Ma Bar Essay - Agency/partnership

Front 1

What is required for a true Principal-Agent relationship?

Back 1

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

Front 2

What is the test for vicarious liability of a principal for his agent in tort?

Back 2

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.

Front 3

What does assent mean with respect to Agency law?

Back 3

Assent - an informal agreement b/w the principal, who has capacity, and the agent.

Front 4

What does Benefit mean with respect to Agency law?

Back 4

Benefit - The agent's conduct must be for the Principal's benefit

Front 5

What is Control for purposes of agency law?

Back 5

The Principal must have the right to control the Agent by having the power to supervise the manner of the Agent's performance.

Front 6

Can a principal be liable for the torts of sub-agents?

Back 6

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.)

Front 7

Can a principal be held liable for the torts of a borrowed agent?

Back 7

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)

Front 8

What’s the difference between an Agent and an Independent Contractor?

Back 8

Factors - no right to control Independent contractor because no power to supervise manner of its performance

Front 9

Can a principal be held liable for the actions of an independent contractor?

Back 9

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.

Front 10

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 10

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.

Front 11

How do we determine the scope of the principal-agent relationship when determining whether a principal is liable for the torts of his agent?

Back 11

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

Front 12

What’s the difference between a frolic and a detour?

Back 12

Frolic - a new and independent journey - outside scope
Detour - mere departure from assigned task - inside scope

Front 13

Are principals liable for their agents’ intentional torts?

Back 13

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.

Front 14

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?

Back 14

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.

Front 15

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 15

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.

Front 16

When is a principal liable for the contracts entered into by its agents?

Back 16

Test: Principal is liable for contracts entered into by its agents if the principal authorized the agent to enter the contract. (4 types of authority)

Front 17

What are the ways that one can authorize an agent to enter a contract?

Back 17

There are four types of authority: Actual express, actual implied, apparent or ratification.

Front 18

What is actual express authority? What general rule applies to actual express authority? Exceptions?

Back 18

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.

Front 19

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?

Back 19

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.

Front 20

How do you revoke express authority? Is there a way to make express authority irrevocable?

Back 20

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")

Front 21

What is a durable power of attorney?

Back 21

Power of Attorney = a written expression of authority to enter a transaction or transactions. Durable = Conspicuous survival language ("SURVIVES DEATH AND LUNACY")

Front 22

What is actual implied authority? What are the ways it can arise?

Back 22

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.

Front 23

How does actual implied authority arise from necessity?

Back 23

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.

Front 24

How does actual implied authority arise from custom?

Back 24

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

Front 25

How does actual implied authority arise from prior dealings?

Back 25

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.

Front 26

What is apparent authority – how does it arise?

Back 26

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.

Front 27

What is a secret limiting instruction?

Back 27

Secret Limiting Instruction - Agent has actual authority, but principal has secretly limited that authority. Agent acts beyond the scope of the limitation. STILL APPARENT AUTHORITY

Front 28

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?

Back 28

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.

Front 29

What is lingering authority?

Back 29

Lingering Authority - Actual authority has been terminated. Afterwards, agent continues to act on principal's behalf.

Front 30

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?

Back 30

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.

Front 31

What is ratification? What is required for ratification?

Back 31

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

Front 32

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?

Back 32

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.

Front 33

What are the general rules of liability for agent acquired contracts? Exception?

Back 33

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.

Front 34

What duties does an agent owe to the principal?

Back 34

-Duty to exercise reasonable care
-Duty to obey reasonable instructions (i.e. duty not to lie or break the law)
-Duty of loyalty which includes not engaging in:
1.Self-dealing (benefitting self to the detriment of the principal)
2.Usurping the principal’s opportunity
3.Secret profits

Front 35

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. What duties, if any, has Agnes breached and what remedies, if any, does Priscilla have against her.

Back 35

Agnes has breached the duty of loyalty by self-dealing, meaning that she benefitted herself to the principal’s detriment, usurping the principal’s opportunity and making a secret profit on the resale of those diamonds

Priscilla may recover losses caused by the breach and may also disgorge profits made by the breaching agent as well.

Front 36

What are the formalities for forming a general partnership?

Back 36

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.

Front 37

What is the definition of general partnership?

Back 37

A general partnership is an association of 2 or more persons who are carrying on as co-owners of a business for profit.

Front 38

How do I tell the difference between a loan and a partnership?

Back 38

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

Front 39

What are the general principles of Partnership law with respect to liabilities toward third parties?

Back 39

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.

Front 40

What is the most important thing to remember about Partners’ liability for debts of the partnership?

Back 40

GENERAL PARTNERS ARE PERSONALLY LIABLE FOR DEBTS OF THE PARTNERSHIP.

Front 41

Is an incoming partner liable for pre-existing debts?

Back 41

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.

Front 42

What's a dissociating partner's liability for new business?

Back 42

A dissociating partner retains liability on future debts until notice is given to all known and even potential creditors.

Front 43

What if I’m not a partnership, but I tell people I am?

Back 43

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.

Front 44

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 44

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.

Front 45

What are Limited Partnerships?

Back 45

A Limited Partnership is a partnership in which there is at least 1 general partner and at least 1 so called “limited partner.”

Front 46

How is a limited partnership formed?

Back 46

One must file a Limited Partnership Certificate that includes the names of all the general partners with the State Secretary.

Front 47

Do General Partners in a limited partnership have some protection from liability?

Back 47

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.

Front 48

Do Limited Partners in a limited partnership have some protection from liability?

Back 48

Yes – as the name implies, they are not liable for the Partnership obligations, but they also cannot help manage the business.

Front 49

How do you form a Registered Limited Liability Partnership?

Back 49

You register with the state by filing with the state secretary a statement of authority.

Front 50

What are the liability responsibilities of a RLLP?

Back 50

No partner is liable for the partnership’s obligations.

Note: A partner is always liable for his own wrongdoing, however.

Front 51

What duties do General Partners owe each other and the partnership?

Back 51

General Partners are FIDUCIARIES of each other and the partnership. Thus they owe the duty of loyalty (no self dealing, usurping partnership opportunities or making secret profit to the partnership’s detriment)

The remedy for a breach is an “Action for Accounting.” Partnership may recover losses caused by the breach and disgorge any profits made by the breaching partner.

Front 52

What does it mean that a General Partner owes a duty of loyalty to the other partners and the partnership?

Back 52

The duty of loyalty means a General Partner cannot 1) self-deal, 2) usurp opportunities, or 3) take secret profits.

Front 53

What are the remedies if a General Partner breaches his duty of loyalty?

Back 53

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.

Front 54

What are the different types of partnership property?

Back 54

-Specific Partnership Assets.
-Share of profits and surplus.
-Share in management.

Front 55

Who owns specific partnership assets? Who can transfer it?

Back 55

Land, leases and equipment are owned only by the partnership as Partnership assets. Therefore, no individual partner may transfer these assets without Partnership authority.

Front 56

What about the share of profits and surplus as a partnership asset, what can I, a general partner do with it?

Back 56

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.

Front 57

What about a partner’s share in the management of the partnership? Can he sell that?

Back 57

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.

Front 58

What can we say about a partner’s share in the partnership?

Back 58

The share of partnership is relatively illiquid since only the share in profits is liquid.

Front 59

Do you have a quick test for how to tell whether it is a partnership asset or personal property?

Back 59

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.

Front 60

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 60

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.

Front 61

How do we divide management decisions?

Back 61

Default rule= Absent an agreement, each partner entitled to EQUAL control (vote).

Front 62

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

Back 62

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.

Front 63

Do partners generally get a salary?

Back 63

Default rule= Absent an agreement, partners get NO SALARY.

Front 64

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

Back 64

No. In the absence of an agreement, no partner gets a salary.

Front 65

Are you sure? I’m sure I heard about a partner getting a salary despite not having an agreement?

Back 65

Okay, there’s one exception – A partner gets compensation for helping to “wind up” the partnership business. (Liquidate)

Front 66

How do partners share profits and losses?

Back 66

Default Rules:
1. Absent an agreement, PROFITS SHARED EQUALLY.
2. Absent an agreement, LOSSES SHARED LIKE PROFITS.

Front 67

So, if the Agreement is silent on profits and losses who will they be divided?

Back 67

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.

Front 68

If Agreement says, “Profits shared 60/40.” How are losses shared?

Back 68

As to losses, absent an agreement on losses, they are shared just like profits, which would be 60/40 as well.

Front 69

If Agreement - “Losses shared 60/40.” Profits shared?

Back 69

As to profits, absent an agreement on profits, they are shared equally.

Front 70

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?

Back 70

Absent an agreement, profits are shared equally.

Front 71

What is the dissolution of a partnership?

Back 71

Without an agreement that specifies events that will dissolve the partnership, dissolution is automatic upon notice of the express will of one general partner to dissociate.

Front 72

What is termination of a partnership?

Back 72

This is when the partnership is dead. It is the real end of a partnership.

Front 73

What is the definition of “winding up?”

Back 73

The period between dissolution and termination in which the remaining partners must liquidate the partnership’s assets to satisfy the Partnership’s creditors.

Front 74

You mentioned something about partners getting a salary?

Back 74

Partner’s get compensation for helping wind up the partnership.

Front 75

What is the liability for old business with a winding up partnership?

Back 75

The partnership and therefore its individual general partners still retain liability on all transactions entered into to wind up old business with existing creditors.

Front 76

What is the liability for new business with a winding up a partnership?

Back 76

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.

Front 77

In what order does one distribute the assets in dissolution?

Back 77

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.

Front 78

When you say creditors must be paid first in dissolution who do you mean?

Back 78

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.

Front 79

Do we have to pay the partners for their capital contributions? What if we don’t like that partner?

Back 79

The partnership is liable to partners for all of their capital contributions.

Front 80

How do we distribute the profits and surplus?

Back 80

Partners share profits and surplus equally in the absence of an agreement (natch).

Front 81

What’s the general rule for distributions, something I could put on the test, for example?

Back 81

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.

Front 82

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 82

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)

Front 83

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?

Back 83

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.