Agency Overview
Agency Overview
Agency Overview
AGENCY OVERVIEW
I. IN BRIEF
Agency is a consensual relationship between a principal and an agent. The large topics
to think about in agency law include: (1) the formation of the agency relationship; (2) an
agent’s and principal’s duties and remedies; and (3) an agent’s and principal’s liability
to third parties, in contract and in tort.
A. AGENCY
1. Creation of Agency Relationship
a. Capacity—The principal must have contractual capacity; the agent only needs
minimal capacity.
b. Consent—Consent must be manifested by both the principal and the agent.
c. Method of formation
1) By action—The principal and agent can agree to the agency relationship
(actual authority); the principal can hold another out as his agent
(apparent authority); or the principal may agree to be bound by previously
unauthorized acts (ratification).
2) By operation of law—A principal may be estopped from denying the
existence of an agency relationship, or an agency may be created by
statute.
2. Agent’s Duties
a. Duty of loyalty—The agent must disclose interests adverse to the principal.
b. Duty of obedience—The agent must obey all lawful instructions of the
principal.
c. Duty of care—The agent must act with reasonable care.
d. Duties under contract—The agent must comply with any terms of the agency
contract.
3. Principal’s Duties
a. Duty to compensate and reimburse—Unless the agent agrees to act
gratuitously, the principal must compensate the agent, as well as reimburse her
for expenses and losses.
b. Duty to cooperate—The principal must cooperate with the agent and help him
carry out his agency functions.
c. Duties under contract—The principal must comply with any terms of the agency
contract.
4. Remedies
a. Remedies of Principal
1) A compensated agent can be held liable for damages based on breach of
contract.
2) Any agent is subject to tort liability for damages resulting from his misuse
of the principal’s property, for intentional or negligent misperformance, or
for the failure to perform.
3) If an agent breaches her fiduciary duty of loyalty and secretly profits, the
principal may recover the profits or property.
4) The principal can bring an accounting action in equity to determine the
exact amount an agent owes the principal.
5) If the agent has committed an intentional tort, or intentionally breached her
fiduciary duty, the principal may, in addition to other remedies, withhold the
agent’s unpaid compensation.
6) The principal may terminate the agency relationship when the agent
breaches one of his duties.
b. Remedies of Agent
1) A compensated agent can sue for breach of contract.
2) An agent has a possessory lien on any money the principal owes her.
B. CONTRACT LIABILITY
1. Did the Agent Act With Authority?
Whether a principal will be bound on a contract that an agent entered into on his
behalf depends on whether the agent acted with authority.
a. Actual Authority—The authority that the agent reasonably thinks she possesses
based on the principal’s dealing with her.
1) Actual express authority—The authority that a principal expressly gives an
agent.
2) Actual implied authority—The authority that the agent reasonably believes
she has as a result of the actions of the principal. For example, if given the
express authority to manage an apartment building, there might be implied
authority to hire a janitor.
AGENCY OVERVIEW 3.
b. Apparent Authority—Even if the agent lacked actual authority at the time of the
contract, the principal will be bound on the contract if (1) the principal held out
the agent as having authority, and (2) based on the holding out, the third party
reasonably believed that the agent had authority to act.
c. Ratification—A principal can be bound by a contract if the principal later
ratifies the transaction. Methods of ratification include: acceptance of the
transaction’s benefits, silence if there is a duty to affirm, and suing on the
transaction. If ratified, the contract will be treated as if it had originally been
entered with authority.
2. Contract Liability to Third Parties
a. Third Party v. Principal—The general rule is that if the agent had authority, the
principal is liable to the third party.
b. Third Party v. Agent—Whether an agent can be held liable on a contract
he enters on behalf of the principal depends on whether the principal was
disclosed, unidentified, or undisclosed.
1) Disclosed principal—Agent generally not liable.
2) Unidentified or undisclosed principal—Generally either the principal or
agent can be held liable (third party chooses).
c. Principal or Agent v. Third Party—Where the principal is disclosed, only the
principal (not the agent) may enforce the contract and hold the third party
liable. If the principal is unidentified or undisclosed, either the principal or the
agent may hold the third party liable.
C. TORT LIABILITY
1. Respondeat Superior—A principal may be vicariously liable for the acts of an
employee committed within the scope of employment.
a. Employer/Employee Relationship—There are many factors the courts will
consider in analyzing whether an agent is an employee or an independent
contractor, but generally, the most important factor is whether the principal had
the right to control the manner and method of the agent’s work.
1) A principal is not liable for the acts of independent contractors unless: (1)
inherently dangerous activities are involved; (2) nondelegable duties have
been delegated; or (3) the principal knowingly selected an incompetent
independent contractor.
4. AGENCY OVERVIEW
PARTNERSHIP OVERVIEW
I. IN BRIEF
Partnership law is based on the law of contracts and agency. A partnership is an association
of two or more persons (which may include trusts and business entities) to carry on as co-
owners a business for profit. The large topics to think about in partnership law include: how
a partnership is formed; the duties and rights of partners and partnerships; liability between
partners and third parties; how partners dissociate from a partnership; and how partnerships
are dissolved. There are also limited partnerships and limited liability companies that are gov-
erned by different statutes than general partnerships.
II. FORMATION
A. Governing Law
1. The Revised Uniform Partnership Act (“R.U.P.A.”) provides a default set of rules for
general partnerships
2. Contract and agency rules also apply
B. Requirements
1. No formal agreement or writing is required to form a partnership; the parties’ intent
can be implied from their conduct
2. Anyone who is capable of entering a binding contract is capable of being a partner
3. The partnership may not have an illegal purpose
4. No one may become a partner without the consent of all the partners
B. Duties
1. Duty of loyalty
a. Partners must account for all profits or other benefits derived by the partner in
connection with partnership business
b. Partners may not deal with partnership as one with an adverse interest
c. Partners may not compete with the partnership
2. Duty of care
a. Partners must refrain from engaging in negligent, reckless, or unlawful conduct
b. Partners must refrain from engaging in intentional misconduct
3. Duty of obedience
a. Partners must obey all reasonable directions of the partnership
b. Partners must refrain from acting outside the scope of the partner's actual
authority
4. Duty to provide complete and accurate information
a. Partners must provide complete and accurate information concerning the
partnership
V. LIABILITY OF PARTNERS
A. Agency Principles Apply in Determining Liability
1. R.U.P.A. generally provides that each partner is an agent of the partnership
4. PARTNERSHIP OVERVIEW
2. The act of any partner binds the partnership, unless the partner had no authority and
the third party knew or had notice that the partner lacked authority
B. Civil Liabilities
1. Contract liability—partners are liable on contracts made by a partner in the scope
of the partnership business and on any other contracts expressly authorized by the
partners
2. Tort liability—partners are liable for any torts committed by a partner or an employee
of the partnership in the ordinary course of partnership business
B. Dissolution
1. Generally, a partnership is dissolved and its business must be wound up:
a. In a partnership at will, when a partner gives notice of her express will to
withdraw
b. In a partnership for a definite term or particular undertaking, when:
1) Within 90 days after a partner’s death, bankruptcy, or wrongful dissociation,
at least half the remaining partners express a will to wind up the business
2) All the partners express a will to wind up the business, or
3) The term expires or the undertaking is complete
c. Upon the happening of an agreed upon event
d. Upon the happening of an event that makes it unlawful for the partnership to
continue, or
e. Upon a judicial decree
PARTNERSHIP OVERVIEW 5.
B. Partner’s Contributions
1. Partner has no rights to distributions absent a contribution
2. Contributions may be in the form of any benefit to the partnership (e.g., money,
property, services, and promises to make such contributions)
D. Duties of Partners
1. General partners owe the limited partnership fiduciary duties of care and loyalty
2. Limited partners owe no fiduciary duty to the partnership and are free to
compete with the partnership, except as otherwise provided in the partnership
agreement
B. Liability of Partners
1. A partner is not personally liable for the obligations of the partnership
2. However, a partner remains personally liable for her own wrongful acts
B. Management
1. All members participate in management except as otherwise specified in the
operating agreement
2. Each member of a member-managed LLC has authority to bind the company to
contracts, unless the member lacks actual authority to do so and the other party has
notice of same
C. Duties
1. Member-managed
a. Members in member-managed LLCs owe duties of care and loyalty to each
other and the LLC
8. PARTNERSHIP OVERVIEW
b. They must also discharge their duties consistently with the contractual
obligation of good faith and fair dealing
2. Manager-managed
a. In manager-managed LLCs, only the managers are subject to the duties of care
and loyalty
b. Only the members may authorize or ratify an act by a manager that would
otherwise violate the duty of loyalty
E. Distributions
1. The uniform act calls for distributions in equal shares unless the operating
agreement provides otherwise, but most states do not follow that approach and
allocate distributions on the basis of contributions unless the operating agreement
provides otherwise
F. Rights to Information
1. Member-Managed LLC
a. In a member-managed LLC, a member has a right to inspect and copy any
record concerning the LLC’s business that is material to the member’s rights
and duties
2. Manager-Managed LLC
a. In a manager-managed LLC, the managers have the same right to information
and duty to furnish information as discussed above
G. Dissociation
1. A member has the power to dissociate at any time
2. A wrongfully dissociating member may be liable to the LLC for damages
3. Generally, the events that cause dissociation of a partner also cause dissociation of
an LLC member
H. Dissolution
1. An LLC will dissolve when any of the following events occur:
a. An agreed upon event of dissolution
PARTNERSHIP OVERVIEW 9.