AGENCY LAW

Addresses the legal relationships involved when one person (the principal) allows another
person (the agent) to act on the principal's behalf
The agent's acts are subject to the principal's control, & thus can subject the principal to
liability (even for some acts that the principal didn't approve or explicitly forbid)
Agency Law - liability (in general)
Once agency relationship is established, the principal can be held liable--directly or
vicariously--for the agent's actions
Agency Law - relationship btwn A&P
voluntary & consensual
They agree that the agent: (1) may act on the principal's behalf and (2) is subject to
principal's control
4 Ways to Create Agency Relationship
a. APPOINTMENT (most common): specifically appoints someone as an agent; may be done
orally or in writing
b. IMPLICATION: one's words or conduct are enough to imply an agency rel'ship has been
formed
c. MISINTERPRETATION: 3rd party misinterprets one's conduct in a way that creates an
agency rel'ship
d. RATIFICATION: a principal ignores or fails to object to an agent's action, & this may be
enough to create the rel'ship
Partnership & Corporations Question - application of Agency Law - how to tackle question
(i) identify the existence of agency relationships, (ii) discuss whether principal is subject to
liability for agent's actions, (iii) articulate agent's fiduciary duty to principal and whether
agent has breached that duty, and (iv) determine if or when an agency relationship has
terminated
4 Elements to look for to determine whether you have an agency relationship are
AB double C:
ASSENT: principal must manifest his assent or agreement (express OR implied) to creating
an agency relationship
BEHALF: agent must agree to act on behalf of the principal; i.e., act primarily for benefit of
principal, not his own personal benefit
CONTROL: agent must be subject to principal's control; i.e., principal has the right to direct
agent's actions
CONSENT: agent must consent to act on the principal's behalf; i.e., it's a voluntary rel'ship
(list these elements & discuss how they are/aren't present)
Status as a Principal is established by
the individual's intent to delegate an act and control the way in which the act is performed
by another.
LEGAL CAPACITY
A Principal MUST have legal capacity to enter into an agreement
An Agent only requires "minimal capacity" (need not have ability to form contracts)
CONTROL
Agent agrees to be subject to Principal's control and a principal agrees to be bound by the
acts of its agent within the scope of the agent's authority.
It is sufficient that principal has the right to control agent's actions (even if they don't
exercise that control)
5 TYPES OF PRINCIPALS
Individual
Employer
Entrepreneur
Corporation
Partnership
AGENT
An agent can be anyone, even someone who lacks capacity to form contracts (e.g., minors
or incompetents can be agents); only requires "minimal capacity" or the ability to follow a
principal's direction
5 TYPES OF AGENTS
General
Special
Independent Contractor
Gratuitous
Sub-Agent
Special Agent
have limited authority regarding a specific transaction or a string of repetitious acts (e.g.,
real estate agent)

Independent Contractor
aka non-employee agent; most important distinguishing factor is that an independent
contractor is not subject to principal's control regarding the physical conduct of agent's
performance
Likely NOT an agent: maintain high level of independence; are free to work for others; agree
to be paid a fixed fee; and/or accept responsibility to remedy defects at own expense
Sub-agent
A person appointed by an agent to perform tasks that agent has agreed to perform
(1) Principal MUST consent expressly or by implication
(2) Once appointed, sub-agent then owes duties and is liable to both agent & principal
(3) Having a sub-agent does NOT excuse agent from liability
(4) Having a sub-agent does NOT excuse principal from liability; they're liable to the same
extent as for agent's actions (if they consented to sub-agent)
MD: Burden of Proof for Existence of Agency Relationship
The party seeking to establish the existence of an agency relationship has the burden of
proving that the relationship has been properly formed.
Agency Relationship & Consideration
You do NOT need consideration; agent does NOT need to be compensated in order for the
agency relationship to exist
Equal Dignity Rule
Requires that if the contract being executed is or must be in writing, then the agent's
authority must also be in writing (e.g., real estate transfer)
MD: Writing Requirement for Power of Attorney
To be effective, a power of attorney must be (i) in writing, (ii) signed by the principal, (iii)
notarized, and (iv) attested to by at least 2 adult witnesses.
ACTUAL AUTHORITY
What the agent reasonably believes the principal has directed him to do.
EXPRESS ACTUAL AUTHORITY
Agent has a clear, direct instruction about what the principal wants her to do (can be
created by silence)
Agent's belief is objective (Principal's subjective belief is not relevant)
IMPLIED ACTUAL AUTHORITY
Allows the agent to take whatever actions are necessary to carry out principal's express
instructions (e.g., authority to interview is implied in agent's authority to hire)
4 WAYS TO SHOW IMPLIED ACTUAL AUTHORITY
CAPE:
CUSTOM: agent may engage in acts that are consistent w/custom or trade
ACQUIESCENCE: principal can accept agent's actions as they occur OR principal fails to
object to agent's unauthorized act
POSITION: an agent's position could come with implied authority
EMERGENCY: an agent may take reasonable actions necessary in an emergency
APPARENT AUTHORITY
When principal acts in a manner that causes a 3rd party to reasonably believe (objective
test) that agent had the authority to act.
4 WAYS TO SHOW IMPLIED ACTUAL AUTHORITY
(1) Past dealings between principal & agent
(2) Custom
(3) Industry standards
(4) Principal statements
IMPOSTOR
Someone pretending to be an agent
If principal negligently allows an imposter to have APPARENT authority, and a 3rd party
reasonably believes the imposter has authority, imposter's acts can bind principal
TERMINATION OF APPARENT AUTHORITY
There must be communication between principal and the 3rd party
(1) 3rd-party must receive some NOTICE in order to terminate apparent authority
(2) A principal's death will terminate apparent authority but only if 3rd party has notice of
the death.
TERMINATION OF ACTUAL AUTHORITY
There must be some communication between the principal and agent; there are many
ways, but some are:
i. Revocation: revoke authority directly
ii. Agreement: either party can terminate entire or part of rel'ship
iii. Changed circumstances

iv. Passage of time

vi. Principal's Death: only when agent has knowledge of the death (not automatic)
vii. Agent's Death: automatically terminates actual authority
RATIFICATION
Formal approval; a form of actual authority & it binds principal to act as if principal
authorized it
To prove that an act has been ratified, look at these factors:
(1) An action has to be ratified in its entirety
(2) A principal has to have the capacity to ratify
(3) There must be manifestation of assent (express or implied)
(4) The ratification must be timely, and
(5) Principal must have knowledge of all of the material facts.
ESTOPPEL
Principal will be prevented from denying the existence of an agency rel'ship so long as a 3rd
party has been induced to detrimentally change her position based on belief that the agent
is acting for principal's benefit
VICARIOUS LIABILITY/ Respondeat Superior
Asserts that principal is liable for the acts of agent, even though principal is innocent of
fault & not directly guilty of any tort or crime (incl. negligence, battery)
KEY elements of vicarious liability are: CONTROL and SCOPE
A principal is vicariously liable to a 3rd party harmed by the agent's conduct when:
(1) Agent is under the principal's CONTROL and
(2) Agent commits a tort while acting within the SCOPE of employment
Agent is under principal's control if...
Principal controlsor has the right to controlthe employee's work; i.e., employer controls
the manner and means of performance
An act falls within the scope of employment if...
it is assigned by the employer OR if it is work that is done while the agent is subject to the
employer's control
* If an employee's work contemplates using force (e.g., bouncer), then the use of that for
DOES fall inside scope
* Travelling to and from work is not within scope
FROLIC & DETOUR
FROLIC: major departure from the scope of employment, acting on his own & for his own
benefit
DETOUR: minor departure from the scope of employment
Intentional torts: not automatically excluded from the scope of employment; they may fall
within the scope of employment when: [3]
(1) The conduct is within the space and time limits of the employment
(2) The agent was motivated in part to act for the employer's benefit; and
(3) The act was the kind of act the employee was hired to perform
A principal may be subject to direct liability to 3rd parties in the following situations: [3]
-- The agent acts with ACTUAL authority
-- The principal is negligent in selecting, supervising, or otherwise controlling the agent
-- The principal tries to delegate a non-delegable duty
DISCLOSED PRINCIPAL
The principal in a situation where 3rd party has notice of a principal's existence and identity
Agent generally is NOT a party to the contract and does NOT have liability on the contract
PARTIALLY DISCLOSED PRINCIPAL
The principal in a situation where 3rd party has notice of the principal's existence, but NOT
the principal's identity
Agent becomes a party to the contract, along with the principal
WARRANTY THEORY OF LIABILITY
Agent may be subject to liability under a warranty theory -- when agent contracts with a 3rd
party, it is viewed as an agent giving a warranty of authority that the principal has
authorized that transaction
An agent breaches that authority when she acts without authority&may be personally
liable to 3rd parties for their actions
Principal's 5 basic rights
a. To control agent's actions
b. To expect agent to carry out duties with reasonable care
c. To expect loyalty and obedience from agent
d. To receive notice about relevant issues (though notice to agent = notice to principal)
e. To receive an accounting related to property & funds involved in the relationship

Principal's 5 duties
a. To treat agent with fairness and act in good faith
b. To comply with agent's contracts that are made with authority
c. To honor compensation agreements (if compensation is due to agent)
d. To avoid interfere with agent's work
e. To reimburse agent against any loss they suffered during the course of the agency
relationship (except that resulting from agent's wrongful conduct)
Principal's Remedies [2]
Principal can recover for agent's wrongful conduct, for breaching their fiduciary duty
Principal can sue for damages or an injunction, or terminate the agent
Agent's 4 Basic Rights
a. To be compensated (if that's part of the agreement)
b. To non-interference
c. To receive reimbursement
d. To work in a safe environment
Agent's 2 Duties to Principal
a. Duty of loyalty and
b. Performance duties
Agent's Performance duties include [5]
(1) To act in accordance with the contract terms
(2) To act with reasonable care
(3) To act with obedience
(4) To provide information to the principal
(5) To keep records and account to principal the assets associated with the agency
relationship
PARTNERSHIP
An association of 2 or more people who go into business together as co-owners to make a
profit that they intend to share
PARTNERSHIP Agreement - in writing? formal?
No and no.
Partnership can arise without any agreement which makes it the default form of business
A partnership agreement does NOT have to be in writing unless required by the Statute of
Frauds.
CREATION OF PARTNERSHIP
2 people must intend to do business together. BUT, they do NOT have to intend to be in a
partnership the INTENT requirement creates the partnership
CREATION OF PARTNERSHIP - Presumption
When people intend to share profits, there is a presumption that they have formed a
partnership (even if they make no profit)
6 Statutory Exemptions to the Profit-sharing Partnership Presumption (i.e. in these cases,
the sharing of money is NOT the sharing of profits, and thus there is NO partnership)
Receipt of money for payment of:
(1) Debts, (2) Wages or other compensation,
(3) Paying rent, (4) Annuity or retirement or health benefits
(5) Interest related to loans, or (6) Goodwill payments.
JOINT VENTURE
A partnership for a limited time and specific purpose; so partnership rules apply.
PURPORTED PARTNER
Someone who is not a partner, but is treated as a partner for purposes of liability
A person is a purported partner and subject to liability if: [4]
a. There was a representation that the person is a partner;
b. The representation was made by the purported partner or with the purported partners'
consent
c. A 3rd party reasonably relied on that representation; and
d. The 3rd party must have suffered damages as a result of that reliance
PURPORTED PARTNER & Public Holding Out
If you have a purported partner that either holds herself out or allows someone else to hold
her out as a partner in a public manner, then the purported partner WILL be liable to a 3rd
party who reasonably relies on that holding out.
2 Situations where a Purported Partner becomes an Agent:
a. When a person represents that a purported partner is in fact a partner, the partner is an
agent of that person making the representation
b. When a partner in an existing partnership consents to the purported partners'

representation that she is a partner, the purported partner becomes an agent of that
partner
In a partnership, __________ are subject to personal liability.
ALL partners
When does a partner's act bind the partnership?
When the act is done with authority and in the ordinary course of business.
2 FIDUCIARY DUTIES OF PARTNERS
Duty of Care
Duty of Loyalty
3 Components of the DUTY OF LOYALTY
(1) A partner must account to the partnership for your conduct;
(2) A partner must not engage in deals that are adverse to the partnership's interest; and
(3) A partner must not compete with the partnership.
2 Ways to Limit a DUTY OF LOYALTY
(1) Make an agreement at the outset listing certain activities that would not violate the
duty; or
(2) Set up a safe harbor process in your Partnership Agreement, so that transactions that
would otherwise breach the duty of loyalty can be approved (approval must come after full
disclosure of the material facts)
DUTY OF CARE
A duty to ensure that you do not act reckless or negligent and that you carry out your
duties with reasonable diligence
In carrying out their duties, partners must do so in good faith and fair dealing.
Partnership's Profits & Losses (in general)
Unless there is an agreement to the contrary, partners split profits and losses equally
Partners split losses in proportion to their share of the profits
Example: A partner who receives 40% of the profits, will be responsible for 40% of the
losses.
Partner's Account
Each partner must have a partnership account consisting of contributions minus liabilities,
PLUS the partner's share of the profits minus any distributions to the partner and the
partner's share of partnership losses
Partnership Distribution
A partner cannot demand a distribution & a partnership is not required to make a
distribution to its partners during the life of the partnership.
A partner's account must be credited with his share of profits.
PARTNER'S PARTNERSHIP INTEREST
Consists of her rights to receive her share of profits & losses in the business.
-- Can be transferred either in whole or in part
-- The transfer does NOT include right to share in management of partnership.
-- Partnership agreement may restrict transfers
-- A creditor can enforce a judgment against a partnership interest
Property acquired by the partnership is deemed _________ even if it is contributed by a
single partner.
partnership property
Property taken out in the name of one or more of the partners is partnership property if
it's...
(i) in that partner's capacity as a partner; and
(ii) the name of that partnership is indicated on the instrument that transfers title of the
property
When there is a question about whether something is partnership property or not, what
controls?
The intent of the parties, determined by 2 presumptions:
a. Property is presumed to be partnership property if it is purchased with partnership
assets
b. Property is NOT presumed to be partnership property if it is acquired in the name of a
partner, title does not indicate the person's role as partner or existence of the partnership,
and partnership's assets were not used
A person can only become a new partner if
ALL the existing partners consent
Management Rights [3]

(1) Each partner has the equal right to manage the affairs of the business.
(2) Ordinary business decisions are decided by a majority vote of partners.
(3) Things outside of the ordinary course of business are decided by the consent of ALL of
the partners.
A partner is not entitled to compensation for his services, except...
for services involved with winding up the business.
Instead of a salary, a partner is entitled to...
have his account credited with his share of the profits
Partnership Indemnity
A partnership is required to indemnify a partner for liability that is incurred in the ordinary
course of business
Partner's Use of Partnership Property
A partner may use partnership property, but if a partner gets a benefit from the use, she is
supposed to compensate the partnership for that benefit.
Partnership Records
A partner is entitled to access the books and records of the partnership during normal
business hours
When can the partnership sue a partner?
When the partner breached the partnership agreement or violated his duty
When can a partner sue the partnership?
To enforce her rights under either the Partnership Act, or the partnership agreement OR
To get an accounting of the business and figure out the financial picture of the partnership
DISSOCIATION
The process of walking away from a partnership or ceasing to be associated with the
partnership
A partner has the power to dissociate at any time (except when agreement prevents it)
4 Events that Trigger DISSOCIATION
a. Notice of desire to dissociate;
b. Expulsion from a partnership;
c. A partner's bankruptcy; or
d. A partner's death
When is dissociation wrongful in an unlimited partnership?
Dissociation is only wrongful if it represents a breach of the partnership agreement
When is dissociation wrongful in a partnership agreement with a definite term? [3]
(1) being expelled by the court;
(2) filing for bankruptcy, or
(3) withdrawal (except when withdrawal follows another partner's wrongful dissociation or
dissociation due to death, bankruptcy, etc.).
Dissociation impacts a partner's rights and obligations in the partnership in 2 ways:
(1) A dissociated partner cannot participate in management
(2) Dissociation terminates your fiduciary duties (only dissociation events).
What happens to a dissociated partner's interest?
Other partners must buy out his interest. If the partnership does not make any payment,
the dissociated partner can bring an action to compel payment.
Effect of Dissociation on Authority of Dissociated Partner
Dissociation terminates a partner's ACTUAL authority to bind the partnership.
BUT - there may still be APPARENT authority, which means a dissociated partner can enter
into transactions &partnership may be held liable so long as
(1) 3rd party reasonably believes that dissociated partner is still a partner,
(2) 3rd party has no notice of partner's dissociation, and
(3) 3rd party is not deemed to have knowledge of the lack of authority
Filing a Statement of Dissociation
the statement will prevent 3rd parties from holding partnership liable for acts that occur
more than 90 days after the filing
POWER OF PARTNER TO BIND PARTNERSHIP
A partner is an agent of the partnership and can bind the partnership when there is actual
or apparent authority
A Partner's Actual Authority
Actual authority exists when the partner reasonably believes the partnership has authorized
her to act either because of express words or conduct or by implied authority

A Partner's Apparent Authority

Partner's acts will bind partnership when a 3rd party reasonably believes that partnership
has authorized the partner to act
In general, a 3rd party must have actual knowledge of an agent's lack of authority in
order for a partnership to avoid liability under apparent authority.
Partners & Transferring Property
A partner has the authority to transfer property so long as the property is held in the
partnership's name OR is held in one of the partner's names
Statement of Authority
Document filed as public record that identifies the partners authorized to act for the
partnership and describes the extent of the partners' authority
statement may be used as conclusive evidence of partner's authority (even if 3rd party
never relied); e.g., proof used when buying property
Statement of Denial
Denies facts asserted in a statement of authority or denies specific grants of authority.
For tort liability, a partnership will be liable for torts committed...
by a partner in the ordinary course of business
Partners are jointly & severally liable for all part'ship obligations
Incoming & Outgoing Partner Liability
Incoming partners: only liable for obligations incurred after becoming a partner
Outgoing partners (or dissociated partners): only liable for obligations incurred while
actually a partner
Exhaustion Rule
Requires that business assets be sued to pay partnership debts before a creditor can look to
partner's personal assets
BUT creditor can go after partner if: (1) part'ship is bankrupt; (2) partner consented; or (3)
partner is independently liable
Partnership's Criminal Liability
A partnership can be convicted of a crime, and be barred from engaging in certain activities
upon conviction
Partnership conviction does NOT make individual partners criminally liable; the entity has
criminal liability
Partnership Termination - 2 Steps
Dissolution & Winding Up
In a partnership for an indefinite term (part'ship at will), dissolution is triggered when...
a partner chooses to dissociate from the partnership by giving notice.
In a partnership for a definite term, a dissolution occurs when... [3]
i. There is death, bankruptcy, etc., & the partners can't agree to continue part'ship
ii. When the partners agree to a dissolution; OR
iii. When the partnership agreement term expires (if it continues after term expires, there is
presumed agreement to continue business & it becomes partnership at will)
Any partnership (at will or for a definite term) is dissolved upon the following events: [4]
(1) Events agreed to in the partnership agreement;
(2) Events that make it unlawful for all or substantially all of the partnership business to be
continued (provided that illegality is not cured within 90 days);
(3) Judicial determination is sought by a partner for dissolution on the basis that it is not
reasonably practicable to carry on the business; OR
(4) Judicial determination is sought by the transferee of a partner's interest
Winding Up
The second of two stages in the termination of a partnership or corporation. Once the firm
is dissolved, it continues to exist legally until the process of winding up all business affairs
(collecting and distributing the firm's assets) is complete.
Partners still liable until this phase is complete
What does the 'winder upper' do?
The person winding up may dispose or transfer any partnership property, can discharge
liabilities, and can distribute the assets of the partnership to settle partners' accounts.
After a dissolution event, but before complete winding up, may a partner continue the
business?
A partnership CAN continue the business, so long as ALL the partners agree to waive the
right of termination
Distribution of Assets - Who gets paid 1st?
Creditors are always 1st in line & partners must pay them before getting anything

MERGER
Occurs when a partnership merges into another entity, leaving only 1 surviving entity.
When does a merger take effect?
When the Articles of Merger are filed with the State
Who decides if a merger should happen?
(General vs. Limited Part'ship)
General Part'ship: requires approval by all the general partners
Limited Part'ship: approval must come from all general partners & majority of limited
part'ship interests
CONVERSION
One entity converting into a new type of entity. Rules of formation must be followed.
What is a Limited Liability Partnership (LLP)?
An LLP is a partnership in which the partners have limited liability meaning the partners are
NOT subject to personal liability for all the debts and obligations of the partnership.
How is an LLP formed?
By filing a statement of qualification with the state, which must indicate that the entity is an
LLP, either with the initials LLP or write it out at end of the name
A partner in an LLP is NOT liable for the obligations of the LLP unless...
he engages in misconduct or someone he supervises engages in misconduct.
Foreign LLPs
Must file in the state if they want to do business in state
If they don't properly register, they may not bring suit in MD and may face fines and
criminal sanctions for conducting business
What is a Limited Partnership (LP)?
LP must have at least 1 person as a limited partner and 1 as a general partner
The limited partner is shielded from liability while the general partner is not
Formation of an LP
Must file a certificate with the state, which is signed by all of the general partners and must
include essential information such as name of part'ship, duration, instate address, etc.
Limited Partner
Person who contributes capital to a business but has no management responsibility or
liability for losses beyond the amount he or she invested in the partnership.
Extent of liability of a Limited Partner
Even if a limited partner participates in the control of the business, she is personally liable
only to persons who transact business with the limited partnership and who reasonably
believe, based on the limited partner's conduct, that the limited partner is a general
partner.
How does one become a general partner?
With the consent of ALL of the general partners and a majority of interests of the limited
partners.
Termination of General Partner Status
A general partner can withdraw just by giving written notice at any time. Other events
causing a general partner to cease being a partner include:
(1) By assignment partnership interests
(2) If general partner is removed
(3) If general partner has financial difficulty (e.g., bankruptcy);
(4) If general partner dies or is or incompetent
4 Events that Trigger Dissolution of Limited Partnership
(1) Occurrence of some event specified in part'ship agreement
(2) Consent of all of the partners;
(3) Withdrawal of general partner (when there is no other general partner); or
(4) Judicial decree based on determination that it's not reasonably practical to carry on
business
Assets of a LP are distributed in following order:
a. Third-party creditors and partners who are creditors;
b. Partners and former partners who are entitled to distributions that have a accrued;
c. Partners for the return of partner contributions;
d. Partners, in the proportion that distributions are shared
Derivative Action
With regard to a limited partnership, a lawsuit by a limited partner against another person
or entity to enforce claims the limited partner thinks the limited partnership has against
that person.