AGENCY OVERVIEW 1.

AGENCY OVERVIEW
I. IN BRIEF
Agency is a consensual relationship between a principal and an agent. The large topics
to think about in agency law include: (1) the formation of the agency relationship; (2) an
agent’s and principal’s duties and remedies; and (3) an agent’s and principal’s liability
to third parties, in contract and in tort.

A. AGENCY
1. Creation of Agency Relationship
a. Capacity—The principal must have contractual capacity; the agent only needs
minimal capacity.
b. Consent—Consent must be manifested by both the principal and the agent.
c. Method of formation
1) By action—The principal and agent can agree to the agency relationship
(actual authority); the principal can hold another out as his agent
(apparent authority); or the principal may agree to be bound by previously
unauthorized acts (ratification).
2) By operation of law—A principal may be estopped from denying the
existence of an agency relationship, or an agency may be created by
statute.
2. Agent’s Duties
a. Duty of loyalty—The agent must disclose interests adverse to the principal.
b. Duty of obedience—The agent must obey all lawful instructions of the
principal.
c. Duty of care—The agent must act with reasonable care.
d. Duties under contract—The agent must comply with any terms of the agency
contract.
3. Principal’s Duties
a. Duty to compensate and reimburse—Unless the agent agrees to act
gratuitously, the principal must compensate the agent, as well as reimburse her
for expenses and losses.
b. Duty to cooperate—The principal must cooperate with the agent and help him
carry out his agency functions.

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 2. AGENCY OVERVIEW

c. Duties under contract—The principal must comply with any terms of the agency
contract.
4. Remedies
a. Remedies of Principal
1) A compensated agent can be held liable for damages based on breach of
contract.
2) Any agent is subject to tort liability for damages resulting from his misuse
of the principal’s property, for intentional or negligent misperformance, or
for the failure to perform.
3) If an agent breaches her fiduciary duty of loyalty and secretly profits, the
principal may recover the profits or property.
4) The principal can bring an accounting action in equity to determine the
exact amount an agent owes the principal.
5) If the agent has committed an intentional tort, or intentionally breached her
fiduciary duty, the principal may, in addition to other remedies, withhold the
agent’s unpaid compensation.
6) The principal may terminate the agency relationship when the agent
breaches one of his duties.
b. Remedies of Agent
1) A compensated agent can sue for breach of contract.
2) An agent has a possessory lien on any money the principal owes her.

B. CONTRACT LIABILITY
1. Did the Agent Act With Authority?
Whether a principal will be bound on a contract that an agent entered into on his
behalf depends on whether the agent acted with authority.
a. Actual Authority—The authority that the agent reasonably thinks she possesses
based on the principal’s dealing with her.
1) Actual express authority—The authority that a principal expressly gives an
agent.
2) Actual implied authority—The authority that the agent reasonably believes
she has as a result of the actions of the principal. For example, if given the
express authority to manage an apartment building, there might be implied
authority to hire a janitor.
 AGENCY OVERVIEW 3.

b. Apparent Authority—Even if the agent lacked actual authority at the time of the
contract, the principal will be bound on the contract if (1) the principal held out
the agent as having authority, and (2) based on the holding out, the third party
reasonably believed that the agent had authority to act.
c. Ratification—A principal can be bound by a contract if the principal later
ratifies the transaction. Methods of ratification include: acceptance of the
transaction’s benefits, silence if there is a duty to affirm, and suing on the
transaction. If ratified, the contract will be treated as if it had originally been
entered with authority.
2. Contract Liability to Third Parties
a. Third Party v. Principal—The general rule is that if the agent had authority, the
principal is liable to the third party.
b. Third Party v. Agent—Whether an agent can be held liable on a contract
he enters on behalf of the principal depends on whether the principal was
disclosed, unidentified, or undisclosed.
1) Disclosed principal—Agent generally not liable.
2) Unidentified or undisclosed principal—Generally either the principal or
agent can be held liable (third party chooses).
c. Principal or Agent v. Third Party—Where the principal is disclosed, only the
principal (not the agent) may enforce the contract and hold the third party
liable. If the principal is unidentified or undisclosed, either the principal or the
agent may hold the third party liable.

C. TORT LIABILITY
1. Respondeat Superior—A principal may be vicariously liable for the acts of an
employee committed within the scope of employment.
a. Employer/Employee Relationship—There are many factors the courts will
consider in analyzing whether an agent is an employee or an independent
contractor, but generally, the most important factor is whether the principal had
the right to control the manner and method of the agent’s work.
1) A principal is not liable for the acts of independent contractors unless: (1)
inherently dangerous activities are involved; (2) nondelegable duties have
been delegated; or (3) the principal knowingly selected an incompetent
independent contractor.
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b. Conduct Within Scope of Employment—Like the employee-employer

relationship, the courts will consider a number of factors, including the
nature of the work, whether the conduct was substantially removed from the
authorized time and space limits of the employment (frolic vs. detour), and
whether the conduct was actuated, at least in part, by a purpose to serve the
employer.
2. Apparent Authority—A principal is liable where an agent appears to deal or
communicate on behalf of the principal and the agent’s apparent authority enables
the agent to (1) commit a tort or (2) conceal its commission.
 PARTNERSHIP OVERVIEW 1.

PARTNERSHIP OVERVIEW
I. IN BRIEF
Partnership law is based on the law of contracts and agency. A partnership is an association
of two or more persons (which may include trusts and business entities) to carry on as co-
owners a business for profit. The large topics to think about in partnership law include: how
a partnership is formed; the duties and rights of partners and partnerships; liability between
partners and third parties; how partners dissociate from a partnership; and how partnerships
are dissolved. There are also limited partnerships and limited liability companies that are gov-
erned by different statutes than general partnerships.

II. FORMATION
A. Governing Law
1. The Revised Uniform Partnership Act (“R.U.P.A.”) provides a default set of rules for
general partnerships
2. Contract and agency rules also apply

B. Requirements
1. No formal agreement or writing is required to form a partnership; the parties’ intent
can be implied from their conduct
2. Anyone who is capable of entering a binding contract is capable of being a partner
3. The partnership may not have an illegal purpose
4. No one may become a partner without the consent of all the partners

C. Factors to Imply a Partnership

1. Intent of the parties
2. Sharing of profits raises a presumption of partnership (exception—payments for: a
debt, services rendered, rent, annuity or retirement benefits, interest on a loan, or
sale of goodwill of a business)
3. Other factors do not raise a presumption but are evidence that a partnership has
formed:
a. Title to property is held in joint tenancy or tenancy in common
b. Parties designate their relationship as a partnership
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 2. PARTNERSHIP OVERVIEW

c. The venture requires extensive activity

d. Sharing of gross returns

III. PARTNERSHIP PROPERTY

A. Factors to Determine Whether Property Belongs to the Partnership
1. For real and personal titled property, apply R.U.P.A.:
a. Property belongs to partnership if it is titled in:
1) The partnership name, or
2) The name of the partnership and the instrument transferring title notes the
titleholder’s capacity as partner or the existence of a partnership
b. Property is presumed partnership property if purchased with partnership funds
c. Property is presumed separate property of partner if:
1) The property is held in name of partner(s)
2) The instrument transferring title does not indicate the person’s capacity as
a partner or mention the existence of a partnership
3) Partnership funds were not used
2. For untitled property, apply common law factors:
a. Used partnership funds
b. Use of property by partnership
c. Listed in partnership books as an asset
d. Close relationship between property and the business
e. Improvement with partnership funds
f. Maintenance with partnership funds

B. Partner’s Rights in Partnership Property

1. Partners are not co-owners of partnership property and have no transferable interest
in partnership property
2. Partners have no right to use partnership property other than for the benefit of the
partnership

IV. RIGHTS AND DUTIES OF PARTNERS

A. Rights
1. All partners have an equal right to participate in the management and control of the
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partnership absent a partnership agreement providing otherwise

2. All partners have an equal right to share in the profits and losses and receive
distributions
3. Partners are not entitled to remuneration except for reasonable compensation for
services rendered in winding up the partnership’s business
4. The partnership must indemnify partners for payments reasonably made and
obligations reasonably incurred by a partner in carrying on the business of the
partnership
5. If a partner must pay more than his fair share of the partnership’s debt, he is entitled
to contribution from the other partners
6. All partners have the right to inspect the partnership books and records
7. The partnership may sue or be sued in the partnership name or in the names of the
individual partners

B. Duties
1. Duty of loyalty
a. Partners must account for all profits or other benefits derived by the partner in
connection with partnership business
b. Partners may not deal with partnership as one with an adverse interest
c. Partners may not compete with the partnership
2. Duty of care
a. Partners must refrain from engaging in negligent, reckless, or unlawful conduct
b. Partners must refrain from engaging in intentional misconduct
3. Duty of obedience
a. Partners must obey all reasonable directions of the partnership
b. Partners must refrain from acting outside the scope of the partner's actual
authority
4. Duty to provide complete and accurate information
a. Partners must provide complete and accurate information concerning the
partnership

V. LIABILITY OF PARTNERS
A. Agency Principles Apply in Determining Liability
1. R.U.P.A. generally provides that each partner is an agent of the partnership
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2. The act of any partner binds the partnership, unless the partner had no authority and
the third party knew or had notice that the partner lacked authority

B. Civil Liabilities
1. Contract liability—partners are liable on contracts made by a partner in the scope
of the partnership business and on any other contracts expressly authorized by the
partners
2. Tort liability—partners are liable for any torts committed by a partner or an employee
of the partnership in the ordinary course of partnership business

VI. DISSOCIATION AND DISSOLUTION

A. Dissociation
1. A partner is dissociated from a partnership upon:
a. Notice of the partner’s express will to withdraw
b. The happening of an agreed upon event
c. The valid expulsion of a partner
d. The partner becoming bankrupt
e. The death of an individual partner, or the termination of a partner that is a
business entity, or
f. A court decision that a partner is incapable of performing her duties

B. Dissolution
1. Generally, a partnership is dissolved and its business must be wound up:
a. In a partnership at will, when a partner gives notice of her express will to
withdraw
b. In a partnership for a definite term or particular undertaking, when:
1) Within 90 days after a partner’s death, bankruptcy, or wrongful dissociation,
at least half the remaining partners express a will to wind up the business
2) All the partners express a will to wind up the business, or
3) The term expires or the undertaking is complete
c. Upon the happening of an agreed upon event
d. Upon the happening of an event that makes it unlawful for the partnership to
continue, or
e. Upon a judicial decree
 PARTNERSHIP OVERVIEW 5.

VII. LIMITED PARTNERSHIP

A. Governing Law and Formation
1. Limited partnerships are governed by the Uniform Limited Partnership Act
(“U.L.P.A.”)
2. Need one or more general partners plus at least one limited partner
3. Need to file a certificate of limited partnership with the secretary of state

B. Partner’s Contributions
1. Partner has no rights to distributions absent a contribution
2. Contributions may be in the form of any benefit to the partnership (e.g., money,
property, services, and promises to make such contributions)

C. Liability of Limited and General Partners

1. Limited partner
a. Limited partners have no personal liability for obligations of the partnership
2. General partner
a. General partners are jointly and severally liable for all partnership obligations
b. General partners may also be limited partners but they still have all of the
liabilities and duties of a general partner

D. Duties of Partners
1. General partners owe the limited partnership fiduciary duties of care and loyalty
2. Limited partners owe no fiduciary duty to the partnership and are free to
compete with the partnership, except as otherwise provided in the partnership
agreement

E. Rights of Both General and Limited Partners

1. Both general and limited partners have the right to distributions, which can be
transferred, in whole or in part
2. A partner may transact business with the limited partnership
3. Any partner may maintain a derivative action on behalf of the partnership if the
partner first makes demand on the general partners or the demand would be futile
4. Any partner may apply for a decree of dissolution whenever it is not reasonably
practicable to carry on the business in conformity with the partnership agreement
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F. Rights of General Partners

1. Each general partner has equal rights in management
2. A general partner has a right to the partnership’s business information
3. A general partner is not entitled to remuneration for services performed for the
partnership
4. A general partner is entitled to indemnification for liabilities incurred in the ordinary
course of the partnership’s activities

G. Rights of Limited Partners

1. Limited partners have no right to participate in management, except as provided by
the partnership agreement
2. Limited partners have the right to inspect and copy certain partnership records that
are required to be kept in the records office

H. Dissociation and Dissolution

1. Events that cause dissociation of a partner in a general partnership will also cause
dissociation in a limited partnership
2. A limited partner has no right to dissociate before termination of the limited partnership
3. A limited partnership may be judicially and administratively dissolved; otherwise, a
limited partnership may be dissolved only by the occurrence of one of the following:
a. The happening of an agreed upon event
b. The consent of all the partners holding a majority of the right to receive
distribution (“majority in interest”)
c. After dissociation of a general partner and the consent of the majority in
interest, if no general partner remains, after 90 days unless a new partner is
admitted, or
d. 90 days after dissociation of the last limited partner, unless a new limited
partner is admitted
4. Assets are distributed first to creditors (including partners who are creditors) and
then to the partners as a distribution

VIII. LIMITED LIABILITY PARTNERSHIP

A. Formation
1. Formation of an L.L.P. must be approved by whatever vote is necessary to amend
the partnership agreement
 PARTNERSHIP OVERVIEW 7.

2. Requires statement of qualification (registration) filed with the secretary of state,

containing:
a. Name and address of partnership
b. Statement of election to be an L.L.P.

B. Liability of Partners
1. A partner is not personally liable for the obligations of the partnership
2. However, a partner remains personally liable for her own wrongful acts

C. Rights and Obligations of Partners

1. Financial rights and obligations of partners, including profit/loss-sharing and
indemnity, are identical to those of general partners in a general partnership
2. If partnership assets are insufficient to indemnify a partner for an L.L.P. obligation,
each partner forfeits a right to receive contributions in exchange for being relieved
of the obligation to contribute to the personal liability of other partners

IX. LIMITED LIABILITY COMPANIES

A. Governing Law and Formation
1. Most states follow the Revised Uniform Limited Liability Company Act of 2006
(“R.U.L.L.C.A.”), except where noted in your state’s outline
2. Limited Liability Companies (“LLCs”) are taxed like partnerships, but members enjoy
limited liability, like shareholders in a corporation, and the LLC is treated as an entity
distinct from its members
3. An LLC is formed by filing a certificate of organization with the secretary of state

B. Management
1. All members participate in management except as otherwise specified in the
operating agreement
2. Each member of a member-managed LLC has authority to bind the company to
contracts, unless the member lacks actual authority to do so and the other party has
notice of same

C. Duties
1. Member-managed
a. Members in member-managed LLCs owe duties of care and loyalty to each
other and the LLC
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b. They must also discharge their duties consistently with the contractual
obligation of good faith and fair dealing
2. Manager-managed
a. In manager-managed LLCs, only the managers are subject to the duties of care
and loyalty
b. Only the members may authorize or ratify an act by a manager that would
otherwise violate the duty of loyalty

D. Piercing the LLC Veil

1. Courts may pierce the LLC veil to reach personal assets of members in
circumstances similar to those justifying piercing in a corporation

E. Distributions
1. The uniform act calls for distributions in equal shares unless the operating
agreement provides otherwise, but most states do not follow that approach and
allocate distributions on the basis of contributions unless the operating agreement
provides otherwise

F. Rights to Information
1. Member-Managed LLC
a. In a member-managed LLC, a member has a right to inspect and copy any
record concerning the LLC’s business that is material to the member’s rights
and duties
2. Manager-Managed LLC
a. In a manager-managed LLC, the managers have the same right to information
and duty to furnish information as discussed above

G. Dissociation
1. A member has the power to dissociate at any time
2. A wrongfully dissociating member may be liable to the LLC for damages
3. Generally, the events that cause dissociation of a partner also cause dissociation of
an LLC member

H. Dissolution
1. An LLC will dissolve when any of the following events occur:
a. An agreed upon event of dissolution
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b. The consent of all the members

c. The passage of 90 consecutive days during which the LLC has no members
d. Judicial decree
e. Administrative dissolution by the secretary of state