New York Bar Brief

By Shirley Daniels,2014-06-12 10:19
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New York Bar Brief






    A.Three Agency Problems

    1.Liability of Principal to Third-Parties for Torts of an Agent2.Liability of Principal to Third-Parties for Contracts Entered by an Agent

    3.Duties Which Agents Owe to Principals

    B.Liability of Principal for Torts of Agent – Respondeat Superior or Vicarious



    a.Whether the principal will be vicariously liable for torts committed by


    2.Two-Part Test

    a.Principal will be liable for torts committed by agent if:

    i.A principal-agent relationship exists, and

    ii.The tort was committed by the agent within the scope of

    that relationship

    b.The Principal-Agent Relationship

    i.Principal-agent relationship requires:


    (a)Means an informal agreement between the

    principal, who has capacity, and the agent


    (a)The agent’s conduct must be for the

    principal’s benefits

    (3)and Control

    (a)The most important

    (b)The principal must have the right to control

    the agent by having the power to supervise

    the manner of the agent’s performance


    (1)There can be no vicarious liability for a sub-agent’s

    tort unless there is assent, benefit and the right to

    control that sub-agent tortfeasor

    iii.Borrowed agents:

    (1)One principal will go and borrow another principal’s


    (2)There can be no vicarious liability for a borrowed

    agent’s tort unless there is assent, benefit, and the

    right to control that borrowed agent’s tortfeasor

    (a)Usually the problem will be a lack of control over

    the borrowed agent on the bar exam, so no

    vicarious liability

    c.Contrast Agent with Independent Contractor


    (1)There is no right to control an independent

    contractor because there is no power to supervise


    the manner of an independent contractor’s



    (1)There can be no vicarious liability for independent

    contractor’s tort, since there are no right to controliii. Exceptions:

    (1)The ultra hazardous activity exception

    (a)If the independent contractor commits a tort while

    engage in ultra hazardous activity, there would

    be vicarious liability even for an independent

    contractor’s tort


    (a)If you hold out your independent contractor

    with the appearance of agency, you will be

    estopped from denying vicarious liability even

    for an independent contractor’s torts

    iv.Hypo: Tory Victus went to E-Stop-L Gas Station to have her

    brakes repaired. E-Stop-L Gas Station had an independent

    contractor arrangement with the brake repairer. Brake repairer

    negligently repaired Tory Victus' brakes, resulting in an

    accident. Is E-Stop-L Gas Station liable?

    (1)Yes, as a rule, there is no vicarious liability for an

    independent contractor’s tort, except ultra hazardous

    activity and estoppel

    (2)In this case, brake repair is a ultra hazardous activity

    and therefore there would be vicarious liability even for

    an independent contractor’s torts

    (3)Moreover, the Gas Station has held out that the repairer

    is in an agency relationship with the Gas Station, and

    will be estopped from denying vicarious liability

    3.Scope of Principal-Agent Relationship Factors

    a.3 test:

    i.Was conduct "of the kind" agent was hired to perform?ii.Did the tort occur "on the job"?

    (1)Frolic v. Detour

    (a)A frolic is a new and independent journey,

    therefore, it is outside the scope of agency

    (b)A detour is a mere departure from an

    assigned task, and it is still within the scope

    of agency

    iii.Did the agent intend to benefit the principal?

    (1)If the agent even in part to benefit the principal, that is

    enough to be within the scope of agency

    b.Hypo: Employer instructs employee to drive across town to deliver files to a branch office. On the way back, employee stops to pick up shirts at the dry cleaner for work the next day. In the parking lot of the dry cleaner, employee hits a pedestrian. Is employer liable?i.The principal will be liable for it’s agent’s torts within the scope

    of agency

    ii.In this case, the agent was on a detour, a mere departure from

    an assigned task because the tort occurred on the way back


    to work, and therefore within the scope of agency and there

    will be vicarious liability for that tort

    4.Intentional Torts


    i.Intentional torts are outside the scope of agency


    i.Intentional torts are within the scope if the conduct was:

    (1)Specifically authorized by the principal

    (2)Natural from the nature of employment

    (3)If the conduct was motivated by a desire to serve

    the principal

    ii.Usually happens in a bouncer of a bar situation

    (1)All three exceptions all applies, since the bar owner

    usually authorize the bouncer to bounce the patron out,

    and also, this is something in the nature of employment,

    and finally, the bouncer kick people out in the desire to

    serve the principal

    C.Liability of Principal for Contracts Entered by Agents


    a.Whether principal is liable for contracts entered into by its agent

    2.One Test:

    a.Principal is liable for contracts entered into by its agent if the

    principal authorized the agent to enter the contract

    3.There are 4 types of authority: actual express, actual implied, apparent

    or ratification

    a.Actual Express Authority

    i.Principal used words to express authority to agent


    (1)Can be oral, private, but also narrowly construed

    iii. Except:

    (1)For land, means an interest in real estate which

    could last longer than 1 year, must be in writing

    iv.Hypo: Agent tells Principal that she is an expert in negotiating

    real estate transactions. Principal whispers into Agent's ear at

    party that principal wants Agent to negotiate the sale of Green

    Acres Farm. Agent negotiates the sale of Green Acres Farm

    for the Principal. Is Principal bound on the sale?

    (1)No, the principal will be liable for its authorized contract,

    but in this case, because the contract involves the sale

    of land, the express authority must have being in

    writing, and therefore, the oral private whisper is not

    enough to authorize this contract and therefore no


    v.Express authority will be revoked by:

    (1)Unilateral act of either party, or

    (2)Death or incapacity of the principal

    (3)Hypo: Paula collects rare books. She hires Alice to find

    a rare book to complete her collection. Alice searches

    everywhere for the rare book. As Alice is about to pay


    for the book, Paula dies. Is Paula's estate bound by the


    (a)No, principal will be liable at it’s authorized

    contracts, but in this case, actual express

    authority is terminated upon the principal’s death,

    therefore no express authority to enter into the

    contract and the estate will not be liable on the


    (b)So Alice, the agent is liable personally on that


    (4) Except:

    (a)Express authority cannot be revoked if there

    is a durable power of attorney

    (i)A written express of authority to enter into

    a transaction

    (ii)Look for a conspicuous survival language

    for “durable”

    b.Actual Implied Authority

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


    (a)There is implied authority to do all tasks

    which are necessary to accomplish an

    express task


    (a)There is implied authority to do all tasks

    customarily performed by persons with the

    agent’s title or position

    (3)Prior dealings between the principal and the agent

    (a)There is implied authority to do all tasks which

    the agent believes to be authorized by prior

    acquiescence of the principal

    c.Apparent Authority

    i.Two-Part Test:

    (1)Principal "Cloaked" agent with the appearance of

    authority and,

    (2)Third-party reasonably relies on appearance of


    ii.Secret Limiting Instruction

    (1)Agent has actual authority, but principal has secretly

    limited that authority, but agent acts beyond the scope

    of the limitation

    (2)Hypo: Charles owns an antique store. A shipment of

    antique clocks arrives from London. Charles tells his

    employee Dufus not to sell a special grandfather clock.

    Charles goes to lunch. Dufus sells the clock. Is

    Charles bound on the sales contract?

    (a)Yes, the principal will be liable on it’s authorized

    contracts, and in this case, even though there are

    no actual express or implied authority to sell the


    clock, but nonetheless, there was apparent

    authority because the principal did “cloak” Dufus

    with the appearance of authority and the buyer of

    that clock relied reasonably on Dufus’s

    appearance of authority, therefore, Charles is

    liable based on apparent authority

    iii.Lingering Authority

    (1)Actual authority has been terminated but afterwards,

    agent continues to act on principal's behalf

    (2)Hypo: For many years, Agnes has sold goods as

    Priscilla's agent. Priscilla finds out, however, that

    Agnes has been stealing money from her. Priscilla

    terminates Agnes. Agnes continues selling to

    customers and runs away with their money. Is Priscilla


    (a)Yes, the principal will be liable on it’s authorized

    contract, and in this case, actual express or

    implied authority has being terminated, but

    nonetheless, apparent authority still lingers

    because (1) the principal has cloak the agent

    with the ongoing appearance of authority, and (2)

    customers may continue to rely reasonably on

    the lingering of the authority until they receive

    notice of termination


    i.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

    ii. Except: ratification cannot alter the terms of the contractiii.Hypo: Priscilla gives Agnes a power of attorney to purchase

    steel drums. Agnes enters a contract to purchase 11,000

    wooden barrels. Priscilla tells Agnes "great job, I love wooden

    barrels, but I only need 10,000." Is Priscilla bound?

    (1)No, principal will be liable on it’s authorized contracts

    (2)In this case, there was no actual express or implied

    authority to purchase wooden barrels, nor is there any

    evidence of apparent authority to purchase wooden


    (3)Nonetheless, the principal arguably ratified the contract

    through knowledge and acceptance of it’s benefits

    (4)But in NY, ratification is not valid because it is not

    complete, so you cannot try to alter and change the

    term of the deal, so there would be no authority and no

    liability on that transaction

    4.The Rules of Liability on the Contract

    a.General Rules:

    i.If no authority, principal is not liable on the contract

    (1)If no authority, agent is liable on the contractii.If authority, principal is liable on the contract


    (1)If authority, agent is not liable on the contract

    b. Exception:

    i.If principal is partially disclosed (only the identity of principal

    concealed) or undisclosed (fact of principal concealed),

    authorized agent may nonetheless be liable at the election

    of the third-party

    D.Duties Agent Owes to 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

    a.Self-dealing ; agent cannot receive a benefit to the detriment of the


    b.Usurping the principal's opportunity, or

    c.Secret profits

    4.Hypo: Priscilla authorizes Agnes to buy diamonds. Agnes spots choice

    diamonds, and secretly buys them for herself for $1 million. Agnes then

    resells the diamonds for $2 million.

    a.What duties, if any, has Agnes breached?

    i.The agent has breached the duty of loyalty by self-dealing,

    usurping the principal’s opportunity and secret profits

    b.What remedies, if any, does Priscilla have against Agnes?

    i.The principal may recover any losses caused by the

    breach and also may disgorge any profits made by the

    breaching agent


    A.4 Issue Areas:

    1.Partnership Formation

    2.Liabilities of Partners to Third-Parties

    3.Rights and Liabilities Between Partners

    4.Partnership Dissolution

    B.Partnership Formation


    a.There are no formalities to become a general partnership, but you

    will be called by the law as a general partnership even though you do

    not want to be one


    a.A general partnership is an association of 2 or more persons who

    are carrying on as co-owners of a business for profits3.Sharing of the profits

    a.The contribution of money or services in return for a share of

    the profits is prima facie evidence of a general partnership

    C.Liabilities of Partners to Third-Parties

    1.Agency Principles Apply

    a.Partners are agents of the partnership for carrying on usual

    partnership business

    b.Partnership is bound by torts committed by partners in scope of

    partnership business

    c.Partnership is bound by contracts entered by partners with



    2.General Partners are Personally Liable for Debts of the Partnershipa.Incoming partner's liability for pre-existing debts?

    i.As a rule, an incoming partner is not liable for prior debts

    except any money which is contributed to the partnership

    by an incoming partner can be used by the partnership to

    satisfy prior debts

    b.Outgoing partner's liability for subsequent debts?

    i.An outgoing partner retains liability on future debts until

    they die, unless notice of their withdrawal has being given

    to all known and even potential creditors

    3.General Partnership Liability by Estoppel

    a.One who represents to a third-party that a partnership exists

    will be liable as if a partnership exists

    b.Hypo: Paula convinced her friend Peter to start a sailing school, and

    agreed to lend Peter money to purchase a boat for that purpose. At

    a party, Paula told a wealthy friend: "My partner Peter and I are

    starting a sailing school and we need a boat." The wealthy friend

    offered to sell Paula and Peter a boat, and agreed to allow Peter to

    take it for a test ride the next day. Later that night, however, Peter

    and Paula fight and decide to drop the sailing school idea. The next

    day Peter takes the boat for a ride and destroys the boat. May

    wealthy friend sue Paula for the loss of the boat?

    i.General partners are liable for all partnership obligations,

    including co-partner’s torts

    ii.In this case, however, Paula and Peter never really formed a

    general partnership because theirs was a lending

    arrangement and not based on a sharing of the profits

    iii.Nonetheless, Paula has represented that she is a partner in a

    partnership with Peter, and therefore, she will be liable as if

    she were

    4.Contrast Formation and Liability Within Other Unincorporated Business Organizations

    a.Limited Partnerships

    i.A partnership with at least one general partner and at

    least one limited partner


    (1)Must file a certificate of limited partnership with the

    department of state that includes the name of all

    general partners

    iii.Liability and Control:

    (1)General partners are still liable for all debts and

    obligations of the business form, but they may

    exercise substantial managerial control

    (2)Limited Partners

    (a)Not liable for partnership debts or obligations

    (b)They must pay for their interest

    (c)But, they may not exercise substantial

    managerial control

    b.Registered Limited liability Partnerships (RLLP)

    i.Limited to partnership engaged in professional services



    (1)Must register by filing a certificate of registration

    with the department of state that includes the

    profession to be practiced


    (1)No partner will be liable for the partnership’s debts

    or obligations, liable for their own wrongdoing though,

    or any other person’s wrongdoing who is under their

    direct supervision

    c.Limited Liability Companies (LLC)

    i.Original Purpose:

    (1)To provide owners the same limited liability of

    shareholders in a corporation plus the beneficial

    tax status of a partnership


    (1)File an article of organization plus you must publish

    a summary of the articles once a week for 6 weeks

    in a row in at least 2 newspapers


    (1)The members are not liable for any debts of the


    iv.Partnership Characteristics:

    (1)Members control, but may delegate to managers

    (2)Limited liquidity – member interests are not freely


    (3)Limited life – events of dissolution

    v.L.L.C. = limited liability + limited liquidity + limited life +

    limited tax

    D.Rights and Liabilities Between Partners

    1.Partners are FIDUCIARIES of each other and the partnership

    a.Duty of loyalty

    i.May not engage in self-dealing

    ii.May not usurp partnership opportunities

    iii.May not make a secret undisclosed profits at the partnership’s


    b.Action for Accounting

    i.The only form of action that can be brought by a partnership

    against one of its own partners for breach of duty of loyaltyii.The partnership may recover losses caused by the

    breach, and also may disgorge profits made by the

    breaching partner as well

    2.Partners' rights in partnership property

    a.Specific Partnership Assets

    i.Include lands, leases, equipment, owned only by the

    partnership, and therefore, no individual partner may

    transfer partnership assets without partnership authority

    b.Share of profits and surplus

    i.Each partners share of profit if any, and it is personal

    property owned as such by each individual partner,


    therefore, individual partners may transfer their share of

    profits and surplus to 3rd parties

    c.Share in management

    i.It is an asset that belong only to the partnership and not

    any individual partner and therefore, individual partners

    may not transfer their share in management to some 3rd


    d.So a general partnership interest are a illiquid intereste.Conflict between specific partnership assets and personal


    i.Who’s money was used to buy the property?

    (1)If partnership money is used to buy the property, it

    become partnership property, but if personal money is

    used, it become personal property

    (2)Hypo: John buys a car in John's own name with John's

    money which John uses in partnership business. John

    dies. Does John's spouse Yoko get the car or is it a

    specific asset of the partnership?

    (a)In this case, because John bought the car with

    his own money, it is his own car and therefore,

    he may freely transfer that car to Yoko through



    a.Absent an agreement, each partner entitled to EQUAL control


    b.Hypo: A, B, and C agree to contribute money and share profits 60-

    30-10. How do they vote?

    i.Absent an agreement, equal control, don’t care about the

    agreement to contribute money


    a.Absent an agreement, partners get NO SALARY

    b.Hypo: A and B are partners. A works 96 hours a week. B sleeps all

    day. Does A get any salary?

    i.Absent an agreement, no salary

    c. Exception:

    i.For helping to wind up the partnership business

    5.Partner’s share of profits and losses

    a.Absent an agreement, PROFITS SHARED EQUALLY

    b.Absent an agreement, LOSSES SHARED LIKE PROFITS


    i.If Agreement – silent on profits and losses?

    (1)First, in the absence of an agreement, profits are

    shared equally, and secondly, in the absence of an

    agreement on losses, they are shared just like profits,

    which would be equally as well

    ii.If Agreement – "Profits shared 60/40." Losses shared?

    (1)In the absence of agreement on losses, they are shared

    just like profits, which would be 60/40 as well

    iii.If Agreement – "Losses shared 60/40." Profits shared?


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