Agency & Partnership

Question 1

Requirements for an agency relationship include

Answer 1

(1) Consent by both the principle and the agent that the agent will act for the principal’s benefit; and
(2) That the agent is subject to the principal’s control.

Question 2

When is the principal bound on a contract entered into by an agent?

Answer 2

if the agent had authority to enter into the contract.

3 types of authority:

1. actual authority is either express or implied authority to act for the principal
2. apparent authority is found when (1) the person dealing with the agent deals with a reasonable belief in the agent’s authority and (2) the belief is generated by some act or neglect on the part of the principal.
3. ratification even agent lacks authority to enter into the transaction, the principal can ratify the acts (and become liable) by (1) expressly or impliedly affirming or (2) accepting the benefit of the acts so long as the principal knew the material facts and had capacity.

Question 3

Actual authority can be

Answer 3

(1) express expressly given authority to act for the principal; or

(2) implied when the principal’s current or past conduct, custom, or emergency circumstances lead the agent to believe it has authority to act for the principal

Question 4

Authority by ratification

Answer 4

even agent lacks authority to enter into the transaction, the principal can ratify the acts by expressly or impliedly affirming or accepting the benefit of the acts so long as the principal knew the material facts and had the capacity.

Question 5

When an agent has authority by ratification

Answer 5

the principal is liable

Question 6

Partners in a general partnership have what kind of authority?

Answer 6

actual and apparent authority to bind the partnership in contracts entered into in the ordinary course of business.

Question 7

If the agent had authority (actual, apparent, or authority by ratification) to enter into a contract the principal is _______.

Answer 7

bound

Question 8

When is the agent liable for a contract?

Answer 8

The agent is liable to:

(1) the third party on a contract if the agent enters into the K with the third party and

(A) agent lacks authority or (B) principal is undisclosed or partially disclosed

(2) the principal for breach of contract if the agent acts beyond his authority.

Question 9

Liability of principal

Answer 9

the principal can be vicariously or directly liable for the torts committed by his agent.

Vicariously liable for negligent acts when

• the agent was acting within the scope of employment
• made a minor deviation from employment (detour of agent NOT a frolic)

Vicariously liable for intentional torts when

• committed for the principal’s benefit;
• authorized by the principal; or
• intentional tort arose naturally due to the nature of employment

Directly liable for own negligence, negligent hiring of agent, or failure to properly supervise or fire the agent.

Question 10

Difference between an agent’s partial disclosure and non-disclosure

Answer 10

• Partial disclosure is when 3rd party knows the agent is acting on behalf of a principal but doesn’t know who the principal is
• Non-disclosure is when 3rd party doesn’t know the agent is acting for a principal

When contracting with a 3rd party, if the agent fails to fully disclose that he is acting on behalf of a specifically disclosed principal, ==> the agent is liable to the 3rd party for the K

Question 11

Duties of an agent

Answer 11

duty of care and duty of loyalty (no self-dealing, no profit without disclosure, and must follow instructions).

If breached, the principal can recover losses from and profit made by the breaching agent.

Question 12

General partnerships are implied by

Answer 12

1. profit-sharing creates a presumption that a person is a partner (unless profits were received to pay debts owed, rent to LL, or wages)
2. capital contributions
3. mutual agency
4. improperly formed limited partnerships (ex: paperwork faulty)

A general partnership is the default form of partnership! (easy to establish)

DO NOT NEED writing, certificate, or intent to form a GP for a general partnership to form!

Question 13

Define partnership

Answer 13

the association of two or more persons to carry on as co-owners in a business for profit, whether or not the persons intended to form a partnership.

Question 14

Partners are ____ of the partnership

Answer 14

partners are agents and comanagers of the partnership.

partners have equal rights to co-manage ordinary affairs (eg. signing a lease) even if the profits are not shared equally. A majority vote wins if there is disagreement.

Question 15

Liability of partners for a general partnership’s debts

Answer 15

in a general partnership, partners are jointly & severally liable for partnership debts.

• incoming partners ARE NOT personally liable for prior debts of the partnership but their capital contributions can be used to pay prior debts.
• • outgoing partners ARE personally liable for debts incurred during their time at the partnership.

Question 16

Duties of partners

Answer 16

partners have a fiduciary relationship with one another and have the following duties:

• duty to act honestly
• duty to act in good faith
• duty of loyalty (no self-dealing; no competing with partnership)
• duty of care
• duty to account for profits

Question 17

When does a partnership end?

Answer 17

When winding up is complete.

Note that: dissolution does not end the partnership (dissolution is merely step #1)

Question 18

Steps to ending partnership

Answer 18

1. Dissociation: changes in the relation of the partners, must give notice (personal notice of dissolution prior to creditors; newspaper notice to others)
   * in an at-will partnership, notice (at any time) from a partner of intent to withdraw will trigger dissolution
2. Winding up: partnership assets are liquidated and creditors are paid, (partners are still liable for any liabilities that occur during the winding up phase).
3. Termination: winding up is complete, this is the true end of the partnership.

Question 19

If a creditor has a claim

Answer 19

• Creditor claim against partner: can obtain an interest in the partnership profits (no voting or management rights)
• Creditor claim against partnership: should attempt to collect from the partnership first but then can collect from the personal assets of the partners.

Question 20

(TRUE OR FALSE) If a partner enters into a contract without actual authority, the partnership and partners are NOT bound

Answer 20

False: if a partner enters into a contract without actual authority (only with apparent authority) the partnership and partners ARE BOUND!

recall that apparent authority = (1) the person dealing has a reasonable belief in authority and (2) that belief is generated by some act or neglect of the principal.

Question 21

TRUE/FALSE: Partnerships other than general partnership must file a certificate with the state to be properly formed.

Answer 21

True: if properly filed liability of partners are limited (compared to a general partnership)

Question 22

Types of Partnerships and corresponding liability

Answer 22

1. Limited liability partnership (LLP): no partner is personally liable for obligations of the partnership, only liable for their personal torts.

2. Limited partnership (LP): have at least one “general partner” listed on the state certificate + other “limited partners”

– general partners are liable for all partnership obligations and manage control of the business.

– limited partners are liable only for their capital contributions

3. General Partnership: all partners are jointly and severally liable for the obligations/debits of the partnership during their time as a partner, and during the time when the partnership was a general partnership.

– incoming partners are NOT personally liable for the partnership’s prior debts (capital contributions can be used)

– outgoing partners are personally liable for debts incurred during their time at the partnership