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Flashcards in Agency & Partnership Deck (32):

When will the principal be vicariously liable for torts committed by its agent?

A principal will be liable for torts committed by its agent if: (1) there is a principal-agent relationship, and (2) the tort was committed by the agent within the scope of that relationship.


How is a principal-agent relationship formed?

Assent-Must be an informal agreement btwn a principal who has capacity and an agent.

Benefit-Agents conduct must be for the principals benefit.

Control-Principal must have the right to control the agent by having the power to supervise the manner of the agent performer.



The principal will be liable for a sub-agent's tort only if there is assent, benefit and control of the principal and the sub-agent.

Almost never vicarious liability for a sub agents tort.


Borrowed agents?

The principal will be liable for a borrowed agent's tort only if there is assent, benefit, and control btwn the principal and the borrowed agent.

**Note: The original principal contains control and there is no vicarious liability for a borrowed agent's tort.


What is the vicarious liability rule for independent contractors?

There is generally no liability for an independent contractor's torts. Except (1) when dealing with ultra hazardous activities, or (2) estoppel (if P holds out Independent contractor with the appearance of an agent then he will be estoppel from denying liability).


Scope of principal- agent relationship factors

Was conduct "of the kind" agent was hired to perform?
--Likely inside the scope

Did the tort occur "on the job"?
--A frolic is a new and independent journey and the agent is considered to be outside the scope. A detour is a mere departure from an assigned task and the agent is still with in the scope.

Did the agent intend to benefit the principal?
--If the agent even in part intended to benefit the principal that is enough to be inside the scope.


What is the scope rule?

The Principal is liable for it's agents tort within the scope of agency.


What is the intentional torts rule?

Intentional torts are generally outside the scope. However intentional torts are within the scope if the conduct was (1) authorized by the Principal; or (2) natural from the nature of employment; or (3) motivated by a desire to serve the Principal.


Is a principal liable for contracts entered into by its agent?

The Principal is liable on it's authorized contracts


What are the four types of authority that creates a principal's authorization?

Actual Express, Actual Implied, Apparent, and Ratification.


Actual express authority rule

Actual express authority can be oral and even private; however, if the contract itself must be in writing so must be the expressed authority.
--Express authority will be revoked by either (1) unilateral act of either the principal or the agent, or (2) death or incapacity of the principal (there is one excretion which is a durable POA).


What is actual implied authority?

Actual implied authority is authority which the principal gives the agent through conduct or circumstance and can be proved by necessity, custom, or prior acquiescence by the principal.
--Necessity: There is implied authority to do all tasks that are necessary to accomplish an expressly authorized task.
--Custom: The is implied authority tondo all tasks that are customarily performed by persons with the agents title or position.
--Prior Acquiescence by the Principal: There is implied authority to do all tasks that the agent believes to have been authorized to do from prior acquiescence by the principal.


What is the apparent authority rule?

There is apparent authority if (1) the Principal "cloaked" agent with the appearance of authority, and (2) the third party reasonably relies on appearance of authority.


Ratification Rule

Authority can be granted after the contract has been entered if the Principal has knowledge of all material facts regarding the contract, and the principal accepts it's benefits. However, ratification cannot alter the terms of the contract.


What is the liability of an agent to the contract?

The principal is liable on its authorized contracts, and therefore as a rule an authorized agent is not liable on its authorized contracts. However, if the principal is undisclosed or partially disclosed, the agent may nonetheless be liable at election of the third-party.


What are the duties owed by agent this principal?

Duty of care
Duty to obey instructions
Duty of loyalty
-- The agent may never do self-dealing, or usurp the principal's opportunity, or secret profits.


How is a general partnership formed?

Formalities: There are no formalities to becoming a general partnership.


What is a general partnership?

A general partnership is an association of two or more persons carrying on as co-owners of a business for profit.


Partners as agents?

Partners are agents of the partnership for apparently carrying on usual partnership business. Therefore, the general partnership is liable for each partner's torts in the scope of partnership business and foe each partner's authorized contracts.


Partner liability?

Each general partner is personally liable for all debts of the partnership and for each co-partners torts within the business scope.
--Incoming partners are not liable for prior debts, but ant contribution paid to the partnership can be used to satisfy prior debts.
--a dissociating partner retains liability on future debts until notice of their dissociation is given to creditors or 90 days post filing notice of dissociation with the state.


What is general partnership liability by estoppel?

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


General partners as fiduciaries

Therefore, general partners owe to each other and the partnership the duty of loyalty, which means that general partners may never engage in self-dealing, never usurp partnership opportunities, and never make a secret profit at the partnerships expense.
-- If a partner violates his duty to loyalty then an action for accounting occurs. The partnership may recover losses that are caused by the breach and can further disgorge profits made by breaching party.


Liquidity of partnership property

Only profits are personal property and therefore may be transferred by an individual partner to a 3rd party.


How is the management of a general partnership dealt with?

Absent an agreement, each partner receives an equal vote (one partner, one vote).
-- Majority vote governs ordinary partnership matters.
-- Unanimous vote is required for fundamental matters.


What salary is a general partner owed?

Absent an agreement, a partner does not receive a salary. However, partners are owed a compensation when helping to wind up partnership business.


How are profits and losses shared in a general partnership?

(1) absent an agreement, profits are shared equally.
(2) absent an agreement, losses are shared in the same manner as profits.


When does the dissolution of a general partnership occur?

In the absence of an agreement, a general partnership dissolves upon notice of the express will of one general partner to dissociate.


What is the real end of the partnership called?



What is winding up?

It is the period btwn dissolution and termination in which the remaining partners liquidate the partnership assets to satisfy the partnerships creditors.


What are the partnership's liabilities due to dissolution?

(1) The partnership and therefore it's individual general partners retain liability on all transactions entered into to wind up old business by satisfying existing creditors.

(2) The partnership and therefore it's individual general partners retain liability on brand new transactions during winding up until notice is given to creditors or until 90 days preceding the filing of a statement of dissolution with the state. (Thus a partnership will be bound by a party's postdissolution act not appropriate for winding up if the third party doesn't have notice of the dissolution.)


What is the priority of distribution?

First, the partnership MUST pay all creditors including all outside non-partner trade creditors and also partners who have loaned money to the partnership. Secondly, the partnership MUST repay all capital contributions paid into the partnership. Third, profits if any (absent an agreement, any surplus capital is to be shared equally).


When does a partnership end (dissolution)?

In absence of an agreement that sets forth events of dissolution a general partnership dissolves upon notice/express will of one general partner's intent to dissociate.