Agency & Partnership - Ca Bar Feb 2009

Front 1

What is the test for respondeat superior or vicarious liability of a principal for torts of an agent?

Back 1

Principal will be liable for the torts committed by her agent if:

(1) a PRINCIPAL-AGENT relationship exists; and
(2) the tort was committed by the agent within the SCOPE of that relationship.

Front 2

What are the requirements of a principal-agent relationship?

Back 2

ABC's of Agency

(1) Assent -- informal agreement between principal and agent;

(2) Benefit -- agent's conduct was for principal's benefit

(3) Control (MOST IMPORTANT) -- principal must have right to control agent by having the power to supervise the manner of the agent's performance

Front 3

As a rule, there is no vicarious liability for the torts of independent contractors (b/c Control is lacking), except when:

Back 3

(1) independent contractor commits tort while engaging in ultra-hazardous activities; or
(2) principal held out independent contractor as his agent.

Front 4

How do you determine whether an agent was acting within the scope of his principal-agent relationship?

Back 4

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

(2) did tort occur "on the job" (frolic vs. detour)?

(3) did agent intend to benefit the principal?

Front 5

Can intentional torts be inside the scope of agency relationship?

Back 5

Generally, no, but there are EXCEPTIONS:

(1) specifically authorized by the principal;
(2) natural from the nature of employment;
(3) motivated by a desire to serve the principal

Front 6

A principal is liable for contracts entered into by its agent if the principal:

Back 6

AUTHORIZED the agent to enter into the contract.

FOUR TYPES OF AUTHORITY:
(1) actual express
(2) actual implied
(3) apparent
(4) ratification

Front 7

If a contract requires a writing, can a principal give actual express authority via oral authorization to his agent to enter into a contract?

Back 7

No, if the contract requires a writing, then so does the express authority. This is known as the Equal Dignities Doctrine.

Front 8

When will express authority be revoked, and when is it irrevocable?

Back 8

Express authority will be revoked by:

(1) unilateral act of either party, or
(2) death or incapacity of the principal.

BUT express authority is irrevocable if the principal gives the agent a durable (conspicuous, survives death) power of attorney in a written expression of authority to enter a transaction.

Front 9

When does an agent have actual implied authority to enter into a contract on behalf of its principal?

Back 9

Actual implied authority exists when the agent REASONABLY believes that the principal has given authority because of:

(1) Necessity -- there is an implied authority to do all tasks necessary to accomplish an authorized task.

(2) Custom -- there is implied authority to do all task which are customarily performed by person in agent's position or title.

(3) Prior dealings between principal and agent -- there is an implied authority to do all tasks which agent believes to have been authorized by principal's prior acquiescence.

Front 10

When does an agent have apparent authority?

Back 10

TWO PART TEST:

(1) Principal "cloaked" agent with the appearance of authority; and
(2) third-party reasonably relies on appearance of authority.

Two common hypos involving apparent authority:

(a) secret limitation of actual authority
(b) lingering authority

Front 11

Can authority to enter a contract be granted to agent AFTER he already entered into the contract?

Back 11

Yes, by RATIFICATION, which exists when the principal:

(1) has knowledge of all material facts regarding the contract; and
(2) accepts its benefits.

NOTE: Ratification cannot alter the terms of a contract.

Front 12

If an agent has authority and the principal is liable on the contract, is the agent also liable?

Back 12

No. If authority, principal is bears sole liability. If no authority, agent bears sole liability.

Exception: if principal is partially disclosed or undisclosed to the third party, authorized agent may be liable at the election of third-party.

Front 13

What are the duties that an agent owes to his principal?

Back 13

(1) Duty to exercise reasonable care

(2) Duty to obey reasonable instructions

(3) Duty of loyalty, meaning (a) no self dealing, (b) no usurping the principal's opportunity, and (c) no secret profits.

Front 14

What are the formalities involved in forming a general partnership?

Back 14

There are NONE!

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

Front 15

What is a general partnership?

When is the existence of a general partnership presumed?

Back 15

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

A general partnership is presumed by the contribution of money or services in return for a share of profits.

Front 16

What is the general rule of liability of partners in a partnership?

Back 16

(1) Partners are Agents of Partnership AND (2) Partners are Personally Liable for Partnership Debts:

-- Partners are agents of the partnership for carrying on usual partnership business.
-- Partnership is bound by torts committed by partners in the scope of partnership business.
-- Partnership is bound by contracts entered by partners with authority.

Front 17

(1) Is an incoming partner personally liable for pre-existing partnership debts?

(2) Is a dissociating partner responsible for subsequent debts?

Back 17

(1) Generally, an incoming partner is not liable for prior debts, but any money paid into the partnership by her can be used by partnership to satisfy prior debts.

(2) A dissociating partner retains liability on future debts, until notice of dissociation is given to creditors or 90 days after filing notice of dissociation with the state.

Front 18

May a person who represents to a third-party that a general partnership exists be held liable as if a partnership actually exists?

Back 18

Yes, under the theory of General Partnership Liability by Estoppel.

Example: "Pam says: 'My partner Pete and I are starting a sailing school and we need a boat.'" Pam will be held liable for Pete damaging boat, even though no partnership actually existed.

Front 19

A Limited Partnership is a partnership with...

Back 19

...at least one general partner and at least one "limited" partner.

HOW TO FORM: Must file a limited partnership certificate that include the names of all general partners.

LIABILITY:
(1) General partners are liable for ALL limited partnership obligations but they have the right to manage the business.

(2) Limited partners have limited liability and are not liable for the obligations of the limited partnership, but they MAY NOT manage the business.

Front 20

What is a Registered Limited Liability Partnership (RLLP)?

Back 20

It is a partnership which requires registration by filing a statement of qualification and annual reports.

LIABILITIES: No partner is liable for the obligations of this business itself, but are liable for their own actions.

Front 21

What was the original purpose of a Limited Liability Company (LLC)?

Back 21

The original purpose of an LLC was to give its owners (members) the same limited liability of a corporation, but with the tax treatment of a partnership.

FORMATION: File articles of organization and may adopt an operating agreement.

LIABILITIES: Members are not liable for the obligations of the company itself.

MUST HAVE PARTNERSHIP CHARACTERISTICS:

(1) Members control, but articles may delegate control to managers
(2) Limited liquidity: member interests are not freely transferable
(3) Limited life: events of dissolution

Front 22

General partners are FIDUCIARIES of...

Back 22

each other and the partnership.

Fiduciary duty includes the duty of loyalty -- NO self-dealing, usurping opportunities, or secret profits.

Front 23

In an action for accounting against a partner who breached his fiduciary duty to the partnership, a partnership may recover...

Back 23

...(1) losses caused by the partner's breach and (2) may disgorge profits made by the disloyal partner.

Front 24

What are partners' rights in partnership property (assets)?

Back 24

(1) No partner can transfer partnership asset without partnership authority.

(2) Partner may not transfer their share in management responsibilities of partnership asset to a third-party.

(3) Partners' share of profits and surplus is NOT a partnership asset, and thus is transferable.

Front 25

What happens when there is a conflict in a general partnership between specific partnership assets and personal property?

Back 25

Look to whose money was used to purchase the property. If it was the partnership's, then it is partnership property. If not, then it is personal property.

Front 26

In a general partnership how are voting rights allocated, absent a specific agreement?

Back 26

Each partner is entitled to EQUAL control (vote), regardless of how much capital they contributed.

Front 27

Do partners in a general partnership receive a salary?

How do partners in a general partnership share in profits and losses?

Back 27

No, absent an agreement, partners get no salary, UNLESS partner is "winding up" partnership's business (dissolution).

Partnership's profits are share EQUALLY, or according to agreement.

Partnership's losses are SHARED LIKE PROFITS.

Front 28

How does the process of dissolution work?

Back 28

Absent an agreement, dissolution occurs automatically upon the notice of the express will of ONE GENERAL PARTNER to dissociate.

The "Winding Up" period is the period between dissolution and termination (the real end of the partnership). During "winding up" period, the remaining partners liquidate partnership's assets to satisfy partnership's creditors.

-- Partners are compensated for winding up duties.

Front 29

What are a partnership's liabilities during the "winding up" period before termination?

Back 29

The partnership, and therefore its individual general partners, retain liability on:

(1) all transactions entered into to wind up OLD BUSINESS with existing creditors; and

(2) all NEW BUSINESS transactions UNTIL notice of dissolution is given to creditors or until 90 days after filing dissolution with the state.

Front 30

What is the priority of distribution of a partnership's assets for a partnership's debts following the dissolution of the partnership?

Back 30

Must distribute assets in the following ORDER:

(1) Creditors (non-partner)
(2) Capital contributions by partners
(3) Profits and surplus, if any (shared equally). *IF losses, partners share equally as well.