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Bar Exam > Agency and Partnership > Flashcards

Agency and Partnership Flashcards

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1
Q

Agency: liability in contract

A

Principal becomes liable to a third party through the actions of his agent as long as both agent and principal consent and agent is subject to principal’s control

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2
Q

Capacity to contract: agency

A

Principal must have the capacity to contract but the agent does not because the agent is just an intermediary

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3
Q

agency: writing

A

Generally agency does not require a writing but the statute of frauds could come into play

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4
Q

consideration and agency

A

consideration is not required for agency

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5
Q

Actual authority: creation

A
  1. express: principal expressly tells agent to act on his behalf, created by words to agent
  2. implied: Principal’s conduct leads agent to believe that the agent has authority
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6
Q

termination of actual authority: agency

A

Actual authority must exist when agent enters a contract since actual authority can terminate in a number of ways:

  1. after a specified times/event or a reasonable time
  2. by change of circumstances
  3. if the agent acquires adverse interests
  4. when the agent says so (agency is consensual)
  5. when the principal says so unless the power is coupled with and interest
  6. by death/incapacity/bankruptcy of either Agent or principal unless coupled with an interest
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7
Q

delegation by the agent

A

ok as long as principal consents

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8
Q

apparent authority

A
  1. principal leads T to mistakenly believe that agent has authority:
  2. the policy is to protect and innocent T who relies on Principal holding A out as agent
  3. reasonable belief must be created by principal, not by agent alone
  4. apparent authority can linger after actual authority ends, it can be hard to destroy authority because it exists in the mind of a third party
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9
Q

Ratification

A

even if agent had no authoirty, principal can ratify later on by expressly affirming the contract, accepting the benefit of it or suing T on it

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10
Q

requirements for ratification:

A
  1. knowledge: P must have knowledge of all material facts
  2. all or nothing: P must accept the entire transaction
  3. capacity: P must have capacity at the time of ratification and at the time of original contract because ratification is retroactive
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11
Q

intervening rights

A
  1. because ratification is retroactive, we must protect the intervening rights of a BFP
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12
Q

adoption: agency

A
  1. not retroactive
  2. the party is only liable from the moment of adoption forward
  3. both the promotor and the party are liable on the K
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13
Q

agent as a fiduciary

A
  1. even a gratuitous agent owes a Principal a duty of loyalty (P’s interest above own) , a duty of care (sliding scale), and a duty of obedience
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14
Q

principal/agent duty: principal

A

must compensate and indemnify

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15
Q

principal agent remedies

A

wide range available for example constructive trust

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16
Q

principal agent third party

A
  1. assuming actual authority or a substitute
  2. principal is always liable to a third party
  3. third party is almost always liable to the principal, the only exception is where an undisclosed principal and agent has special skills
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17
Q

agent-third party liability

A

generally no liability, agent is just a go between

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18
Q

agency: liability in tort

A
  1. test: was the tort committed by a servant acting within the scope of employment? if yes then master and servant are jointly and severably liable to the injured party
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19
Q

agency: independent contractor test

A

did the ER have the right to control how the EE did the job even if control was never actually discussed
who supplied the toools/workplace? was the job part of the ER regular business? was is long term? skill required?

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20
Q

scope of employment and agency

A
  1. master only liable for the servant torts if servant acting within the scope of employment
  2. usual task: if servant doing a usual task, within the scope of employment
  3. deviation: a minor deviation (detour) is usually within the scope but a substantial deviation (frolic) is not
  4. intentional torts: outside of the scope unless force is used yo further the master;s business, master ratifies the use of force or master authorized servant to commit the tort
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21
Q

liability master and servant

A
  1. they are jointly and severally liable to T

2. T is only entitled to one satisfaction though

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22
Q

direct liability: agency

A

the master is liable for own negligence, if M fails to train or supervise employees or check and employee criminal record or job history

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23
Q

Partnership definition

A

an association of two or more persons to carry on as co-owners a business for profit, whether they intent to form a partnership or not

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24
Q

factors to determine who is a partner

A
  1. capital: a capital contribution is not required
  2. documents written agreement not required but can help to determine is partnership exists, tax returns
  3. right to control: even if the control is never exercised, owners have a right to control operations
  4. profit** anyone who shares in profits as presumed to be a partner
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25
Q

purported partners

A

if no partnership has been formed, parties may still be liable as purported partners to protect reasonable reliance by third parties

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26
Q

rules for determining partnership property

A
  1. is partnership property if acquired in the partnership’s name or in a partner’s name where it is apparent from the document that he is acting for a partnership
  2. presumed to be partnership property if partnership funds are used
  3. presumed to be partner’s property if acquired in his name without partnership funds and it does not appear that he is acting for a partnership
27
Q

rights in partnership property

A
  1. partnership: totally unrestricted
  2. partners: extremely limited: can use partnership property only for partnership purposes, the right is not transferable
28
Q

partner’s economic interest in the partnership

A
  1. the partner’s share of the profits
  2. is transferable just like any other financial asset, but the transfer does not make the transferee a partner, it just redirects the flow or profits
29
Q

relations among partners

A
  1. statute supplies the default rules but the partners may contract around them, thus the partnership agreement usually governs in this area
  2. profits and losses are shared equally
  3. cannot limit the liability to of one partner to 3rd party, can agree that other partners will indemnify but cannot take the 3rd party rights away
  4. no right to compensation except for winding up affairs at the end
  5. equal management rights
  6. right to indemnification with interest (right to be paid back)
30
Q

duties of partners

A

fiduciary duties to the partnership, cannot eliminate them but may determine the relevant standards if not manifestly unreasonable
duties of:
1. care: no grossly negligent conduct or intentional misconduct
2. loyalty:
3. good faith
4. disclosure: a partner must render without demand information about the partnership reasonably required for a partner to exercise her rights and on reasonable demand any other information

31
Q

admitting a new partner

A
  1. usually unanimous consent required
  2. new partner is liable for the debts incurred before his admission but he cannot lose more than his economic share in such a liability (cannot be personally liable)
32
Q

contract between the partnership and the partner

A
  1. the partner is the agent of the partnership
  2. Contract
    actual authority: created by the partnership agreement, majority vote of partners, or the statute which makes every partner an agent for carrying on business in the usual way (can be negated by partners)
  3. apparent authority: looks at the partner’s title and prior conduct
  4. ratification/adoption if there is no authority
33
Q

statement of authority: partnership

A
  1. statement of authority may be filed with the secretary of state to protect the partnership against certain third party claims for five years
  2. the effect of the statement depends on whether the transaction involves a transfer or real property owned by the partnership
34
Q

statement of authority and real property: partnership

A

a grant of, restriction on, authority to transfer real property held in the partnership’s name is effective only if the statement is also recorded at the county recording office where the property is located

35
Q

other contracts and partnership

A
  1. a grant of authority is conclusive in favor of a BFP unless another filed statement limits that authority.
  2. a restriction is effective only against a person with actual knowledge of it
36
Q

partner’s tort

A

ask whether the tort was committed within the ordinary course of the partnership’s business.
2. use a regular tort analysis for scope of employment

37
Q

Partner’s liability for partnership obligations

A
  1. joint and several liability: but the plaintiff must first exhaust partnership resources so the partners are essentially guarantors
  2. except for a limited liability partnership
38
Q

limited liability partnership (LLP)

A
  1. just like a general partnership but with no vicarious liability
  2. still liable for your own malpractice,
39
Q

how to form a LLP/PLLP?

A
  1. File: a statement of qualification with the secretary of state and pay a fee and a biennial report
  2. name: must include limited liability partnership or the initials RLLP, PLL, or LLP
40
Q

dissociation partnership definition and causes

A
  1. when a partner makes a break from the partnership
  2. causes: notice of partner’s express will to withdraw, occurrence of agreement on event, a partner’s expulsion, death bankruptcy or incapacity, or the appointment of a guardian, receiver, or liquidator for a partner
41
Q

dissociation and effect

A
  1. usually it is no big deal, the partnership buys out the dissociating partner and continues business without him
42
Q

dissociation and apparent authority

A
  1. a dissociated partner can bind a partnership for two years after dissociation to a third party who is unaware of the dissociation
  2. notice: the partnership can protect itself by notifying creditors (effective immediately) or filing statement of dissociation (becomes effective 90 days after filing
  3. indemnification: the partnership can seek indemnification from the withdrawn partner since he had no actual authority to bind it
43
Q

liability of a dissociating partner

A
  1. to existing creditors: unless released by a particular creditor, either expressly or impliedly (creditor by creditor) other partners must consent
  2. to subsequent creditors who reasonably believe that he was then a partner and did not have notice or knowledge of the dissociation but he can file a statement of dissociation. exposure to this lasts for two years
  3. to the other partners for wrongful dissociation but look out for a built in ending
44
Q

partnership at will

A

any partner can dissociate at any time without penalty, most partnership are at will because they have no built in ending

45
Q

dissolution and winding up: causes

A
  1. event in partnership agreement requiring winding up
  2. notice of express will in partnership at will (partners can agree to continue anyway)
  3. entry of judicial decree
  4. event that makes it unlawful to continue
  5. by a court on the request of a transferee or
  6. if there is a definite term or particular undertaking:
46
Q

dissolution and a definite term or particular undertaking

A
  1. the term ends or undertaking is completed
  2. the partners unanimously agree (like rescission) or
  3. at least half of the partners agree to wind up within 90 days after dissociation caused by death, incapacity, or bankruptcy or by the appointment of a receiver etc. for a partner
47
Q

partners who wrongfully dissolve have no right to wind up: t/f

A

true

48
Q

dissolution and winding up: apparent authority

A
  1. present even if not winding up unless the partnership notifies its creditors or files a statement of dissolution
49
Q

distribution of partnership assets on winding up

A
  1. to all creditors including partners who are creditors

2. to partners for what is in their capital accounts (contribution + profits - losses)

50
Q

Partnership has insufficient assets to cover liabilities

A
  1. split the assets pro rata
  2. the rest of the debts and the partner’s capital contribution are partnership losses which partners will split like the profits
51
Q

Limited partnerships: definition and formation

A
  1. a partnership with one or more general partners (generally liable) and one or more limited partners (limited liability to their investment)
  2. formation: filing a LP certificate with the secretary of state, name must contain limited partnership, LP, Limited or LTD
52
Q

liability of limited partnership

A
  1. limited partners have limited liability
  2. exception: where a limited partner takes part in control, the LP statute does not say what control is but there are certain safe harbors such as if the partner worked for the partnership, guaranteed a note for the LP or advised a general partner. eventually you do cross the line though
53
Q

liability for exercising control: limited partnership

A
  1. only to those transacting business with the LP with the actual knowledge of her control
  2. this is a reliance test
    :
54
Q

other ways a limited partner becomes liable

A
  1. name: if the limited partner knowingly lets his name be included in the LP’s name, he is liable to creditors who did not know he was just a limited partner
  2. no filing: joint and several liability but a limited partner can avoid future liability by filing a certificate or withdrawing from the LP but cannot avoid liability that already arisen
55
Q

liability of general partners: LP

A
  1. joint and several

2. exception: limited liability limited partnership

56
Q

who does each partnership shield

A
  1. LP shields limited partners
  2. LLP shields general partners
  3. LLLP shields both
57
Q

priority for distributing assets in LP

A
  1. creditors (including partners who are creditors)
  2. return capital contribution to limited partners
  3. split the balance per LP agreement or capital contribution
58
Q

Limited Liability Companies: formation

A
  1. filing: must file articles of organization, have a registered agent etc
  2. name: must contain limited liability company, llc, ltd, or limited
  3. professional LLC (PLLC): all members must be licensed in Ohio
  4. management: by managers or members, but members run LLC (in proportion to capital contributions) unless otherwise provided in an operating agreement
  5. operating agreement: members may vary the statutory default rules in an operating agreement, which will generally be given effect
  6. profits/Losses: split per OA, otherwise in proportion to capital contributed
59
Q

limited liability to the members of the LLC

A
  1. limited liability except for own torts
  2. basically the same liability as an LLP
  3. all owners are shielded from vicarious liability unlike a general partnership or a limited partnership
60
Q

liability overview for each type of partnership

A
  1. GP: joint and several liability
  2. LLP: no liability
  3. LP: joint and several for the general partners and no liability for the limited partners
  4. LLC. no liability
61
Q

LLC flexible management LLP, LLC

A

all owners may exercise control unlike the LP. exactly how control is allocated is usually determined by the agreement among owners

62
Q

Taxes and LLC/LLP

A
  1. income is passed through to the owners, unlike a corporation which is subject to double taxation
  2. a corporation pays tax on its income then shareholders pay tax again on corporate income distributed to them as a dividend
63
Q

conversion and merger of partnership forms

A
  1. you can convert or merge one business forms into another if all partners or less if permitted by the partnership agreement consent and you file appropriate documents
    2 ,no retroactive effect: so partners remain liable for pre-existing obligations

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