Agency and Partnership

Question 1

Creation of agency relationship

Answer 1

Assent (Mutual) + Benefit + ControlWriting not required

Question 2

Can a minor/incompetent be an agent?

Answer 2

Yes, but have limitations to form contracts

Question 3

When is P liable for A’s action’s

Answer 3

When A acts with express actual authority, implied actual authority, or apparent authority.
Express: A reasonably believes, based on P’s oral or written words or conduct, that A is doing what P wants. P must give clear notice if P disagrees.
Implied: Not expressly authorized, but A reasonably believes, based on manifestations of P, that A’s actions are necessary to achieve P’s objectives. Can be based on business custom or P acquiescence.
Apparent: Reasonable reliance of a third party on A’s authority to act, based on… A’s title, past dealings btwn P and A, trade customs, relevant industry standards, P’s written statements of authority, benefit to P.

Question 4

When does A’s authority terminate?

Answer 4

Upon notice to other party of renunciation;
A’s breach of fiduciary duty;
Consistent with terms of agreement;
Change of circumstances that should reasonably lead A to believe authority terminated;
Passage of reasonable period of time; or
After P’s death or loss of capacity, but only upon notice

Question 5

P is estopped from denying P-A relationship when….

Answer 5

3d party was justifiably induced to make a detrimental change of position in reliance of belief in authority, and P did not take reasonable steps to avoid such change of position….

Question 6

How does P ratify A’s action?

Answer 6

P may ratify an ultra vires transaction if P has legal capacity, has knowledge of material terms of the transaction, and accepts the benefit or timely assumes the burden of the transaction.

Question 7

When is P vicariously liable for A’s acts in tort?

Answer 7

P is liable for A’s acts if such acts were w/in scope of employment.

• Intentional Torts are w/in S/E when w/in space and time limits of employment, done for employer’s benefit, and of the kind the employee was hired to perform
• Frolic v. Detour: Significant deviation from performing duty = frolic. Personal errand may be either frolic or detour.
• Apparent authority theory can support tort liability if 3d party reasonably believed A acted w/ actual authority bc of P’s manifestation

Question 8

Can A delegate authority?

Answer 8

Default rule is no, not without express authorization

Question 9

When is A liable in K?

Answer 9

Disclosed P: A not a party to K if 3d party knows of P’s existence and identityPartially Disclosed or Undisclosed P: A becomes party to K when 3d party only has notice of P’s existence, or has no notice at all.

Question 10

Is 3d party liable to undisclosed P?

Answer 10

Yes, unless K expressly disclaimed such liability, or P’s existence fraudulently concealed

Question 11

P’s Rights

Answer 11

Right to control A’s acts on P’s behalf

Question 12

A’s Duties to P

Answer 12

Duty of care - A must follow P’s instructions and perform duties with reasonable care, diligence, and judgment;
Duty of loyalty: Avoid acts in A’s self-interest, do not usurp business opportunities or compete, do not take secret profits from transactions on P’s behalf;
Duty of accounting

Question 13

P’s Duties to A

Answer 13

Duty of good faith and fair dealing:
Deal fairly in good faith per contract terms, warn A of risks to physical or financial harm, not harm A’s business reputation
Duty not to interfere:
P cannot interfere with A’s performance of dutiesDuty to indemnify:
P must indemnify A against pecuniary loss for matters w/in scope of A’s actual authority, but not for A’s negligence or otherwise wrongful conduct.

Question 14

P remedies for A breach

Answer 14

Injunction, 
breach of K, 
tort, 
rescission, 
restitution, 
accounting, 
termination of relationship, 
forfeiture of compensation, 
disgorgement.

Question 15

Partnership formation - requirements

Answer 15

A partnership is formed when
(1) Two or more persons or entities
(2) intend to carry on a for-profit business
(3) as co-owners.
Profit-sharing creates a presumption of partnership.
No writing required, unless can’t be completed w/in a year (Statute of Frauds)

Question 16

Partner by Estoppel

Answer 16

A person may be treated as a partner if

(1) Purported P does not object to representation that he or she is a partner,
(2) 3d party reasonably relies on that representation, and
(3) 3d party suffers damages as a result.

Question 17

Are partners personally liable for partnership obligations?

Answer 17

Yes, unless limited partners

Question 18

Can partner bind partnership as an agent?

Answer 18

Yes

Question 19

What are partner’s duties?

Answer 19

Duty of loyalty: Partner cannot advance an interest adverse to partnership, usurp partnership opportunities, or compete with partnership. Partnership Agreement can limit this duty, but not eliminate it. Ratification possible.
Duty of care: Partner must act with reasonable care, diligence, and skill. No grossly negligent or reckless conduct. Partnership Agreement CANNOT limit this duty.
Duty of good faith and fair dealing: Partnership Agreement can prescribe reasonable standards.

Question 20

When do partner’s duties to partnership end?

Answer 20

Dissociation or dissolution

Question 21

How are profits and losses shared?

Answer 21

Profits: Absent contrary agreement, each partner is entitled to an equal share of profits.
Losses: Absent contrary agreement, losses follow profits.

Question 22

Partner’s account

Answer 22

Contains partner’s contributions plus partner’s share of profits, less distributions, losses, and liabilities

Question 23

Can partner demand a distribution?

Answer 23

No, but partner can demand placement of profit share in partner’s account

Question 24

Can partner transfer all or part of a partnership’s distribution interest to third party?

Answer 24

Absent agreement to the contrary, a partner can transfer all or part of P interest.

Question 25

Effect of partner’s transfer of distribution interest to a third party

Answer 25

Transferor retains all rights and duties of a partner (except interest in distributions);
Transferee receives right to distribution, a judicial order for dissolution, and accounting.
Transferee DOES NOT have right to manage or conduct partnership business or access partnership records

Question 26

Partner purchases property – does it belong to the partner or the partnership?

Answer 26

If purchased with partnership assets or credit, or titled in the partnership’s name (or in partner’s name w/ indication of title), it is presumptively partnership property.
Otherwise, look to intent of partners, and consider factors such as property’s use, tax treatment of the property, and the source of funds to maintain or improve the property

Question 27

Incoming partner requirements

Answer 27

Consent of all existing partners

Question 28

Who makes decisions in a partnership?

Answer 28

Each partner has equal management rights, A majority of partners are needed to make ordinary decisions, and Unanimous consent is required for matters outside the ordinary course of business or to change partnership agreement

Question 29

Do partners have a right to remuneration? Reimbursement

Answer 29

No remuneration, except for reasonable compensation for winding up the business. Yes reimbursement for loans made to partnership in furtherance of partnership business.

Question 30

Partnership’s obligation to indemnify

Answer 30

Unless agreement to the contrary, a partnership must indemnify partners for personal liability incurred in the ordinary course of business

Question 31

Events causing dissociation

Answer 31

(1) Partner’s notice of withdrawal;
(2) Partner’s expulsion due to PA, unanimous vote, or personal bankruptcy;
(3) death;
(4) incapacity/appointment of guardian for partner;
(5) termination of an entity partner

Question 32

Wrongful dissociation - definition and when are damages owed

Answer 32

Partnership unlimited by Time or Undertaking: Partner is liable for damages caused by dissociation in conflict w/ PA // Partnership for definite term or undertaking: Partner liable for damages if the partner prematurely withdrew, was expelled by court order, went bankrupt, or willfully dissolved (in the case of a non-trust or estate entity)

Question 33

Effect of dissociation on partner rights

Answer 33

Ongoing P buys out partner’s interest; partner no longer has duties to partnership or rights, except for right of indemification for liabilities incurred before or after association.

Question 34

Effect of dissociation on partner liabilities

Answer 34

Partnership must indemnify former partner against liabilities; partnership still personally liable for obligations incurred before dissociation; and partner may be liable for up to two years on an apparent authority theory

Question 35

When can a partner transfer titled P property?

Answer 35

A partner can transfer P property when

(1) property is titled in P’s name,
(2) property is titled in a partner’s name.

Question 36

P’s knowledge and notice

Answer 36

Absent fraud, a partner’s knowledge and notice is imputed on the whole partnership

Question 37

P liability for Partner’s Tortious Acts

Answer 37

A P is liable for a partner’s tortious acts if committed in the ordinary course of partnership business or with P authority

Question 38

How to convert a general partnership to a limited partnership

Answer 38

(1) All partners approve,
(2) file articles of conversaion with the state,
(3) former general partners remain liable for pre-conversion obligations

Question 39

How to convert a limited partnership to a general partnership

Answer 39

(1) All limited and general partners approve;

(2) LP cancels its LP certificate; (3) pre-conversion liability is limited, whereas post-conversion liability is general

Question 40

Requirements for partnership merger

Answer 40

(1) Merger plan (which entities survive, how are interests converted),
(2) approval of all general partners (and limited partners as required by PA).

Question 41

Events causing P dissolution

Answer 41

(1) Per PA;
(2) Unlawful to continue P business;
(3) judicial determination;
(4) one of total 2 partners withdraws;
(5) term of partnership expires or purpose completed;
(6) all partners agree to dissolve P;
(7) one partner dissociates and at least half of remaining partners agree to dissolve w/in 90 days.

Question 42

Winding Up

Answer 42

Creditors take before partners; P remains on the hook for winding up activities

Question 43

Requirements for limited LP

Answer 43

Must file LP certificate with state, all incoming partners (whehter limited or not) require unanimous consent of partners

Question 44

Limited partner’s rights

Answer 44

Right to

(1) vote as permitted under PA;
(2) inspect business records;
(3) lend money and transact business with the LP like a non-partner;
(4) bring an LP derivative suit for breach of duty