Agency and Partnership

Question 1

Agent’s duties

Answer 1

duty of care (reasonable care

duty of loyalty (treat principal fairly)

duty of obedience

Question 2

Principal’s remedies against breaches

Answer 2

court can do whatever it wants to do justice
- Contract actions
- Tort actions
- Actions for secret profits
- Equitable actions
- Withholding compensation
- Terminate agency

Question 3

impact of disclosed and undisclosed principals in liability to third parties

Answer 3

general rule: if unidentified or undisclosed, EITHER principal or agent can be held liable if agent had authority to enter contract

majority: third party can file suit against principal and agent, but upon objection from either defendant, third party must elect prior to judgment which party they opt to hold liable

Question 4

actual authority

Answer 4

authority agent reasonably believes they possess based on the principal’s dealings with them
express and implied

Question 5

apparent authority

Answer 5

occurs if principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent has authority to act on the principal’s behalf (what happens between principal and 3rd party)

Question 6

agent exceeds authority

Answer 6

agent may still have apparent authority based on 3rd party’s reasonable belief; if not, agent is personally liable

Question 7

ratification

Answer 7

agent acts on behalf of principal w/o any authority, but principal subsequently validates the act
- Oral or written affirmation of a contract
- Principal accepts benefits of contract
- Silence if there is a duty to disaffirm or suing on the transaction

Question 8

employee vs. independent contractor

Answer 8

Employee if principal retains right to control the manner in which work is performed by an independent contractor

Independent contractor if principal does not have a right to tell the agent how to achieve the result’s sought

factors:
- Skill required
- Whose tools and facilities are used
- The period of employment
- The basis of compensation
- The business purpose
- Whether the person has a distinct business
- The characterization and understanding of the parties
- The customs of the locality regarding supervision of work

Question 9

scope of employment

Answer 9

What conduct of the kind that agent was hired to perform?
- Same general nature of job (need not be authorized)
- Serious crimes outside scope

Question 10

frolic and detour

Answer 10

Frolic: major deviation from employment, beyond scope of employer liability

Detour: minor deviation from employment, within scope of employer liability

Question 11

partnership formation

Answer 11

association of two or persons to carry on as co-owner a business for profit (subj intent doesn’t matter)

Question 12

partnership management and operation

Answer 12

One partner- one vote (equal rights)
No right to salary or other compensation
- Unless partner has impliedly or expressly promised to devote time and failed to do so, may be charged accounting for damages caused to partnership

Question 13

partnership liability to third parties

Answer 13

Partnership is liable for loss/injury caused as a result of the tortious conduct of a partner acting in ordinary course of business of partnership or w/authority of partnership

Partnership is liable for all contracts entered into by a partner in the scope of partnership business

Question 14

partnership liability of partners

Answer 14

each partner is jointly and severally liable for ALL obligations of the partnership

Plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets

Extent of liability: Each partner is personally and individually liable for the entire amount of the partnership obligations

Partner who pays for whole obligation is entitled to:
- Indemnification from partnership
- May request other partners to contribute their pro rata share

Question 15

rules for determining partnership property

Answer 15

Property deemed to be partnership property:
- Titled property; apparent from document that they are acting in partnership

Property presumed to be partnership property (rebuttable)
- Purchased with partnership funds

Property presumed to be partner’s separate property (rebuttable)
- Property is held in name of one or more partners
- The instrument assigning title gives no sign of action in partnership
- Partnership funds not used

Untitled property: common law criteria; presumed partnership property if:
- Acquisition by partnership funds
- Property used by partnership in conducting partnership business
- Entry of the property in the partnership books as a partnership asset
-Close relationship between partnership’s business and property
- Improvement of property w/ partnership funds
- Maintenance of property w/partnership funds

Question 16

event of partnership dissociation

Answer 16

Oral or written notice of partner’s express will to withdrawal (automatically triggers dissolution)

Occurrence of an agreed-upon event

Valid expulsion of partner

Partner’s bankruptcy

Partner’s death or incapacity to perform partnership duties

Court decisions that partner is incapable of performing partnership duties

Termination of business entity if entity is a partner

wrongful dissociation: breach, expulsion, bankruptcy

Question 17

priority of distribution of partnership assets

Answer 17

1. Creditors
2. Repayment of capital contributions made by partners
   3. Profits or losses

Question 18

Limited partnership

Answer 18

Partnership w/one general partner and one limited partner

General partner: personally liable for partnership obligations
Limited partner: no liability beyond the liability to make agreed-upon contributions

Creation of a limited partnership: filing a certificate of formation with the state (signed, name, names and addresses of agent, general partners, specific LP)

Question 19

limited liability partnership

Answer 19

all partners have limited liability

Generally apply general partnership rules to LLPs

exceptions:
Formation: LLPS must file statement of qualification w/secretary of state (Statement must be executed w/2 partners
must include Name and address of partnership, Statement that the partnership elects to be an LLP)

Partnership becomes LLP at date of filing or date specified in agreement, whichever is later

Question 20

limited liability corporation

Answer 20

Limited liability company (LLC): hybrid business organization
- Taxed like a partnership
- Offers its owner (members) the limited liability of shareholders of a corporation
- Can be run like a partnership or corporation
-Treated as a separate legal entity distinct from owners (members)

formation: name, of LLC, address of registered office and name/address of registered agent

Question 21

piercing the corporate veil

Answer 21

○ Generally, shareholders cannot be held liable for corporate debt
Exception: if shareholder might be personally liable for CLOSE corporation; court can pierce the corporate veil

1. the shareholders must have abused the privilege of incorporating AND
2. Fairness requires holding them liable (avoid fraud or unfairness by close corporations (poor administration insufficient))

Question 22

alter ego

Answer 22

commingling corp assets and shareholder assets

If shareholders ignore the corporate formalities so to merely make the corporation an “alter ego” or “mere instrumentality” of shareholders

Question 23

under capitalization

Answer 23

corporation does not have enough funds when formed
- Corporate veil is pierced when the corporation is inadequately capitalized so that at the time of formation there is not enough capital to reasonably cover prospective liabilities

Ex. initial capitalization of $1000 for a nuclear waste disposal company

Question 24

fraud, avoidance of existing obligations, or evasion of statutory provisions

Answer 24

Piercing the corporate veil is necessary to prevent fraud to to prevent an individual shareholder from using the corporation to avoid her existing personal obligations

Question 25

events causing partnership dissolution

Answer 25

Notification by partner of express will to withdraw as a partner

Term partnership/undertaking partnership: (1) satisfaction of term or purpose, (2) Consent of all partners to dissolve, (3) Within 90 days after partner’s death, bankruptcy, or wrongful dissolution, at lease 1/2 of remaining partners wish to dissolve

Happening of event agreed to in the partnership agreement

The happening of an event that makes it unlawful for a partnership to continue

Economic purpose of partnership is likely to be frustrated

Issuance of judicial decree, on transferee’s application

At any time in a partnership at will

Passage of 90 consecutive days during which the partnership doesn’t have at least 2 partners