Agency

Question 1

Partnership Formation

Answer 1

• a partnership is form when 2 or more people associate to carry on as co-owners a business for profit
• no requirement formal writing or that the parties subjectively intend to form a partnership, just that they intended to run a business together
• Intent can be implied from their conduct- sharing profits

Question 2

Authority In Partnership

Answer 2

• Every partner is an agent of the partnership and acts of one will bind the partnership
• Actual Authority: authority partner reasonably believes he has based on communication between the partnership and the partner by either the partnership agreement or consent of partners. If act is within ordinary course of business, partners may confer actual authority with a majority vote
• Apparent Authority: authority that a third party would reasonably believe a partner has by being held out by the partnership as a partner- if in ordinary course of business action will bind the partnership even if there is no actual authority if the other person believes they have authority

Question 3

Partnership Dissolution

Answer 3

• Right to Resign: resignation is dissociation- change in relationship of partners caused by a partner ceasing to be associated with the partnership. Dissociation occurs on a number of events, but also with the express will to withdraw.
• Issue: whether the dissociation is caused dissolution and whether the dissociation is wrongful
• Generally partner may dissociate at will without penalty
• Wrongful dissociation: if if the dissociation is in breach of express provision of partnership agreement (definitive term or undertaking) if wrongful, they are liable for any partnership for any damages and may not partake in winding up
• If no particular duration or undertaking- partnership is at will
• At will partnerships: express will to withdraw automatically triggers dissolution
• Winding up: if express, will automatically triggers dissolution, partnership continues through dissolution through winding up and can vote at any time by unanimous vote to continue
• Right to contingent fees: hinges on timing if the outgoing partner is entitled. If the fee is owed during winding up, they are entitled

Question 4

Personal Liability in Partnership

Answer 4

• Partners are jointly and severally liable for all obligations of the partnership. Must 1) serve the partner 2) judgment creditor must first seek satisfaction from the partnership then from the partners personally if not covered by partnership assets

Question 5

Duty of Obedience

Answer 5

• If agent of the partnership/corp you have a duty to obey all reasonable instructions and not act outside of authority. Selling property without consulting the corp is lacking consult with partners

Question 6

Titled Property

Answer 6

• Partnership property if 1) titled in partnership name, 2) titled in name of more than one partner and the title states the capacity of the partner or 3) was purchased with partnership funds.
• Presumed Separate: 1) no mention of capacity or partnership, 2) purchased with separate funds
• Common Law: if no title, apply CL factors: 1) acquired or improved with partnership funds or 2) whether it is closely related to partnership business

Question 7

Fiduciary Duty of Loyalty

Answer 7

• Duty of Loyalty requires
  1) Account for all profits or other benefits derived by the partner in connection with partnership business
  2) Not deal with the partnership as one with an adverse interested
  3) Not compete with partnership
• Breach: failure to do any of the above results in breach, if profits gained by partner, must account to business for lost profits

Question 8

Agency

Answer 8

• Agency is a consensual relationship that arises when the principal manifests and intention that the agent shall act on their behalf
• To form both the principal and the agent must consent to relationship
• Formalities: no writing required, just the principal must have contractual capacity and agent must have minimal mental capacity

Question 9

Independent Contractor

Answer 9

• Most important factor of determining whether a person is an employee or IC, is whether the principal has the right to control the manner and method in which the worker does their job: employ-subject to the supervision of principal, IC: follow their own discretion

Question 10

Liability to 3rd Party Seller

Answer 10

• Issue: whether the agent had authority to enter into the transaction and under what circumstances they are liable
• DO authority definition and analysis
• Generally, both the p and are liable on a contract entered into by an authorized agent on behalf of an undisclosed p to the third party
• Liability to each other: the a must be compensated and reimbursed of expenses or losses incurred while discharging the a’s duties. P owes a duty to indemnify them for any legal liability reasonably incurred while acting for the p unless the liability was due to a own fault

Question 11

Authority

Answer 11

• Actual: the agent reasonable believes they have authority based on dealings between themselves and the principal
• Apparent: arises when the principal holds out another as having authority and the third party believes it exists
  1) Express: specifically contained in the communication from p to a that grants authority
  2) Implied: that which they reasonably believes he has based on the action of the p
• Ratification:

Question 12

Issues

Answer 12

1) Tort and third party liability committed by an agent
2) Contract liability to third party entered into by agent
3) Responsibilities between parties

Question 13

Respondent Superior/Vicarious Liability

Answer 13

The principal is liable for torts committed by the agent if
1) There is a principal-agent relationship
2) Tort committed in scope of the relationship

Question 14

Principal Agent Relationship

Answer 14

First element for principal agent relationship
Agency: ABC
1) Assent: informal agreement b/w principal with capacity and agent- voluntary and assenting
2) Benefit: agent at work on behalf of or for the benefit of the principal
3) Control: principal must have the right to control the agent by having power to supervise agent’s performance

Question 15

Subagent

Answer 15

• SUBAGENT: Principal instructs agent and there is another helper: is principal now liable? The principal will be liable if there is assent, benefit, and control
• Typically with a subagent there is no assent or control, only benefit so no vicarious liability

Question 16

Borrowed Agent

Answer 16

principal who borrows employer #2 agent and commits tort, is principal liable? If assent, benefit, and control between the borrowing principal and the borrowed agent
- Typically: Assent and benefit is found, but there is no right to control a borrowed agent , so no vicarious liability – Independent Contractor

Question 17

Independent Contractors

Answer 17

• Difference between agents and control: no right to control, no power to supervise the manner of their performance- so never any vicarious liability

Question 18

Exceptions for Vicarious Liability

Answer 18

1) Inherently dangerous activities: if tort during inherently dangerous activity- demolition
2) Estoppel: if you hold out your independent contractor with appearance of agency- wearing their uniform

Question 19

Scope of Relationship

Answer 19

Second element for principal agent relationship
Test for Scope: Based on weight
1) Scope of employment- conduct within the job description
2) **Where & When: folic and detour
 Frolic: new and independent journey- outside of scope
 Detour: mere departure of assigned task- in scope
3) Intended to Benefit Principal- any benefit, even partial, will be within scope

Question 20

Intentional Torts: Vicarious Responsibility

Answer 20

• Generally outside of the scope of employment
• Except:
  1) Authorized by the principal
  2) Natural from the nature of employment- security guards or bouncers
  3) Motivated by a desire to serve the principal

Question 21

Types of Authority

Answer 21

1. Actual
2. Apparent
3. Ratification

Question 22

Actual Authority: Express

Answer 22

 Express authority can be oral or private
 Except if the contract itself must be in writing, then the authority to enter into the contract must also be in writing- usually the conveyance of land for more than one year
 Revocation/termination: either the P or A can terminate, actual authority dies with the death or incapacity of principal and estate is not liable for the contract, unless there was a durable power of attorney
 Durable Power of Atty: written expression of authority to enter into transaction with conspicuous survival language
 Narrowly construed: narrowly tailored to the words used

Question 23

Actual Authority: Implied

Answer 23

 Necessity: actual implied authority to do all tasks which are required to accomplish the expressly authorized task- close the deal can rent conference room
 Custom: performed by the agent’s title or position
 Prior Acquiescence: authority to do all tasks agent believes authorized by prior acts- if they have done them in the past without objection, they can keep going

Question 24

Apparent Authority

Answer 24

 Factors: 1) Principal cloaks agent with the appearance of authority and 2) the third party relies on that authority
 Example: Charles owns an antique store. A shipment of antique clocks arrives from London. Charles tells his employee Dufus not to sell a special grandfather clock. Charles goes to lunch. Dufus sells the clock. Is Charles bound on the sales contract? Yes, the principal is liable on its authorized contracts. In this case, there was no express or implied authority. But, there will be apparent authority because Charles did cloak Dufus with apparent authority and the third party may rely on that authority. Therefore Charles is reliable because the principal cloaked and the third party relied

Question 25

Ratification

Answer 25

 Authorization after contract entered into the contract if 1) P has knowledge of all material facts and 2) P accepts all benefits of contract
 Ratification must not alter or change any terms, must authorize contract in whole

Question 26

Third Party v. Agent Liability

Answer 26

• General rule- authorized agents are not liable on their authorized contracts unless unidentified principal
• Unidentified/undisclosed Principal: Any measure of ambiguity of who the principal is makes the agent liable

Question 27

Duties Agents owe to Principal

Answer 27

1. Duty of Care: reasonable care within the circumstances
2. Duty of Obedience: must obey all reasonable directions
3. Duty of Loyalty
    Self-dealing: benefit themselves to detriment of P
    Never usurp P’s opportunities
    No secret profits at P’s expense

Question 28

Partnership Formation Definition

Answer 28

**NO formalities required to become a general partnership
- Association: A partnership is an association of two or more persons to carry on as co-owners a business for profit
- Therefore the contribution of money or capital in return for the share of profits creates a presumption of a general partnership- not wages, or loans, only share of profits

Question 29

Partnerships: Liabilities

Answer 29

Law of Agency applies
- Each partner is considered an agent of the partnership for the purpose of the business
- Liable for debts and obligations and each individual partner becomes liable
- Each Partner Personally Liable for
1) Partnerships’ debt and obligation
2) Co-partner’s torts
- Incoming Partner’s Liability: generally not liable for prior debt, but any capital paid in becomes partnership money and can be used for prior debts
- Dissociating Partner’s Debt: do retain liability on future debts until an actual notice of dissociation is given to creditor or until 90 days after filing a notice of dissociation with the state
- Estoppel: one who represents to a third party they are a general partner, they will be liable as if the partnership exists

Question 30

Partnerships: Duties

Answer 30

1. Fiduciary Duty
2. Rights in Partnership Property
3. Right to Participate in Management

Question 31

Partnerships: Fiduciary Duty

Answer 31

• Each partner owes fiduciary duties that include:
  1) Duty of Loyalty
   Self-dealing
   Usurping
   Secret Profit at partnership Expense
   Remedy is Action for accounting: partnership may recover losses caused by the breach including indemnity and disgorge profits
  2) Duty of Care
  3) Duty of Obedience
  4) Complete and Accurate Information

Question 32

Partnerships: Rights in Partnership Property

Answer 32

 Property: land, leases, equipment owned only by partnership- may not be transferred by individual partnership without partnership authorization
 Share of Profits: liquid so may be transferred to third parties- can transfer by sale or inheritance- only one transferrable
 Share in Management: asset owned by partnership itself- may not be transferred to third parties- cannot sell right to vote
 Who’s money was used to buy the property? If personal money was used- it becomes personal property, if partnership funds was used it is partnership property

Question 33

Partnerships: Right to Participate in Management

Answer 33

• Partners have equal rights in management controlled by a majority vote, but outside ordinary course of business require unanimous consent or fundamental partnership matters- so need unanimous vote for contributions and share profits
• Salary: no salary- even if one works hard and others do nothing, except to wind up the business
• Profits: without an agreement they are shared equally
• Losses: without an agreement- they are shared just like profits
  Example:
  (1) If an agreement is silent on profits and losses, how are profits and losses shared?
  Without an agreement on profits they are shared equally, without an agreement on losses, they are just like profits
  (2) If an agreement states that “profits are shared 60/40” but is silent on losses, how are losses shared?
  Without an agreement on losses they are shared just like profits- 60/40
  (3) If an agreement states that “losses are shared 60/40” but is silent on profits, how are profits shared?
  Without an agreement on Profits they are shared equally
  (4) Partner A puts up all of the money. Partner B does all of the work. Partner C gives the partnership its fine name. Partner D does nothing. How are profits shared?
  Without an agreement on profits, the profits are shared equally

Question 34

Partnership: Dissolution

Answer 34

• In the absence of an agreement that sets forth events of dissolution or that limits the partnership length or undertaking, a general partnership dissolve upon notice of express will of anyone general partner to dissociate.

Question 35

Partnerships: Winding Up

Answer 35

• Liquidate the assets to satisfy the creditors
• Who is liable during contracts made in winding up
   Old business: all partners and partnership liable if the contracts existed at the time of winding up began
   New Business: general partnership and individual partners still maintain liability until actual notice of dissolution given to creditors or after 90 days following dissolution filed with the state
• Distribution, in order
  1) Creditors: including partners who have loaned, or other 3rd parties
  2) Partner’s capital contributions- partnership is liable to its own partners to their capital contributions
  3) Profit- if any are shared equally without an agreement
  *What might be the individual partner’s right or liability in winding up? Each partner must recieve2 things, loans and capital plus their share of profit if they have any remaining, but they are liable for their share of losses

Question 36

Partnerships: Termination

Answer 36

Real end of general partnership

Question 37

Limited Partnership

Answer 37

• Partnership with at least 1 general partner and 1 limited partner at least
• Limited liability is given to limited partners
• Must file: limited partnership certificate with names of full and limited partners
• General Partners: still liable for all limited partnership obligations and the right to manage and control the business
• Limited Partners: have limited liability, not liable for obligations for the partnership. For control: 1) in most states they may not manage the business without giving up limited status, 2) under revised uniform limited partnership act may now control without giving up limited status

Question 38

Registered Limited Liability Partnership

Answer 38

• Register: file statement of qualification and annual reports to the state *Must include Limited liability words
• No partner is liable for the obligations of the partnership
• Can sue personal members for their own torts

Question 39

LLC

Answer 39

• A mixture between a corporation and partnership in which the owners, who are called members, have the same rights and limiting liabilities as shareholders in a corporation plus the benefits of a partnership tax treatment
• Benefit is the partnership tax
• Must file articles of organization and adopt an operating agreement
• Owners: control: may control or delegate to team of managers; Liquidity: full membership interest will not be allowed without consent of all members or provided in OA;
• Limited liability, life, tax, liquidity