A. Agency Relationships | B. Contractual Liability of Principal & Agent
Creation of Agency Relationship
Definition – Agency is a fiduciary relationship, where a
person or entity (the agent) acts on behalf of another
(the principal).
Elements – An agency relationship exists if there is:
1) Assent – a formal or informal agreement;
2) Benefit – the conduct primarily benefits the
principal; AND
3) Control – the principal has the right to control
the agent (control doesn’t need to be
significant).
*The characterization of the relationship by the parties is
irrelevant.
Types of Agency Relationships
- Universal Agent – has broad authority,
authorized for ALL acts the principal can
perform.
- General Agent – has authority to conduct a
series of transactions over a period of time.
- Special Agent – has limited authority either for
a specific act/transaction OR a specified period
of time.
Termination of Agency Relationship
An agency relationship terminates by:
a) A manifestation by either party that the
relationship is terminated;
b) Expiration of a specified term of authority;
c) Death of principal or agent (by operation of law);
OR
d) Incapacity of the principal or agent (by
operation of law) – except if a durable power of
attorney exists.
Death of Principal:
Common Law → agency is terminated regardless of
whether the third-party has notice of principal’s death.
Some States → NOT terminated until the third-party has
notice of the death.
Agency Contracts – Principal can terminate the agent
at any time.
- BUT, principal may be liable for damages if
agent is terminated prior to the expiration of a
contract (unless the agent materially breached
contract).
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L M | Actual Authority – A principal is bound to a contract
entered into by its agent if the agent had actual authority.
Two Types – occurs if:
Express Authority → by principal’s explicit directions to
the agent (either orally or in writing).
Implied Authority → either:
a) Action is necessary to carry out the agent’s
express authorized duties;
b) Agent acted similarly in prior dealings with the
principal; OR
c) It’s customary for an agent in that position
(silence/acquiescence can give rise to a
reasonable belief of authority in the future).
An agent has actual authority when acting within their
reasonable understanding of authority, even if the
principal later shows the agent was mistaken.
Apparent Authority – A principal is bound to a contract
entered into by its agent if the agent had apparent
authority.
Apparent Authority exists when:
1) A third-party reasonably believes the agent
has authority to act on behalf of the principal;
AND
2) That belief is traceable from the principal’s
manifestations (principal holds the agent out as
having authority).
A principal holds the agent out as having authority
when he:
a) gives a position or title indicating authority;
b) previously held the agent out and did not
published a revocation; OR
c) cloaked the agent with the appearance of
authority.
*Continues until the principal communicates termination
to third-parties.
Apparent Authority is NOT applicable if the third-party
had knowledge that the agent did not have actual
authority.
Unidentified/Partially Disclosed Principal → Apparent
Authority CAN exist.
Undisclosed Principal → Apparent Authority CANNOT
exist.
Inherent Agency Power – Protects third-parties when
dealing with agents even if there is no actual or apparent
authority.
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01 AGENCY
Two Groups of Inherent Agency Power:
First Group → Subjects an employer to liability when:
1) an agent acts in furtherance of employer’s
business; AND
2) his conduct harms a third-party.
Second Group → If an agent violates the principal’s
orders and there is no actual/apparent authority, inherent
agency applies when:
1) An agency relationship exits; AND
2) Agent engaged in acts that are generally of a
kind that would fall within his actual authority,
but for the violation of principal’s instructions.
The concept of Inherent Agency Power was eliminated
in the Restatement (Third) of Agency.
Ratification – Makes the principal liable for an agent’s
contract entered into without authority.
Ratification occurs when the Principal:
1) Has knowledge of all material facts or contract
terms; AND
2) Assents (approves) to the same through words
or conduct.
*Agent also remains liable if principal was not disclosed.
Rest. 2nd → Undisclosed principal CANNOT ratify.
Rest. 3rd → Undisclosed principal CAN ratify.
Agent’s Contractual Liability
Generally, an agent has NO liability if they:
1) Fully disclose the principal to a third-party; AND
2) Act within their scope of authority.
Agent will be liable if:
a) Conduct was unauthorized; OR
b) Principal was undisclosed or partially disclosed
(no name given) to the third-party.
Agent may seek Indemnification from a principal if:
1) agent is liable; AND
2) his conduct was authorized.
C. Vicarious Liability for Agent’s Torts
Employee vs. Independent Contractor – Primary
focus is whether the principal had the right to control
the manner and method in which the job was performed.
Factors → courts analyze the following to determine if a
person is an employee or independent contractor:
1) type of work;
2) pay (hourly vs. per project);
3) who supplied the equipment/tools;
4) degree of supervision;
5) degree of skill required;
6) if the work benefits the employer’s business;
7) extent of principal’s control over work details;
8) whether agent/contractor is engaged in a distinct
business;
9) length of time employed/engaged;
10) characterization & belief of relationship; and
11) whether agent was hired for a business purpose.
Respondeat Superior Doctrine – An employer is liable
for an employee’s negligent acts if the employee was
acting within the scope of the employment.
Employee acts within Scope of Employment when:
a) Performing work assigned by the employer; OR
b) Engaging in a course of conduct subject to the
employer’s control.
Time, Place, & Purpose Test – To determine the scope
of employment, courts analyze whether the conduct:
Intentional Torts – are generally outside the scope.
EXCEPTIONS:
a) Act was specifically authorized by employer;
b) Act was driven by a desire to serve employer;
OR
c) Act was the result of naturally occurring friction
from the type of employment.
Not Within Scope of Employment – Conduct is NOT
within the scope if it’s unrelated and not intended to
serve any purpose of the employer.
- BUT see exception below.
H Hi) Is of the kind the employee is employed to
perform;
ii) Occurs substantially within the authorized time
and space limits; and
iii) Is motivated (in whole or part) to serve the
employer.
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01 AGENCY
Liability if Respondeat Superior Doctrine is
Inapplicable – An employer will be liable for acts
outside the scope of employment if:
a) Employer intended the conduct / consequences;
b) Employer was negligent or reckless in selecting,
training, supervising, or controlling the
employee;
c) It is a non-delegable duty; OR
d) Employee had apparent authority, the
appearance of authority enabled the tort, and
the third-party reasonably relied on such
authority.
Liability for Independent Contractors – Generally, an
employer/principal has NO liability for an Independent
Contractor’s torts.
Exceptions:
1) Inherently Dangerous Activities.
2) Non-delegable duty owed by principal.
3) Estoppel – the principal holds out the contractor
as his agent, third-party reasonably relied on
contractor’s skill, and the third-party suffered
harm.
D. Fiduciary Duties Between Principal & Agent
Duties Owed by Agent to the Principal:
1) Duty of Care → duty to use reasonable care
when performing agent’s duties.
2) Duty of Loyalty → duty to act solely and loyally
for the principal’s benefit.
3) Duty of Obedience → duty to obey all
reasonable directions of the principal 
 
02 PARTNERSHIPS
Definitions | Filing DOES NOT create a new partnership (if a GP or
LP existed prior to filing).
- The Pship remains liable for any obligations
before it became an LLP.
Amending the Pship Agreement – Unless agreed
otherwise, the Pship agreement may be amended at any
time with a unanimous vote.
Pship = Partnership
UPA = Uniform Partnership Act
RUPA = Revised Uniform Partnership Act
ULPA = Uniform Limited Partnership Act
RULPA = Revised Uniform Limited Partnership Act
A. Creation of Partnerships
General Partnership (GP) – is created when:
1) two or more persons;
2) as co-owners;
3) carry on a business for profit.
*Intent to form a partnership is NOT required.
A joint venture or sharing in gross profits DOES NOT
automatically create a partnership.
Creditor vs. Partner – A person who receives a share of
the profits is presumed to be a partner UNLESS the
payment is received in payment:
a) of a debt;
b) for wages as an employee or independent
contractor;
c) of rent;
d) of an annuity or retirement benefit;
e) of interest/loan charges; OR
f) for the sale of goodwill of a business.
Limited Partnership (LP) – is composed of limited
partner(s) AND at least one general partner.
Formation – An LP is formed upon filing a Certificate of
Limited Partnership with the Secretary of State, which
must include:
1) name of Pship;
2) address of Pship;
3) name and address of each partner;
4) whether the Pship is an LLP; AND
5) signed by a general partner.
Limited Liability Partnership (LLP) – In an LLP, all
partners have limited personal liability.
To Become an LLP:
1) It must be approved by the same vote necessary
to amend the Pship Agreement; AND
2) A Statement of Qualification must be filed with
the Secretary of State containing:
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B. Power & Authority of Partners
Authority to Bind the Partnership – A partner is an
agent of the Pship, and generally has authority to bind
the Pship for its business (including contracts).
- To bind the Pship, the partner MUST have
authority.
Express Actual Authority – A partner receives such
authority from the partners.
- Acts within the ordinary course of business
→ must be approved by a majority of the
partners.
- Acts outside the ordinary course of business
→ must be approved unanimously.
- If Pship Agreement is silent → a partner has
authority for usual & customary matters
UNLESS he knows: (a) other partners might
disagree, or (b) that consultation is appropriate.
Ordinary Course of Business = normal and necessary for
managing the business.
Implied Actual Authority (Incidental Authority) – A
partner may take actions reasonably incidental or
necessary to achieve the partner’s authorized duties.
Apparent Authority – A partner has apparent authority
for acts:
a) conducted within the ordinary course of the
Pship business; OR
b) of the kind carried on by the Pship.
BUT, a partner’s act will NOT bind the Pship when the:
1) Partner lacked authority; AND
2) Third-party knew (or received notice) of a lack of
authority.
Authority to Bind the Partnership After Dissolution –
A partner’s authority is limited after dissolution.
Actual Authority → limited only to acts appropriate for
winding up the business.
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Mi. name and address of Pship;
ii. statement that the Pship elects to
become an LLP; and
iii. a deferred effective date (if any).
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02 PARTNERSHIPS
Apparent Authority → a partner has apparent authority
to bind the Pship if the:
1) Partner’s acts would have normally bound the
Pship; AND
2) Third-party did not have notice of dissolution. | removal of a director is not considered
participation in management and control).
- RULPA → personal liability created, BUT a
partner is liable only to persons who transact
business with the LP reasonably believing that
the limited partner is a general partner.
▪ RULPA has a safe harbor provision
excluding certain acts from liability.
Liability of Limited Liability Partners – Under RUPA, a
partner in an LLP is NOT liable for partnership
obligations.
But a partner in an LLP is liable:
a) for their own misconduct;
b) when the partner signs a personal guarantee for
an obligation; OR
c) for obligations incurred before the Pship became
an LLP.
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C. Liability of Partners
Liability of General Partners:
Personal Liability → General partners are personally
liable for ALL obligations of the Pship UNLESS: (a)
otherwise agreed by claimant; or (b) provided by law.
- UPA (1997) → partners are jointly and severally
liable.
- UPA (1914) → partners are jointly liable.
Incoming Partners → Partners admitted into an existing
partnership are NOT liable for obligations incurred prior
to their admission.
- BUT, incoming partners risk losing their capital
contributions to the Pship
Judgment Enforcement Against a Partner’s Personal
Assets – A judgment against the Pship is NOT a
judgment against the individual partner(s).
- BUT, a judgment may be sought against the
Pship and individual partners in the same action.
Generally, a judgment creditor CANNOT levy execution
of a judgment for a Pship debt against a partner unless:
1) The partner is found personally liable;
2) A judgment is rendered against the partner;
AND
3) Pship assets are exhausted/insufficient to satisfy
the judgment.
Liability of Limited Partners – Limited partners are
NOT personally liable for obligations of the LP.
Exceptions:
a) Liable for their own misconduct;
b) At risk of losing their capital contribution to the
Pship; OR
c) May become personally liable if the partner
participates in management (depends on the
jurisdiction).
Liability for Participating in Management:
- ULPA (2001) → no personal liability created
when a limited partner participates in the
management or control of the business.
- ULPA (earlier versions) → personal liability is
created for participating in management (but
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D. Rights of Partners Among Themselves
Sharing of Profits and Losses – Unless otherwise
agreed, profits are shared equally and losses are
shared in the same ratio as profits.
- Any partner who pays more than his fair share in
losses is entitled to contribution from the other
partners.
Right to Management & Control – Unless otherwise
agreed, each partner has equal rights in the
management and control of the business.
- A disagreement for ordinary Pship business
need only be approved by a majority of the
partners.
- Acts outside the ordinary course of business
MUST be approved unanimously.
Transfer of Partnership Ownership:
A partner can only transfer:
2) the right to receive distributions.
Any other rights CANNOT be transferred, unless the
partnership agreement provides otherwise.
- ALL partners MUST CONSENT for an assignee
of a partnership interest to become a partner.
Right to Partnership Property – All property acquired
by a Pship (or with Pship assets) is owned by the
Pship, not the partners individually.
- Partners have an equal right to use property for
Pship purposes.
L M M M1) his interest in the share of profits and losses;
AND

- Personal use of Pship property requires the
consent of the other partners.
Property acquired in the name of the partner is
presumed to be separate property as long as:
1) no Pship assets are used to acquire it; AND
2) title to the property does not reference the
Pship.
Judgment Solely Against a Partner → CANNOT be
satisfied with Pship property because the partner has no
ownership interest in Pship property.
- However, a creditor may seize the partner’s
financial interest in the Pship.
Remuneration (Payment for Partner’s Services)
A partner is NOT entitled to remuneration for services
performed for the Pship UNLESS:
a) There is an agreement to the contrary; OR
b) It’s for reasonable compensation for services
rendered in winding up the Pship business.
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E. Special Rules for Limited Partnerships
Management & Control in a LP
General Partner → Has full management rights and
control.
Limited Partner → Has NO say or control as to how the
LP is run, and DOES NOT have the right to manage or
control day-to-day business.
- Generally, they are passive and have voting
rights only in extraordinary situations (i.e. sale of
Pship or all its assets, amending Pship
agreement, or admitting a new partner).
Limited Partner’s Right to Inspect Records
RULPA → Limited partners have the right to inspect and
copy records the LP is legally required to keep.
Upon reasonable demand, a limited partner may obtain:
1) True and full info regarding the state of the
business and financial condition;
2) LP’s tax returns; and
3) Any info that’s just and reasonable.
*These rights may be exercised for any purpose.
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F. Duties Owed by Partners
Duty of Care – A partner owes the fiduciary duty of care
to the Pship and other partners.
Under RUPA, a partner only breaches the duty of
care if he engages in:
a) Grossly negligent or reckless conduct;
b) Intentional misconduct; OR
Hc) A knowing violation of law.
*If a partner breaches, he may be held personally liable
to the Pship for any losses.
A breach of the duty has been found in the following
situations:
▪ Violating an agreement or policy of the Pship.
▪ Failing to thoroughly investigate facts before
entering into contracts (if it’s gross negligence).
▪ Acting outside the scope of Pship business
without the consent of the other partners.
Duty of Loyalty – A partner owes the fiduciary duty of
loyalty to the Pship and other partners. This requires a
partner to act in the best interests of the Pship.
Under RUPA, a partner must:
1) Account for any property, profit, or benefit
derived from Pship property or business
(including refraining from appropriating Pship
assets);
2) Not have an interest adverse to the Pship (a
conflict of interest); AND
3) Not compete with the Pship (unless agreed
otherwise).
If a partner breaches, he may be held personally
liable to the Pship for any losses.
BUT, a partner is NOT liable if:
1) He fully discloses information; AND
2) Either:
a) the Pship agreement is amended; OR
b) all partners consent.
If reasonable, the Pship agreement MAY eliminate or
alter a duty of loyalty.
Fiduciary duties apply during dissolution (except the duty
not to compete).
Partnership Opportunity → is one that:
1) is closely related to the Pship’s existing or
prospective line of business;
2) would competitively advantage the Pship;
AND
3) the Pship has the financial ability, knowledge,
and experience to pursue.
Duty to Provide Full Information
UPA → Partners shall render (on demand by any
partner) true and full information of all things affecting
the Pship.
RUPA → Partners shall disclose (without demand) full
information concerning the Pship’s business and affairs.
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02 PARTNERSHIPS
If a partner breaches this duty, he may be held
personally liable to the Pship for any losses.
Action Against a Partner for Misconduct – The Pship
can maintain an action against a partner for misconduct.
A partner can also maintain a direct action against
another partner to enforce the partner’s right, including
an action for violating fiduciary duties.
- BUT, a partner CANNOT maintain a derivative
action.
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G. Dissociation & Dissolution
Dissociation (Withdrawal of a Partner) – A partner
may dissociate (withdraw) from the Pship at any time
upon notice.
Dissociation Events – A partner becomes dissociated
from the Pship upon:
a) The partner providing notice of their express will
to withdraw;
b) The occurrence of an agreed upon event;
c) Expulsion pursuant to the Pship agreement;
d) Expulsion by unanimous vote if it’s (i) unlawful to
carry on the business with that partner or (ii) he
transferred all of his Pship interest (other than
for security purposes);
e) Judicial expulsion;
f) Bankruptcy;
g) Incapacity or death;
h) Appointment of a personal representative or
receiver; OR
i) Termination of an entity partner (who is not an
individual, pship, corporation, trust, or estate).
Wrongful Dissociation – Dissociation is deemed
wrongful if:
a) It’s in breach of an express provision of the
Pship agreement; OR
b) Before the completion of an agreed upon term or
undertaking.
*A wrongfully dissociated partner CANNOT participate in
management or the winding up process.
A partner may be liable to the Pship (and other partners)
for damages caused by his wrongful dissociation.
Dissolution of a General Partnership
Dissolution Events – Unless agreed otherwise,
dissolution occurs upon:
a) Notice of a partner’s express will to withdraw;
b) Occurrence of an agreed upon event;
c) The business becoming unlawful; OR
d) Judicial dissolution.
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HDissolution of a Pship for a Definite Term occurs:
a) within 90-days after a partner’s dissociation by
death or wrongful dissociation, if it’s the express
will of at least half of the remaining partners to
wind up (rightful dissociation constitutes the
expression of the partner’s will to wind-up);
b)  | upon the express will of all partners to wind up;
ORc) upon the expiration of the term or completion of
the Pship’s purpose.
Does Dissociation Cause Dissolution?
Under RUPA (2013):
- Dissolution may be rescinded by the
affirmative vote or consent of ALL remaining
partners to continue the business.
- Buyout → In such instance, the dissociated
partner is entitled to a buyout of their interest
(value of interest = greater of liquidation or going
concern value + interest).
*Apply RUPA (2013) unless instructed otherwise.
Under RUPA (1997):
- If wrongful dissociation → ALL remaining
partners may waive their right to windup/terminate the Pship, and instead choose to
continue the Pship by buying out the dissociated
partner’s interest.
- If rightful dissociation → The dissociated
partner is allowed to vote on whether to waive
winding-up and termination of the Pship.
Regardless, the other partners MAY choose to
continue the business for a reasonable amount
of time.
Under UPA (1914) → The Pship MUST be wound up and
terminated (regardless if rightful or wrongful).
- But, all partners who did not wrongfully cause
dissolution may choose to continue the business
in the same name.
Dissolution of a Limited Partnership
A non-judicial dissolution of an LP occurs upon:
a) Happening of an event specified in the Pship
agreement;
b) Consent of (i) all general partners and (ii) limited
partners owning a majority interest;
c) After the dissociation of a general partner either
(i) upon consent of the partners owning majority
rights to receive distributions (if LP has at least 1
general partner), or (ii) the passage of 90 days
after the dissociation (unless the LP admits at
least 1 general partner);
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02 PARTNERSHIPS
d) 90 days after dissociation of the last limited
partner, unless the LP admits at least one limited
partner; OR
e) the filing of a declaration of administrative
dissolution by the Secretary of State.
Winding Up & Termination of a Partnership
Dissolution vs. Winding Up vs. Termination:
- Dissolution → Occurs upon the occurrence of
any specified statutory event (see above).
- Winding Up → Is the period between
dissolution and termination, in which assets are
liquidated to satisfy creditors.
- Termination → Occurs when the winding up
process is complete. The real end of the Pship,
in which the Pship ceases to exist.
Distribution of Partnership Assets – During the
winding up process, the Pship assets are converted to
cash and distributed in the following order:
1) Outside creditors.
2) Inside creditors (partners who loaned money to
the Pship).
3) Partner’s capital contributions.
4) Any remaining profits or surplus goes to the
partners equally (unless agreed otherwise).
*If there are insufficient assets to satisfy creditors, the
loss will be divided among the partners.