Agency & Partnership

Question 1

Agency

Answer 1

fiduciary relation

Results from the manifestation of consent

-By one person to another
-That the other shall act on his behalf and subject to his control
Acting primarily for benefit of the principal
-And consent by the other so to act
Consent can be written or oral statement
or by implication from parties conduct
- Control
Degree of control need not be significant
Sufficient if principal specifies tasks agent should perform

Question 2

creation of agency relationship

Answer 2

Capacity
Principal must have contractual capacity
Agent doesn’t need contractual capacity
Exception: if agent has literally no mental capacity, they cannot act for principal

Equal dignities rule
Agency agreements must be in writing when agent is to enter into certain contracts w/i statute of frauds or agency agreement itself would fall w/i SoF
MY LEGS

Consideration is not necessary for creation of an agency relationships

can be created by an act of the parties or by operation of law

Question 3

agent’s duties to principal

Answer 3

fiduciary duty to principal

Duty of care
Carry out agency w/ reasonable care

Duty of loyalty
Owe undivided loyalty to principal
Treat principal fairly
Cant use principal prop
Can’t compete
Can’t use position as agent to profit

Duty of obedience
Obey all reasonable directions of principal
If agent disobeys , agent will be liable to the principal for any loss that the principal suffers

Principal’s remedies for agent breach of duties
Contract action
Tort actions for secret profits
Equitable actions for accounting
Imposition of a constructive trust
Terminate agency
w/e to do justice

Question 4

principals duties to agent

Answer 4

Not fiduciary in nature
Indemnify (reimburse) agent’s losses in carrying out principal’s instructions
Compensate agent for services

Question 5

actual authority

Answer 5

An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal the agent reasonably believes, in accordance w/ the principal’s manifestations to agent the principal so wishes the agent to act…this standard requires both

• An agent actually holds the belief (part 1), which is a subjective standard; and

-Agent’s belief be reasonable (part 2) which is an objective standard

Express = by principals words oral or written
implied= authority agent reasonably believes they have as result of principals words or action

Question 6

implied actual authority examples

Answer 6

Incidental to express
Arising out of custom known to agent
Result from prior acquiescence
Take emergency measures

Delegate authority ministerial acts
Circumstances requires
Performance is impossible w/o delegation
Delegation is customary

Pay and accept delivery of goods
Give general warranties , collect payment and deliver
Manage investments in accordance w/ prudent investor standard

Question 7

termination of actual authority

Answer 7

Specified time
Specified event
Reasonable time
Change of circumstances
Breach of fiduciary duty
Unilateral act
Death

Question 8

apparent authority

Answer 8

Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations w/ third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations

3 Key Factors Apparent Authority
Manifestations traceable to the principal
Communicated to a third party
Third party reasonably believes Agent is Principal’s agent

termination
tell 3rd party no longer agent/authorized

Question 9

types of apparent authority

Answer 9

Power of position: based on agent’s title or position
Do things typically associated with title

Prior act
Principal previously permitted agent to exceed express or implied authority and knows 3rd party is aware of rhis , principal bound through apparent authority

Unilateral agent representation are insufficient to create actual or apparent authority
Only statement of authority comes from purported agent’s claim

Imposter
Principal negligently permits an imposter to be in position to appear to have agency authority
Principal will be held liable for action
Agency by estoppel

Lingering apparent authority
Apparent authority can exist even when not actual authority

Question 10

ratification

Answer 10

the affirmance of a prior act done by another whereby the act is given effect as if done by an agent acting with actual authority
After the fact authority

Ratifes by :
Manifesting assent that the act shall affect the person’s legal relations, or
Conduct that justifies a reasonable assumption that the person so consents

Ratification requires
1) knowledge of all material facts
2) accept entire transaction
3) have capacity

Question 11

methods of ratifying

Answer 11

Express ratification: the principal agrees to assume liability for the contract, notwithstanding the agent’s lack of authority

Implied ratification: accepting the benefit of what company had done for principal

A person is not bound by a ratification made without knowledge of material facts involved in the original act when the person was unaware of such lack of knowledge

Question 12

whose bound for contracts involving ( disclosed vs. undisclosed/ partially disclosed principals)

Answer 12

Actual authority, apparent authority or ratification = principal bound

Principal of undisclosed or partially disclosed principal= agent also bound

Agent for disclosed principal
A principal is disclosed if, at the time of making the contract in question, the other party to it has notice that the agent is acting for a principal
This communicated knowledge automatically shifts liability on the contract to the principal

Agent for unidentified Principal
A principal is unidentified if when an agent and a third party interact the third party has notice that the agent is acting for a principal but doesnt know who principal is

Agent for undisclosed Principal= agent liable too
Unless excluded by the contract, the principal is a party to the contract
The agent and the 3rd party are parties to the contract and the principal and 3rd party have the same rights, liabilities, and defenses against each other as if the principal made the contract personally

Question 13

vicarious liability

Answer 13

master liable for torts in scope of servant’s employment
Respondeat superior
Apparent authority

Principal
Directly liable for own negligence in hiring, retaining, supervising agent
Directly liable for agent’s tort if gave actual authority or ratified
Other circumstances involving independent contactors

Question 14

respondeat superior (distinguish independent contractor)

Answer 14

master= principal who employs an agent with right to control agent

servant= agent so employed by master
Control how accomplish task

independent contractor = person contractually obligated to do work, but not controlled in how the work is done

Factors for right to control
Skill required = IC
Tools and facility = Emp
Period of employment = EMP
Basis of compensation= time = Emp, job = IC
Business purpose = Emp
Distinct business= IC

Question 15

scope of employment for agent

Answer 15

Factors
Conduct of kind agent hired to perform
Did tort occur on job
Detour = minor deviation from employers directions
frolic= substantial deviation from employer’s directions
Was conduct actuated at least in part to benefit principal

Intentional torts
Employer generally not liable for employee’s intentional torts
Exception: conduct natural from employment duties
Where employee is promoting employer’s business or motivated to serve employer
Specifically authorized or ratified by employer

Liability for act of borrowed employees
Borrowed servant: employee of one employer doing services for another ( look at who has the primary right of control)

Question 16

liability for acts of INdependent contractors

Answer 16

Principal incur liability for acts where

inherently dangerous activities
nondelegable duties have been delegated
principal knowingly selected incompetent IC

Question 17

General Partnership Creation

Answer 17

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

Formation
- Profit sharing
Receive share of profits = presumed partner
UNLESSS share received as payment of debt, as wages or compensation for services rendered, as rent payment, retirement benefit, interest on loan, salee of goodwill of business
Gross returns= revenues
Not partner just splitting revenues

• Right to participate in control of business
  -Loss sharing

Factors that don’t raise presumption of partnership
Title to prop is held in Joint tenancy or in common
Parties designate their relationship as a partnership
Extensive activity
Sharing of gross returns

No writing required to form
SoF apply to have enforceable agreement to remain partners for more than 1 year

Question 18

Partnership by Estoppel

Answer 18

Partner liability imposed when a party is not a partner in fact
Person by words or conduct rep himself as partner or consents to being rep by another as a partner= will be liable to 3rd parties who extend credit to actual or apparent partnership

Liability of person who holds another out as partner
Makes person his agent to bind him to 3rd parties
mere failure to deny a representation of partnership does not give rise to liability as a purported partner, BUT actually consenting to be held out as partner does

Question 19

partnership agreement

Answer 19

is a written oral or implied contract between or among the partners which may alter the default statutory rules in governing the internal affairs of the partnership and the relations among partners.

may not unreasonably restrict access to books or records, eliminate the duty of loyalty, unreasonably reduce duty of care, eliminate good faith and fair dealing, vary the power to withdraw as a partner, vary the courts right to expel a partner, vary requirements to wind up, and restrict the rights of TPS.

Entity status
Partnership is a legal entity distinct from partners
Title in land may be liable in partnership name
Partnership may sue or be sued in partnership game

Revised Uniform Partnership Act ( RUPA) is default rules when partnership agreement doesn’t provide a particular provision

Question 20

management and operation of general partnership

Answer 20

Voting default rules
1 partner= 1 vote
Ordinary business decision= majority rule
Extraordinary business decision = unanimous vote
Adding new member

No right to salary or other compensation = default rule
Change with partnership agreement
Exception = reasonable compensation for services rendered in widing up the partnership business

Question 21

liability under general partnership

Answer 21

Partnership = principal under agency law
Partner = agent under agency law

Tort
Partnership is liable for loss or injury caused to person as reult of tortious conduct of partner acting in ordinary course of business of partnership or w/ authority of the partnership

Contract
Partnenrship liable for all K entered into by partner in scope of partnership business with actual or apparent authority
Statement of authority = doc filed publicly limiting partners’ authority to transfer real property

Transactions involving real prop
Grants of and restrictions on partner authority to transfer in statement are binding on 3rd party is statement also recorded in county where prop is located
3rd parties have constructive notice if secretary of state and county fillings made
3rd party benefited by filed grants of authority and burdened by filed restrictions on authority

Transactions not involving real prop
Grants in statement are binding on partnership
Restrictions not binding on 3rd party
3rd party benefited by filed grants of authority and not burdened by filed restrictions on authority

Each partner is jointly and severally liable for partnership obligations
But only as guarantors
Any creditor has to exhaust partnership resources first
Entitled to contribution from other partners
Could agree one partner not responsible for liabilities
Only binding among partners not 3rd party

Newly admitted partner not liable for debts incurred before admission

Question 22

fiduciary duties owed to partners and partnership

Answer 22

Duty of care
Refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law

Duty of loyalty
Account to partnership for any benefit
No taking adverse positions to partnership
No competing w/ partnership

Statutory duty of disclosure
Provide complete and accurate info concerning partnership
Furnish to partner
w/o demand any info concerning partnership’s business and affairs reasonably required for proper exercise of partner’s rights and duties
On deman any other info concerning partnership’s business and affairs

duty of obedience

partnership agreement may not elminate duties of loyalty or duty of care

Question 23

partnership property

Answer 23

Property acquired by a partnership is property of the partnership and not of the partners individually.

Prop is partnership prop if acquired in the name of any of the following
The partnership

Prop is presumed to be partnership prop if purchased with partnership assets

Prop acquired in the name of one or more of the partners w/o an indication in the instrument transferring title to the prop of the persons capacity as a partner and no partnership funds were used= is presumed to be separate prop, even if used for partnership purposes

Question 24

rights in partnership Property

Answer 24

Totally unrestricted

Partner not a co-owner of partnership prop and has no interest in partnership prop which can be transferred
Partner has no interest in partnership prop

Partnership interest
Personal prop of partner
Restrictions on what can do with it

Comprised of
- Management rights = right in management of biz and obtain info
Cannot be unilaterally transferred

• Financial right = partners right to receive his share of any profit distributions made by partnership
  Can unilaterally transfer
  Transferor is still partner

Question 25

Dissociation

Answer 25

partner’s withdrawal from partnership

Events that dissociation
By express will = partner voluntarily withdrawal
Happening of an agreed event
Valid expulsion of partner
Partner’s bankruptcy
Partner’s death/ incapacity
Decision of ct t
Termination of business entity

Wrongful dissociation
Wrongful dissociated if dissociation in breach of an express term in partnership agreement = breach and can be held liable
At will partnership = no agreement to remain partners
Partnership for a term
created through a contractual agreement that the partnership will end after a specific time period.

Buyout: dissociating partner’s right to be paid value of partnership interest by continuing partners
Generally dissociated partner remains liable for pre-dissociation partnership

Dissociated partner can be liable for post dissociation partnership liabilities incurred w/i 2 years
When entering transactions other party reasonably believed dissociated partner was still a partner
Did not have notice of partner’s dissociation

Question 26

dissolution

Answer 26

partnership ends, business is wound up, assets are sold off

Voluntary dissociation could lead to dissolution
the persons duties and obligations end with regard to matters arising and events occurring after the person’s dissociation

In a partnership at will the partnership knows or has notice of a person’s express will to withdraw as a partner the business must be wound up

In a partnership for a definite term or a particular undertaking
i. w/n 90 days after a person’s dissociation by death or wrongful dissociation at least half the remaining partners want to wind up
the affirmative vote or consent of all partners
the expiration of the term or the completion of the undertaking

issuance of judicial decree
- economic purpose frustrated
- not reasonably practicable
- business cannot practicably be carried on in conformity with the partnership agreemeont

passsage of 90 consecutive days during which partnership does not have at least two partners

Question 27

termination and liquidation of General Partnership

Answer 27

Proceed with reasonable promptness to liquidate business of partnership

Assets of the partnership shall be sold and the proceeds of sale shall be applied or distributed in the following order of priority
- pay all creditors ( outside and inside)
- repay all capital contributions
- profits or losses

Question 28

partners power to bind partnership after dissolition

Answer 28

Partners retain apparent authority to bind partnership to 3rd party on new business even after an event requiring winding up

Question 29

limited partnerships formation

Answer 29

Partnership w/ at least one limited member and one general member

Formed
Certificate of limited partnership: filing that must be made to form limited partnership

Must be signed by all general partners
Includes: name of partnership, names and addresses of agent for service of process and names and address of each general partner

Fail to file = just general partnership

Registered agent: person designated to receive official mail from the state or to receive service of process

Name must contain phrase limited partnership or L.P.

Question 30

management and operation of LP

Answer 30

General partners= manage company
Limited partners= no management right

Extraordinary activities include votes of all partners
Amend partnership agreement
Convert partnership to LLLP
Dispose of all or substantially all limited partnership prop
Admit new partner
Comprise partner’s obligation to make contribution or to return improper distribution

Question 31

financial rights of LP

Answer 31

Distributions from an LP are made on the basis of the partners’ contributions

Contribution may be any benefit to partnership

Partner’s contribution obligation not excused by death or other disability and may be compromised only on consent of all partners

Question 32

liability of LP

Answer 32

General partners are jointly and severally liable for all obligation of LP

Limited partnership has limited liability
Not personally liable for an obligation of the LP solel by reason of being a limited partner

The limited liability shield of any business organization does not protect a person from liability for her own torts

Question 33

fiduciary duties

Answer 33

Limited partners don’t have any

General partners owes LP and other partners same duties of loyalty and care
General partner doesn’t automatically violate the duty of loyalty merely bc the general partner’s conduct furthers his own interests

Question 34

additional rights of LP

Answer 34

right to transact business with the partnership
right to disolve
direct action against limited partnership by partner

right to information
indemnifiaction of general partners

derivative action
- partner first makes demend on general partners to bring action to enforce right and general partners dont bring in reasonable time or the demand would be futile

• derivative action maintained onlt by person who partner at time , partner when conduct giving rise to action occured, or status as partber devollved upon him by operation of law pursuant to partnership agreement from person who was partner at time of the conduct

Question 35

limited liability Partnership

Answer 35

Apply general partnership rules except
Limited liability limited partnership:limited partnership rules, but everyone has limited liability

Form by
Filing statement of qualification w/ secretary state
Statement executed by at least two partners
Min info: name and address of partnership, statement that the partnership elects to be an LLP , deferred effective date
Become LLP at time of filing

Liability
Limited liability only limits vicarious liability, not liability for a partner’s own wrongful acts

Question 36

Limited Liability Companies

Answer 36

Hybrid of corporation and partnership where owners have limited liability and partnership tax treatment

Form
Filing certificate of org w/ secretary of state
Contents
Name of LLC
Address if LLC registered office and
Name and address of registered agent

Question 37

Managment operation of LLC and Financial Rights

Answer 37

Operating agreement
May alter duties owed

Management presumed by all members
Member managed LLC: LLC where members handle management of LLC themselves
Manager managed LLC : LC where managers, who may or may not be members, handle management

Financial rights
Profits and losses and distributions are allocated on the basis of contribution

Question 38

Fiduciary Duties and Liability of LLC

Answer 38

Liability
Members and managers generally are not personally liable for the LLC ‘s obligations
Can only lose amount of investments
Liable for own personal torts

Fiduciary duties
Look for who has management control
Duty of care
Reasonal Prudent person in same of similar circumstances
Business judgment rule
Members cannot be held liable for negligent decisions
Can be held liable for decisions tainted by gross negligence or worse

Duty of loyalty
Think about your interest not mine
Upmost fairness
After disclosure of all material facts all of the members may authorize or ratify a specific act by a member that would otherwise violate duty of loyalty
only the managers are subject to the duties of loyalty and care

Question 39

Transferability of ownership interest in LLC

Answer 39

Need unanimity to become partner
Can transfer financial rights

Question 40

dissociation of LLC

Answer 40

Events causing
Event operating agreement states
Consent of all members
Passage of 90 consecutive days during which LLC has no members

Judicial dissolution
Ct may grant if
Conduct of all or substantially all of LLC activities is unlawful
Not reasonably practicable to carry on company’s activities
Controlling members have acted will act or are acting in illeagal or frauulent manner
Controlling members have acted or are acting in manner that is oppressiv and was , is, or will be directly harmful

administrative dissolution = LLC fails to submit a required fee or annual report

Question 41

taxation of LLC

Answer 41

Taxed on a pass through basis
No entity level tax
Business income is passed through to owners and reported on owner’s individual tax return
dividend= distribution of corporate profit