AGENCY AND PARTNERSHIP OUTLINE AGENCY I. Liability of Principal for TORTS of Agent: Respondent Superior/Vicarious Liability A.

A principal will be liable for torts committed by their agent if: 1. A principal-agent relationship exists; AND a. A principal-agent relationship requires: i. Assent; a. An informal agreement between a principal who has capacity and agent. ii. Benefit; AND a. The agents conduct must be for the principals benefit. iii. Control. a. The principal must have the right to control the agent by having the power to supervise the manner of the agents performance. b. There is NO vicarious liability for torts of sub-agents or borrowed agents unless there is assent, benefit and the employer has the right to control that sub-agent or borrowed agent tortfeasor c. What about liability of employer for an independent contractors torts? 1. General Rule: No vicarious liability for independent contractors torts. i. Factors: No right to control an independent contractor b/c no power of the employer to supervise the manner of its performance. 2. Exceptions: i. If the independent contractor commits a tort while engaged in ultra hazardous activity, the employer will be vicariously liable. ii. If the employer holds out the independent contractor with the appearance of agency, the employer will be estopped from denying vicarious liability for that tort. 2. The tort was committed by the agent within the scope of the relationship. a. Test: i. Was the conduct of the kind agent was hired to perform? a. If the conduct was in the job description, then inside the scope of agency. ii. Did the tort occur on the job? Frolic (no) v. Detour (yes) a. Frolic: A new and independent journey that is outside the scope of agency b. Detour: A mere departure from an assigned task that is inside the scope of agency (i.e., look for key phrase on the way back). iii. Did the agent intend to benefit the principal? a. If the agent, even in part, intended to benefit the principal by its conduct, that intent alone is enough to be inside the scope of agency. b. Liability for Intentional Torts i. Rule: Intentional torts are generally outside the scope of agency. ii. Exceptions: a. Intentional torts will be inside the scope if the conduct was: 1. Specifically authorized by the principal; OR 2. Natural from the nature of employment; OR 3. Motivated by a desire to serve the principal.

II. Liability of Principal for CONTRACTS Entered by Agents A. Rule: Principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the contract. 1. 4 Types of Authority: a. Actual Express Authority i. Where the principal used words to express authority to agent. ii. Rule: Oral; Private; Narrow a. EXCEPT if the contract itself involves an interest in real estate lasting more than one year, then the express authority to enter into that contract must be in writing. iii. Express authority will be revoked by: a. Unilateral act of either party; OR b. Death or incapacity of principal 1. EXCEPT that express authority cannot be revoked if the principal gives the agent a durable power of attorney. i. A durable power of attorney is a written expression of authority to enter into a transaction that includes conspicuous survival language and thus survives death. These powers are narrowly construed. b. Actual Implied Authority i. Authority which agent reasonably believes the principal has given because of: a. Necessity: Those tasks that are necessary to accomplish an expressly authorized task. b. Custom: Those tasks that are customarily performed by persons with the agents title or position. c. Prior Dealings between the principal and agent: Those tasks that the agent believes they are authorized to do from prior acquiescence by principal. c. Apparent Authority i. Two Part Test: a. Principal cloaked agent with the appearance of authority; AND b. Third-party reasonably relies on appearance of authority. ii. Examples: a. Secret Limiting Instruction: Agent has actual authority, but principal has secretly limited that authority. Agent acts beyond scope of limitation. 1. Ex: Employer gives employee authority to sell goods in store. b. Lingering Authority: Actual authority has been terminated, but agent continues to act on principals behalf. Customers may continue to rely on lingering authority of employee until receive notice of his/her termination. d. Ratification i. 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. 2. Rules of Liability on the Contract a. General Rules: i. If no authority, principal is not liable on the contract and agent is liable. ii. If authority, principal is liable on the contract and agent is not liable.

b. Exception: i. 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. III. Duties Agent Owes to Principal A. Duty to exercise reasonable care B. Duty to obey reasonable instructions (i.e., not lie or break the law) C. Duty of Loyalty 1. This duty is breached by the agents: a. Self-Dealing; i. Agent cannot receive a benefit to the detriment of the principal. b. Usurping the principals opportunity; OR c. Secret profits. 2. The principal may recover losses caused by the breached and also the principal may disgorge profits made by the breaching agent. PARTNERSHIP I. Partnership Formation A. Formalities: 1. There are NO formalities to form a general partnership B. What is a General Partnership? 1. A general partnership is an association of 2 or more persons who are carrying on as co-owners for profit. 2. The contribution of capital or services in return for a share of the profits is prima facie evidence of a general partnership. II. Liabilities of Partners to Third-Parties A. Agency principles apply: 1. Partners are agents of the partnership for carrying on usual partnership business. 2. Partnership is bound by torts committed by partners in scope of partnership business. 3. Partnership is bound by contracts entered into by partners with authority. B. General Partners are personally liable for debts of the partnership: 1. Incoming partners are generally not liable for pre-existing debts BUT any money paid into the partnership by an incoming partner can be used to satisfy those prior debts. 2. Outgoing partners retain liability on future debts until they die UNLESS notice of withdrawal has been given to all known and potential creditors of partnership. C. General Partnership Liability By Estoppel 1. Rule: One who represents to a third party that a partnership exists will be liable as if a partnership exists. 2. Ex: A person that forms lending arrangement not based on sharing of profits may be liable as a general partner by estoppel if they represent to a third party that he or she is a partner of the person to whom they are lending money to. D. Formation and Liability Within Other Unincorporated Business Associations: 1. Limited Partnerships: a. A limited partnership is a partnership with at least 1 general partner and at least 1 limited partner.

b. Formation: By filing a limited partnership certificate that includes names of all general partners c. Liability and Control: i. General partners are liable for all limited partnership obligations BUT they have the right to control and manage the business. ii. Limited partners are not liable for the limited partnerships obligations, beyond paying for their interest, BUT they may not control the business without forfeiting their limited partner status. 2. Registered Liability Partnerships (RLLP) a. Formation: A partnership engaged in professional services that files a certificate of registration with the NY Department of State. b. Liabilities: i. No partner is liable for the debts of the registered limited liability partnership BUT a partner can always be sued for their personal wrongdoing (e.g., malpractice). 3. Limited Liability Companies (LLC) a. Formation: i. By filing Articles of Organization and publishing a summary of the Articles of Organization once a week for 6 weeks thereafter in 2 newspapers. b. Liabilities: i. Members are not personally liable for any debts and obligations of the LLC itself BUT the LLC must abide by 2 of the following characteristics: a. Members control, but may delegate to managers; b. Limited Liquidity (member interests are not freely transferable); c. Limited Life (events of dissolution) ii. In short, LLC = limited liability + limited liquidity + limited life + limited tax III. Rights and Liabilities Between Partners A. Partners are FIDUCIARIES of each other and the partnership. 1. Duty of Loyalty: a. General partners must never engage in self-dealing, u-surp the partnerships opportunities or make secret profits at the partnerships expense. 2. If the duty of loyalty is breached, then the partnership may commence an action for accounting and may recover losses caused by the breach and also may disgorge profits made by the breaching partner. B. Partners Rights in Partnership Property 1. Specific Partnership Assets: a. Land, leases and equipment (specific assets) are owned only by the partnership itself. Each partners share in management is also an asset owned only by the partnership itself. Therefore, no individual partner may transfer the specific partnership assets or their share in management without partnership authority. 2. Share of Profits and Surplus: a. Personal property owned by individual partners. Therefore, individual partners may transfer their shares of profits to some third party. 3. The TEST for determining whether an asset is a partnership asset or personal property is by asking: Whose money was used to buy the property? a. If partnership money, then partnership property.

b. If personal money, then personal property. C. Default Rules 1. Management: Absent an agreement, each partner is entitled to equal control (vote). 2. Salary: Absent an agreement, partners get no salary. a. EXCEPT: Partners do receive compensation for helping to wind up the partnerships business. 3. Partners Share of Profits and Losses: a. Absent an agreement, profits are shared equally. i. EVEN IF the agreement dictates how losses are to be shared, profits still shared 50/50 if agreement is silent as to profits. b. Absent an agreement, losses are shared like profits. IV. Partnership Dissolution A. Key Definitions: 1. Dissolution is any material change in the partnership caused by the death or withdrawal of any single general partner. 2. Winding up is the time between dissolution and termination, in which the remaining partners must liquidate the partnerships assets to satisfy partnerships creditors. 3. Termination is the real end. B. Compensation and Liability for Winding Up: 1. Partners are to be compensated for helping to wind up the partnerships business. 2. Partners liability for winding up: a. The partnership (and its individual general partners) is liable on all transactions entered into to wind up old business with existing creditors. i. Old business is 1) assigning claims; 2) selling partnership assets; 3) performing contracts made prior to dissolution; 3) collecting debts due; 4) compromising claims; 5) paying off creditors; and 6) distributing remainder of business. b. The partnership (and its individual general partners) is liable on all new business until notice of dissolution is given to all existing and potential creditors. i. New business is 1) extending time on a debt; 2) entering into new contracts; and 3) increasing an obligation of the partnership, even by one cent except necessary contracts. C. Priority of Distribution 1. General Rule: Each partner must be repaid his or her loans and capital contributions, plus that partners share of the profits or minus that partners share of the losses. 2. Distribution Scheme: Each level of priority must be fully satisfied before beginning the next level: a. First, creditors must be paid. i. All outside non-partner trade creditors are paid first. ii. All inside partners who have loaned money to partnership are paid second. b. Second, capital contributions by partners must be paid. i. The partnership is liable to repay (in full) the capital contributions made by each partner. c. Third, profits and surplus, if any, are to be shared equally amongst the partners (in the absence of an agreement).