Agency and Partnerships

Question 1

When does an Agency Relationship exist?

Answer 1

If there is

1) assent
2) benefit AND
3) control

Question 2

What are the three types of Agency Relationships?

Answer 2

1) a universal agent (broad authority – ALL acts)

2) a general agent (a series of transactions)

3) a special agent (limited – specific act/transaction OR specified period of time)

Question 3

When does an Agency Relationship terminate? (when the agent no longer has authority to act)

Answer 3

a) When the principal/agent manifests to the other that the relationship is terminated;
b) A specified term of the agent’s authority expired;
c) Upon the death of the principal or agent; OR
d) Upon the incapacity of the principal or agent

Question 4

When does Express Actual Authority exist?

Answer 4

When the principal has explicitly told the agent that he is entitled to act.

Question 5

When does Implied Actual Authority exist?

Answer 5

When either:

a) The agent believes he is entitled to act to carry out his express authorized duties;

b) The agent has acted similarly in prior dealings; OR

c) It is customary for agents in that position to act in that way.

Question 6

When does Apparent Authority exist?

Answer 6

When:

1) A third-party reasonably believes that the person has authority to act on behalf of the principal;

AND

2) That belief is traceable to the principal’s manifestations.

Question 7

How does a principal hold out an agent as having authority?

Answer 7

When he:

a) Gives the agent a position/title indicating such authority;

b) Has previously held the agent out as having authority and has not published a revocation; OR

c) Has cloaked the agent with the appearance of authority.

Question 8

Apparent Authority is not applicable during what circumstances?

Answer 8

a) If the third-party has actual knowledge that the agent did NOT have authority;

b) The contract/transaction was not within the ordinary usages of business; OR

c) If there is an undisclosed principal (May be applicable if principal is partially disclosed or unidentified.)

Question 9

When does ratification of an agent’s contract occur?

Answer 9

When the principal:
1) Has knowledge of all material facts or contract terms;
AND
2) Thereafter manifests assent (approval) of the same through words or conduct.

Question 10

An agent has NO contractual liability to a thirdparty for contracts entered into with that party, if he does what?

Answer 10

1) Fully discloses the principal he is acting on behalf of; AND

2) Agent had (a) actual authority, or (b) apparent authority (even if no actual authority present).

*Agent WILL be liable if both elements above are not met.

Question 11

Employee
vs.
Independent Contractor

Answer 11

Employee: Employer controls manner/means of the employee’s performance of work. Employer IS vicariously liable for negligent acts of employee (within scope or employment).

Independent Contractor: A person NOT controlled or subject to control with respect to performance (may or may not be an agent). Principal/employer is generally NOT liable for torts committed by a contractor.

Question 12

What determines whether a person is an Independent Contractor or Employee?

Answer 12

Whether the principal had the right to control the manner and method in which the job is performed.

(If the principal had substantial control, it’s likely the person will be deemed an employee).

Question 13

Under respondeat superior, an employer is vicariously liable for an employee’s negligent act if the employee was acting within the scope of employment.

When is an employee deemed to be acting within that scope?

Answer 13

When:
a) Performing work assigned by the employer; OR

b) Engaging in a course of conduct subject to the employer’s control.

** Conduct is not outside the scope merely because an employee disregards the employer’s instructions.

Question 14

Vicarious Liability – Respondeat Superior

Acts Within Scope of Employment

vs.

Acts Outside Scope of Employment

Answer 14

Within Scope: When performing work assigned by the employer OR engaging in conduct subject to the employer’s control.

Outside Scope: Tort occurs within an independent course of conduct AND is not intended by the employee to serve any purpose of the employer.

Question 15

What causes an employee’s intentional torts to be considered within the scope of employment?

Answer 15

The Act was:

a) specifically authorized by the employer;

b) driven by a desire to serve the employer; OR

c) the result of naturally occurring friction from the type of employment.

Question 16

In what situations is principal still liable despite the doctrine of respondeat superior being inapplicable?

Answer 16

When:

a) The principal intended the conduct or consequences;

b) The principal was negligent in selecting, training, retaining, supervising, or controlling the agent;

c) The conduct involved a non delegable duty to an injured person with whom they had a special relationship; OR

d) The agent had apparent authority, the agent’s actions taken with apparent authority constitute the tort (or enable the agent to conceal it), and a third-party reasonably relied on that authority.

Question 17

When will a principal be liable for torts committed by an Independent Contractor?

Answer 17

If:

a) The contractor is engaged in an inherently hazardous activity;

b) The duty owed by the principal is non-delegable; OR

c) Through the doctrine of estoppel:
The principal holds the contractor out as his agent to a third-party, they reasonably relied on the agent’s skill, and the third-party suffered harm as a result.

Question 18

What fiduciary duties does an agent owe to the principal?

Answer 18

1) The duty of care – to use reasonable care

2) The duty of loyalty – to act solely and loyally for the principal’s benefit

3) The duty of obedience – to obey all reasonable instructions

Question 19

When is a general partnership created?

Answer 19

Two or more persons carrying on a business for profit as co-owners

No written agreement or intent is needed

Question 20

What is presumed when a person receives a share of the profits of the partnership business?

Answer 20

We presume that person is a partner

Question 21

When is someone who receives a share of the profits not a partner?

Answer 21

1) It’s payment of a debt
2) for wages
3) rent
4) annuity or retirement benefit
5) loan or interest charges
6) sale of the goodwill of the business

Question 22

What does the certificate of LIMITED PARTNERSHIP include?

Answer 22

1) name and address of partnership
2) name and address of partnership’s registered agent
3) name and address of each general partner
4) whether its an LLLP AND
5) signed by all general partners

Question 23

What is requried for a partnership to become an LLP?

Answer 23

1) approval by same vote that is necessary to amend the partnership agreement AND
2) filing a Statement of Qualification with the Secretary of State

Question 24

What information must a Statement of Qualification include?

Answer 24

1) The name and address of the partnership;

2) A statement that the partnership elects to become an
LLP; AND

3) A deferred effective date (if any).

*The filing doesn’t create a NEW partnership, it continues to be the same entity that existed prior to the filing

Question 25

When does a partner have Express Actual Authority to bind the partnership?

Answer 25

Upon receiving said authority from the partners.

1) Differences among partners for Acts within the ordinary
course of business = approved by a majority vote of partners.

2) Acts outside the ordinary course = can only be approved
unanimously.

Question 26

What if the partnership agreement is silent?

Answer 26

a partner has authority for usual and customary matters, UNLESS the partner knows that:
(a) other partners might disagree; OR
(b) for some other reason consultation with fellow partners is appropriate.

Question 27

A partner with Apparent Authority will NOT bind the partnership during what circumstance?

Answer 27

1) The partner lacked authority; AND
2) The third-party knew or had notice that the partner lacked authority.

*For acts outside the scope of business –> Need a manifestation
by the Partnership that the partner had authority in order to be
binding.

Question 28

A partner has Apparent Authority to bind the partnership, even after dissolution, in what circumstance?

Answer 28

If:
1) The partner’s acts would have normally bound the partnership; AND

2) The third-party DID NOT have notice of the dissolution.

*If the partnership is bound, then ALL partners will be jointly and severally liable for the obligation.

Question 29

What is the liability for General Partners?

Answer 29

General Partners: Personally liable for ALL obligations of the partnership AND jointly and severally liable. (UPA 1997).

Question 30

What is the liability for incoming Partners?

Answer 30

NOT liable for obligations incurred prior to their admission, but still at risk for losing capital contributions made to satisfy partnership obligations.

Question 31

When can a judgment creditor levy execution of a judgment against a partner’s personal assets for a partnership debt?

Answer 31

1) When a judgment has been rendered against the partner;
AND
2) The partnership assets have been exhausted or are insufficient.

*A judgment against the partnership is NOT itself a judgment against the individual partners.

Question 32

When are limited partners personally liable for the obligations of the Limited Partnership (LP)?

Answer 32

1) Always liable for their own torts or misconduct (or they sign a personal guarantee)

2) always a risk for losing any capital contributions made to the partnership

3) generally, if they participate in management and control of the business they are liable (ULPA 2001, Earlier ULPA, and RLUPA)

Question 33

How are profits and losses shared amongst the partners?

Answer 33

Profits are shared EQUALLY, and losses will be shared in the same ratio as profits.

UNLESS there is an agreement to the contrary.

*Any partner who pays more than his fair share is entitled to receive
contribution from the other partners.

Question 34

What elements of partnership ownership can a partner transfer to another person?

Answer 34

1) His interest in the share of the profits and losses;
AND
2) His right to receive distributions.

*ALL other incidents of partnership ownership CANNOT be transferred (unless all partners agree or an agreement states
otherwise).

Question 35

When is property acquired in the name of a partner presumed to be separate property?

Answer 35

1) When no partnership assets are used to acquire the property;
AND

2) No written title instrument for the property references the partnership or that the person is a partner.

Question 36

When is a partner entitled to remuneration for services performed for the partnership?

Answer 36

When:

a) Partnership facilities or business time is used for its creation; OR

b) The partner is employed to do the inventive work

Question 37

What is the difference between general and limited partners in a Limited Partnership?

Answer 37

General partners: have FULL management rights and control.

Limited partners: have NO say or control, and DO NOT have the right to manage day-to-day business (generally passive with
limited voting rights).

Question 38

Under RULPA, what are a limited partner’s rights regarding inspection of records?

Answer 38

1) The right to inspect and copy (during business hours) any records the LP is legally required to keep.

2) The right to obtain upon demand:

a. True & full information regarding the state of the
business and financial condition.

b. Copies of the LP’s tax returns.

c. Any other information that is just and reasonable.

Question 39

Under RULPA, when does a partner breach his duty of care?

Answer 39

When he engages in:
a) Grossly negligent or reckless conduct;
b) Intentional misconduct; OR
c) A knowing violation of law.

Examples include: violating a partnership policy, failing to
thoroughly investigate facts before entering into a contract, acting
outside the scope of the business without consent from the other
partners.

Question 40

Under RULPA, what must a partner do to satisfy his duty of loyalty?

Answer 40

1) Account for any property, profit, or benefit derived by the partner from the partnership property;
2) Not have an interest adverse to the partnership; AND
3) Not compete with the partnership.

Question 41

When is a partner NOT liable for conduct that would otherwise breach his duty of loyalty?

Answer 41

1) If the partner fully discloses the information; AND

2) Either:

a. The partnership agreement is amended; OR
b. All partners consent to the transaction.

*The partnership agreement must be amended by a unanimous
vote (unless it provides otherwise).

Question 42

Under RUPA, what must a partner disclose without demand?

What happens if he breaches this duty?

Answer 42

He must disclose FULL information concerning the partnership’s business and affairs.

If he breaches, he may be held PERSONALLY liable to the partnership for any losses suffered as a result.

Question 43

How does a partner become dissociated from a partnership?

Answer 43

a) Notice of the partner’s express will to withdraw;

b) Occurrence of an agreed upon event in the agreement;

c) Expulsion per the agreement or by judicial means;

d) Expulsion by unanimous vote, if it’s:
a. Unlawful to carry on business with that partner; or
b. If there has been a transfer of his interest.

e) Bankruptcy;

f) Incapacity or Death;

g) Appointment of a personal representative/receiver; OR

h) Termination of an entity partner.

Question 44

When will a dissociation be deemed wrongful?

Answer 44

a) If it’s in breach of an express provision of the partnership
agreement; OR

b) If the partnership is for a definite term or particular undertaking, and the partner:

a. Withdraws;

b. Is expelled by judicial determination; OR

c. Becomes a debtor in bankruptcy.

*A wrongful dissociation bars a partner from management and the winding up process

Question 45

When does dissolution of a General Partnership occur?

Answer 45

a) Upon notice of the partner’s express will to withdraw;

b) Upon an event agreed upon in the agreement;

c) Upon an event that makes it unlawful to continue;

d) Judicial dissolution on application of a partner; OR

e) Judicial dissolution on application of a transferee.

Question 46

When does dissolution of a Partnership for Definite Term occur?

Answer 46

a) Within 90 days of a partner’s dissociation by death or wrongful dissociation (if it’s the express will of at least half of the remaining partners to wind up the business);

b) Upon the express will of ALL the partners to wind up the
business; OR

c) Upon the expiration of the term or completion of purpose.

*A partner may dissociate at any time by providing notice to the other partners.

Question 47

What does dissociation by one partner allow the other partners to do?

Answer 47

It allows ALL of the remaining partners to waive winding up and termination, and instead gives them the option to continue the partnership by buying out the dissociated partner’s interests.

Question 48

When does a non-judicial dissolution of a Limited Partnership occur?

Answer 48

Upon:
a) The occurrence of an event specified in the agreement;

b) The consent of all general partners and of all limited partners owning a majority of rights to distributions;

c) After dissociation of a general partner;

d) 90 days after dissociation of the last limited partner; OR

e) The filing of a declaration of administrative dissolution by the Secretary of State (for failure to pay fees, etc.).

Question 49

During the winding up process, partnership assets are converted to cash and distributed in what order?

Answer 49

1) Creditors;
2) Partners’ capital contributions; AND
3) Profits to be distributed among the partners.

*Some states require that non partner creditors (outside creditors) be paid first before partner creditors (inside creditors).