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Kaufman Loyola University of Chicago Law School
THREE AGENCY PROBLEMS I. II. III. I. Liability of Principal to Third-Parties for Torts of an Agent Liability of Principal to Third-Parties for Contracts Entered by an Agent Duties Which Agents Owe to Principals LIABILITY OF PRINCIPAL FOR TORTS OF AGENT -- RESPONDEAT SUPERIOR OR VICARIOUS LIABILITY A. B. Issue: Whether the principal will be vicariously liable for torts committed by agent. Two-Part 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. 1. The Principal-Agent Relationship. a) Principal-agent relationship requires: "ABC" (1) Assent, An informal agreement between the principal, who has capacity, and the agent. (Note: agency is a consensual relationship. But informal agreement is enough.) (2) Benefit, The agent conduct must be for the principal's benefit.
there usually might not be right to control the borrowed agent.) There can be no vicarious liability for a borrowed agent's tort unless there is assent.) b) Contrast Agent with Independent Contractor.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP (3) and Control* The principal must have the right to control the agent by having the power to supervise the manner of the agent's performance. (2) Rule: There can be no vicarious liability for an independent contractor's torts. 2 2008 . benefit and the right to control that borrowed agent tortfeasor. and the borrowed agent becomes the tortfeasor. (1) Factors: There is no right to control an independent contractor b/c there is no power to supervise the manner of an independent contractor's performance.) (b) Borrowed agents: (Context: One principal will go out and borrow another principal's agent. The sub-agent becomes the tortfeasor. (In bar exam questions. (Usually no assent will be found in the fact pattern of the question. benefit and the right to control that sub-agent tortfeasor. (a) Sub-agents: (Context: The agent will go out and find a subagent.) There can be no vicarious liability for a sub-agent's tort unless there is assent.
you will be estopped from denying vicarious liability even for an independent contractor's torts. it's likely to be within the scope of agency. Moreover. c) Did the agent intend to benefit the principal? If the agent even in part intended to benefit the principal. there is vicarious liability. Scope of Principal-Agent Relationship Factors: (3-part weighing test) a) Was conduct "of the kind" agent was hired to perform? If the conduct was within the job description. the station will be estopped from denying vicarious liability if it has held out its independent contractor with appearance of agency. and ii) estoppel. If your agent is on a Detour. EStop-L Gas Station had an independent contractor arrangement with the brake repairer. resulting in an accident. Estoppel: If you hold out your independent contractor with the appearance of agency. there is no vicarious liability for an independent contractor's torts. In this case. By contrast. The ultrahazardous activity exception: If the independent contractor commits a tort while engaging in ultrahazardous (i. Is E-Stop-L Gas Station liable? Yes. ii.g.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP (3) Exceptions: i. Detour A Frolic is a new and independent journey. 3 2008 . As the rule. really dangerous) activity. Brake repairer negligently repaired Tory Victus' brakes.e. if there is great sign of "EStop-L Gas Station and Brake Repair") 2. We call that conduct within the scope of agency. and therefore there will be vicarious liability even for an independent contractor's torts. Hypo: Tory Victus went to E-Stop-L Gas Station to have her brakes repaired. outside the scope of agency. except: i) ultrahazardous activities. it is vicariously liable for the repairer's torts. that's enough. (e. it is still within the scope of agency. brake repair is an ultrahazardous activity. b) *Did the tort occur "on the job"? (where & when question) Frolic v. a Detour is a mere departure from the assigned task.
Therefore. the agent was on a detour. or natural from the nature of employment. like assault and battery. are generally outside the scope of agency. 3. Narrow (narrowly construed and tailored) is OK. Typical fact pattern: A bouncer in the bar assaulting the patron.e. a mere departure from the assigned task. Intentional torts are within the scope if the conduct was: (1) (2) (3) specifically authorized by the principal. There are four types of authority: actual express. Actual Express Authority: Principal used words to express authority to agent. a) b) Rule: Oral. Intentional Torts. natural and motivated and therefore still within the scope of agency. apparent or ratification. One Test: Principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the contract. Except: 4 2008 . In this case. (The bouncer's act is authorized. actual implied. or motivated by the desire to serve the principal. (a) Rule: As a rule. b/c the tort occurred on the way back to work. employee hits a pedestrian. i. 1. In the parking lot of the dry cleaner. [State general rule first]) II. (b) Exceptions. B. this tort occurred within the scope of agency and there will be vicarious liability for that tort.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP Hypo: Employer instructs employee [symbol of true. pure agency agreement] to drive across town to deliver files to a branch office. Private. Issue: Whether principal is liable for contracts entered into by its agent. LIABILITY OF PRINCIPAL FOR CONTRACTS ENTERED BY AGENTS A. On the way back. C. Is employer liable? The principal will be liable for its agent's torts within the scope of agency. employee stops to pick up shirts at the dry cleaner for work the next day. intentional torts.
Is Principal bound on the sale? No. d) Except: express authority cannot be revoked if: there is a durable power of attorney. The principal will be liable on its authorized contracts. Therefore.g. b/c the contract involved the sale of land. Actual Implied Authority: a) Authority which agent reasonably believes the principal has given. She hires Alice to find a rare book to complete her collection.* Hypo: Paula collects rare books. "Power of Attorney": is a written expression of authority to enter into a transaction. Principal whispers into Agent's ear at party that principal wants Agent to negotiate the sale of Green Acres Farm. Alice becomes personally liable to pay for that book on that unauthorized contract (Paula’s estate is not authorized agent). the express authority to enter into that contract must be in writing. Hypo: Agent tells Principal that she is an expert in negotiating real estate transactions.. or Death or incapacity of the principal. the express authority must have that in writing. actual express authority terminated upon the principal(Paula)'s death. c) Express authority will be revoked by: (1) (2) Unilateral act of either party ("easy come easy go"). Paula dies. The principal will be liable on its authorized contracts. In this case. because: (conduct and circumstances) (1) Necessity: There is implied authority to do all tasks: 5 2008 . Agent negotiates the sale of Green Acres Farm for the Principal. As Alice is about to pay for the book. Therefore there was no express authority to pay for the book and Paula's estate will not be liable for that unauthorized contract. the oral private whisper is not sufficient for authority for this transaction. In this case. "Durable": look for a conspicuous survival language: e. Alice searches everywhere for the rare book. Therefore there was no authority to enter into the contract and there is no liability on its unauthorized contract.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP For LAND: if the contract involves a conveyance in land [which could last longer than one year]. Is Paula's estate bound by the contract? No. "survives incapacity" or "survives death" 2.
b) Lingering Authority . e. Charles tells his employee Dufus not to sell a special grandfather clock. Agent acts beyond the scope of the limitation. The principal is liable on its authorized contracts. that Agnes has been stealing money from her. 3. agent continues to act on principal's behalf. it includes all task necessary to achieve that task such as to enter into a contract. Priscilla terminates Agnes. Dufus sells the clock. there was apparent authority b/c i) the principal did cloak Dufus with the appearance of authority. Nonetheless. (2) Custom: There is implied authority to do all tasks: customarily performed by persons with the agent's title or position. A shipment of antique clocks arrives from London. (2) third-party reasonably relies on appearance of authority. E. Hypo: For many years. there is apparent authority b/c i) the principal has cloaked the agent with 6 2008 . Charles is liable based on apparent authority.Actual authority has been terminated. but principal has secretly limited that authority. lawyer (3) Prior dealings between the principal and the agent.g. Priscilla finds out. Agnes has sold goods as Priscilla's agent. In this case. The principal is liable on its authorized contracts. there was no actual expressed or implied authority to sell the clock. Therefore. Afterwards. a) Secret Limiting Instruction . an express authority to close the deal. Agnes continues selling to customers and runs away with their money. actual express and implied authority has then terminated. Nonetheless. and ii) the third party buyer reasonably relied on Dufus' appearance of authority. Apparent Authority: Two-Part Test: (1) Principal "Cloaked" agent with the appearance of authority and. There is implied authority to do all tasks: which the agent believes to be authorized from prior acquiescence by the principal. however.g. Charles goes to lunch.Agent has actual authority. Hypo: Charles owns an antique store. Is Charles bound on the sales contract? Yes.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP which are necessary to accomplish an expressly authorized task. Is Priscilla bound? Yes. In this case.
General Rules: a) b) 2. In this case.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP lingering appearance of authority. Nor is there any evidence of apparent authority to purchase wooden barrels. If no authority. and Principal accepts its benefits. But in New York the ratification is not valid b/c it was not complete." Is Priscilla bound? No. Ratification must be whole and complete. Therefore. the principal arguably ratified the contract through knowledge and acceptance of its benefits. If authority. Ratification: Authority can be granted after the contract has been entered.) 7 2008 . If authority. agent is liable on the contract. D. [NY] Hypo: Priscilla gives Agnes a power of attorney to purchase steel drums. Exception: If principal is partially disclosed (only the identity of principal concealed) or undisclosed (fact of principal concealed). (Knowledge + Acceptance of Benefits = Ratification) c) Except: Ratification cannot alter the terms of the contract. if: a) b) Principal has knowledge of all material facts regarding the contract. third party may choose to hold the agent liable. principal is not liable on the contract.000 wooden barrels. Priscilla tells Agnes "great job. agent is not liable on the contract. Priscilla is liable based on apparent authority 4. The Rules of Liability on the Contract 1. (Undisclosed Principal Situation: the identity or existence of the principal was not disclosed. If no authority. there was no actual expressed or implied authority to purchase wooden barrels. I love wooden barrels. principal is liable on the contract. cannot be partial.000. Therefore there was no authority here and therefore no liability on that transaction. but I only need 10. Agnes enters a contract to purchase 11. authorized agent may nonetheless be liable at the election of the third-party. The principal will be liable on its authorized contracts. and ii) customers may continue to rely reasonably on the lingering authority until they receive notice of termination. Nonetheless.
if any.. DUTIES AGENT OWES TO PRINCIPAL A. i. has Agnes breached? [liability question] The agent has breached the duty of loyalty by i) self-dealing. Agnes spots choice diamonds. PARTNERSHIP [usually test general partnership or three other limited liability forms] In New York.* a) b) c) D.e. III.e.Agent cannot receive a benefit to the detriment of the principal.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP III. B. II. or Secret profits at principal's expense. Partnership Formation Liabilities of Partners to Third-Parties Rights and Liabilities Between Partners Partnership Dissolution 8 2008 . C. not lie or break the law). Duty to obey reasonable instructions (i. (a) What duties. if any. and secretly buys them for herself for $1 million. Duty to exercise reasonable care. does Priscilla have against Agnes? The principal may recover any losses caused by the breach and also may recover any profits made by the breaching agent as well. and iii) by making a secret profit at the principal's expense. receiving a benefit to the principal's detriment. Duty of Loyalty. Usurping the principal's opportunity. ii) by usurping the principal's opportunity to buy those diamonds. Agnes then resells the diamonds for $2 million. (b) What remedies. IV. Self-dealing . the Uniform Partnership Act governs the following: FOUR ISSUE AREAS: I. Hypo: Priscilla authorizes Agnes to buy diamonds.
Partners are agents of the partnership for carrying on usual partnership business. Definition: A general partnership is an association of two or more persons who are carrying on as co-owners of a business for profit. 1. Partnership is bound by contracts entered by partners with authority. but any money contributed to the partnership by an incoming partner can be used by the partnership to satisfy prior debts. Sharing of the profits. if any. incoming partners are NOT liable for prior debts.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP I. 9 2008 . Incoming partner's liability for pre-existing debts? As a rule. B. By your conduct alone. 2. 3. GENERAL PARTNERS ARE PERSONALLY LIABLE FOR DEBTS OF THE PARTNERSHIP. Outgoing partner's liability for subsequent debts? Outgoing partners retain liability on future debts until they die unless notice of their withdrawal has been given to all known and even potential creditors. – It is the Key! The contribution of money or services in return for a share of the profits. Partnership is bound by torts committed by partners in scope of partnership business. PARTNERSHIP FORMATION (general partnership) A. you will be deemed as a general partnership. Formalities: There are NO formalities to becoming a general partnership. General Partnership Liability by Estoppel . 1. C. C. LIABILITIES OF PARTNERS TO THIRD-PARTIES A.One who represents to a thirdparty that a partnership exists will be liable as if a partnership exists. B. Agency Principles Apply. is prima facie evidence of a general partnership. 2. II.
Registered Limited liability Partnerships (RLLP) partnerships engaged in professional services) 10 (limited 2008 to . But they may not exercise control of the business without forfeiting their limited liability status. general partners are liable personally for all partnership obligations. c) Liability and Control: (1) General Partners: General partners are still liable personally for all limited partnership obligations of the business formed. Nonetheless. In this case. however. however. At a party. Therefore she is liable for the co-partner Peter's torts. not based on a sharing of profits. 2. Contrast Formation and Liability Within Other Unincorporated Business Organizations. Paula and Peter never really formed a general partnership because there was a lending arrangement. Limited Partnerships a) Defined: A limited partnership is a partnership with at least one general partner and at least one limited partner. Therefore. Later that night.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP Hypo: Paula convinced her friend Peter to start a sailing school. and agreed to lend Peter money to purchase a boat for that purpose. and agreed to allow Peter to take it for a test ride the next day. b) Formation: You must file a certificate of limited partnership with the Department of State that includes the names of all general partners. including co-partner's torts. she will be liable as if she were. under partnership by estoppel. D. May wealthy friend sue Paula for the loss of the boat? As a rule. Peter and Paula fight and decide to drop the sailing school idea. 1. Paula told a wealthy friend: "My partner Peter and I are starting a sailing school and we need a boat. The next day Peter takes the boat for a ride and destroys the boat. (2) Limited Partners: Limited partners are not liable for the obligations of limited partnership. But they may exercise[ substantial managerial control] of business. Paula will be liable b/c Paula has represented to that third party that she is a partner in a partnership with Peter." The wealthy friend offered to sell Paula and Peter a boat.
b) Formation: You must file the articles of organization plus you must publish a summary of the articles once a week for six weeks in a row in at least two newspapers. 11 2008 . 1. Duty of loyalty.C. RIGHTS AND LIABILITIES BETWEEN PARTNERS (general partners) A. Partners are FIDUCIARIES of each other and the partnership.events of dissolution. They are also liable for the wrongdoings of those under their direct supervision. but may delegate to managers.L. however. (2) Limited Liquidity -. (3) Limited Life -. Limited Liability Companies (LLC) a) Original Purpose: To give the owners of the business the same rights and limited liabilities of shareholders of a corporation plus the beneficial tax status of a partnership. e) L.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP a) Formation: You must register by filing a certificate of registration with the Department of State that includes the profession to be practiced. 3. [derivative suits available] d) Partnership Characteristics: (LLC must have at least two of the three) (1) Members control. Note. c) Liabilities: The members who are the owners are not liable for any obligations of the company itself. b) Liabilities: No partner will be liable for the partnership's debts and obligations.Member interests are not freely transferable.: = limited liability + limited liquidity + limited life + limited tax III. that individual partners are always liable for their own wrongdoings.
leases.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP Partners. 2. 3. or make a secret undisclosed profit at the partnership's expense. Share of profits and surplus. Therefore. engage in self-dealing. Hypo: John buys a car in John's own name with John's money which John uses in partnership business. or equipment owned only by the partnership as specific partnership assets. The partnership may recover losses caused by the breach and may also disgorge profits made by the breaching partner as well. B. or usurp partnership opportunities. no individual partner may transfer these assets without partnership authority. An asset owned only by the partnership itself and not individual partners. may not: a) b) c) 2. Action for Accounting – Remedy for the breach of duty of loyalty [It's the only form of action that can be brought by the partnership against one of its own partners for breach of duty of loyalty]. Share in management. individual partners may freely transfer their share of profits [and surplus] to third parties. If personal funds were used. include land. Specific Partnership Assets. Each partner owns their share of profits as personal property. Therefore. Conflict between specific partnership assets and personal property. just like agents. individual partners may not transfer their share in management to third parties. Partners' rights in partnership property. 4. it becomes personal property. John dies. Test: "Whose money was used to buy the property?". it becomes the partnership property. Therefore. 1. Does John's spouse Yoko get the car or is it a specific asset of the partnership? 12 2008 . If the partnership money was used to buy the property.
which will be 60/40 as well. B. Hypo: A and B are partners. A works 96 hours a week."Losses shared 60/40. one partner one vote. And therefore. Second. B sleeps all day. they are shared equally. (3) *If Agreement -.Absent an agreement. "no salary" is our default rule. in the absence of an agreement on losses. because John bought the car with his own money. they are shared just like profits.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP In this case. How do they vote? Absent an agreement. PROFITS SHARED EQUALLY. MANAGEMENT -. SALARY -." Profits shared? In the absence of an agreement on profits. and C agree to contribute money and share profits 60-30-10. partners get NO SALARY.) Hypo: A. E. D. they are shared equally. Absent an agreement.silent on profits and losses? First. "equal control/one partner one vote" is our default rule. Absent an agreement. he may freely transfer that car to Yoko through inheritance. Does A get any salary? Absent an agreement. 1. Hypos: (1) If Agreement -. (2) If Agreement -. each partner entitled to EQUAL control (vote). LOSSES SHARED LIKE PROFITS. (Default rule: equal control. 13 2008 ." Losses shared? In the absence of an agreement on losses. Exception: Partners do receive compensation for helping to wind up the partnership business. in the absence of an agreement on profits.Absent an agreement. it is his own car."Profits shared 60/40. they are shared just like profits. 2. PARTNER'S share of profits and losses. which will be equally as well. C.
retain liability on all transactions entered into to wind up old business with existing creditors. Compensation for winding up. and therefore its individual general partners still. Partnership's liability for winding up. profits are shared equally. Termination: The real end of the partnership. the partnership. 3.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP (4) *Partner A puts up all of the money. still retain liability even on brand new business transactions until notice of dissolution is given to all existing and even potential creditors. 1. C. Partner C gives the partnership its fine name. Compensation and liability for winding up. 2. Key definitions: 1. B. DISSOLUTION A. [an exception to general rule of no salary] 2. 14 2008 . and therefore its individual general partners. Partner D does nothing. Partner B does all of the work. Dissolution: [Dissolution of a general partnership occurs upon] any material change in the partnership caused by the death or withdrawal of any single general partner causes automatic dissolution of general partnership. Winding Up: Winding up is the period between dissolution and termination in which the remaining partners must liquidate the partnership's assets to satisfy the partnership's creditors. a) Old Business? The partnership. Partners do receive compensation for helping to wind up the partnership business. b) New Business? For brand new business.. IV. Priority of distribution. How are profits shared? In the absence of an agreement.
In winding up. they liquidate the partnership assets and have a total of $1 million to distribute.000 in full. Partner A and 15 2008 3. Finally.000. Each level of priority must be fully satisfied before beginning the next level in this order: a) First. in the prior hypo.000 to trade creditors.000 in return for his loan. the AyeBee Partnership has only $700.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP 1.000 to distribute? First. Third. the partnership still owes to B $200. inside partner A must receive $100. Partner B must receive $200. all outside trade creditors must receive $600.000 in full.000 for his capital contribution.000. all creditors must be paid. and (3) Partner B made capital contributions of $200. capital contributions by partners must be paid. (2) Partner A loaned the partnership $100.e. and all inside partners who have loaned to the partnership must be paid as well. . So.000 in return for his loan. i. not loaned. 2. Secondly. i) ii) b) all outside non-partner trade creditors must be paid. Any money paid in. inside partner A must receive $100. However. each receives $50. all outside trade creditors receive $600. c) Profits and surplus.000 capital contribution. How should that amount be distributed.000 are shared equally by A and B without agreement. Secondly. the remaining profits and surplus of $100. capital contributions must be repaid. Any leftover is shared equally among partners in the absence of an agreement. Rule: Each partner must be repaid his or her loans and capital contributions. if (1) the partnership owes $600. by the partners to the partnership MUST be fully repaid right now.000? First.* *Second. plus that partner's share of the profits or minus that partner's share of the losses. Distribution Hypos:* (1) A and B dissolve the AyeBee Partnership. if any. (2) Suppose.
000 each to cover the loss. 3.000 capital contribution later] MINI-REVIEW A. Formation (a) (b) 2. Implied authority – necessity. Benefit. Assent. carrying on as co-owners of a business for profit. Duties Agent Owes Principal: (a) (b) (c) Care Obedience Loyalty (disgorge profits) B. revocable unless durable. two or more persons. No general partnership formalities. [B will be paid its $200. (profits are prima facie evidence) Liability to Third-Parties (a) General partners are liable personally for partnership obligations. Therefore. A and B must pay in $100. or prior dealings. Association. Apparent authority – principal cloaks + third party reliance Ratification = Knowledge + Acceptance of benefits Authorized agents not liable unless Undisclosed Principal. Principal's Liability for Agent's Contracts: (a) (b) (c) (d) (e) Express authority – oral. Principal's Liability for Agent's Torts: (a) (b) (c) 2.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP Partner B must share that loss equally. Intentional torts generally outside the scope. custom. Control plus Scope No vicarious liability for independent contractor's torts. 16 2008 . except land. AGENCY 1. PARTNERSHIP 1.
iv) profits. 17 2008 .C. and L. 4. Relations Between Partners (a) (b) (c) Fiduciaries-Accounting for profits Only the share of profits is liquid transferable personal property. no salary. Limited partners. Estoppel – representors are liable as if general partners. (b) Priority: i) outside creditors. equal control. ii) inside creditors. if any. registered limited liability partners. Dissolution (a) Definitions: Dissolution equals any material change including death or withdrawal. (c) Distribution Rule: Each partner receives their loans and capital contributions plus their share of profits. and losses like profits.L. equal profits. members have a limited liability. but also minus their share of losses.BAR/BRI Bar Review New York Course AGENCY & PARTNERSHIP (b) (c) 3. iii) capital contributions. shared equally without an agreement. Without an agreement.
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