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83 Cards in this Set

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What does it require for a true Principal-Agent relationship?
Asset, Benefit, and Control

Assent - an informal agreement b/w the principal, who has capacity, and the agent.
Benefit - The agent's conduct must be for the Principal's benefit
Control - The Principal must have the right to control
What is the test for vicarious liability of a principal for his agent?
Test: Principal will be liable for torts committed by agent if: (1) a principal-agent relationship exists, and (2) the tort was committed by the agent within the scope of that relationship.
What does Benefit mean with respect to Agency law?
Benefit - The agent's conduct must be for the Principal's benefit
I don’t actually have to look after my agents, do I?
Yes, agency means Control - The Principal must have the right to control the Agent by having the power to supervise the manner of the Agent's performance.
Can a principal be liable for the torts of sub-agents?
Sub-agents - There can be no vicarious liability for sub-agents tort unless there is assent, benefit, and right to control the sub-agent tortfeasor (usually won't find assent or control.)
Can a principal be held liable for the torts of a borrowed agent?
Borrowed agents - There can be no vicarious liability for borrowed agents unless Assent, benefit, and right to control the borrowed agent. (usually, therefore, the original Principal will retain Liability for Agent)
What’s the difference between an Agent and an Independent Contractor?
Factors - no right to control Independent contractor because no power to supervise manner of its performance
Can a principal be held liable for the actions of an independent contractor?
Rule: No vicarious liability for an independent contractor’s torts

Exceptions:
Ultra-hazardous activities: Vicarious liability for independent contractor torts

Estoppel: If you hold out your independent contractor with the appearance of agency, you will be estopped from denying Vicarious liability.
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?
As a rule there is no vicarious liability for an independent contractor’s torts except in ultra-hazardous activities or estoppel. In this case, brake repair is an ultra-hazardous activity and therefore vicarious liability applies even for an independent contractor’s torts. Moreover, if E-Stop-L Gas Station has held out its independent contractor with an appearance of agency, it will be estopped from denying vicarious liability for his torts.
What’s the difference between a frolic and a detour?
Frolic - a new and independent journey - outside scope

Detour - mere departure from assigned task - inside scope
Are principals liable for their agents’ intentional torts?
Rule: Intentional torts are outside scope of agency

Exceptions: Intentional torts are within the scope if the conduct was:
- If the conduct was specifically authorized by the Principal
- If the conduct was natural from the nature of employment
- Motivated by a desire to serve Principal.
Bobby the bouncer was working one evening when Tony Victus entered the bar. He was generally upsetting to the other customers, since he had very strong body odor. The owner, Pete said to Bobby, “Toss that guy! He’s bugging me, use extreme prejudice!” Bobby replied, “Whatever you say, boss, I’ll bounce that guy for you.” Is Pete liable for Bobby’s battery?
Generally, principals are not liable for the intentional torts of their agents. However, a principal can be held liable if he specifically authorized the conduct, it was natural for the type of employment or it was motivated by a desire to serve the principal. In this case, Pete specifically authorized the conduct, “Use extreme prejudice,” he said. Also, battery is in the nature of bouncing. Finally, Bobby was motivated, at least in part, by a desire to serve Pete. “I’ll bounce that guy for you,” he said. So, vicarious liability will attach, despite the fact that this is an intentional tort.
What is actual express authority?

What general rule applies to actual express authority?

Exceptions?
Actual Express Authority: Principal used words to express authority to agent.

- Rule: Oral, Private, Narrow

- Except: Equal Dignities Doctrine - If K itself needs writing (SOF) then so too must the express authority also be in writing.
When is a principal liable for the contracts entered into by its agents?
Test: Principal is liable for contracts entered into by its agents if the principal authorized the agent to enter the contract.
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?
The principal will be liable for its Agent’s torts committed in 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 the way back to work. Therefore, this tort occurred within the scope of agency and vicarious liability will attach.
How do we determine the scope of the principal-agent relationship?
Scope of principal-agent Relationship factors

We look at:
1. Job Description
2. Frolic/Detour
3. Intent to benefit

- Was conduct "of the kind" agent was hired to perform? (Is it in the job description? Likely within scope.

- Did the tort occur "on the job"? Frolic v. Detour

- Did the agent intend to benefit the principal - If the Agent, even in part, intended to benefit Principal, then w/in scope of Agency
What does assent mean with respect to Agency law?
Assent - an informal agreement b/w the principal, who has capacity, and the agent.
How do we determine the scope of the principal-agent relationship when determining whether a principal is liable for the torts of his agent?
Scope of principal-agent Relationship factors

- Was conduct "of the kind" agent was hired to perform? (Is it in the job description? Likely within scope.
- Did the tort occur "on the job"? Frolic v. Detour
- Did the agent intend to benefit the principal - If the Agent, even in part, intended to benefit Principal, then w/in scope of Agency
What are the ways that one can authorize an agent to enter a contract?
There are four types of authority: Actual express, actual implied, apparent or ratification.
What is actual express authority?

What's the general rule of actual express authority?

Exceptions?
Actual Express Authority: Principal used words to express authority to agent.

- Rule: Oral, Private, Narrow

- Except: Equal Dignities Doctrine - If K itself needs writing (SOF) then so too must the express authority also be in writing.
Paula and Amanda were at a party. Amanda told Paula that she was an expert in real estate negotiation. Paula whispered in Amanda’s ear, “I’d like you to do some negotiating for me. I authorize you to purchase Blackacre for me.” The next day, Amanda enters into a great contract for Blackacre, is Paula liable for the contract?
A Principal is liable on its authorized contracts. In this case, because the contract to sell land must have been in writing, the express authority must have been in writing as well. Therefore, the oral, private whisper did not authorize the contract and the principal will not be liable on its unauthorized contract. Amanda will be liable for the contract she signed.
How do you revoke express authority?

Is there a way to make express authority irrevocable?
Express Authority will be revoked by:

- Unilateral act of either party, or
- Death or incapacity of the principal

- Except: Express authority cannot be revoked if:
The Principal gives the Agent a durable power of attorney - Power of Attorney = a written expression of authority to enter a transaction or transactions. Durable = Conspicuous survival language ("SURVIVES DEATH AND LUNACY")
What is a durable power of attorney?
Power of Attorney = a written expression of authority to enter a transaction or transactions. Durable = Conspicuous survival language ("SURVIVES DEATH AND LUNACY")
What is actual implied authority?

What are the ways it can arise?
Actual Implied Authority

- Authority which agent reasonably believe the principal has given, because of necessity, custom or prior dealings:

Necessity - there is implied authority to do all tasks which are necessary to accomplish an expressly authorized task - expressly authorized to close a deal might = necessity authorization to rent conference room.

Custom - There is an implied authority to do all tasks which are customarily performed by people with agent's title & position (lawyer)

Prior dealings between the principal and the agent. There is implied authority to do all tasks which Agent believe to have been authorized by prior acquiescence by the Principal.
How does actual implied authority arise from necessity?
Necessity - there is implied authority to do all tasks which are necessary to accomplish an expressly authorized task - expressly authorized to close a deal might = necessity authorization to rent conference room.
How does actual implied authority arise from custom?
Custom - There is an implied authority to do all tasks which are customarily performed by people with agent's title & position (lawyer)
How does actual implied authority arise from prior dealings?
Prior dealings between the principal and the agent. There is implied authority to do all tasks which Agent believe to have been authorized by prior acquiescence by the Principal.
What is apparent authority – how does it arise?
Apparent Authority: Two part test: (1) Principal "Cloaked" agent with the 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.
What is a secret limiting instruction?
Secret Limiting Instruction - Agent has actual authority, but principal has secretly limited that authority. Agent acts beyond the scope of the limitation.
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 contract?
Yes – The principal will be liable on its authorized contracts. In this case, there is no actual express or implied authority to sell the clock because Charles told Dufus explicitly not to sell the clock.

Nonetheless, there was apparent authority because 1) Charles cloaked Dufus with the appearance of authority to sell clocks by putting him in charge when he went to lunch. 2) Third party buyers may reasonably rely on Dufus’ apparent authority to sell clocks in an antique store.
What is lingering authority?
Lingering Authority - Actual authority has been terminated. Afterwards, agent continues to act on principal's behalf.
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?
The principal will be liable for its authorized contracts. In this case, there is no actual express or implied authority to sell goods on the principal’s behalf because the authority has been terminated.
Nonetheless, apparent authority lingers because 1) Principal did cloak Agnes with a lingering appearance of authority because for many years, Agnes has had the authority to sell goods on Principal’s behalf. 2) Customers may continue to rely reasonably on the lingering appearance of authority until they receive notice of termination.
What is ratification?

What is required for ratification?
Ratification - Authority can be granted after the contract has been entered, if:
a. Principal has knowledge of all material facts regarding the contract and
b. Principal accepts its benefits
c. Except: Ratification cannot alter the terms of the contract
Priscilla gives Agnes a power of attorney to purchase steel drums. Agnes enters into 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?
No – The principal will be liable for its authorized contracts. In this case, there was no actual express or implied authority to buy wooden barrels. Agnes was given authority to buy steel drums and a power of attorney is construed narrowly, so wouldn’t give implied authority to purchase wooden drums. Nor is there evidence of any apparent authority coming from Priscilla cloaking Agnes in the appearance of authority. Nonetheless, Priscilla arguably ratified the contract through knowledge of its terms and acceptance of its benefits. (“Great job, I love wooden barrels.”) But, ratification here was not valid because it was not complete. Priscilla only needed 10,000 barrels. Therefore, Agnes will be personally liable on the contract.
What are the general rules of liability for agent acquired contracts?

Exception?
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: If principal is partially disclosed (only identity of principal concealed) or undisclosed (fact of principal concealed), authorized agent may nonetheless be liable at the election of the third party.
What are the formalities for forming a general partnership
There are no formalities to becoming a partnership; you can even become one without an express agreement. The court can impose partnership in other words.
What is the definition of general partnership?
A general partnership is an association of 2 or more persons who are carrying on as co-owners of a business for profit.
How do I tell the difference between a loan and a partnership?
The contribution of money or services in return for a share of profits, if any, is prima facie evidence of a general partnership.

- contribution of money for interest = loan
- Getting a wage = employment
What are the general principles of Partnership law with respect to liabilities toward third parties?
Agency Principles Apply.

- Partners are agents of the partnership for carrying on usual partnership business.
- Partnership is bound by torts committed by partners in scope of partnership business.
Partnership is bound by contracts entered by partners with authority.
What is the most important thing to remember about Partners’ liability for debts of the partnership?
GENERAL PARTNERS ARE PERSONALLY LIABLE FOR DEBTS OF THE PARTNERSHIP.
Is an incoming partner liable for pre-existing debts?
There is no direct, personal liability for prior debt, but any money which is paid into the partnership may be used by the partnership to satisfy prior debts.
What's a dissociating partner's liability for new business?
A dissociating partner retains liability on future debts until notice is given to all known and even potential creditors.
What if I’m not a partnership, but I tell people I am?
General Partnership Liability by Estoppel One who represents to a third-party that a general partnership exists will be liable as if a general partnership exists.
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?
As a rule, General partners are liable personally for all partnership obligations including co-partners’ torts. In this case, however, Paula and Peter never really formed a partnership because theirs was a lending arrangement not based on sharing profits (Paula agreed to lend Peter money for a boat.)
Under partnership by estoppel, however, Paula has represented to the wealthy friend that she is in a partnership with Peter and therefore she will be liable as if she were a partner. So, there is liability for Peter’s tort.
What are Limited Partnerships?
A Limited Partnership is a partnership in which there is at least 1 general partner and at least 1 so called “limited partner.”
How is a limited partnership formed?
One must file a Limited Partnership Certificate that includes the names of all the general partners with the State Secretary.
Do General Partners in a limited partnership have some protection from liability?
No – General Partners in a limited partnership have the same rights and liabilities as in a general partnership, so they are personally liable for all Partnership obligations. But, they have the right to manage the business.
Do Limited Partners in a limited partnership have some protection from liability?
Yes – as the name implies, they are not liable for the Partnership obligations, but they also cannot help manage the business.
How do you form a Registered Limited Liability Partnership?
You register with the state by filing with the state secretary a statement of qualification and the partnership must file annual reports.
What are the liability responsibilities of a RLLP?
No partner is liable for the partnership’s obligations. Note: A partner is always liable for his own wrongdoing, however.
What duties do General Partners owe each other and the partnership?
General Partners are FIDUCIARIES of each other and the partnership.

1. Duty of loyalty.
2. Action for Accounting.
What does it mean that a General Partner owes a duty of loyalty to the other partners and the partnership?
The duty of loyalty means a General Partner cannot

1) self-deal,
2) usurp opportunities, or
3) take secret profits.
What are the remedies if a General Partner breaches his duty of loyalty?
An action for accounting – this is the only form of action that can be brought by a partnership against their own breaching partners. The partnership can recover losses caused by the breach and also may disgorge profits made by the breaching partner.
What are the different types of partnership property?
Specific Partnership Assets.
Share of profits and surplus.
Share in management.
Who owns specific partnership assets? Who can transfer it?
Land, leases and equipment are owned only by the partnership as Partnership assets. Therefore, no individual partner may transfer these assets without Partnership authority.
What about the share of profits and surplus as a partnership asset, what can I, a general partner do with it?
The share of profits and surplus is personal property owned as such by individual partners. Therefore, individual partners may transfer their share without the Partnership’s permission. It is freely devisable, descendible, and alienable.
What about a partner’s share in the management of the partnership? Can he sell that?
No – The share in management is an asset owned only by the Partnership itself and not by any individual partner. Therefore, no individual may transfer a share in management (control of the firm) to third parties.
What can we say about a partner’s share in the partnership?
The share of partnership is relatively illiquid since only the share in profits is liquid.
Do you have a quick test for how to tell whether it is a partnership asset or personal property?
Whose money was used to buy the property? If it was Partnership money, it’s partnership property. If it was partner money, it’s that partner’s (personal) property.
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?
In this case, because John bought the car with John’s money, it becomes John’s care. Therefore, he is free to leave the car to Yoko through inheritance.
How do we divide management decisions?
Absent an agreement, each partner entitled to EQUAL control (vote).
A, B, and C agree to contribute money and share profits 60-30-10. How do they vote?
Absent an agreement, each partner is entitled to equal control and vote. Therefore, here, each partner would get 1 vote, or 1/3 of the management control.
Do partners generally get a salary?
SALARY Absent an agreement, partners get NO SALARY.
A and B are partners. A works 96 hours a week. B sleeps all day. Does A get any salary?
No. In the absence of an agreement, no partner gets a salary.
Are you sure? I’m sure I heard about a partner getting a salary despite not having an agreement?
Okay, there’s one exception – A partner gets compensation for helping to “wind up” the partnership business. (Liquidate)
How do partners share profits and losses?
PARTNER’S share of profits and losses.

1. Absent an agreement, PROFITS SHARED EQUALLY.

2. Absent an agreement, LOSSES SHARED LIKE PROFITS.
So, if the Agreement is silent on profits and losses?
First, absent an agreement on profits, they are shared equally. Second, absent an agreement on losses they are shared just like profits, which would be equally as well.
If Agreement says, “Profits shared 60/40.” How are losses shared?
As to losses, absent an agreement on losses, they are shared just like profits, which would be 60/40 as well.
If Agreement - “Losses shared 60/40.” Profits shared?
As to profits, absent an agreement on profits, they are shared equally.
Partner A puts up all of the money. Partner B does all of the work. Partner C gives the partnership its fine name. Partner D does nothing. How are profits shared?
Absent an agreement, profits are shared equally.
What is the dissolution of a partnership?
Dissolution occurs when there is any material change in general partnership caused by death or dissociation of any single General Partner.

It works as an automatic dissolution of the partnership. But, just because a partnership dissolves doesn’t mean it is dead.
What is termination of a partnership?
This is when the partnership is dead. It is the real end of a partnership.
What is the definition of “winding up?”
The period between dissolution and termination in which the remaining partners must liquidate the partnership’s assets to satisfy the Partnership’s creditors.
You mentioned something about partners getting a salary?
Partner’s get compensation for helping wind up the partnership.
What is the liability for old business with a winding up partnership?
The partnership and therefore its individual general partners still retain liability on all transactions entered into to wind up old business with existing creditors.
What is the liability for new business with a winding up a partnership?
The partnership and therefore its individual general partners still retain liability even on brand new transactions until notice of dissolution is given to all known and even potential creditors.
In what order does one distribute the assets in dissolution?
Each level of priority must be fully satisfied before beginning the next level in this order:
- First, creditors must be paid.
- Second, capital contributions by partners must be paid.
- Finally - profits and surplus, if any.
When you say creditors must be paid first in dissolution who do you mean?
Creditors includes all outside non-partner trade creditors and also all inside partners who have loaned money to the partnership and have become creditors thereby.
Do we have to pay the partners for their capital contributions? What if we don’t like that partner?
The partnership is liable to partners for all of their capital contributions.
How do we distribute the profits and surplus?
Partners share profits and surplus equally in the absence of an agreement (natch).
What’s the general rule for distributions, something I could put on the test, for example?
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.
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?
First, all outside trade-creditors must be repaid $600k and all inside partners must be repaid their loans ($100k). Next, all capital contributions must be repaid to partners (200k to B). Finally, any profits are distributed equally to the partners. (A & B each get $50k)
A and B dissolve the AyeBee Partnership. In winding up, they liquidate the partnership assets and have a total of $700,000 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?
First, all outside and inside creditors must be paid. ($700k) The partnership is still liable, however, to Partner B for its $200k capital contribution. Partner A & B must share in the liability to Partner B equally (absent an agreement) so must each contribute $100k.