Agency and Partnership

Question 1

Capacity needed by Principal

Answer 1

Contractual

Question 2

Is consideration required to establish an agency relationship?

Answer 2

No

Question 3

Elements of Creation of Agency

Answer 3

Capacity: principal must have full contractual capacity, agent must have at least minimal mental capacity; Consent of both parties; Writing if required: statute of frauds.

Question 4

Agent compensation

Answer 4

If the agency agreement is silent, the agent is entitled to reasonable compensation.

Also, a principal has no duty to compensate a subagent even if the agent had the authority to hire the subagent.

Question 5

Principal’s duties

Answer 5

compensation, cooperation, indemnity/reimbursement, express contractual duties

Question 6

Agent’s duties

Answer 6

reasonable care, loyalty, obedience, express contractual duties

Question 7

Agent’s remedies for Principal’s breach of duties

Answer 7

contractual remedies, possessory lien

Question 8

Principal’s remedies for Agent’s breach of duties

Answer 8

contractual remedies (if agent compensated), tort remedies, constructive trust, action for secret profits, withhold compensation, terminate the agency relationship

Question 9

How many “people” are required to form a partnership?

Answer 9

At least two.

“People” include individuals, trusts, corporations, other partnerships, or other entities.

Question 10

Authority of Partners as agents of the partnership

Answer 10

Actual authority for anything lined out or agreed to in the partnership agreement. Apparent authority to bind the partnership to any contract within the scope of the partnership business. If a contract is outside the scope of the partnership business, the partnership generally will not be bound unless the partner has actual authority.

Question 11

Liability of Outgoing partner

Answer 11

Generally remains liable for all partnership obligations incurred while they were a partner.

Question 12

Liability of Incoming partner

Answer 12

Generally has no liability for obligations incurred before they became a partner.

Question 13

Actual Authority

Answer 13

authority an agent reasonably thinks he possesses based on the principal’s dealings with him

Question 14

Apparent Authority

Answer 14

Principal “holds out” agent as having certain authority, causing third parties to reasonably believe A has such authority

Question 15

Partnership Formation

Answer 15

A partnership is formed when two or more people associate to carry on as co-owners a business for profit.

The intent of the parties to carry on as co-owners of a business can be implied from their conduct.

The sharing of profits raises a presumption that a partnership was formed.

Question 16

Partners as agents

Answer 16

Every partner is an agent of the partnership, and the acts of a partner will bind the partnership if the partner acted with authority.

Actual authority is the authority a partner reasonably believes he has based on the communications between the partnership and the partner. If the act is within the ordinary course of the business, the partners may confer actual authority by a majority vote. Actual authority to enter into acts outside the ordinary course of the business requires a unanimous vote of the partners.

Apparent authority is the authority that a third party would reasonably believe a partner has based on his being held out by the partnership as a partner.

The act of a partner in the ordinary course of the partnership business or business of the kind carried out by the partnership will bind the partnership unless the partner had no actual authority and the third person with whom the partner was dealing knew or received notice that the partner lacked authority.

Question 17

Partner liability

Answer 17

Each partner of a general partnership is jointly and severally liable for all obligations of the partnership.

Limited partners are generally not liable for partnership obligations.

A judgment will not personally bind a partner who has not been served.

A judgment creditor must first seek satisfaction of any judgment from the partnership, and then from the partners personally to the extent not covered by partnership assets.

Question 18

Limited Partnership Formation

Answer 18

A limited partnership is comprised of at least one general partner and one limited partner.

A certificate of limited partnership must be filed with the secretary of state and signed by all general partners.

Question 19

What causes dissociation?

Answer 19

A partner ceasing to be associated with the carrying on of the business.

A partner is dissociated from the partnership upon notice of his express will to withdraw as a partner.

Question 20

Is a partnership bound by a partner’s post dissolution act?

Answer 20

Yes if the act was appropriate for winding up the business or if it was not appropriate for winding up the business and the third party with whom the partner dealt did not have notice of the dissolution and the act would have bound the partnership before dissolution (through apparent or actual authority).

Question 21

Can a partner who pays the entire amount of a partnership debt collect a contribution from another partner?

Answer 21

Yes, each partner is jointly and severally liable for partnership obligations. The contribution will be a pro rata share of the payment (split equally if that’s how losses are split).