Agency and Partnership

Question 1

The key in determining whether an agency relationship exists is looking for ABC: assent, benefit, control (but remember that even if a relationship existed it can terminate)

Answer 1

(1) assent by BOTH the principal and the agent that the agent will act for the principal’s benefit and
(2) that the agent is subject to the principal’s control

Question 2

ways to terminate the agent’s authority to act on behalf of the principal

Answer 2

principal manifesting a desire to the agent to discontinue the relationship

Question 3

binding the principal to a contract entered into by the agent

Answer 3

The principal is bound on a contract entered into by an agent IF the agent had authority to enter into the contract

Question 4

partners in a general partnership

Answer 4

partners in a general partnership generally have actual AND apparent authority to bind the partnership in contract entered into in the ordinary course of business
*same applies to member in an LLC

Question 5

actual authority (express; implied)

Answer 5

-Actual authority can be express: where the agent is expressly given authority to act for the principal.
-It can also be implied: present when the principal’s conduct leads the agent to believe it has authority.
—This authority can be implied by custom, past course of
conduct by the principal, necessity, or an emergency circumstance. *This authority terminates after a reasonable time or following a change in circumstances, death, or incapacity of the principal, etc

Question 6

apparent authority

Answer 6

• the elements of apparent authority are as follows:
  (1) the person dealing with the agent must do so with a reasonable belief in the agent’s authority AND
  (2) the belief must be generated by some act or neglect on the part of the principal

Question 7

ratification

Answer 7

-even if the agent did not have authority to enter into a transaction, the principal can ratify the acts (and thus become liable) by expressly or impliedly affirming or accepting the benefit of the acts, so long as the principal KNEW the material facts AND had capacity

Question 8

binding of the agent to a 3rd party

Answer 8

The agent is bound to a 3rd party on a contract he enters into with the 3rd party IF the agent had NO actual or apparent authority to enter into the contract

Question 9

liability of the agent if the principal is undisclosed

Answer 9

-The agent is also liable if the principal is undisclosed (ie. the 3rd party does not kow the agent is acting on another’s behalf) OR
—if the principal is “partially disclosed” (ie. the 3rd party knows the agent is acting on the behalf of another but does not know the identity of the principal

Question 10

binding of the agent in breach of contract

Answer 10

The agent is bound to the principal for breach of contract IF the agent acts beyond his authority.

Question 11

liability of the principal and liability of the agent

Answer 11

-A principal can be vicariously or directly liable for the torts committed by his agent
-the agent is ALWAYS liable for his own torts

Question 12

vicarious liability of employer (respondeat superior)

Answer 12

-The employer is liable in tort for the acts of an agent or employee if the agent or employee (mnemonic=SMI):
—was acting in the SCOPE of employment;
—made a MINOR deviation (a detour) from employment (rather than a frolic); or
—committed an INTENTIONAL tort – only if it was (mnemonic=BAN):
—–for the principal’s Benefit,
—–because the principal Authorized it, or
—–one that arose Naturally due to the nature of employment.
*The agent is liable too under a theory of joint and several liability.

Question 13

indemnification

Answer 13

the principal can recover against the agent for indemnification if the agent acts beyond his authority

Question 14

direct liability of the principal

Answer 14

the principal is directly liable for his own negligence IF he negligently hired the agent, failed to fire the agent, or failed to properly supervise the agent

Question 15

duties that the agent owes and recovery for the principal if the duties are breached

Answer 15

-the agent owes a duty of care and a duty of loyalty (not to engage in self-dealing, not to profit without disclosure, and a duty to follow instructions)
-the principal may recover losses from and profits made by the breaching agent

Question 16

-requirements to form a general partnership (it’s easy!): what is the phrase you should start the essay with?

Answer 16

-start the essay 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 the partnership”

Question 17

profit sharing = presumption

Answer 17

-profit sharing creates a presumption that a person is a partner UNLESS the profits were received in the payment of a debt, rent to a landlord, wages, etc.
-other indicia of a partnership include capital contributions and mutual agency
-neither a writing nor a certificate needs to be filed for a general partnership to be formed
*Note that a general partnership is the default for (sometimes a general partnership is formed bc a limited partnership was improperly formed (eg. the paperwork was not filed correctly)

Question 18

compensation to a partner by profits: entitlement of other partner

Answer 18

-a partner is NOT entitled to a separate payment for services bc a partner is compensated by the profits
*(exceptions: agreed upon, or a partner may be reimbursed reasonable compensation if it assists in the winding up the business of the partnership)

Question 19

partners as agents and comanagers of the parnership

Answer 19

-partners have equal rights to comanage ordinary affairs (eg. signing a leas) (even if the profits are not shared equally)
-a majority vote wins if there is a disagreement
—extraordinary matters require a unanimous vote (eg. admitting a new partner or selling land)

Question 20

joint and several liability of partners in a general partnership

Answer 20

-in a general partnership, partners are jointly and severally liable for partnership debts
-an incoming partner is NOT personally liable for prior debts of the partnership (although his capital contributions can be used to satisfy such debts)
-outgoing partners ARE personally liable for debts incurred during their time at the partnership

Question 21

fiduciary duties of partners

Answer 21

-Partners are in a fiduciary relationship with one another and must act in good faith
-they are charged with the duty of LOYALTY (ie. they may not usurp corp opportunities for a personal advantage, engage in self-dealing, or compete with the partnership)
-they have the duty of CARE
-they have a duty to ACCOUNT (they must account for any profits)

Question 22

dissolution and the ending of a partnership

Answer 22

-*dissolution does NOT end a partnership – it ends once winding up is complete

Question 23

Step 1 of dissolution: dissociation

Answer 23

-the dissolution of a partnership is the change in the relation of the partners.
-prior creditors are entitled to personal notice of the dissolution of the parnership
-others who knew of the partnership are entitled to newspaper notice
*Note that a partner can withdraw from a partnership by giving notice AT ANY TIME. This will trigger dissolution in an at-will partnership

Question 24

Step 2 of Dissolution: Winding up

Answer 24

-This is where the partnership assets are liquidated and creditors are paid
*Note that partners are still liable for any liabilities that occur during the winding up phase

Question 25

Step 3 of Dissolution: termination

Answer 25

-this is the true end of the partnership!

Question 26

if a creditor has a claim against a partner, can they obtain an interest in the Partnership?

Answer 26

-If a creditor has a claim against a partner, the creditor can obtain an interest in the partnership: this includes profits but NOT management or voting rights

Question 27

creditor has a claim against the partnership (*heavily tested!)

Answer 27

-if a creditor has a claim against the partnership the creditor can try to collect from the individual partners:
-Partners are JOINTLY and SEVERABLY liable for the obligations of the partnership:
-even if a partner enters into a contract WITHOUT the actual authority to do so, the partnership and the partners are bound (so long as the partner had apparent authority)
—the creditor must obtain a judgment against the partners personally to go after each partner’s personal assets
—the creditor should try to collect form the Partnership BEFORE seeking the partners’ personal assets

Question 28

Formation of Partnerships OTHER than general partnerships

Answer 28

-Partnerships other than general partnerships MUST file a certificate with the state to be properly formed
—liability is limited

Question 29

Limited liability partnership (LLP)

Answer 29

-no partner is personally liable for the obligations of the partnership (*BUT partners are liable for their personal torts)

Question 30

Limited Partnership (LP)

Answer 30

-at least one general partner MUST be listed on the certificate filed with the state
-limited partners have limited liability (limited to their capital contributions)
-general partners are liable for ALL partnership obligations and manage control of the business
-if a general partnership converts into an LLP, then partners remain jointly and severally liable for actions that took place BEFORE the conversion