Agency and Partnership (Delaware)

Question 1

Tort Liability of Principal: Can A Principal Be Liable For Agents Actions?

Answer 1

A principal is liable for torts committed by an agent if there is: (i) a PRINCIPAL-AGENT RELATIONSHIP (assent-benefit-control), and (ii) the tort must occur in the SCOPE of that relationship

Question 2

Tort Liability of Principal: Test for Principal-Agent Relationship

Answer 2

Requirements (ABC):

1) Assent - an INFORMAL AGREEMENT between the principal and the agent
2) Benefit - agent’s conduct is for the principal’s benefit
3) Control - the principal must have the right to control the agent by having the power to supervise the manner of the agent’s performance

Question 3

Tort Liability of Principal: Capacity of Principal + Minors + Capacity of Agent (And Exception)

Answer 3

A principal must have contractual capacity to enter into an agency relationship.

Minor’s appointment of an agent is voidable

An agent DOES NOT need contractual capacity, EXCEPTION - the agent that has no mental capacity cannot act for the principal

Question 4

Tort Liability of Principal: Apparent Authority

Answer 4

A principal that holds out a person as an agent to others IMPLIES an agency relationship

Question 5

Tort Liability of Principal: How Can An Agency Relationship Be Created By Operation of Law

Answer 5

1) Estoppel - Similar to apparent authority, but a third-party relies on the relationship
2) Statute

Question 6

Tort Liability of Principal: Ways A Principal Can Be Liable For Tue Torts of The Agent

Answer 6

1) Respondeat Superior - An employer is responsible for the torts of the employee if the principal-agent relationship exists AND the tort was committed WITHIN THE SCOPE of the employee relationship

Question 7

Tort Liability of Principal: Respondeat Superior - Subagent’s Actions + Borrowed Agents Actions

Answer 7

Subagent - A principal will be responsible for the tortious acts of a subagent where ASSENT, BENEFIT, and CONTROL between the Principal and Subagent.

Borrowed Agent (where employer #1 lends employee to another employer #2) - A principal may be liable for the actions of a borrowed agent where ASSENT, BENEFIT, and CONTROL between the borrowing principal (#2) and the borrowed agent tortfeasor.

Question 8

Tort Liability of Principal: How To Determine Whether A Person Is An Independent Contractor or Employee + Factors

Answer 8

The key distinction between agents and independent contractors is whether the employer retains the RIGHT TO CONTROL. Independent contractors are not controlled by principals.

Factors in determining control: (i) Degree of skill required, (ii) Whose tools and facilities are used, (iii) Period of employment, (iv) Basis of compensation, (iv) Whether the person has a distinct business

Question 9

Tort Liability of Principal: Exceptions to Liability for Torts Committed By Independent Contractors

Answer 9

While generally there is no vicarious liability for an independent contractor’s torts, the key exceptions are: (i) ULTRA-HAZARDOUS INHERENTLY DANGEROUS ACTIVITIES, and (ii) estoppel (if principal holds them out as employee and third party relies on it).

Question 10

Tort Liability of Principal: Respondeat Superior - Scope of Employment Test

Answer 10

Requirements for finding employee acted within scope of employment:

1) Conduct was inside the job description;
2) Tort occurred on the job (FROLIC - meaning a new and independent journey and outside the scope and DETOUR - a mere departure from an assigned task and not outside the scope); and
3) The conduct was for the BENEFIT of the principal

Question 11

Tort Liability of Principal: Respondeat Superior - Intentional Torts + Exceptions

Answer 11

Generally, intentional torts (e.g., assault and battery) are OUTSIDE the scope of employment.

Exceptions (MAN): (i) the conduct is AUTHORIZED by the principal, (ii) the conduct is NATURAL from the nature of the employment (e.g., bodyguard), and (iii) the conduct was MOTIVATED by a desire to serve the principal

Question 12

Contract Liability of Principal

Answer 12

The principal will be liable if it AUTHORIZED the agent to enter into the contract.

Question 13

Contract Liability of Principal: Types of Authority + Exceptions

Answer 13

1) ACTUAL Authority (can be oral or private) (EXCEPTION: if the underlying contract must be in writing, then so must the express authority, such as SOF)
2) Apparent Authority

Question 14

Contract Liability of Principal: Express Authority - Revocation + Exception

Answer 14

Actual express authority can be revoked or terminated by either agent or principal; OR upon the death or incapacity of the PRINCIPAL

The one exception of termination by death is a DURABLE POWER OF ATTORNEY, meaning a WRITTEN EXPRESSION of authority to enter into a transaction with CONSPICUOUS SURVIVAL LANGUAGE

Question 15

Contract Liability of Principal: Express Authority - Narrowly Construed Language + All or Nothing

Answer 15

Actual express authority is NARROWLY construed

When determining whether an agent acted with authority in entering a contract, this is ALL OR NOTHING, there is no such thing as partial authority.

Question 16

Contract Liability of Principal: Implied Authority + Circumstances

Answer 16

Implied authority is authority the agent reasonably believed they have as a result of the principal’s WORDS OR ACTIONS.

Implied authority includes:

1) NECESSARY to accomplish an express task,
2) CUSTOM in the agent’s industry,
3) PRIOR ACQUIESENCE

Question 17

Contract Liability of Principal: Ways to Terminate Actual Authority

Answer 17

1) The happening of an event specified in the agreement,
2) Lapse of reasonable time,
3) Change in circumstances,

Question 18

Contract Liability of Principal: Apparent Authority Requirements

Answer 18

Apparent authority exists when the principal: (i) HOLDS OUT or CLOAKS another as possessing authority and based on that, (ii) a third party is REASONABLY LED TO BELIEVE the authority exists.

Question 19

Contract Liability of Principal: Ratification + Exception

Answer 19

A principal can authorize a contract, and thus be liable, AFTER it has been entered if: (i) the principal has KNOWLEDGE of all material facts of the contract, and (ii) the principal must ACCEPT the benefits of the contract.

The ratification may not CHANGE any of the contracts terms, it must be accepted entirely as is

Question 20

Contract Liability of Principal: Third Party v. Principal

Answer 20

A principal is only liable to the third party on a contract entered into by their agent if the agent had valid authority to act. If the agent did not have authority to enter into the contract and the principal has not ratified it, the principal cannot be held liable.

Question 21

Contract Liability of Principal: Third Party v. Agent + Exception

Answer 21

If an agent had actual or implied authority to enter the contract, or the principal ratified it, the agent CAN’T BE HELD PERSONALLY LIABLE for the contract.

Exception: If the existence and identity of the principal are not disclosed

Question 22

Duties: Agents Duties To Principal

Answer 22

All agents owe to all principals three basic duties:

1) Duty of Care
2) Duty of Obedience, and
3) Duty of Loyalty

Question 23

Duties: Agent’s Breach of Duty of Loyalty

Answer 23

1) Self-dealing, the agent may not benefit itself to the detriment to the principal
2) Usurping principal’s opportunity
3) No secret profits

Question 24

Duties: Principal’s Remedies for Agent’s Breach of Duties

Answer 24

The principal’s remedies include:

1) Contract actions,
2) Tort actions,
3) Actions for secret profits,
4) Equitable actions for an accounting,
5) Withholding compensation for intentional torts or intentional breaches of fiduciary duty

Question 25

Partnership: Formation + Formalities

Answer 25

A partnership is an association of two or more persons to carry on as co-owners of a business for profit

NO FORMALITIES ARE REQUIRED, no filing, writing, or anything else is required to form a general partnership

Question 26

Partnership: Liability of Purported Partners

Answer 26

When a person holds another out as partner, they are thereby making that person their agent to bind them to third parties, and they will be liable to third parties who extend credit to the actual or apparent partner

Question 27

Liabilities of Partners: Apparent Authority + Exception

Answer 27

Apparent authority may bind the partners of a partnership where:

1) the act of ANY PARTNER;
2) For apparently carrying on IN THE ORDINARY COURSE OF BUSINESS of the partnership,
3) Binds the partnership

UNLESS, the partner had NO AUTHORITY to act for the partnership AND the person with whom the partner was dealing KNEW OR HAD RECEIVED NOTIFICATION that the partner lacked authority

Question 28

Liabilities of Partners: Civil Liability

Answer 28

Partners are PERSONALLY LIABLE for ALL CONTRACTS ENTERED INTO by a partner in the scope of the partnership AND ALL TORTS committed by any partner within the ORDINARY COURSE OF BUSINESS

Question 29

Liabilities of Partners: Incoming Liabilities of Partners

Answer 29

An incoming partner is NOT PERSONALLY LIABLE for obligations incurred by the partnership BEFORE the person became a partner, BUT any capital paid into the partnership can be used to satisfy those prior debts.

Question 30

Liabilities of Partners: Outgoing Liabilities of Partners + Exception

Answer 30

A DISSOCIATING PARTNER retains liabilities on future debts for ONE YEAR after dissociation, UNLESS: (i) ACTUAL NOTICE of dissociation is given to creditors, or (ii) until 60 DAYS after filing a notice of dissociation with the state.

Question 31

Liabilities of Partners: Estoppel

Answer 31

One who represents to a third party that a general partnership exists WILL BE LIABLE as if a general partnership exists

Question 32

Fiduciary Duties Owed To Each Partner

Answer 32

Each partner owes the fiduciary duties of CARE and LOYALTY.

Question 33

Fiduciary Duties: Types of Duty of Loyalty Breaches

Answer 33

1) Secret Profits,
2) Usurping opportunity, and
3) Self-dealing

Question 34

Fiduciary Duties: Breach of Fiduciary Duty

Answer 34

If a partner breaches their duty, the partnership may bring an action to: (1) RECOUP losses, or (2) ACCOUNT FOR PROFITS (“disgorge”)

Question 35

Partnership Assets: Specific Partnership Assets

Answer 35

In general, specific partnership assets such as land, leases, equipment, trucks, and cars are owned only by the partnership and CANNOT BE TRANSFERRED by an individual partner without partner authorization

Question 36

Partnership Assets: Personal Assets (Shares of Profits)

Answer 36

May be transferred without authorization from either partner (only this is freely transferrable)

Question 37

Partnership Assets: Share in Management

Answer 37

Share in management is owned by the partnership, and CANNOT BE INDIVIDUALLY TRANSFERRED to third parties without the authorization of the partnership

Question 38

Partnership Assets: Test To Determine If Property Is Owned By Partnership or Individual

Answer 38

Determine whose money was used to buy the property

Question 39

Share of Profits and Losses: Absent an Agreement + Salary (And Exception)

Answer 39

Absent an agreement, profits are SHARED EQUALLY, and losses are SHARED LIKE PROFITS

Absent an agreement, a partner has NO RIGHT to remuneration for services rendered, UNLESS they wind up the business

Question 40

Management: Ordinary Business Decisions v. Matters Outside the Ordinary Course of Business

Answer 40

Decisions involving ordinary business can be controlled by a MAJORITY VOTE of the partners

Matters outside the ordinary course of business and amendments to the partnership agreement require the UNANIMOUS CONSENT of the partners.

Question 41

Dissolution

Answer 41

In the absence of an agreement that sets forth a fixed term or event of dissolution, a general partnership dissolves and must be wound up upon NOTICE OF EXPRESS WILL of any general partner to dissociate.

Question 42

Dissolution: Dissociation + Consequences

Answer 42

A change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.

Upon withdrawing, the partnership must purchase their interest at either liquidation or going-concern value.

Question 43

Dissolution: Winding Up Phase

Answer 43

The period between dissolution and termination in which the remaining partners will LIQUIDATE the partnership assets to satisfy creditors

Question 44

Dissolution: Winding Up - Liabilities (Old Business v. New Business)

Answer 44

Old Business - The partnership RETAINS liabilities on ALL TRANSACTIONS entered into before winding up.

New Business - The partnership RETAIN liability during winding up UNTIL: (i) ACTUAL notice of dissolution is given to creditors, or (ii) 60 DAYS after filing a statement of dissolution

Question 45

Dissolution: Priority of Distribution + Insufficient Funds To Repay

Answer 45

Partnership assets are reduced to cash and partnership liabilities are paid in the following order:

1) All creditors (third parties AND partners who have loaned money to the partnership)
2) Capital contributions by partners
3) Any profits and losses remaining must be shared equally (same default rule as formation)

If the partnership’s assets are insufficient to repay loans or capital contributions, PARTNERSHIP REMAINS LIABLE for full repayment (paid by individual partners) in their EQUAL SHARE

Question 46

Alternative Business Forms: Limited Partnership + Partners Roles

Answer 46

A LP is a partnership with at least one general partner and at least one limited partner

General partners are LIABLE for all limited partnership obligations and have FULL CONTROL over management

A limited partner has LIMITED LIABILITY and DOES NOT CONTROL the business, if they do they become liable to third parties

Question 47

Alternative Business Forms: Limited Partnership - How to Form an LP

Answer 47

An LP must file a certificate of limited partnership with the secretary of state

Question 48

Alternative Business Forms: Limited Liability Partnership (LLP) - Formation

Answer 48

Must file a Statement of Qualification containing the information required of limited partnerships with the secretary of state

Question 49

Alternative Business Forms: Limited Liability Partnership (LLP)

Answer 49

An LLP does not impute liability on ANY PARTNER for the underlying debts and obligations of the LLP.