Themis Essay - Agency & Partnership Flashcards
Summary of Agency Issues
- Agency
a. Creation of Agency Relationship
b. Liability of Principal to Third
Parties
1) Principal’s Contractual Liability
* Authority
o Express Actual
Authority
o Implied Actual
Authority
o Apparent Authority
* Ratification
2) Principal’s Tort Liability
* Principal’s Vicarious Liability
for Agent’s Torts
o Respondeat Superior
* Principal’s Direct Liability to
Third Parties
Duty of Loyalty and Duty of
Care
Profits/Losses
Management Rights
c. Relationships with third parties
Power to bind partnership
Partner as agent of partnership
* Express and Implied Actual
Authority
* Apparent Authority
Partnership liable for partner’s
tortious acts
Liability to third parties
d. Dissolution and Winding Up
e. LLP’s
Partnerships
a. Formation
b. Relationships of Partner with
Partnership and Between Partners
Partner as agent for partnership
Fiduciary Duties
Creation of Agency Relationships
Agency law addresses the legal consequences of one person (the agent) acting on behalf of, and subject
to the control of, another person (the principal).
Exam Tip 1: Be sure to identify the principal and the agent in your exam
answer.
- Principal
The principal is typically an employer, such as a corporation or a partnership. - Agent
o The agent of a corporation is typically a director, officer, or other employee. The agent of a
partnership is typically a partner or employee.
Independent Contractors can be agents if they are subject to control over their physical
conduct by the principal.
Contractual Liability of Principal
Exam Tip 2: Agency questions usually focus on whether the principal
(corporation or partnership) is liable to third parties for actions taken by an
agent.
- Contractual Liability of the Principal (Frequently Tested)
A principal is subject to liability on a contract that the agent enters into on the principal’s behalf
if the agent has the power to bind the principal to the contract. An agent has the power to bind
the principal to the contract when the agent has actual authority or apparent authority.
Exam Tip 3: You should discuss all theories of authority in your exam answer
to earn full credit. Spend more time on the theory(s) of authority that are
relevant, based on the exam facts.
Express Actual Authority
For an agent to enter into a contract on behalf of the principal can be created via oral or
written words; clear, direct and definite language; or specific detailed terms and
instructions.
Implied Actual Authority
Allows an agent to take whatever actions are properly necessary to achieve the principal’s
objectives, based on the agent’s reasonable understanding of the manifestations and
objectives of the principal.
Example 1: An agent who has been given express actual authority to make
purchases on behalf of the principal will likely have implied actual authority
to make payments for the goods and services purchased, accept deliveries,
and collect money.
a. Implied authority by position:
If the agent is placed in a position that customarily has certain authority, such as
treasurer, the agent will have implied authority to carry out the duties of a treasurer.
Exam Tip 4: Past CA bar essays have presented agents who are placed in
positions such as president, vice president, salesperson, and technology person.
These positions all carry implied authority to carry out certain duties.
Apparent Authority
Apparent authority results when a principal causes a third party to reasonably believe that the
agent has authority to act. If the third party reasonably believes the agent has authority to act,
the principal will be bound to the contract.
o Third Party’s Reasonable Belief:
To determine whether a third party’s belief is reasonable, a court will consider trade
customs and industry standards.
The agent’s position will also be considered – if the agent is appointed to a specific
position (such as vice president or treasurer), the principal will be found to have made a
manifestation that the agent has the customary level of authority possessed by a person
in the agent’s position.
Exam Tip 5: Past CA bar
essays have presented agents who are placed in
positions such as president, vice president, salesperson, and technology person.
These positions will likely cause a third party to reasonably believe that they have (apparent) authority to act on behalf of the principal.
Ratification
A principal can ratify (affirm/approve) an act performed by an agent, even if the agent did not
have authority to act, and therefore be bound to a contract with a third party. Ratification
requires:
o The principal ratifies the entire contract or transaction by express assent or conduct that
indicates affirmation;
o The ratification must be timely (before the third party withdraws from the contract); and
o The principal must have knowledge of the material facts involved in the original act.
Principal’s Tort Liability
A principal can be vicariously liable and directly liable to a third party who is harmed by a tort
committed by an agent.
Respondeat Superior
A principal may be vicariously liable for a tort committed by an agent acting within the scope of
his employment.
a. Agent: An agent can be an employee, director, officer, or partner.
b. Scope of Employment: An agent is acting within the scope of employment if she is
performing work assigned by the employer. An agent who makes a mistake or acts carelessly while performing her assigned duties is still acting within her scope of
employment.
c. Intentional Torts: Intentional torts may be in the scope of duty if they are during work
hours, the agent was motivated to act for the principal’s benefit, and the act was within her
assigned duties.
d. Work-Related Travel
Traveling between work/home is usually not within the scope of employment. Travel for
work purposes (business trips, visiting clients) is within the scope of employment.
Principal’s Direct Liability to Thirds Parties
A principal may also be directly liable to a third party harmed by an agent’s conduct if the
principal authorizes or ratifies the agent’s conduct; is negligent in hiring/supervising the agent;
delegates a non-delegable duty to the agent.
Partnership Formation
A partnership is an association of two or more persons to carry on a for-profit business as co-owners.
- Sharing of Profits: The key test to determine a partnership exists is whether there is a sharing of
profits from the business; if so, a partnership will be presumed. - Intent: It is not necessary that people have the specific intent to form a partnership.
- Agreement: The only agreement required is the agreement to conduct a for-profit business as
co-owners. No writing is required.
Partner as agent for partnerships
A partner is an agent of the partnership (the principal) for business purposes. As an agent, the
partner can commit the partnership to binding contracts with third parties.
Partner Fiduciary Duties
A Partner owes the partnership and the other partners fiduciary duties of loyalty and care.
Duty of Loyalty
A partner is required to refrain from competing with the partnership business, advancing an
interest adverse to the partnership; and usurping a partnership opportunity or using partnership
property or business to derive a profit, without notifying the partnership.
a. Usurping partnership opportunity (Frequently tested issue):
If a business opportunity is presented to a partner that is the type of the business the partnership engages in, the partner must present the opportunity to the partnership; he
cannot take the opportunity for himself without first informing the other partners and
receiving their permission to do so.
