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NY Bar Exam Review - Agency and Partnership


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When will the principal be vicariously liable for torts committed by the agent?
Principal will be lieable for torts committed by the agent if:
1) a principal-agent relationship exists; and
2) the tort was committed by the agent within the scope of that relationship.
What does a principal-agent relationship require?
1) Assent;
2) Benefit; and
3) Control
What is assent?
An informal agreement between a principal who has capacity, and the agent.
What is benefit?
The agent's conduct must be for the principal's benefit.
What is control?
Principal must have teh right to control the agent, by having the power to supervise the manner of the agent's performance.
*Most important
Is the principal liable for torts of subagents?
There can be no vicarious liability for a sub-agent tort, UNLESS:
1) Assent;
2) Benefit; and
3) Right to control
that sub-agent tortfeasor.
Is the principal liable for torts of borrowed agents?
There can be no vicarious liability for a borrowed agent's torts UNLESS there is:
1) Assent ;
2) Benefit; and
3) The right to control
that borrowed agent.
*Usually won't find a right to control borrowed agents.
What is an independent contractor?
There is no right to control an IC because there is no power to supervise the manner of an IC's performance.
What is the vicarious liability rule for ICs?
There can be no vicarious liability for an IC's torts.
What are the exceptions to the IC rule?
1) Ultra-Hazardous Activity;
2) Estoppel
What is the ultra hazardous activity rule?
If IC commits a tort while engaged in an UHA, there will be vicarious liability even for an IC's torts.
What is the estoppel rule?
If you hold out your IC with the appearance of agency, you will be estopped from denying vicarious liability for your IC's torts.
What factors do you consider in determining whether the act was in the scoep of principal-agent relationship?
1) Was the conduct "of the kind" the agent was hired to perform?
2) Did the tort occur "on the job"? (Frolic v. Detour)
3) Did the agent intend to benefit the principal?
How can you tell if the conduct was "of the kind" the agent was hired to perform?
If the conduct was within the job description, it's likely to be within the scope of agency.
What is a frolic?
A frolic is a new and independent journey - the agent will frolic outside the scope of agency.
What is a detour?
A detour is a mere departure from an assigned task. Detour is still within the scope of agency.
What is the rule with respect to whether the agent intended to benefit the principal?
If the agent even in part intended to benefit the principal with his conduct, that's enough to call that conduct within the scope of agency.
When will you know that there's a mere detour and thus that the conduct is within the scope?
Where the EE is on the way back to work (a clue will be that the fact pattern says the ER "instructed" the EE to go and do something and he's on his way back)
What is the rule for intentional torts?
As a rule, intentional torts are outside the scope of agency.
What are the exceptions to the intentional torts rule?
1) Specifically authorized by the principal;
2) Natural from the nature of employment; or
3) Motivated by a desire to serve the principal
(Each alone is enough, but all three will often occur together - usually will be a bouncer in a bar)
When is the principal liable for Ks entered into by its agent?
Principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the K.
What are the types of authority?
1) Actual express authority;
2) Actual implied authority;
3) Apparant authority;
4) Ratification
What is actual express authority?
Principal used words to express authority to agent.
What is the rule with resepct to actual express authority?
It can be oral or private, but the scope is narrow.
What is the exception to the rule?
Land (an interest in real estate which could last longer than one year) - then the express authority to enter that K must be in writing.
How can express authority be revoked?
1) By unilateral act of either party; or
2) By death or incapacity of the principal. (*more likely)
What is the exception to the rule that express authority is revoked by death or incapacity of the principal?
Express authority cannot be revoked if there is a durable power of attorney.
What is a power of attorney?
A power of attorney is a written expression of authority to enter into a transaction.
What makes a power of attorney durable?
Where there is conspicuous survival language ("survives incapacity" or "survives death") it will be a durable power of attorney.
What is actual implied authority?
Authority which agent reasonably believes the principal has given because:
1) Necessity;
2) Custom; or
3) Prior dealings
What does necessity mean?
There is implied authority to do all tasks which are necessary to accomplish an express task.
What does custom mean?
There is implied authority to do all tasks customarily performed by persons with the agent's title or position.
What does prior dealings mean?
Prior dealings b/t the principal and the agent. There is implied authority to do all tasks which the agent believed to be authorized from prior acquiesence by the principal.
What is apparent authority?
1) Principal "cloaked" agent with the appearance of authority; and
2) Third party reasonably relies on the appearance of authority.
What are the two situations where apparant authority comes up?
1) Secret limiting instruction;
2) Lingering authority
What is the secret limiting instruction situation?
Agent has actual authority, but principal has secretly limited that authority. Agent acts beyond the scope of the limitation.
What is the lingering authority situation?
Actual authority has been terminated. Afterwards, the agent continues to act on principal's behalf.
How long may third parties reasonably rely on the appearance of authority after an agent has been terminated?
Until they receive notice of termination.
What is ratification?
Authority can be granted after the contract has been entered if:
1) Principal has knowledge of all material facts regarding the contract; and
2) Principal accepts its benefits;
What is the limitation on ratification?
Ratification cannot alter the terms of the contract. Ratification in NY must be complete; cannot be partial.
What are the rules of liability on the K?
1) If no authority, principal is not liable on the contract and agent is liable on the contract.
2) If authority, principal is liable on the contract, and agent is not liable on the contract.
What is the exception to this rule?
Partners do receive compensation for one thing only - helping to wind up the partnership business.
So, what is the overall liability rule?
Authorized agents are not liable UNLESS there is an undisclosed or partially disclosed principal.
What duties does the agent owe to the principal?
1) Duty to exercise reasonable care;
2) Duty to obey reasonable instructions (i.e., not lie or break the law);
3) Duty of loyalty
What does the duty of loyalty forbid?
1) Self-dealing - agent cannot receove a benefit to the detriment of the principal;
2) Usurping the principal's opportunity; or
3) Secret profits.
What are the principal's remedies where the agent has breached a duty of loyalty?
The principal may recover any losses caused by teh breach and also may disgorge any profits made by the breachign agen as well.
What law governs partnerships in NY?
NY still adheres to the Uniform Partnership Act (UPA)
What formalities are required for partnership formation?
There are no formalities to becoming a general partnership. A general partnership is unique in this sense among all other business forms. You will be deemed to be a general partnership by your conduct alone.
What is the definition of a general partnership?
A general partnership is an association of two or more persons who are carrying on as co-owners of a business for profit (will usually be a close call between a partnership and a loan or employee arrangement).
What is the key to distinguishing a partnership from a loan or employee arrangements?
Sharing of profits. The contribution of money or services in return for a share of the profits, if any, is prima facie evidence of a general partnership.
What is the liability of partners to third-parties/
Agency principles apply:
1) Partners are agents of the partnership for the scope of carrying on usual partnership business;
2) Partnership is bound by torts committed by partners in scope of partnership business;
3) Partnership is bound by contracts entered by partners with authority.
What is the rule with respect to general partners and debts of the partnership?
General partners are personally liable for the debts of the partnership.
What is an incoming partner's liability for pre-existing debts?
As a rule, an incoming partner is not liable for prior debts, except that any money which is contributed to the partnership by an incoming partner can be used by the partnership to satisfy prior debts.
What is an outgoing partner's liability for subsequent debts?
An outgoing partner retains liability on future debts until they die unless notice of their withdrawal has been given to all known and even potential creditors.
What is general partnership liability by estoppel?
One who represents to a third-party that a partnership exists will be liable as if a partnership exists.
What is a limited partnership?
A limited partnership is a partnership with at least one general partner and at least one limited partner.
How is a limited partnership formed?
You must file a certificate of limited partnership with the Department of State, that includes the names of all general partners.
What is the liability and control of general partners in a limited partnership?
General partners are still liable for all debts and obligations of the business form, but they may exercise substantial managerial control.
What is the liability and control of limited partners in a limited partnership?
Limited partners are NOT liable for partnership debts and obligations. They must pay full consideration for their interest. But, they may NOT exercise substantial managerial control.
What is a registered limited liability partnership (RLLP)?
An RLLP is limited to partnerships engaged in professional services. Must register by filing a certificate of registration with the Department of State that includes the profession to be practiced.
What are the liabilities of the partners in an RLLP?
For registered LLPs, no partner will be liable for the partnership's debts or obligations. Partners are always liable for theri own wrongdoing and that of those under their supervision (malpractice), but no liability for ongoing debts and obligations of business.
What was the original purpose of the limited liability company (LLC)?
To provide owners of business the same limited liability of shareholders in a corporation plus the beneficial tax status of a partnership.
How are LLCs formed?
Must file the Articles of Organization, plus, you must publish a summary of hte Articles once a week for six weeks in a row in at least two newspapers.
What are the liabilities of members of an LLC?
Members (owners) are not liable for any debts of the company.
What are the partnership characteristics of an LLC?
Must have two of the following three:
1) Members control, but may delegate to managers;
2) Limited liquidity - member interests are not freely transferable;
3) Limited life - events of dissolution.
So, what does the LLC equal?
LLC = Limited liability + Limited liquidity + Limited life + Limited tax
What is the status of a partner vis-a-vis his other partners and the partnership?
Partners are fiduciaries of each other and the partnership.
What duty do partners owe each other and the partnership?
Duty of loyalty. Partners, just like agents, may never: 1) engage in self-dealing; 2) usurp partnership opportunities; or
3) make a secret, undisclosed profit at the partnership's expense.
What is an action for accounting?
This is the only form of action that can be brought by a partnership against one of its own partners for breach of the duty of loyalty. In this action, the partnership may recover losses caused by the breach, and also disgorge profits made by the breaching partner.
What are the partners' rights in partnership property?
1) Specific Partnership Assets;
2) Share of profit and surplus;
3) Share in management.
What is the rule with respect to specific partnership assets and what is included in this category?
This includes land, leases, and equipment, owned only by the partnership. Therefore, no individual partner may transfer these partnership assets without partnership authority.
What is the rule with respect to share of profits and surplus?
Each partner's share of profits, if any, is personal property owned as such by each individual partner. Therefore, individaul partners may freely transfer their share of profits and surplus to third parties.
What is the rule for the share in management?
An asset that belongs only to the partnership and not any individual partner. Therefore, individuals partners may NOT transfer their share in management to some third party.
*Only the shaer in profit is liquid.
What is the default rule with respect to management of a partnership?
Absent an agreement, each partner is entitled to equal control (vote). (doens't matter who contributes what or how they share profits)
What is hte default rule for salary?
Absent an agreement, partners get NO salary.
What are the default rules for partner's share of profits and losses?
1) Absent an agreement, profits are shared equally;
2) Absent an agreement, losses are shared like profits.
What is dissolution?
Dissolution occurs upon any material change in the partnership caused by the death or withdrawal of any single general partner.
What is termination?
Termination is the real end of the partnership.
What is winding up?
Winding up is the period between dissolution and termination in which the remainign partners liquidate the partnership assets to satisfy the partnership's creditors.
What is the compensation for winding up?
As an exception to the general rule of no salary, partners do receive compensation for helping to wind up.
What is hte partnership's liability for winding up?
1) For old business: The partnership, and therefore the individual general partners, retain liability on all transactions entered into to wind up old business with existing creditors.
2) For new business: The partnership, and therefore, its individual general partners, still retain liability on new business trnasactions until notice of dissolution is given to all existing and even potential creditors.
What is the rule with respect to priority of distribution?
Eacha level of priority must be fully satisfied before beginning the next level.
What is the order of priority?
1) First, creditors must be paid (outside, non-partner creditors first, and inside, partner creditors who have made LOANS to the parntership second);
2) Second, capital contributions by partners must be paid (Any money paid in must be fully repaid right now);
3) Finally, profits and surplus, if any is shared equally among partners in the absense of agreement.
What is the genearl rule if they ask what are the rights and liabilities of the partnesr in winding up?
Each partner must be repaid his or her loans and capital contributions, plus that partner's share of the profits or minus that partners' share of the losses.

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