AGENCY

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1) Liability of Principal to Third Parties of Agent - Respondeat Superior or

Vicarious Liability
Two-Part Test: 1) Is there a principal-agent relationship and 2) was the tort committed by
the agent within the scope of the relationship?
The Principal-Agent Relationship Requires = 1) Assent, 2) Benefit (Agent conduct must
be for principals benefit), 3) Control (Right of Control - Has the power to supervise his
agents performance). Sub-agent, principal only liable if there is assent, benefit, and
control between principal and tortfeasor (typically no assent and/or right to control).
Borrowed Agent - The principal is generally not responsible for the borrowed agents
torts because he does not control them.
Generally, no vicarious liability between principal and independent contractions.
Exceptions are if IC is engaged in inherently dangerous activities (explosives, nuclear,
poison) or estoppel (appearance of agency between you and IC).
Scope of Principal-Relationship Factors = 1) Was conduct of the kind agent was
hired to perform? 2) Did the tort occur on the job (Frolic or Detour - Frolic Bad)? 3)
Did the agent intent to benefit the principal (even partially benefit ok, i.e. Took truck
home for night because 24 hour on-call, picked up groceries (not allowed to) and hit
someone one, still benefit to principal because you took truck home to benefit him with
on-call service and only a detour). GENERALLY, intentional torts do not rise to
vicarious liability. Only exceptions are that the intentional tort was 1) authorized by
principal, 2) natural from work of employment (bouncer), 3) motivated by a desire to
principal.
2) Liability of Principal For Contract is entered by Agents
Issue:

Whether the principal is liable for contracts entered into by its agent?

One-Part Test = Principal is liable for contracts entered into by its agent only if the
principal AUTHORIZED the agent to enter the contract.
There are four types of authority: 1) actual express, 2) actual implied, 3) apparent, and 4)
ratification.
Actual Express = Principal used words to express authority and agent. Can be Oral and
Private. If the contract itself must be in writing, than the expressed authority must be in
writing. Express authority will be revoked by either unilateral act of either principal or
agent or death and incapacity of principal. Look for limitations of authority to agent,
durable POA that has survival language during exam questions.
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Actual Implied = Authority which the principal gives the agent through conduct or
circumstances. 3 Ways = 1) Necessity, cant do the job unless authorized task 2)
Custom, 3) Prior acquiescence by principal.
Apparent Authority = Two Part Test = Principal cloaked agent with the appearance of
authority and third party reasonably relies on appearance of authority.
Ratification Authority = Authority can be granted after the contract has been entered if:
1) Principal has knowledge of ALL material facts regarding the contracts AND 2)
principal accepts the benefits of contract. Ratification CANNOT alter the terms of the
contract.
GENERAL RULES ON LIABILITY OF CONTRACT = The principal is liable on
its authorized contracts and the agent is not. However, in cases of an undisclosed
principal or partially disclosed principal, the agent maybe liable at the ELECTION
of the third party.
3) Duties Agent Owes to Principal
Duty of Care
Duty to Obey Instructions that are Reasonable
Duty of Loyalty = No Self-Dealing, No Usurping the Principals Opportunity, and No
Secret Profits (making a profit at principals expense without disclosure.) Use the
word disgorge somewhere.

PARTNERSHIPS

1) General Partnership Formation

There are no formalities to partnership formation. The SHARING of profits is key. It

cannot be for salary, but sharing of profits is only requirement. No state filing necessary,
the partnership springs into existence when sharing of profits between at least two people
occurs.
A.

Liabilities of General Partners to Third Parties

Agency/Principals rules apply. Generally, all partners are joint and severally liable to
the debts of the partnership. Incoming partners do not have liability for partnerships
pre-existing debt to their entry. Dissociating (withdrawing) partners do not have
liability for subsequent debts.
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.
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B.

Rights and Liabilities Between General Partners.

Agency Rules apply between partners (Duty of Loyalty). Action of Accounting is action
of one partner against another partner in a partnership for his breach of duty.
Partners Rights in Partnership Property and Liability
Specific partnership assets (land, equipment, leases) cannot be transferred out of
partnership, if owned by partnership, without all individual partners agreeing.
Share of the Profits: It is personal property owned by each individual of the partnership
(their respective share) and therefore it may be transferred to third parties (partner
transfers his share as collateral for a debt).
C. Share in Management: Cannot be transferred and you cannot sell your right to
vote.
TO DETERMINE IF IT THE FACT PATTERN INVOLVES PERSONAL
PROPERTY OR PROPERTY OF THE PARTNERSHIP, LOOK WHO
BOUGHT THE PROPERTY!
D. Management: Absent agreement, each partner is entitled to EQUAL control
regardless of profit share. Majority governs ordinary affairs while unanimous
consent required for fundamental matters.
E. Salary: Absent agreement, no salary for any partner regardless of how unjust this
is.
F. Partners share of profits and loss: AGREEMENT CONTROLS. When NO
agreement, PROFITS SHARED EQUALLY, LOSSES SHARED LIKE PROFITS.
If only losses mentioned in agreement, profits still shared EQUALLY.
4) General Partnership Dissolution: Absent an agreement, partnership dissolves when
any partner wants out, even just one. The real end of partnership is the TERMINATION.
The partnership winds-up from Dissolution to Termination.
A) Old business, partners retain liability on all transactions prior to winding up and
all transaction to wind up. All partners may be liable for acts that are not
appropriate for winding up if party does not know partnership has been dissolved.
Generally you need to give notice to creditors so they know, or notice to state of
dissolution and 90 days has elapsed.
B)

Priority of Distribution

First, the partnership must pay ALL creditors. Example, all outside credits and all
partners who have LOANED money (not contributions).
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Second is capital contributions paid by partners.

Third is profits if any.
GENERAL RULE = EACH PARTNER MUST BE REPAID HIS OR HER LOANS
AND CAPITAL CONTRIBUTIONS, PLUS THAT PARTNERS SHARE OF ANY
PROFITS, OR MINUS THAT PARTNERS SHARE OF ANY LOSSES.
5) Alternative Business Organizations
Limited Partnership = At least 1 general partner and you must file a certificate with the
state that includes the name of ALL general partners. GPs all liable and are defined
with their control to manage business. Generally Limited Partners cannot manage, all
though ULPA allows them to without giving up their limited liability.
Registered Limited Liability Partnership = No liability for any partners, including
generals. Must register with state and file annual reports.
LLC = Owners are called members, receive all benefits of partnership but limited
liabilities of corp. Must file articles of organization. All members can manage
business. No membership may be transferred without unanimous consent or allowed by
operating agreement. LLC dissolves on unanimous consent of members, 90 consecutive
days of no members, or by the event in the operating agreement.
General Rule on LLCs = Limited Liability + Limited Life + Limited Tax.

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