Agency and Partnership

Question 1

What are the three agency issues that can be on the bar exam and the first question that I need to ask myself if faced with an agency question?

Answer 1

1. Is the principal liable for the TORTS of the alleged agent?
2. Is the principle liable for the CONTRACTS of the alleged agent?
3. What duties does the agent owe to the principal?

Question 2

If the issue is whether the principal will be vicariously liable (respondeat superior) for the torts of the agent, what is the two-part test?

Answer 2

Principal will be liable for torts committed by its agent if:

1. There’s a principal-agent relationship and
2. The tort was committed by the agent within the scope of that relationship.

Question 3

If the issue is whether the principal will be vicariously liable (respondeat superior) for the torts of the agent, when is there a principal-agent relationship?

Answer 3

ABC
A principal-agent relationship requires:

1. Assent: there’s a voluntary agreement (formal or informal) between the principal who has capacity and the agent.
2. Benefit: agent’s conduct must be for principal’s benefit
3. Control: principal must have the right to control the agent by having the power to supervise the manner of the agent’s performance.

Question 4

If the issue is whether the principal will be vicariously liable (respondeat superior) for the torts of a sub-agent, what’s the rule for sub-agents when determining whether there’s a principal-agent relationship ?

Answer 4

Principal will be liable for a sub-agent’s torts only if there’s assent, benefit, and control between the principal and the sub-agent. Usually, the principal won’t have assented to the sub-agent’s help and won’t have the right to control the sub-agent. Therefore, there’s no vicarious liability for a sub-agent’s tort.

Question 5

If the issue is whether the principal will be vicariously liable (respondeat superior) for the torts of an agent that the principal borrows from another principal, what’s the rule for determining whether there’s a principal-agent relationship?

Answer 5

Principal will be liable for a borrowed agent’s torts only if there’s assent, benefit, and control between the borrowing principal and the borrowed agent tortfeasor. Although the borrowing principal often assents to and benefits from the borrowed agent, the borrowing principal won’t have the right to control the borrowed agent (rather the original principal does). Therefore, there’s no vicarious liability for a borrowed agent’s tort.

Question 6

If the issue is whether the principal will be vicariously liable (respondeat superior) for the torts of the agent, when is there a principal-IC relationship rather than a principal-agent relationship?

Answer 6

There’s no right to control an IC because there’s no power to supervise the manner of its performance. Therefore, the general rule is that the principal isn’t VL for the IC’s torts unless the activity of the IC is either

(1) ultra-hazardous or inherently dangerous or
(2) the principal is estopped from disclaiming an P-A relationship because the P has held the IC out with an appearance of agency.

Question 7

If the issue is whether the principal will be vicariously liable (respondeat superior) for the torts of the agent, what three factors must we weigh to determine whether the agent is acting within the scope of the principal-agent relationship?

Answer 7

1. Was the conduct “of the kind” agent was hired to perform? If A’s conduct was within the job description, A’s conduct was likely within the scope.
2. Did the tort occur “on the job?” If the conduct was a new and independent journey, it’s considered a frolic and therefore outside of the scope. If the conduct was a mere departure from the assigned task, it’s considered a detour and therefore within the scope.
3. Did the agent intend to benefit the principal? If agent, even in part, intended to benefit the P, A’s conduct is likely still inside the scope.

Question 8

If the issue is whether the principal will be vicariously liable (respondeat superior) for the torts of the agent, can an A’s intentional torts ever be within the scope of the principal-agent relationship?

Answer 8

Yes, while P is generally never liable for the intentional torts of its agent, P will be liable if:

1. P authorized A to commit the intentional tort;
2. the intentional tort was natural from the nature of the employment; or
3. A was motivated by the desire to serve P.

Question 9

If the issue is whether the principal will be liable for the contracts of the agent, what’s the overall general rule?

Answer 9

P is generally liable for the authorized contracts of its agent.

Question 10

If the issue is whether the principal will be liable for the contracts of the agent, what are the four types of authority?

Answer 10

1. Express authority
2. Implied authority
3. Apparent authority
4. Ratification

Question 11

In determining whether the principal will be liable for the contracts of the agent, what is actual express authority?

Answer 11

P used words, which are narrowly construed, to express authority to agent, even if oral or in private.

Question 12

In determining whether the principal will be liable for the contracts of the agent, can actual express authority be made orally or in private?

Answer 12

Yes, unless the contract itself must be in writing. If the contract itself must be in writing, such as a land K or other SOF contract, then the authority must also be in writing.

Question 13

In determining whether the principal will be liable for the contracts of the agent, how can actual express authority be revoked?

Answer 13

1. By a unilateral act of either the principal or the agent; or
2. Death or incapacity of the P, unless P gives A durable power of attorney with conspicuous survival language.

Question 14

In determining whether the principal will be liable for the contracts of the agent, what is actual implied authority?

Answer 14

Authority which the P gives the A through conduct or circumstances. There’s IA to do all tasks:

1. which are NECESSARY to accomplish an expressly authorized task.
2. which are CUSTOMARILY performed by persons with the A’s title and authority.
3. which the A believes to have been authorized to do based upon PRIOR acquiescence by P

Question 15

In determining whether the principal will be liable for the contracts of the agent, what is apparent authority?

Answer 15

Authority derived from

(1) P “cloaking” A with the appearance of authority, and
(2) a 3d party reasonably relies on appearance of authority.

Question 16

In determining whether the principal will be liable for the contracts of the agent, what is ratification?

Answer 16

Except to alter the terms of the contract, P can grant authority after the contract has been entered if

1. P has knowledge of all material facts re: the contract; and
2. P accepts its benefits

Question 17

Can an A be liable for a principal’s authorized contracts?

Answer 17

As a general rule, an authorized agent isn’t liable on its authorized Ks unless, third party elects to hold A liable and:

1. P is PARTIALLY DISCLOSED (only the identity of the principal concealed but the fact of P is revealed); or
2. UNDISCLOSED (fact of P concealed).

Question 18

What are the three duties that an A owes to a P?

Answer 18

1. Duty of care
2. Duty to obey reasonable instructions
3. Duty of loyalty

Question 19

What’s encompassed in the duty of loyalty?

Answer 19

USS:
USURPING the P’s opportunity
SELF-DEALING: A cannot receive a benefit to the detriment of the P
SECRET PROFITS: making a profit at the P’s expense without disclosure.

Question 20

What’s the P’s remedy for A’s breach of the duty of loyalty?

Answer 20

P may recover losses that are caused by the breach and may also disgorge profits made by the breaching A.

Question 21

What is a general partnership?

Answer 21

An association of two or more persons who are carrying on as co-owners of a business for a profit.

Question 22

What is the liability of any partner for any partner’s torts, contracts, and debts?

Answer 22

Each partner acts with apparent authority (is an agent of the partnership) for carrying on the partnership’s usual business and therefore each partner is liable for each partner’s torts in the scope of partnership business and authorized contracts and debts.

Question 23

What’s the liability of an incoming partner for pre-existing debts of the partnership?

Answer 23

An incoming partner is generally not liable for prior debts, but any money paid in by the incoming partner can be used to satisfy prior debts.

Question 24

What’s the liability of a dissociating (withdrawing) partner for subsequent debts of the partnership?

Answer 24

A withdrawing partner retains liability on future debts until actual notice of withdrawal is given to creditors and publication notice of withdrawal is given to all potential creditors.

Question 25

What is general partnership liability by estoppel?

Answer 25

One who represents to a third party that a general partnership exists will be liable as if a general partnership exists.

Question 26

What’s the consequence of partners owing a fiduciary duty to each other and to the partnership and what remedies are available to the partners when that fiduciary duty is breached?

Answer 26

They owe each other and the partnership duties of loyalty (no self-dealing, usurping, or secret profits). Partnership can recover losses caused by the breach and also may disgorge profits from the breaching partner.

Question 27

What are the partners’ rights in partnership property, profits, and management?

Answer 27

1. Property:
   Land, leases, or equipment is owned only by the partnership itself when purchased with the partnership’s money and cannot be transferred by any individual partner without partnership’s authority.
2. Profits
   Owned by individual general partners and may be transferred.
3. Management
   Owned by partnership itself and cannot be transferred without authorization from the partnership.

Question 28

What duties does the principal have to compensate the agent or subagent?

Answer 28

Even if agency agreement is silent about compensation, agent is entitled to reasonable compensation and reimbursement for expenses, unless A has agreed to act gratuitously.

Principal doesn’t owe a subagent any compensation or reimbursement of expenses, even if agent had authority to hire the subagent.

Question 29

What salary and share in management and profits is each partner entitled to absent an agreement?

Answer 29

No salary, other than for helping to wind up the partnership’s business.

Equal management.

Profits shared equally. Losses shared like profits.

Question 30

When does dissolution of a partnership occur?

Answer 30

automatically upon any material change in the partnership, including the death or withdrawal of any single partner (limited life).

Question 31

When does a partnership terminate?

Answer 31

Following “winding up”

Question 32

What’s the priority of distribution when the partnership is winding up?

Answer 32

Each level of priority must be fully satisfied before beginning the next level.

1. Pay outside, third-party trade creditors (even if a capital contribution from partners is required)
2. All partners who have loaned money to the partnership (even if a capital contribution from partners is required).
3. Repay its own partners’ capital contributions (even if a capital contribution from partners is required)
4. Subtract each partner’s share of losses and, if any, distribute each partner’s share of profits.

Question 33

What’s the liability of a partnership (and hence its partners) for old and new business during the winding up phase?

Answer 33

Partners remain liable for all transactions entered into to wind up the old business by satisfying the existing creditors

Partners retain liability on new transactions during the wrind up until notice of dissolution is given to all known creditors and publication notice is given to all potential creditors.

Question 34

The fact that the agent has possession of the principal’s goods does not entitle the agent to sell them or transfer good title. For the possessor of goods to be able to transfer good title without authority, she must have either __________ or __________.

Answer 34

Some indicia of ownership; be a dealer in the goods

Question 35

Difference between actual and apparent authority?

Answer 35

Actual authority arises out of the reasonable belief of agents whereas apparent authority arises out of the reasonable belief of third parties.
If a principal tells a third party that a person is the principal’s agent and has the power to contract on the principal’s behalf, but the person does not know she has this power, then the person does not have actual authority to contract for the principal. In such a case, the person has apparent authority to contract for the principal, because the third party here reasonably believes that the person has such authority.

Question 36

If a principal cloaks an agent with the appearance of authority and then later removes the cloak, can there still be apparent authority?

Answer 36

Yes, so long as any third party hasn’t been notified of the removal of the cloak and reasonably relies on the cloak, the agent acts with apparent authority.