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California Bar Exam Outlines
FORMATION: legal relationship whereby an agent is authorized to represent a principal in business dealings with third parties
Capacity: only the principal, agent needs minimum capacity (exc legally required, i.e. broker).
Formalities: consent; no writing or consideration.
Creation: by (i) Act of parties or (ii) By Law:
Estoppel (apparent authority) 3rd party relies on principal’s communication
Statute: e.g., service of process
Duties Agents Owe to Principals
Duties: in return for reasonable compensation and reimbursement of expenses, agents owe (1) duty of care, (2) duty to obey reasonable instructions, and (3) duty of loyalty. Agent cannot: engage in self-dealing, usurp the principal’s opportunity, or earn secret profits (profits at principle’s expense without disclosure).
Remedies: principal may recover losses caused by breach and disgorge profits, equitable actions for accounting.
- indemnity/ reimbursement
- contractual duties
- contractual remedies
- possessory lien
- exercise reasonable care
- loyalty (no self dealing)
- constructive trust
- action for secret profits
- withhold compensation
- tort remedies
Liability of Principal for Torts of Agent: principal is vicariously liable for agent’s torts if (1) there is a principal-agent relationship and (2) tort committed within scope of agency.
Principal-Agent Relationship: (1) Assent, (2) Benefit, and (3) Control.
Assent: informal agreement between principal and agent.
Benefit: agent’s conduct for the principal’s benefit.
Control: principal has right to control the agent by having the power to supervise the manner of the agent’s performance.
Sub-Agent: principal liable for sub-agent’s tort only if ABC between principal and sub-agent. Typically fails for lack of A & C. If subagent appointed without authority by agent, owes no duties to the principal, Agent alone is liable to principal for losses arising from subagent’s conduct or breaches. Authorization to hire subagents does not imply duty of principal to compensate him.
Borrowed Agent: borrowing principal liable for borrowed-agent’s tort only if there is ABC between principal and sub-agent. Typically fails for lack of C.
Relationship: (1) Assent and (2) Benefit, but no right to control because no power to supervise.
Rule: no vicarious liability, unless (1) ultra-hazardous activity or (2) estoppel—principal holds out IC with appearance of agent.
Scope of Agency: consider whether (1) the conduct was of the kind the agent was hired to perform, (2) the tort occurred on the job, and (3) the agent benefitted the principal.
“On the Job” (within scope of employment)
Frolic: a new and independent journey. Not within scope
Detour: mere departure from assigned task. Within scope.
Benefit: if the agent even in part intended to benefit the principal by its conduct, within scope.
Intentional Torts: generally outside scope, unless (1) authorized by principal, (2) natural from the nature of employment, or (3) motivated by a desire to serve the principal.
Liability of Principal for Contracts of Agent
Rule: principal liable for contracts of agent if the principal authorized the agent to enter into the contract. Authority may be (1) actual express, (2) actual implied, (3) apparent, or (4) ratification.
Agent Liability: liable for unauthorized contracts. Generally, no liability for authorized contracts. However, third-party can elect to hold agent liable even for authorized contract where principal partially disclosed (identity of principal concealed) or undisclosed (fact or principal concealed).
Actual Express Authority: principal used words to express authority to agent, even if oral or private. Actual authority (express or implied) looks into agent’s belief. Exception: if contract itself must be in writing, authority must be in writing (Equal Dignities Rule).
Revocation: can be revoked (1) by either principal or agent unilaterally; or (2) upon death or incapacity of principal, unless principal gives agent a durable power of attorney—a written expression of authority to enter a transaction—with conspicuous survival language.
Non revocable: (1) agent has interest in the subject matter, or (ii) granted as security.
Actual Implied Authority: authority through conduct or circumstances.
Necessity: implied authority to do anything necessary to accomplish an expressly authorized task. When selling goods, agent can grant customary Ws and covenants, must receive price in cash and deliver possession upon payment.
Custom: implied authority to do anything customarily performed by persons with the agent’s title or position. Agent may not sell goods in his possession unles there is indicia of ownership or deals with goods in kind.
Prior Acquiescence by Principal: implied authority to do anything which the agent believes to have been authorized from the principal’s prior acquiescence.
Lingering apparent authority: when actual authority ends by 3rd party has no notice.
Apparent Authority: authority exists where (1) principal cloaked agent with the appearance of authority, and (2) 3rd-party reasonably relies on appearance of authority. Looks into 3rd party belief.
Inherent Authority: agent exceeds actual authority but act performed is similar to one authorized.
Ratification: authority can be granted after the contract if principal (1) has knowledge of all material facts of contract and (2) accepted benefits of contract or transaction as a whole. However, ratification must be complete—cannot pick and choose contract’s terms.
Formation: a GP is an association of 2 or more persons who are carrying on as co-owners of a business for profit. No formalities are required. Key factor is sharing of profits. Therefore, the contribution of money or services in return for a share of profit—not salary or loan interest—creates a presumption that GP exists. Governed by: Partnership Agreement and Revised Uniform Partnership Act (RUPA).
Titled. Property titled to partnership or in name of several partners in their partner capacity
Presumed. Rebuttable presumption if purchased with partnership funds, regardless of title.
Untitled. C/L criteria: funds of acquisition, use, entry in books, improvement & maintenance
Liabilities of General Partners to 3rd Parties
Liability of General Partnership: Agency Principles Apply: partners are agents of partnership for carrying on usual partnership business. Thus, general partnership liable for each partner’s torts in the scope of partnership business and for each partner’s authorized contracts in the ordinary course, unless third-party had notice of lack of authority.
Liability of Each General Partner: each personally liable for all debts of the partnership and for each co-partner’s torts and frauds in scope of partnership, but no crimes.
Incoming Partner Liability for Pre-Existing Debt: generally not liable, but any money paid in to partnership by incoming partner can be used to satisfy prior debts.
Dissociating Partner generally liable for Existing Debts: exc release or satisfaction
Dissociating Partner Liability for Subsequent Debts: retains liability on future debts until (1) actual notice of dissociation given to creditors or (2) 90 days after filing notice of dissociation with state, otherwise liable for new debt incurred 2 yrs from dissociation.
General civil liability: Partners are liable. Credit judgements against partnership are binding to partners if served and partnership assets are exhausted.
GP Liability by Estoppel: one who represents to a 3rd party that a GP by exists (i) representing herself as being a partner or consents to other’s representation and 3rd party extends credit in reliance; or (ii) holds another as his partner with authority to bind him as a partner; will be liable as if a GP exists.
Rights & Liabilities Among General Partners
Fiduciary Duty of Loyalty: general partners are fiduciaries of each other and of the GP. May not (i) engage in self-dealing, (ii) usurpation of partnership opportunity, or secret profit, or (iii) compete with partnership. Remedy: action for accounting. GP can recover losses caused by partner’s breach and disgorge profits.
Fiduciary duty of care. No negligent, reckless, or unlawful conduct.
Duty of disclosure. (1) Without demand: any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties; and (2) on demand, any other information concerning the partnership’s business and affairs
Partners’ Rights in Partnership Property & Liquidity
Specific Partnership Assets: e.g., land, leases, equipment owned by the partnership. May not be transferred by individual partners without partnership authority. Hint: to determine ownership, look to whose money was used to purchase item: if personal, likely personal, if partnership, likely partnership.
Share of Profits: equally (per head) personal property of partner and may be transferred.
Share in Management: asset owned only by partnership itself, and therefore cannot be transferred.
Management: absent agreement (which they may freely do), each partner is entitled to equal control (vote) in management, regardless of share in profits. Being a partner may grant apparent authority, not actual. For ordinary course decision, majority controls, but for matters outside ordinary course, unanimity required. One partner cannot unilaterally limit another’s equal power—there must be a management agreement that does so, and third-parties not bound unless a statement of limitation of authority is filed with the state.
Statements of authority: grants or limits partner’s authorization to enter into agreements on behalf of partnership. Filed w/ secretary of state; for real property, with county.
Salary: absent agreement, partners get no salary. However, partners receive compensation for one thing: helping to wind up partnership business.
Indemnification/ Contribution if incurs in expenses or pays more than his share of liability.
Suits: partnership may sue or be sued in the name of individual partners.
Partners’ Share of Profits & Losses
Profits: absent agreement, shared equally. Agreement on losses only has no effect.
Loss: absent agreement, shared like profits. Thus, could be shared per agreement on profits, even if agreement doesn’t mention losses.
Non waivable rights: inspection, duties or care and loyalty, right to dissociate.
Transfer of partnership interest
Transferee can only receive interest in profits, losses or distributions transferor was entitled.
No unilateral transfer management rights, right to demand accounting or inspect books.
Wrongful: In breach of partnership agreement or partners withdraws, is expelled or becomes bankrupt before completion of undertaking, makes dissociated partner liable for damages
Consequence: (a) buyout (b) dissolution if at will or term partnership.
General Partnership Dissolution
Process. First, Dissolution—in the absence of an agreement that sets forth events of dissolution, a GP dissolves upon notice (written or oral) of the express will of just 1 general partner to dissociate. Second, Winding Up—period between dissolution and termination in which remaining partners liquidate the partnership’s assets to satisfy partnership creditors. Finally, Termination—end of partnership happens when winding is completed.
Distinguish Dissociation: partners ceases to associated with the partnership, which is not dissolved except notice to withdraw by a partner. Consequences for dissociated partner:
Terminates right to participate management, but may bind Partnership for 2 years if 3rd party relies on apparent authority w/o knowing of dissociation.
May be liable for wrongful dissociation
May be liable for acts of partnership for 2 years if 3rd party didn’t know of dissociation, can be reduced to 2 years if files notices of dissociation.
Old Business: partnership (and each partner) still liable on all transactions entered into to wind up old business in order to satisfy existing creditors.
New Business: only permissible new business is that to wind up partnership. However, for any act, partnership (and each partner) still liable on new contracts until actual notice of dissolution is given to creditors or until 90 days after filing statement of dissolution with state.
Priority of Distribution: each level of priority must be fully satisfied before next:
Creditors: must pay all creditors, including all partners who have loaned money to the partnership.
Capital Contributions by Partners: must fully repay capital contributions.
Profits, if any, shared equally unless agreement otherwise.
Rule: if partnership does not have enough to pay i. or ii., individual general partners must contribute fair share of funds (even individual partner owed money thereunder)—under usual formula for profits and losses, unless agreement.
Alternative Unincorporated Business Organizations
Limited Partnerships: a partnership with at least 1 general and 1 limited partner.
Formation: must file Limited Partnership Certificate that includes names of all general partners.
Liability & Control
General Partners: liable for all LP obligations; but have a right to manage the business.
Limited Partners: not liable for the LP’s obligations. For control, the law in most states and in CA is still that a limited partner may not manage the business without forfeiting limited liability. But, under the newly-revised Uniform Limited Partnership Act, may manage without forfeiting.
Ordinary acts: majority of General Partners
Extraordinary acts: unanimous vote of ALL partners (general and limited)
Financial rights: based in contributions (not # of partners like partnerships)
Dissolution: by consent of all general partners and majority in interest of limited partners
Registered Limited Liability Partnership (RLLP)
Formation: register by filing a Statement of Qualification and annual reports.
Liabilities: no partner, not even general partners, are liable for debts of RLLP.
Financial rights: same as partnerships
Limited Liability Company (LLC): a hybrid between a corporation and a partnership, in which owners—members—have the same limited liability as shareholders in a corporation and also the benefits of partnership tax treatment.
Formation: must file Articles of Organization and may adopt an operating agreement.
Control: presumed to be in all members, but may also delegate control to a team of managers.
Limited Liquidity: a full membership interest may not be transferred without unanimous consent of the members or as provided in the operating agreement.
Limited Life: company will dissolve upon unanimous consent of members or as provided in the operating agreement.
Fiduciary duties: owed by members/managers to the LLC and members:
Duty of care: must act in the best interest if the LLC, subject to the BJR
Duty of loyalty: no self dealing, competing or usurping opportunities.
Derivative suits: member must first make demand to other members or managers unless it would be futile. Must be member at the time claim is filed and throughout lawsuit.
Dissolution: an LLC member may apply when:
Conduct of all or essentially all of LLCs business is unlawful
Not reasonably practicable to carry out biz in accordance with cert of org and operating agrmt
Oppressive act by managing members.
PIERCING THE LLC VEIL. LLC will be disregarded and its partners held liable when:
The LLC is the alter ego of member/managers;
Inadequate capitalization on outset; or
If formed to perpetrate a fraud.
Unlike corporations, lack of formalities not sufficient to pierce an LLC
Agency & Partnership pg 1 of 1rd party relies on apparent authority w/o knowing of dissociation.
Old Business: partnership (and each partner) still liable on al