AGENCY AND PARTNERSHIP

AGENCY
I. LIABILITY OF PRINCIPIAL TO THIRD PARTIES FOR TORTS OF AGENT
A. Issue-Whether the principal will be vicariously liable for torts committed by
agent
B. 2 part Test: Principal will be liable for torts committed by agent if a principal-
agent relationship exists and tort was committed by agent within the scope
of that relationship
1. Principal-Agent Relationship requires
a. Assent-informal agreement between principal who has capacity
and the agent
b. Benefit-agent’s conduct must be for principal’s benefit
c. Control-Principal must have the right to control the agent by
having the power to supervise the manner of agent’s
performance
i. Subagent-There can be no vicariously liability for
subsequent tort unless there is asset, benefit, and
right to control subagent tortfeasor. Usually no right
to control
ii. Borrowed Agents-There can be no vicarious liability for
Borrowed Agent’s tort unless Assent, Benefit, and
right to Control borrowed agent’s tortfeasor. Might
find assent and benefit, but no right to control
2. Agent v. Independent Contractor
a. No right to control an independent contractor bc no power to
supervise the manner of its performance
b. Rule-no vicarious liability for independent contractors’ tort bc
no right to control
c. Exceptions
i. In NY, ultrahazardous activity exception. If independent
contractor commits tort in ultrahazardous activity,
there is vicarious liability
ii. In NY, estoppel. If hold out your independent contractor
with the appearance of an agency, you will be
estopped from denying vicarious liability
iii. Example-V went to gas station to have brakes fixed.
Gas station has independent contractor with brakes
guy. Brake guy negligently repaired brakes, resulting in
accident
A. As a rule, no vicarious liability for independent
contractor’s torts, except in ultrahazardous
cases and estoppel cases. In this case, brake repair
is ultrahazardous activity and therefore gas
station is liable for independent contractor’s
torts. Moreover, gas station has held out

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independent contract with appearance of agency,
so estopped on that ground as well.
3. Scope of Principal-Agent Relationship Factors (3 part test)
a. Was conduct of the kind agent was hired to perform?
i. Was conduct within the job description. If yes, then
within the scope
b. Did the Tort occur on the job? Frolic v. Detour
i. Frolic-new and independent journey so outside of scope
ii. Detour-mere (near) departure from assigned task, so
within scope of agency
c. Did the agent intend to benefit the principal?
i. If even intended to benefit in part, that is enough to be
within the scope of agency
d. HYPO-Emploer instructs employee to drive across town to
deliver files to office. On way back, employee stops to pick
up shirts from cleaners. Hits someone in parking lot. Employer
liable?
i. Principal is liable for torts committed by agent in the
scope of agency. In this case, the agent is on a
detour, a mere departure from assigned task bc tort
occurred on the way back to work. Therefore, there
will be vicarious liability
4. Intentional Torts
a. Intentioanl torts generally outside scope of agency
b. Exceptions-within scope if conduct was
i. specifically authorized by principal, or
ii. natural from nature of employment, or
iii. motivated by desire to serve principal
c. Example-bouncer
i. Not generally liable but meets all exceptions here
II. LIABILITY OF PRINCIPAL TO THIRD PARTIES FOR CONTRACTS ENTERED
BY AN AGENT
A. Issue-whether principal liable for contracts entered by agents
B. Test-Principal is liable for contracts entered by agent if principal authorized
agent to enter contract
C. 4 Types of Authority
1. Actual Express Authority-Principal uses words to express authority to
agent
a. Rule-Oral, Private, Narrow (words narrowly construed)
b. Except-If contract for conveyance of land, express authority
must be in writing
c. Express authority revoked by
i. Unilateral Act of either party
ii. Death of incapacity of principal

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 A. Example-P collects rare books. She hires A to
find a rare book and just as Alice about to
pay, P dies…P’s estate bound?
1. Principal is liable on its authorized
contract. In this case, actual express
authority terminated upon P’s
death. Therefore, there was no
authorization to pay for that book, which
means no liability on its unauthorized
transactions. Alice liable on her own
because entered as unauthorized agent.
d. Except: Except cannot be revoked is Principal gives agent a
Durable power of attorney. Power of Attorney is written
expression of authority to enter a transaction.
Durable-look for conspicuous survival language
2. Actual Implied Authority-Authority which agent reasonably believes
the principal has given because
a. Necessity-Implied authority to do all tasks which are necessary
to accomplish an expressly authorized task
b. Custom-Implied authority to do all tasks which are customarily
performed by persons with agent’s title or position
(attorney)
c. Prior dealings between Principal and Agent. Implied authority to
do all tasks which the agent believes to have been authorized to do
from prior acquiescence by the principal
3. Apparent Authority-2 part test-(1) Principal cloaked agent with the
appearance of authority and, (2) third party reasonably relies on
appearance of authority
a. Secret Limiting Instruction-Agent has actual authority but
Principal secretly limited that authority. Agent goes beyond
scope of limitation. P still liable
b. Lingering Authority-Action authority has been terminated.
Afterwards agent continues to act on Principal’s behalf
i. Customers can rely until the receive notice of termination
4. Ratification-authority can be granted after contract entered, if
a. Principal has knowledge of all material facts regarding contract,
and
b. Principal accepts its benefits
i. Except-Ratification cannot alter terms of contract
c. Example-P gives Agnes a power of attorney to purchase drums.
Agnes enters contract for 11,000 wooden barrels. P says I
love them, but only want 10,000. P bound?
i. P liable on its authorized contracts. In this case, there was
no actual expressed or implied authority or even apparent
authority to buy wooden barrels bc Power of
Attorney was to buy drums. Nonetheless, P arguably

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ratified the contract through knowledge and acceptance
of its business. But in NY, ratification was not valid bc not
complete bc P wanted to change the terms of the
contract. Therefore, no liability on this unauthorized
contract
D. Rules of Liability on Contract
1. General Rules
a. If no authority, P not liable on contract. If no authority, agent
liable
b. If authority, P is liable on the contract. If authority, agent not
liable on contract
2. Exception
a. If Principal is partially disclosed or undisclosed, authorized
agent may nonetheless be liable at election of third party

III. DUTIES WHICH AGENTS OWE TO PRINCIPALS

A. Duty to Exercise Reasonable Care
B. Duty to Obey reasonable instruction (obedience)
C. Duty of Loyalty
1. Self-Dealing-Agent cannot receive a benefit to the detriment of the P
2. Usurping P’s opportunity
3. Secret Profits
D. Example-P authorizes A to buy diamonds. A buys some for herself and buys
them for $1M and resells for 2M
1. Duties that A breached
a. Agent has breached the duty of loyalty by self-dealing, which
means to benefit herself at P’s detriment, and by usurping
P’s opportunity to buy diamonds, and by making a secret profit
at P’s expense
2. Remedies
a. P may recover losses caused by Breach and also may recover
profits made by the breaching agent as well

PARTNERSHIP
I. PARTNERSHIP FORMATION-in NY Uniform Partnership Act governs this area-this
is the old law but still valid in NY
A. Formalities-no formalities to forming a general partnership
B. Definition-A general partnership is an association of 2 or more persons who
are carrying on as co-owners of a business FOR PROFIT
C. Sharing of Profits-contribution of money or services in return for a share of
profits is prima facie evidence of a General Partnership
II. LIABILITIES TO THIRD PARTIES
A. Agency Principles Apply
1. Partners are agent of partnership for carrying on usual partnership
business

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 2. Partnership is bound by torts committed y partners in scope of
partnership business
3. Partnership is bound by contracts entered by partners with authority
B. General Partners are Personally Liable for Debts of the Partnership
1. Incoming Partner’s Liability for pre-existing debts
a. As a rule, incoming partners are not liable for prior debts but any
money contributed to the partnership by incoming partner can be
used to satisfy those prior debts
2. Outgoing partner’s liability for subsequent debts?
a. Outgoing partner retains liability on future debts UNTIL they
die unless notice of their withdrawal has been given to all
known and potential creditors
C. General Partnership by Estoppel
1. 1 who represents to a third party that a partnership exists will be liable
as if partnership exists
2. Hypo-P convinced D to start a sailing school and lent D money to
purchase boat. At party, P told F that my partner D and I are
starting a school and need a boat. Later that night, D and P fight and
decide to drop idea. Next day D takes boat out and recks it. P liable?
a. As a rule, general partners are liable personally for all
partnership obligations including co-partner’s torts. In this
case, however P and D never really formed a general partnership
because theirs was just a lending arrangement not
based on sharing profits. Nonetheless under
Partnership by Estoppel, P will be liable because she has represented
to a third party that she is a partner of D’s and thus will be liable
as if she were D’s partner. She is therefore liable for co-
partner’s torts
D. Formation of General partnership v. LLC, LLP, and LP
1. Limited Partnership
a. LP is a partnership with at least 1 general partner and at least 1
limited partner. A LP is a 2 tier structure
b. Formation-must file a limited partnership certificate that
includes the names of all general partners
c. Liability and Control
i. General Partners still liable personally for all Limited
partner obligations. Bc General partner absorbs all
liability, he exercises control over the business
ii. Limited Partners have limited liability. Not liable for
obligation of limited partnership. Must pay for
interest only so liable to that extent. LP cannot exercise control
of business without forfeiting Limited partner status
2. Registered Limited Liability Partnership (RLLP)
a. General Partnership engaged in professional services
b. Formation-Must file certificate of registration with the Dept of
State which includes the profession to be practiced

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 c. In an RLLP, no partner liable for partnership’s debts and
obligations. Individual partners liable for own malpractice
3. Limited Liability Companies (LLC)
a. Original Purpose was to give to its owners (members) the same
rights and limited liability of shareholders in a corporation
and the benefits of partnership tax status
b. Formation-must file Articles of Organization and publish
summary of Articles once a week for 6 weeks in 2
newspapers.
c. Liabilities-the members will not be liable for any of the
obligations of the company itself. Members can also bring
derivative suit because same rights and liabilities of
shareholders
d. partnership characteristics
i. Members control, but may delegate to managers
ii. Limited Liquidity-member interests not freely
transferable
iii. Limited life-events of dissolution
e. 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 may never
i. Engage in self dealing
ii. Usurp corporate opportunities
iii. Secret, undisclosed profits at partnership’s expense
2. Action for Accounting
a. In this action, partnership may recover losses caused by the
breach and may DISGORGE any profits made by the
breaching partner
B. Partner’s Rights in Ownership Property
1. Specific Partnership Assets
a. Land or leases or equipment owned by the partnership as
specific partnership assets. Therefore no individual Partner
may transfer these assets without partnership authority
2. Share of Profits or Surplus
a. Each Partner owns their share of profits as personal property.
Therefore, each Partner may transfer their share of profits
to some third party
3. Share In Management
a. General partners have this right. Right to Share in the
management is owned only by the partnership itself and not
by individual partners. Therefore individual partners may not
transfer share in management to third party
4. Conflict between Specific Partnership Assets and Personal Property

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 a. General Partnership Interest is illiquid besides the profits share
b. In conflict pattern, ask whose money was used to buy the
property. If personal money used, then personal property. If
partnership money, then partnership property
5. Hypo-John buys car in John’s own name with John’s money which
John uses in partnership business. John dies. Does John’s spouse
get the car or is it specific asset of the company?
a. In this case, since John bought the car with John’s own money
it becomes John’s own property so he may freely leave to Yoko
through inheritance
C. Management
1. Absent agreement, each partner entitled to equal control (vote)
a. Hypo-A, B, and B agree to contribute money and share profits
60-30-10. How do they vote?
i. Without agreement on control, equal control is default
rule
D. Salary
1. Absent agreement, no partners get salary
a. Hypo-A and B are partners. A works 96 hours a week while B
sleeps all day. Does A get any salary?
i. Absent agreement, no salary is the default rule
b. Exception-Partner can get salary for helping to wind up the
partnership’s business
E. Partner’s Share of Profits and Losses
1. Absent agreement, profits shared equally
2. Absent agreement, losses shared like profits

IV. PARTNERSHIP DISSOLUTION

A. Definitions
1. Dissolution-Any material change in the general partnership caused by
the death or withdrawal or any single partner causes automatic
dissolution
2. Termination-the real end of a partnership
3. Winding up-period between dissolution and termination, in which the
remaining partners must liquidate the partnership’s assets to satisfy
the partnership’s creditors
B. Compensation and Liability for Winding up-this is the exception to the no
salary general rule. P can get salary for helping in winding up
1. Old Business-The partnership and therefore the individual general
partners still retain liability on all transactions entered into to wind
up the old business with existing creditors
2. New Business-The partnership and therefore its individual general
partners still retain liability even on brand new business
transactions UNTIL notice of dissolution is given to all existing and
even potential creditors
C. Priority of Distribution-Must satisfy each level FULLY before moving on

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 1. First, Creditors must be paid
a. Outside creditors (non partners) must be paid, then
b. All inside partners who have loaned money to the partnership
2. Second, capital contributions by partners must be paid
a. A capital contribution is money paid in return for a share of
profits if any
3. Profits and surplus if any are distributed equally without an agreement
4. Rule-Each partner must be repaid his or her loans and capital
contributions, plus that partners share of the profits or minus that
partner’s share of the losses
5. Hypo-A and B dissolve pship. In winding up, liquidate assets and have
a total of 1Million to distribute. Pship owes 600k to trade
creditors; A loaned pship 100k; and B made capital contributions of
200k. Split?
a. First all creditors are paid. Must pay back 600k to outside
creditors and then 100k to A for the loan.
b. Second return all capital contributions, so pay back B 200k
c. Third, split the profit equally bc no written agreement denoting
otherwise
6. What is in Hypo 5, only have 700k?
a. First 600k to outside trade creditors and then 100k to inside
creditors. Now out of money.
b. Pship still owes B 200k for capital contributions so individual
General Partners liable for losses. Without
agreement losses shares equally so A and B share the
losses. A must pay into the partners 100k and B
must pay 100k. Then Be gets 200k back for the loan,
so each partner has a 100k loss