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55 Cards in this Set
- Front
- Back
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2-part test for determining whether Principal will be vicariously liable for torts of Agent
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1. Principal-Agent relationship exists
2. Tort committed within scope of that relationship |
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When does a Principal-Agent relationship exist?
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i. Assent: informal agreement between principal who has capacity & agent
ii. Benefit: agent’s conduct must be for the principal’s benefit iii. Control: principal must have right to control the agent by having the power to supervise manner of agent’s performance |
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Vicarious Liability for Sub-Agents
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the principal will be liable for the sub-agent’s tort if there is assent, benefit, and right to control the sub-agent tortfeasor
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Vicarious Liability for Borrowed Agents
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The principal will be liable for a borrowed agent’s tort if there is assent, benefit, and control.
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Vicarious Liability for Independent Contractors (general rule)
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there is no right to control an independent contractor, because there is no power to supervise/manage the manner of its performance
Thus, there is no VL for an independent contractor’s torts (unless an exception applies) |
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Exceptions to general rule of no liability for independent contractors
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1. ultra-hazardous activity (non-delegable duty)
2. estoppel: if you hold out your independent contractor with the appearance of agency, you are estopped (prevented) from denying VL |
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When is a tort “within the scope of agency relationship”?
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i. Was it the kind of conduct agent was hired to perform (i.e. was the conduct within the job description)?
ii. Did the tort occur on the job? iii. if the agent (even in part) intended to benefit the principal by his conduct (at any point in past), it’s enough to be inside the scope of agency |
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How to tell if a tort occurred “on the job”
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a) frolic: a new & independent journey (outside scope)
b) detour: a mere departure from an assigned task (inside scope, getting groceries, etc) |
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Vicarious liability for intentional torts (general rule)
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As a rule, intentional torts are generally outside scope of agency
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Exceptions to the general rule of no vicarious liability for intentional torts
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Intentional torts are within the scope if the conduct was:
a) specifically authorized by principal; b) natural from the nature of the employment (i.e. bouncing); or c) motivated by a desire to serve the principal. |
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When is a principal liable for contracts entered into by the agent?
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Principal is liable for contracts entered into by its agent if principal authorized agent to enter contract
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Types of authority
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1. actual express
2. actual implied 3. apparent 4. ratification |
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Actual Express Authority
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Definition: words used by principal to authorize entry into a contract
Rule: it can be oral and private (whisper), BUT it is narrowly construed Exception: if contract must be in writing, express authority must also be in writing (usually a conveyance of land) |
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Actual Implied Authority
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Authority agent reasonably believes the principal has given him because of:
---i. necessity: there is implied authority to do all tasks that are required/necessary to accomplish an expressly authorized task ---ii. custom: tasks customarily performed by persons w/ the agent’s title or position ---iii. prior dealings: all tasks which the agent believes authorized to do because of prior acquiescence by principal |
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Apparent Authority
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Two part test:
1. principal cloaked the agent (secretly) to give the appearance of authority; and 2. 3rd party reasonably relies on appearance of authority |
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Apparent Authority: secret limiting instruction
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agent has actual authority, but principal has secretly limited that authority. If agent acts beyond scope of limitation and 3rd party relies, P is liable.
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Apparent Authority: lingering authority
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actual authority has been terminated, agent continues to act on principal's behalf, P is liable if customers rely on lingering authority of agent until they receive notice
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Ratification
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Authority can be granted after unauthorized contract has been entered by agent for principal into if:
---i. principal has knowledge of all material facts in contract, AND ---ii. principal accepts its benefits ---iii. exception: ratification cannot alter terms of contract; alterations make the ratification void (P has to accept the contract as is) |
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Who is liable for the contract (Principal or Agent)?
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an authorized agent is not liable on its authorized contract
a. if no authority, principal not liable on K, agent is liable on K b. if authority, principal is liable on K, agent is not liable on K Exceptions: the undisclosed principal—if 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. |
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Duties the Agent owes to the Principal
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A. Duty to exercise reasonable care
B. Duty to obey reasonable instructions (no lying, no breaking law) *C. Duty of loyalty |
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Agent’s Duty of Loyalty
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1. no self dealing: no benefit to agent to detriment of principal
2. no usurping principal’s opportunity 3. no secret profits |
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What can Principal recover if Agent breaches his duties
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Can recover losses against agent, or disgorge profits
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General Partnership (definition)
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an association of two or more persons who are carrying on as co-owners of a business for profit
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General Partnership (formalities for formation)
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No formalities required to become general partnership
The contribution of money/services in return for a share of profits creates a presumption that a partnership exists Can be partnership even if you don't want to be! |
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Liabilities of a General Partnership to Third Parties
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1. partners are agents of the partnership for apparently carrying on usual partnership business
2. therefore the general partnership is liable for torts committed by partners in scope of partnership business 3. partnership is bound by Ks entered by partners w/ authority |
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General partnership liability for debts of partnership
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As a rule, general partners are liable for all partnership debts, including co-partners torts.
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Incoming partners and preexisting debts
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An incoming partner is generally not liable for prior debts.
But, any money paid into the partnership by the incoming partner can be used by the partnership to satisfy those prior debts. |
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Dissociating (withdrawing) partner’s liability for subsequent debts
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A dissociating partner retains liability on future debt until:
i. actual notice of dissociation given to creditors ii. until 90 days after filing notice of dissociation with the state |
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General partnership liability by estoppel
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one who represents to a 3rd party that a general partnership exists will be liable as if a general partnership exists
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Limited Partnership (definition)
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is a partnership w/ at least 1 general partner and at least 1 limited partner
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Limited Partnership (formation)
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must file with the state a limited partnership certificate that includes the names of all general partners
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Limited Partnership (liability)
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general partners are liable for all limited partnership obligations; but they do have the right to manage business.
Limited partners have limited liability, and therefore are not liable for debts/obligations of partnership. |
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Limited Partnership (control)
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The law in most states and also in California is still that limited partners may not manage a business without forfeiting their limited liability status.
BUT under newly revised uniform LP act, limited partners now may manage w/o forfeiting limited liability status (still a minority rule) |
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Registered Limited Liability Partnerships (RLLP) (formation)
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must register with the state by filing a statement of qualifications & annual reports
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Registered Limited Liability Partnerships (RLLP) (liability)
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No partner is liable for debts/obligations of the partnership—not even general partners
BUT partners liable for own wrongdoing & wrongdoing of those under direct control |
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Limited Liability Company (LLC) (definition)
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A LLC is a hybrid between a corporation and a partnership in which the owners, who are called “members,” have the same limited liability of shareholders in a corporation and also the benefits of partnership tax treatment.
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Limited Liability Company (LLC) (purpose)
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gives owners the same limited liability of shareholders in a corporation & benefits of partnership tax treatment
(partnership tax good, corporate tax bad) |
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Limited Liability Company (LLC) (formation)
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organizers must file articles of organization & adopt an operating agreement w/ state
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Limited Liability Company (LLC) (liabilities)
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owners (members) are not liable for obligations of company itself
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Limited Liability Company (LLC) (partnership characteristics)
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(must observe 2 of the follow 3 characteristics)
a. members may control, but may delegate control to a team of managers b. limited liquidity: a full membership interests not freely transferable without unanimous consent of the members c. limited life: articles of organization or the operating agreement must identify some event that will dissolve the company. |
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General partners fiduciary duties to each other and partnership
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1. GPs owe each other duty of loyalty (same as above): no self-dealing, no usurping partnership opportunities, no secret undisclosed profits at partnership's expense.
2. Breach: action for accounting. Partnership may recover losses caused by breach, may disgorge profits made by breaching partner |
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Partner’s rights in specific partnership assets
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No individual partner may transfer these assets w/o partnership authority.
Includes land, leases, equipment which are owned only by partnership itself |
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Partner’s share of profits and surplus
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Profits and surplus are personal property owned as such by individual partners.
Individual partners may transfer their share of profits to some 3rd party |
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Partner’s rights regarding transferability of his share in management
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No individual partner may transfer their share in management to some 3rd party (e.g. can't sell right to vote)
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Partner’s rights in property where there is a conflict between specific partnership assets and personal property
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Ask "whose money was used to buy the property?"
If personal money was used, it becomes personal property; if partnership funds were used to buy it, it becomes partnership property |
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Partner’s share in management
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absent agreement otherwise, each partner entitled to equal control (1 vote/partner)
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Partner’s salary
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Absent agreement otherwise, partners get no salary.
Exception: partners receive compensation for helping wind up business |
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Partners share of profits and losses
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1. absent agreement otherwise, profits shared equally
2. absent agreement otherwise, losses shared like profits 3. if there is an agreement to share profits 60/40, losses are also shared 60/40 4. if there is an agreement to share losses 60/40, profits are still shared equally |
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Dissolution of a partnership
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The beginning of the end.
“In the absence of an agreement that sets forth events of dissolution, a general partnership dissolves upon notice of the express will of 1 general partner to dissociate.” |
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Termination
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Real end of partnership
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Winding Up
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Winding up is the period between dissolution & termination in which the remaining partners liquidate (sell off) the partnership’s assets to satisfy the partnerships creditors.
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Compensation for winding up
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partners get compensation for helping wind up
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Liability for winding up
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i. old business: partnership (and therefore individual general partners) retain liability on all transactions entered into to wind up old business and satisfy existing creditors
ii. new business: partnership (and therefore individual general partnership) retain liability on new business until actual notice of dissolution is given to creditors or until 90 days after filing statement of dissolution w/ state |
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Priority of distribution
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Each level of priority must be fully satisfied before beginning the next level in this order
a. First, all creditors must be paid: includes all outside non-partner trade creditors, and also all partners who have loaned money to the partnership and become creditors thereby. b. Second, all capital contributions by partners must be paid: partnership is liable to its own partners for the full repayment of their capital contributions c. Profits and surplus leftover, if any, are shared equally (absent agreement otherwise) |
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Partner’s rights when dissolving a partnership
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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.
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