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AGENCY AND
PARTNERSHIP

PROFESSOR MICHAEL KAUFMAN

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 AGENCY AND PARTNERSHIP
(RE-RULPA, MEE, UBE)
OUTLINE AND HYPOTHETICALS

Professor Michael Kaufman

Loyola University Chicago School of Law

AGENCY
THREE AGENCY PROBLEMS:
I. Liability of Principal to Third Parties for Torts of an Agent
II. Liability of Principal to Third Parties for Contracts Entered into by an Agent
III. Duties Which Agents Owe to Principals.

I. LIABILITY OF PRINCIPAL FOR TORTS OF AGENT RESPONDEAT

SUPERIOR OR VICARIOUS LIABILITY
A. Issue: Whether the principal will be vicariously liable for torts committed by its
agent.
B. Two-Part Test: Principal will be liable for torts committed by its agent if: (1)
______________________________________________________________, and
(2) the tort was committed by the agent within the ______________________ of
that relationship.
1. The Principal-Agent Relationship
a. Principal-agent relationship requires:
1) Assent
________________________________________________
________________________________________________

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2. AGENCY AND PARTNERSHIP

2) Benefit
________________________________________________
________________________________________________
3) Control
________________________________________________
________________________________________________
a) Sub-agents: Will the principal be vicariously liable
if its agent gets the help of a sub-agent and the
sub-agent commits the tort?
1) The principal will be liable for a sub-agents
tort only if there is:
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
2) Typically, the principal does not assent to
the sub-agents help and does not have the
right to control the sub agent. Therefore,
____________________________________
____________________________________
____________________________________
____________________________________
b) Borrowed agents: Will a principal who borrows
another principals agent be vicariously liable for
the borrowed agents tort?
 AGENCY AND PARTNERSHIP 3.

1) The principal will be liable for a borrowed

agents tort only if there is:
____________________________________
____________________________________
____________________________________
2) Typically, although the borrowing principal
may assent to, and benefit from, the
borrowed agent, the borrowing principal
does not assume any right to control the
borrowed agent. Therefore,
____________________________________
____________________________________
____________________________________
____________________________________
b. Contrast Agents with Independent Contractors
1) The key distinction between an agent and an independent
contractor is that:
________________________________________________
________________________________________________
________________________________________________
2) Vicarious liability rule for independent contractor torts:
________________________________________________
________________________________________________
________________________________________________
3) Exceptions:
a) __________________________________________
__________________________________________
__________________________________________
__________________________________________
______________________________________;and
4. AGENCY AND PARTNERSHIP

b) __________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
Hypo: 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 Brake
Repairer. Brake Repairer tortiously repaired Torys brakes, resulting in an
accident. Is E-Stop-L Gas Station Liable?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
2. Scope of Principal-Agent Relationship Factors
a. Was conduct of the kind agent was hired to perform?
______________________________________________________
______________________________________________________
b. Did the tort occur on the job? Frolic v. Detour:
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
c. Did the agent intend to benefit the principal?
______________________________________________________
______________________________________________________
 AGENCY AND PARTNERSHIP 5.

Hypo: 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?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
3. Intentional Torts
a. Rule:
______________________________________________________
______________________________________________________
b. Exceptions: Intentional torts are within the scope if the conduct
was:
1) _____________________________________________; or
2) _____________________________________________; or
3) ________________________________________________

II. LIABILITY OF PRINCIPAL FOR CONTRACTS ENTERED BY AGENTS

A. Issue: Whether the principal is liable for contracts entered into by its agent.
B. One Test: Principal is liable for contracts entered into by its agent only if the
principal authorized the agent to enter the contract.
C. There are four types of authority: actual express, actual implied, apparent, and
ratification.
1. Actual Express Authority: Principal used words to express authority to
agent.
a. Rule: Actual express authority can be ______________________
_____________________________________________________
6. AGENCY AND PARTNERSHIP

b. Exception:
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
c. Express authority will be revoked by:
1) Unilateral act of either the principal or the agent, or
2) Death or incapacity of the principal.
Hypo: 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 Paulas estate bound by the contract and liable to
pay for the book?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
d. Exception:
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
e. Actual Express Authority is _______________________________
______________________________________________________
 AGENCY AND PARTNERSHIP 7.

2. Actual Implied Authority

a. Authority which the principal gives the agent through conduct or
circumstance:
1) Necessity: There is implied authority to do all tasks:
________________________________________________
________________________________________________
________________________________________________
2) Custom: There is implied authority to do all tasks:
________________________________________________
________________________________________________
________________________________________________
3) Prior acquiescence by the principal. There is implied
authority to do all tasks:
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
3. Apparent Authority: Two-Part Test: (i) Principal cloaked agent with
the appearance of authority, and (ii) third party reasonably relies on
appearance of authority.
Hypo: 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?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
8. AGENCY AND PARTNERSHIP

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
4. 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. Exception: Ratification cannot alter the terms of the contract.
Hypo: Priscilla gives Agnes a power of attorney only 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?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
D. The Rules of Liability on the Contract
1. General Rule: The principal is liable on its authorized contracts, and
therefore as a rule: ____________________________________________
____________________________________________________________
2. Exception: The undisclosed principalIf principal is partially disclosed
(only the identity of the principal concealed) or undisclosed (fact of
principal concealed), authorized agent may nonetheless be liable at the
election of the third party.
 AGENCY AND PARTNERSHIP 9.

III. DUTIES AGENT OWES TO PRINCIPAL

A. In return for reasonable compensation and reimbursement of expenses, agents
owe principals:
1. Duty of _____________________________________________________
2. Duty to _____________________________________________________
3. Duty of _________________________________________. The agent
may never do any of the following:
a. Self-dealing: Agent cannot receive a benefit to the detriment of the
principal.
b. Usurping the principals opportunity, or
c. Secret profits: making a profit at the principals expense without
disclosure.
B. Hypo: 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.
1. What duties, if any, has Agnes breached?
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
2. What remedies, if any, does Priscilla have against Agnes?
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
10. AGENCY AND PARTNERSHIP

PARTNERSHIP
FIVE ISSUE AREAS:
I. General Partnership Formation
II. Liabilities of General Partners to Third Parties
III. Rights and Liabilities Between General Partners
IV. General Partnership Dissolution
V. Alternative Unincorporated Business Organizations

I. GENERAL PARTNERSHIP FORMATION

A. Formalities
____________________________________________________________
____________________________________________________________
B. Definition
____________________________________________________________
____________________________________________________________
____________________________________________________________
C. Sharing of Profits is the Key Factor. Therefore:
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

II. LIABILITIES OF GENERAL PARTNERS TO THIRD PARTIES

A. Agency Principles Apply
1. Partners are agents of the partnership for apparently carrying on usual
partnership business.
2. Therefore, the general partnership is liable for each partners torts in the
scope of partnership business and for each partners authorized contracts.
 AGENCY AND PARTNERSHIP 11.

B. Each General Partner is Personally Liable for All Debts of the Partnership
and for: __________________________________________________________
1. Incoming partners liability for pre-existing debts
____________________________________________________________
____________________________________________________________
____________________________________________________________
2. Dissociating (withdrawing) partners liability for subsequent debts
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
C. 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.
Hypo: 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 tortiously destroys the boat. May the wealthy friend sue Paula for
the loss of the boat?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
12. AGENCY AND PARTNERSHIP

III. RIGHTS AND LIABILITIES BETWEEN GENERAL PARTNERS

A. General Partners are Fiduciaries of Each Other and the Partnership
1. Therefore, general partners owe to each other and the partnership:
____________________________________, which means that general
partners may never engage in __________________________________;
may never ______________________________partnership opportunities;
and may never make a __________________ at the partnerships expense.
2. Action for Accounting
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
B. Partners Rights in Partnership Property and Liquidity
1. Specific Partnership Assets
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
2. Share of Profits
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
 AGENCY AND PARTNERSHIP 13.

3. Share in Management
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
4. In order to determine whether the fact pattern involves property owned by
the partnership or personal property owned by an individual partner, the
test is:
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
Hypo: John buys a car in Johns own name with Johns money which John uses in
partnership business. John dies. Does Johns spouse Yoko get the car or is it a
specific asset of the partnership?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

C. Management: Absent an agreement, each partner is entitled to EQUAL control

(vote).
Hypo: A, B and C agree to contribute money and share profits 60-30-10. How do
they vote?
__________________________________________________________________
__________________________________________________________________
14. AGENCY AND PARTNERSHIP

D. Salary: Absent an agreement, partners get NO SALARY.

Hypo: A and B are partners. A works 96 hours a week. B sleeps all day. Does A
get any salary?
__________________________________________________________________
Exception:
__________________________________________________________________
E. Partners Share of Profits and Losses
1. Absent an agreement, PROFITS SHARED EQUALLY
2. Absent an agreement, LOSSES SHARED LIKE PROFITS
Hypos:
a. If an agreement is silent on profits and losses?
______________________________________________________
______________________________________________________
b. If an agreement states that profits are shared 60/40 but is silent
on losses. Losses shared?
______________________________________________________
c. If agreement states that losses are shared 60/40 but is silent on
profits. Profits shared?
______________________________________________________
d. 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?
______________________________________________________
 AGENCY AND PARTNERSHIP 15.

IV. GENERAL PARTNERSHIP DISSOLUTION

A. Key definitions
1. Dissolution
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________

2. The Real End of the Partnership is Called:

____________________________________________________________
3. Winding Up
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
B. Partnerships Liability
1. Old business. The partnership and therefore its individual general partners
retain liability on:
____________________________________________________________
____________________________________________________________
2. New business. The partnership and therefore its individual general
partners retain liability on brand new transactions during winding up until:
____________________________________________________________
____________________________________________________________
____________________________________________________________
16. AGENCY AND PARTNERSHIP

C. Priority of Distribution
1. Each level of priority must be fully satisfied before beginning the next
level. Order of priority:
a. First, the partnership must pay all creditors. Creditors include:
______________________________________________________
______________________________________________________
______________________________________________________
b. Second, the partnership must repay all capital contributions paid
into the partnership by partners.
______________________________________________________
______________________________________________________
c. Third, profits if any:
______________________________________________________
______________________________________________________
______________________________________________________
2. 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.
3. Distribution Hypos:
a. 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?
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
 AGENCY AND PARTNERSHIP 17.

b. Suppose, in the prior hypo, that AyeBee Partnership has only

$700,000 to distribute?
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________

V. ALTERNATIVE UNINCORPORATED BUSINESS ORGANIZATIONS

A. Limited Partnerships
1. Defined:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
2. Formation:___________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
3. Liability and Control
a. General Partners:________________________________________
______________________________________________________
______________________________________________________
18. AGENCY AND PARTNERSHIP

b. Limited Partners:________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
______________________________________________________
B. Registered Limited Liability Partnerships (RLLP)
1. Formation:___________________________________________________
____________________________________________________________
____________________________________________________________
2. Liabilities:___________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
C. Limited Liability Companies (LLC)
1. Defined:_____________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
2. Formation Requirements: _______________________________________
____________________________________________________________
____________________________________________________________
 AGENCY AND PARTNERSHIP 19.

3. Control:_____________________________________________________
____________________________________________________________
4. Limited Liquidity:_____________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
5. Limited Life:_________________________________________________
____________________________________________________________
____________________________________________________________
6. Therefore, LLCs=_____________________________________________
____________________________________________________________
20. AGENCY AND PARTNERSHIP

MINI REVIEW
A. AGENCY
1. Principals Liability for Agents Torts
(a) ____________________________________________________________
(b) ____________________________________________________________
(c) ____________________________________________________________
2. Principals Liability for Agents Contracts
(a) ____________________________________________________________
____________________________________________________________
(b) ____________________________________________________________
(c) ____________________________________________________________
(d) ____________________________________________________________
(e) ____________________________________________________________
____________________________________________________________
3. Duties Agent Owes Principal
(a) ____________________________________________________________
(b) ____________________________________________________________
(c) ____________________________________________________________

B. PARTNERSHIP
1. Formation
(a) ____________________________________________________________
(b) ____________________________________________________________
____________________________________________________________
2. Liabilities to Third Parties
(a) ____________________________________________________________
(b) ____________________________________________________________
 AGENCY AND PARTNERSHIP 21.

3. Relations Between Partners

(a) ____________________________________________________________
(b) ____________________________________________________________
(c) ____________________________________________________________
____________________________________________________________
4. Dissolution
(a) Priority
____________________________________________________________
____________________________________________________________
(b) Distribution Rule
____________________________________________________________
____________________________________________________________
5. Alternative Unincorporated Business Organizations
__________________________________________________________________
__________________________________________________________________