Agency & Partnership

Question 1

Liability of principal for contracts entered into by agent - bases of liability

Answer 1

Actual authority: reasonable A would believe authority based on P’s words/conduct

Apparent authority: reasonable 3P would believe authority based on P’s words/conduct

Ratification: P has knowledge of all material facts of K

Question 2

Liability of principal for contracts entered into by agent - bases of liability - actual authority

Answer 2

Actual authority: reasonable A would believe authority based on P’s words/conduct

• Express
• Implied (including implied from acquiescence)

Termination

• After specified time or event, or after a reasonable time if neither specified
• By a change of circumstances (e.g., subject matter of agency destroyed)
• By breach of A’s fiduciary duty
• By unilateral act of either P or A
• By death or incapacity of P or A

Question 3

Liability of principal for contracts entered into by agent - bases of liability - apparent authority

Answer 3

Apparent authority: reasonable 3P would believe authority based on P’s words/conduct; unilateral A representations do NOT create

• From power of position
• Lingering apparent authority

Termination
- Difficult; may have to tell 3Ps no authority

Question 4

Liability of principal for contracts entered into by agent - bases of liability - ratification

Answer 4

Ratification: P has knowledge of all material facts of K; accepts entire transaction; does not alter rights of 3Ps

• Express: oral or written affirmation of K (e.g., company resolution)
• Implied: P accepts benefits of K

Question 5

Liability of principal for contracts entered into by agent - rules

Answer 5

Actual authority, apparent authority, or ratification:
P liable, A not

P undisclosed (at time of A's transaction, 3P has no notice that A is acting for a P):
P and A both liable

P partially disclosed (at time of A’s transaction, 3P has notice that A is acting for a P, but not P’s ID):
P and A both liable

Question 6

Principal and agent - duties

Answer 6

Agent’s duties to principal:
Fiduciary duties of loyalty, care, obedience

Principal’s duties to agent:
Not fiduciary; indemnity and compensation

Question 7

Liability of principal for torts of agent - general rule

Answer 7

Master liable for torts committed by servant w/in scope of employment; master and servant jointly and severally liable

Also look for assent by and benefit to master

Principal generally not liable for torts committed by independent contractor in connection w/ work

Question 8

Liability of principal for torts of agent - employee/servant vs. independent contractor

Answer 8

Control over means: employee/servant
Control over results: independent contractor

Detailed factors:
- Skill required; ownership of tools and facilities; indefinite vs. short-term employment; time-based vs. task-based compensation; act in furtherance of P’s business vs. other reason; distinct business vs. employment

Question 9

Liability of principal for torts of agent - scope of employment

Answer 9

1. Was conduct “of the kind” that A hired to perform?
2. Did the tort occur “on the job” (i.e., within the time and space limits of the employment)?
   - A minor deviation: detour
   - Substantial deviation: frolic
3. Was the conduct actuated at least in part to benefit the principal?

Question 10

Partnership - definition

Answer 10

Two or more persons associate to carry on as co-owners a business for profit, regardless of whether the parties subjectively intend to form a partnership. No state filing or other formalities are required.

Question 11

Partnership - formation - analysis

Answer 11

Most important factor: sharing of profits

Person who shares profits is presumptively partner unless received in payment: (1) of a debt; (2) as wages or other compensation; (3) as rent; or (4) as interest on a loan.

Question 12

Partnership - voting

Answer 12

Unless otherwise agreed, all Ps have equal rights in management of business and equal votes

Decisions regarding matters within the ordinary course of the partnership business require a majority vote of the partners. Matters outside of the ordinary course of business require the consent of all partners.

Question 13

Partnership - profits and compensation

Answer 13

Unless otherwise agreed, profits are shared equally, and losses are shared in the same manner as profits

Unless otherwise agreed, Ps get no compensation (w/ exception of reasonable comp for services rendered in winding up partnership)

Question 14

Partnership - liability of the partnership

Answer 14

Tort: liable for loss or injury as a result of tortious conduct of P or EE acting in the ordinary course of business of the partnership or with authority of the partnership

Contract: liable for Ks entered into on its behalf by Ps with actual or apparent authority

Question 15

Partnership - actual and apparent authority

Answer 15

Actual: by vote or by filing statement with SoS
- Grants and restrictions in the statement on Ps’ authority to transfer partnership real property are binding on 3Ps if recorded in county where property located; for all other transactions only grants effective as to 3Ps

Apparent: P has apparent authority to bind partnership to transactions w/in ordinary course of partnership’s business (and for two years after dissociation unless creditors notified or stmt filed, which goes into effect after 90 days)

Question 16

Partnership - liability of partners

Answer 16

Joint and several, but must exhaust p’ship resources before seeking to collect from individual P; P who pays p’ship obligation entitled to indemnity from p’ship or pro rata contribution from other Ps

Newly admitted P not personally liable for p’ship obligations that arose before his admission

Disassociated P personally liable for pre-dissociation p’ship obligations; may also be liable for post-dissociation liabilities incurred w/in two years (can protect himself by notifying creditors of his dissociation or by filing a public statement, which becomes effective 90 days after filing)

Question 17

Partnership - duties of partners

Answer 17

Fiduciary: loyalty, care

Statutory: disclosure

• W/o demand: info concerning p’ship’s business and affairs reasonably required for proper exercise of P’s rights and duties
• On demand: other info concerning p’ship’s business and affairs, unless unreasonable/improper

Question 18

Partnership - property

Answer 18

Partnership property if:

• Acquired in p’ship’s name
• Apparent from document that P is acting for a p’ship (e.g., mentions p’ship or says he is a P)

Presumed partnership property if:
- Partnership funds are used.

Presumed partner’s property if:
- Acquired in P’s name w/o p’ship funds and no sign that he is acting for a p’ship

Question 19

Partnership - ownership interest in partnership

Answer 19

1. Management rights
   - Cannot unilaterally transfer; default rule for admission of a new P is unanimous vote
2. Financial rights
   - Can unilaterally transfer

Question 20

Partnership - disassociation

Answer 20

Dissociation means withdrawal

P liable to p’ship for any damages caused by wrongful dissociation:

• Dissociation breaches express term in p’ship agreement
• P withdraws, is expelled, or becomes bankrupt before the end of term in term p’ship

Question 21

Partnership - dissolution vs. buyout

Answer 21

Dissolution and winding up

• In at-will p’ship, P who dissociates by express will can compel.
• In term p’ship, if one P dissociates wrongfully, dies, or goes bankrupt, required only if, w/in 90 days 1/2 of remaining Ps vote to do so

Buyout
If P’s dissociation does not result in dissolution and winding up, P is entitled to receive buyout of his p’ship interest; if dissociation wrongful, buyout reduced by damages

Question 22

Partnership - dissolution - winding up

Answer 22

Each level must be totally satisfied before beginning next level:

1. Pay all creditors, outside and inside
2. Repay all capital contributions paid by Ps
3. Third, profits or losses, if any.

If assets insufficient, individual Ps required to contribute (“pay in”) based on loss shares

Question 23

Partnership - dissolution - apparent authority

Answer 23

Ps retain apparent authority to bind p’ship to 3P on new business even after event requiring winding up

P’ship can protect itself by notifying creditors, and any P who has not wrongfully dissociated may file a public statement of dissolution (becomes effective 90 days after filing)

Question 24

Partnership - other forms - LPs

Answer 24

• Must file certificate of limited p’ship with SoS
• LP is managed by general partner(s). Each GP has equal management rights, and majority vote required for ordinary business activities.
• Limited partners usually have no management rights unless granted, but can vote on extraordinary activities

Question 25

Partnership - other forms - LPs - profits, liabilities, duties

Answer 25

• Distributions made in proportion to value of each P’s contribution
• GPs liable for p’ships obligations; LPs liable only up to value of investment
• GPs have fiduciary duties of regular Ps; LPs have no duties

Question 26

Partnership - other forms - LLPs

Answer 26

• Must file stmt of qualification with SoS
• Partner in LLP not personally liable
• Other rules of general partnership apply

Question 27

Partnership - other forms - LLCs

Answer 27

• Must file articles of organization with SoS
• Default is mgmt by all members, with profits distributed based on contributions
• Owe fiduciary duties of loyalty of care