Cal Bar Cheat Sheet (Agency And Partnership)

Front 1

Liability of Principal for Torts of Agent

Back 1

Principal will be liable for torts committed by 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

Creation of Principal-Agent Relationship

Back 2

A principal-agent relationship will be created when: (1) the parties with capacity assent to the agency; (2) the agent's conduct is for the benefit of the principal; and (3) the principal has the right to control the agent's manner of performance.

Front 3

Liability of Principal for Torts of Sub-Agent and Borrowed Agents

Back 3

The Principal is generally not liable for the torts of a sub-agent or a borrowed agent. If, however, the there is (1) assent to the agency; (2) benefit to the principal; and (3) the principal has the right to control the sub-agent's/borrowed agent's manner of performance, the principal will be liable for the torts of the sub-agent/borrowed agent committed within the scope of the agency relationship.

Front 4

Liability of Principal for Torts of Independent Contractors

Back 4

The Principal is generally not liable for the torts of an independent contractor. The principal will he held liable, however, if: (1) the activity involves an ultra-hazardous activity; or (2) the principal is estopped from denying liability because the principal held out the independent contractor with the appearance of an agency relationship.

Front 5

Scope of Principal-Agent Relationship

Back 5

To determine whether an agent's act was within the agency, courts consider three factors: (1) whether the conduct was of the kind the agent was hired to perform; (2) did the tort occur while on a frolic or a detour; and (3) did the agent intend to benefit the principal.

Front 6

Frolic v. Detour

Back 6

A frolic is a new and independent journey not within the scope of the agency. Conversely, a detour is a mere departure from an assigned task, which is within the scope of the agency.

Front 7

Liability of Principal for the Intentional Torts of Agent

Back 7

Generally, the principal is not liable for the intentional torts of its agent, as these are outside the scope of the agency. However, the principal will be liable if: (1) he specifically authorized the conduct; (2) the conduct naturally arises from the nature of the agency; or (3) the agent was motivated by a desire to serve the principal. If any one of these situations are present, the principal will be held liable for the intentional torts of his agent.

Front 8

Liability of Principal for Contracts Entered by Agent

Back 8

The principal is liable for contracts entered into by its agent if the principal authorized the agent to entered into the contract in one of four ways: (1) granting actual express authority; (2) granting actual implied authority; (3) granting apparent authority; or (4) ratification of the contract.

Front 9

Actual Authority

Back 9

Actual authority is express words communicated directly to the agent. Courts will interpret the actual authority very narrowly. The communication is typically spoken in private, however, if the contract itself must be in writing, the express authorization must also be in writing.

Front 10

Revocation of Express Authority

Back 10

Express authority will be revoked by either: (1) unilateral act of either party; or (2) death or incapacity of the principal. However, death of the principal will not revoke authority if the principal gave the agent a "durable power of attorney."

Front 11

Actual Implied Authority

Back 11

Actual implied authority exist when the agent reasonably believes the principal has given because of: (1) necessity; (2) custom; or (3) prior dealings between the principal and the agent.

Front 12

Apparent Authority

Back 12

Apparent authority exist when: (1) the principal "cloaks" the agent with the appearance of authority; and (2) a third-party reasonably relies on the appearance of authority. However, apparent authority will be cut off once the principal gives all third parties notice of termination.

Front 13

Ratification

Back 13

Authority can be granted after the contract has been entered if: (1) the principal has knowledge of all material facts regarding the contract; and (2) the principal accepts its benefits. However, ratification cannot alter the terms of the contract, i.e., the principal must accept the exact agreement the agent entered into.

Front 14

Liability of Agent for Contracts Entered into for the Principal

Back 14

An agent will be responsible for contracts he entered into for the principal if: (1) the agent did not have the authority to enter those contracts and the contract was not ratified; or (2) if the agent had authority but the principal was partially or totally undisclosed (the third-party may elect to hold the agent responsible).

Front 15

Remedies for Breach of Duty by Agent

Back 15

If the agent has breached a duty owed to the principal, the principal may: (1) recover any losses caused by breach; and (2) disgorge any profits the agent made from the breach.

Front 16

Duties of an Agent

Back 16

An agent owes the principal the duty: (1) to exercise reasonable care; (2) to obey reasonable instructions; and (3) of loyalty. The duty of loyalty requires that the agent not: (a) engage in self-dealing; (b) usurp the principal's opportunity; and (c) make secret profits at the principal's expense.

Front 17

Creation of a General Partnership

Back 17

Formation of a general partnership occurs when two or more persons associate and carry on as co-owners of a business for profit. There are no formalities to creating a general partnership.

Front 18

Liability of General Partners to Third-Partners

Back 18

General partners are agents of the partnership for the purpose of carrying on usual partnership business. As such, the partnership is bound by torts committed by partners in the scope of the partnership business, and is bound by contracts entered into by partners with authority.

Front 19

Personal Liability of Partners for the Debt of the Partnership

Back 19

Each general partner is personally liable for the debts of the partnership. However, incoming partners are not liable for prior debts, but any money paid in may be used to satisfy the prior debts. Conversely, dissociating partners remain liable on future debts, until actual notice of dissociation is given or 90 days after filing notice of dissociation with the state.

Front 20

General Partnership Liability by Estoppel

Back 20

One who represents to a third-party that a general partnership exists will be liable as if a general partnership exist, despite the lack of existence of a partnership.

Front 21

Creation of a Limited Partnership

Back 21

A limited partnership is created when at least one general partner and one limited partner file a limited partnership certification with the state, which must name all of the general partners.

Front 22

Liability of General and Limited Partners in a Limited Partnership

Back 22

A general partner in a limited partnership is liable for all limited partnership obligations, but have the right to manage to business. Conversely, a limited partner is not liable for the obligations of the partnership and may not manage the business without forfeiting their limited liability status.

Front 23

Creation of a Registered Limited Liability Partnership (RLLP)

Back 23

A registered limited liability partnership is created when a statement of qualification is filed with the state and annual reports are sent to the state.

Front 24

Liability of Partners in a Registered Limited Liability Partnership

Back 24

No partner in a registered limited liability partnership is liable for the obligations of this partnership.

Front 25

Creation of a Limited Liability Company (LLC)

Back 25

A limited liability company is created when once an operating agreement is adopted and the articles of organization are filed with the state.

Front 26

Liability of Partners in a Limited Liability Company

Back 26

Owners (members) of an LLC are not liable for the obligations of the limited liability company itself.

Front 27

Characteristics of an LLC

Back 27

An LLC was created to give the members the same limited liability as shareholders of a corporation plus the benefits of partnership tax status. Members typically control the LLC, however, the articles of organization may delegate control to managers. Additionally, there is limited liquidity, meaning members may not freely delegate transfer interest in the company. Last, the company has a limited life, and will dissolve upon stated events.

Front 28

Duties of a Partner

Back 28

Each partner is a fiduciary of the other partners and owes a duty of loyalty. Therefore, a partner may not: (1) engage in self-dealing; (2) usurp the principal's opportunity; and (3) make secret profits at the partners expense.

Front 29

Remedies for Breach by Partner

Back 29

If a partner has breached the duty of loyalty to another partner, the the other partner may bring an action for account to: (1) recover any losses caused by breach; and (2) disgorge any profits the partner made from the breach.

Front 30

Partners' Rights in Partnership Property

Back 30

There are three types of property interests in any partnership: (1) specific partnership assets; (2) ability to share in profits and surplus; and (3) ability to share in the management of the partnership. Of the three interests, the ability to share in the profits and surplus is the only interest that that is liquid.

Front 31

Default Rules of a Partnership

Back 31

Absent an agreement to the contrary there are several default rules that will govern issues regarding: (1) management; (2) salary; (3) profits; (4) losses; and (5) dissolution.

Front 32

Management of a Partnership

Back 32

Absent an agreement to the contrary, management of a partnership will be shared equally.

Front 33

Salary of a Partner

Back 33

Absent an agreement to the contrary, a partner is not entitled to any salary for his work. However, if that partner's work is helping to wind-up the company, he is entitled to a reasonable salary for his work.

Front 34

Partner's Share of Profits

Back 34

Absent an agreement to the contrary, profits of a partnership will be shared equally.

Front 35

Partner's Share of Losses

Back 35

Absent an agreement to the contrary, losses of a partnership will be shared proportionally to profits.

Front 36

Dissolution, Wind-Up, and Termination of a Partnership

Back 36

Absent an agreement to the contrary, dissolution of a partnership will occur upon the express notice of one general partner's desire to dissociate. After dissolution has begun, the remaining partners will wind-up the company by liquidating all assets to satisfy the partnership's debt. Once wind-up is complete, the company is terminated.

Front 37

Liability for Obligations Incurred During Wind-Up

Back 37

During wind-up, the partnership, and consequently the partners, remain liable for any transactions entered into to wind-up old business with existing creditors. Additionally, the partnership and partners remain liable on all new business transactions until actual notice of dissolution is given to creditors or 90 days after filing a statement of dissolution with the state.

Front 38

Priority of Distributions During Wind-Up

Back 38

During wind-up there are three levels of priority: (1) creditors; (2) capital contributions; and (3) profits and surplus. Each level of priority must be fully satisfied before the next level.

Front 39

Partner Liability or Profits During Wind-Up

Back 39

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.

Front 40

Capacity to Consent to Agency Relationship

Back 40

The principal needs contractual capacity, while the agent must have only minimal mental capacity.