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CA Bar 2009: Agency and Partnership

QUESTIONS AGENCY LAW

PART I: LIABILITY OF PRINCIPAL TO 3RD PARTIES FOR TORTS OF AN AGENT


What’s the test for respondeat A. Whether the principal will be vicariously liable for torts committed by the agent?
superior/vicarious liability? B. Test:
1. A principal-agent relationship exists, and
What does the P-A relp require? 2. Tort was committed by the agent w/in the scope of that relationship
C. Principal-Agent Relationship
What does control entail? 1. Requires:
a. Assent: an informal agreement b/t principal (who has capacity) and agent
What are sub-agents? b. Benefit: agent’s conduct must be for the principal’s benefit
c. Control: principal must have the right to control the agent (or sub-agent) by
What are borrowed agents? having the power to supervise the manner of the agent’s performance
What are the typical bar exam 1) Sub-agents: P instructs A1 to do a task, who then asks A2 to do the task.
hypos for sub-agents and borrowed A2 commits a tort. Can P be held liable?
agents? A) Rule: there can be no vicarious liability for a sub-agent’s tort unless
there is assent, benefit, and the right to control the sub-agent.
B) Tip: you usually can’t find assent b/c A2 didn’t strike an agreement
w/ P, so no vicarious liability
2) Borrowed agents:Employer 1 borrows Employer 2’s agent, who then
commits a tort. Is E2 liable to E1 for the acts of its agent?
A) Rule: there can be no vicarious liability for a borrowed agent unless
there is assent, benefit and control
B) Tip: you surely will find assent and benefit for the borrowed agent’s
help, but there is usually no right to control
How are independent contractors
diff from agents? 2. Contrast agents w/ independent contractors?
a. Distinguishing factors: no right to control IC b/c no power to supervise IC
What’s the rule for IC’s? b. Rule: there’s no VL for the acts of an IC
c. Exceptions:
When can they be held VL? 1) Ultra Hazardous Activity Exception: if IC commits a tort while engaged
in an ultra hazardous activity, then VL to the P (it’s a nondelegable duty)
2) Estoppel: if you hold out your IC w/ the appearance of agency, then you
are estopped from denying VL
d. Tip: brake repair can be ultra hazardous b/c tortious repair can result in death
What are the scope factors and sub- or IC is held out as agent of the mechanic.
factors? (5) D. Scope
1. Scope factors:
a. Was the tortious conduct likely to be w/in the job description of the agent?
b. Did the tort occur on the job or somewhere else?
1) Frolic: new and independent journey  outside the scope
2) Detours: mere departure from an assigned task  in scope
c. Benefit: if the agent even in part intended to benefit the principal  in scope
Are principals V/L for the 2. Tip: Employer will instructthe employee (so yes principal-agent relp is met) to do
intentional torts of their agents? something. On the way back to work, employee does something resulting in a tort.
Scope question results w/ detour and frolic issues.
What are the exceptions? (3) 3. Intentional Torts?
a. Rule: intentional torts are generally outside the scope
b. Exceptions: still in scope if intentional tort was:
What is the test for whether a P is
1) Specifically authorized by the principal, or
liable for K’s entered into by A? 2) Natural from the nature of the employment (ie bar owner-bouncer), or
3) Motivated by a desire to serve the principal
What are the types of
authorization? PART II: LIABILITY OF PRINCIPAL FOR K’s ENTERED INTO BY AGENTS
A. Whether a principal is liable to a third party for a K entered into by its agent
What is the rule for actual express B. Test: the principal will be liable only for its authorized K’s
authorization? C. Types of authorizations:
1. Actual Express Authority
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CA Bar 2009: Agency and Partnership
What is the exception? a. Rule: principal used words to express authorization to enter into K; can be
oral, private (a whisper) and narrow (narrowly construed)
When can actual expressed b. Exception: but if the K itself must be in writing, then the express authority
authority be revoked? must be in writing as well
1) Writing: governed by SoF, ie conveyance of land
What is the exception to the c. Express authority can be revoked by:
exception? 1) Unilateral act of either party
2) Death or incapacity of the principal, thereby making the agent liable
What is the rule for actual implied
authority? A) Exception to the death/incapacity exception: principal remains liable
if principal gives the agent the durable power of attorney (written
What is necessity? Custom? Prior expression of authority to enter into a txn, using conspicuous
dealings? survival language)
2. Actual Implied Authority
What is apparent authority? a. Rule: authority which agent reasonably believes the principal has given b/c
of:
What are the two common apparent 1) Necessity: to do all tasks necessary to accomplish an expressly
authority hypos? authorized task
2) Custom: to do all tasks which are by custom performed by persons w/ the
position/title of the agent
3) Prior Dealings: to do all tasks which the agent believes to be authorized
from prior acquiescence by the principal
3. Apparent Authority
a. Test:
1) Principal “cloaked” agent w/ the appearance of authority, and
2) 3rd Party reasonably relies on appearance of authority
b. Tip: apparent authority fact patterns:
1) Secret limiting authority: agent has actual authority but principal secretly
limits that authority and the agent goes beyond the scope of the
limitation.
What is ratification? Elements? A) Result: Yes P is liable b/c P cloaked A w/ appearance of authority and
3rd party can rely on that appearance.
Can the principal pick and choose 2) Lingering authority: actual authority has been terminated but afterwards,
which K terms to ratify? agent continues to act on principal’s behalf.
A) Result, Yes P is liable. 3rd parties can continue to rely on the
Exception? lingering authority until they receive notice of the termination of
authority.
4. Ratification
a. Rule: authority conferred after the K had been entered. Principal can be liable
for the ratified txn/K if:
Summarize the rules of liability on 1) Principal has knowledge of all material facts on the K
the K? 2) Principal accepts benefits of K
What’s the exception that can make
b. Exception: ratification cannot alter the terms of K or ratify in part.
the principal liable? Ratification must accept the K as is. Unauthorized agents become liable for
their unauthorized K’s.
D. Rules of Liability on the K
1. General Rules
a. If no authority, principal is not liable the K. If no authority, agent is liable on
the K.
What duties are owed to the b. If authority, principal is liable on the K. If authority, agent is not liable on K.
principal by the agent? 2. Exception: if principal is partially disclosed (only ID of principal is concealed) or
undisclosed (fact of principal concealed), authorized agent may nonetheless be
What are the duties of loyalty? liable at the election of the third-party

What are the principal’s remedies PART III: DUTIES AGENTS OWE TO THE PRINCIPAL
for breach of the DoL? A. Duty to exercise reasonable care
QUESTIONS B. Duty to obey reasonable instructions
C. Duty of Loyalty
1. Self-dealing: agent cannot receive a benefit to the detriment of the principal
2. Usurping the principal’s opportunity
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CA Bar 2009: Agency and Partnership
3. Secret profits that otherwise could’ve gone to the principal
D. Remedies for the principal if agent has breached:
What formalities are required of 1. Principal may recover losses caused by the breach and
gen partnerships? 2. Principal may disgorge profits (unearn those profits made by the breaching agent)
PARTNERSHIP LAW
What is the def of a gen
partnership? -tracks the Revised Uniform Partnership Act
-may have to compare/contrast diff biz arrangements
What is ‘sharing of profits?’
PART I: GENERAL PARTNERSHIP FORMATION
A. Formalities: no formalities to becoming a general partnership, no filing, no writing etc.
B. Def: an association of 2+ persons, who are carrying on as co-owners of a business for
What rules govern partnership profit
liability? 1. Tip: bar q will give you a close call question where you can’t easily the nature of
the arrangement. You will know what it is based on sharing of the profits.
What are gen partners liable for? C. “Sharing of profits”-the contribution of capital (ie money or services) in return for a
share of profits, if any, which creates a presumption that a gen partnership exists
What are the liability rules for
incoming partners? For outgoing PART II: LIABILITIES OF PARTNERS TO THIRD-PARTIES
partners? A. Agency principles apply in context of partner liability b/c partners are just agents of the
partnership.
What is the liability rule on 1. Partners are agents of the partnership for carryon the usual partnership business
partnerships and estoppels? 2. Partnership is bound by torts committed by partners in scope of partnership
business
3. Partnership is bound by contracts entered by partners w/ authority
B. General partners: are personally liable for debts/obligations of the partnership.
1. Tip:
a. Incoming partners are generally not liable for prior debts but money paid into
How to form a limited partnership? the partnership by the new partner can be used by the partnership to satisfy
those pre-existing debts.
What’s the obligation of the gen b. Outgoing partners (dissociating partners) retain liability on future debts until
partners? Of the limited partners? actual notice of their dissociation is given to creditors or until 90 days after
filing notice of dissociation w/ the state.
How to form an RLLP? C. General partnership liability by estoppels: one who represents to a third party that a
general partnership exists will be liable to the third party as if they were part of the
What is the liability of partners in general partnership. (This is likely to appear in June!)
an RLLP? D. Related biz form: Limited Partnership
1. Def: a partnership w/ at least 1 general partner and at least 1 limited partner
Why were LLC’s created?
2. Formation: must form a limited partnership by filing a limited partnership
How to form? certificate w/ state that includes: names of all general partners
3. Liability and control among gen partners: are still gen partners and this general
What is the liability of the owners? partners are liable for all limited partnership obligations/debts, but they have the
right to manage the business
What are the state law 4. Liability and control among limited partners: are not liable for the obligations of
characteristics? the partnership but they may not manage the business w/o forfeiting their limited
liability status
Summarize the LLC E. Related biz form: Registered Limited Liability Partnership: (RLLP)
characteristics? 1. Formation: register by filing a statement of qualification + annual reports
2. Liability: no partner is liable for the obligations of this partnership
F. Related biz form: Limited Liability Companies
1. Originally, idea was to give to the owners (ie members) the same limited liability
of shareholders in a corporation + the benefits of partnership (ie tax status:
partnership tax: good; corporate tax: bad).
2. Formation:
a. File articles of organization
b. Adopt an operating agreement
c. But you do not file any articles of incorporation.
3. Liability of owners:
a. Owners (members) are not liable for obligations of the company itself
b. By state law, must abide by 2 of the 3:
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CA Bar 2009: Agency and Partnership
1) Owners have the right to manage (though this can be delegated to a team
What do gen partnerships owe to of managers, thus the last 2 characteristics are taken on)
each other? 2) Membership interest in the LLC is illiquid to some extent
3) Life of LLC is limited
What can they not do, per the 4. Summary of traits of the LLC:
DoL? a. Limited liability
b. Limited liquidity
What’s the remedy for breach by c. Limited life
gen partners? d. Limited tax

What are the partnership property PART III: RIGHTS AND LIABILITIES B/T PARTNERS
rights? A. General partners are fiduciaries of each other and the partnership
1. They owe each other and the partnership the DoL
What are some types of specific 2. Thus they cannot:
partnership assets? a. Engage in self-dealing
b. Usurp partnership opportunities
What is the share of profits and c. No secret profits at partnership expense
surplus?
3. Remedy for breaches: action for accounting
What is the share in management? a. In the action for accounting, the partnership may recover losses caused by the
breach and also may disgorge profits made by the breaching partner
Why is the partnership form B. Partnership property rights:
illiquid? 1. Specific partnership assets
a. Ie land, leases or equipment owned only by the partnership
How do you tell if an asset belongs b. Thus, no individual partner may transfer these assets w/o partnership
to the partnership or is personal authority
property? 2. Share of profits and surplus
a. Share of profits = personal property, owned by individual partners
What is the default management b. Thus, individual partners may transfer their share of profits to some 3rd party
rule? 3. Share in management
a. Gen partners have right to share in partnership management
How do you get around it? b. Management = an asset owned only by the partnership itself
c. Thus, no individual partner may transfer their share in management to some
What is the default rule on salary? 3rd party.
4. Conflict b/t specific partnership assets and personal property: A general
When can salary be given to a partnership is relatively illiquid b/c only 1/3 of the assets are liquid and
partner? transferable personal property
a. Tip: how do you know if it’s personal property or something else?
What are the profit/loss sharing b. Test: whose money was used to buy the property?
default rules? c. If partner money is used to buy  asset of the partnership.
What are the profit/loss sharing d. If personal money used to buy  personal property
perms? C. Management
1. Default rule: absent an agreement on management, each partner gets equal
control/vote
2. If partnership agreement has unequal pay in and profit sharing, absent an
agreement on management, it’s still 1 person, 1 vote.
D. Salary
1. Default rule: absent an agreement, partners get no salary (they are not employees)
even if they work unequal hours
2. Exception: for helping to wind up the business, partners get a salary for that time
E. Partner’s share of profits and losses
1. Profit Rule: w/o an agreement on profits, they are shared equally
2. Losses Rule: w/o an agreement on losses are shared like profits
3. Hypos:
a. If agreement is silent on profit loss and sharing  w/o agreement on profits,
they are shared equally; w/o an agreement on losses, losses are shared like
What’s the default rule on profits, thus shared equally here
dissociation?
b. If agreement says profits are shared 60/40  w/o agreement on losses, losses
What is termination? are shard 60/40
c. If agreement says losses are shared 60/40  w/o an agreement on profits,
profits are shared equally
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CA Bar 2009: Agency and Partnership
What is winding up? d. A puts up all of the money. B does all of the work. C gives the partnership its
name. D does nothing. How to share profits?  W/o an agreement, share
What are the liability rules during profits equally.
winding up for old business?

What about brand new business? PART IV: PARTNERSHIP DISSOLUTION


A. Key terms:
1. Dissolution:
a. Default rule: in the absence of an agreement that specifies events that will
dissolve the partnership, dissolution occurs automatically upon notice of the
express will of 1 general partner to dissociate
b. Is the first stage of ending the partnership
What is the priority of distribution 2. Termination: real end
after dissolution? 3. Winding up: period b/t dissolution and termination in which the remaining
partners liquidate the partnership’s assets to satisfy the partnership’s creditors by
What happens if there’s not enough selling off assets, contracting for the assets etc. (during this phase, partners can
money/assets to repay the capital receive a salary)
contributions? a. Liabilities during winding up:
1) Old business: partnership and therefore its individual general partners
retain liability on all txns entered into to wind up old business w/ existing
creditors
2) Brand new business: the partnership and therefore its individual gen
partners, still retain liability on new biz until actual notice of dissolution
is given to creditors or until 90 days after filing the statement of
dissolution w/ the state
B. Priority of Distribution
1. Each level of priority must be fully satisfied before beginning the next level
2. Order:
a. Creditors must be paid:
1) Outside, nonpartner trade creditors, and
2) All partners or insiders who have loaned money to the partnership
b. All capital contributions by partners must be paid
1) The partnership is liable to its own partners for the full repayment of their
own capital contributions into the partnership
2) Only if outside and inside creditors have been paid.
c. Then, profits and surplus, if any
1) Default rule: if no agreement, profits are shared equally
2) Or else follow agreement.
3. Rule: First each partner’s loans to the partnership must be repaid, and capital
contributionsmust be repaid. Then add the partner’s share of profits or minus their
share of losses.
4. Suppose all the assets are repaid to the insider and outsider creditors of the A-B
Partnership, and there’s no money left but Partner B still hasn’t gotten his capital
contribution of 200k. What result?
a. Rule: The partnership is still liable to Partner B for his capital contribution.
b. Thus w/ no assets left to repay B, the 200k is a loss.
c. Rule: Share losses based on profit sharing.
1) Default: profit sharing is equal, thus loss sharing is equal.
2) A and B are each liable for the losses of the partnership.
d. A and B each put in 100k to cover the 200k loss.
e. B gets the 200k, his capital contribution.