Agency & Partnership for the California Bar Exam


AGENCY

  1. Liability of Principal for Agent’s Actions

  1. Liability for Torts of Agent

    1. Issue = whether the principal will be vicariously liable for torts committed by agent

    2. Two Part Test – principal will be liable for torts committed by agent if: (1) there is a principal-agent relationship, and (2) the tort was committed by the agent within the scope of that relationship

      1. The Principal-Agent Relationship

        1. Requires: “ABC”

          1. Assent – informal agreement b/n the principal who has capacity and the agent

          2. Benefit – agent’s conduct must be for the principal’s benefit

          3. Control – principal must have the right to control the agent by having the power to supervise the manner of the agent’s performance

            1. Subagents – agent gets the help of third party and the third party commits a tort – principal will be liable for the subagent’s torts only if there is ABC

              1. Usually there is no assent, so no VL

            2. Borrowed Agents – principal borrows another principal’s agent – the principal will be liable for a borrowed agent’s torts only if there is ABC

              1. Usually there is no right to control, so no VL

        2. Does NOT Require: writing or consideration

        3. Independent Contractors – key distinction – there is no right to control an ind. contractor b/c there’s no power to supervise the manner of performance – no VL w/o the right to control

          1. Exceptions

            1. Ultra-Hazardous Activity – if ind. contractor commits a tort engaged in UHA, there will be VL

            2. Estoppel – if principal holds out ind. contractor w/the appearance of agency, he will be estopped from denying vicarious liability for a tort

            3. Non-delegable Duties Have Been Delegated

            4. Knowingly Selected Incompetent Independent Contractor

      2. Scope of Principal Agent Relationship

        1. 3-Part Test:

          1. Was conduct “of the kind” agent was hired to perform? – was the conduct w/in the job description, if so it is likely w/in the scope

            1. Note – intentional torts are usually outside of scope

          2. Did the tort occur on the job or was during a frolic or detour?

            1. Frolic – a new and independent journey – outside of the scope

            2. Detour – mere departure from an assigned task – stays within the scope

          3. Did the agent intend to benefit the principal? – if even in part, he intended to benefit, it will be enough to be within the scope

    3. Intentional Torts

      1. Rule – intentional torts are generally outside of the scope of the agency relationship and therefore the principal is not liable

      2. Exceptions – intentional torts are w/in the scope, if the conduct was:

          1. Authorized by the principal, or

          2. Natural from the nature of the employment, or

          3. Motivated by a desire to serve the principal

    1. Liability for Contracts of Agent

      1. Issue = whether the principal is liable for contracts entered into by its agent

      2. One Test – principal is liable for contracts entered into by its agent if the principal authorized the agent to enter the contract

      3. Four Types of Authority actual express, actual implied, apparent, and ratification

        1. Actual Express Authority – actual authority is that which is actually contained w/in the four corners of the agency agreement. It is effective even if it was granted mistakenly or b/c of misrep

          1. Rule – actual express authority can be oral and private, but it is narrowly construed

          2. Exception – if the contract itself must be in writing (SOF), then so to must the express authority to contract

          3. Revocation – express authority may be revoked by

            1. Unilateral Act of either the principal or the agent, or

            2. Death or Incapacity of the Principal

              1. Exception – if the principal gives the agent a durable power of attorney, then authority will survive death or incapacity

                1. Power of Attorney – written expression of authority to enter a transaction

        2. Actual Implied Authority – authority which the principal gives the agent through conduct or circumstance

          1. Types:

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

            2. Custom – there is implied authority to do all tasks which are customarily performed by persons w/the agent’s title or position

            3. Prior Dealings b/n Principal and Agent – there is implied authority to do all tasks which the agent believes to have been authorized from prior acquiescence

        3. Apparent Authoritythird party believes that agent has apparent authority to contract, principal liable

          1. Two Part Test:

            1. Principal Cloaked Agent w/the appearance of authority, and

            2. Third Party Reasonably Relies on appearance of authority

        4. 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, and

          3. Ratification does not alter the terms of the contract

        5. Termination of Authority – can occur by:

          1. Lapse of a specified or reasonable time

          2. The happening of a specified event

          3. A change in circumstances including destruction of the subject matter of the authority, insolvency of the agent or principal, and a change in the law or business conditions

          4. Agent’s breach of fiduciary duty

          5. Either party’s unilateral termination

          6. Operation of law (e.g. death or loss of capacity except w/durable power of atty)

        6. Lingering Authority – where an agent’s actual authority has terminated he will have apparent authority to act on the principal’s behalf as to all third parties with whom the principal knows he dealt with unless and until the third parties receive either actual or constructive notice of termination from the prin

          1. Death or incompetency of the principal terminates all authority of the agency w/o notice to either the agent or third party

      4. Rules of Liability on the Contract

        1. General Rule – the principal is liable on its authorized contracts, and therefore as a rule, an authorized agent is not liable on its authorized contracts, but the principal is

        2. Exception – the undisclosed principal – if principal is partially disclosed (only the identity of the principal concealed) or undisclosed (fact of principal concealed), authorized agent may nonetheless be liable at the election of the third party

  1. Duties Agent Owes to the Principal

    1. General Rule – in return for reasonable compensation and reimbursement of expenses, agents owe principals duties

      1. Duty of Care

      2. Duty to Obey Instructions that are Reasonable

      3. Duty of Loyalty – agent prohibited from:

        1. Self Dealing

        2. Usurping the Principal’s Opportunity

        3. Secret Profits – making a profit at the principal’s expense w/o disclosure

        4. Remedies – principal may recover losses caused by the breach and may also disgorge profits made by the breaching agent

PARTNERSHIP

  1. General Partnership Formation

    1. Formalities – no filing or formality requirements to form a GP

    2. Definition – GP is an association of 2 or more persons who are carrying on as co-owners of a business for profit

    3. Sharing of Profits – is the key factor, therefore, the contribution of money or services in return for a share of profits creates a presumption that a GP exist (no wage, salary, commission)

    4. Proof of Existence – crts look to the intent of the parties – it they intended to carry on a business as co-owners, there is a partnership even if they did not subjectively intend to be partners. In the absence of intent, sharing of profits raises a presumption of partnership

  1. Liability of General Partners to Third Parties

    1. Agency Rules Apply

      1. Partners are agents of the partnership for apparently carrying on usual partnership business

      2. Therefore, the general partnership is liable for each partner’s torts in the scope of partnership business and for each partner’s authorized contracts

    2. GPs Personally Liable for All Debts of the Partnership and for Each Co-Partner’s Torts

      1. Incoming Partner’s Liability for Pre-Existing Debts – incoming partners are generally not liable for prior debts, but any money paid in by an incoming partner can be used by the partnership to satisfy prior debts

      2. Dissociating (withdrawing) Partner’s Liability for Subsequent Debts – dissociating partner retains liability on future debts until actual notice of disassociation is given to creditors or until 90 days after filing a notice of disassociation w/the state

    3. GP Liability by Estoppel – one who represents to a third party that a general partnership exists, when it doesn’t, will be liable as if a GP existed

    4. Joint & Several Liability – one or more partners may be sued for all obligations of the partnership, whether arising in tort or contract

    5. Extent of Liability – each partner is personally and individually liable for the entire amount of partnership obligations – a partner who pays more than his fair share of an obligation is entitled to contribution/indemnification

    6. Criminal Liability – partners will not be criminally liable for the crimes of other partners committed w/in the scope of the partnership, unless there was participation

  1. Rights & Liabilities Between General Partners

    1. Fiduciary Relationship

      1. Duty of LoyaltyGPs owe duty of loyalty to each other and partnership – may never engage in self-dealing, may never usurp partnership opportunities, may never make a secret profit at the partnership’s expense, and may never compete w/the partnership

      2. Duty of Care – requires partner to refrain from engaging in negligent, reckless, or unlawful conductor intentional misconduct

      3. Action for Accounting – partnership may recover losses caused by the breach and may disgorge profits made by the breaching partner

    2. Rights to Partnership Property & Liquidity

      1. Specific Partnership Assets – includes partnership capital, the property or money contributed by each partner for the purpose of carrying on the partnership’s business, and partnership assets, including everything the partnership owns.

        1. Property is presumed to be partnership property if it was purchased with partnership funds, regardless of whose name title is held

        2. Land leases and equipment, which are owned by the partnership itself are specific partnership assets and therefore may not be transferred by any individual partner

      2. Separate Property – if property is held in the name of a partner without indicating the person’s capacity as a partner or mentioning the partnership, and partnership funds were not used to purchase the property, the property is presumed to be the separate property of the partner

      3. Share of Profits & Surplus – is considered personal property owned by individual partners and can be transferred

      4. Share of Management – asset owned only by the partnership itself and may not be transferred by any individual partner

      5. Test – to determine if property is specific partnership asset or personal property of individual partner, ask whose money was used to buy the property – if partnership money was used, it is a partnership asset, if personal money was used it becomes personal property of individual partner

    3. Management – absent an agreement, each partner entitled to EQUAL control (vote)

    4. Salary – absent an agreement, partners get NO SALARY

      1. Exception – partners do receive compensation for helping to “wind up” the partnership’s business

    5. GP’s Share of Profits & Losses

      1. Absent an agreement, profits shared EQUALLY

      2. Absent an agreement, losses SHARED LIKE PROFITS

        1. i.e. if agreement says profits are shared 60/40, but is silent on losses, losses are shared 60/40 as well

        2. BUT if agreement says losses are shared 60/40, but is silent on profits, profits are shared equally

  1. General Partnership Dissolution

    1. Dissolution – in the absence of an agreement that sets forth events of dissolution, GP dissolves upon notice of express will of any one GP to dissociate

    2. Termination – formal end of the partnership

    3. Winding Up – period b/n dissolution and termination in which the remaining partners liquidate the partnership assets to satisfy partnership creditors

    4. Partnership’s Liability

      1. Old Business – the partnership and therefore its individual GPs retain liability on all transactions entered into to wind up all business w/existing creditors

      2. New Business – the partnership and therefore its individual GPs retain liability on brand new business transactions during winding up until notice of dissolution is given to creditors or until 90 days after filing a statement of dissolution w/the state

    5. Priority of Distribution – each level of priority must be fully satisfied before beginning the next level

      1. First Level – all creditors must be paid – includes all outside non-partner trade creditors and also all partner insiders who have loaded money to the partnership and are creditors thereby

      2. Second Level – all capital contributions by partners must be paid – partnership owes its partners for the full repayment of their capital contributions

      3. Third Level – profits and surplus, if any, is shared equally w/o agreement

      4. General Rule – each partner must be repaid his loans and capital contributions, plus that partner’s share of the profits or minus that partner’s share of the losses

        1. Note – if not enough $ to pay Level 1 and 2, each partner must pay in new money equally to cover

    6. Compare: Disassociation – a change in the relationship of partners caused by any partner ceasing to be associated in the carrying on of the business

      1. Events of Disassociation – Notice of express will to withdraw, happening of event, expulsion, bankruptcy, death, incapacity, appt of receiver, termination of business entity

      2. Consequences – right to participate in management ceases, partners must buy out his interest, and must indemnify him against liabilities

      3. Disassociated Partner’s Liability to Bind Partnership – partnership can be bound by an act of a dissociated partner undertaken w/in 2 yrs after if: (1) the act would have bound the partnership before, and (2) the other party to the transaction reasonably believed he was still a partner and did not have notice of the disassociation

  1. Alternative Unincorporated Business Organizations

    1. Limited Partnership (LP)

      1. Defined – partnership w/at least one GP and at least one limited partner with a 2-tier liability structure

      2. Formation – must file a Limited Partnership Certificate w/the state that includes the name of all general partners

      3. Liability Limited to Capital Contribution – a partner has no rights to distributions unless the partner makes a contribution to the partnership. A contribution may be in the form of any benefit to the partnership

      4. Liability & Control

        1. General Partnersliable for all limited partnership obligations, but GPs have the right to manage the business

        2. Limited Partners – have limited liability and are therefore not liable for the limited partnership obligations. LPs in most states, including CA, may NOT manage the business w/o forfeiting their limited liability status, but under the newly revised Uniform Limited Partnership Act, limited partners may now manage w/o limiting their liability

          1. Note – in general, owes no fiduciary duty

      5. Dissolution

        1. No longer reasonably practicable to carry on the limited partnership in conformity with the limited partnership agreement

        2. Happening of stated event

        3. By consent of all partners

        4. After disassociation of a general partner, or

        5. Ninety days after disassociation of the last limited partner

    2. Registered Limited Liability Partnerships (RLLP)

      1. Formation – filing a statement of qualification and annual reports

      2. Liabilitiesno partner is liable for the debts of the partnership itself or torts of other partners

    3. Limited Liability Companies (LLC)

      1. Defined – a hybrid b/n a corporation and a partnership, in which the owners have the same limited liability of SH in a corp and also benefits of partnership tax status

        1. LLCs = limited liability + limited liquidity + limited life + limited tax

      2. Formation – file articles of organization and adopt an operating agreement

      3. Control – owners who are called members may control, but also may delegate control to a team of managers

      4. Limited Liquidity – a full membership interest may not be transferred w/o unanimous consent of all members

      5. Limited Life – the articles of organization or the operating agreement must indicate some event that will dissolve the LLC

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