Agency & Partnership

Front 1

Respondeat Superior / Vicarious Liability (TORTS)

Back 1

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

Two-part test: Principal will be liable for torts committed by agent if:

(1) there must be a principal-agent relationship; and

(2) the tort must occur within the scope of that relationship.

Front 2

The Principal-Agent Relationship In Tort

Back 2

The Principal-Agent relationship requires:

(A) ASSENT -- an informal agreement between the principal and the agent;

(B) BENEFIT -- the agent's conduct must be for the principal's benefit.

(C) CONTROL -- Principal must have the right to control the agent by having the power to supervise the manner of the agent's performance.

Front 3

The Principal-Agent Relationship: Sub-Agents

Back 3

Principal will be liable for the conduct of sub-agents, but ONLY IF there is assent, benefit, and the right to control (A,B, and C) between the principal and the agent tortfeasor.

Front 4

The Principal-Agent Relationship: Borrowed Agents

Back 4

Principal will be liable for the conduct of borrowed agent ONLY IF there is assent, benefit, and the right to control (A,B, and C) between the borrowing principal and the borrowed agent tortfeasor.

Front 5

The Principal-Agent Relationship: Independent Contractors

Back 5

No vicarious liability, but with exceptions.

There is no right to control an independent contractor because there is no way to supervise the manner of performance.

Exceptions:
--ULTRA-HAZARDOUS ACTIVITIES
--ESTOPPEL

Front 6

The Principal-Agent Relationship: Independent Contractors

Ultra-Hazardous Activities

Back 6

If independent contractor commits a tort while engaging in an ultra-hazardous activity, a principal will be vicariously liable.

Front 7

The Principal-Agent Relationship: Independent Contractors

Estoppel

Back 7

Estoppel = if you hold out your independent contractor with the appearance of agency, you will be ESTOPPED from denying vicarious liability for that tort.

Front 8

The Principal-Agent Relationship: SCOPE

Back 8

The principal is liable for its agent's acts within the SCOPE of agency.

FACTORS:

1) Was the conduct "of the kind" the agent was hired to perform?

2) Did the tort occur "on the job"? Frolic vs. Detour

3) Did the agent intend to benefit the principal?

Front 9

The Principal-Agent Relationship: SCOPE

Frolic vs. Detour

Back 9

FROLIC = a new and independent journey.

DETOUR = a mere departure from an assigned task.

Front 10

The Principal-Agent Relationship: Intentional Torts

Back 10

Intentional torts are generally outside the scope of the principal-agency relationship.

EXCEPTIONS: Intentional torts are within the scope if the conduct was:

1) AUTHORIZED by the principal;

2) NATURAL from the nature of the employment; or

3) motivated by a desire to SERVE the principal.

Front 11

Liability of Principle for Ks Entered by Agents

Back 11

Issue: whether the principal is liable for Ks entered into by its agent.

TEST: Principal is liable for Ks entered into by its agent if the principal AUTHORIZED the agent to enter the K.

There are 4 types of authority:

1) ACTUAL EXPRESS Authority

2) ACTUAL IMPLIED Authority

3) APPARENT Authority

4) RATIFICATION

Front 12

Liability of Principle for Ks Entered by Agents

ACTUAL EXPRESS AUTHORITY

Back 12

Principal used words to express authority to agent. Actual express authority can be ORAL and PRIVATE, but it is NARROWLY construed.

Exception: Where K itself must be in writing (like SOF, land sale Ks), the agreement must be in writing.

Express authority will be revoked by: (i) unilateral act of either the principal or the agent; or (ii) death or incapacity of the principal.

BUT, in either of the above exceptions, actual authority will not be revoked if the agent of the principal acts as a durable power of attorney.

Front 13

Liability of Principle for Ks Entered by Agents

ACTUAL IMPLIED AUTHORITY

Back 13

Authority which the principal gives the agent through conduct or circumstance:

1) NECESSITY -- there is implied authority to accomplish an expressly authorized task.

2) CUSTOM -- implied authority to do all tasks customarily performed by persons who the agents customarily performs by title or position.

3) PRIOR DEALINGS between the principal and the agent -- implied authority to do all tasks which the agent believes to be authorized to do by the prior acquiescence of the principal.

Front 14

Liability of Principle for Ks Entered by Agents

APPARENT AUTHORITY

Back 14

Two-part test:

1) Principal "cloaked" agent with the appearance of authority, and

2) third party reasonably relies on appearance of authority.

Front 15

Liability of Principle for Ks Entered by Agents

RATIFICATION

Back 15

Authority can be granted after the K has been entered, if:

a) Principal has KNOWLEDGE of all material facts regarding the K; and

b) Principal accepts its BENEFITS.

c) EXCEPTION: Ratification CANNOT ALTER the terms of the K.

Front 16

General Rule of Liability on the K

Back 16

The principal is liable on its authorized Ks, and therefore as a rule, an authorized agent is not liable on its authorized Ks.

Exception: The undisclosed principal -- if the 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.

Front 17

DUTIES of Agent to Principal

Back 17

In return for reasonable compensation and reimbursement of expenses, agents owe principals:

1) Duty of CARE;

2) Duty to OBEY instructions that are reasonable; and

3) Duty of LOYALTY.

The agent may NEVER do any of the following:

(i) engage in SELF-DEALING (agent cannot receive a benefit to the detriment of the principal);

(ii) USURP the principal's opportunity; or

(iii) make SECRET PROFITS at the principal's expense without disclosure.

Front 18

GENERAL PARTNERSHIP

Back 18

A general partnership is an association of 2 or more persons who are carrying on as co-owners of a business for profit.

Front 19

GENERAL PARTNERSHIP: Formation

Back 19

There are no formalities to becoming a general partnership. Can be a general partnership by mere facts alone.

Front 20

GENERAL PARTNERSHIP: Sharing of Profits

Back 20

Sharing of profits is the key factor. Therefore, the contribution of money (i.e., capital) or services in return for a share of profits creates a presumption that a general partnership exists.

Front 21

GENERAL PARTNERSHIP: Agency Principles

Back 21

Partners are agents of the partnership for apparently carrying on usual partnership business. Therefore, the general partnership is liable for each partner's torts in the scope of partnership business and for each partner's authorized contracts.

Each general partner is personally liable for all debts of the partnership and for each co-partner's torts.

Front 22

GENERAL PARTNERSHIP: Incoming Partner Debts

Back 22

An incoming partner is generally NOT liable for prior debts, but any money paid in to the partnership by the incoming partner can be used by the partnership to satisfy partnership debts.

Front 23

GENERAL PARTNERSHIP: Dissociating partner's liability for subsequent debts

Back 23

An associating partner retains liability on future debts until actual notice of their dissociation is given to creditors until 90 days after filing notice of dissociation with the state.

Front 24

GENERAL PARTNERSHIP: Liability by Estoppel

Back 24

One who represents to a 3rd party that a general partnership exists will be liable as if a general partnership exists.

Front 25

GENERAL PARTNERSHIP: Rights and Liabilities

Back 25

General partners are FIDUCIARIES of each other and the partnership.

Therefore GPs owe to each other and the partnership that same duty of LOYALTY, which means that partners may never engage in SELF-DEALING, may never USURP partnership opportunities; and may never make a SECRET PROFIT at the partnership's expense.

REMEDY: Action for Accounting = in an action for accounting, the partnership can recover: 1) losses that are the cause of the breach; and 2) may disgorge profits made by the breaching partner's wealth.

Front 26

GENERAL PARTNERSHIP: Partnership Property and Liquidity

Back 26

ASSETS (land, leases, or equipment) are owned by the partnership itself, and therefore may not be transferred by any individual partner without partnership authority.

Share of PROFITS is personal property owned as such by individual partners and therefore may be transferred by individual partners to some 3rd party.

A share in MANAGEMENT is an asset only owned by the partnership itself, and therefore no individual partner may transfer their share in management to some 3rd party.

In order to determine whether a fact pattern involves specific partnership assets or personal property, ask: Who's money was used to buy the property? If personal property is used, it becomes personal property; if partnership property was used, it becomes partnership property.

Front 27

GENERAL PARTNERSHIP: Management

Back 27

Absent an agreement, each partner is entitled to EQUAL control (vote).

Absent an agreement, partners get no salary (exception: for wind-up).

Front 28

GENERAL PARTNERSHIP: Share of Profits and Losses

Back 28

Absent an agreement, PROFITS ARE SHARED EQUALLY.

Absent an agreement, LOSSES ARE SHARED LIKE PROFITS.

Front 29

GENERAL PARTNERSHIP: Dissolution

Back 29

In the absence of an agreement that sets forth a method of dissolution, a general partnership dissolves upon NOTICE of the express will of one general partner to dissociate.

The "real end" of partnership is called TERMINATION.

Front 30

GENERAL PARTNERSHIP: "Winding Up"

Back 30

"Winding up" means the period between dissolution and termination in which the remaining partners liquidate the partnership's assets to satisfy the partnership's creditors.

The partnership (and therefore its individual general partners) retain liability on all transactions entered into to wind up old business with existing creditors.

The partnership (and therefore its individual general partners) retains liability on brand new business transactions during winding up until actual notice of dissolution is given to creditors OR until 90 days after filing a statement of dissolution with the state.

Front 31

GENERAL PARTNERSHIP: Priority of Distribution upon Dissolution

Back 31

Each level of priority must be fully satisfied before beginning the next level. Order of priority:

1) First, all creditors must be paid.

2) Second, all partnership MUST repay all capital contributions by partners.

3) Last, profits and surplus (if any) are shared equally without an agreement.

RULE: Each partner must be repaid his or her loans and capital contributions, plus that partner's share of the profits or minus that partner's share of the losses.

Front 32

LIMITED PARTNERSHIP

Back 32

A limited partnership is a partnership with at least one general partner and at least one limited partner. Therefore a limited partnership has limited liability and has formation rights.

Formation: Must file a limited partnership certificate that includes the names of all general partners.

Front 33

LIMITED PARTNERSHIP: Liability and Control

Back 33

General Partners are liable for all debts of the limited partnership, BUT general partners also have a right to manage the business.

Limited partners have limited liability, and therefore are not liable for the debts of the limited partnership. A law in most states (and in CA) is still that a limited partner may NOT manage the business without forfeiting their limited liability status. BUT: under the newly revised Limited Liability Act, limited partners may now manage the business without forfeiting their limited liability status.

Front 34

REGISTERED LIMITED LIABILITY PARTNERSHIPS (RLLP)

Back 34

Formed by registering with the state by filing a statement of authority and annual reports.

No partner is liable for the debts of a registered limited liability partnership.

Front 35

LIMITED LIABILITY COMPANIES (LLCs)

Back 35

A limited liability company is a hybrid between a corporation and a partnership (in which the owners who are called members) because they have the same limited liability as shareholders in a corporation and the benefits of partnership tax status.

The owners, who are members, may control but may also delegate control to a team of managers.

A full membership interest may not be transferred without unanimous consent of all members.

Limited Life: The articles of organization or the operating agreement must identify some event that will dissolve the company.

LLCs = LIMITED LIABILITY + LIMITED LIQUIDITY + LIMITED LIFE + LIMITED TAX. All limited.

Front 36

GENERAL PARTNERSHIP: Untitled Property

Back 36

In cases not governed by RUPA provisions, in determining whether property is partnership property or separate property, courts look to the following CL criteria:

a) acquisition of the property with PARTNERSHIP FUNDS;

b) USE OF THE PROPERTY BY THE PARTNERSHIP in conducting the partnership's business;

c) Entry of the PROPERTY IN THE PARTNERSHIP BOOKS as a partnership interest;

d) A close RELATIONSHIP BETWEEN THE PROPERTY AND THE BUSINESS operations of the partnership;

e) IMPROVEMENT OF THE PROPERTY WITH PARTNERSHIP FUNDS; and

f) MAINTENANCE OF THE PROPERTY WITH PARTNERSHIP FUNDS.

Front 37

Apparent Authority under RUPA

Back 37

(i) The act of ANY PARTNER;

(ii) For apparently carrying on IN THE ORDINARY COURSE the partnership business OR BUSINESS OF THE KIND carried out by the partnership;

(iii) Binds the partnership UNLESS:

(a) The partner had NO AUTHORITY to act for the partnership in the particular matter; and

(b) The person with whom the partner was dealing KNEW OR HAD RECEIVED NOTIFICATION that the partner had lacked authority.

Front 38

R.U.P.A.

Back 38

The "Revised Uniform Partnership Act" provides a default set of rules. Partners are free to agree--through a partnership agreement--to abide by different rules for governing the relationships amongst themselves, and the RUPA will govern only those issues not provided for in the partnership agreement.