Liability of Principal for Torts of Agent

Respondeat Superior

Principal liable if

(1) Principal/Agent Relationship Exists

(2) Tort was committed by agent w/in the SCOPE of the relationship

Principal - Agent Relationship 

Requires 

(1) Assent - informal agreement btw principal and the agent

(2) Benefit - agents conduct must be for the principal's benefit

(3) Control - principal must have the right to control agent by power to supervise manner of agents performance

Sub-Agents

Borrowed Agents

There can be no vicarious liability for a borrowed agents tort unless there is ASSENT, BENEFIT, and CONTROL the borrowed agent tortfeasor.

Agent vs. Independent Contractor 

Factors: there is no right to control independent contractor b/c there is no power to supervise the manner of its performance.

Rule: There is no vicarious liability for an independent contractor's torts

Exceptions: (1) if you HOLD OUT the IC w/ the appearance of agency you'll be estopped from denying vicarious liability &

(2) ultra hazardous activities there will be vicarious liability (like changing brakes)

Principal - Agent

SCOPE

Conduct was of the kind agent was hired to perform - like in the job description

Did Tort occur on the job?

Frolic: new & independent Journey

Detour: a mere departure from an assigned task; e.g. on the way back to work 

- If the agent in part intended to benefit the principal that is enough to say conduct was inside the scope

Principal and Agent

Intentional Torts

Rule: Intentional torts are generally outside the scope of agency

Exceptions: Intentional torts are w/i the scope if conduct was:

(1) Specifically authorized by the principal

(2) Natural from the nature of employment

(3) Motivated by a desire to serve the principal

Liability of Principal for Contracts Entered by Agents

Test

Principal is liable for contracts entered into by its agent if the Principal AUTHORIZED the agent to enter the contract.

There are 4 types of authority: Actual, Actual Implied, Apparent, Ratification

Actual Express Authority 

Test: Principal used words to express authority to agent

Rule: Oral, private, narrow

Exception: If the contract itself must be in writing the express authority must be in writing as well - (land conveyance contracts)

Express Authority 

How is Express Authority Revoked?

(1) A unilateral act of either party, OR

(2) Death or incapacity of the Principal (at that very moment he dies or goes insane)

Exception: Express authority cannot be revoked if the principal gives the agent a DURABLE power of attorney

Power/Attorney: written expression of authority to enter a transaction

Actual Implied Authority

Authority which agent reasonably believes the principal has given, because:

Necessity - there is implied authority to do all tasks which are necessary to accomplish an expressly authorized task

Custom - there is implied authority to do all tasks by CUSTOM performed by persons with a title or position of the agent

Prior Dealings - btw the principal & the agent. There is implied authority to do all tasks which the agent believes to be authorized to do from Prior Acquiescence 

Apparent Authority 

2 Part Test: 

(1) Principal CLOAKED agent with the appearance of authority AND

(2) 3d Party reasonably relies on appearance of authority

Secret Limiting Instruction: If principal secretly limits agents actual authority, and agent acts beyond the scope of the limitation - there is still Apparent authority if 3d reasonably relies

The Principal will be liable on its authorized contracts

Apparent Authority...

Lingering Authority

Actual Authority has been terminated. Afterwards, agent continues to act on principal's behalf.

Rule: 3d parties may continue to rely on lingering authority of agent until they receive NOTICE of termination of authority.

The Principal will be liable on its authorized contracts...

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

Except: Ratification CANNOT ALTER the terms of the contract.

Rules of Liability on the Contract

General Rules

(A) if no authority, Principal is not liable on the contract. If no authority, the AGENT is liable on the contract. 

(B) If authority, principal is liable on the contract. If authority, agent is NOT liable on the contract.

Exception: if Principal is partially disclosed or UNDISCLOSED, the authorized agent can be liable at the ELECTION of the 3D party.

DUTIES AGENT OWES TO PRINCIPAL

A. Duty to Exercise REASONABLE CARE

B. Duty to OBEY REASONABLE INSTRUCTIONS

C. Duty of LOYALTY

no self dealing

Usurping the principal's opportunity

Secret Profits

(all 3 usually on bar exam together)

What Remedies if Agent Breaches duties to Principal?

(1) Recover losses caused by the Breach

(2) Disgorge profits made by the breaching agent

Partnership

General Partnership Formation

Formalities: NO formalities to become a general partnership

Definition: it is an association of 2 or persons who are carrying on as co-owners of a business

Sharing of PROFITS: the contribution of capital or services in return for a share of profits creates a presumption that a general partnership EXISTS

General Partnership Liabilities to 3D Parties

Agency Principles Apply

1. Partners are agents of the partnership for 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. 

General Partners are Personally Liable for Debts of their Partnership

Incoming & Dissociating Partner Liability

Incoming Partner Liability for Pre-existing debts: incoming partners are generally NOT liable for prior debts. But money paid into the partnership by incoming partner can be used by partnership to satisfy those prior debts.

Dissociating Partner's Liability for Subsequent Debts:

dissociating partners retain liability for future debts until actual notice of their dissociation is given to the creditors OR until until 90 days after filing NOTICE of dissociation with the state 

General Partnership Liability by Estoppel

One who represents to a 3D party that a general partnership exists will be liable as if a general partnership exists

Limited Partnerships

Limited Partnerships: partnership w/ at least 1 general partner and at least 1 limited partner

Formation: must file a general partnership certificate that includes the names of all its general partners

Liability: General Partners are liable for all limited partnership obligations, but have the right to manage the business

Limited Partners are NOT liable for the obligations of the partnership. But may not manage the business w/o giving up their limited liability status

Registered Limited Liability Partnerships

Purpose: originally, idea was to give owners/members the same limited liability of shareholders in a corporation plus the benefits of partnership tax status.

Formation: FILE articles of organization and you ADOPT an operating agreement

Liabilities: owners are not liable for the obligations of the company itself

Registered Limited Liability Partnership

Characteristics

(1) Members control, but Articles can delegate control to managers

(2) Limited Liquidity -- member interests are NOT freely transferable

(3) Limited Life -- events of dissolution

(4) LLC = limited liability, limited liquidity, limited life, limited tax

 PARTNERS as Fiduciaries

Duty of Loyalty - self dealing, usurp partnership opportunity, secret profits @ partnership expense

Action for Accounting: partnership may recover LOSSES caused by the breach and may also DISGORGE profits made by breaching partner

Partnership Rights

1. Specific Partnership Assets: land/leases/equipment owned by partnership are partnership assets; no 1 partner can transfer w/o authority

2. Share of Profits/Surplus: share of profits is personal property owned by each partner.

3. Share in Management: asset owned by partnership itself

4. Conflict btw Partnership & Personal Prop: who's money was used to buy?

A - P - M - C

Partnership Rights

MANAGEMENT

Rule: Absent an agreement, each partner entitled to EQUAL control (vote)

W/O an agreement, equal control results - 1 Partner/1 Vote

Partnership Rights

SALARY

Absent an agreement, partners get NO SALARY

Exception: for helping to wind up business, give partners a salary

Partnership's Share of Profits & Losses

1. Absent an agreement, Profits Shared Equally.

2. Absent an agreement, Losses are shared LIKE PROFITS. 

Partnership Dissolution

Partnership TERMINATION

The real END of a partnership

Winding UP a Partnership

Partnership Liability During Wind-up

Old business: the partnership and therefore its individual general partners retain liability on transactions entered into to wind up OLD business w/ existing creditors

New Business: Partnership & its individual general partners still retain liability on NEW business until ACTUAL NOTICE of dissolution is given to creditors OR until 90 days after filing a statement of dissolution w/ the State.

Partnership Dissolution

Priority of Distribution Rules

1. First CREDITORS must be paid - outside creditors, and inside creditors who loaned money to partnership

2. Capital Contributions by Partners MUST be paid--(remember that losses are shared LIKE PROFITS)

3. Profits and Surplus, if any.