partner's share of the profits or minus that partner's share of the losses.
§ If there are losses, which include un-repaid capital contributions by partners, all partners must pay into the partnership their percentage of loss allocation, which is then used to pay for the losses (i.e. pay the partner who contributed the capital). Note: partner who contributed the capital must also pay in his percentage share, then he gets it back.

Front 38

A and B dissolve the AyeBee Partnership. In winding up, they liquidate the partnership assets and have a total of $1 million to distribute. How should that amount be distributed, if (1) the partnership owes $600,000 to trade creditors; (2) Partner A loaned the partnership $100,000; and (3) Partner B made capital contributions of $200,000?

Back 38

§ First, all outside trade creditors receive $600K; second inside Partner A must receive $100K in return for loan. The partnership still owes to Partner B the full repayment of its capital contributions $200K. Partner A and B share remaining 100K equally.
§ Hypo: if only had $700K to distribute--Pay trade creditor (600K) and insider loan (100K). The partnership still owes to Partner B the full repayment of its capital contributions $200K. That liability is a loss. Losses are recovered from Partner A and B. Equal profits means equal losses. Partners A and B must pay in to the partnership the equal % share of the loss, $100 each ($200K total). Partnership now has $200K. Partner B now gets the $200K.