Agency and Partnership

Question 1

What are the requirements for an agency relationship?

Answer 1

1. CONSENT by both principal + agent that the agent will act for the principal’s benefit
2. The agent is subject to the principal’s CONTROL

Question 2

What happens if the agent entered into a K and had authority to enter into the K?

Answer 2

The principal is bound by any K entered into by the agent for which the agent had authority.

Question 3

What are the types of actual authority?

Answer 3

Express - agent is expressly given authority to act for the principal

Implied - when the principal’s conduct leads the AGENT to believe that he had authority (can be implied by custom, past course of conduct by principal, necessity, or emergency circumstance).

Question 4

What kind of authority do partners in a partnership generally have?

Answer 4

Partners in a partnership generally actual AND apparent authority to bind the partnership in Ks entered into in the ordinary course of business

Question 5

What is ratification?

Answer 5

Ratification is essentially “after the fact” apparent authority.

A principal can RATIFY acts for which the agent did not have authority initially. Has the effect of giving a transaction retroactive effect.

Question 6

What are the methods of ratification?

Answer 6

Ratification can be express or implied.

Most common form of express ratification - oral or written affirmation of a K

Most common form of implied ratification - principal accepts benefits of a K

***note that in order to ratify, the principal must have (1) known the material facts, (2) accept the entire transaction, and (3) have capacity (competence and legal age)

Question 7

When is the agent liable to a third party on a contract? When is he liable to the principal?

Answer 7

An agent is liable to a third party on a contract he entered into if the agent had no actual or apparent authority to enter into the K.

Agent is also liable if the principal is “undisclosed” (the third party does not know that the agent is working on behalf of someone else) or if the principal is “partially disclosed” (third party knows agent is working on behalf of someone else but doesn’t know the identity of the principal).

Note that the agent is also bound to the principal for breach of contract if he acts beyond his authority

Question 8

When is a principal vicarious liable for the torts of his agent?

Answer 8

A principal (or employer) is vicariously liable for the torts of his agent if the agent (or employee) if the agent was acting:

1. In the SCOPE of employment
2. Made a MERE DETOUR from employment, rather than a “frolic” orrrrrrrr
3. Committed an intentional tort for the principal’s benefit, at the authorization of the principal, and one that arose naturally due to the nature of employment (think: bouncer at a club). Note in this third category, the agent is jointly and severally liable

Question 9

When can the principal recover from the agent?

Answer 9

Principal can recover from the agent for indemnification if the agent acted beyond his authority

Question 10

When is a principal directly (rather than vicariously) liable?

Answer 10

A principal is directly liable for his own negligence for negligently hiring the agent, failing to fire the agent, or failing to properly supervise the agent.

Question 11

What duties does an agent owe to the principal?

Answer 11

1. Duty of Care
2. Duty of Loyalty (no self dealing, no profit without disclosure, and must follow instructions)

***principal may recover losses from and profits made by breaching agent

Question 12

What is the answer on MEE if asked whether a general partnership was formed?

Answer 12

Probably yes - it doesn’t take much!

Start with: “A partnership is the association of two or more persons to carry on as co-owners, a business for profit, whether or not the persons intended to form a partnership”

***profit sharing creates a presumption that a person is a partner (unless the profits were received in payment of a debt, rent to a landlord, wages, etc.).

***do not need a writing or certificate to be filed for a GP to be formed

Question 13

What rights to partners have in a general parternship?

Answer 13

Partners have equal rights to comanage w/r/t ordinary affairs (like signing a lease), regardless of whether or not profit is shared equally.

Question 14

What if there is a disagreement between partners?

Answer 14

A majority vote wins if there is a disagreement.

Question 15

What vote is needed from partners for “extraordinary matters”

Answer 15

Extraordinary matters (like admitting a new partner or selling land) require a unanimous vote

Question 16

What duties do partners have?

Answer 16

Partners are in a fiduciary relationship with each other and must act honestly and in good faith. As fiduciaries, their duties include:

1. Duty of Loyalty (can’t self deal, compete with partnership, etc)
2. Duty of Care
3. Duty of Disclosure (provide complete and accurate information concerning the partnership)
4. Duty of Obedience

Question 17

What is dissociation?

Answer 17

Dissociation is essentially the withdrawal a partner, which effectively changes the relationship between partners moving forward. It may but does not necessarily lead to dissolution/winding up of the partnership business.

When a partner dissociates, either (a) the partnership is dissolved/business must be wound up/liquidated OR (b) partnership continues to exist and dissociated partner is entitled to a buyout of their partnership interest

***when a partner dissociates by express will in an at will partnership, the partnership is dissolved and business must be wound up.

***in term partnership, if wrongful dissociation by a partner, or dissociation bc of partner’s death or bankruptcy, then partnership only has to dissolve and wind up if at least one half of remaining partners agree within 90 days to wind it up.

Question 18

Does dissolution end a partnership?

Answer 18

No, dissolution does not by itself end a partnership; the partnership ends once winding up is complete.

Step 1: Dissociation (change in relation of partners; prior creditors are entitled to personal notice of the dissolution. others who knew of partnership entitled to newspaper notice.

Step 2: Winding up (partnership assets are liquidated

Question 19

Can a creditor with a claim against a partner obtain an interest in a partnership?

Answer 19

A creditor with a claim against a partner can obtain an interest in the profits of the partnership, BUT NOT management or voting rights.

On the other hand if a creditor has a claim against the partnership, the creditor can try to collect from the individual partners (bc partners are jointly and severally liable for the obligations of the partnership).

Question 20

What is the priority of distribution when a partnership dissolves?

Answer 20

1. Pay all creditors (including both outside and inside creditors e.g. partners who loaned money)
2. Repay all capital contributions paid into the partnership by partners
3. Profits or losses, if any

Question 21

What do partnerships other than GPs need to do in order to be properly formed?

Answer 21

Must file a certificate with the state to be properly formed.

Limited Liability partnership (LLP) - no partner is personally liable for the obligations of the partnership (but partners are liable for their own torts)

Limited Partnership (LP) - at least one general partner (GP) and one LP (limited partner). Limited partners have limited liability (limited to their capital contributions), whereas the GP is personally liable for partnership obligations.

***if fail to file certificate, then just a GP